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
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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)
CHARLES A. ETHERINGTON, 4500 MAIN STREET, KANSAS CITY, MISSOURI 64111
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(Name and address of agent for service)
Registrant's telephone number, including area code: 816-531-5575
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Date of fiscal year end: 12-31
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Date of reporting period: 06-30-07
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ITEM 1. REPORTS TO STOCKHOLDERS.
[front cover]
AMERICAN CENTURY VARIABLE PORTFOLIOS
Semiannual Report June 30, 2007
[photo of summer]
VP Balanced Fund
[american century investments logo and type logo]
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Market Returns. . . . . . . . . . . . . . . . . . . . . . . . . 2
VP BALANCED
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Stock Holdings . . . . . . . . . . . . . . . . . . . . . . . 5
Top Five Stock Industries. . . . . . . . . . . . . . . . . . . . . . 5
Key Fixed-Income Portfolio Statistics. . . . . . . . . . . . . . . . 6
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 6
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . 7
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 8
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . 18
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . 19
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . 20
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 21
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . 25
OTHER INFORMATION
Approval of Management Agreement for VP Balanced. . . . . . . . . . . 26
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 30
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 31
The opinions expressed in the Market Perspective and the Portfolio Commentary
reflect those of the portfolio management team as of the date of the report,
and do not necessarily represent the opinions of American Century 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.
MARKET PERSPECTIVE
[photo of Chief Investment Officer]
By Enrique Chang, Chief Investment Officer, American Century Investments
STOCKS ENJOYED A SOLID RALLY
The U.S. equity market advanced in the first half of 2007, benefiting from a
generally favorable environment for stocks. Although the U.S. economy slowed
markedly in the first quarter of the year, growing at an annual rate of just
0.6% (the lowest growth rate since the fourth quarter of 2002), it showed
signs of improvement in the second quarter. In addition, the Federal Reserve
(the Fed) held short-term interest rates steady, maintaining a policy shift
that occurred in mid-2006.
Corporate earnings growth decelerated during the period -- ending a streak of
double-digit quarterly earnings growth for the S&P 500 Index that began in
2002 -- but continued to outshine expectations. Robust merger activity also
provided support for stocks as a deluge of leveraged buy-outs from private
equity firms put the volume of deal-making ahead of last year's record pace.
Despite the generally positive backdrop, the stock market hit a couple of
speed bumps along the way. Stocks stumbled in late February, mirroring a drop
in the Chinese stock market, but rebounded quickly in early March. The
subsequent rally peaked in early June -- when many of the major stock indexes
hit seven-year highs -- as rising interest rates, higher energy prices, and
deteriorating subprime lending conditions led to a pullback in stock prices
later that month.
BONDS POSTED MODEST GAINS
The U.S. bond market also generated positive results during the reporting
period, though gains were considerably more modest than in the stock market.
Bonds gained despite rising interest rates late in the period as improving
economic conditions and lingering inflation concerns -- driven by a 16%
increase in the price of oil -- ended the market's expectations of a Fed
interest rate cut before year's end.
Although the Treasury yield curve remained relatively flat -- meaning yields
were at approximately the same absolute level across the maturity spectrum --
longer-term yields rose more than short-term yields. The two-year Treasury
note yield rose from 4.82% to 4.87%, while the 10-year Treasury note yield
increased from 4.71% to 5.03%.
U.S. Market Returns
For the six months ended June 30, 2007*
STOCK INDICES
Russell 1000 Index (large-cap) 7.18%
Russell Midcap Index 9.90%
Russell 2000 Index (small-cap) 6.45%
LEHMAN BROTHERS BOND INDICES
Aggregate (broad bond market) 0.98%
Agency 1.31%
Fixed-Rate Mortgage-Backed 1.05%
Treasury 1.01%
Corporate (investment-grade) 0.71%
*Total returns for periods less than one yar are not annualized.
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2
PERFORMANCE
VP Balanced
Total Returns as of June 30, 2007
Average Annual Returns
6 10 Since Inception
months(1) 1 year 5 years years Inception Date
CLASS I 4.22% 12.75% 8.66% 6.10% 7.90% 5/1/91
BLENDED INDEX(2) 4.55% 14.65% 8.42% 7.02% 9.67%(3) --
S&P 500 INDEX(4) 6.96% 20.59% 10.71% 7.13% 11.17%(3) --
CITIGROUP
US BROAD
INVESTMENT-GRADE
BOND INDEX 0.89% 6.08% 4.55% 6.04% 6.85%(3) --
(1) Total returns for periods less than one year are not annualized.
(2) See Index Definitions pages.
(3) Since 4/30/91, the date nearest Class I's inception for which data are
available.
(4) Data provided by Lipper Inc. - A Reuters Company. ©2007 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
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.
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3
VP Balanced
Growth of $10,000 Over 10 Years
$10,000 investment made June 30, 1997
One-Year Returns Over 10 Years
Periods ended June 30
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Class I 21.61% 5.39% 7.00% -5.41% -7.95% 5.71% 11.98% 8.43% 4.67% 12.75%
Blended index 22.23% 15.19% 6.41% -4.77% -7.81% 4.89% 11.38% 6.70% 4.83% 14.65%
S&P 500 Index 30.16% 22.76% 7.25% -14.83% -17.99% 0.25% 19.11% 6.32% 8.63% 20.59%
Citigroup US
Broad
Investment-Grade
Bond Index 10.59% 3.12% 4.51% 11.26% 8.49% 10.53% 0.37% 7.00% -0.81% 6.08%
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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4
PORTFOLIO COMMENTARY
VP Balanced
Equity Portfolio Managers: Bill Martin, Tom Vaiana, Fei Zou
Fixed-Income Portfolio Managers: Dave MacEwen, Bob Gahagan, Jim Keegan, Jeff
Houston, Hando Aguilar, Brian Howell, John Walsh, Dan Schiffman
PERFORMANCE SUMMARY
VP Balanced returned 4.22%* in the first half of 2007, compared with the 4.55%
return of its benchmark (a blended index consisting of 60% S&P 500 Index and
40% Citigroup US Broad Investment-Grade [BIG] Bond Index).
Returns for both the fund and the benchmark were driven by solid gains for
stocks and modest returns for bonds. Both the equity and fixed-income
components narrowly trailed their respective portions of the benchmark. (It's
worth noting that the fund's results reflect operating expenses, while the
benchmark's return does not.)
STOCK PORTION UNDERPERFORMED
The performance of VP Balanced's stock component fell just short of the S&P
500's return during the reporting period.
This underperformance was driven almost entirely by stock selection in the
information technology sector, most notably among computer and peripherals
makers. Printer maker Lexmark International reported disappointing profits and
lowered its earnings outlook amid tougher price competition and higher
operating costs. Enterprise software maker BMC Software continued to lower
costs and improve profit margins, but the stock declined as the company's
results failed to meet the market's expectations.
On the positive side, stock selection added value in the energy and materials
sectors. Three of the top five relative performers in the portfolio were oil &
gas production and refining companies -- EnCana, Tesoro, and Marathon Oil --
that saw profit margins widen as energy prices rose. In the materials sector,
chemicals producer Lyondell Chemical was one of the top contributors to
performance. In addition to its specialty chemicals business, Lyondell has an
oil-refining unit that contributed significantly to earnings as higher
gasoline prices boosted refining profit margins.
VP Balanced's Top Ten Stock Holdings
as of June 30, 2007
% of equity % of S&P
portfolio 500 Index
Exxon Mobil Corp. 5.3% 3.5%
Citigroup Inc. 3.4% 1.9%
International Business Machines Corp. 2.9% 1.1%
JPMorgan Chase & Co. 2.7% 1.2%
Hewlett-Packard Co. 2.6% 0.9%
Cisco Systems Inc. 2.5% 1.3%
Chevron Corp. 2.4% 1.4%
Morgan Stanley 2.3% 0.7%
Bank of America Corp. 2.0% 1.6%
Goldman Sachs Group, Inc. (The) 2.0% 0.7%
VP Balanced's Top Five Stock Industries
as of June 30, 2007
% of equity % of S&P
portfolio 500 Index
Oil, Gas &
Consumable Fuels 12.3% 8.7%
Diversified Financial Services 9.5% 5.3%
Insurance 5.3% 4.7%
IT Services 5.3% 2.2%
Capital Markets 4.9% 3.7%
*Total returns for periods less than one year are not annualized.
VP Balanced
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5
The portfolio's best individual equity contributor was engine maker Cummins,
which gained 72%. The company enjoyed strong results from its power generation
business, and it is also poised to benefit from the stricter emissions rules
for heavy-duty trucks that will be implemented over the next several years.
FIXED-INCOME ALSO LAGGED SLIGHTLY
The portfolio's bond portion slightly underperformed the Citigroup BIG Index.
Sector allocation detracted modestly from bond performance relative to the
benchmark. Our overweight position in mortgage-backed securities weighed on
relative results; in particular, our exposure to commercial mortgage-backed
securities (CMBS) hurt as subprime mortgage woes and heavy supply in the CMBS
market put downward pressure on CMBS prices.
We held an underweight in corporate bonds, a defensive position designed to
protect the portfolio from "event risk" -- the risk of a leveraged buyout,
share buyback, or special dividend that benefits stockholders at the expense
of bondholders. This positioning added value as corporate securities lagged
during the reporting period.
The fixed-income component was positioned to benefit from a steeper yield
curve -- that is, a widening gap between short- and long-term bond yields --
and this paid off during the reporting period as shorter-term yields were
largely unchanged while longer-term yields rose.
STARTING POINT FOR NEXT REPORTING PERIOD
Stock market volatility increased in the first half 2007 as investors grew
concerned about the impact of higher gas prices, declining real estate values,
and the subprime debacle on the economy. This uncertainty, along with slower
corporate earnings growth, may continue into the second half of the year,
which could lead to a choppy market environment. In the stock portion of the
portfolio, our focus will remain on our disciplined, balanced investment
approach, which we believe will continue to produce favorable results over the
long term.
On the fixed-income side, we intend to maintain our current defensive
position, given the low risk premiums and narrow valuations in the bond
market. We expect to remain underweight corporate bonds and retain our yield
curve positioning.
Key Fixed-Income Portfolio Statistics
As of As of
6/30/07 12/31/06
Weighted Average Maturity 5.7 years 5.9 years
Average Duration (modified) 5.5 years 5.4 years
Types of Investments in Portfolio
% of net % of net
assets as of assets as of
6/30/07 12/31/06
Domestic Common Stocks 54.9% 58.3%
Foreign Common Stocks(1) 5.8% 3.5%
U.S. Government Agency Mortgage-Backed
Securities 13.2% 14.4%
Asset-Backed Securities and Collateralized
Mortgage Obligations 8.9% 11.6%
U.S. Treasury Securities 7.0% 4.2%
Corporate Bonds 5.5% 7.2%
U.S. Government Agency Securities 5.1% 4.9%
Other Securities 0.3% 1.6%
Cash and Equivalents(2) (0.7)% (5.7)%
(1) Includes depositary shares, dual listed securities and foreign ordinary
shares.
(2) Includes temporary cash investments, securities lending collateral and
other assets and liabilities.
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6
SHAREHOLDER FEE EXAMPLE (UNAUDITED)
Fund shareholders may incur two types of costs: (1) transaction costs,
including sales charges (loads) on purchase payments and redemption/exchange
fees; and (2) ongoing costs, including management fees; distribution and
service (12b-1) fees; and other fund expenses. This example is intended to
help you understand your ongoing costs (in dollars) of investing in your fund
and to compare these costs with the ongoing cost of investing in other mutual
funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2007 to June 30, 2007.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is
not the actual return of a fund's share class. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare
this 5% hypothetical example with the 5% hypothetical examples that appear in
the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these transactional
costs were included, your costs would have been higher.
Beginning Ending Expenses Paid
Account Value Account Value During Period* Annualized
1/1/07 6/30/07 1/1/07 - 6/30/07 Expense Ratio*
Actual $1,000 $1,042.20 $4.56 0.90%
Hypothetical $1,000 $1,020.33 $4.51 0.90%
*Expenses are equal to the fund'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.
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7
SCHEDULE OF INVESTMENTS
VP Balanced
JUNE 30, 2007 (UNAUDITED)
Shares/Principal Amount Value
Common Stocks -- 60.7%
AEROSPACE & DEFENSE -- 1.2%
3,447 Boeing Co. $ 331,464
21,845 Lockheed Martin Corp. 2,056,095
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2,387,559
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AIR FREIGHT & LOGISTICS -- 0.5%
1,534 C.H. Robinson Worldwide Inc. 80,566
2,704 FedEx Corporation 300,063
9,862 United Parcel Service, Inc. Cl B 719,926
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1,100,555
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AIRLINES -- 0.1%
6,956 Southwest Airlines Co. 103,714
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BIOTECHNOLOGY -- 0.7%
6,592 Amgen Inc.(1) 364,472
7,984 Biogen Idec Inc.(1) 427,144
16,703 Gilead Sciences, Inc.(1) 647,575
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1,439,191
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CAPITAL MARKETS -- 3.0%
5,247 Blackstone Group L.P. (The)(1) 153,580
10,834 Goldman Sachs Group, Inc. (The) 2,348,270
3,579 Mellon Financial Corp. 157,476
5,626 Merrill Lynch & Co., Inc. 470,221
32,241 Morgan Stanley 2,704,374
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5,833,921
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CHEMICALS -- 1.2%
30,909 Celanese Corp., Series A 1,198,651
6,899 H.B. Fuller Company(2) 206,211
24,147 Lyondell Chemical Co. 896,337
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2,301,199
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COMMERCIAL BANKS -- 0.8%
47,255 Wells Fargo & Co. 1,661,958
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COMMUNICATIONS EQUIPMENT -- 1.6%
109,462 Cisco Systems Inc.(1) 3,048,517
5,782 Interdigital Communications Corp.(1)(2) 186,007
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3,234,524
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COMPUTERS & PERIPHERALS -- 1.8%
1,258 Apple Inc.(1) 153,526
70,674 Hewlett-Packard Co. 3,153,474
5,335 NCR Corp.(1) 280,301
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3,587,301
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CONSTRUCTION & ENGINEERING -- 1.0%
29,007 Chicago Bridge & Iron Company New York Shares 1,094,724
Shares/Principal Amount Value
6,392 EMCOR Group Inc.(1)(2) $465,977
5,584 Perini Corp.(1) 343,584
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1,904,285
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CONSUMER FINANCE -- 0.9%
22,750 American Express Co. 1,391,845
11,762 AmeriCredit Corp.(1)(2) 312,281
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1,704,126
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CONTAINERS & PACKAGING -- 0.6%
13,235 Rock-Tenn Co. Cl A 419,814
18,262 Sonoco Products Co. 781,796
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1,201,610
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DIVERSIFIED CONSUMER SERVICES -- 1.2%
12,188 ITT Educational Services Inc.(1) 1,430,627
20,489 Sotheby's 942,904
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2,373,531
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DIVERSIFIED FINANCIAL SERVICES -- 5.7%
48,158 Bank of America Corp. 2,354,445
79,748 Citigroup Inc. 4,090,274
67,975 JPMorgan Chase & Co. 3,293,388
23,824 McGraw-Hill Companies, Inc. (The) 1,621,938
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11,360,045
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DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.4%
46,656 AT&T Inc. 1,936,224
562 CenturyTel Inc. 27,566
17,577 Verizon Communications Inc. 723,645
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2,687,435
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ELECTRIC UTILITIES -- 1.2%
4,613 El Paso Electric Co.(1)(2) 113,295
13,212 Entergy Corp. 1,418,309
30,211 Reliant Energy, Inc.(1) 814,186
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2,345,790
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ELECTRICAL EQUIPMENT -- 0.5%
14,807 Acuity Brands Inc. 892,566
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.2%
9,969 Avnet Inc.(1) 395,171
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ENERGY EQUIPMENT & SERVICES -- 0.6%
1,270 Gulfmark Offshore Inc.(1)(2) 65,049
3,521 Halliburton Co. 121,475
9,815 National Oilwell Varco, Inc.(1) 1,023,116
------------
1,209,640
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FOOD & STAPLES RETAILING -- 1.0%
68,239 Kroger Co. (The) 1,919,563
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8
VP Balanced
Shares/Principal Amount Value
FOOD PRODUCTS -- 1.6%
28,768 Campbell Soup Co. $ 1,116,486
33,544 General Mills, Inc. 1,959,641
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3,076,127
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HEALTH CARE EQUIPMENT & SUPPLIES -- 2.4%
37,403 Baxter International Inc. 2,107,285
20,962 Becton, Dickinson & Co. 1,561,669
1,521 Kinetic Concepts Inc.(1)(2) 79,046
8,053 Mettler-Toledo International, Inc.(1) 769,142
2,746 West Pharmaceutical Services Inc. 129,474
------------
4,646,616
------------
HEALTH CARE PROVIDERS & SERVICES -- 2.7%
5,031 Apria Healthcare Group Inc.(1)(2) 144,742
4,092 Express Scripts, Inc.(1) 204,641
5,149 Healthspring Inc.(1) 98,140
31,153 Humana Inc.(1) 1,897,529
18,720 McKesson Corp. 1,116,461
381 UnitedHealth Group Inc. 19,484
21,041 WellCare Health Plans Inc.(1)(2) 1,904,421
------------
5,385,418
------------
HOTELS, RESTAURANTS & LEISURE -- 0.6%
15,360 Choice Hotels International Inc.(2) 607,028
9,619 McDonald's Corporation 488,260
------------
1,095,288
------------
HOUSEHOLD DURABLES -- 0.9%
2,238 NVR, Inc.(1)(2) 1,521,280
5,341 Snap-on Incorporated 269,774
------------
1,791,054
------------
HOUSEHOLD PRODUCTS -- 1.0%
5,498 Colgate-Palmolive Co. 356,545
15,602 Energizer Holdings Inc.(1) 1,553,960
------------
1,910,505
------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 1.8%
57,447 AES Corp. (The)(1) 1,256,940
34,181 TXU Corp. 2,300,382
------------
3,557,322
------------
INDUSTRIAL CONGLOMERATES -- 0.7%
35,678 General Electric Co. 1,365,754
------------
INSURANCE -- 3.2%
3,665 ACE, Ltd. 229,136
29,620 American Financial Group, Inc.(2) 1,011,523
15,880 Arch Capital Group Ltd.(1) 1,151,935
Shares/Principal Amount Value
25,447 Aspen Insurance Holdings Ltd. $714,297
34,324 Axis Capital Holdings Ltd. 1,395,271
18,039 Berkley (W.R.) Corp. 586,989
32,550 Endurance Specialty Holdings Ltd. 1,303,302
------------
6,392,453
------------
INTERNET & CATALOG RETAIL(3)
762 Priceline.com Inc.(1)(2) 52,380
------------
IT SERVICES -- 3.1%
48,954 Accenture Ltd. Cl A 2,099,637
3,629 Acxiom Corp. 95,987
10,414 Electronic Data Systems Corp. 288,780
33,593 International Business Machines Corp. 3,535,664
10,461 Total System Services Inc.(2) 308,704
------------
6,328,772
------------
LEISURE EQUIPMENT & PRODUCTS -- 0.9%
22,629 Hasbro, Inc. 710,777
39,664 Mattel, Inc. 1,003,102
------------
1,713,879
------------
MEDIA -- 2.8%
36,849 DIRECTV Group, Inc. (The)(1) 851,580
39,025 EchoStar Communications Corp. Cl A(1) 1,692,514
4,044 Omnicom Group Inc. 214,008
19,559 Regal Entertainment Group CI A 428,929
10,462 Sinclair Broadcast Group, Inc. Cl A(2) 148,770
63,057 Walt Disney Co. (The) 2,152,767
------------
5,488,568
------------
METALS & MINING -- 0.1%
3,553 Nucor Corp. 208,383
------------
MULTILINE RETAIL -- 0.9%
41,697 Big Lots, Inc.(1)(2) 1,226,725
13,489 Dollar Tree Stores Inc.(1) 587,446
858 Kohl's Corp.(1) 60,944
------------
1,875,115
------------
OFFICE ELECTRONICS -- 0.4%
42,291 Xerox Corp.(1) 781,538
------------
OIL, GAS & CONSUMABLE FUELS -- 7.4%
34,161 Chevron Corp. 2,877,723
18,541 ConocoPhillips 1,455,469
37,072 EnCana Corp. 2,278,074
75,713 Exxon Mobil Corp. 6,350,805
348 Holly Corp. 25,818
21,394 Marathon Oil Corp. 1,282,784
7,028 Valero Energy Corp. 519,088
------------
14,789,761
------------
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9
VP Balanced
Shares/Principal Amount Value
PHARMACEUTICALS -- 1.4%
20,075 Biovail Corp. $ 510,307
4,095 Merck & Co., Inc. 203,931
80,070 Pfizer Inc. 2,047,389
------------
2,761,627
------------
REAL ESTATE MANAGEMENT & DEVELOPMENT -- 0.2%
4,328 Jones Lang LaSalle Inc. 491,228
------------
ROAD & RAIL -- 0.5%
3,178 Burlington Northern Santa Fe Corp. 270,575
3,713 CSX Corporation 167,382
3,598 Norfolk Southern Corp. 189,147
2,350 Union Pacific Corp. 270,602
------------
897,706
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 0.8%
24,309 Amkor Technology Inc.(1)(2) 382,867
28,785 Applied Materials, Inc. 571,958
31,800 Teradyne, Inc.(1) 559,044
------------
1,513,869
------------
SOFTWARE -- 0.4%
14,623 BMC Software Inc.(1) 443,077
10,365 Microsoft Corporation 305,457
3,534 Oracle Corp.(1) 69,655
------------
818,189
------------
SPECIALTY RETAIL -- 1.4%
8,485 American Eagle Outfitters, Inc. 217,725
10,166 AutoZone, Inc.(1) 1,388,880
1,979 Gymboree Corp.(1) 77,992
32,781 RadioShack Corp. 1,086,362
------------
2,770,959
------------
THRIFTS & MORTGAGE FINANCE -- 0.3%
12,001 Washington Mutual, Inc. 511,723
------------
TOTAL COMMON STOCKS
(Cost $97,895,667) 119,867,918
------------
U.S. Government Agency Mortgage-Backed Securities(4) -- 13.2%
$ 70,923 FHLMC, 7.00%, 11/1/13(5) 73,049
129,367 FHLMC, 6.50%, 6/1/16(5) 132,195
111,655 FHLMC, 6.50%, 6/1/16(5) 114,095
862,718 FHLMC, 4.50%, 1/1/19(5) 822,578
30,773 FHLMC, 6.50%, 1/1/28(5) 31,421
21,758 FHLMC, 6.50%, 6/1/29(5) 22,230
25,786 FHLMC, 8.00%, 7/1/30(5) 27,187
799,839 FHLMC, 5.50%, 12/1/33(5) 775,246
Shares/Principal Amount Value
$ 831,600 FNMA, 5.00%, settlement date 7/12/07(6) $779,235
2,455,000 FNMA, 5.50%, settlement date 7/12/07(6) 2,367,925
6,872,621 FNMA, 6.00%, settlement date 7/12/07(6) 6,798,528
1,386,000 FNMA, 6.50%, settlement date 8/14/07(6) 1,397,911
76,097 FNMA, 5.50%, 12/1/08(5) 75,852
9,768 FNMA, 6.50%, 11/1/11(5) 9,969
8,735 FNMA, 6.00%, 4/1/13(5) 8,815
21,133 FNMA, 6.00%, 4/1/13(5) 21,327
6,814 FNMA, 6.00%, 5/1/13(5) 6,877
35,207 FNMA, 6.50%, 6/1/13(5) 36,037
7,616 FNMA, 6.50%, 6/1/13(5) 7,795
13,305 FNMA, 6.00%, 7/1/13(5) 13,427
112,591 FNMA, 6.00%, 1/1/14(5) 113,624
442,320 FNMA, 4.50%, 5/1/19(5) 420,971
457,614 FNMA, 4.50%, 5/1/19(5) 435,526
7,179 FNMA, 6.50%, 1/1/28(5) 7,325
25,896 FNMA, 7.00%, 1/1/28(5) 26,850
61,477 FNMA, 6.50%, 1/1/29(5) 62,755
62,729 FNMA, 7.50%, 7/1/29(5) 65,639
24,944 FNMA, 7.50%, 9/1/30(5) 26,060
71,242 FNMA, 6.50%, 1/1/32(5) 72,638
555,037 FNMA, 5.50%, 6/1/33(5) 537,857
932,321 FNMA, 5.50%, 7/1/33(5) 903,464
446,012 FNMA, 5.50%, 8/1/33(5) 432,207
2,161,203 FNMA, 5.00%, 11/1/33(5) 2,036,117
1,949,348 FNMA, 5.50%, 1/1/34(5) 1,889,012
1,499,158 FNMA, 5.00%, 8/1/35(5) 1,408,760
1,463,436 FNMA, 4.50%, 9/1/35(5) 1,332,548
1,893,829 FNMA, 5.00%, 2/1/36(5) 1,779,633
64,668 GNMA, 7.00%, 4/20/26(5) 67,305
38,641 GNMA, 7.50%, 8/15/26(5) 40,511
11,829 GNMA, 7.00%, 2/15/28(5) 12,335
29,422 GNMA, 7.50%, 2/15/28(5) 30,840
27,852 GNMA, 6.50%, 3/15/28(5) 28,458
27,809 GNMA, 6.50%, 3/15/28(5) 28,414
3,450 GNMA, 6.50%, 5/15/28(5) 3,525
4,888 GNMA, 6.50%, 5/15/28(5) 4,995
16,675 GNMA, 7.00%, 12/15/28(5) 17,389
20,854 GNMA, 8.00%, 12/15/29(5) 22,139
129,514 GNMA, 7.00%, 5/15/31(5) 134,985
592,685 GNMA, 5.50%, 11/15/32(5) 576,623
------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES
(Cost $26,530,165) 26,040,204
------------
- ------
10
VP Balanced
Shares/Principal Amount Value
U.S. Treasury Securities -- 7.0%
$ 580,000 U.S. Treasury Bonds, 8.125%, 8/15/19(2)(5) $733,610
1,770,000 U.S. Treasury Bonds, 8.125%, 8/15/21(2) 2,281,780
2,300,000 U.S. Treasury Bonds, 7.125%, 2/15/23(2) 2,761,798
1,960,000 U.S. Treasury Bonds, 6.125%, 11/15/27(2) 2,185,094
190,000 U.S. Treasury Bonds, 6.25%, 5/15/30(2)(5) 217,224
310,000 U.S. Treasury Bonds, 4.50%, 2/15/36(2)(5) 280,792
1,320,000 U.S. Treasury Notes, 4.875%, 6/30/12(7) 1,316,804
1,100,000 U.S. Treasury Notes, 4.25%, 8/15/14(2) 1,052,564
2,200,000 U.S. Treasury Notes, 4.50%, 11/15/15(2)(5) 2,122,657
960,000 U.S. Treasury Notes, 4.625%, 2/15/17(2)(5) 930,001
------------
TOTAL U.S. TREASURY SECURITIES
(Cost $14,230,433) 13,882,324
------------
Collateralized Mortgage Obligations(4) -- 6.1%
663,903 Banc of America Alternative Loan Trust, Series
2007-2, Class 2A4, 5.75%, 6/25/37(5) 658,820
450,000 Banc of America Commercial Mortgage Inc., Series
2004-2, Class A3 SEQ, 4.05%, 11/10/38(5) 433,201
4,359,567 Banc of America Commercial Mortgage Inc. STRIPS -
COUPON, Series 2004-1, Class XP, VRN, 0.64%,
7/1/07(5) 83,049
440,393 Bear Stearns Commercial Mortgage Securities Trust,
Series 2006 BBA7, Class A1, VRN, 5.43%, 7/16/07,
resets monthly off the 1-month LIBOR plus 0.11%
with no caps (Acquired 6/5/06, Cost $440,393)(5)(8) 440,759
800,000 Bear Stearns Commercial Mortgage Securities Trust,
Series 2006 PW14, Class A4 SEQ, 5.20%, 12/1/38(5) 762,078
5,608,620 Bear Stearns Commercial Mortgage Securities Trust
STRIPS - COUPON, Series 2004 T16, Class X2, VRN,
0.75%, 7/1/07(5) 169,739
Shares/Principal Amount Value
$ 21,781 Commercial Mortgage Pass-Through Certificates,
Series 2005 F10A, Class A1, VRN, 5.42%, 7/15/07,
resets monthly off the 1-month LIBOR plus 0.10%
with no caps (Acquired 3/18/05, Cost $21,781)(5)(8) $21,796
121,613 Commercial Mortgage Pass-Through Certificates,
Series 2005 FL11, Class A1, VRN, 5.47%, 7/16/07,
resets monthly off the 1-month LIBOR plus 0.15%
with no caps (Acquired 11/18/05, Cost
$121,613)(5)(8) 121,698
1,500,000 Credit Suisse First Boston Mortgage Securities
Corp., Series 2002 CKP1, Class B, 6.57%, 12/15/35(5) 1,557,661
681,546 Credit Suisse First Boston Mortgage Securities
Corp., Series 2003 AR28, Class 2A1, 4.41%,
12/25/33(5) 680,116
930,404 FHLMC, Series 2527, Class BN SEQ, 5.00%, 2/15/16(5) 923,351
673,244 FHLMC, Series 2567, Class OD, 5.00%, 8/15/15(5) 668,664
404,740 FHLMC, Series 2937, Class KA, 4.50%, 12/15/14(5) 401,455
122,000 FNMA, Series 2003-92, Class PD, 4.50%, 3/25/17(5) 117,810
863,581 FNMA, Series 2005-63, Class HA SEQ, 5.00%,
4/25/23(5) 846,068
1,100,000 GMAC Commercial Mortgage Securities, Inc., Series
2005 C1, Class A2 SEQ, 4.47%, 5/10/43(5) 1,074,260
250,922 Greenwich Capital Commercial Funding Corp., Series
2006 FL4A, Class A1, VRN, 5.41%, 7/5/07, resets
monthly off the 1-month LIBOR plus 0.09% with no
caps (Acquired 12/14/06, Cost $250,922)(5)(8) 251,194
400,000 GS Mortgage Securities Corp. II, Series 2007 EOP,
Class A1 VRN, 5.41%, 7/6/07, resets monthly off the
1-month LIBOR plus 0.09% with no caps(5) 400,063
417,705 LB-UBS Commercial Mortgage Trust, Series 2005 C2,
Class A2 SEQ, 4.82%, 4/15/30(5) 411,656
900,000 LB-UBS Commercial Mortgage Trust, Series 2005 C3,
Class A3 SEQ, 4.65%, 7/30/30(5) 868,253
- ------
11
VP Balanced
Shares/Principal Amount Value
$ 110,111 Lehman Brothers Floating Rate Commercial Mortgage
Trust, Series 2006 LLFA, Class A1, VRN, 5.40%,
7/16/07, resets monthly off the 1-month LIBOR plus
0.08% with no caps (Acquired 8/7/06, Cost
$110,111)(5)(8) $110,179
47,723 MASTR Alternative Loans Trust, Series 2003-8, Class
4A1, 7.00%, 12/25/33(5) 48,586
284,556 Merrill Lynch Floating Trust, Series 2006-1, Class
A1, VRN, 5.39%, 7/15/07, resets monthly off the
1-month LIBOR plus 0.07% with no caps (Acquired
10/31/06, Cost $284,556)(5)(8) 284,978
288,432 Thornburg Mortgage Securities Trust, Series 2006-5,
Class A1, VRN, 5.44%, 7/25/07, resets monthly off
the 1-month LIBOR plus 0.12% with no caps(5) 288,305
237,000 Wachovia Bank Commercial Mortgage Trust, Series
2006 C23, Class A4, 5.42%, 1/15/45(5) 229,922
275,000 Washington Mutual Mortgage Pass-Through
Certificates, Series 2005 AR4, Class A3, 4.59%,
4/25/35(5) 269,568
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $12,267,016) 12,123,229
------------
Corporate Bonds -- 5.5%
AEROSPACE & DEFENSE -- 0.3%
157,000 Honeywell International Inc., 5.30%, 3/15/17(5) 151,171
112,000 Lockheed Martin Corp., 6.15%, 9/1/36(5) 112,064
155,000 United Technologies Corp., 4.375%, 5/1/10(5) 150,939
134,000 United Technologies Corp., 6.05%, 6/1/36(5) 133,176
------------
547,350
------------
AUTOMOBILES -- 0.1%
100,000 DaimlerChrysler N.A. Holding Corp., 6.50%,
11/15/13(5) 103,413
------------
BEVERAGES -- 0.2%
124,000 Miller Brewing Co., 4.25%, 8/15/08 (Acquired
1/6/04, Cost $126,011)(5)(8) 122,160
Shares/Principal Amount Value
$ 190,000 SABMiller plc, 6.20%, 7/1/11 (Acquired 6/27/06,
Cost $189,865)(5)(8) $ 193,379
------------
315,539
------------
BIOTECHNOLOGY -- 0.1%
135,000 Genentech, Inc., 4.75%, 7/15/15(5) 126,373
------------
CAPITAL MARKETS -- 0.1%
98,000 Merrill Lynch & Co., Inc., 4.25%, 2/8/10(5) 95,346
180,000 Merrill Lynch & Co., Inc., 4.79%, 8/4/10(5) 176,510
------------
271,856
------------
COMMERCIAL BANKS -- 0.5%
135,000 Capital One Financial Corp., 5.70%, 9/15/11(5) 134,456
130,000 PNC Bank N.A., 4.875%, 9/21/17(5) 120,133
97,000 PNC Funding Corp., 5.125%, 12/14/10(5) 96,103
110,000 Wachovia Bank N.A., 4.80%, 11/1/14(5) 103,865
172,000 Wachovia Bank N.A., 4.875%, 2/1/15(5) 162,730
141,000 Wachovia Corp, 5.625%, 10/15/16(5) 137,578
152,000 Wells Fargo & Co., 4.625%, 8/9/10(5) 148,742
------------
903,607
------------
COMMERCIAL SERVICES & SUPPLIES(3)
50,000 Deluxe Corp., 7.375%, 6/1/15 (Acquired 5/9/07, Cost
$50,750)(5)(8) 50,000
------------
CONSUMER FINANCE(3)
70,000 American Express Centurion Bank, 4.375%, 7/30/09(5) 68,854
------------
DIVERSIFIED FINANCIAL SERVICES -- 0.7%
240,000 Bank of America Corp., 4.375%, 12/1/10(5) 232,926
124,000 Bank of America N.A., 5.30%, 3/15/17(5) 118,626
110,000 Bank of America N.A., 6.00%, 10/15/36(5) 106,529
190,000 Citigroup Inc., 5.00%, 9/15/14(5) 181,008
82,000 Citigroup Inc., 6.125%, 8/25/36(5) 80,787
100,000 General Electric Capital Corp., 6.125%, 2/22/11(5) 102,012
152,000 John Deere Capital Corp., 4.50%, 8/25/08(5) 150,370
- ------
12
VP Balanced
Shares/Principal Amount Value
$ 157,000 John Deere Capital Corp., 5.50%, 4/13/17(2)(5) $ 153,276
128,000 JPMorgan Chase & Co., 6.75%, 2/1/11(5) 133,092
------------
1,258,626
------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.4%
154,000 AT&T Corp., 7.30%, 11/15/11(5) 164,084
110,000 AT&T Inc., 6.80%, 5/15/36(2)(5) 114,293
24,000 BellSouth Corp., 6.875%, 10/15/31(5) 24,766
65,000 Embarq Corp., 7.08%, 6/1/16(2)(5) 65,471
30,000 Embarq Corp., 8.00%, 3/1/36(5) 30,532
30,000 Qwest Corp., 7.875%, 9/1/11(5) 31,425
30,000 Qwest Corp., 7.50%, 10/1/14(2)(5) 30,900
150,000 Telecom Italia Capital SA, 4.00%, 1/15/10(5) 144,284
70,000 Telecom Italia Capital SA, 5.25%, 10/1/15(5) 65,197
30,000 Telefonica Emisones SAu, 7.05%, 6/20/36(5) 31,165
90,000 Verizon Communications Inc., 5.55%, 2/15/16(5) 87,831
64,000 Verizon Communications Inc., 6.25%, 4/1/37(2)(5) 61,914
30,000 Verizon Global Funding Corp., 5.85%, 9/15/35(5) 27,607
------------
879,469
------------
ELECTRIC UTILITIES -- 0.2%
147,000 Carolina Power & Light Co., 5.15%, 4/1/15(5) 141,184
118,000 Cleveland Electric Illuminating Co. (The), 5.70%,
4/1/17(5) 114,056
79,000 Florida Power Corp., 4.50%, 6/1/10(5) 76,885
102,000 Southern California Edison Co., 5.625%, 2/1/36(5) 95,636
60,000 Toledo Edison Co., 6.15%, 5/15/37(5) 56,432
------------
484,193
------------
FOOD & STAPLES RETAILING -- 0.2%
60,000 CVS Caremark Corp., 5.75%, 6/1/17(5) 57,997
132,000 Wal-Mart Stores, Inc., 4.125%, 7/1/10(5) 127,847
44,000 Wal-Mart Stores, Inc., 7.55%, 2/15/30(5) 51,268
138,000 Wal-Mart Stores, Inc., 5.25%, 9/1/35(5) 121,046
------------
358,158
------------
Shares/Principal Amount Value
FOOD PRODUCTS -- 0.1%
$ 205,000 Cadbury Schweppes U.S. Finance LLC, 3.875%, 10/1/08
(Acquired 6/14/05 - 10/17/06, Cost $200,791)(5)(8) $ 200,761
------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 0.2%
220,000 Baxter Finco BV, 4.75%, 10/15/10(5) 215,268
150,000 Baxter International Inc., 5.90%, 9/1/16(5) 150,249
------------
365,517
------------
HOTELS, RESTAURANTS & LEISURE -- 0.1%
170,000 Royal Caribbean Cruises Ltd., 7.00%, 6/15/13(5) 171,576
------------
HOUSEHOLD PRODUCTS(3)
100,000 Procter & Gamble Co. (The), 5.55%, 3/5/37(5) 94,383
------------
INDUSTRIAL CONGLOMERATES -- 0.2%
357,000 General Electric Co., 5.00%, 2/1/13(5) 346,539
------------
INSURANCE -- 0.2%
170,000 Allstate Financial Global Funding, 4.25%, 9/10/08
(Acquired 9/3/03, Cost $169,667)(5)(8) 167,483
125,000 Hartford Financial Services Group Inc. (The),
5.375%, 3/15/17(5) 120,294
80,000 Prudential Financial, Inc., 5.40%, 6/13/35(5) 70,635
70,000 Travelers Companies, Inc. (The), 6.25%, 6/15/37(5) 68,010
------------
426,422
------------
MACHINERY(3)
70,000 Atlas Copco AB, 5.60%, 5/22/17 (Acquired 5/15/07,
Cost $69,969)(5)(8) 68,337
------------
MEDIA -- 0.4%
144,000 Comcast Corp., 5.90%, 3/15/16(5) 141,683
80,000 News America Holdings, 7.75%, 1/20/24(5) 88,006
190,000 Rogers Cable Inc., 6.25%, 6/15/13(5) 192,053
190,000 Time Warner Cable Inc., 5.40%, 7/2/12 (Acquired
4/4/07 - 6/27/07, Cost $189,204)(5)(8) 186,786
100,000 Time Warner Cable Inc., 6.55%, 5/1/37 (Acquired
4/4/07, Cost $99,356)(5)(8) 96,960
50,000 Time Warner Inc., 5.50%, 11/15/11(5) 49,492
- ------
13
VP Balanced
Shares/Principal Amount Value
$ 24,000 Time Warner Inc., 7.625%, 4/15/31(5) $25,786
------------
780,766
------------
METALS & MINING -- 0.1%
130,000 Xstrata Finance Canada Ltd., 5.50%, 11/16/11
(Acquired 11/8/06 - 11/17/06, Cost $130,076)(5)(8) 128,727
58,000 Xstrata Finance Canada Ltd., 5.80%, 11/15/16
(Acquired 11/8/06, Cost $57,857)(5)(8) 56,446
------------
185,173
------------
MULTI-UTILITIES -- 0.4%
156,000 CenterPoint Energy Resources Corp., 6.50%, 2/1/08(5) 156,846
100,000 CenterPoint Energy Resources Corp., 6.25%, 2/1/37(5) 96,626
134,000 Consolidated Edison Co. of New York, Inc., 5.50%,
9/15/16(5) 130,781
190,000 Dominion Resources Inc., 4.125%, 2/15/08(5) 188,480
76,000 Dominion Resources Inc., 4.75%, 12/15/10(5) 74,282
80,000 Pacific Gas & Electric Co., 6.05%, 3/1/34(5) 77,747
48,000 Pacific Gas & Electric Co., 5.80%, 3/1/37(5) 44,925
------------
769,687
------------
MULTILINE RETAIL -- 0.1%
52,000 Federated Retail Holdings, Inc., 5.35%, 3/15/12(5) 51,139
100,000 May Department Stores Co. (The), 3.95%, 7/15/07(5) 99,949
------------
151,088
------------
OIL, GAS & CONSUMABLE FUELS -- 0.5%
70,000 Canadian Natural Resources Ltd., 5.70%, 5/15/17(5) 67,841
76,000 Devon Financing Corp., ULC, 7.875%, 9/30/31(5) 88,292
232,000 Enterprise Products Operating L.P., 4.95%, 6/1/10(5) 227,971
77,000 Enterprise Products Operating L.P., 6.65%,
10/15/34(2)(5) 76,654
110,000 Nexen Inc., 6.40%, 5/15/37(5) 105,505
181,000 Premcor Refining Group Inc. (The), 6.125%, 5/1/11(5) 183,822
80,000 Tesoro Corp., 6.25%, 11/1/12(2)(5) 79,800
Shares/Principal Amount Value
$ 60,000 Tesoro Corp., 6.50%, 6/1/17 (Acquired 5/23/07, Cost
$60,000)(5)(8) $58,950
101,000 XTO Energy Inc., 5.30%, 6/30/15(5) 96,534
80,000 XTO Energy Inc., 6.10%, 4/1/36(5) 75,307
------------
1,060,676
------------
PHARMACEUTICALS -- 0.1%
85,000 Abbott Laboratories, 5.875%, 5/15/16(5) 85,167
157,000 Wyeth, 5.95%, 4/1/37(5) 150,551
------------
235,718
------------
REAL ESTATE INVESTMENT TRUSTS -- 0.1%
140,000 ProLogis, 5.625%, 11/15/16(5) 136,522
------------
SOFTWARE -- 0.1%
75,000 Intuit Inc., 5.75%, 3/15/17(5) 72,322
161,000 Oracle Corp., 5.00%, 1/15/11(5) 158,807
------------
231,129
------------
THRIFTS & MORTGAGE FINANCE(3)
40,000 Residential Capital LLC, 6.50%, 6/1/12(5) 39,072
------------
WIRELESS TELECOMMUNICATION SERVICES -- 0.1%
103,000 Nextel Communications Inc., 5.95%, 3/15/14(5) 98,236
92,000 Vodafone Group plc, 5.625%, 2/27/17(2)(5) 88,130
59,000 Vodafone Group plc, 6.15%, 2/27/37(5) 55,066
------------
241,432
------------
TOTAL CORPORATE BONDS
(Cost $11,092,854) 10,872,236
------------
U.S. Government Agency Securities -- 5.1%
100,000 FHLB, 4.875%, 8/22/07(5) 99,924
1,300,000 FHLB, 4.625%, 2/1/08(5) 1,294,537
950,000 FHLMC, 5.00%, 9/16/08(5) 947,213
1,865,000 FHLMC, 5.25%, 5/21/09(2)(5) 1,867,285
1,310,000 FHLMC, 4.75%, 1/19/16(2)(5) 1,251,645
1,025,000 FNMA, 6.625%, 9/15/09(5) 1,055,710
1,373,000 FNMA, 5.375%, 6/12/17(2)(5) 1,364,727
2,200,000 FNMA, 5.80%, 2/9/26(5) 2,153,828
------------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES
(Cost $10,131,497) 10,034,869
------------
- ------
14
VP Balanced
Shares/Principal Amount Value
Asset-Backed Securities(4) -- 2.8%
$ 108,435 Accredited Mortgage Loan Trust, Series 2006-1,
Class A1, VRN, 5.38%, 7/25/07, resets monthly off
the 1-month LIBOR plus 0.06% with no caps(5) $ 108,511
223,715 Accredited Mortgage Loan Trust, Series 2006-2,
Class A1, VRN, 5.36%, 7/25/07, resets monthly off
the 1-month LIBOR plus 0.04% with no caps(5) 223,854
239,340 Argent Securities Inc., Series 2006 M3, Class A2A,
VRN, 5.37%, 7/25/07, resets monthly off the
1-month LIBOR plus 0.05% with no caps(5) 239,501
474,713 Capital One Prime Auto Receivables Trust, Series
2004-2, Class A4, VRN, 5.38%, 7/15/07, resets
monthly off the 1-month LIBOR plus 0.06% with no
caps(5) 475,204
88,030 Centex Home Equity, Series 2006 A, Class AV1, VRN,
5.37%, 7/25/07, resets monthly off the 1-month
LIBOR plus 0.05% with no caps(5) 88,088
1,200,000 Citibank Credit Card Issuance Trust, Series 2007
A2, Class A2, VRN, 5.35%, 8/21/07, resets quarterly
off the 3-month LIBOR minus 0.01% with no caps(5) 1,201,030
44,230 CNH Equipment Trust, Series 2004 A, Class A3A, VRN,
5.39%, 7/16/07, resets monthly off the
1-month LIBOR plus 0.07% with no caps(5) 44,260
54,917 Countrywide Asset-Backed Certificates, Series 2006
BC2, Class 2A1, VRN, 5.36%, 7/25/07, resets monthly
off the 1-month LIBOR plus 0.04% with no caps(5) 54,954
75,216 Countrywide Asset-Backed Certificates, Series
2006-6, Class 2A1, VRN, 5.39%, 7/25/07, resets
monthly off the 1-month LIBOR plus 0.07% with no
caps(5) 75,267
Shares/Principal Amount Value
$ 254,254 Countrywide Asset-Backed Certificates, Series
2006-22, Class 2A1, VRN, 5.37%, 7/25/07, resets
monthly off the 1-month LIBOR plus 0.05% with no
caps(5) $ 254,675
312,011 Credit-Based Asset Servicing and Securitization,
Series 2006 CB3, Class AV1, VRN, 5.38%, 7/25/07,
resets monthly off the 1-month LIBOR plus 0.06%
with no caps(5) 312,218
384,847 First Franklin Mortgage Loan Asset Backed
Certificates, Series 2006 FF11, Class 2A1, VRN,
5.36%, 7/25/07, resets monthly off the 1-month
LIBOR plus 0.04% with no caps(5) 385,087
772,572 First Franklin Mortgage Loan Asset Backed
Certificates, Series 2006 FF12, Class A2, VRN,
5.36%, 7/25/07, resets monthly off the 1-month
LIBOR plus 0.04% with no caps(5) 773,001
29,318 IndyMac Residential Asset Backed Trust, Series 2006
B, Class 2A1, VRN, 5.38%, 7/25/07, resets monthly
off the 1-month LIBOR plus 0.06% with no caps(5) 29,338
37,091 Long Beach Mortgage Loan Trust, Series 2006-2,
Class 2A1, VRN, 5.39%, 7/25/07, resets monthly off
the 1-month LIBOR plus 0.07% with no caps(5) 37,117
302,866 Long Beach Mortgage Loan Trust, Series 2006-6,
Class 2A1, VRN, 5.36%, 7/25/07, resets monthly off
the 1-month LIBOR plus 0.04% with no caps(5) 302,884
75,321 Residential Asset Securities Corp., Series 2004
KS2, Class MI1, 4.71%, 3/25/34(5) 71,430
28,917 SLC Student Loan Trust, Series 2006-2, Class A1,
VRN, 5.34%, 9/17/07, resets quarterly off the
3-month LIBOR minus 0.02% with no caps(5) 28,934
180,000 SLM Student Loan Trust, Series 2006-5, Class A2,
VRN, 5.35%, 7/25/07, resets quarterly off the
3-month LIBOR minus 0.01% with no caps(5) 180,144
- ------
15
VP Balanced
Shares/Principal Amount Value
$ 65,878 SLM Student Loan Trust, Series 2006-7, Class A1,
VRN, 5.32%, 7/25/07, resets quarterly off the
3-month LIBOR minus 0.04% with no caps(5) $ 65,915
250,000 SLM Student Loan Trust, Series 2006-10, Class A2,
VRN, 5.37%, 7/25/07, resets quarterly off the
3-month LIBOR plus 0.01% with no caps(5) 250,236
266,140 Soundview Home Equity Loan Trust, Series 2006-3,
Class A1, VRN, 5.36%, 7/25/07, resets monthly off
the 1-month LIBOR plus 0.04% with no caps(5) 266,236
------------
TOTAL ASSET-BACKED SECURITIES
(Cost $5,467,811) 5,467,884
------------
Municipal Securities -- 0.2%
300,000 Illinois GO, (Taxable Pension), 5.10%, 6/1/33 273,573
(Cost $302,426)
------------
Sovereign Governments & Agencies -- 0.1%
44,000 Hydro Quebec, 8.40%, 1/15/22(5) 55,842
170,000 Province of Quebec, 5.00%, 7/17/09(5) 169,478
------------
TOTAL SOVEREIGN GOVERNMENTS & AGENCIES
(Cost $223,836) 225,320
------------
Shares/Principal Amount Value
Temporary Cash Investments -- 5.6%
Repurchase Agreement, Deutsche Bank Securities, Inc.,
(collateralized by various U.S. Treasury obligations, 4.25%,
1/15/14, valued at $10,007,565), in a joint trading account at
4.25%, dated 6/29/07, due 7/2/07 (Delivery value $9,803,471)(5) $ 9,800,000
Repurchase Agreement, Morgan Stanley Group, Inc., (collateralized
by various U.S. Treasury obligations, 6.00% - 8.75%, 11/15/16 -
2/15/26, valued at $1,329,365), in a joint trading account at
4.10%, dated 6/29/07, due 7/2/07 (Delivery value $1,300,444)(5) 1,300,000
------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $11,100,000) 11,100,000
------------
Temporary Cash Investments - Securities Lending Collateral(9) -- 13.4%
Repurchase Agreement, Morgan Stanley Group, Inc., (collateralized
by various U.S. Government Agency obligations in a pooled account
at the lending agent), 5.38%, dated 6/29/07, due 7/2/07 (Delivery
value $26,534,163)
(Cost $26,522,272) 26,522,272
------------
TOTAL INVESTMENT SECURITIES -- 119.7%
(Cost $215,763,977) 236,409,829
------------
OTHER ASSETS AND LIABILITIES -- (19.7)% (38,848,493)
------------
TOTAL NET ASSETS -- 100.0% $197,561,336
============
Futures Contracts
Underlying Face Amount Unrealized
Contracts Purchased Expiration Date at Value Gain (Loss)
101 U.S. Treasury
2-Year Notes September 2007 $20,581,906 $(19,165)
101 U.S. Treasury
5-Year Notes September 2007 10,511,891 (49,149)
------------- ----------
$31,093,797 $(68,314)
============= ==========
Underlying Face Amount Unrealized
Contracts Sold Expiration Date at Value Gain (Loss)
57 U.S. Long Bond September 2007 $ 6,141,750 $ 75,696
91 U.S. Treasury
10-Year Notes September 2007 9,618,984 71,488
------------- ----------
$15,760,734 $147,184
============= ==========
- ------
16
VP Balanced
Swap Agreements
Notional Unrealized
Amount Description of Agreement Expiration Date Gain (Loss)
CREDIT DEFAULT
$ 325,000 Pay quarterly a fixed rate equal March 2012 $ 8,958
to 0.46% multiplied by the
notional amount and receive from
Barclays Bank plc upon each
default event
of Centex Corp., par value of
the proportional notional amount.
470,000 Pay quarterly a fixed rate equal March 2012 9,792
to 0.55% multiplied by the
notional amount and receive from
Deutsche Bank Securities Inc.
upon each default event of
Lennar Corp., par value of the
proportional notional amount.
2,600,000 Pay quarterly a fixed rate equal June 2012 7,302
to 0.35% multiplied by the
notional amount and receive from
Barclays Bank plc upon each
default event of one of the
issues of Dow Jones CDX N.A.
Investment Grade 8, par value of
the proportional notional amount.
1,100,000 Pay quarterly a fixed rate equal June 2012 (2,690)
to 0.57% multiplied by the
notional amount and receive from
Deutsche Bank AG upon each
default event of Darden
Restaurants, Inc., par value of
the proportional notional amount.
750,000 Pay quarterly a fixed rate equal March 2017 (807)
to 0.12% multiplied by the
notional amount and receive from
Barclays Bank plc upon each
default event
of Pfizer Inc., par value of the
proportional
notional amount.
----------
$22,555
==========
Notes to Schedule of Investments
CDX = Credit Derivative Indexes
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
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
VRN = Variable Rate Note. Interest reset date is indicated. Rate shown is
effective June 30, 2007.
(1) Non-income producing.
(2) Security, or a portion thereof, was on loan as of June 30, 2007.
(3) Industry is less than 0.05% of total net assets.
(4) Final maturity indicated, unless otherwise noted.
(5) Security, or a portion thereof, has been segregated for forward
commitments, futures contracts, swap agreements and/or when-issued securities.
(6) Forward commitment.
(7) When-issued security.
(8) 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, 2007, was $2,560,593,
which represented 1.3% of total net assets.
(9) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions.
See Notes to Financial Statements.
- ------
17
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2007 (UNAUDITED)
ASSETS
Investment securities, at value (cost of $189,241,705) --
including $26,049,866 of securities on loan $209,887,557
Investments made with cash collateral received for securities on
loan, at value (cost of $26,522,272) 26,522,272
------------
Total investment securities, at value (cost of $215,763,977) 236,409,829
Cash 297,613
Receivable for investments sold 782,737
Unrealized appreciation on swap agreements 26,052
Dividends and interest receivable 747,680
------------
238,263,911
------------
LIABILITIES
Payable for collateral received for securities on loan 26,522,272
Payable for investments purchased 13,989,939
Payable for variation margin on futures contracts 39,492
Unrealized depreciation on swap agreements 3,497
Accrued management fees 147,375
------------
40,702,575
------------
NET ASSETS $197,561,336
============
CLASS I CAPITAL SHARES, $0.01 PAR VALUE
Authorized 100,000,000
============
Outstanding 27,127,622
============
Net Asset Value Per Share $7.28
============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $168,038,832
Undistributed net investment income 1,956,210
Undistributed net realized gain on investment transactions 6,819,595
Net unrealized appreciation on investments 20,746,699
------------
$197,561,336
============
See Notes to Financial Statements.
- ------
18
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
INVESTMENT INCOME (LOSS)
INCOME:
Interest $ 1,962,806
Dividends (net of foreign taxes withheld of $2,669) 884,440
Securities lending 17,002
-----------
2,864,248
-----------
EXPENSES:
Management fees 883,516
Directors' fees and expenses 1,667
Other expenses 209
-----------
885,392
-----------
NET INVESTMENT INCOME (LOSS) 1,978,856
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on investment transactions 7,263,735
Change in net unrealized appreciation (depreciation) on investments (1,042,710)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) 6,221,025
-----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 8,199,881
===========
See Notes to Financial Statements.
- ------
19
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2006
Increase (Decrease) in Net Assets 2007 2006
OPERATIONS
Net investment income (loss) $ 1,978,856 $ 4,098,345
Net realized gain (loss) 7,263,735 10,256,746
Change in net unrealized appreciation (depreciation) (1,042,710) 4,079,617
------------ ------------
Net increase (decrease) in net assets resulting
from operations 8,199,881 18,434,708
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income (4,078,291) (3,925,628)
From net realized gains (9,929,527) (13,158,123)
------------ ------------
Decrease in net assets from distributions (14,007,818) (17,083,751)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 11,394,168 23,601,362
Proceeds from reinvestment of distributions 14,007,818 17,083,751
Payments for shares redeemed (19,834,317) (49,266,213)
------------ ------------
Net increase (decrease) in net assets from capital
share transactions 5,567,669 (8,581,100)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS (240,268) (7,230,143)
NET ASSETS
Beginning of period 197,801,604 205,031,747
------------ ------------
End of period $197,561,336 $197,801,604
============ ============
Undistributed net investment income $1,956,210 $4,077,936
TRANSACTIONS IN SHARES OF THE FUND
Sold 1,547,766 3,269,763
Issued in reinvestment of distributions 2,015,513 2,472,323
Redeemed (2,695,651) (6,833,718)
------------ ------------
Net increase (decrease) 867,628 (1,091,632)
============ ============
See Notes to Financial Statements.
- ------
20
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2007 (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 to seek 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. Securities traded on foreign securities exchanges and
over-the-counter markets are normally completed before the close of business
on days that the New York Stock Exchange (the Exchange) is open and may also
take place on days when the Exchange is not open. If an event occurs after the
value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, that
security would be valued as determined in accordance with procedures adopted
by the Board of Directors. If the fund determines that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by, or in accordance with procedures adopted by, the
Board of Directors or its designee if such determination would materially
impact a fund's net asset value. Certain other circumstances may cause the
fund to use alternative procedures to value a security such as: a security has
been declared in default; trading in a security has been halted during the
trading day; or there is a foreign market holiday and no trading will commence.
SECURITY TRANSACTIONS -- 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
- ------
21
forward commitment transaction, the fund may sell a security and at the same
time make a commitment to purchase the same security at a future date at a
specified price. Conversely, the fund may purchase a security and at the same
time make a commitment to sell the same security at a future date at a
specified price. These types of transactions are executed simultaneously in
what are known as "roll" transactions. The fund will segregate cash, cash
equivalents or other appropriate liquid securities on its records in amounts
sufficient to meet the purchase price. The fund accounts for "roll"
transactions as purchases and sales; as such these transactions may increase
portfolio turnover.
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.
SWAP AGREEMENTS -- The fund may enter into swap agreements in order to attempt
to obtain or preserve a particular return or spread at a lower cost than
obtaining a return or spread through purchases and/or sales of instruments in
other markets; protect against currency fluctuations; attempt to manage
duration to protect against any increase in the price of securities the fund
anticipates purchasing at a later date; or gain exposure to certain markets in
the most economical way possible. A basic swap agreement is a contract in
which two parties agree to exchange the returns earned or realized on
predetermined investments or instruments. Credit default swaps enable an
investor to buy/sell protection against a credit event of a specific issuer.
The seller of credit protection against a security or basket of securities
receives an up-front or periodic payment to compensate against potential
default events. The fund may enhance returns by selling protection or attempt
to mitigate credit risk by buying protection. The fund will segregate cash,
cash equivalents or other appropriate liquid securities on its records in
amounts sufficient to meet requirements. Unrealized gains are reported as an
asset and unrealized losses are reported as a liability on the Statement of
Assets and Liabilities. Swap agreements are valued daily and changes in value,
including the periodic amounts of interest to be paid or received on swaps,
are recorded as unrealized appreciation (depreciation) on 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 meet its obligations, and that there may be unfavorable changes in the
underlying investments and instruments.
INCOME TAX STATUS -- It is the fund's policy to distribute substantially all
net investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. 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 fund may
make distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code, in all events in a manner
consistent with provisions of the 1940 Act.
The book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of certain paydown losses, interest on swap
agreements, 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.
- ------
22
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). 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 ranges from 0.80% to
0.90%. The effective annual management fee for the fund for the six months
ended June 30, 2007 was 0.90%.
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of
American Century Companies, Inc. (ACC), the parent of the corporation's
investment advisor, ACIM, the distributor of the corporation, American Century
Investment Services, Inc., and the corporation's transfer agent, American
Century Services, LLC.
The fund may invest in a money market fund for temporary purposes, which is
managed by J.P. Morgan Investment Management, Inc. (JPMIM). JPMIM is a wholly
owned subsidiary of JPMorgan Chase & Co. (JPM). JPM is an equity investor in
ACC. 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 JPM.
3. INVESTMENT TRANSACTIONS
Purchases of investment securities, excluding short-term investments, for the
six months ended June 30, 2007, totaled $179,016,644, of which $111,938,568
represented U.S. Treasury and Agency obligations.
Sales of investment securities, excluding short-term investments, for the six
months ended June 30, 2007, totaled $192,420,461, of which $107,112,553
represented U.S. Treasury and Agency obligations.
As of June 30, 2007, 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 $215,992,765
=============
Gross tax appreciation of investments $22,674,579
Gross tax depreciation of investments (2,257,515)
-------------
Net tax appreciation (depreciation) of investments $20,417,064
=============
The difference between book-basis and tax-basis cost and unrealized
appreciation (depreciation) is attributable primarily to the tax deferral of
losses on wash sales.
4. SECURITIES LENDING
As of June 30, 2007, securities in the fund valued at $26,049,866 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
- ------
23
day. The total value of all collateral received, at this date, was
$26,522,272. 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
$500,000,000 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 0.40%. The fund did not borrow from the line during the six months
ended June 30, 2007.
6. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (FIN 48). FIN 48 establishes a
minimum threshold for financial statement recognition of the benefit of
positions taken in filing tax returns (including whether an entity is taxable
in a particular jurisdiction), and requires certain expanded tax disclosures.
FIN 48 is effective for fiscal years beginning after December 15, 2006, and is
to be applied to all open tax years as of the date of effectiveness.
Management has concluded that the adoption of FIN 48 will not materially
impact the financial statements.
The FASB issued Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" (FAS 157), in September 2006, which is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands the required
financial statement disclosures about fair value measurements. Management is
currently evaluating the impact that adopting FAS 157 will have on the
financial statement disclosures.
- ------
24
FINANCIAL HIGHLIGHTS
VP Balanced
Class I
For a Share Outstanding Throughout the Years Ended December 31
(except as noted)
2007(1) 2006 2005 2004 2003 2002
PER-SHARE DATA
Net Asset Value,
Beginning of
Period $7.53 $7.50 $7.28 $6.74 $5.81 $6.59
------- ------- ------- ------- ------- -------
Income From
Investment
Operations
Net
Investment
Income
(Loss) 0.08 0.16 0.14 0.13 0.11 0.16
Net Realized
and
Unrealized
Gain (Loss) 0.21 0.51 0.21 0.52 0.98 (0.77)
------- ------- ------- ------- ------- -------
Total From
Investment
Operations 0.29 0.67 0.35 0.65 1.09 (0.61)
------- ------- ------- ------- ------- -------
Distributions
From Net
Investment
Income (0.16) (0.15) (0.13) (0.11) (0.16) (0.17)
From Net
Realized
Gains (0.38) (0.49) --(2) -- -- --
------- ------- ------- ------- ------- -------
Total
Distributions (0.54) (0.64) (0.13) (0.11) (0.16) (0.17)
------- ------- ------- ------- ------- -------
Net Asset Value,
End of Period $7.28 $7.53 $7.50 $7.28 $6.74 $5.81
======= ======= ======= ======= ======= =======
TOTAL RETURN(3) 4.22% 9.62% 4.93% 9.78% 19.46% (9.56)%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net Assets 0.90%(4) 0.90% 0.89% 0.90% 0.90% 0.90%
Ratio of Net
Investment Income
(Loss) to
Average Net Assets 2.01%(4) 2.05% 1.86% 1.80% 1.85% 2.43%
Portfolio
Turnover Rate 91% 191% 191% 205% 142% 109%
Net Assets, End
of Period
(in thousands) $197,561 $197,802 $205,032 $220,449 $214,841 $181,445
(1) Six months ended June 30, 2007 (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.
- ------
25
APPROVAL OF MANAGEMENT AGREEMENT
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 or trustees (the "Directors") each
year. At American Century, this process is referred to as the "15(c) Process."
As a part of this process, the board reviews fund performance, shareholder
services, audit and compliance information, and a variety of other reports
from the advisor concerning fund operations. In addition to this annual
review, the board of directors oversees and evaluates on a continuous basis at
its quarterly meetings the nature and quality of significant services
performed by the advisor, fund performance, audit and compliance information,
and a variety of other reports relating to fund operations. The board, or
committees of the board, also holds special meetings as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning VP Balanced (the "fund") and the services
provided to the fund under the management agreement. The information
considered and the discussions held at the meetings included, but were not
limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund 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 a similar
fund;
* data comparing the fund's performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two regularly
scheduled meetings and one special meeting to review and discuss the
information provided by the advisor and to complete its negotiations with the
advisor regarding the renewal of the management agreement, including the
setting of the applicable advisory fee. The board also had the benefit of the
advice of its independent counsel throughout the period.
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26
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. The
Directors did not identify any single factor as being all-important or
controlling, and each Director may have attributed different levels of
importance to different factors. In deciding to renew the agreement under the
terms ultimately determined by the board to be appropriate, the Directors'
decision was based on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under
the management agreement, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both
in terms of quantity and complexity in response to shareholder demands,
competition in the industry 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
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
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27
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 peer groups of funds managed similarly to the
fund. The Directors also review detailed performance information during the
15(c) Process comparing the fund's performance with that of similar funds not
managed by the advisor. If performance concerns are identified, the Directors
discuss with the advisor the reasons for such results (e.g., market
conditions, security selection) and any efforts being undertaken to improve
performance. The fund's performance fell below the median of its peer group
for the one-year period and above the median for the 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 their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY 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 consider the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethically. They noted that the advisor's practices generally meet or
exceed industry best practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the fund specifically, the expenses incurred by the advisor
in providing various functions to the fund, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints as the fund increases in size, and through
reinvestment in its business to provide shareholders additional content and
services.
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28
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
fund's independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the fund and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider 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 above 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 fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker-dealers that
execute fund portfolio transactions and concluded that this research is likely
to benefit fund shareholders. The Directors also determined that the advisor
is able to provide investment management services to certain clients other
than the fund, at least in part, due to its existing infrastructure built to
serve the fund complex. The Directors concluded, however, that the assets of
those other clients are not material to the analysis and, in any event, are
included with the assets of the fund to determine breakpoints in the fund's
fee schedule, provided they are managed using the same investment team and
strategy.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the independent directors, in the absence of
particular circumstances and assisted by the advice of legal counsel that is
independent of the advisor, taking into account all of the factors discussed
above and the information provided by the advisor 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.
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29
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 website at americancentury.com and on the Securities and
Exchange Commission's website at sec.gov. Information regarding how the
investment advisor voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30 is available on the "About Us" page
at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's website at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330. The fund also makes its complete
schedule of portfolio holdings for the most recent quarter of its fiscal year
available on its website at ipro.americancentury.com (for Investment
Professionals) and, upon request, by calling 1-800-378-9878.
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30
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 Citigroup US Broad Investment-Grade Bond
Index, which reflects the roughly 40% of the fund's assets invested in
fixed-income securities.
The CITIGROUP US BROAD INVESTMENT-GRADE (BIG) BOND INDEX is a
market-capitalization-weighted index that includes fixed-rate Treasury,
government-sponsored, mortgage, asset-backed, and investment-grade issues with
a maturity of one year or longer.
The LEHMAN BROTHERS U.S. AGENCY INDEX is composed of those securities included
in the Lehman Brothers U.S. Aggregate Index that are public obligations of
U.S. government agencies, quasi-federal corporations, and corporate or foreign
debt guaranteed by the U.S. government.
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 LEHMAN BROTHERS U.S. CORPORATE INDEX is composed of those securities
included in the Lehman Brothers U.S. Aggregate Index that are U.S.
dollar-denominated, investment-grade, fixed-rate, taxable securities sold by
industrial, utility and financial issuers.
The LEHMAN BROTHERS U.S. FIXED-RATE MORTGAGE-BACKED SECURITIES (MBS) INDEX is
the MBS Fixed-Rate component of the Lehman Brothers U.S. Aggregate Index. It
covers the mortgage-backed pass-through securities of the Government National
Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA),
and the Federal Home Loan Mortgage Corporation (FHLMC).
The LEHMAN BROTHERS U.S. TREASURY INDEX is composed of those securities
included in the Lehman Brothers U.S. Aggregate Index that are public
obligations of the U.S. Treasury with a remaining maturity of one year or more.
The RUSSELL 1000® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest companies in the Russell 3000 Index (the 3,000 largest publicly traded
U.S. companies, based on total market capitalization).
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.
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31
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 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.
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32
[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.
American Century Investment Services, Inc., Distributor
©2007 American Century Proprietary Holdings, Inc. All rights reserved.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
0708
SH-SAN-55631
AMERICAN CENTURY VARIABLE PORTFOLIOS
Semiannual Report June 30, 2007
[photo of summer boat]
VP Capital Appreciation Fund
[american century investments logo and text logo]
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Stock Index Returns . . . . . . . . . . . . . . . . . . . . . . 2
VP CAPITAL APPRECIATION
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . 6
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 6
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . 7
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. . . . . . . . . . . . . . . . . . . . . . . . . 18
OTHER INFORMATION
Approval of Management Agreement for VP Capital Appreciation. . . . . 19
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 23
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 24
The opinions expressed in the Market Perspective and the Portfolio Commentary
reflect those of the portfolio management team as of the date of the report,
and do not necessarily represent the opinions of American Century 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.
MARKET PERSPECTIVE
[photo of chief investment officer]
By Enrique Chang, Chief Investment Officer, American Century Investments
STOCKS ENJOYED A SOLID RALLY
The U.S. equity market advanced in the first half of 2007, benefiting from a
generally favorable environment for stocks. Although the U.S. economy slowed
markedly in the first quarter of the year, growing at an annual rate of just
0.6% (the lowest growth rate since the fourth quarter of 2002), it showed
signs of improvement in the second quarter. In addition, the Federal Reserve
held short-term interest rates steady, maintaining a policy shift that
occurred in mid-2006.
Corporate earnings growth decelerated during the period -- ending a streak of
double-digit quarterly earnings growth for the S&P 500 Index that began in
2002 -- but continued to outshine expectations. Robust merger activity also
provided support for stocks as a deluge of leveraged buy-outs from private
equity firms put the volume of deal-making ahead of last year's record pace.
Despite the generally positive backdrop, the stock market hit a couple of
speed bumps along the way. Stocks stumbled in late February, mirroring a drop
in the Chinese stock market, but rebounded quickly in early March. The
subsequent rally peaked in early June -- when many of the major stock indexes
hit seven-year highs -- as rising interest rates, higher energy prices, and
deteriorating subprime lending conditions led to a pullback in stock prices
later that month.
MID-CAP AND GROWTH OUTPERFORMED
As the accompanying table shows, mid-cap stocks led the market's advance in
the first six months of 2007, followed by large-cap issues, while small-cap
shares lagged after outperforming in 2006. Growth stocks, which have trailed
value issues for much of the decade, enjoyed a resurgence, outpacing value
shares across all market capitalizations.
The best-performing sectors in the stock market were energy and materials,
driven largely by escalating energy and commodity prices. Telecommunication
services and industrials stocks also generated double-digit returns for the
reporting period. The only sector to decline was financials, which were hurt
by higher interest rates and the subprime lending fallout.
U.S. Stock Index Returns
For the six months ended June 30, 2007*
RUSSELL 1000 INDEX (LARGE-CAP) 7.18%
Russell 1000 Growth Index 8.13%
Russell 1000 Value Index 6.23%
RUSSELL MIDCAP INDEX 9.90%
Russell Midcap Growth Index 10.97%
Russell Midcap Value Index 8.69%
RUSSELL 2000 INDEX (SMALL-CAP) 6.45%
Russell 2000 Growth Index 9.33%
Russell 2000 Value Index 3.80%
*Total returns for periods less than one year are not annualized.
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2
PERFORMANCE
VP Capital Appreciation
Total Returns as of June 30, 2007
Average Annual Returns
6 1 5 10 Since Inception
months(1) year years years Inception Date
CLASS I 25.09% 33.89% 15.25% 8.74% 9.27% 11/20/87
RUSSELL MIDCAP
GROWTH INDEX(2) 10.97% 19.73% 15.45% 8.66% 13.05%(3) --
(1) Total returns for periods less than one year are not annualized.
(2) Data provided by Lipper Inc. - A Reuters Company. ©2007 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
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
(3) Since 11/30/87, 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. Investing in emerging markets may accentuate these
risks.
Data assumes reinvestment of dividends and capital gains, and none of the
charts reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. Returns for the index are
provided for comparison. The fund's total returns include operating expenses
(such as transaction costs and management fees) that reduce returns, while the
total returns of the index do not.
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3
VP Capital Appreciation
Growth of $10,000 Over 10 Years
$10,000 investment made June 30, 1997
One-Year Returns Over 10 Years
Periods ended June 30
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Class I 1.09% 12.58% 66.39% -20.36% -24.61% -6.68% 16.69% 9.54% 27.36% 33.89%
Russell
Midcap
Growth Index 24.02% 20.31% 48.59% -31.51% -26.34% 7.35% 27.33% 10.86% 13.04% 19.73%
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. Investing in emerging markets may accentuate these
risks.
Data assumes reinvestment of dividends and capital gains, and none of the
charts reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. Returns for the index are
provided for comparison. The fund's total returns include operating expenses
(such as transaction costs and management fees) that reduce returns, while the
total returns of the index do not.
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4
PORTFOLIO COMMENTARY
VP Capital Appreciation
Portfolio Managers Glenn Fogle, David Hollond, and Kurt Stalzer
In February 2007, portfolio manager David Rose left American Century to pursue
another career opportunity. Veteran American Century mid-cap growth portfolio
managers Glenn Fogle (16 years with the firm) and David Hollond (eight-year
tenure) joined Rose's co-manager, Kurt Stalzer (seven years), as co-managers
for VP Capital Appreciation.
PERFORMANCE SUMMARY
VP Capital Appreciation advanced 25.09%* for the six months ended June 30,
2007, surpassing the 10.97% return of the portfolio's benchmark, the Russell
Midcap Growth Index. VP Capital Appreciation's gain ranked among the highest
in American Century's family of funds for the period.
As discussed in the Market Perspective on page 2, a pause in Federal Reserve
(Fed) interest rate moves, strong merger activity, and better-than-expected
corporate earnings growth contributed to solid U.S. stock index gains for the
six-month period, despite a slowdown in the housing market and growing
problems among subprime lenders. Effective stock selection and overweight
positions in the industrials and telecommunications services sectors, stock
selection and an underweight position in the consumer discretionary sector,
and an underweight position in the financials sector contributed to the
portfolio's strong performance relative to its benchmark. Stock selection in
energy -- plus a slight under weight in that sector -- trimmed those gains.
During the reporting period, the portfolio derived a meaningful portion of its
returns from investments in international holdings.
INDUSTRIALS LED TOP PERFORMERS
Industrials made the largest sector contribution to VP Capital Appreciation's
performance relative to its benchmark. Within the sector, the portfolio
benefited from an overweight position in the aerospace and defense industry.
The investment team's focus in the industry is on companies benefiting from a
replacement cycle and expanding orders in global commercial aviation. The
largest contributor to fund performance for the six-month period was Precision
Castparts, a manufacturer of components for aerospace applications.
Precision's share price soared 55% for the six-month period. Another fund
overweight, BE Aerospace, also benefited from the trend, with its share price
climbing 61%.
The portfolio held an overweight stake in industrial conglomerates Foster
Wheeler and McDermott International. Both companies, which are involved in a
variety of heavy construction areas -- including the construction of power
plants -- benefited from growing global demand for energy infrastructure, a
cycle the investment team believes is still in its early stages.
* Total returns for periods less than one year are not annualized.
Top Ten Holdings as of June 30, 2007
% of % of
net assets net assets
as of as of
6/30/07 12/31/06
NII Holdings, Inc. Cl B 6.6% 10.0%
Precision Castparts Corp. 4.6% 6.4%
BE Aerospace, Inc. 4.2% 2.3%
Medco Health Solutions Inc. 3.8% 0.5%
Nintendo Co., Ltd. ORD 3.0% 3.7%
McDermott International, Inc. 2.7% 2.7%
Leap Wireless International, Inc. 2.3% 0.4%
Monsanto Co. 2.3% 2.2%
GameStop Corp. Cl A 2.1% 1.5%
AGCO Corp. 2.1% 0.2%
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5
VP Capital Appreciation
TELECOM AND TECHNOLOGY CONTRIBUTED TO GAINS
The portfolio reaped rewards from its largest sector overweight,
telecommunications services. Our focus within the sector was wireless
telecommunications. NII Holdings (our biggest holding and largest overweight
position) and Millicom International Cellular SA combined accounted for nearly
12% of the portfolio's average weight for the six-month period. Both provide
cellular service in burgeoning foreign markets, and each contributed
significantly to relative fund performance. These companies have continued to
experience strong demand, and reflect VP Capital Appreciation's focus on
companies with accelerating financial growth and share price momentum.
Within the information technology sector, the share price of portfolio
overweight Nintendo gained 43% during the period. Heavy consumer demand for
the video-game maker's innovative Wii interactive game system continued to
drive up the company's stock.
UNDERWEIGHT IN FINANCIALS HELPED
An underweight position in the financials sector benefited portfolio
performance during the period, as a softening housing market and concerns
surrounding subprime mortgage lenders, combined with rising interest rates,
hindered sector performance.
However, an underweight position in energy detracted from relative
performance. In particular, an underweight among oil and gas producers, whose
share prices generally benefited from rising prices for crude oil and refined
products, trimmed relative gains.
STARTING POINT FOR NEXT REPORTING PERIOD
VP Capital Appreciation's investment process focuses on medium-sized and
smaller companies with accelerating earnings growth rates and share price
momentum. We believe that our process works well in the current market
environment and are encouraged by the market's behavior since the Fed stopped
raising interest rates. Our process has successfully guided us to companies in
the aerospace and wireless telecommunications areas in particular, which are
benefiting from what we believe to be long-term trends.
Top Five Industries as of June 30, 2007
% of % of
net assets net assets
as of as of
6/30/07 12/31/06
Wireless Telecommunication Services 12.3% 16.2%
Aerospace & Defense 8.8% 10.3%
Semiconductors & Semiconductor Equipment 5.9% --
Energy Equipment & Services 4.4% 9.0%
Health Care Providers & Services 4.2% 5.7%
Types of Investments in Portfolio
% of % of
net assets net assets
as of as of
6/30/07 12/31/06
Domestic Common Stocks 89.4% 75.9%
Foreign Common Stocks(1) 10.0% 23.7%
TOTAL COMMON STOCKS 99.4% 99.6%
Cash and Equivalents(2) 0.6% 0.4%
(1) Includes depositary shares, dual listed securities and foreign ordinary
shares.
(2) Includes temporary cash investments and other assets and liabilities.
- ------
6
SHAREHOLDER FEE EXAMPLE (UNAUDITED)
Fund shareholders may incur two types of costs: (1) transaction costs,
including sales charges (loads) on purchase payments and redemption/exchange
fees; and (2) ongoing costs, including management fees; distribution and
service (12b-1) fees; and other fund expenses. This example is intended to
help you understand your ongoing costs (in dollars) of investing in your fund
and to compare these costs with the ongoing cost of investing in other mutual
funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2007 to June 30, 2007.
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
Account Account Period* Annualized
Value Value 1/1/07 - Expense
1/1/07 6/30/07 6/30/07 Ratio*
Actual $1,000 $1,250.90 $5.58 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.
- ------
7
SCHEDULE OF INVESTMENTS
VP Capital Appreciation
JUNE 30, 2007 (UNAUDITED)
Shares Value
Common Stocks -- 99.4%
AEROSPACE & DEFENSE -- 8.8%
477,085 BE Aerospace, Inc.(1) $ 19,703,611
181,112 Precision Castparts Corp. 21,979,752
------------
41,683,363
------------
BIOTECHNOLOGY -- 2.6%
41,600 Celgene Corp.(1) 2,384,928
63,617 CSL Ltd. ORD 4,746,515
128,542 Gilead Sciences, Inc.(1) 4,983,574
------------
12,115,017
------------
CAPITAL MARKETS -- 2.0%
108,900 Ameriprise Financial Inc. 6,922,773
99,000 Janus Capital Group Inc. 2,756,160
------------
9,678,933
------------
CHEMICALS -- 2.8%
42,145 CF Industries Holdings, Inc. 2,524,064
159,760 Monsanto Co. 10,790,190
------------
13,314,254
------------
COMMERCIAL SERVICES & SUPPLIES -- 3.1%
63,894 Corrections Corp. of America(1) 4,032,350
31,500 Huron Consulting Group Inc.(1) 2,299,815
249,517 TeleTech Holdings, Inc.(1) 8,104,313
------------
14,436,478
------------
COMMUNICATIONS EQUIPMENT -- 1.8%
325,500 Corning Inc.(1) 8,316,525
------------
COMPUTERS & PERIPHERALS -- 2.2%
54,943 Apple Inc.(1) 6,705,244
76,100 SanDisk Corp.(1) 3,724,334
------------
10,429,578
------------
CONSTRUCTION & ENGINEERING -- 2.9%
86,892 Foster Wheeler Ltd.(1) 9,296,575
149,200 Quanta Services, Inc.(1) 4,575,964
------------
13,872,539
------------
CONTAINERS & PACKAGING -- 0.7%
93,400 Owens-Illinois Inc.(1) 3,269,000
------------
DIVERSIFIED CONSUMER SERVICES -- 1.4%
69,100 Career Education Corp.(1) 2,333,507
35,500 ITT Educational Services Inc.(1) 4,166,990
------------
6,500,497
------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.7%
105,800 Cogent Communications Group, Inc.(1) 3,160,246
------------
Shares Value
ELECTRIC UTILITIES -- 0.8%
132,735 Reliant Energy, Inc.(1) $ 3,577,208
------------
ELECTRICAL EQUIPMENT -- 1.2%
39,900 First Solar Inc.(1) 3,562,671
33,300 Vestas Wind Systems AS ORD(1) 2,204,576
------------
5,767,247
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.0%
64,799 Dolby Laboratories Inc. Cl A(1) 2,294,533
32,000 Itron Inc.(1) 2,494,080
------------
4,788,613
------------
ENERGY EQUIPMENT & SERVICES -- 4.4%
186,600 Aker Kvaerner ASA ORD 4,745,114
33,300 Cameron International Corp.(1) 2,379,951
239,200 Dresser-Rand Group Inc.(1) 9,448,400
42,300 National Oilwell Varco, Inc.(1) 4,409,355
------------
20,982,820
------------
FOOD & STAPLES RETAILING -- 0.6%
64,600 SUPERVALU INC. 2,992,272
------------
FOOD PRODUCTS -- 1.0%
56,400 Bunge Ltd. 4,765,800
------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 2.1%
87,600 Align Technology Inc.(1) 2,116,416
144,522 Hologic, Inc.(1) 7,993,512
------------
10,109,928
------------
HEALTH CARE PROVIDERS & SERVICES -- 4.2%
78,200 HealthExtras, Inc.(1) 2,313,156
227,500 Medco Health Solutions Inc.(1) 17,742,725
------------
20,055,881
------------
HOTELS, RESTAURANTS & LEISURE -- 2.4%
45,900 Bally Technologies, Inc.(1) 1,212,678
29,700 Jack in the Box Inc.(1) 2,106,918
90,900 Las Vegas Sands Corp.(1) 6,943,851
15,700 Penn National Gaming, Inc.(1) 943,413
------------
11,206,860
------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.5%
56,400 NRG Energy Inc.(1) 2,344,548
------------
INDUSTRIAL CONGLOMERATES -- 2.7%
151,530 McDermott International, Inc.(1) 12,595,174
------------
INSURANCE -- 1.7%
153,872 Loews Corp. 7,844,395
------------
INTERNET & CATALOG RETAIL -- 0.9%
58,571 Priceline.com Inc.(1) 4,026,171
------------
- ------
8
VP Capital
Appreciation
Shares Value
INTERNET SOFTWARE & SERVICES -- 2.3%
47,400 Bankrate, Inc.(1) $ 2,271,408
55,700 Equinix Inc.(1) 5,094,879
74,024 SAVVIS Inc.(1) 3,664,928
------------
11,031,215
------------
IT SERVICES -- 2.0%
56,700 MasterCard Inc. Cl A 9,404,829
------------
LEISURE EQUIPMENT & PRODUCTS -- 0.5%
143,100 Smith & Wesson Holding Corp.(1) 2,396,925
------------
LIFE SCIENCES TOOLS & SERVICES -- 1.8%
37,300 Advanced Magnetics Inc.(1) 2,169,368
31,700 Invitrogen Corp.(1) 2,337,875
80,900 Thermo Fisher Scientific Inc.(1) 4,184,148
------------
8,691,391
------------
MACHINERY -- 3.0%
228,100 AGCO Corp.(1) 9,901,821
37,800 Alfa Laval AB ORD 2,293,186
100,500 Force Protection, Inc.(1) 2,074,320
------------
14,269,327
------------
MEDIA -- 2.3%
126,072 Liberty Global, Inc. Series A(1) 5,173,995
141,500 Liberty Global, Inc. Series C(1) 5,560,950
------------
10,734,945
------------
METALS & MINING -- 2.3%
37,657 Allegheny Technologies Inc. 3,949,466
33,900 Freeport-McMoRan Copper & Gold, Inc. Cl B 2,807,598
56,300 RTI International Metals, Inc.(1) 4,243,331
------------
11,000,395
------------
OIL, GAS & CONSUMABLE FUELS -- 2.1%
114,152 Massey Energy Co. 3,042,151
50,400 Peabody Energy Corp. 2,438,352
33,000 Range Resources Corporation 1,234,530
73,300 Southwestern Energy Company(1) 3,261,850
------------
9,976,883
------------
PERSONAL PRODUCTS -- 0.6%
76,086 Bare Escentuals Inc.(1) 2,598,337
------------
PHARMACEUTICALS -- 1.5%
58,500 Shire plc ADR 4,336,605
118,500 Shire plc ORD 2,952,420
------------
7,289,025
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 5.9%
197,900 Cypress Semiconductor Corp.(1) 4,609,091
Shares Value
87,800 Intersil Corp. Cl A $ 2,762,188
117,885 MEMC Electronic Materials Inc.(1) 7,205,131
202,500 Micron Technology, Inc.(1) 2,537,325
133,100 NVIDIA Corp.(1) 5,498,361
165,900 OmniVision Technologies, Inc.(1) 3,004,449
212,200 ON Semiconductor Corp.(1) 2,274,784
------------
27,891,329
------------
SOFTWARE -- 3.2%
81,777 Lawson Software Inc.(1) 808,775
38,500 Nintendo Co., Ltd. ORD 14,098,899
------------
14,907,674
------------
SPECIALTY RETAIL -- 4.1%
253,922 GameStop Corp. Cl A(1) 9,928,350
178,000 Guess?, Inc. 8,551,120
38,800 Urban Outfitters Inc.(1) 932,364
------------
19,411,834
------------
TEXTILES, APPAREL & LUXURY GOODS -- 3.0%
73,600 Crocs, Inc.(1) 3,167,008
100,700 Phillips-Van Heusen Corp. 6,099,399
23,500 Polo Ralph Lauren Corp. 2,305,585
51,000 Volcom, Inc.(1) 2,556,630
------------
14,128,622
------------
WIRELESS TELECOMMUNICATION SERVICES -- 12.3%
103,700 Bharti Airtel Ltd. ORD(1) 2,155,168
131,400 Leap Wireless International, Inc.(1) 11,103,299
138,791 MetroPCS Communications, Inc.(1) 4,585,655
75,986 Millicom International Cellular SA(1) 6,963,357
167,600 MTN Group Ltd. ORD 2,286,015
384,162 NII Holdings, Inc. Cl B(1) 31,017,239
------------
58,110,733
------------
TOTAL COMMON STOCKS
(Cost $337,784,050) 469,676,811
------------
Principal Amount
Temporary Cash Investments -- 1.0%
$4,600,000 FNMA Discount Notes, 4.80%, 7/2/07(2)
(Cost $4,599,387) 4,600,000
------------
TOTAL INVESTMENT SECURITIES -- 100.4%
(Cost $342,383,437) 474,276,811
------------
OTHER ASSETS AND LIABILITIES -- (0.4)% (1,781,752)
------------
TOTAL NET ASSETS -- 100.0% $472,495,059
============
- ------
9
VP Capital Appreciation
Forward Foreign Currency Exchange Contracts
Settlement Unrealized
Contracts to Sell Date Value Gain (Loss)
4,382,957 AUD for USD 7/31/07 $ 3,713,341 $(33,740)
9,483,840 DKK for USD 7/31/07 1,726,364 (12,004)
1,135,704 GBP for USD 7/31/07 2,279,272 (11,918)
869,137,500 JPY for USD 7/31/07 7,083,839 44,036
482,859 MXN for USD 7/31/07 44,618 (244)
21,981,480 NOK for USD 7/31/07 3,728,543 (16,295)
12,458,880 SEK for USD 7/31/07 1,823,854 (11,653)
8,124,410 ZAR for USD 7/31/07 1,145,475 (18,556)
----------- -----------
$21,545,306 $(60,374)
(Value on Settlement Date $21,484,932)
Notes to Schedule of Investments
ADR = American Depositary Receipt
AUD = Australian Dollar
DKK = Danish Krone
FNMA = Federal National Mortgage Association
GBP = British Pound
JPY = Japanese Yen
MXN = Mexican Nuevo Peso
NOK = Norwegian Krona
ORD = Foreign Ordinary Share
SEK = Swedish Krona
USD = United States Dollar
ZAR = South African Rand
(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, 2007 (UNAUDITED)
ASSETS
Investment securities, at value (cost of $342,383,437) $ 474,276,811
Cash 695,136
Foreign currency holdings, at value (cost of $10,255) 10,299
Receivable for investments sold 8,148,100
Receivable for forward foreign currency exchange contracts 44,036
Dividends and interest receivable 30,843
-------------
483,205,225
-------------
LIABILITIES
Payable for investments purchased 10,224,041
Payable for forward foreign currency exchange contracts 104,410
Accrued management fees 381,715
-------------
10,710,166
-------------
NET ASSETS $472,495,059
=============
CLASS I CAPITAL SHARES, $0.01 PAR VALUE
Authorized 100,000,000
Outstanding 34,452,365
Net Asset Value Per Share $13.71
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $346,320,671
Accumulated net investment loss (717,189)
Accumulated net realized loss on investment and foreign currency
transactions (4,925,014)
Net unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 131,816,591
-------------
$472,495,059
=============
See Notes to Financial Statements
- ------
11
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
INVESTMENT INCOME (LOSS)
INCOME:
Dividends (net of foreign taxes withheld of $139,602) $ 1,264,579
Interest 102,865
-----------
1,367,444
-----------
EXPENSES:
Management fees 1,990,391
Directors' fees and expenses 3,237
Other expenses 3,620
-----------
1,997,248
-----------
NET INVESTMENT INCOME (LOSS) (629,804)
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on investment
and foreign currency transactions 45,726,928
Change in net unrealized appreciation
(depreciation) on investments and translations
of assets and liabilities in foreign currencies 45,477,677
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) 91,204,605
-----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $90,574,801
===========
See Notes to Financial Statements
- ------
12
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2006
Increase (Decrease) in Net Assets 2007 2006
OPERATIONS
Net investment income (loss) $ (629,804) $(1,297,078)
Net realized gain (loss) 45,726,928 33,043,501
Change in net unrealized
appreciation (depreciation) 45,477,677 18,423,822
------------ ------------
Net increase (decrease) in net
assets resulting from operations 90,574,801 50,170,245
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 67,815,272 59,389,879
Payments for shares redeemed (25,780,127) (101,037,213)
------------ ------------
Net increase (decrease) in net assets
from capital share transactions 42,035,145 (41,647,334)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS 132,609,946 8,522,911
NET ASSETS
Beginning of period 339,885,113 331,362,202
------------ ------------
End of period $472,495,059 $339,885,113
============ ============
Accumulated net investment loss $(717,189) $(84,778)
============ ============
TRANSACTIONS IN SHARES OF THE FUND
Sold 5,539,288 5,744,792
Redeemed (2,111,899) (10,157,891)
------------ ------------
Net increase (decrease) in shares of the fund 3,427,389 (4,413,099)
============ ============
See Notes to Financial Statements
- ------
13
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2007 (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 to seek
capital growth. The fund pursues 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. Securities traded on foreign securities exchanges and
over-the-counter markets are normally completed before the close of business
on days that the New York Stock Exchange (the Exchange) is open and may also
take place on days when the Exchange is not open. If an event occurs after the
value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, that
security would be valued as determined in accordance with procedures adopted
by the Board of Directors. If the fund determines that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by, or in accordance with procedures adopted by, the
Board of Directors or its designee if such determination would materially
impact a fund's net asset value. Certain other circumstances may cause the
fund to use alternative procedures to value a security such as: a security has
been declared in default; trading in a security has been halted during the
trading day; or there is a foreign market holiday and no trading will
commence.
SECURITY TRANSACTIONS -- 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.
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.
- ------
14
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 book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of 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, 2006, the fund had accumulated net realized capital loss
carryovers for federal income tax purposes of $(48,984,729), which may be used
to offset future taxable gains. Capital loss carryovers of $(5,031,404) and
$(43,953,325) expire in 2009 and 2010, respectively.
The fund has elected to treat $(180,788) of net foreign currency losses
incurred in the two-month period ended December 31, 2006, 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.
- ------
15
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 ranges from 0.90% to
1.00%. The effective annual management fee for the fund for the six months
ended June 30, 2007 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.
The fund may invest in a money market fund for temporary purposes, which is
managed by J.P. Morgan Investment Management, Inc. (JPMIM). JPMIM is a wholly
owned subsidiary of JPMorgan Chase & Co. (JPM). JPM is an equity investor in
ACC. 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
JPM.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the six months ended June 30, 2007, were $333,329,945 and
$293,489,360, respectively.
As of June 30, 2007, 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 $343,141,510
=============
Gross tax appreciation of investments $132,339,821
Gross tax depreciation of investments (1,204,520)
-------------
Net tax appreciation (depreciation) of investments $131,135,301
=============
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
$500,000,000 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 0.40%. The fund did not borrow from the line during the six months
ended June 30, 2007.
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16
5. 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.
6. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (FIN 48). FIN 48 establishes a
minimum threshold for financial statement recognition of the benefit of
positions taken in filing tax returns (including whether an entity is taxable
in a particular jurisdiction), and requires certain expanded tax disclosures.
FIN 48 is effective for fiscal years beginning after December 15, 2006, and is
to be applied to all open tax years as of the date of effectiveness.
Management has concluded that the adoption of FIN 48 will not materially
impact the financial statements.
The FASB issued Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" (FAS 157), in September 2006, which is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands the required
financial statement disclosures about fair value measurements. Management is
currently evaluating the impact that adopting FAS 157 will have on the
financial statement disclosures.
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17
FINANCIAL HIGHLIGHTS
VP Capital Appreciation
Class I
For a Share Outstanding Throughout the Years
Ended December 31 (except as noted)
2007(1) 2006 2005 2004 2003 2002
PER-SHARE DATA
Net Asset
Value,
Beginning
of Period $10.96 $9.35 $7.66 $7.12 $5.91 $7.50
-------- -------- -------- -------- -------- --------
Income From
Investment Operations
Net
Investment
Income
(Loss) (0.02) (0.04) (0.04) (0.04) (0.04) (0.04)
Net
Realized
and
Unrealized
Gain
(Loss) 2.77 1.65 1.73 0.58 1.25 (1.55)
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations 2.75 1.61 1.69 0.54 1.21 (1.59)
-------- -------- -------- -------- -------- --------
Net Asset
Value, End
of Period $13.71 $10.96 $9.35 $7.66 $7.12 $5.91
======== ======== ======== ======== ======== ========
TOTAL
RETURN(2) 25.09% 17.22% 22.06% 7.58% 20.47% (21.20)%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net
Assets 1.00%(3) 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of
Net
Investment
Income
(Loss) to
Average Net
Assets (0.32)%(3) (0.37)% (0.46)% (0.57)% (0.58)% (0.55)%
Portfolio
Turnover
Rate 74% 218% 223% 262% 150% 124%
Net Assets,
End of
Period (in
thousands) $472,495 $339,885 $331,362 $264,652 $285,394 $260,897
(1) Six months ended June 30, 2007 (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.
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18
APPROVAL OF MANAGEMENT AGREEMENT
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 or trustees (the "Directors") each
year. At American Century, this process is referred to as the "15(c) Process."
As a part of this process, the board reviews fund performance, shareholder
services, audit and compliance information, and a variety of other reports
from the advisor concerning fund operations. In addition to this annual
review, the board of directors oversees and evaluates on a continuous basis at
its quarterly meetings the nature and quality of significant services
performed by the advisor, fund performance, audit and compliance information,
and a variety of other reports relating to fund operations. The board, or
committees of the board, also holds special meetings as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning VP Capital Appreciation (the "fund") and
the services provided to the fund under the management agreement. The
information considered and the discussions held at the meetings included, but
were not limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund 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 a similar
fund;
* data comparing the fund's performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two regularly
scheduled meetings and one special meeting to review and discuss the
information provided by the advisor and to complete its negotiations with the
advisor regarding the renewal of the management agreement, including the
setting of the applicable advisory fee. The board also had the benefit of the
advice of its independent counsel throughout the period.
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19
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. The
Directors did not identify any single factor as being all-important or
controlling, and each Director may have attributed different levels of
importance to different factors. In deciding to renew the agreement under the
terms ultimately determined by the board to be appropriate, the Directors'
decision was based on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under
the management agreement, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both
in terms of quantity and complexity in response to shareholder demands,
competition in the industry 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
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
technology, research, training, compliance and other systems to conduct their
business.
- ------
20
At each quarterly meeting the Directors review investment performance
information for the fund, together with comparative information for
appropriate benchmarks and peer groups of funds managed similarly to the fund.
The Directors also review detailed performance information during the 15(c)
Process comparing the fund's performance with that of similar funds not
managed by the advisor. If performance concerns are identified, the Directors
discuss with the advisor the reasons for such results (e.g., market
conditions, security selection) and any efforts being undertaken to improve
performance. The fund's performance for both the one- and three-year periods
was above the median for 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 their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY 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 consider the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethically. They noted that the advisor's practices generally meet or
exceed industry best practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the fund specifically, the expenses incurred by the advisor
in providing various functions to the fund, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints as the fund increases in size, and through
reinvestment in its business to provide shareholders additional content and
services.
- ------
21
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
fund's independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the fund and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider 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 that
execute fund portfolio transactions and concluded that this research is likely
to benefit fund shareholders. The Directors also determined that the advisor
is able to provide investment management services to certain clients other
than the fund, at least in part, due to its existing infrastructure built to
serve the fund complex. The Directors concluded, however, that the assets of
those other clients are not material to the analysis and, in any event, are
included with the assets of the fund to determine breakpoints in the fund's
fee schedule, provided they are managed using the same investment team and
strategy.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the independent directors, in the absence of
particular circumstances and assisted by the advice of legal counsel that is
independent of the advisor, taking into account all of the factors discussed
above and the information provided by the advisor 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.
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22
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 website at americancentury.com and on the Securities and
Exchange Commission's website at sec.gov. Information regarding how the
investment advisor voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30 is available on the "About Us" page
at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's website at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330. The fund also makes its complete
schedule of portfolio holdings for the most recent quarter of its fiscal year
available on its website at ipro.americancentury.com (for Investment
Professionals) and, upon request, by calling 1-800-378-9878.
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23
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® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest companies in the Russell 3000 Index (the 3,000 largest publicly traded
U.S. companies, based on total market capitalization).
The RUSSELL 1000® GROWTH INDEX measures the performance of those Russell 1000
Index 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 values.
The RUSSELL 1000® VALUE INDEX measures the performance of those Russell 1000
Index 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 values.
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 2000® GROWTH INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest 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 values.
The RUSSELL 2000® VALUE INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
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 Index companies (the 800 smallest of the 1,000 largest publicly traded
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.
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24
[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.
American Century Investment Services, Inc., Distributor
©2007 American Century Proprietary Holdings, Inc. All rights reserved.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
0708
SH-SAN-55635
[front cover]
AMERICAN CENTURY VARIABLE PORTFOLIOS
Semiannual Report June 30, 2007
[photo of summer]
VP Income & Growth Fund
[american century investments logo and type logo]
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Stock Index Returns . . . . . . . . . . . . . . . . . . . . . . 2
VP INCOME & GROWTH
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Five Largest Overweights . . . . . . . . . . . . . . . . . . . . . . 6
Five Largest Underweights. . . . . . . . . . . . . . . . . . . . . . 6
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . 7
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. . . . . . . . . . . . . . . . . . . . . . . . . 18
OTHER INFORMATION
Approval of Management Agreement for VP Income & Growth . . . . . . . 21
Share Class Information . . . . . . . . . . . . . . . . . . . . . . . 25
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 26
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 27
The opinions expressed in the Market Perspective and the Portfolio Commentary
reflect those of the portfolio management team as of the date of the report,
and do not necessarily represent the opinions of American Century 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.
MARKET PERSPECTIVE
[photo of Chief Investment Officer]
By Enrique Chang, Chief Investment Officer, American Century Investments
STOCKS ENJOYED A SOLID RALLY
The U.S. equity market advanced in the first half of 2007, benefiting from a
generally favorable environment for stocks. Although the U.S. economy slowed
markedly in the first quarter of the year, growing at an annual rate of just
0.6% (the lowest growth rate since the fourth quarter of 2002), it showed
signs of improvement in the second quarter. In addition, the Federal Reserve
held short-term interest rates steady, maintaining a policy shift that
occurred in mid-2006.
Corporate earnings growth decelerated during the period -- ending a streak of
double-digit quarterly earnings growth for the S&P 500 Index that began in
2002 -- but continued to outshine expectations. Robust merger activity also
provided support for stocks as a deluge of leveraged buy-outs from private
equity firms put the volume of deal-making ahead of last year's record pace.
Despite the generally positive backdrop, the stock market hit a couple of
speed bumps along the way. Stocks stumbled in late February, mirroring a drop
in the Chinese stock market, but rebounded quickly in early March. The
subsequent rally peaked in early June -- when many of the major stock indexes
hit seven-year highs -- as rising interest rates, higher energy prices, and
deteriorating subprime lending conditions led to a pullback in stock prices
later that month.
MID-CAP AND GROWTH OUTPERFORMED
As the accompanying table shows, mid-cap stocks led the market's advance in
the first six months of 2007, followed by large-cap issues, while small-cap
shares lagged after outperforming in 2006. Growth stocks, which have trailed
value issues for much of the decade, enjoyed a resurgence, outpacing value
shares across all market capitalizations.
The best-performing sectors in the stock market were energy and materials,
driven largely by escalating energy and commodity prices. Telecommunication
services and industrials stocks also generated double-digit returns for the
reporting period. The only sector to decline was financials, which were hurt
by higher interest rates and the subprime lending fallout.
U.S. Stock Index Returns
For the six months ended June 30, 2007*
RUSSELL 1000 INDEX (LARGE-CAP) 7.18%
Russell 1000 Growth Index 8.13%
Russell 1000 Value Index 6.23%
RUSSELL MIDCAP INDEX 9.90%
Russell Midcap Growth Index 10.97%
Russell Midcap Value Index 8.69%
RUSSELL 2000 INDEX (SMALL-CAP) 6.45%
Russell 2000 Growth Index 9.33%
Russell 2000 Value Index 3.80%
*Total returns for periods less than one year are not annualized.
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2
PERFORMANCE
VP Income & Growth
Total Returns as of June 30, 2007
Average Annual Returns
Since Inception
6 months(1) 1 year 5 years Inception Date
CLASS I 7.85% 22.79% 11.66% 7.75% 10/30/97
S&P 500 INDEX(2) 6.96% 20.59% 10.71% 7.09% --
Class II 7.71% 22.65% 11.40% 9.30% 5/1/02
Class III 7.85% 22.79% 11.66% 12.06% 6/26/02
(1) Total returns for periods less than one year are not annualized.
(2) Data provided by Lipper Inc. - A Reuters Company. ©2007 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
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.
- ------
3
VP Income & Growth
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 2006 2007
Class I 26.63% 18.54% 3.68% -10.84% -14.54% 0.71% 21.02% 8.29% 7.12% 22.79%
S&P 500
Index 26.79% 22.76% 7.25% -14.83% -17.99% 0.25% 19.11% 6.32% 8.63% 20.59%
*From 10/30/97, Class I'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.
- ------
4
PORTFOLIO COMMENTARY
VP Income & Growth
Portfolio Managers: John Schniedwind, Kurt Borgwardt, Zili Zhang, and Lynette
Pang
PERFORMANCE SUMMARY
VP Income & Growth returned 7.85%* for the six months ended June 30, 2007,
outperforming the 6.96% return of its benchmark, the S&P 500 Index. In
addition, VP Income & Growth has outpaced the S&P 500 over longer time periods
(see pages 3 and 4 for more performance information).
On an absolute basis, nine out of the ten sectors in the portfolio contributed
positively to performance. The leading sectors included energy, industrials,
and materials, all of which benefited from improving global economic growth
and rising commodity prices. The only sector of the portfolio to decline
during the period was financials, which was weighed down by rising interest
rates.
The key behind the portfolio's outperformance of the S&P 500 in the first half
of 2007 was favorable stock selection. This is consistent with our investment
approach, which emphasizes individual security selection over sector
weightings.
MATERIALS AND INDUSTRIALS OUTPERFORMED
Stock selection worked best in the most economically sensitive segments of the
market, most notably materials and industrials. The portfolio's materials
holdings returned 42% as a group during the six-month period, led by chemicals
companies and metals & mining stocks.
Chemicals producer Lyondell Chemical was one of the top contributors to
performance. In addition to its specialty chemicals business, Lyondell has an
oil-refining unit that contributed significantly to earnings as higher
gasoline prices boosted refining profit margins. Other strong contributors in
the materials sector included steelmaker United States Steel and copper
producer Freeport-McMoRan Copper & Gold, both of which benefited from rising
metals prices.
In the industrials sector, stock selection among machinery manufacturers and
an underweight in industrial conglomerates added the most value. The
portfolio's best individual performer was engine maker Cummins, which gained
72% for the six-month period. The company enjoyed strong results from its
power generation business, and it is also poised to benefit from the stricter
emissions rules for heavy-duty trucks that will be implemented over the next
several years.
Top Ten Holdings as of June 30, 2007
% of % of
net assets net assets
as of as of
6/30/07 12/31/06
Exxon Mobil Corp. 5.0% 5.4%
Citigroup Inc. 3.3% 4.7%
Bank of America Corp. 3.1% 3.4%
Chevron Corp. 2.8% 2.6%
International Business Machines Corp. 2.6% 4.8%
Pfizer Inc. 2.6% 2.4%
Hewlett-Packard Co. 2.2% 2.4%
ConocoPhillips 2.2% 2.0%
Morgan Stanley 2.1% 3.4%
JPMorgan Chase & Co. 2.1% 1.2%
*All fund returns referenced in this commentary are for Class I shares. Total
returns for periods less than one year are not annualized.
- ------
5
VP Income & Growth
CONSUMER STOCKS ADDED VALUE
The consumer discretionary and consumer staples sectors of the portfolio also
contributed to VP Income & Growth's outperformance of the S&P 500. Much of the
outperformance in these sectors resulted from stocks we avoided or
underweighted compared with the index. Examples included consumer products
maker Procter & Gamble, coffee retailer Starbucks, and media companies such as
Time Warner and Comcast, all of which declined during the reporting period.
Consumer stocks in the portfolio (but not in the index) that contributed
favorably to results included household products maker Tupperware Brands, auto
parts maker ArvinMeritor, online travel agency Expedia, and food processor
Seaboard.
HEALTH CARE AND FINANCIALS DETRACTED
Stock selection proved less successful in the financials sector, which
included four of the ten worst relative performance contributors in the
portfolio. Commercial banks with significant exposure to the mortgage sector
suffered sharp declines, even if their exposure to the imploding subprime
market was limited. Consequently, our overweight positions in IndyMac Bancorp
and Washington Mutual detracted from performance.
Another area of relative weakness was health care, which was the
best-contributing sector in 2006. Biotechnology firm Amgen, a portfolio
overweight, declined amid safety concerns about one of its blockbuster drugs,
while health care services provider AMERIGROUP struggled with higher medical
costs.
STARTING POINT FOR NEXT REPORTING PERIOD
Volatility in the stock market increased in the first half 2007 as investors
grew concerned about the impact of higher gas prices, declining real estate
values, and increasing subprime mortgage defaults on the economy in general
and consumer spending in particular. This uncertainty, along with slower
corporate earnings growth, is likely to continue into the second half of the
year, which could lead to a choppy market environment.
Our focus will remain on our disciplined, balanced investment approach, which
we believe will continue to produce favorable results over the long term.
Five Largest Overweights as of June 30, 2007
% of % of
portfolio's S&P 500
stocks Index
Northrop Grumman Corp. 1.7% 0.2%
ACE Ltd. 1.7% 0.2%
Exxon Mobil Corp. 5.0% 3.5%
Washington Mutual, Inc. 1.7% 0.3%
International Business Machines Corp. 2.5% 1.1%
Five Largest Underweights as of June 30, 2007
% of % of
portfolio's S&P 500
stocks Index
General Electric Co. 1.3% 3.0%
American International Group, Inc. 0.1% 1.4%
Procter & Gamble Co. (The) 0.2% 1.4%
Cisco Systems Inc. 0.2% 1.3%
Intel Corp. --(1) 1.0%
(1) Security is less than 0.05% of the portfolio's stocks.
- ------
6
SHAREHOLDER FEE EXAMPLE (UNAUDITED)
Fund shareholders may incur two types of costs: (1) transaction costs,
including sales charges (loads) on purchase payments and redemption/exchange
fees; and (2) ongoing costs, including management fees; distribution and
service (12b-1) fees; and other fund expenses. This example is intended to
help you understand your ongoing costs (in dollars) of investing in your fund
and to compare these costs with the ongoing cost of investing in other mutual
funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2007 to June 30, 2007.
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.
Ending
Beginning Account Expenses Paid Annualized
Account Value Value During Period* Expense
1/1/07 6/30/07 1/1/07 - 6/30/07 Ratio*
ACTUAL
Class I $1,000 $1,078.50 $3.61 0.70%
Class II $1,000 $1,077.10 $4.89 0.95%
Class III $1,000 $1,078.50 $3.61 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
SCHEDULE OF INVESTMENTS
VP Income & Growth
JUNE 30, 2007 (UNAUDITED)
Shares Value
Common Stocks -- 100.7%
AEROSPACE & DEFENSE -- 2.3%
26,306 Lockheed Martin Corp. $ 2,476,184
136,318 Northrop Grumman Corp. 10,615,083
14,961 Raytheon Company 806,248
------------
13,897,515
------------
AIR FREIGHT & LOGISTICS -- 1.1%
16,736 FedEx Corporation 1,857,194
65,136 United Parcel Service, Inc. Cl B 4,754,928
------------
6,612,122
------------
AIRLINES -- 0.1%
52,396 Southwest Airlines Co. 781,224
------------
AUTO COMPONENTS -- 1.9%
163,845 ArvinMeritor, Inc.(1) 3,637,359
88,186 Magna International Inc. Cl A 8,024,044
------------
11,661,403
------------
BEVERAGES -- 0.8%
34,176 Coca-Cola Enterprises Inc. 820,224
34,235 Molson Coors Brewing Co. 3,165,369
15,796 Pepsi Bottling Group Inc. 532,009
4,961 PepsiAmericas, Inc.(1) 121,842
------------
4,639,444
------------
BIOTECHNOLOGY -- 1.4%
154,045 Amgen Inc.(2) 8,517,148
------------
CAPITAL MARKETS -- 6.4%
28,379 Blackstone Group L.P. (The)(2) 830,653
56,578 Goldman Sachs Group, Inc. (The) 12,263,282
63,139 Lehman Brothers Holdings Inc. 4,705,118
98,813 Merrill Lynch & Co., Inc. 8,258,791
154,249 Morgan Stanley 12,938,406
------------
38,996,250
------------
CHEMICALS -- 2.1%
126,050 Celanese Corp., Series A 4,888,219
210,720 Lyondell Chemical Co. 7,821,926
------------
12,710,145
------------
COMMERCIAL BANKS -- 0.2%
22,277 Comerica Inc. 1,324,813
------------
COMMERCIAL SERVICES & SUPPLIES -- 0.2%
26,993 Labor Ready Inc.(1)(2) 623,808
14,087 Watson Wyatt Worldwide, Inc. Cl A(1) 711,112
------------
1,334,920
------------
COMMUNICATIONS EQUIPMENT -- 0.2%
37,103 Cisco Systems Inc.(2) 1,033,319
------------
Shares Value
COMPUTERS & PERIPHERALS -- 2.4%
306,058 Hewlett-Packard Co. $ 13,656,308
10,486 Lexmark International, Inc. Cl A(1)(2) 517,065
20,561 Western Digital Corp.(2) 397,855
------------
14,571,228
------------
CONSUMER FINANCE -- 0.1%
25,834 AmeriCredit Corp.(1)(2) 685,893
------------
CONTAINERS & PACKAGING -- 0.5%
73,632 Sonoco Products Co. 3,152,186
------------
DISTRIBUTORS -- 0.2%
83,135 Building Materials Holding Corp.(1) 1,179,686
------------
DIVERSIFIED CONSUMER SERVICES -- 0.1%
18,841 Sotheby's 867,063
------------
DIVERSIFIED FINANCIAL SERVICES -- 8.5%
381,414 Bank of America Corp. 18,647,330
397,316 Citigroup Inc. 20,378,338
262,668 JPMorgan Chase & Co. 12,726,265
------------
51,751,933
------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 3.3%
172,354 AT&T Inc. 7,152,691
6,473 Embarq Corp. 410,194
305,426 Verizon Communications Inc. 12,574,388
9,751 Windstream Corp. 143,925
------------
20,281,198
------------
ELECTRIC UTILITIES -- 0.4%
33,288 Edison International 1,868,122
14,967 Progress Energy Inc. 682,346
------------
2,550,468
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 2.1%
48,303 Arrow Electronics, Inc.(2) 1,856,284
156,113 Avnet Inc.(2) 6,188,320
67,907 Nam Tai Electronics, Inc.(1) 809,451
252,909 Vishay Intertechnology, Inc.(1)(2) 4,001,020
------------
12,855,075
------------
ENERGY EQUIPMENT & SERVICES -- 0.3%
185,352 Grey Wolf Inc.(1)(2) 1,527,300
------------
FOOD & STAPLES RETAILING -- 0.2%
30,053 Kroger Co. (The) 845,391
9,397 SUPERVALU INC. 435,269
------------
1,280,660
------------
FOOD PRODUCTS -- 1.2%
9,457 ConAgra Foods, Inc. 254,015
84,332 General Mills, Inc. 4,926,675
- ------
8
VP Income & Growth
Shares Value
7,399 Kraft Foods Inc. Cl A $ 260,815
842 Seaboard Corp.(1) 1,974,490
------------
7,415,995
------------
GAS UTILITIES -- 0.3%
41,082 Nicor Inc.(1) 1,763,239
------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 1.1%
77,214 Becton, Dickinson & Co. 5,752,443
15,637 West Pharmaceutical Services Inc.(1) 737,285
------------
6,489,728
------------
HEALTH CARE PROVIDERS & SERVICES -- 4.8%
87,820 Aetna Inc. 4,338,308
32,409 AMERIGROUP Corporation(1)(2) 771,334
12,383 AmerisourceBergen Corp. 612,587
52,945 Apria Healthcare Group Inc.(1)(2) 1,523,228
2,986 Coventry Health Care Inc.(2) 172,143
45,249 Healthspring Inc.(2) 862,446
121,069 Humana Inc.(2) 7,374,313
141,083 McKesson Corp. 8,414,190
54,935 WellCare Health Plans Inc.(1)(2) 4,972,167
1,568 WellPoint Inc.(2) 125,173
------------
29,165,889
------------
HOTELS, RESTAURANTS & LEISURE -- 1.2%
40,684 Darden Restaurants, Inc. 1,789,689
96,508 McDonald's Corporation 4,898,747
8,582 Wyndham Worldwide Corp.(2) 311,183
------------
6,999,619
------------
HOUSEHOLD DURABLES -- 2.8%
6,797 Black & Decker Corporation 600,243
22,439 Blyth, Inc.(1) 596,429
55,134 KB Home 2,170,626
89,428 Newell Rubbermaid Inc. 2,631,866
9,693 NVR, Inc.(1)(2) 6,588,816
157,663 Tupperware Brands Corp.(1) 4,531,235
------------
17,119,215
------------
HOUSEHOLD PRODUCTS -- 1.9%
151,624 Kimberly-Clark Corp. 10,142,129
23,509 Procter & Gamble Co. (The) 1,438,516
------------
11,580,645
------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.7%
62,694 TXU Corp. 4,219,306
------------
INDUSTRIAL CONGLOMERATES -- 1.9%
211,270 General Electric Co. 8,087,415
102,215 Tyco International Ltd. 3,453,845
------------
11,541,260
------------
Shares Value
INSURANCE -- 5.4%
163,668 ACE, Ltd. $ 10,232,522
36,270 American Financial Group, Inc. 1,238,621
8,839 American International Group, Inc. 618,995
52,829 Arch Capital Group Ltd.(2) 3,832,216
120,879 Aspen Insurance Holdings Ltd. 3,393,074
63,637 Axis Capital Holdings Ltd. 2,586,844
143,834 Endurance Specialty Holdings Ltd. 5,759,113
19,868 Odyssey Re Holdings Corp.(1) 852,139
39,720 PartnerRe Ltd.(1) 3,078,300
17,399 XL Capital Ltd. Cl A 1,466,562
------------
33,058,386
------------
INTERNET SOFTWARE & SERVICES -- 0.6%
210,899 United Online, Inc.(1) 3,477,725
------------
IT SERVICES -- 5.7%
181,818 Accenture Ltd. Cl A 7,798,174
64,371 Acxiom Corp. 1,702,613
118,116 Computer Sciences Corp.(2) 6,986,561
101,763 Electronic Data Systems Corp. 2,821,888
148,252 International Business Machines Corp. 15,603,523
------------
34,912,759
------------
LEISURE EQUIPMENT & PRODUCTS -- 1.7%
34,858 Eastman Kodak Co.(1) 970,098
203,274 Hasbro, Inc. 6,384,836
119,455 Mattel, Inc. 3,021,017
------------
10,375,951
------------
LIFE SCIENCES TOOLS & SERVICES -- 0.8%
163,099 Applera Corporation - Applied Biosystems Group 4,981,043
------------
MACHINERY -- 0.7%
39,857 Cummins Inc. 4,033,927
------------
MEDIA -- 1.8%
130,870 CBS Corp. Cl B 4,360,588
24,336 Idearc Inc.(1) 859,791
18,810 Sinclair Broadcast Group, Inc. Cl A 267,478
169,065 Walt Disney Co. (The) 5,771,880
------------
11,259,737
------------
METALS & MINING -- 1.4%
27,284 Freeport-McMoRan Copper & Gold, Inc.(1) 2,259,661
56,878 United States Steel Corp. 6,185,482
------------
8,445,143
------------
MULTILINE RETAIL -- 0.3%
58,104 Big Lots, Inc.(1)(2) 1,709,420
------------
- ------
9
VP Income & Growth
Shares Value
OFFICE ELECTRONICS -- 0.6%
213,939 Xerox Corp.(2) $ 3,953,593
------------
OIL, GAS & CONSUMABLE FUELS -- 14.0%
204,764 Chevron Corp. 17,249,319
170,533 ConocoPhillips 13,386,841
64,444 EnCana Corp. 3,960,084
366,231 Exxon Mobil Corp. 30,719,455
90,292 Marathon Oil Corp. 5,413,908
84,470 Occidental Petroleum Corp. 4,889,124
26,119 Tesoro Corp. 1,492,701
106,845 Valero Energy Corp. 7,891,572
------------
85,003,004
------------
PHARMACEUTICALS -- 6.1%
251,999 Biovail Corp.(1) 6,405,815
144,055 Johnson & Johnson 8,876,669
156,942 King Pharmaceuticals, Inc.(2) 3,211,033
31,969 Merck & Co., Inc. 1,592,056
609,228 Pfizer Inc. 15,577,960
100,777 ViroPharma Inc.(1)(2) 1,390,723
------------
37,054,256
------------
REAL ESTATE INVESTMENT TRUSTS -- 1.2%
121,125 iStar Financial Inc.(1) 5,369,471
84,057 KKR Financial Holdings LLC(1) 2,093,860
------------
7,463,331
------------
ROAD & RAIL -- 1.0%
22,444 Burlington Northern Santa Fe Corp. 1,910,882
26,262 CSX Corporation 1,183,891
25,711 Norfolk Southern Corp. 1,351,627
16,032 Union Pacific Corp. 1,846,085
------------
6,292,485
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 1.9%
276,992 Amkor Technology Inc.(1)(2) 4,362,624
172,300 Applied Materials, Inc. 3,423,601
1,147 Intel Corp. 27,253
69,276 Lam Research Corp.(1)(2) 3,560,786
3,889 Novellus Systems, Inc.(1)(2) 110,331
------------
11,484,595
------------
SOFTWARE -- 1.9%
365,386 Microsoft Corporation 10,767,926
22,851 Sybase, Inc.(1)(2) 545,910
------------
11,313,836
------------
SPECIALTY RETAIL -- 1.6%
8,515 American Eagle Outfitters, Inc. 218,495
58,146 Brown Shoe Company, Inc. 1,414,111
Shares Value
2,997 Dress Barn Inc.(1)(2) $61,498
209,052 RadioShack Corp.(1) 6,927,983
44,761 Rent-A-Center Inc.(1)(2) 1,174,081
------------
9,796,168
------------
THRIFTS & MORTGAGE FINANCE -- 3.1%
52,953 Corus Bankshares Inc.(1) 913,969
138,494 Countrywide Financial Corporation 5,034,257
76,400 IndyMac Bancorp, Inc.(1) 2,228,588
251,618 Washington Mutual, Inc. 10,728,991
------------
18,905,805
------------
TOBACCO -- 0.2%
10,693 Altria Group Inc. 750,007
10,438 Reynolds American Inc. 680,558
------------
1,430,565
------------
TOTAL COMMON STOCKS
(Cost $483,995,600) 613,457,618
------------
Temporary Cash Investments -- 0.3%
Repurchase Agreement, Credit Suisse First Boston, Inc.,
(collateralized by various U.S. Treasury obligations, 5.50%,
8/15/28, valued at $1,735,281), in a joint trading account at
4.35%, dated 6/29/07, due 7/2/07 (Delivery value $1,700,616)
(Cost $1,700,000) 1,700,000
------------
Temporary Cash Investments - Securities Lending Collateral(3) -- 8.3%
Repurchase Agreement, Morgan Stanley Group, Inc., (collateralized
by various U.S. Government Agency obligations in a pooled account
at the lending agent), 5.38%, dated 6/29/07, due 7/2/07 (Delivery
value $50,425,244)
(Cost $50,402,647) 50,402,647
------------
TOTAL INVESTMENT SECURITIES -- 109.3%
(Cost $536,098,247) 665,560,265
------------
OTHER ASSETS AND LIABILITIES -- (9.3)% (56,352,576)
------------
TOTAL NET ASSETS -- 100.0% $609,207,689
============
Notes to Schedule of Investments
(1) Security, or a portion thereof, was on loan as of June 30, 2007.
(2) Non-income producing.
(3) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions.
See Notes to Financial Statements.
- ------
10
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2007 (UNAUDITED)
ASSETS
Investment securities, at value (cost of $485,695,600) --
including $49,246,463 of securities on loan $615,157,618
Investments made with cash collateral received for securities on
loan, at value (cost of $50,402,647) 50,402,647
------------
Total investment securities, at value (cost of $536,098,247) 665,560,265
Dividends and interest receivable 600,899
------------
666,161,164
------------
LIABILITIES
Disbursements in excess of demand deposit cash 6,168,271
Payable for collateral received on securities on loan 50,402,647
Accrued management fees 376,574
Distribution fees payable 5,983
------------
56,953,475
------------
NET ASSETS $609,207,689
============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $442,942,081
Undistributed net investment income 4,248,092
Undistributed net realized gain on investment transactions 32,555,498
Net unrealized appreciation on investments 129,462,018
------------
$609,207,689
============
CLASS I, $0.01 PAR VALUE
Net assets $571,447,358
Shares outstanding 62,586,753
Net asset value per share $9.13
CLASS II, $0.01 PAR VALUE
Net assets $28,185,554
Shares outstanding 3,088,877
Net asset value per share $9.12
CLASS III, $0.01 PAR VALUE
Net assets $9,574,777
Shares outstanding 1,048,587
Net asset value per share $9.13
See Notes to Financial Statements.
- ------
11
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
INVESTMENT INCOME (LOSS)
INCOME:
Dividends (net of foreign taxes withheld of $50,429) $ 6,419,210
Interest 71,743
Securities lending 59,711
-----------
6,550,664
-----------
EXPENSES:
Management fees 2,241,682
Distribution fees -- Class II 34,744
Directors' fees and expenses 5,654
Other expenses 10,624
-----------
2,292,704
-----------
NET INVESTMENT INCOME (LOSS) 4,257,960
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on investment transactions 40,406,722
Change in net unrealized appreciation (depreciation)
on investments 3,785,975
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) 44,192,697
-----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $48,450,657
===========
See Notes to Financial Statements.
- ------
12
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2006
Increase (Decrease) in Net Assets 2007 2006
OPERATIONS
Net investment income (loss) $ 4,257,960 $ 11,831,833
Net realized gain (loss) 40,406,722 57,685,943
Change in net unrealized
appreciation (depreciation) 3,785,975 37,715,897
------------ -------------
Net increase (decrease) in net assets resulting
from operations 48,450,657 107,233,673
------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Class I (11,037,980) (14,163,521)
Class II (440,604) (426,144)
Class III (179,392) (99,168)
------------ -------------
Decrease in net assets from distributions (11,657,976) (14,688,833)
------------ -------------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets
from capital share transactions (80,859,396) (245,059,530)
------------ -------------
NET INCREASE (DECREASE) IN NET ASSETS (44,066,715) (152,514,690)
NET ASSETS
Beginning of period 653,274,404 805,789,094
------------ -------------
End of period $609,207,689 $ 653,274,404
============ =============
Undistributed net investment income $4,248,092 $11,648,108
============ =============
See Notes to Financial Statements.
- ------
13
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2007 (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 to seek capital growth by
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 distribution and
shareholder servicing 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. Securities traded on foreign securities exchanges and
over-the-counter markets are normally completed before the close of business
on days that the New York Stock Exchange (the Exchange) is open and may also
take place on days when the Exchange is not open. If an event occurs after the
value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, that
security would be valued as determined in accordance with procedures adopted
by the Board of Directors. If the fund determines that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by, or in accordance with procedures adopted by, the
Board of Directors or its designee if such determination would materially
impact a fund's net asset value. Certain other circumstances may cause the
fund to use alternative procedures to value a security such as: a security has
been declared in default; trading in a security has been halted during the
trading day; or there is a foreign market holiday and no trading will commence.
SECURITY TRANSACTIONS -- 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.
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.
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14
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 book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of 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, 2006, the fund had accumulated net realized capital loss
carryovers for federal income tax purposes of $(2,757,605) expiring in 2010,
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 each class of the fund ranges from 0.65% to 0.70%
for Class I, Class II and Class III. The effective annual management fee for
each class of the fund for the six months ended June 30, 2007 was 0.70%.
DISTRIBUTION FEES -- The Board of Directors has adopted the Master
Distribution Plan (the plan) for Class II, pursuant to Rule 12b-1 of the 1940
Act. The plan provides that Class II will pay American Century Investment
Services, Inc. (ACIS) an annual distribution fee equal to 0.25%. The fee is
computed 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, 2007, are
detailed in the Statement of Operations.
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15
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.
The fund may invest in a money market fund for temporary purposes, which is
managed by J.P. Morgan Investment Management, Inc. (JPMIM). JPMIM is a wholly
owned subsidiary of JPMorgan Chase & Co. (JPM). JPM is an equity investor in
ACC. 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 JPM.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the six months ended June 30, 2007, were $154,218,014 and
$235,229,929, respectively.
As of June 30, 2007, 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 $540,234,998
=============
Gross tax appreciation of investments $134,204,290
Gross tax depreciation of investments (8,879,023)
-------------
Net tax appreciation (depreciation) of investments $125,325,267
=============
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.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
Six months ended June 30, 2007 Year ended December 31, 2006
Shares Amount Shares Amount
CLASS I/
SHARES AUTHORIZED 300,000,000 300,000,000
============ ============
Sold 2,796,524 $ 24,708,850 7,269,030 $ 56,654,260
Issued in
reinvestment of
distributions 1,329,877 11,037,980 1,898,595 14,163,521
Redeemed (12,853,409) (114,724,668) (40,653,523) (315,494,267)
------------ -------------- ------------ --------------
(8,727,008) (78,977,838) (31,485,898) (244,676,486)
------------ -------------- ------------ --------------
CLASS II/
SHARES AUTHORIZED 50,000,000 50,000,000
============ ============
Sold 335,338 3,022,186 590,568 4,615,912
Issued in
reinvestment of
distributions 53,085 440,604 57,124 426,144
Redeemed (523,026) (4,674,062) (1,139,010) (8,829,875)
------------ -------------- ------------ --------------
(134,603) (1,211,272) (491,318) (3,787,819)
------------ -------------- ------------ --------------
CLASS III/
SHARES AUTHORIZED 50,000,000 50,000,000
============ ============
Sold 303,705 2,717,911 598,120 4,980,918
Issued in
reinvestment of
distributions 21,614 179,392 13,293 99,168
Redeemed (416,288) (3,567,589)(1) (217,395) (1,675,311)(2)
------------ -------------- ------------ --------------
(90,969) (670,286) 394,018 3,404,775
------------ -------------- ------------ --------------
Net increase
(decrease) (8,952,580) $(80,859,396) (31,583,198) $(245,059,530)
============ ============== ============ ==============
(1) Net of redemption fees of $4,224.
(2) Net of redemption fees of $374.
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16
5. SECURITIES LENDING
As of June 30, 2007, securities in the fund valued at $49,246,463 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 $50,402,647. 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
$500,000,000 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 0.40%. The fund did not borrow from the line during the six months
ended June 30, 2007.
7. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an
Interpretation of FASB Statement No. 109" (FIN 48). FIN 48 establishes a
minimum threshold for financial statement recognition of the benefit of
positions taken in filing tax returns (including whether an entity is taxable
in a particular jurisdiction), and requires certain expanded tax disclosures.
FIN 48 is effective for fiscal years beginning after December 15, 2006, and is
to be applied to all open tax years as of the date of effectiveness.
Management has concluded that the adoption of FIN 48 will not materially
impact the financial statements.
The FASB issued Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" (FAS 157), in September 2006, which is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands the required
financial statement disclosures about fair value measurements. Management is
currently evaluating the impact that adopting FAS 157 will have on financial
statement disclosures.
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17
FINANCIAL HIGHLIGHTS
VP Income & Growth
Class I
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2007(1) 2006 2005 2004 2003 2002
PER-SHARE DATA
Net Asset Value,
Beginning of
Period $8.63 $7.51 $7.32 $6.57 $5.16 $6.46
------- ------- ------- ------- ------- -------
Income From
Investment
Operations
Net
Investment
Income
(Loss)(2) 0.06 0.14 0.13 0.14 0.10 0.08
Net Realized
and
Unrealized
Gain (Loss) 0.60 1.12 0.20 0.71 1.38 (1.32)
------- ------- ------- ------- ------- -------
Total From
Investment
Operations 0.66 1.26 0.33 0.85 1.48 (1.24)
------- ------- ------- ------- ------- -------
Distributions
From Net
Investment
Income (0.16) (0.14) (0.14) (0.10) (0.07) (0.06)
------- ------- ------- ------- ------- -------
Net Asset Value,
End of Period $9.13 $8.63 $7.51 $7.32 $6.57 $5.16
======= ======= ======= ======= ======= =======
TOTAL RETURN(3) 7.85% 17.09% 4.63% 12.99% 29.35% (19.37)%
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
(Loss) to Average
Net Assets 1.35%(4) 1.75% 1.81% 2.08% 1.78% 1.32%
Portfolio
Turnover Rate 24% 63% 76% 75% 71% 72%
Net Assets, End
of Period
(in thousands) $571,447 $615,658 $772,330 $805,904 $826,785 $614,424
(1) Six months ended June 30, 2007 (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.
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18
VP Income & Growth
Class II
For a Share Outstanding Throughout the Years Ended December 31
(except as noted)
2007(1) 2006 2005 2004 2003 2002(2)
PER-SHARE DATA
Net Asset Value,
Beginning of Period $8.62 $7.50 $7.30 $6.56 $5.15 $6.22
------- ------- ------- ------- ------- -------
Income From
Investment Operations
Net Investment
Income (Loss)(3) 0.05 0.12 0.11 0.13 0.09 0.05
Net Realized and
Unrealized Gain
(Loss) 0.59 1.12 0.22 0.69 1.39 (1.12)
------- ------- ------- ------- ------- -------
Total From
Investment
Operations 0.64 1.24 0.33 0.82 1.48 (1.07)
------- ------- ------- ------- ------- -------
Distributions
From Net
Investment
Income (0.14) (0.12) (0.13) (0.08) (0.07) --
------- ------- ------- ------- ------- -------
Net Asset Value,
End of Period $9.12 $8.62 $7.50 $7.30 $6.56 $5.15
======= ======= ======= ======= ======= =======
TOTAL RETURN(4) 7.71% 16.81% 4.52% 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% 0.95% 0.95%(5)
Ratio of Net
Investment Income
(Loss) to Average
Net Assets 1.10%(5) 1.50% 1.56% 1.83% 1.53% 1.42%(5)
Portfolio Turnover
Rate 24% 63% 76% 75% 71% 72%(6)
Net Assets,
End of Period
(in thousands) $28,186 $27,778 $27,857 $25,218 $14,370 $1,533
(1) Six months ended June 30, 2007 (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.
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19
VP Income & Growth
Class III
For a Share Outstanding Throughout the Years Ended December 31
(except as noted)
2007(1) 2006 2005 2004 2003 2002(2)
PER-SHARE DATA
Net Asset Value,
Beginning of Period $8.63 $7.51 $7.32 $6.57 $5.16 $5.63
------- ------- ------- ------- ------- -------
Income From
Investment Operations
Net Investment
Income (Loss)(3) 0.06 0.13 0.13 0.15 0.11 0.04
Net Realized and
Unrealized Gain
(Loss) 0.60 1.13 0.20 0.70 1.37 (0.51)
------- ------- ------- ------- ------- -------
Total From
Investment
Operations 0.66 1.26 0.33 0.85 1.48 (0.47)
------- ------- ------- ------- ------- -------
Distributions
From Net
Investment
Income (0.16) (0.14) (0.14) (0.10) (0.07) --
------- ------- ------- ------- ------- -------
Net Asset Value,
End of Period $9.13 $8.63 $7.51 $7.32 $6.57 $5.16
======= ======= ======= ======= ======= =======
TOTAL RETURN(4) 7.85% 17.09% 4.63% 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% 0.70% 0.70%(5)
Ratio of Net
Investment Income
(Loss) to
Average Net Assets 1.35%(5) 1.75% 1.81% 2.08% 1.75% 1.63%(5)
Portfolio Turnover
Rate 24% 63% 76% 75% 71% 72%(6)
Net Assets,
End of Period
(in thousands) $9,575 $9,838 $5,601 $3,683 $1,669 $376
(1) Six months ended June 30, 2007 (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.
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20
APPROVAL OF MANAGEMENT AGREEMENT
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 or trustees (the "Directors") each
year. At American Century, this process is referred to as the "15(c) Process."
As a part of this process, the board reviews fund performance, shareholder
services, audit and compliance information, and a variety of other reports
from the advisor concerning fund operations. In addition to this annual
review, the board of directors oversees and evaluates on a continuous basis at
its quarterly meetings the nature and quality of significant services
performed by the advisor, fund performance, audit and compliance information,
and a variety of other reports relating to fund operations. The board, or
committees of the board, also holds special meetings as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning VP Income & Growth (the "fund") and the
services provided to the fund under the management agreement. The information
considered and the discussions held at the meetings included, but were not
limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund 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 a similar
fund;
* data comparing the fund's performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two regularly
scheduled meetings and one special meeting to review and discuss the
information provided by the advisor and to complete its negotiations with the
advisor regarding the renewal of the management agreement, including the
setting of the applicable advisory fee. The board also had the benefit of the
advice of its independent counsel throughout the period.
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21
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. The
Directors did not identify any single factor as being all-important or
controlling, and each Director may have attributed different levels of
importance to different factors. In deciding to renew the agreement under the
terms ultimately determined by the board to be appropriate, the Directors'
decision was based on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under
the management agreement, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both
in terms of quantity and complexity in response to shareholder demands,
competition in the industry 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
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
technology, research, training, compliance and other systems to conduct their
business.
- ------
22
At each quarterly meeting the Directors review investment performance
information for the fund, together with comparative information for
appropriate benchmarks and peer groups of funds managed similarly to the fund.
The Directors also review detailed performance information during the 15(c)
Process comparing the fund's performance with that of similar funds not
managed by the advisor. If performance concerns are identified, the Directors
discuss with the advisor the reasons for such results (e.g., market
conditions, security selection) and any efforts being undertaken to improve
performance. Performance information presented to the Directors showed that
the fund's performance was above its benchmark for both the one- and
three-year periods.
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 their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY 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 consider the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethically. They noted that the advisor's practices generally meet or
exceed industry best practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the fund specifically, the expenses incurred by the advisor
in providing various functions to the fund, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints as the fund increases in size, and through
reinvestment in its business to provide shareholders additional content and
services.
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23
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
fund's independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the fund and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider comparing the fund's unified fee to the total
expense ratio of other funds in the fund's peer group. The unified fee charged
to shareholders of the fund was in the lowest quartile of the total expense
ratios of its peer group.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services
to advisory clients other than the fund. They observed that these varying
types of client accounts require different services and involve different
regulatory and entrepreneurial risks than the management of the fund. The
Directors analyzed this information and concluded that the fees charged and
services provided to the fund were reasonable by comparison.
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 certain clients other
than the fund, at least in part, due to its existing infrastructure built to
serve the fund complex. The Directors concluded, however, that the assets of
those other clients are not material to the analysis and, in any event, are
included with the assets of the fund to determine breakpoints in the fund's
fee schedule, provided they are managed using the same investment team and
strategy.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the independent directors, in the absence of
particular circumstances and assisted by the advice of legal counsel that is
independent of the advisor, taking into account all of the factors discussed
above and the information provided by the advisor 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.
- ------
24
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. The total expense ratio of Class III shares is the same as 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.
- ------
25
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 website at americancentury.com and on the Securities and
Exchange Commission's website at sec.gov. Information regarding how the
investment advisor voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30 is available on the "About Us" page
at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's website at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330. The fund also makes its complete
schedule of portfolio holdings for the most recent quarter of its fiscal year
available on its website at ipro.americancentury.com (for Investment
Professionals) and, upon request, by calling 1-800-378-9878.
- ------
26
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® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest companies in the Russell 3000 Index (the 3,000 largest publicly traded
U.S. companies, based on total market capitalization).
The RUSSELL 1000® GROWTH INDEX measures the performance of those Russell 1000
Index 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 values.
The RUSSELL 1000® VALUE INDEX measures the performance of those Russell 1000
Index 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 values.
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 2000® GROWTH INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest 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 values.
The RUSSELL 2000® VALUE INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
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 Index companies (the 800 smallest of the 1,000 largest publicly traded
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.
- ------
27
NOTES
- ------
28
[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.
American Century Investment Services, Inc., Distributor
©2007 American Century Proprietary Holdings, Inc. All rights reserved.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
0708
SH-SAN-55632
[front cover]
AMERICAN CENTURY VARIABLE PORTFOLIOS
Semiannual Report June 30, 2007
[photo of summer boat]
VP International Fund
[american century investments logo and text logo]
[inside cover blank]
Table of Contents
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
International Equity Total Returns . . . . . . . . . . . . . . . . . 2
VP INTERNATIONAL
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 6
Investments by Country . . . . . . . . . . . . . . . . . . . . . . . 6
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . 7
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 International . . . . . . . . 23
Share Class Information . . . . . . . . . . . . . . . . . . . . . . . 28
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 29
The opinions expressed in the Market Perspective and the Portfolio Commentary
reflect those of the portfolio management team as of the date of the report,
and do not necessarily represent the opinions of American Century 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.
MARKET PERSPECTIVE
[photo of chief investment officer]
By Mark On, Chief Investment Officer, International Equity
In May 2007, Mark On became the chief investment officer of our International
Equity discipline.
INTERNATIONAL STOCKS HIGHER
International equities registered healthy gains for the six months ended June
30, 2007, with many global equity markets posting double-digit returns. Market
indexes in the U.S. and most European countries reached six-year highs, and
many emerging market indexes in Asia, Europe, and Latin America approached or
established record highs.
The ride was bumpy, however. Global equity markets sold off sharply in March
and endured a volatile June as investors pondered the implications of trouble
in the U.S. subprime mortgage market for the broader economy, and a potential
ripple effect from slower consumer spending. A number of factors, however,
helped international equities bounce back to post solid gains. Steady global
growth, massive liquidity, corporate share buybacks, and record
merger-and-acquisition activity all buoyed global asset prices.
Emerging market shares, whose performance is most closely tied to global
growth and investor appetite for risk, performed best. European stocks were
next, while shares of Japanese equities lagged. Looking at performance by
style, growth shares narrowly led value, as measured by the MSCI EAFE Growth
and Value indexes, breaking a lengthy streak of value outperformance.
HEALTHY GLOBAL GROWTH
Despite a slowdown in U.S. economic growth, the global economy remained
resilient. Strong consumer and corporate demand, reasonably low inflation,
improving labor markets, and moderate (though rising) global interest rates
have provided steady support for global growth since the recovery began in
2002.
Healthy economic growth prompted the European Central Bank and Bank of England
to hike short-term interest rates twice during the period. The Bank of Japan
also raised interest rates as the country's unemployment fell to a nine-year
low.
SEEKING OPPORTUNITIES
The economic growth in many countries and increasing confidence among
investors were testament to the resilience of international markets and the
global economy. We believe there are significant opportunities abroad for
investors, and our international team is dedicated to searching for companies
to help drive investment performance.
International Equity Total Returns
For the six months ended June 30, 2007*
MSCI EM Index 17.75%
MSCI Europe Index 12.49%
MSCI EAFE Index 10.74%
MSCI World Free Index 9.17%
MSCI Japan Index 2.85%
*Total returns for periods less than one year are not annualized.
- ------
2
PERFORMANCE
VP International
Total Returns as of June 30, 2007
Average Annual Returns
6 5 10 Since Inception
months(1) 1 year years years Inception Date
CLASS I 11.49% 29.39% 13.49% 7.50% 8.66% 5/1/94
MSCI EAFE
INDEX 10.74% 27.00% 17.73% 7.66% 7.96%(2) --
MSCI EAFE
GROWTH INDEX 11.94% 25.29% 15.37% 5.18% 5.77%(2) --
Class II 11.44% 29.08% 13.30% -- 8.82% 8/15/01
Class III 11.49% 29.39% 13.49% -- 12.45% 5/2/02
Class IV 11.33% 29.08% -- -- 20.11% 5/3/04
(1) Total returns for periods less than one year are not annualized.
(2) 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. Investing in emerging markets may accentuate these
risks.
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
Growth of $10,000 Over 10 Years
$10,000 investment made June 30, 1997
One-Year Returns Over 10 Years
Periods ended June 30
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Class 25.12% 1.74% 43.62% -29.33% -15.28% -12.51% 21.31% 11.04% 23.48% 29.39%
I
MSCI 6.10% 7.62% 17.16% -23.60% -9.49% -6.46% 32.37% 13.65% 26.56% 27.00%
EAFE
Index
MSCI 5.87% 5.27% 20.47% -33.30% -9.46% -8.01% 26.42% 11.37% 25.98% 25.29%
EAFE
Growth
Index
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. Investing in emerging markets may accentuate these
risks.
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.
- ---
4
PORTFOLIO COMMENTARY
VP International
Portfolio Managers: Alex Tedder and Keith Creveling
PERFORMANCE SUMMARY
VP International gained 11.49%* during the six months ended June 30, 2007. Its
benchmark, the MSCI EAFE Index, advanced 10.74%.
As noted in the Market Perspective on page 2, economies worldwide enjoyed
healthy growth during the period and contributed to broad stock market gains.
Investor optimism was somewhat tempered, however, as central banks moved to
cool growth rates by raising interest rates.
Within the portfolio, effective stock selection in the financials and
telecommunication services sectors helped boost the portfolio's relative
returns. VP International also received a lift from a modestly overweight
stake in the industrials sector. Although all 10 sectors contributed
positively on an absolute basis, slumping holdings in the consumer staples and
materials sectors diminished returns from a relative standpoint. From a
geographic perspective, solid stock selection and an underweight stake in
Japan, which trailed the benchmark, helped the portfolio's relative advance,
as did outperforming holdings in Italy. Meanwhile, underperforming stocks from
the Netherlands and Sweden weighed on relative returns.
GAMEMAKER PACED ADVANCE
Although the consumer discretionary sector hindered relative performance
overall, the portfolio's overweight stake in Japanese game system manufacturer
Nintendo paid off. Management announced that it's expecting to sell 35 million
Wii console systems in the next four to five years. Since its introduction
last November, the Wii has consistently outsold Sony's PlayStation 3, which
was released the same week.
INDUSTRIALS GENERATED GAINS
Enhancing the portfolio's relative returns were two holdings within the
industrials sector. Denmark's Vestas Wind Systems AS, the largest wind-power
system developer in the world, advanced significantly amid heightening
interest in wind-generated power, and the portfolio benefited from its
overweight position. The company also reiterated its 2007 forecast for a 17%
increase in annual revenues and a global market share goal of 35% by 2008.
Further helping performance was an overweight stake in Hochtief AG, a German
construction and engineering firm. To counter lackluster results from its
domestic construction division, due in part to rising costs for materials and
subcontractors, the company has built profitable units across Asia and
Australia.
*All fund returns referenced in this commentary are for Class I shares. Total
returns for periods less than one year are not annualized.
Top Ten Holdings as of June 30, 2007
% of net % of net
assets as of assets as of
6/30/07 12/31/06
Groupe Danone 1.8% 1.8%
Total SA 1.7% 1.6%
Nintendo Co., Ltd. 1.6% 0.8%
National Bank of Greece SA 1.5% 1.3%
Burberry Group plc 1.5% 1.2%
Statoil ASA 1.4% 0.7%
Roche Holding AG 1.4% 1.9%
BHP Billiton Ltd. 1.4% 1.2%
HSBC Holdings plc 1.3% --
Julius Baer Holding AG 1.3% 0.6%
- ------
5
VP International
TECH, ENERGY HOLDINGS WEIGHED
Two portfolio positions that aren't found in the benchmark diminished relative
returns. Our stake in Samsung Electronics slumped amid a flat pricing
environment for flash memory chips, which are found in digital cameras and
portable music players, and a large drop in prices for dynamic random access
memory chips, which are used in personal computers. The manufacturer of
semiconductor chips and South Korea's largest exporter was also affected by a
climb in the value of the won, the country's currency, against the U.S. dollar
and the Japanese yen.
Adding to losses was Petroleo Brasileiro SA, Brazil's state-controlled oil
company better known as Petrobras. Although costs for discovering, producing,
and refining oil have gradually climbed, the company hasn't raised gasoline
and diesel fuel prices in Brazil for more than a year. The possibility of a
July 5 strike, which would negatively affect production levels, also weighed
on shares late in the period.
STARTING POINT FOR NEXT REPORTING PERIOD
The landscape continues to change for international investors: Although
emerging economies continue to be the driver of growth worldwide, many are
moving from export-driven growth to internal growth, based on consumption.
Against this backdrop, we continue to believe that the outlook for large-cap
growth companies remains very good. VP International has broad exposure to
high-quality growth companies in a number of markets, and we believe these
will deliver solid returns, even in volatile market conditions.
Types of Investments in Portfolio
% of net % of net
assets as of assets as of
6/30/07 12/31/06
Foreign Common Stocks 99.2% 99.7%
Foreign Preferred Stocks 0.2% --
TOTAL EQUITY EXPOSURE 99.4% 99.7%
Temporary Cash Investments --(1) 0.7%
Other Assets and Liabilities(2) 0.6% (0.4)%
(1) Category is less than 0.05% of total net assets.
(2) Includes securities lending collateral and other assets and liabilities.
Investments by Country as of June 30, 2007
% of net % of net
assets as of assets as of
6/30/07 12/31/06
Japan 15.8% 16.7%
United Kingdom 13.9% 17.6%
Switzerland 11.0% 11.7%
Germany 10.9% 5.5%
France 9.8% 9.3%
Australia 4.9% 4.1%
Italy 4.8% 3.6%
Norway 2.8% 2.2%
India 2.7% 2.4%
Finland 2.4% 2.1%
Netherlands 2.2% 2.9%
Spain 2.2% 3.0%
Other Countries 16.0% 18.6%
Cash and Equivalents(3) 0.6% 0.3%
(3) Includes temporary cash investments, securities lending collateral and
other assets and liabilities.
- ------
6
SHAREHOLDER FEE EXAMPLE (UNAUDITED)
Fund shareholders may incur two types of costs: (1) transaction costs,
including sales charges (loads) on purchase payments and redemption/exchange
fees; and (2) ongoing costs, including management fees; distribution and
service (12b-1) fees; and other fund expenses. This example is intended to
help you understand your ongoing costs (in dollars) of investing in your fund
and to compare these costs with the ongoing cost of investing in other mutual
funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2007 to June 30, 2007.
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
Account Account Period* Annualized
Value Value 1/1/07 - Expense
1/1/07 6/30/07 6/30/07 Ratio*
ACTUAL
Class I $1,000 $1,114.90 $6.34 1.21%
Class II $1,000 $1,114.40 $7.13 1.36%
Class III $1,000 $1,114.90 $6.34 1.21%
Class IV $1,000 $1,113.30 $7.13 1.36%
HYPOTHETICAL
Class I $1,000 $1,018.79 $6.06 1.21%
Class II $1,000 $1,018.05 $6.80 1.36%
Class III $1,000 $1,018.79 $6.06 1.21%
Class IV $1,000 $1,018.05 $6.80 1.36%
* 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
SCHEDULE OF INVESTMENTS
VP International
JUNE 30, 2007 (UNAUDITED)
Shares Value
Common Stocks -- 99.2%
AUSTRALIA -- 4.9%
462,259 BHP Billiton Ltd.(1) $ 13,729,178
102,750 CSL Ltd. 7,666,260
281,520 National Australia Bank Ltd.(1) 9,790,930
412,910 QBE Insurance Group Ltd. 10,922,675
79,440 Rio Tinto Ltd.(1) 6,653,823
--------------
48,762,866
--------------
AUSTRIA -- 0.8%
108,538 Erste Bank der Oesterreichischen
Sparkassen AG(1) 8,491,491
--------------
BELGIUM -- 1.8%
71,260 KBC Groupe 9,647,326
42,640 Umicore 9,307,758
--------------
18,955,084
--------------
CANADA -- 0.7%
177,980 Rogers Communications Inc. Cl B 7,588,333
--------------
CZECH REPUBLIC -- 0.8%
149,610 CEZ AS(2) 7,717,445
--------------
DENMARK -- 1.6%
290 AP Moller - Maersk AS 3,507,512
46,860 Novo Nordisk AS Cl B 5,113,674
115,340 Vestas Wind Systems AS(2) 7,635,909
--------------
16,257,095
--------------
FINLAND -- 2.4%
64,010 Kone Oyj(1) 4,051,321
188,260 Metso Oyj(1) 11,166,183
296,460 Nokia Oyj 8,350,500
--------------
23,568,004
--------------
FRANCE -- 9.8%
107,180 Accor SA(1) 9,534,261
46,360 ALSTOM Co.(1)(2) 7,794,877
258,615 AXA SA 11,205,047
223,320 Groupe Danone(1) 18,142,533
39,850 PPR SA 6,988,333
60,650 Schneider Electric SA 8,548,324
48,259 Societe Generale(1) 8,983,593
158,230 Suez SA 9,100,177
204,590 Total SA(1) 16,687,368
10,548 Veolia Environnement 828,509
--------------
97,813,022
--------------
Shares Value
GERMANY -- 10.7%
104,640 adidas AG $ 6,625,707
56,150 Allianz SE 13,193,158
68,480 BASF AG 9,013,284
34,260 Continental AG(1) 4,843,157
42,280 DaimlerChrysler AG 3,925,275
93,920 Deutsche Boerse AG(1) 10,646,754
177,933 Fresenius Medical Care AG & Co. KGaA 8,219,911
309,188 GEA Group AG(2) 10,801,522
69,659 Hochtief AG 7,608,013
164,000 KarstadtQuelle AG(1)(2) 5,553,995
22,690 K+S AG 3,503,016
34,000 Linde AG(1) 4,107,347
70,900 Q-Cells AG(1)(2) 6,160,102
68,460 SAP AG(1) 3,527,720
66,680 Siemens AG 9,618,445
--------------
107,347,406
--------------
GREECE -- 1.8%
96,260 Hellenic Telecommunications
Organization SA 2,983,703
255,210 National Bank of Greece SA 14,646,635
--------------
17,630,338
--------------
HONG KONG -- 0.9%
689,700 Esprit Holdings Ltd. 8,751,654
--------------
INDIA -- 2.7%
240,020 Bharti Airtel Ltd.(2) 4,988,268
157,900 Housing Development Finance Corp. Ltd. 7,910,391
391,060 Reliance Communication Ventures Ltd.(2) 4,989,453
105,800 Reliance Industries Ltd. 4,439,031
160,310 Tata Consultancy Services Ltd. 4,546,237
--------------
26,873,380
--------------
IRELAND -- 1.1%
332,633 Anglo Irish Bank Corp. plc 6,843,578
107,660 Ryanair Holdings plc ADR(1)(2) 4,064,165
--------------
10,907,743
--------------
ITALY -- 4.8%
246,700 Banco Popolare di Verona e Novara
Scrl(1) 7,125,870
123,260 Bulgari SpA 1,987,047
245,140 ENI SpA(1) 8,925,669
134,880 Fiat SpA 4,029,250
162,410 Finmeccanica SpA 5,018,720
193,960 Luxottica Group SpA(1) 7,555,745
381,469 Saipem SpA 13,094,315
--------------
47,736,616
--------------
- ------
8
VP International
Shares Value
JAPAN -- 15.8%
66,100 AEON Mall Co., Ltd.(1) $ 2,034,176
151,500 Canon, Inc.(1) 8,894,036
136,000 Daikin Industries Ltd. 4,958,305
62,700 Fanuc Ltd. 6,475,937
69,000 Ibiden Co. Ltd. 4,459,746
725,000 Isuzu Motors Ltd. 3,932,443
940 KDDI Corp. 6,968,617
97,000 Makita Corp. 4,316,187
802,000 Marubeni Corp. 6,609,801
1,066,000 Mitsubishi Electric Corp. 9,884,876
451 Mitsubishi UFJ Financial Group, Inc. 4,980,388
44,200 Nintendo Co., Ltd. 16,186,270
572,000 Nippon Yusen Kabushiki Kaisha(1) 5,252,990
102,000 Nitori Co. Ltd. 5,093,581
44,990 ORIX Corp. 11,854,375
642,000 Osaka Gas Co. Ltd. 2,387,528
428,000 Sharp Corp.(1) 8,132,191
71,600 Sony Corp.(1) 3,680,143
618,000 Sumitomo Heavy Industries Ltd. 7,010,239
1,842,000 Sumitomo Metal Industries Ltd. 10,858,609
236,000 Sumitomo Realty & Development Co. Ltd. 7,703,463
315,000 Tokyo Tatemono Co. Ltd.(1) 3,931,265
191,800 Toyota Motor Corp. 12,147,619
--------------
157,752,785
--------------
MEXICO -- 1.2%
188,770 America Movil, SAB de CV ADR 11,690,526
--------------
NETHERLANDS -- 2.2%
109,460 ING Groep N.V. CVA 4,858,153
170,270 Heineken N.V. 10,023,095
158,880 Koninklijke BAM Groep N.V. 4,511,791
59,420 Koninklijke Philips Electronics N.V. 2,538,306
--------------
21,931,345
--------------
NORWAY -- 2.8%
235,095 Aker Kvaerner ASA(1) 5,978,309
129,520 Yara International ASA 3,908,414
457,720 Statoil ASA(1) 14,239,005
199,930 Telenor ASA(1) 3,923,220
--------------
28,048,948
--------------
PEOPLE'S REPUBLIC OF CHINA -- 0.5%
1,508,000 China Merchants Bank Co. Ltd. Cl H(1) 4,590,886
--------------
Shares Value
SINGAPORE -- 1.1%
1,300,000 Keppel Corp. Ltd. $ 10,617,098
--------------
SOUTH AFRICA -- 0.7%
122,090 Anglo American plc 7,218,607
--------------
SOUTH KOREA -- 0.2%
3,950 Samsung Electronics 2,421,292
--------------
SPAIN -- 2.2%
194,450 Inditex SA 11,520,168
406,090 Banco Bilbao Vizcaya Argentaria SA(1) 10,003,869
--------------
21,524,037
--------------
SWEDEN -- 1.6%
194,820 Swedbank AB Cl A 7,091,406
2,314,110 Telefonaktiebolaget LM Ericsson Cl B 9,289,321
--------------
16,380,727
--------------
SWITZERLAND -- 11.0%
493,190 ABB Ltd. 11,221,248
43,000 Actelion Ltd.(1)(2) 1,923,272
115,940 Adecco SA(1) 9,009,701
162,210 Compagnie Financiere Richemont SA Cl A 9,757,691
146,520 Credit Suisse Group(1) 10,474,708
112,320 Holcim Ltd. 12,207,796
185,460 Julius Baer Holding AG 13,342,009
12,130 Nestle SA 4,626,247
125,340 Novartis AG 7,078,168
77,466 Roche Holding AG 13,783,286
60,460 Syngenta AG 11,836,176
77,492 UBS AG 4,667,849
--------------
109,928,151
--------------
TAIWAN (REPUBLIC OF CHINA) -- 1.2%
1,405,400 Hon Hai Precision Industry Co., Ltd. 12,191,008
--------------
UNITED KINGDOM -- 13.9%
510,953 Barclays plc 7,139,671
801,120 BG Group plc 13,212,748
115,690 British American Tobacco plc 3,943,860
761,540 BT Group plc 5,083,612
1,061,825 Burberry Group plc 14,645,280
560,137 Capita Group plc 8,164,299
552,008 Carphone Warehouse Group plc(1) 3,659,959
253,158 GlaxoSmithKline plc 6,632,697
731,062 HSBC Holdings plc 13,429,606
1,071,640 International Power plc 9,240,598
173,930 Informa plc 1,946,737
850,850 Man Group plc 10,402,993
188,567 Reckitt Benckiser plc 10,354,068
- ------
9
VP International
Shares Value
716,512 Royal Bank of Scotland Group plc $ 9,105,739
1,541,701 Tesco plc 12,953,396
2,720,710 Vodafone Group plc 9,165,628
--------------
139,080,891
--------------
TOTAL COMMON STOCKS
(Cost $722,108,786) 991,776,778
--------------
Preferred Stocks -- 0.2%
GERMANY -- 0.2%
45,390 Henkel KGaA(1) 2,401,597
(Cost $2,433,499)
--------------
Temporary Cash Investments(3)
Repurchase Agreement, Credit Suisse First Boston, Inc.,
(collateralized by various U.S. Treasury obligations, 5.50%,
8/15/28, valued at $204,151), in a joint trading account at
4.35%, dated 6/29/07, due 7/2/07 (Delivery value $200,073)
(Cost $200,000) 200,000
--------------
Temporary Cash Investments -- Securities
Lending Collateral(4) -- 16.9%
Repurchase Agreement, Morgan Stanley Group, Inc.,
(collateralized by various U.S. Government Agency obligations in
a pooled account at the lending agent), 5.38%, dated 6/29/07,
due 7/2/07 (Delivery value $169,641,484)
(Cost $169,565,462) 169,565,462
--------------
TOTAL INVESTMENT SECURITIES -- 116.3%
(Cost $894,307,747) 1,163,943,837
--------------
OTHER ASSETS AND LIABILITIES -- (16.3)% (163,190,887)
--------------
TOTAL NET ASSETS -- 100.0% $1,000,752,950
==============
Market Sector Diversification
(as a % of net assets)
Financials 24.5%
Industrials 17.0%
Consumer Discretionary 14.1%
Materials 9.2%
Energy 7.7%
Information Technology 7.0%
Consumer Staples 6.2%
Health Care 5.0%
Telecommunication Services 4.6%
Utilities 2.9%
Wireless Telecommunication Services 1.2%
Cash and Equivalents* 0.6%
* Includes temporary cash investments, securities lending collateral and other
assets and liabilities.
Notes to Schedule of Investments
ADR = American Depositary Receipt
CVA = Certificaten Van Aandelen
(1) Security, or a portion thereof, was on loan as of June 30, 2007.
(2) Non-income producing.
(3) Category is less than 0.05% of total net assets.
(4) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions.
See Notes to Financial Statements.
- ------
10
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2007 (UNAUDITED)
ASSETS
Investment securities, at value (cost of $724,742,285) --
including $163,302,828 of securities on loan $ 994,378,375
Investments made with cash collateral received for securities on
loan, at value (cost of $169,565,462) 169,565,462
--------------
Total investment securities, at value (cost of $894,307,747) 1,163,943,837
Cash 1,750,844
Foreign currency holdings, at value (cost of $4,504,235) 4,515,729
Receivable for investments sold 9,976,974
Dividends and interest receivable 1,244,130
--------------
1,181,431,514
--------------
LIABILITIES
Payable for collateral received for securities on loan 169,565,462
Payable for investments purchased 10,134,315
Accrued management fees 940,509
Distribution fees payable 38,278
--------------
180,678,564
--------------
NET ASSETS $1,000,752,950
==============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $710,989,092
Accumulated net investment loss (2,753,853)
Undistributed net realized gain on investment and foreign
currency transactions 23,289,973
Net unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 269,227,738
--------------
$1,000,752,950
==============
CLASS I, $0.01 PAR VALUE
Net assets $683,839,599
Shares outstanding 61,058,003
Net asset value per share $11.20
CLASS II, $0.01 PAR VALUE
Net assets $172,327,208
Shares outstanding 15,402,619
Net asset value per share $11.19
CLASS III, $0.01 PAR VALUE
Net assets $128,344,963
Shares outstanding 11,458,930
Net asset value per share $11.20
CLASS IV, $0.01 PAR VALUE
Net assets $16,241,180
Shares outstanding 1,450,820
Net asset value per share $11.19
See Notes to Financial Statements.
- ------
11
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
INVESTMENT INCOME (LOSS)
INCOME:
Dividends (net of foreign taxes withheld of $1,455,555) $ 12,496,190
Securities lending 651,364
Interest 164,194
-------------
13,311,748
-------------
EXPENSES:
Management fees 5,546,266
Distribution fees:
Class II 205,484
Class IV 18,434
Directors' fees and expenses 9,325
Other expenses 10,999
-------------
5,790,508
-------------
NET INVESTMENT INCOME (LOSS) 7,521,240
-------------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
Investment transactions 69,085,692
Foreign currency transactions 10,529,205
-------------
79,614,897
-------------
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
Investments (net of foreign taxes accrued of $(163,067)) 16,223,457
Translation of assets and liabilities in foreign currencies (385,515)
-------------
15,837,942
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) 95,452,839
-------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $102,974,079
=============
See Notes to Financial Statements.
- ------
12
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2006
Increase (Decrease) in Net Assets 2007 2006
OPERATIONS
Net investment income (loss) $ 7,521,240 $ 4,631,044
Net realized gain (loss) 79,614,897 108,891,691
Change in net unrealized appreciation
(depreciation) 15,837,942 75,025,051
-------------- --------------
Net increase (decrease) in net assets resulting
from operations 102,974,079 188,547,786
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Class I (4,397,585) (9,536,031)
Class II (920,556) (1,997,543)
Class III (867,411) (1,849,972)
Class IV (81,096) (169,198)
-------------- --------------
Decrease in net assets from distributions (6,266,648) (13,552,744)
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets from
capital share transactions (12,211,702) (57,605,760)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS 84,495,729 117,389,282
NET ASSETS
Beginning of period 916,257,221 798,867,939
-------------- --------------
End of period $1,000,752,950 $916,257,221
============== ==============
Accumulated net investment loss $(2,753,853) $(4,008,445)
============== ==============
See Notes to Financial Statements.
- ------
13
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2007 (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
foreign companies that management believes will increase in value over time.
The fund will invest primarily in securities of issuers located in at least
three developed countries (excluding the United States). 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. The share classes differ principally in their respective
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. Securities traded on foreign securities exchanges and
over-the-counter markets are normally completed before the close of business
on days that the New York Stock Exchange (the Exchange) is open and may also
take place on days when the Exchange is not open. If an event occurs after the
value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, that
security would be valued as determined in accordance with procedures adopted
by the Board of Directors. If the fund determines that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by, or in accordance with procedures adopted by, the
Board of Directors or its designee if such determination would materially
impact a fund's net asset value. Certain other circumstances may cause the
fund to use alternative procedures to value a security such as: a security has
been declared in default; trading in a security has been halted during the
trading day; or there is a foreign market holiday and no trading will
commence.
SECURITY TRANSACTIONS -- 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.
- ------
14
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
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) (the investment advisor),
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 book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of 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.
- ------
15
As of December 31, 2006, the fund had accumulated net realized capital loss
carryovers for federal income tax purposes of $(54,572,365), which may be used
to offset future taxable gains. Capital loss carryovers of $(53,990,469) and
$(581,896) expire in 2010 and 2011, respectively.
The fund has elected to treat $(158,650) of net foreign currency losses
incurred in the two-month period ended December 31, 2006, 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.
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- The corporation has entered into a Management Agreement
with ACGIM, 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 ranges from 1.00% to 1.50%
for Class I and Class III and from 0.90% to 1.40% for Class II and Class IV.
The effective annual management fee for each class of the fund for the six
months ended June 30, 2007 was 1.21%, 1.11%, 1.21% and 1.11% for Class I,
Class II, Class III and Class IV, respectively.
ACGIM has entered into a Subadvisory Agreement with ACIM (the subadvisor) on
behalf of the fund. The subadvisor makes investment decisions for the cash
portion of the fund in accordance with the fund's investment 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,
2007, 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.
- ------
16
The fund may invest in a money market fund for temporary purposes, which is
managed by J.P. Morgan Investment Management, Inc. (JPMIM). JPMIM is a wholly
owned subsidiary of JPMorgan Chase & Co. (JPM). JPM is an equity investor in
ACC. 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 JPM.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the six months ended June 30, 2007, were $553,284,269 and
$567,880,046, respectively.
As of June 30, 2007, 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 $905,881,157
=============
Gross tax appreciation of investments $259,596,534
Gross tax depreciation of investments (1,533,854)
-------------
Net tax appreciation (depreciation) of investments $258,062,680
=============
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 investments in passive foreign investments companies.
4. CAPITAL SHARE TRANSACTIONS
Six months ended Year ended
June 30, 2007 December 31, 2006
Shares Amount Shares Amount
CLASS
I/SHARES
AUTHORIZED 300,000,000 300,000,000
=========== ===========
Sold 6,142,738 $ 65,763,130 7,787,464 $ 70,332,292
Issued in
reinvestment
of
distributions 442,859 4,397,585 1,124,532 9,536,031
Redeemed (6,835,702) (71,952,639) (15,374,988) (137,152,085)
----------- ------------- ----------- -------------
(250,105) (1,791,924) (6,462,992) (57,283,762)
----------- ------------- ----------- -------------
CLASS
II/SHARES
AUTHORIZED 50,000,000 50,000,000
=========== ===========
Sold 474,395 5,066,680 1,910,278 17,015,872
Issued in
reinvestment
of
distributions 92,798 920,556 235,838 1,997,543
Redeemed (1,098,299) (11,623,945) (1,218,416) (11,004,028)
----------- ------------- ----------- -------------
(531,106) (5,636,709) 927,700 8,009,387
----------- ------------- ----------- -------------
CLASS
III/SHARES
AUTHORIZED 50,000,000 50,000,000
=========== ===========
Sold 491,733 5,144,682 1,296,180 11,525,794
Issued in
reinvestment
of
distributions 87,353 867,411 218,157 1,849,972
Redeemed (1,111,623) (11,716,942)(1) (2,529,408) (22,598,909)(2)
----------- ------------- ----------- -------------
(532,537) (5,704,849) (1,015,071) (9,223,143)
----------- ------------- ----------- -------------
CLASS
IV/SHARES
AUTHORIZED 50,000,000 50,000,000
=========== ===========
Sold 217,990 2,292,069 368,962 3,302,710
Issued in
reinvestment
of
distributions 8,167 81,096 19,953 169,198
Redeemed (139,860) (1,451,385)(3) (291,446) (2,580,150)(4)
----------- ------------- ----------- -------------
86,297 921,780 97,469 891,758
----------- ------------- ----------- -------------
Net increase
(decrease) (1,227,451) $(12,211,702) (6,452,894) $(57,605,760)
=========== ============= =========== =============
(1) Net of redemption fees of $3,558.
(2) Net of redemption fees of $14,631.
(3) Net of redemption fees of $511.
(4) Net of redemption fees of $5,588.
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17
5. SECURITIES LENDING
As of June 30, 2007, securities in the fund valued at $163,302,828 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 $170,762,083. 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
$500,000,000 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 0.40%. The fund did not borrow from the line during the six months
ended June 30, 2007.
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.
8. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (FIN 48). FIN 48 establishes a
minimum threshold for financial statement recognition of the benefit of
positions taken in filing tax returns (including whether an entity is taxable
in a particular jurisdiction), and requires certain expanded tax disclosures.
FIN 48 is effective for fiscal years beginning after December 15, 2006, and is
to be applied to all open tax years as of the date of effectiveness.
Management has concluded that the adoption of FIN 48 will not materially
impact the financial statements.
The FASB issued Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" (FAS 157), in September 2006, which is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands the required
financial statement disclosures about fair value measurements. Management is
currently evaluating the impact that adopting FAS 157 will have on the
financial statement disclosures.
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18
FINANCIAL HIGHLIGHTS
VP International
Class I
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2007(1) 2006 2005 2004 2003 2002
PER-SHARE DATA
Net Asset
Value,
Beginning of
Period $10.12 $8.23 $7.35 $6.43 $5.21 $6.59
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net
Investment
Income
(Loss)(2) 0.09 0.05 0.09 0.04 0.04 0.05
Net Realized
and
Unrealized
Gain (Loss) 1.06 1.98 0.88 0.92 1.22 (1.38)
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations 1.15 2.03 0.97 0.96 1.26 (1.33)
-------- -------- -------- -------- -------- --------
Distributions
From Net
Investment
Income (0.07) (0.14) (0.09) (0.04) (0.04) (0.05)
-------- -------- -------- -------- -------- --------
Net Asset
Value, End of
Period $11.20 $10.12 $8.23 $7.35 $6.43 $5.21
======== ======== ======== ======== ======== ========
TOTAL
RETURN(3) 11.49% 25.03% 13.25% 14.92% 24.51% (20.37)%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net
Assets 1.21%(4) 1.23% 1.23% 1.27% 1.34% 1.31%
Ratio of Net
Investment
Income (Loss)
to Average
Net Assets 1.64%(4) 0.57% 1.15% 0.59% 0.67% 0.77%
Portfolio
Turnover Rate 59% 98% 97% 120% 185% 247%
Net Assets,
End of Period
(in
thousands) $683,840 $620,235 $558,013 $537,982 $512,814 $449,026
(1) Six months ended June 30, 2007 (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.
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19
VP International
Class II
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2007(1) 2006 2005 2004 2003 2002
PER-SHARE DATA
Net Asset
Value,
Beginning of
Period $10.10 $8.22 $7.34 $6.42 $5.20 $6.59
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net
Investment
Income
(Loss)(2) 0.08 0.04 0.07 0.02 0.01 0.03
Net Realized
and
Unrealized
Gain (Loss) 1.07 1.97 0.88 0.93 1.24 (1.38)
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations 1.15 2.01 0.95 0.95 1.25 (1.35)
-------- -------- -------- -------- -------- --------
Distributions
From Net
Investment
Income (0.06) (0.13) (0.07) (0.03) (0.03) (0.04)
-------- -------- -------- -------- -------- --------
Net Asset
Value, End of
Period $11.19 $10.10 $8.22 $7.34 $6.42 $5.20
======== ======== ======== ======== ======== ========
TOTAL
RETURN(3) 11.44% 24.74% 13.11% 14.77% 24.36% (20.57)%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net
Assets 1.36%(4) 1.38% 1.38% 1.42% 1.49% 1.47%
Ratio of Net
Investment
Income (Loss)
to Average
Net Assets 1.49%(4) 0.42% 1.00% 0.44% 0.52% 0.61%
Portfolio
Turnover Rate 59% 98% 97% 120% 185% 247%
Net Assets,
End of
Period
(in
thousands) $172,327 $160,914 $123,337 $81,773 $44,556 $16,711
(1) Six months ended June 30, 2007 (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.
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20
VP International
Class III
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2007(1) 2006 2005 2004 2003 2002(2)
PER-SHARE DATA
Net Asset Value,
Beginning of
Period $10.12 $8.23 $7.36 $6.43 $5.21 $6.42
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net
Investment
Income
(Loss)(3) 0.09 0.05 0.09 0.04 0.04 0.01
Net Realized
and
Unrealized
Gain (Loss) 1.06 1.98 0.87 0.93 1.22 (1.22)
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations 1.15 2.03 0.96 0.97 1.26 (1.21)
-------- -------- -------- -------- -------- --------
Distributions
From Net
Investment
Income (0.07) (0.14) (0.09) (0.04) (0.04) --
-------- -------- -------- -------- -------- --------
Net Asset
Value, End of
Period $11.20 $10.12 $8.23 $7.36 $6.43 $5.21
======== ======== ======== ======== ======== ========
TOTAL
RETURN(4) 11.49% 25.03% 13.10% 15.08% 24.51% (18.85)%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net
Assets 1.21%(5) 1.23% 1.23% 1.27% 1.34% 1.33%(5)
Ratio of Net
Investment
Income (Loss)
to Average
Net Assets 1.64%(5) 0.57% 1.15% 0.59% 0.67% 0.22%(5)
Portfolio
Turnover Rate 59% 98% 97% 120% 185% 247%(6)
Net Assets,
End of Period
(in
thousands) $128,345 $121,320 $107,098 $96,358 $83,133 $52,498
(1) Six months ended June 30, 2007 (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.
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21
VP International
Class IV
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2007(1) 2006 2005 2004(2)
PER-SHARE DATA
Net Asset Value,
Beginning of Period $10.10 $8.22 $7.35 $6.47
-------- -------- -------- --------
Income From Investment Operations
Net Investment Income (Loss)(3) 0.08 0.04 0.08 --(4)
Net Realized and
Unrealized Gain (Loss) 1.07 1.97 0.87 0.88
-------- -------- -------- --------
Total From
Investment Operations 1.15 2.01 0.95 0.88
-------- -------- -------- --------
Distributions
From Net Investment Income (0.06) (0.13) (0.08) --
-------- -------- -------- --------
Net Asset Value, End of Period $11.19 $10.10 $8.22 $7.35
======== ======== ======== ========
TOTAL RETURN(5) 11.33% 24.86% 12.97% 13.60%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets 1.36%(6) 1.38% 1.38% 1.42%(6)
Ratio of Net Investment Income
(Loss) to Average Net Assets 1.49%(6) 0.42% 1.00% (0.01)%(6)
Portfolio Turnover Rate 59% 98% 97% 120%(7)
Net Assets, End of Period
(in thousands) $16,241 $13,788 $10,420 $6,294
(1) Six months ended June 30, 2007 (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.
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22
APPROVAL OF MANAGEMENT AGREEMENT
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 or trustees (the "Directors") each
year. At American Century, this process is referred to as the "15(c) Process."
As a part of this process, the board reviews fund performance, shareholder
services, audit and compliance information, and a variety of other reports
from the advisor concerning fund operations. In addition to this annual
review, the board of directors oversees and evaluates on a continuous basis at
its quarterly meetings the nature and quality of significant services
performed by the advisor, fund performance, audit and compliance information,
and a variety of other reports relating to fund operations. The board, or
committees of the board, also holds special meetings as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning VP International (the "fund") and the
services provided to the fund under the management agreement. The information
considered and the discussions held at the meetings included, but were not
limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund 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 a similar
fund;
* data comparing the fund's performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two regularly
scheduled meetings and one special meeting to review and discuss the
information provided by the advisor and to complete its negotiations with the
advisor regarding the renewal of the management agreement, including the
setting of the applicable advisory fee. The board also had the benefit of the
advice of its independent counsel throughout the period.
- ------
23
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. The
Directors did not identify any single factor as being all-important or
controlling, and each Director may have attributed different levels of
importance to different factors. In deciding to renew the agreement under the
terms ultimately determined by the board to be appropriate, the Directors'
decision was based on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under
the management agreement, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both
in terms of quantity and complexity in response to shareholder demands,
competition in the industry 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
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
technology, research, training, compliance and other systems
to conduct their business.
- ------
24
At each quarterly meeting the Directors review investment performance
information for the fund, together with comparative information for
appropriate benchmarks and peer groups of funds managed similarly to the fund.
The Directors also review detailed performance information during the 15(c)
Process comparing the fund's performance with that of similar funds not
managed by the advisor. If performance concerns are identified, the Directors
discuss with the advisor the reasons for such results (e.g., market
conditions, security selection) and any efforts being undertaken to improve
performance. The fund's performance was above the median of its peer group for
the one-year period and slightly below the median for the 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 their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY 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 consider the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethically. They noted that the advisor's practices generally meet or
exceed industry best practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the fund specifically, the expenses incurred by the advisor
in providing various functions to the fund, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints as the fund increases in size, and through
reinvestment in its business to provide shareholders additional content and
services.
- ------
25
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
fund's independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the fund and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider 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 slightly above 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 certain clients other
than the fund, at least in part, due to its existing infrastructure built to
serve the fund complex. The Directors concluded, however, that the assets of
those other clients are not material to the analysis and, in any event, are
included with the assets of the fund to determine breakpoints in the fund's
fee schedule, provided they are managed using the same investment team and
strategy.
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26
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the independent directors, in the absence of
particular circumstances and assisted by the advice of legal counsel that is
independent of the advisor, taking into account all of the factors discussed
above and the information provided by the advisor 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.
As a part of the 15(c) Process, the board of directors also unanimously
approved the renewal of the investment subadvisory agreement by which American
Century Investment Management, Inc. (the "subadvisor") is engaged to manage
the investments of the fund. In approving the subadvisory agreement, the board
considered all material factors including the nature, extent, and quality of
investment management services provided by the subadvisor to the fund under
the agreement. As a part of this review the board evaluated the subadvisor's
investment performance and capabilities, as well as its compliance policies,
procedures, and regulatory experience. The Directors noted that the management
fees paid to the subadvisor under the subadvisory agreement were subject to
arm's length negotiation between the advisor and the subadvisor and are paid
by the advisor out of its unified fee.
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27
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. The total expense ratio of Class III shares is the same as the total
expense ratio of Class I shares.
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.
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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.
Morgan Stanley Capital International (MSCI) has developed several indices that
measure the performance of foreign stock markets.
The MSCI EAFE® (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.
The MSCI EAFE® VALUE INDEX is a capitalization-weighted index that monitors
the performance of value stocks from Europe, Australasia, and the Far East.
The MSCI EM® (EMERGING MARKETS) INDEX represents the performance of stocks in
global emerging market countries.
The MSCI EUROPE INDEX is designed to measure equity market performance in
Europe.
The MSCI JAPAN INDEX is designed to measure equity market performance in Japan.
The MSCI WORLD FREE INDEX represents the performance of stocks in developed
countries (including the United States) that are available for purchase by
global investors.
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 website at americancentury.com and on the Securities and
Exchange Commission's website at sec.gov. Information regarding how the
investment advisor voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30 is available on the "About Us" page
at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's website at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330. The fund also makes its complete
schedule of portfolio holdings for the most recent quarter of its fiscal year
available on its website at ipro.americancentury.com (for Investment
Professionals) and, upon request, by calling 1-800-378-9878.
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29
NOTES
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30
NOTES
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31
NOTES
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32
[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 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.
American Century Investment Services, Inc., Distributor
©2007 American Century Proprietary Holdings, Inc. All rights reserved.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
0708
SH-SAN-55634
AMERICAN CENTURY VARIABLE PORTFOLIOS
Semiannual Report June 30, 2007
[photo of summer]
VP Large Company Value Fund
[american century investments logo and text logo]
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Stock Index Returns . . . . . . . . . . . . . . . . . . . . . . 2
VP LARGE COMPANY VALUE
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . 6
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 6
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . 7
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. . . . . . . . . . . . . . . . . . . . . . . . . 18
OTHER INFORMATION
Approval of Management Agreement for VP Large Company Value . . . . . 20
Share Class Information . . . . . . . . . . . . . . . . . . . . . . . 24
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 25
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 26
The opinions expressed in the Market Perspective and the Portfolio Commentary
reflect those of the portfolio management team as of the date of the report,
and do not necessarily represent the opinions of American Century 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.
MARKET PERSPECTIVE
[photo of Chief Investment Officer]
By Enrique Chang, Chief Investment Officer, American Century Investments
STOCKS ENJOYED A SOLID RALLY
The U.S. equity market advanced in the first half of 2007, benefiting from a
generally favorable environment for stocks. Although the U.S. economy slowed
markedly in the first quarter of the year, growing at an annual rate of just
0.6% (the lowest growth rate since the fourth quarter of 2002), it showed
signs of improvement in the second quarter. In addition, the Federal Reserve
held short-term interest rates steady, maintaining a policy shift that
occurred in mid-2006.
Corporate earnings growth decelerated during the period -- ending a streak of
double-digit quarterly earnings growth for the S&P 500 Index that began in
2002 -- but continued to outshine expectations. Robust merger activity also
provided support for stocks as a deluge of leveraged buy-outs from private
equity firms put the volume of deal-making ahead of last year's record pace.
Despite the generally positive backdrop, the stock market hit a couple of
speed bumps along the way. Stocks stumbled in late February, mirroring a drop
in the Chinese stock market, but rebounded quickly in early March. The
subsequent rally peaked in early June -- when many of the major stock indexes
hit seven-year highs -- as rising interest rates, higher energy prices, and
deteriorating subprime lending conditions led to a pullback in stock prices
later that month.
MID-CAP AND GROWTH OUTPERFORMED
As the accompanying table shows, mid-cap stocks led the market's advance in
the first six months of 2007, followed by large-cap issues, while small-cap
shares lagged after outperforming in 2006. Growth stocks, which have trailed
value issues for much of the decade, enjoyed a resurgence, outpacing value
shares across all market capitalizations.
The best-performing sectors in the stock market were energy and materials,
driven largely by escalating energy and commodity prices. Telecommunication
services and industrials stocks also generated double-digit returns for the
reporting period. The only sector to decline was financials, which were hurt
by higher interest rates and the subprime lending fallout.
U.S. Stock Index Returns
For the six months ended June 30, 2007*
RUSSELL 1000 INDEX (LARGE-CAP) 7.18%
Russell 1000 Growth Index 8.13%
Russell 1000 Value Index 6.23%
RUSSELL MIDCAP INDEX 9.90%
Russell Midcap Growth Index 10.97%
Russell Midcap Value Index 8.69%
RUSSELL 2000 INDEX (SMALL-CAP) 6.45%
Russell 2000 Growth Index 9.33%
Russell 2000 Value Index 3.80%
*Total returns for periods less than one year are not annualized.
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2
PERFORMANCE
VP Large Company Value
Total Returns as of June 30, 2007
Average Annual
Returns
Since Inception
6 months(1) 1 year Inception Date
CLASS II 5.96% 21.77% 15.07%(2) 10/29/04
RUSSELL 1000 VALUE
INDEX(3) 6.23% 21.87% 16.69% --
S&P 500 INDEX(3) 6.96% 20.59% 13.39% --
Class I 5.95% 21.92% 12.77%(2) 12/1/04
(1) Total returns for periods less than one year are not annualized.
(2) Returns would have been lower if management fees had not been voluntarily
reimbursed and waived.
(3) Data provided by Lipper Inc. -- A Reuters Company. ©2007 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
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 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 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 Large Company Value
Growth of $10,000 Over Life of Class
$10,000 investment made October 29, 2004
One-Year Returns Over Life of Class
Periods ended June 30
2005* 2006 2007
Class II 8.13% 10.45%** 21.77%
Russell 1000 Value Index 10.49% 12.10% 21.87%
S&P 500 Index 6.72% 8.63% 20.59%
* From 10/29/04, Class II's inception date, to 6/30/05. Not annualized.
** Returns would have been lower, along with the ending value, if management
fees had not been voluntarily reimbursed and waived.
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 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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4
PORTFOLIO COMMENTARY
VP Large Company Value
Portfolio Managers: Chuck Ritter and Brendan Healy
PERFORMANCE SUMMARY
VP Large Company Value gained 5.95%* for the six months ended June 30, 2007.
By comparison, its benchmark, the Russell 1000 Value Index, advanced 6.23%.
The broader market, as measured by the S&P 500 Index, gained 6.96%. The
portfolio's returns reflect operating expenses, while the indices' returns do
not.
VP Large Company Value's results were achieved in a market environment
(described in the Market Perspective on page 2) more favorable to growth
stocks than to value stocks across the capitalization spectrum. Value
strategies that emphasized lower-quality names and stocks subject to higher
levels of volatility also performed well. The portfolio's bias toward mega-cap
stocks (shares of especially large companies) slowed its progress early in the
period, but as these securities found greater favor with investors, our
performance benefited from the value opportunities we found. Investments in
consumer staples and industrials stocks contributed the most to results versus
the Russell 1000 Value Index, while our positions in the consumer
discretionary and health care sectors detracted.
CONSUMER STAPLES BOOSTED RESULTS
Investments in the consumer staples sector contributed positively to results
versus the benchmark. We owned Netherlands-based Unilever, a supplier of
foods, home goods, and personal products, which saw stronger-than-expected
revenue growth and continued progress in its cost-cutting efforts.
The portfolio also held Kroger, the second-largest food retailer in the U.S.
Kroger's stock rose 23% over the six-month period as the company regained
market share by tailoring its products and service offerings to its customers'
buying behaviors.
Elsewhere, we were rewarded for avoiding Procter & Gamble, which lagged its
peers in the household products segment. P&G is a large part of the benchmark,
but did not meet our valuation criteria.
INDUSTRIALS CONTRIBUTED
The portfolio benefited from an overweight position and security selection in
the industrials sector. Particularly advantageous was our exposure to
machinery companies, such as Ingersoll-Rand. The company's stock price rose
41% over the period as it began to move away from heavy machinery
manufacturing to focus instead on its climate control, industrial, and
security businesses.
Top Ten Holdings as of June 30, 2007
% of net % of net
assets as of assets as of
6/30/07 12/31/06
Exxon Mobil Corp. 4.8% 4.8%
Citigroup Inc. 4.6% 4.8%
Bank of America Corp. 3.3% 3.3%
AT&T Inc. 3.2% 1.9%
Chevron Corp. 2.9% 3.0%
Royal Dutch Shell plc ADR 2.8% 2.7%
Freddie Mac 2.4% 2.7%
JPMorgan Chase & Co. 2.4% 2.3%
Wells Fargo & Co. 2.2% 2.1%
General Electric Co. 2.1% 1.4%
* All fund returns referenced in this commentary are for Class I shares. Total
returns for periods less than one year are not annualized.
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5
VP Large Company Value
A MIXED BAG IN CONSUMER DISCRETIONARY
Our investments in consumer discretionary companies provided mixed results. On
one hand, the sector provided one of the portfolio's largest contributors --
Dollar General Corp. Dollar General, a discount retailer of general
merchandise, announced that it was being acquired by private-equity giant
Kohlberg Kravis Roberts & Co. As the stock price rallied in response, we took
advantage of the opportunity to eliminate our position.
The sector also supplied a top detractor. Apparel manufacturer Liz Claiborne
reported disappointing first-quarter results and dramatically lowered earnings
guidance. Given these deteriorating fundamentals and lack of valuation
support, we sold the holding.
HEALTH CARE DETRACTED
The portfolio's health care holdings were another drag on relative
performance. Shares of Johnson & Johnson (J&J) and Amgen were hard-hit by
regulatory and reimbursement threats to their erythropoiesis-stimulating
agents, sometimes known as ESAs or EPO drugs, which are sold as Epogen and
Aranesp by Amgen and Procrit by J&J. The drugs are prescribed for anemia, a
red blood cell deficiency that can also be a side effect of cancer
chemotherapy and kidney disease.
STARTING POINT FOR NEXT REPORTING PERIOD
As bottom-up investment managers, we evaluate each company individually and
build the portfolio one stock at a time. As of June 30, 2007, VP Large Company
Value was broadly diversified, with continued overweight positions in the
information technology and health care sectors. Our valuation work contributed
to our smaller relative weightings in utilities stocks. We have also continued
to find greater value opportunities among mega-cap stocks and have maintained
our bias toward these firms.
Top Five Industries as of June 30, 2007
% of net % of net
assets as of assets as of
6/30/07 12/31/06
Oil, Gas & Consumable Fuels 13.0% 13.3%
Diversified Financial Services 10.3% 10.4%
Pharmaceuticals 7.9% 6.8%
Commercial Banks 7.2% 6.5%
Insurance 6.5% 6.4%
Types of Investments in Portfolio
% of net % of net
assets as of assets as of
6/30/07 12/31/06
Domestic Common Stocks 92.6% 90.6%
Foreign Common Stocks(1) 5.4% 5.0%
TOTAL COMMON STOCKS 98.0% 95.6%
Cash and Equivalents(2) 2.0% 4.4%
(1) Includes depositary shares, dual listed securities and foreign ordinary
shares.
(2) Includes temporary cash investments, securities lending collateral and
other assets and liabilities.
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6
SHAREHOLDER FEE EXAMPLE (UNAUDITED)
Fund shareholders may incur two types of costs: (1) transaction costs,
including sales charges (loads) on purchase payments and redemption/exchange
fees; and (2) ongoing costs, including management fees; distribution and
service (12b-1) fees; and other fund expenses. This example is intended to
help you understand your ongoing costs (in dollars) of investing in your fund
and to compare these costs with the ongoing cost of investing in other mutual
funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2007 to June 30, 2007.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is
not the actual return of a fund's share class. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare
this 5% hypothetical example with the 5% hypothetical examples that appear in
the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these transactional
costs were included, your costs would have been higher.
Beginning Ending
Account Account Expenses Paid
Value Value During Period* Annualized
1/1/07 6/30/07 1/1/07 - 6/30/07 Expense Ratio*
ACTUAL
Class I $1,000 $1,059.50 $4.60 0.90%
Class II $1,000 $1,059.60 $5.36 1.05%
HYPOTHETICAL
Class I $1,000 $1,020.33 $4.51 0.90%
Class II $1,000 $1,019.59 $5.26 1.05%
* 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.
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7
SCHEDULE OF INVESTMENTS
VP Large Company Value
JUNE 30, 2007 (UNAUDITED)
Shares Value
Common Stocks -- 98.0%
AEROSPACE & DEFENSE -- 1.0%
1,390 Northrop Grumman Corp. $ 108,239
-----------
BEVERAGES -- 2.0%
2,650 Coca-Cola Company (The) 138,622
2,540 Pepsi Bottling Group Inc. 85,547
-----------
224,169
-----------
BIOTECHNOLOGY -- 0.5%
940 Amgen Inc.(1) 51,973
-----------
CAPITAL MARKETS -- 3.3%
2,090 Merrill Lynch & Co., Inc. 174,683
2,290 Morgan Stanley 192,085
-----------
366,768
-----------
CHEMICALS -- 2.2%
2,110 du Pont (E.I.) de Nemours & Co. 107,272
1,830 PPG Industries, Inc. 139,281
-----------
246,553
-----------
COMMERCIAL BANKS -- 7.2%
2,570 Bank of New York Co., Inc. (The) 106,501
1,810 National City Corp.(2) 60,309
1,010 PNC Financial Services Group 72,296
4,470 U.S. Bancorp 147,286
3,310 Wachovia Corp. 169,637
6,890 Wells Fargo & Co. 242,322
-----------
798,351
-----------
COMMERCIAL SERVICES & SUPPLIES -- 1.4%
2,050 R.R. Donnelley & Sons Company 89,195
1,770 Waste Management, Inc. 69,119
-----------
158,314
-----------
COMMUNICATIONS EQUIPMENT -- 0.3%
1,630 Motorola, Inc. 28,851
-----------
COMPUTERS & PERIPHERALS -- 1.5%
3,680 Hewlett-Packard Co. 164,202
-----------
DIVERSIFIED CONSUMER SERVICES -- 0.6%
2,720 H&R Block, Inc.(2) 63,566
-----------
DIVERSIFIED FINANCIAL SERVICES -- 10.3%
7,550 Bank of America Corp. 369,120
9,890 Citigroup Inc. 507,257
5,350 JPMorgan Chase & Co. 259,208
-----------
1,135,585
-----------
Shares Value
DIVERSIFIED TELECOMMUNICATION SERVICES -- 4.7%
8,540 AT&T Inc. $ 354,410
3,940 Verizon Communications Inc. 162,210
-----------
516,620
-----------
ELECTRIC UTILITIES -- 2.6%
2,130 Exelon Corporation 154,638
2,910 PPL Corporation 136,159
-----------
290,797
-----------
ENERGY EQUIPMENT & SERVICES -- 0.3%
360 National Oilwell Varco, Inc.(1)(2) 37,526
-----------
FOOD & STAPLES RETAILING -- 1.7%
2,500 Kroger Co. (The) 70,325
2,380 Wal-Mart Stores, Inc. 114,502
-----------
184,827
-----------
FOOD PRODUCTS -- 1.3%
4,490 Unilever N.V. New York Shares 139,280
-----------
HEALTH CARE PROVIDERS & SERVICES -- 0.3%
580 Quest Diagnostics Inc.(2) 29,957
-----------
HOTELS, RESTAURANTS & LEISURE -- 0.9%
1,890 McDonald's Corporation 95,936
-----------
HOUSEHOLD DURABLES -- 0.6%
2,230 Newell Rubbermaid Inc. 65,629
-----------
INDUSTRIAL CONGLOMERATES -- 3.3%
6,000 General Electric Co. 229,680
4,100 Tyco International Ltd. 138,539
-----------
368,219
-----------
INSURANCE -- 6.5%
2,190 Allstate Corp. 134,707
3,230 American International Group, Inc. 226,196
1,350 Hartford Financial Services Group Inc. (The) 132,989
1,700 Loews Corp. 86,666
1,960 Marsh & McLennan Companies, Inc. 60,525
1,050 Torchmark Corp. 70,350
-----------
711,433
-----------
IT SERVICES -- 1.7%
840 Fiserv, Inc.(1) 47,712
1,290 International Business Machines Corp. 135,773
-----------
183,485
-----------
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8
VP Large Company Value
Shares Value
MACHINERY -- 3.7%
750 Caterpillar Inc. $ 58,725
670 Deere & Co. 80,896
1,540 Dover Corp. 78,771
2,020 Ingersoll-Rand Company Ltd. Cl A 110,736
850 Parker-Hannifin Corp. 83,224
-----------
412,352
-----------
MEDIA -- 3.7%
2,070 Gannett Co., Inc. 113,747
9,840 Time Warner Inc. 207,033
2,130 Viacom Inc. Cl B(1) 88,672
-----------
409,452
-----------
METALS & MINING -- 0.4%
770 Nucor Corp. 45,161
-----------
MULTI-UTILITIES -- 0.5%
2,730 NiSource Inc. 56,538
-----------
OFFICE ELECTRONICS -- 0.7%
3,990 Xerox Corp.(1) 73,735
-----------
OIL, GAS & CONSUMABLE FUELS -- 13.0%
3,850 Chevron Corp. 324,324
2,800 ConocoPhillips 219,800
570 Devon Energy Corporation 44,625
6,350 Exxon Mobil Corp. 532,637
3,860 Royal Dutch Shell plc ADR 313,432
-----------
1,434,818
-----------
PAPER & FOREST PRODUCTS -- 1.1%
1,580 Weyerhaeuser Co. 124,709
-----------
PHARMACEUTICALS -- 7.9%
2,950 Abbott Laboratories 157,973
1,310 Eli Lilly and Company 73,203
3,100 Johnson & Johnson 191,022
1,540 Merck & Co., Inc. 76,692
8,180 Pfizer Inc. 209,162
2,910 Wyeth 166,859
-----------
874,911
-----------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 0.8%
1,660 Applied Materials, Inc. 32,984
2,360 Intel Corp. 56,074
-----------
89,058
-----------
SOFTWARE -- 2.3%
5,900 Microsoft Corporation 173,873
3,760 Oracle Corp.(1) 74,110
-----------
247,983
-----------
Shares Value
SPECIALTY RETAIL -- 2.6%
1,320 Best Buy Co., Inc. $ 61,604
3,120 Gap, Inc. (The) 59,592
2,600 Home Depot, Inc. (The) 102,310
2,560 Staples, Inc. 60,749
-----------
284,255
-----------
TEXTILES, APPAREL & LUXURY GOODS -- 0.7%
850 VF Corp. 77,843
-----------
THRIFTS & MORTGAGE FINANCE -- 4.2%
4,380 Freddie Mac 265,866
1,100 MGIC Investment Corp.(2) 62,546
3,100 Washington Mutual, Inc.(2) 132,184
-----------
460,596
-----------
TOBACCO -- 1.2%
1,860 Altria Group Inc. 130,460
-----------
WIRELESS TELECOMMUNICATION SERVICES -- 1.0%
5,050 Sprint Nextel Corp. 104,586
-----------
TOTAL COMMON STOCKS
(Cost $9,685,610) 10,796,737
-----------
Temporary Cash Investments -- 3.6%
Repurchase Agreement, Credit Suisse First Boston, Inc.,
(collateralized by various U.S. Treasury obligations, 5.50%,
8/15/28, valued at $408,301), in a joint trading account at 4.35%,
dated 6/29/07, due 7/2/07 (Delivery value $400,145)(3)
(Cost $400,000) 400,000
-----------
Temporary Cash Investments -- Securities Lending Collateral(4) -- 3.5%
Repurchase Agreement, Morgan Stanley Group, Inc., (collateralized
by various U.S. Government Agency obligations in a pooled account
at the lending agent), 5.38%, dated 6/29/07, due 7/2/07 (Delivery
value $390,938)
(Cost $390,763) 390,763
-----------
TOTAL INVESTMENT SECURITIES -- 105.1%
(Cost $10,476,373) 11,587,500
-----------
OTHER ASSETS AND LIABILITIES -- (5.1)% (564,645)
-----------
TOTAL NET ASSETS -- 100.0% $11,022,855
===========
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9
VP Large Company Value
Futures Contracts
Underlying Face Unrealized Gain
Contracts Purchased Expiration Date Amount at Value (Loss)
3 S&P 500 Index September 2007 $227,625 $(154)
=============== ===============
Notes to Schedule of Investments
ADR = American Depositary Receipt
(1) Non-income producing.
(2) Security, or a portion thereof, was on loan as of June 30, 2007.
(3) Security, or a portion thereof, has been segregated for futures contracts.
(4) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions.
See Notes to Financial Statements.
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10
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2007 (UNAUDITED)
ASSETS
Investment securities, at value (cost of $10,085,610) -- including
$382,817 of securities on loan $11,196,737
Investments made with cash collateral received for securities on
loan, at value (cost of $390,763) 390,763
-----------
Total investment securities, at value (cost of $10,476,373) 11,587,500
Receivable for investments sold 61,092
Receivable for variation margin on futures contracts 39
Dividends and interest receivable 10,717
-----------
11,659,348
-----------
LIABILITIES
Disbursements in excess of demand deposit cash 200,947
Payable for collateral received for securities on loan 390,763
Payable for investments purchased 36,050
Accrued management fees 8,133
Distribution fees payable 600
-----------
636,493
-----------
NET ASSETS $11,022,855
===========
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 9,740,540
Undistributed net investment income 89,463
Undistributed net realized gain on investment transactions 81,879
Net unrealized appreciation on investments 1,110,973
-----------
$11,022,855
===========
CLASS I, $0.01 PAR VALUE
Net assets $8,046,738
Shares outstanding 589,803
Net asset value per share $13.64
CLASS II, $0.01 PAR VALUE
Net assets $2,976,117
Shares outstanding 216,041
Net asset value per share $13.78
See Notes to Financial Statements.
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11
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
INVESTMENT INCOME (LOSS)
INCOME:
Dividends (net of foreign taxes withheld of $1,243) $126,640
Interest 11,234
Securities lending 1,039
--------
138,913
--------
EXPENSES:
Management fees 46,106
Distribution fees -- Class II 3,198
Directors' fees and expenses 105
Other expenses 11
--------
49,420
--------
NET INVESTMENT INCOME (LOSS) 89,493
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on investment transactions 94,274
Change in net unrealized appreciation (depreciation) on investments 412,451
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) 506,725
--------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $596,218
========
See Notes to Financial Statements.
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12
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2006
Increase (Decrease) in Net Assets 2007 2006
OPERATIONS
Net investment income (loss) $ 89,493 $ 64,928
Net realized gain (loss) 94,274 10,717
Change in net unrealized appreciation (depreciation) 412,451 595,607
----------- -----------
Net increase (decrease) in net assets resulting from
operations 596,218 671,252
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Class I (52,304) (448)
Class II (12,635) (158)
From net realized gains:
Class I (9,792) (5,975)
Class II (3,111) (2,251)
----------- -----------
Decrease in net assets from distributions (77,842) (8,832)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets from capital
share transactions 550,900 7,240,833
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS 1,069,276 7,903,253
NET ASSETS
Beginning of period 9,953,579 2,050,326
----------- -----------
End of period $11,022,855 $9,953,579
=========== ===========
Undistributed net investment income $89,463 $64,909
=========== ===========
See Notes to Financial Statements.
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13
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2007 (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 distribution and
shareholder servicing 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. Securities traded on foreign securities exchanges and
over-the-counter markets are normally completed before the close of business
on days that the New York Stock Exchange (the Exchange) is open and may also
take place on days when the Exchange is not open. If an event occurs after the
value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, that
security would be valued as determined in accordance with procedures adopted
by the Board of Directors. If the fund determines that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by, or in accordance with procedures adopted by, the
Board of Directors or its designee if such determination would materially
impact a fund's net asset value. Certain other circumstances may cause the
fund to use alternative procedures to value a security such as: a security has
been declared in default; trading in a security has been halted during the
trading day; or there is a foreign market holiday and no trading will commence.
SECURITY TRANSACTIONS -- 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.
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.
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14
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.
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.
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 fund may
make distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code, in all events in a manner
consistent with provisions of the 1940 Act.
The book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of 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 $(1,768) of net capital losses incurred in the
two-month period ended December 31, 2006, 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.
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
- ------
15
management fee schedule for the fund ranges from 0.70% to 0.90% for Class I
and from 0.60% to 0.80% for Class II. For the six months ended June 30, 2007,
the effective annual management fee was 0.90% and 0.80% 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, 2007, 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.
The fund may invest in a money market fund for temporary purposes, which is
managed by J.P. Morgan Investment Management, Inc. (JPMIM). JPMIM is a wholly
owned subsidiary of JPMorgan Chase & Co. (JPM). JPM is an equity investor in
ACC. 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 JPM.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the six months ended June 30, 2007, were $1,676,260 and
$916,755, respectively.
As of June 30, 2007, 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 $10,487,074
============
Gross tax appreciation of investments $1,218,929
Gross tax depreciation of investments (118,503)
------------
Net tax appreciation (depreciation) of investments $1,100,426
============
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:
Six months ended Year ended
June 30, 2007 December 31, 2006
Shares Amount Shares Amount
CLASS I/SHARES AUTHORIZED 150,000,000 150,000,000
=========== ===========
Sold 87,808 $ 1,168,305 468,696 $5,925,849
Issued in reinvestment
of distributions 4,932 62,096 578 6,423
Redeemed (90,866) (1,211,963) (23,006) (274,443)
----------- ----------- ----------- -----------
1,874 18,438 446,268 5,657,829
----------- ----------- ----------- -----------
CLASS II/SHARES
AUTHORIZED 100,000,000 100,000,000
=========== ===========
Sold 106,820 1,436,739 178,614 2,163,186
Issued in reinvestment
of distributions 1,238 15,746 215 2,409
Redeemed (69,506) (920,023) (48,057) (582,591)
----------- ----------- ----------- -----------
38,552 532,462 130,772 1,583,004
----------- ----------- ----------- -----------
Net increase (decrease) 40,426 $ 550,900 577,040 $7,240,833
=========== =========== =========== ===========
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16
5. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a
$500,000,000 unsecured bank line of credit agreement with 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 0.40%. The fund did not borrow from the line during the six months
ended June 30, 2007.
6. SECURITIES LENDING
As of June 30, 2007, securities in the fund valued at $382,817 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 $390,763. 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.
7. CORPORATE EVENT
The Board of Directors approved its original management agreement between the
investment advisor and the corporation at a meeting held on December 31, 2002.
In order for the management agreement to continue in effect beyond its initial
term, it should have been evaluated and approved for renewal prior to December
31, 2004. However, the agreement inadvertently was not renewed by the Board in
time and, as a result, a new management agreement was required.
The investment advisor continued to provide to the fund investment advisory
services of the same nature as it had historically provided. The investment
advisor reimbursed the fund for all management fees received from January 1,
2005 through December 13, 2005, and agreed to waive receipt of such fees until
the approval of the management agreement.
At a meeting held on December 13, 2005, the Board of Directors considered the
matter and approved a new management agreement for the fund (the "Agreement").
The terms of the Agreement are substantially the same as the terms of the
original management agreement. A special meeting of shareholders of the fund
was held on March 3, 2006 to approve the Agreement. The Agreement was approved
by a majority of the fund's outstanding voting securities and the Agreement
became effective immediately upon such approval.
8. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an
Interpretation of FASB Statement No. 109" (FIN 48). FIN 48 establishes a
minimum threshold for financial statement recognition of the benefit of
positions taken in filing tax returns (including whether an entity is taxable
in a particular jurisdiction), and requires certain expanded tax disclosures.
FIN 48 is effective for fiscal years beginning after December 15, 2006, and is
to be applied to all open tax years as of the date of effectiveness.
Management has concluded that the adoption of FIN 48 will not materially
impact the financial statements.
The FASB issued Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" (FAS 157), in September 2006, which is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands the required
financial statement disclosures about fair value measurements. Management is
currently evaluating the impact that adopting FAS 157 will have on the
financial statement disclosures.
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17
FINANCIAL HIGHLIGHTS
VP Large Company Value
Class I
For a Share Outstanding Throughout the Years Ended December 31
(except as noted)
2007(1) 2006 2005 2004(2)
PER-SHARE DATA
Net Asset Value, Beginning
of Period $12.98 $10.85 $10.79 $10.61
-------- -------- -------- --------
Income From Investment Operations
Net Investment Income (Loss)(3) 0.11 0.23 0.27 0.01
Net Realized and Unrealized
Gain (Loss) 0.66 1.94 0.25 0.23
-------- -------- -------- --------
Total From Investment Operations 0.77 2.17 0.52 0.24
-------- -------- -------- --------
Distributions
From Net Investment Income (0.09) --(4) (0.25) (0.06)
From Net Realized Gains (0.02) (0.04) (0.21) --
-------- -------- -------- --------
Total Distributions (0.11) (0.04) (0.46) (0.06)
-------- -------- -------- --------
Net Asset Value, End of Period $13.64 $12.98 $10.85 $10.79
======== ======== ======== ========
TOTAL RETURN(5) 5.95% 19.98% 4.83% 2.29%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets 0.90%(6) 0.79%(7) 0.04%(7) 0.90%(6)
Ratio of Operating Expenses to
Average Net Assets (before waiver) 0.90%(6) 0.90% 0.94% 0.90%(6)
Ratio of Net Investment Income
(Loss) to Average Net Assets 1.74%(6) 1.98%(7) 2.45%(7) 0.64%(6)
Ratio of Net Investment Income
(Loss) to Average Net Assets
(before waiver) 1.74%(6) 1.87% 1.55% 0.64%(6)
Portfolio Turnover Rate 9% 11% 37% 3%(8)
Net Assets, End of Period
(in thousands) $8,047 $7,630 $1,538 $400
(1) Six months ended June 30, 2007 (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 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) During the year ended December 31, 2005 and a portion of the year ended
December 31, 2006, the investment advisor voluntarily agreed to reimburse
and/or waive its management fees.
(8) 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.
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18
VP Large Company Value
Class II
For a Share Outstanding Throughout the Years Ended December 31
(except as noted)
2007(1) 2006 2005 2004(2)
PER-SHARE DATA
Net Asset Value, Beginning
of Period $13.09 $10.97 $10.79 $10.00
-------- -------- -------- --------
Income From Investment Operations
Net Investment Income (Loss)(3) 0.10 0.22 0.24 0.04
Net Realized and Unrealized
Gain (Loss) 0.68 1.94 0.37 0.81
-------- -------- -------- --------
Total From Investment Operations 0.78 2.16 0.61 0.85
-------- -------- -------- --------
Distributions
From Net Investment Income (0.07) --(4) (0.22) (0.06)
From Net Realized Gains (0.02) (0.04) (0.21) --
-------- -------- -------- --------
Total Distributions (0.09) (0.04) (0.43) (0.06)
-------- -------- -------- --------
Net Asset Value, End of Period $13.78 $13.09 $10.97 $10.79
======== ======== ======== ========
TOTAL RETURN(5) 5.96% 19.78% 5.59% 8.52%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets 1.05%(6) 0.98%(7) 0.29%(7) 1.05%(6)
Ratio of Operating Expenses to
Average Net Assets (before waiver) 1.05%(6) 1.05% 1.09% 1.05%(6)
Ratio of Net Investment Income
(Loss) to Average Net Assets 1.59%(6) 1.79%(7) 2.20%(7) 2.44%(6)
Ratio of Net Investment Income
(Loss) to Average Net Assets
(before waiver) 1.59%(6) 1.72% 1.40% 2.44%(6)
Portfolio Turnover Rate 9% 11% 37% 3%
Net Assets, End of Period
(in thousands) $2,976 $2,324 $513 $1,085
(1) Six months ended June 30, 2007 (unaudited).
(2) October 29, 2004 (fund inception) 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) During the year ended December 31, 2005 and a portion of the year ended
December 31, 2006, the investment advisor voluntarily agreed to reimburse
and/or waive its management fees.
See Notes to Financial Statements.
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19
APPROVAL OF MANAGEMENT AGREEMENT
VP Large Company 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 or trustees (the "Directors") each
year. At American Century, this process is referred to as the "15(c) Process."
As a part of this process, the board reviews fund performance, shareholder
services, audit and compliance information, and a variety of other reports
from the advisor concerning fund operations. In addition to this annual
review, the board of directors oversees and evaluates on a continuous basis at
its quarterly meetings the nature and quality of significant services
performed by the advisor, fund performance, audit and compliance information,
and a variety of other reports relating to fund operations. The board, or
committees of the board, also holds special meetings as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning VP Large Company Value (the "fund") and the
services provided to the fund under the management agreement. The information
considered and the discussions held at the meetings included, but were not
limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund 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 a similar
fund;
* data comparing the fund's performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two regularly
scheduled meetings and one special meeting to review and discuss the
information provided by the advisor and to complete its negotiations with the
advisor regarding the renewal of the management agreement, including the
setting of the applicable advisory fee. The board also had the benefit of the
advice of its independent counsel throughout the period.
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20
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. The
Directors did not identify any single factor as being all-important or
controlling, and each Director may have attributed different levels of
importance to different factors. In deciding to renew the agreement under the
terms ultimately determined by the board to be appropriate, the Directors'
decision was based on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under
the management agreement, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both
in terms of quantity and complexity in response to shareholder demands,
competition in the industry 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
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
technology, research, training, compliance and other systems to conduct their
business.
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21
At each quarterly meeting the Directors review investment performance
information for the fund, together with comparative information for
appropriate benchmarks and peer groups of funds managed similarly to the fund.
The Directors also review detailed performance information during the 15(c)
Process comparing the fund's performance with that of similar funds not
managed by the advisor. If performance concerns are identified, the Directors
discuss with the advisor the reasons for such results (e.g., market
conditions, security selection) and any efforts being undertaken to improve
performance. The fund's performance was above the median of its peer group for
the one-year period and equal to the median for the 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 their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY 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 consider the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethically. They noted that the advisor's practices generally meet or
exceed industry best practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the fund specifically, the expenses incurred by the advisor
in providing various functions to the fund, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints as the fund increases in size, and through
reinvestment in its business to provide shareholders additional content and
services.
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22
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
fund's independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the fund and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider 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 fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker-dealers that
execute fund portfolio transactions and concluded that this research is likely
to benefit fund shareholders. The Directors also determined that the advisor
is able to provide investment management services to certain clients other
than the fund, at least in part, due to its existing infrastructure built to
serve the fund complex. The Directors concluded, however, that the assets of
those other clients are not material to the analysis and, in any event, are
included with the assets of the fund to determine breakpoints in the fund's
fee schedule, provided they are managed using the same investment team and
strategy.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the independent directors, in the absence of
particular circumstances and assisted by the advice of legal counsel that is
independent of the advisor, taking into account all of the factors discussed
above and the information provided by the advisor 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.
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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 website at americancentury.com and on the Securities and
Exchange Commission's website at sec.gov. Information regarding how the
investment advisor voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30 is available on the "About Us" page
at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's website at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330. The fund also makes its complete
schedule of portfolio holdings for the most recent quarter of its fiscal year
available on its website at ipro.americancentury.com (for Investment
Professionals) and, upon request, by calling 1-800-378-9878.
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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 RUSSELL 1000® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest companies in the Russell 3000 Index (the 3,000 largest publicly traded
U.S. companies, based on total market capitalization).
The RUSSELL 1000® GROWTH INDEX measures the performance of those Russell 1000
Index 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 values.
The RUSSELL 1000® VALUE INDEX measures the performance of those Russell 1000
Index 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 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 2000® GROWTH INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest 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 values.
The RUSSELL 2000® VALUE INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
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 Index companies (the 800 smallest of the 1,000 largest publicly traded
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.
- ------
26
NOTES
- ------
27
NOTES
- ------
28
[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.
American Century Investment Services, Inc., Distributor
©2007 American Century Proprietary Holdings, Inc. All rights reserved.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
0708
SH-SAN-55639
[front cover]
AMERICAN CENTURY VARIABLE PORTFOLIOS
Semiannual Report June 30, 2007
[photo of summer]
VP Mid Cap Value Fund
[american century investments logo and text logo]
[blank page]
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Stock Index Returns . . . . . . . . . . . . . . . . . . . . . . 2
VP?MID CAP VALUE
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . 6
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 6
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . 7
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. . . . . . . . . . . . . . . . . . . . . . . . . 18
OTHER INFORMATION
Approval of Management Agreement for VP Mid Cap Value . . . . . . . . 20
Share Class Information . . . . . . . . . . . . . . . . . . . . . . . 24
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 25
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 26
The opinions expressed in the Market Perspective and the Portfolio Commentary
reflect those of the portfolio management team as of the date of the report,
and do not necessarily represent the opinions of American Century 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.
MARKET PERSPECTIVE
[photo of Chief Investment Officer]
By Enrique Chang, Chief Investment Officer, American Century Investments
STOCKS ENJOYED A SOLID RALLY
The U.S. equity market advanced in the first half of 2007, benefiting from a
generally favorable environment for stocks. Although the U.S. economy slowed
markedly in the first quarter of the year, growing at an annual rate of just
0.6% (the lowest growth rate since the fourth quarter of 2002), it showed
signs of improvement in the second quarter. In addition, the Federal Reserve
held short-term interest rates steady, maintaining a policy shift that
occurred in mid-2006.
Corporate earnings growth decelerated during the period -- ending a streak of
double-digit quarterly earnings growth for the S&P 500 Index that began in
2002 -- but continued to outshine expectations. Robust merger activity also
provided support for stocks as a deluge of leveraged buy-outs from private
equity firms put the volume of deal-making ahead of last year's record pace.
Despite the generally positive backdrop, the stock market hit a couple of
speed bumps along the way. Stocks stumbled in late February, mirroring a drop
in the Chinese stock market, but rebounded quickly in early March. The
subsequent rally peaked in early June -- when many of the major stock indexes
hit seven-year highs -- as rising interest rates, higher energy prices, and
deteriorating subprime lending conditions led to a pullback in stock prices
later that month.
MID-CAP AND GROWTH OUTPERFORMED
As the accompanying table shows, mid-cap stocks led the market's advance in
the first six months of 2007, followed by large-cap issues, while small-cap
shares lagged after outperforming in 2006. Growth stocks, which have trailed
value issues for much of the decade, enjoyed a resurgence, outpacing value
shares across all market capitalizations.
The best-performing sectors in the stock market were energy and materials,
driven largely by escalating energy and commodity prices. Telecommunication
services and industrials stocks also generated double-digit returns for the
reporting period. The only sector to decline was financials, which were hurt
by higher interest rates and the subprime lending fallout.
U.S. Stock Index Returns
For the six months ended June 30, 2007*
RUSSELL 1000 INDEX (LARGE-CAP) 7.18%
Russell 1000 Growth Index 8.13%
Russell 1000 Value Index 6.23%
RUSSELL MIDCAP INDEX 9.90%
Russell Midcap Growth Index 10.97%
Russell Midcap Value Index 8.69%
RUSSELL 2000 INDEX (SMALL-CAP) 6.45%
Russell 2000 Growth Index 9.33%
Russell 2000 Value Index 3.80%
*Total returns for periods less than one year are not annualized.
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2
PERFORMANCE
VP Mid Cap Value
Total Returns as of June 30, 2007
Average
Annual Returns
Since Inception
6 months(1) 1 year Inception Date
CLASS II 9.87% 25.68% 19.89% 10/29/04
RUSSELL MIDCAP VALUE
INDEX(2) 8.69% 22.09% 20.17% --
Class I 9.96% 25.76% 17.28% 12/1/04
(1) Total returns for periods less than one year are not annualized.
(2) Data provided by Lipper Inc. - A Reuters Company. ©2007 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
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 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.
- ------
3
VP Mid Cap Value
Growth of $10,000 Over Life of Class
$10,000 investment made October 29, 2004
One-Year Returns Over Life of Class
Periods ended June 30
2005* 2006 2007
Class II 15.99% 11.32% 25.68%
Russell Midcap Value Index 17.01% 14.26% 22.09%
*From 10/29/04, Class II's inception date, to 6/30/05. 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 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.
- ------
4
PORTFOLIO COMMENTARY
VP Mid Cap Value
Portfolio Managers: Phil Davidson, Scott Moore, and Michael Liss
PERFORMANCE SUMMARY
VP Mid Cap Value gained 9.96%* for the six months ended June 30, 2007. By
comparison, its benchmark, the Russell Midcap Value Index, advanced 8.69%.
(The portfolio's return reflects operating expenses, while the index's return
does not.) The median return for Morningstar's Mid Cap Value category (whose
performance, like VP Mid Cap Value's, reflects fund operating expenses) was
9.61%.**
VP Mid Cap Value's results were achieved in a market environment (described in
the Market Perspective on page 2) more favorable to growth stocks than to
value stocks across the capitalization spectrum. Value strategies that
emphasized lower-quality names and stocks subject to higher levels of
volatility also performed well. Nonetheless, our emphasis on higher-quality
businesses with sound balance sheets resulted in solid performance.
Investments in financials, consumer discretionary, and telecommunication
stocks added most to results relative to the Russell Midcap Value Index, while
our positions in the materials and utilities sectors detracted.
Over time, VP Mid Cap Value's disciplined investment approach has rewarded
longer-term investors. Since the portfolio's inception on December 1, 2004, it
has produced an average annualized return of 17.28% (see the performance
information pages 3-4).
UNDERWEIGHT POSITION IN FINANCIALS CONTRIBUTED
The portfolio's underweight position in the financials sector was one of the
top contributors to performance. Stock selection boosted results further. Due
to our fundamental and valuation work, we held few real estate investment
trusts (REITs). Many firms in this group came under pressure as interest rates
rose and the subprime loan market began to experience disruptions. REITs,
which comprise 11% of the benchmark, posted negative results over the
six-month period while the portfolio was buffered from these losses because of
its much smaller stake in this sector.
The financials sector also held one of our top detracting stocks -- Freddie
Mac. Freddie Mac is a stockholder-owned corporation chartered by Congress to
keep money flowing to mortgage lenders in support of homeownership and rental
housing. Its stock declined in sympathy with the dip in the housing market but
was also
Top Ten Holdings as of June 30, 2007
% of % of
net assets net assets
as of as of
6/30/07 12/31/06
Freddie Mac 3.8% 1.8%
SunTrust Banks, Inc. 3.1% 1.6%
MGIC Investment Corp. 3.0% 2.0%
Portland General Electric Co. 2.8% 1.7%
South Financial Group Inc. (The) 2.8% 0.7%
Speedway Motorsports Inc. 2.7% 2.4%
Southwest Airlines Co. 2.5% 0.7%
Kraft Foods Inc. Cl A 2.4% --
ConAgra Foods, Inc. 2.1% 0.2%
iShares S&P MidCap 400 Index Fund 2.1% 1.9%
* All fund returns referenced in this commentary are for Class I shares. Total
returns for periods less than one year are not annualized.
** The one-year average return as of June 30, 2007, for Morningstar's Mid Cap
Value category was 21.20%.
©2007 Morningstar, Inc. All Rights Reserved. The information contained
herein: (1) is proprietary to Morningstar and/or its content providers; (2)
may not be copied or distributed; and (3) is not warranted to be accurate,
complete or timely. Neither Morningstar nor its content providers are
responsible for any damages or losses arising from any use of this information.
- ------
5
VP Mid Cap Value
affected by the problems of subprime lending stocks -- despite the fact that
Freddie Mac has only modest exposure to subprime loans.
CONSUMER DISCRETIONARY, TELECOMMUNICATIONS ADDED VALUE
The consumer discretionary sector provided two of the portfolio's top
contributors-- Dollar General Corp. and Dow Jones. Retail discounter Dollar
General announced during the first quarter that it was being acquired by
private-equity giant Kohlberg Kravis Roberts & Co. The stock performed well in
response to the $22-per-share cash buyout offer. Dow Jones, one of the leaders
in business news and information, outperformed when News Corp. made an
attractive buyout offer.
Buyout news also lifted one of our telecommunications holdings. Canada-based
communications company BCE announced on June 30 that the Ontario Teachers'
Pension Plan would purchase the company for $42.75 cash per share in Canadian
dollars.
UTILITIES HAMPERED RESULTS
Our position in utilities was a drag on performance. Utility stocks have been
trading near historically high price-to-earnings ratios, making their
valuations unattractive to us. As this sector outperformed, our underweight
position detracted on a relative basis.
MATERIALS DETRACTED
The portfolio's position in the materials sector also slowed relative
performance. For some time, stock prices of metals and mining firms have been
momentum-driven; many haven't met the management team's valuation criteria and
thus have not merited sizeable exposure. During the reporting period, our
relatively smaller position diminished our performance as these companies
outperformed for the benchmark.
STARTING POINT FOR NEXT REPORTING PERIOD
The management team follows a disciplined, bottom-up process, selecting
securities one at a time for the portfolio. As of June 30, 2007, we continued
to see opportunities in consumer staples and health care, reflected by our
overweight positions in those sectors relative to the benchmark. Our
fundamental and valuation work resulted in smaller relative weightings in
consumer discretionary, information technology, and energy stocks.
Top Five Industries as of June 30, 2007
% of % of
net assets net assets
as of as of
6/30/07 12/31/06
Commercial Banks 11.0% 6.7%
Food Products 8.8% 5.4%
Insurance 8.2% 5.8%
Thrifts & Mortgage Finance 7.5% 5.0%
Multi-Utilities 5.9% 6.2%
Types of Investments in Portfolio
% of % of
net assets net assets
as of as of
6/30/07 12/31/06
Common Stocks 97.3% 94.3%
Cash and Equivalents(1) 2.7% 5.7%
(1) Includes temporary cash investments, securities lending collateral and
other assets and liabilities.
- ------
6
SHAREHOLDER FEE EXAMPLE (UNAUDITED)
Fund shareholders may incur two types of costs: (1) transaction costs,
including sales charges (loads) on purchase payments and redemption/exchange
fees; and (2) ongoing costs, including management fees; distribution and
service (12b-1) fees; and other fund expenses. This example is intended to
help you understand your ongoing costs (in dollars) of investing in your fund
and to compare these costs with the ongoing cost of investing in other mutual
funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2007 to June 30, 2007.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is
not the actual return of a fund's share class. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare
this 5% hypothetical example with the 5% hypothetical examples that appear in
the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these transactional
costs were included, your costs would have been higher.
Beginning Ending Expenses Paid
Account Value Account Value During Period* Annualized
1/1/07 6/30/07 1/1/07 - 6/30/07 Expense Ratio*
ACTUAL
Class I $1,000 $1,099.60 $5.21 1.00%
Class II $1,000 $1,098.70 $5.98 1.15%
HYPOTHETICAL
Class I $1,000 $1,019.84 $5.01 1.00%
Class II $1,000 $1,019.09 $5.76 1.15%
*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
SCHEDULE OF INVESTMENTS
VP Mid Cap Value
JUNE 30, 2007 (UNAUDITED)
Shares Value
Common Stocks -- 97.3%
AEROSPACE & DEFENSE -- 0.5%
7,787 Northrop Grumman Corp. $ 606,374
------------
AIRLINES -- 2.5%
199,485 Southwest Airlines Co. 2,974,323
------------
AUTO COMPONENTS -- 1.1%
23,748 Autoliv, Inc. 1,350,549
------------
AUTOMOBILES -- 0.4%
15,737 Winnebago Industries(1) 464,556
------------
BEVERAGES -- 3.5%
24,600 Anheuser-Busch Companies, Inc. 1,283,136
68,868 Coca-Cola Enterprises Inc. 1,652,832
38,766 Pepsi Bottling Group Inc. 1,305,639
------------
4,241,607
------------
BUILDING PRODUCTS -- 0.8%
34,054 Masco Corp. 969,517
------------
CAPITAL MARKETS -- 1.0%
2,800 Bear Stearns Companies Inc. (The) 392,000
12,019 Nuveen Investments Inc. Cl A(1) 746,981
------------
1,138,981
------------
CHEMICALS -- 1.9%
11,693 Ecolab Inc. 499,291
16,401 Minerals Technologies Inc. 1,098,047
7,359 Olin Corp.(1) 154,539
10,087 Rohm and Haas Co. 551,557
------------
2,303,434
------------
COMMERCIAL BANKS -- 11.0%
11,047 BancorpSouth Inc.(1) 270,210
44,245 BB&T Corporation 1,799,887
8,718 Commerce Bancshares, Inc. 394,925
13,162 Fifth Third Bancorp 523,453
40,136 Marshall & Ilsley Corp. 1,911,678
150,264 South Financial Group Inc. (The) 3,401,977
43,771 SunTrust Banks, Inc. 3,752,925
15,700 United Bankshares, Inc.(1) 499,260
8,248 Zions Bancorporation 634,354
------------
13,188,669
------------
COMMERCIAL SERVICES & SUPPLIES -- 4.2%
24,137 HNI Corp.(1) 989,617
46,164 Pitney Bowes, Inc. 2,161,398
35,511 Republic Services, Inc. 1,088,057
21,417 Waste Management, Inc. 836,334
------------
5,075,406
------------
Shares Value
COMMUNICATIONS EQUIPMENT -- 0.6%
42,132 Motorola, Inc. $ 745,736
------------
COMPUTERS & PERIPHERALS -- 1.4%
102,568 QLogic Corp.(2) 1,707,757
------------
CONTAINERS & PACKAGING -- 1.8%
66,149 Bemis Co., Inc. 2,194,824
------------
DISTRIBUTORS -- 0.4%
10,099 Genuine Parts Company 500,910
------------
DIVERSIFIED -- 2.1%
27,794 iShares S&P MidCap 400 Index Fund(1) 2,477,279
------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.6%
6,275 BCE Inc. ORD(1) 237,617
73,923 Iowa Telecommunications Services Inc.(1) 1,680,270
------------
1,917,887
------------
ELECTRIC UTILITIES -- 4.6%
16,636 Empire District Electric Co.(1) 372,147
53,973 IDACORP, Inc.(1) 1,729,295
124,419 Portland General Electric Co. 3,414,058
------------
5,515,500
------------
ELECTRICAL EQUIPMENT -- 1.3%
27,310 Hubbell Inc. Cl A(1) 1,477,471
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.8%
15,145 Littelfuse, Inc.(2) 511,447
41,500 Molex Inc. 1,245,415
9,805 Tyco Electronics Ltd.(2)(3) 382,983
------------
2,139,845
------------
FOOD & STAPLES RETAILING -- 0.7%
13,251 Costco Wholesale Corp. 775,449
------------
FOOD PRODUCTS -- 8.8%
93,265 ConAgra Foods, Inc. 2,505,098
101,785 Diamond Foods Inc.(1) 1,786,327
12,208 General Mills, Inc. 713,191
43,569 H.J. Heinz Co. 2,068,220
13,343 Kellogg Co. 691,034
80,692 Kraft Foods Inc. Cl A 2,844,393
------------
10,608,263
------------
GAS UTILITIES -- 1.0%
20,406 Piedmont Natural Gas Co., Inc.(1) 503,008
22,644 WGL Holdings Inc. 739,100
------------
1,242,108
------------
- ------
8
VP Mid Cap Value
Shares Value
HEALTH CARE EQUIPMENT & SUPPLIES -- 2.9%
13,447 Beckman Coulter, Inc. $ 869,752
8,900 Covidien Ltd.(2)(3) 383,590
136,156 Symmetry Medical Inc.(2) 2,179,858
------------
3,433,200
------------
HEALTH CARE PROVIDERS & SERVICES -- 0.4%
8,159 Universal Health Services, Inc. Cl B 501,779
------------
HOTELS, RESTAURANTS & LEISURE -- 3.9%
28,021 International Speedway Corp. 1,476,987
80,964 Speedway Motorsports Inc. 3,236,941
------------
4,713,928
------------
HOUSEHOLD PRODUCTS -- 2.7%
13,931 Clorox Company 865,115
34,852 Kimberly-Clark Corp. 2,331,250
------------
3,196,365
------------
INSURANCE -- 8.2%
6,199 Allstate Corp. 381,300
25,587 Ambac Financial Group, Inc.(1) 2,230,932
15,559 Aspen Insurance Holdings Ltd. 436,741
33,267 Chubb Corp. 1,801,075
9,978 Gallagher (Arthur J.) & Co.(1) 278,187
50,091 Genworth Financial Inc. Cl A 1,723,130
6,357 Hartford Financial Services Group Inc. (The) 626,228
36,256 Horace Mann Educators Corp.(1) 770,077
51,417 Marsh & McLennan Companies, Inc. 1,587,757
------------
9,835,427
------------
LIFE SCIENCES TOOLS & SERVICES -- 1.0%
8,427 Bio-Rad Laboratories, Inc. Cl A(2) 636,828
19,245 PRA International(1)(2) 486,899
------------
1,123,727
------------
MACHINERY -- 1.4%
94,930 Altra Holdings Inc.(2) 1,640,390
------------
METALS & MINING -- 1.9%
21,061 Compass Minerals International Inc.(1) 729,974
40,622 Newmont Mining Corporation 1,586,696
------------
2,316,670
------------
Shares Value
MULTI-UTILITIES -- 5.9%
36,385 Ameren Corp.(1) $ 1,783,229
11,200 Consolidated Edison, Inc. 505,344
10,200 Dominion Resources Inc. 880,362
75,775 Puget Energy, Inc. 1,832,240
22,728 Wisconsin Energy Corp. 1,005,259
54,900 XCEL Energy Inc. 1,123,803
------------
7,130,237
------------
OIL, GAS & CONSUMABLE FUELS -- 3.8%
23,746 Apache Corp. 1,937,436
14,984 Equitable Resources Inc. 742,607
24,863 Murphy Oil Corp. 1,477,857
10,452 St. Mary Land & Exploration Co.(1) 382,752
------------
4,540,652
------------
PAPER & FOREST PRODUCTS -- 0.7%
3,774 MeadWestvaco Corp. 133,298
9,533 Weyerhaeuser Co. 752,439
------------
885,737
------------
PHARMACEUTICALS -- 0.5%
16,846 Watson Pharmaceuticals, Inc.(2) 548,000
------------
REAL ESTATE INVESTMENT TRUSTS -- 1.3%
31,591 Annaly Capital Management Inc.(1) 455,542
77,745 Education Realty Trust, Inc.(1) 1,090,763
------------
1,546,305
------------
ROAD & RAIL -- 0.6%
46,168 Heartland Express, Inc.(1) 752,538
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 0.2%
11,917 Applied Materials, Inc. 236,791
------------
SOFTWARE -- 0.6%
28,609 Synopsys, Inc.(2) 756,136
------------
SPECIALTY RETAIL -- 0.8%
32,184 Lowe's Companies, Inc. 987,727
------------
THRIFTS & MORTGAGE FINANCE -- 7.5%
74,269 Freddie Mac 4,508,128
64,294 MGIC Investment Corp. 3,655,757
32,101 Washington Federal, Inc. 780,375
------------
8,944,260
------------
TOTAL COMMON STOCKS
(Cost $113,097,568) 116,706,314
------------
- ------
9
VP Mid Cap Value
Shares Value
Temporary Cash Investments -- 5.2%
Repurchase Agreement, Credit Suisse First Boston, Inc.,
(collateralized by various U.S. Treasury obligations, 5.50%,
8/15/28, valued at $6,022,445), in a joint trading account at
4.35%, dated 6/29/07, due 7/2/07 (Delivery value $5,902,139)(4) $ 5,900,000
------------
Repurchase Agreement, Deutsche Bank Securities, Inc.,
(collateralized by various U.S. Treasury obligations, 4.25%,
1/15/14, valued at $306,354), in a joint trading account at 4.25%,
dated 6/29/07, due 7/2/07 (Delivery value $300,106) 300,000
------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $6,200,000) 6,200,000
------------
Shares Value
Temporary Cash Investments - Securities Lending Collateral(5) -- 8.5%
Repurchase Agreement, Morgan Stanley Group, Inc., (collateralized
by various U.S. Government Agency obligations in a pooled account
at the lending agent), 5.38%, dated 6/29/07, due 7/2/07 (Delivery
value $10,220,692)
(Cost $10,216,112) $ 10,216,112
------------
TOTAL INVESTMENT SECURITIES -- 111.0%
(Cost $129,513,680) 133,122,426
------------
OTHER ASSETS AND LIABILITIES -- (11.0)% (13,191,251)
------------
TOTAL NET ASSETS -- 100.0% $119,931,175
============
Forward Foreign Currency Exchange Contracts
Contracts to Sell Settlement Date Value Unrealized Gain (Loss)
198,239 CAD for USD 7/31/07 $186,216 $(1,146)
========== =======================
(Value on Settlement Date $185,070)
Notes to Schedule of Investments
CAD = Canadian Dollar
ORD = Foreign Ordinary Share
USD = United States Dollar
(1) Security, or a portion thereof, was on loan as of June 30, 2007.
(2) Non-income producing.
(3) When-issued security.
(4) Security, or a portion thereof, has been segregated for when-issued
securities.
(5) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions.
See Notes to Financial Statements.
- ------
10
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2007 (UNAUDITED)
ASSETS
Investment securities, at value (cost of $119,297,568) -
including $9,922,916 of securities on loan $122,906,314
Investments made with cash collateral received for securities on
loan, at value (cost of $10,216,112) 10,216,112
------------
Total investment securities, at value (cost of $129,513,680) 133,122,426
Cash 383,394
Receivable for investments sold 4,108,959
Dividends and interest receivable 189,305
------------
137,804,084
------------
LIABILITIES
Payable for collateral received for securities on loan 10,216,112
Payable for investments purchased 7,556,083
Payable for forward foreign currency exchange contracts 1,146
Accrued management fees 86,662
Distribution fees payable 12,906
------------
17,872,909
------------
NET ASSETS $119,931,175
=============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $111,344,902
Undistributed net investment income 503,959
Undistributed net realized gain on investment and foreign
currency transactions 4,474,714
Net unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 3,607,600
------------
$119,931,175
=============
CLASS I, $0.01 PAR VALUE
Net assets $48,447,168
Shares outstanding 3,304,345
Net asset value per share $14.66
CLASS II, $0.01 PAR VALUE
Net assets $71,484,007
Shares outstanding 4,876,282
Net asset value per share $14.66
See Notes to Financial Statements.
- ------
11
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
INVESTMENT INCOME (LOSS)
INCOME:
Dividends (net of foreign taxes withheld of $3,183) $ 825,891
Interest 114,761
Securities lending 2,197
----------
942,849
----------
EXPENSES:
Management fees 377,772
Distribution fees -- Class II 47,816
Directors' fees and expenses 874
Other expenses 950
----------
427,412
----------
NET INVESTMENT INCOME (LOSS) 515,437
----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on investment and foreign currency
transactions 4,834,680
Change in net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities in foreign currencies 1,441,953
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) 6,276,633
----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $6,792,070
==========
See Notes to Financial Statements.
- ------
12
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2006
Increase (Decrease) in Net Assets 2007 2006
OPERATIONS
Net investment income (loss) $ 515,437 $ 230,711
Net realized gain (loss) 4,834,680 1,419,970
Change in net unrealized appreciation (depreciation) 1,441,953 1,994,529
------------ -----------
Net increase (decrease) in net assets resulting from
operations 6,792,070 3,645,210
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Class I (33,006) (97,727)
Class II -- (94,204)
From net realized gains:
Class I (436,378) (430,755)
Class II (314,892) (595,343)
------------ -----------
Decrease in net assets from distributions (784,276) (1,218,029)
------------ -----------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets
from capital share transactions 62,252,614 40,502,578
------------ -----------
NET INCREASE (DECREASE) IN NET ASSETS 68,260,408 42,929,759
NET ASSETS
Beginning of period 51,670,767 8,741,008
------------ ------------
End of period $119,931,175 $51,670,767
============ ===========
Undistributed net investment income $503,959 $21,528
============ ===========
See Notes to Financial Statements.
- ------
13
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2007 (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 distribution and
shareholder servicing 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. Securities traded on foreign securities exchanges and
over-the-counter markets are normally completed before the close of business
on days that the New York Stock Exchange (the Exchange) is open and may also
take place on days when the Exchange is not open. If an event occurs after the
value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, that
security would be valued as determined in accordance with procedures adopted
by the Board of Directors. If the fund determines that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by, or in accordance with procedures adopted by, the
Board of Directors or its designee if such determination would materially
impact a fund's net asset value. Certain other circumstances may cause the
fund to use alternative procedures to value a security such as: a security has
been declared in default; trading in a security has been halted during the
trading day; or there is a foreign market holiday and no trading will commence.
SECURITY TRANSACTIONS -- 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.
EXCHANGE TRADED FUNDS -- The fund may invest in exchange traded funds (ETFs).
ETFs are a type of index fund bought and sold on a securities exchange. An ETF
trades like common stock and represents a fixed portfolio of securities
designed to track the performance and dividend yield of a particular domestic
or foreign market index. A fund may purchase an ETF to temporarily gain
exposure to a portion of the U.S. or a foreign market while awaiting purchase
of underlying securities. The risks of owning an ETF generally reflect the
risks of owning the underlying securities they are designed to track, although
the lack of liquidity on an ETF could result in it being more volatile.
Additionally, ETFs have management fees, which increase their cost.
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.
- ------
14
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.
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.
WHEN-ISSUED AND FORWARD COMMITMENTS -- The fund may engage in securities
transactions on a when-issued or forward commitment basis. Under these
arrangements, the securities' prices and yields are fixed on the date of the
commitment, but payment and delivery are scheduled for a future date. During
this period, securities are subject to market fluctuations. The fund will
segregate cash, cash equivalents or other appropriate liquid securities on its
records in amounts sufficient to meet the purchase price.
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 fund may
make distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code, in all events in a manner
consistent with provisions of the 1940 Act.
The book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of 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 $(13,484) of net foreign currency losses
incurred in the two-month period ended December 31, 2006, as having been
incurred in the following fiscal year for federal income tax purposes.
- ------
15
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
effective annual management fee for each class of the fund for the six months
ended June 30, 2007 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, 2007, 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.
The fund may invest in a money market fund for temporary purposes, which is
managed by J.P. Morgan Investment Management, Inc. (JPMIM). JPMIM is a wholly
owned subsidiary of JPMorgan Chase & Co. (JPM). JPM is an equity investor in
ACC. 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 JPM.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the six months ended June 30, 2007, were $132,768,778 and
$71,119,866, respectively.
As of June 30, 2007, 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 $129,913,294
=============
Gross tax appreciation of investments $ 4,704,547
Gross tax depreciation of investments (1,495,415)
-------------
Net tax appreciation (depreciation) of investments $ 3,209,132
=============
The difference between book-basis and tax-basis cost and unrealized
appreciation (depreciation) is attributable primarily to the tax deferral of
losses on wash sales and on return of capital dividends.
- ------
16
4. CAPITAL SHARE TRANSACTIONS
Six months ended Year ended
June 30, 2007 December 31, 2006
Shares Amount Shares Amount
CLASS I/SHARES AUTHORIZED 100,000,000 100,000,000
=========== ===========
Sold 1,588,567 $22,337,542 2,491,198 $32,607,369
Issued in reinvestment of
distributions 34,590 469,384 39,558 528,482
Redeemed (557,700) (7,829,586) (504,972) (6,321,029)
----------- ----------- ----------- -----------
1,065,457 14,977,340 2,025,784 26,814,822
----------- ----------- ----------- -----------
CLASS II/SHARES AUTHORIZED 100,000,000 100,000,000
=========== ===========
Sold 3,348,440 48,201,933 1,133,192 14,589,995
Issued in reinvestment of
distributions 23,188 314,892 52,066 689,547
Redeemed (87,452) (1,241,551) (127,487) (1,591,786)
----------- ----------- ----------- -----------
3,284,176 47,275,274 1,057,771 13,687,756
----------- ----------- ----------- -----------
Net increase (decrease) 4,349,633 $62,252,614 3,083,555 $40,502,578
=========== =========== =========== ===========
5. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a
$500,000,000 unsecured bank line of credit agreement with 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 0.40%. The fund did not borrow from the line during the six months
ended June 30, 2007.
6. SECURITIES LENDING
As of June 30, 2007, securities in the fund valued at $9,922,916 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 $10,216,112. 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.
7. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an
Interpretation of FASB Statement No. 109" (FIN 48). FIN 48 establishes a
minimum threshold for financial statement recognition of the benefit of
positions taken in filing tax returns (including whether an entity is taxable
in a particular jurisdiction), and requires certain expanded tax disclosures.
FIN 48 is effective for fiscal years beginning after December 15, 2006, and is
to be applied to all open tax years as of the date of effectiveness.
Management has concluded that the adoption of FIN 48 will not materially
impact the financial statements.
The FASB issued Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" (FAS 157), in September 2006, which is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands the required
financial statement disclosures about fair value measurements. Management is
currently evaluating the impact that adopting FAS 157 will have on the
financial statement disclosures.
- ------
17
FINANCIAL HIGHLIGHTS
VP Mid Cap Value
Class I
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2007(1) 2006 2005 2004(2)
PER-SHARE DATA
Net Asset Value, Beginning of Period $13.49 $11.70 $11.21 $10.80
-------- ------- ------ --------
Income From Investment Operations
Net Investment Income (Loss)(3) 0.09 0.19 0.20 --(4)
Net Realized and Unrealized
Gain (Loss) 1.24 2.16 0.86 0.44
-------- ------- ------ --------
Total From Investment Operations 1.33 2.35 1.06 0.44
-------- ------- ------ --------
Distributions
From Net Investment Income (0.01) (0.08) (0.10) (0.03)
From Net Realized Gains (0.15) (0.48) (0.47) --
-------- ------- ------ --------
Total Distributions (0.16) (0.56) (0.57) (0.03)
-------- ------- ------ --------
Net Asset Value, End of Period $14.66 $13.49 $11.70 $11.21
======== ======= ====== ========
TOTAL RETURN(5) 9.96% 20.30% 9.56% 4.08%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average
Net Assets 1.00%(6) 1.00% 1.02% 1.00%(6)
Ratio of Net Investment Income (Loss) to
Average Net Assets 1.38%(6) 1.50% 1.64% 0.47%(6)
Portfolio Turnover Rate 92% 203% 225% 46%(7)
Net Assets, End of Period (in thousands) $48,447 $30,201 $2,493 $285
(1) Six months ended June 30, 2007 (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 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 period October 29, 2004 (fund inception) through
December 31, 2004.
See Notes to Financial Statements.
- ------
18
VP Mid Cap Value
Class II
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2007(1) 2006 2005 2004(2)
PER-SHARE DATA
Net Asset Value, Beginning of Period $13.49 $11.69 $11.21 $10.00
-------- ------- ------ --------
Income From Investment Operations
Net Investment Income (Loss)(3) 0.09 0.16 0.16 0.02
Net Realized and Unrealized
Gain (Loss) 1.23 2.18 0.87 1.22
-------- ------- ------ --------
Total From Investment Operations 1.32 2.34 1.03 1.24
-------- ------- ------ --------
Distributions
From Net Investment Income -- (0.06) (0.08) (0.03)
From Net Realized Gains (0.15) (0.48) (0.47) --
-------- ------- ------ --------
Total Distributions (0.15) (0.54) (0.55) (0.03)
-------- ------- ------ --------
Net Asset Value, End of Period $14.66 $1.49 $11.69 $11.21
======== ======= ====== ========
TOTAL RETURN(4) 9.87% 20.23% 9.31% 12.39%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average
Net Assets 1.15%(5) 1.15% 1.17% 1.15%(5)
Ratio of Net Investment Income (Loss) to
Average Net Assets 1.23%(5) 1.35% 1.49% 0.95%(5)
Portfolio Turnover Rate 92% 203% 225% 46%
Net Assets, End of Period (in thousands) $71,484 $21,470 $6,249 $570
(1) Six months ended June 30, 2007 (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.
- ------
19
APPROVAL OF MANAGEMENT AGREEMENT
VP Mid Cap 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 or trustees (the "Directors") each
year. At American Century, this process is referred to as the "15(c) Process."
As a part of this process, the board reviews fund performance, shareholder
services, audit and compliance information, and a variety of other reports
from the advisor concerning fund operations. In addition to this annual
review, the board of directors oversees and evaluates on a continuous basis at
its quarterly meetings the nature and quality of significant services
performed by the advisor, fund performance, audit and compliance information,
and a variety of other reports relating to fund operations. The board, or
committees of the board, also holds special meetings as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning VP Mid Cap Value (the "fund") and the
services provided to the fund under the management agreement. The information
considered and the discussions held at the meetings included, but were not
limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund 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 a similar
fund;
* data comparing the fund's performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two regularly
scheduled meetings and one special meeting to review and discuss the
information provided by the advisor and to complete its negotiations with the
advisor regarding the renewal of the management agreement, including the
setting of the applicable advisory fee. The board also had the benefit of the
advice of its independent counsel throughout the period.
- ------
20
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. The
Directors did not identify any single factor as being all-important or
controlling, and each Director may have attributed different levels of
importance to different factors. In deciding to renew the agreement under the
terms ultimately determined by the board to be appropriate, the Directors'
decision was based on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES - GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under
the management agreement, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both
in terms of quantity and complexity in response to shareholder demands,
competition in the industry 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
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
technology, research, training, compliance and other systems to conduct their
business.
- ------
21
At each quarterly meeting the Directors review investment performance
information for the fund, together with comparative information for
appropriate benchmarks and peer groups of funds managed similarly to the fund.
The Directors also review detailed performance information during the 15(c)
Process comparing the fund's performance with that of similar funds not
managed by the advisor. If performance concerns are identified, the Directors
discuss with the advisor the reasons for such results (e.g., market
conditions, security selection) and any efforts being undertaken to improve
performance. The fund's performance for both the one- and three-year periods
was above the median for 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 their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY 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 consider the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethically. They noted that the advisor's practices generally meet or
exceed industry best practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the fund specifically, the expenses incurred by the advisor
in providing various functions to the fund, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints as the fund increases in size, and through
reinvestment in its business to provide shareholders additional content and
services.
- ------
22
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
fund's independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the fund and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider 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 fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker-dealers that
execute fund portfolio transactions and concluded that this research is likely
to benefit fund shareholders. The Directors also determined that the advisor
is able to provide investment management services to certain clients other
than the fund, at least in part, due to its existing infrastructure built to
serve the fund complex. The Directors concluded, however, that the assets of
those other clients are not material to the analysis and, in any event, are
included with the assets of the fund to determine breakpoints in the fund's
fee schedule, provided they are managed using the same investment team and
strategy.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the independent directors, in the absence of
particular circumstances and assisted by the advice of legal counsel that is
independent of the advisor, taking into account all of the factors discussed
above and the information provided by the advisor 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 website at americancentury.com and on the Securities and
Exchange Commission's website at sec.gov. Information regarding how the
investment advisor voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30 is available on the "About Us" page
at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's website at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330. The fund also makes its complete
schedule of portfolio holdings for the most recent quarter of its fiscal year
available on its website at ipro.americancentury.com (for Investment
Professionals) and, upon request, by calling 1-800-378-9878.
- ------
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 RUSSELL 1000® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest companies in the Russell 3000 Index (the 3,000 largest publicly traded
U.S. companies, based on total market capitalization).
The RUSSELL 1000® GROWTH INDEX measures the performance of those Russell 1000
Index 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 values.
The RUSSELL 1000® VALUE INDEX measures the performance of those Russell 1000
Index 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 values.
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 2000® GROWTH INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest 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 values.
The RUSSELL 2000® VALUE INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
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 Index companies (the 800 smallest of the 1,000 largest publicly traded
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.
- ------
26
NOTES
- ------
27
NOTES
- ------
28
[blank page]
[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.
American Century Investment Services, Inc., Distributor
©2007 American Century Proprietary Holdings, Inc. All rights reserved.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
0708
SH-SAN-55640
[front cover]
AMERICAN CENTURY VARIABLE PORTFOLIOS
Semiannual Report June 30, 2007
[photo of summer]
VP Ultra® Fund
[american century investments logo and text logo]
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Stock Index Returns . . . . . . . . . . . . . . . . . . . . . . 2
VP ULTRA
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . 6
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 6
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . 7
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
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 29
The opinions expressed in the Market Perspective and the Portfolio Commentary
reflect those of the portfolio management team as of the date of the report,
and do not necessarily represent the opinions of American Century 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.
MARKET PERSPECTIVE
[Photo of Chief Investment Officer]
By Enrique Chang, Chief Investment Officer, American Century Investments
STOCKS ENJOYED A SOLID RALLY
The U.S. equity market advanced in the first half of 2007, benefiting from a
generally favorable environment for stocks. Although the U.S. economy slowed
markedly in the first quarter of the year, growing at an annual rate of just
0.6% (the lowest growth rate since the fourth quarter of 2002), it showed
signs of improvement in the second quarter. In addition, the Federal Reserve
held short-term interest rates steady, maintaining a policy shift that
occurred in mid-2006.
Corporate earnings growth decelerated during the period--ending a streak of
double-digit quarterly earnings growth for the S&P 500 Index that began in
2002-- but continued to outshine expectations. Robust merger activity also
provided support for stocks as a deluge of leveraged buy-outs from private
equity firms put the volume of deal-making ahead of last year's record pace.
Despite the generally positive backdrop, the stock market hit a couple of
speed bumps along the way. Stocks stumbled in late February, mirroring a drop
in the Chinese stock market, but rebounded quickly in early March. The
subsequent rally peaked in early June--when many of the major stock indexes
hit seven-year highs--as rising interest rates, higher energy prices, and
deteriorating subprime lending conditions led to a pullback in stock prices
later that month.
MID-CAP AND GROWTH OUTPERFORMED
As the accompanying table shows, mid-cap stocks led the market's advance in
the first six months of 2007, followed by large-cap issues, while small-cap
shares lagged after outperforming in 2006. Growth stocks, which have trailed
value issues for much of the decade, enjoyed a resurgence, outpacing value
shares across all market capitalizations.
The best-performing sectors in the stock market were energy and materials,
driven largely by escalating energy and commodity prices. Telecommunication
services and industrials stocks also generated double-digit returns for the
reporting period. The only sector to decline was financials, which were hurt
by higher interest rates and the subprime lending fallout.
U.S. Stock Index Returns
For the six months ended June 30, 2007*
RUSSELL 1000 INDEX (LARGE-CAP) 7.18%
Russell 1000 Growth Index 8.13%
Russell 1000 Value Index 6.23%
RUSSELL MIDCAP INDEX 9.90%
Russell Midcap Growth Index 10.97%
Russell Midcap Value Index 8.69%
RUSSELL 2000 INDEX (SMALL-CAP) 6.45%
Russell 2000 Growth Index 9.33%
Russell 2000 Value Index 3.80%
*Total returns for periods less than one year are not annualized.
- ------
2
PERFORMANCE
VP Ultra
Total Returns as of June 30, 2007
Average Annual
Returns
Since Inception
6 months(1) 1 year 5 years Inception Date
CLASS I 6.97% 10.15% 5.17% 1.20% 5/1/01
RUSSELL 1000 GROWTH
INDEX(2) 8.13% 19.04% 9.28% 1.28% --
S&P 500 INDEX(2) 6.96% 20.59% 10.71% 4.63% --
Class II 6.91% 10.00% 5.02% 3.01% 5/1/02
Class III 6.98% 10.16% 5.18% 3.34% 5/13/02
(1) Total returns for periods less than one year are not annualized.
(2) Data provided by Lipper Inc. - A Reuters Company. ©2007 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
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.
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 Ultra
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 2006 2007
Class I 1.20% -17.36% -1.74% 17.56% 1.14% 0.00% 10.15%
Russell 1000 Growth
Index -5.59% -26.49% 2.94% 17.88% 1.68% 6.12% 19.04%
S&P 500 Index -3.10% -17.99% 0.25% 19.11% 6.32% 8.63% 20.59%
*From 5/1/01, Class I's inception date. 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.
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.
- ------
4
PORTFOLIO COMMENTARY
VP Ultra
Portfolio Managers: Tom Telford and Wade Slome
PERFORMANCE SUMMARY
VP Ultra returned 6.97%* for the first six months of 2007, trailing the 8.13%
return of its benchmark, the Russell 1000 Growth Index, and essentially
matching the 6.96% return of the S&P 500 Index.
On an absolute basis, VP Ultra generated a solid gain for the reporting
period. Nine out of ten sectors in the portfolio produced positive results,
led by strong contributions from health care and information technology
stocks. During the reporting period, the portfolio derived a meaningful
portion of its returns from investments in international holdings.
However, the portfolio underperformed the Russell 1000 Growth Index, partly
because we did not stray into mid-cap stocks, which outperformed during the
reporting period. Stock selection was also a key factor behind our
underperformance.
CONSUMER STOCKS HURT RESULTS
VP Ultra's consumer staples holdings declined as a group during the six-month
period, while their counterparts in the Russell 1000 Growth Index posted
positive results. Stock selection among food and staples retailers had the
biggest negative impact on performance relative to the index. Drugstore chain
Walgreen declined as weaker consumer spending led to slowing same-store sales
growth. Wal-Mart de Mexico, the Mexican arm of the U.S. discount store giant,
also fell during the period as Mexico's economy struggled with rising
unemployment and higher inflation.
Consumer discretionary stocks detracted modestly from results compared with
the benchmark, but this sector featured three of the seven largest individual
detractors from relative performance. Slot machine maker International Game
Technology, which has produced strong results for the portfolio over the past
several years, declined amid a lull in its domestic product cycle. Coffee
retailer Starbucks fell as investors grew concerned about slowing same-store
sales trends and store saturation worries domestically, while a factory strike
weighed on the earnings and stock price of motorcycle maker Harley-Davidson.
INDUSTRIALS ALSO DETRACTED
Stock selection in the industrials sector was also a drag on relative
performance. Airline company US Airways Group weighed the most on relative
results. When we originally invested in this stock, the airline industry was
consolidating and energy prices were steady to declining. During the reporting
period, however, energy prices rose, cutting into airlines' profit margins,
and US Airways struggled with delays in the integration of its merger with
America West. As a result, we eliminated this stock from the portfolio.
Top Ten Holdings as of June 30, 2007
% of net % of net
assets as of assets as of
6/30/07 12/31/06
Cisco Systems Inc. 3.5% 3.9%
Apple Inc. 2.7% 2.2%
Emerson Electric Co. 2.3% 0.8%
Baxter International Inc. 2.2% 1.6%
Rio Tinto plc ORD 2.1% 1.4%
Adobe Systems Inc. 2.1% 1.9%
PepsiCo, Inc. 2.1% 1.8%
Express Scripts, Inc. 2.0% 1.4%
United Technologies Corp. 1.9% 1.7%
Google Inc. Cl A 1.9% 2.1%
*All fund returns referenced in this commentary are for Class I shares. Total
returns for periods less than one year are not annualized.
- ------
5
VP Ultra
HEALTH CARE AND TELECOM ADDED VALUE
On the positive side, stock selection in the health care and telecommunication
services sectors contributed favorably to performance compared with the
benchmark index. Pharmacy benefits manager Express Scripts was the best
contributor in the health care sector. Express Scripts benefited from a shift
toward generic drugs and mail order prescriptions, both of which are more
efficient and cost-effective.
In the telecom sector, we emphasized wireless companies outside of the U.S.,
such as Latin American wireless provider America Movil and Canadian company
Rogers Communications. America Movil enjoyed strong subscriber growth and
expanding profit margins, while Rogers saw healthy growth in its bundled
package of cable, internet, telephone, and wireless services.
VP Ultra's foreign holdings, which made up more than 10% of portfolio assets
during the period, also contributed meaningfully to performance. The top
relative performance contributor in the portfolio was a foreign stock --
U.K.-based global metals producer Rio Tinto, which was also one of the
portfolio's biggest overweight positions during the period. Rio Tinto
benefited from a combination of strong demand, higher metals prices, and
merger speculation.
STARTING POINT FOR NEXT REPORTING PERIOD
Large-cap growth has been out of favor since the market's peak in early 2000,
but recent performance suggests that the tide may be turning toward larger
growth-oriented companies. The stocks of larger companies generated solid
results in the first half of 2007, while growth stocks outperformed value.
Resisting the temptation to enhance performance by shifting into mid-cap
stocks, we have stayed true to our mandate of investing in U.S. large-cap
growth stocks. As a result, we expect VP Ultra to participate fully when
investors again favor larger growth companies.
Our focus, as always, is to invest in fundamentally sound companies showing
improving growth rates that we think will be rewarded.
Top Five Industries as of June 30, 2007
% of net % of net
assets as of assets as of
6/30/07 12/31/06
Software 5.9% 6.6%
Capital Markets 5.5% 6.8%
Communications Equipment 5.5% 4.9%
Computers & Peripherals 5.0% 3.0%
Aerospace & Defense 4.9% 3.3%
Types of Investments in Portfolio
% of net % of net
assets as of assets as of
6/30/07 12/31/06
Domestic Common Stocks 84.2% 89.1%
Foreign Common Stocks(1) 11.2% 9.9%
TOTAL COMMON STOCKS 95.4% 99.0%
Temporary Cash Investments 0.7% 3.8%
Other Assets and Liabilities(2) 3.9% (2.8)%
(1) Includes depositary shares, dual listed securities and foreign ordinary
shares.
(2) Includes securities lending collateral and other assets and liabilities.
- ------
6
SHAREHOLDER FEE EXAMPLE (UNAUDITED)
Fund shareholders may incur two types of costs: (1) transaction costs,
including sales charges (loads) on purchase payments and redemption/exchange
fees; and (2) ongoing costs, including management fees; distribution and
service (12b-1) fees; and other fund expenses. This example is intended to
help you understand your ongoing costs (in dollars) of investing in your fund
and to compare these costs with the ongoing cost of investing in other mutual
funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2007 to June 30, 2007.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is
not the actual return of a fund's share class. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare
this 5% hypothetical example with the 5% hypothetical examples that appear in
the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these transactional
costs were included, your costs would have been higher.
Beginning Ending Expenses Paid
Account Value Account Value During Period* Annualized
1/1/07 6/30/07 1/1/07 - 6/30/07 Expense Ratio*
ACTUAL
Class I $1,000 $1,069.70 $5.13 1.00%
Class II $1,000 $1,069.10 $5.90 1.15%
Class III $1,000 $1,069.80 $5.13 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
SCHEDULE OF INVESTMENTS
VP Ultra
JUNE 30, 2007 (UNAUDITED)
Shares Value
Common Stocks -- 95.4%
AEROSPACE & DEFENSE -- 4.9%
150,300 Boeing Co. $ 14,452,849
78,690 Precision Castparts Corp. 9,549,818
221,590 United Technologies Corp. 15,717,379
------------
39,720,046
------------
BEVERAGES -- 2.1%
260,740 PepsiCo, Inc. 16,908,989
------------
BIOTECHNOLOGY -- 0.8%
162,540 Gilead Sciences, Inc.(1) 6,301,676
------------
CAPITAL MARKETS -- 5.5%
72,070 Franklin Resources, Inc. 9,547,113
47,542 Goldman Sachs Group, Inc. (The) 10,304,729
140,720 Morgan Stanley 11,803,593
196,404 T. Rowe Price Group Inc. 10,191,404
158,420 TD Ameritrade Holding Corp.(1) 3,168,400
------------
45,015,239
------------
CHEMICALS -- 2.1%
149,730 Ecolab Inc. 6,393,471
158,930 Monsanto Co. 10,734,132
------------
17,127,603
------------
COMMERCIAL SERVICES & SUPPLIES -- 1.1%
99,410 Manpower Inc.(2) 9,169,578
------------
COMMUNICATIONS EQUIPMENT -- 5.5%
1,030,494 Cisco Systems Inc.(1) 28,699,258
199,026 QUALCOMM Inc. 8,635,738
37,530 Research In Motion Ltd.(1)(2) 7,505,625
------------
44,840,621
------------
COMPUTERS & PERIPHERALS -- 5.0%
177,790 Apple Inc.(1) 21,697,491
315,340 Hewlett-Packard Co. 14,070,471
165,290 Network Appliance, Inc.(1) 4,826,468
------------
40,594,430
------------
DIVERSIFIED -- 1.7%
37,600 iShares FTSE/Xinhua China 25 Index Fund(2) 4,842,880
59,930 Standard and Poor's 500 Depositary Receipt(2) 9,007,479
------------
13,850,359
------------
DIVERSIFIED FINANCIAL SERVICES -- 2.5%
13,640 Chicago Mercantile Exchange Holdings Inc. 7,288,670
31,190 IntercontinentalExchange Inc.(1) 4,611,442
128,306 Moody's Corp. 7,980,633
------------
19,880,745
------------
Shares Value
ELECTRICAL EQUIPMENT -- 2.3%
399,390 Emerson Electric Co. $ 18,691,452
------------
ENERGY EQUIPMENT & SERVICES -- 1.2%
113,490 Schlumberger Ltd. 9,639,841
------------
FOOD & STAPLES RETAILING -- 1.7%
790,860 Wal-Mart de Mexico, SAB de CV Series V ORD 3,000,950
248,102 Walgreen Co. 10,802,361
------------
13,803,311
------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 4.2%
311,930 Baxter International Inc. 17,574,137
78,150 Medtronic, Inc. 4,052,859
204,660 Stryker Corp.(2) 12,911,999
------------
34,538,995
------------
HEALTH CARE PROVIDERS & SERVICES -- 2.4%
323,080 Express Scripts, Inc.(1)(2) 16,157,230
69,504 UnitedHealth Group Inc. 3,554,435
------------
19,711,665
------------
HOTELS, RESTAURANTS & LEISURE -- 3.8%
62,459 Carnival Corporation 3,046,125
46,674 Chipotle Mexican Grill Inc. Cl A(1)(2) 3,980,359
151,601 International Game Technology 6,018,560
161,160 McDonald's Corporation 8,180,481
92,254 Starbucks Corporation(1) 2,420,745
220,500 Yum! Brands, Inc. 7,214,760
------------
30,861,030
------------
HOUSEHOLD DURABLES -- 1.3%
147,000 Garmin Ltd.(2) 10,873,590
------------
HOUSEHOLD PRODUCTS -- 2.1%
180,340 Colgate-Palmolive Co. 11,695,049
94,960 Procter & Gamble Co. (The) 5,810,602
------------
17,505,651
------------
INDUSTRIAL CONGLOMERATES -- 2.0%
115,490 3M Co. 10,023,377
57,200 Textron Inc. 6,298,292
------------
16,321,669
------------
INSURANCE -- 1.8%
196,039 Aflac Inc. 10,076,405
51,126 Ambac Financial Group, Inc. 4,457,676
------------
14,534,081
------------
INTERNET SOFTWARE & SERVICES -- 3.1%
50,020 Digital River Inc.(1)(2) 2,263,405
245,868 eBay Inc.(1) 7,912,032
29,310 Google Inc. Cl A(1) 15,340,268
------------
25,515,705
------------
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8
VP Ultra
Shares Value
IT SERVICES -- 3.7%
164,930 Accenture Ltd. Cl A $ 7,073,847
57,110 Cognizant Technology Solutions Corporation Cl
A(1) 4,288,390
51,400 DST Systems, Inc.(1)(2) 4,071,394
68,340 Fiserv, Inc.(1) 3,881,712
30,280 MasterCard Inc. Cl A(2) 5,022,544
153,572 Paychex, Inc. 6,007,737
------------
30,345,624
------------
LIFE SCIENCES TOOLS & SERVICES -- 2.4%
263,070 Thermo Fisher Scientific Inc.(1) 13,605,980
96,460 Waters Corp.(1) 5,725,866
------------
19,331,846
------------
MACHINERY -- 3.3%
177,120 Danaher Corp.(2) 13,372,560
99,130 Dover Corp. 5,070,500
140,210 Joy Global Inc. 8,178,449
------------
26,621,509
------------
METALS & MINING -- 3.2%
84,200 Allegheny Technologies Inc. 8,830,896
225,820 Rio Tinto plc ORD 17,350,375
------------
26,181,271
------------
MULTILINE RETAIL -- 2.3%
160,060 Kohl's Corp.(1) 11,369,062
121,694 Target Corp. 7,739,738
------------
19,108,800
------------
OIL, GAS & CONSUMABLE FUELS -- 4.4%
101,610 ConocoPhillips 7,976,385
160,770 Exxon Mobil Corp. 13,485,388
77,690 Suncor Energy Inc. 6,985,885
96,440 Valero Energy Corp. 7,123,058
------------
35,570,716
------------
PERSONAL PRODUCTS -- 1.0%
224,440 Avon Products, Inc. 8,248,170
------------
PHARMACEUTICALS -- 3.9%
213,160 Abbott Laboratories 11,414,719
173,110 Allergan, Inc. 9,978,060
339,680 Schering-Plough Corp. 10,339,859
------------
31,732,638
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 2.8%
262,121 Microchip Technology Inc.(2) 9,708,961
145,570 National Semiconductor Corp. 4,115,264
215,570 NVIDIA Corp.(1) 8,905,197
------------
22,729,422
------------
Shares Value
SOFTWARE -- 5.9%
425,820 Adobe Systems Inc.(1) $ 17,096,673
205,028 Electronic Arts Inc.(1) 9,701,925
435,960 Microsoft Corporation 12,847,741
23,800 Nintendo Co., Ltd. ORD 8,715,683
------------
48,362,022
------------
SPECIALTY RETAIL -- 0.6%
86,010 CarMax, Inc.(1)(2) 2,193,255
91,195 PetSmart, Inc.(2) 2,959,278
------------
5,152,533
------------
TEXTILES, APPAREL & LUXURY GOODS -- 2.3%
220,110 Coach Inc.(1) 10,431,013
141,830 NIKE, Inc. Cl B 8,267,271
------------
18,698,284
------------
WIRELESS TELECOMMUNICATION SERVICES -- 2.5%
217,910 America Movil, SAB de CV ADR 13,495,166
156,920 Rogers Communications Inc. Cl B ORD 6,690,422
------------
20,185,588
------------
TOTAL COMMON STOCKS
(Cost $661,548,748) 777,674,699
------------
Temporary Cash Investments -- 0.7%
Repurchase Agreement, Credit Suisse First Boston, Inc.,
(collateralized by various U.S. Treasury obligations, 5.50%,
8/15/28, valued at $5,716,219), in a joint trading account at
4.35%, dated 6/29/07, due 7/2/07 (Delivery value $5,602,030)
(Cost $5,600,000) 5,600,000
------------
Temporary Cash Investments -- Securities Lending Collateral(3) -- 7.9%
Repurchase Agreement, Morgan Stanley Group, Inc., (collateralized
by various U.S. Government Agency obligations in a pooled account
at the lending agent), 5.38%, dated 6/29/07, due 7/2/07 (Delivery
value $64,029,720) 64,001,026
(Cost $64,001,026)
------------
TOTAL INVESTMENT SECURITIES -- 104.0%
(Cost $731,149,774) 847,275,725
------------
OTHER ASSETS AND LIABILITIES -- (4.0)% (32,579,672)
------------
TOTAL NET ASSETS -- 100.0% $814,696,053
============
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9
VP Ultra
Forward Foreign Currency Exchange Contracts
Unrealized Gain
Contracts to Sell Settlement Date Value (Loss)
3,508,731 CAD for USD 7/31/07 $ 3,295,929 $(20,293)
4,124,146 GBP for USD 7/31/07 8,276,847 (43,278)
537,285,000 JPY for USD 7/31/07 4,379,101 27,222
15,971,417 MXN for USD 7/31/07 1,475,824 (8,065)
----------- ---------
$17,427,701 $(44,414)
=========== =========
(Value on Settlement Date $17,383,287)
Notes to Schedule of Investments
ADR = American Depositary Receipt
CAD = Canadian Dollar
FTSE = Financial Times Stock Exchange
GBP = British Pound
JPY = Japanese Yen
MXN = Mexican Nuevo Peso
ORD = Foreign Ordinary Share
USD = United States Dollar
(1) Non-income producing.
(2) Security, or a portion thereof, was on loan as of June 30, 2007.
(3) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions.
See Notes to Financial Statements.
- ------
10
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2007 (UNAUDITED)
ASSETS
Investment securities, at value (cost of $667,148,748) --
including $63,775,265 of securities on loan $783,274,699
Investments made with cash collateral received for securities on
loan, at value (cost of $64,001,026) 64,001,026
------------
Total investment securities, at value (cost of $731,149,774) 847,275,725
Cash 29,905,944
Receivable for investments sold 7,986,235
Receivable for forward foreign currency exchange contracts 27,222
Dividends and interest receivable 249,336
------------
885,444,462
------------
LIABILITIES
Payable for collateral received for securities on loan 64,001,026
Payable for investments purchased 5,940,937
Payable for forward foreign currency exchange contracts 71,636
Accrued management fees 593,427
Distribution fees payable 141,383
------------
70,748,409
------------
NET ASSETS $814,696,053
============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $748,560,521
Accumulated net investment loss (824,092)
Accumulated net realized loss on investment and foreign currency
transactions (49,121,003)
Net unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 116,080,627
------------
$814,696,053
============
CLASS I, $0.01 PAR VALUE
Net assets $129,635,183
Shares outstanding 12,081,719
Net asset value per share $10.73
CLASS II, $0.01 PAR VALUE
Net assets $683,738,752
Shares outstanding 64,063,621
Net asset value per share $10.67
CLASS III, $0.01 PAR VALUE
Net assets $1,322,118
Shares outstanding 123,153
Net asset value per share $10.74
See Notes to Financial Statements.
- ------
11
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
INVESTMENT INCOME (LOSS)
INCOME:
Dividends (net of foreign taxes withheld of $12,039) $ 2,861,128
Interest 268,725
Securities lending 91,527
-----------
3,221,380
-----------
EXPENSES:
Management fees 3,255,718
Distribution fees -- Class II 761,804
Directors' fees and expenses 10,850
Other expenses 1,499
-----------
4,029,871
-----------
NET INVESTMENT INCOME (LOSS) (808,491)
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
Investment transactions 1,612,849
Foreign currency transactions (305,154)
-----------
1,307,695
-----------
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
Investments 48,827,889
Translation of assets and liabilities in foreign currencies (17,903)
-----------
48,809,986
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) 50,117,681
-----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $49,309,190
===========
See Notes to Financial Statements.
- ------
12
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2006
Increase (Decrease) in Net Assets 2007 2006
OPERATIONS
Net investment income (loss) $ (808,491) $ (824,882)
Net realized gain (loss) 1,307,695 (39,824,656)
Change in net unrealized appreciation (depreciation) 48,809,986 31,026,044
------------ ------------
Net increase (decrease) in net assets resulting
from operations 49,309,190 (9,623,494)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets from capital
share transactions 135,131,405 317,627,026
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS 184,440,595 308,003,532
NET ASSETS
Beginning of period 630,255,458 322,251,926
------------ ------------
End of period $814,696,053 $630,255,458
============ ============
Accumulated net investment loss $(824,092) $(15,601)
============ ============
See Notes to Financial Statements.
- ------
13
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2007 (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 its 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 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. Securities traded on foreign securities exchanges and
over-the-counter markets are normally completed before the close of business
on days that the New York Stock Exchange (the Exchange) is open and may also
take place on days when the Exchange is not open. If an event occurs after the
value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, that
security would be valued as determined in accordance with procedures adopted
by the Board of Directors. If the fund determines that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by, or in accordance with procedures adopted by, the
Board of Directors or its designee if such determination would materially
impact a fund's net asset value. Certain other circumstances may cause the
fund to use alternative procedures to value a security such as: a security has
been declared in default; trading in a security has been halted during the
trading day; or there is a foreign market holiday and no trading will commence.
SECURITY TRANSACTIONS -- 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.
SECURITIES ON LOAN -- The fund may lend portfolio securities through its
lending agent to certain approved borrowers in order to earn additional
income. The fund continues to recognize any gain or loss in the market price
of the securities loaned and records any interest earned or dividends declared.
FOREIGN CURRENCY TRANSACTIONS -- All assets and liabilities initially
expressed in foreign currencies are translated into U.S. dollars at prevailing
exchange rates at period end. Purchases and sales of investment securities,
dividend and interest income, and certain expenses are translated at the rates
of exchange prevailing on the respective dates of such transactions. 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.
- ------
14
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.
EXCHANGE TRADED FUNDS -- The fund may invest in exchange traded funds (ETFs).
ETFs are a type of index fund bought and sold on a securities exchange. An ETF
trades like common stock and represents a fixed portfolio of securities
designed to track the performance and dividend yield of a particular domestic
or foreign market index. A fund may purchase an ETF to temporarily gain
exposure to a portion of the U.S. or a foreign market while awaiting purchase
of underlying securities. The risks of owning an ETF generally reflect the
risks of owning the underlying securities they are designed to track, although
the lack of liquidity on an ETF could result in it being more volatile.
Additionally, ETFs have management fees, which increase their cost.
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 book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of 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, 2006, the fund had accumulated net realized capital loss
carryovers for federal income tax purposes of $(43,376,129), which may be used
to offset future taxable gains. Capital loss carryovers of $(2,033,731),
$(2,696,809), $(2,392,863) and $(36,252,726) expire in 2010, 2011, 2012 and
2014, respectively.
The fund has elected to treat $(42,351) of net foreign currency losses
incurred in the two-month period ended December 31, 2006, as having been
incurred in the following fiscal year for federal income tax purposes.
- ------
15
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 ranges from 0.80% to 1.00% for Class I
and Class III and from 0.70% to 0.90% for Class II. The effective annual
management fee for each class of the fund for the six months ended June 30,
2007 was 1.00%, 0.90% and 1.00% 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, 2007, 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.
The fund may invest in a money market fund for temporary purposes, which is
managed by J.P. Morgan Investment Management, Inc. (JPMIM). JPMIM is a wholly
owned subsidiary of JPMorgan Chase & Co. (JPM). JPM is an equity investor in
ACC. 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 JPM.
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16
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the six months ended June 30, 2007, were $400,509,570 and
$296,740,882, respectively.
As of June 30, 2007, 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 $736,029,771
============
Gross tax appreciation of investments $115,897,015
Gross tax depreciation of investments (4,651,061)
------------
Net tax appreciation (depreciation) of investments $111,245,954
============
The difference between book-basis and tax-basis cost and unrealized
appreciation (depreciation) is attributable primarily to the tax deferral of
losses on wash sales and on return of capital dividends.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the funds were as follows:
Six Months ended June 30,
2007 Year ended December 31, 2006
Shares Amount Shares Amount
CLASS I/SHARES
AUTHORIZED 100,000,000 100,000,000
=========== ===========
Sold 3,453,972 $ 36,762,596 4,967,537 $ 50,355,762
Redeemed (1,760,122) (18,264,917) (4,752,723) (48,007,639)
----------- ------------ ----------- -------------
1,693,850 18,497,679 214,814 2,348,123
----------- ------------ ----------- -------------
CLASS II/SHARES
AUTHORIZED 150,000,000 150,000,000
=========== ===========
Sold 13,417,352 136,813,107 36,865,713 364,419,695
Redeemed (1,869,887) (19,409,822) (5,023,636) (48,172,288)
----------- ------------ ----------- -------------
11,547,465 117,403,285 31,842,077 316,247,407
----------- ------------ ----------- -------------
CLASS III/SHARES
AUTHORIZED 50,000,000 50,000,000
=========== ===========
Sold 9,287 95,252 208,622 2,117,662
Redeemed (83,590) (864,811)(1) (309,927) (3,086,166)(2)
----------- ------------ ----------- -------------
(74,303) (769,559) (101,305) (968,504)
----------- ------------ ----------- -------------
Net increase
(decrease) 13,167,012 $135,131,405 31,955,586 $ 317,627,026
=========== ============ =========== =============
(1) Net of redemption fees of $124.
(2) Net of redemption fees of $1,586.
5. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a
$500,000,000 unsecured bank line of credit agreement with 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 0.40%. The fund did not borrow from the line during the six months
ended June 30, 2007.
- ------
17
6. SECURITIES LENDING
As of June 30, 2007, securities in the fund valued at $63,775,265 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 $64,001,026. 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.
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.
8. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an
Interpretation of FASB Statement No. 109" (FIN 48). FIN 48 establishes a
minimum threshold for financial statement recognition of the benefit of
positions taken in filing tax returns (including whether an entity is taxable
in a particular jurisdiction), and requires certain expanded tax disclosures.
FIN 48 is effective for fiscal years beginning after December 15, 2006, and is
to be applied to all open tax years as of the date of effectiveness.
Management has concluded that the adoption of FIN 48 will not materially
impact the financial statements.
The FASB issued Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" (FAS 157), in September 2006, which is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands the required
financial statement disclosures about fair value measurements. Management is
currently evaluating the impact that adopting FAS 157 will have on the
financial statement disclosures.
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18
FINANCIAL HIGHLIGHTS
VP Ultra
Class I
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2007(1) 2006 2005 2004 2003 2002
PER-SHARE DATA
Net Asset Value,
Beginning of
Period $10.04 $10.38 $10.16 $9.18 $7.35 $9.53
------ ------ ------ ------ ------ ------
Income From
Investment
Operations
Net
Investment
Income
(Loss)(2) (0.01) (0.01) (0.01) --(3) (0.01) 0.02
Net Realized
and
Unrealized
Gain (Loss) 0.70 (0.33) 0.22 0.98 1.84 (2.18)
------ ------ ------ ------ ------ ------
Total From
Investment
Operations 0.69 (0.34) 0.21 0.98 1.83 (2.16)
------ ------ ------ ------ ------ ------
Distributions
From Net
Investment
Income -- -- -- -- -- (0.02)
------ ------ ------ ------ ------ ------
Redemption
Fees(2) --(3) --(3) 0.01 --(3) --(3) --(3)
------ ------ ------ ------ ------ ------
Net Asset Value,
End of Period $10.73 $10.04 $10.38 $10.16 $9.18 $7.35
====== ====== ====== ====== ====== ======
TOTAL RETURN(4) 6.97% (3.28)% 2.17% 10.68% 24.90% (22.71)%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net
Assets 1.00%(5) 1.00% 1.01% 1.00% 1.01% 1.00%
Ratio of Net
Investment
Income (Loss) to
Average Net
Assets (0.10)%(5) (0.06)% (0.08)% 0.05% (0.15)% 0.19%
Portfolio
Turnover Rate 42% 118% 58% 45% 111% 168%
Net Assets, End
of Period (in
thousands) $129,635 $104,270 $105,560 $79,489 $63,364 $31,621
(1) Six months ended June 30, 2007 (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 are calculated based on the net
asset value of the last business day. 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.
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19
VP Ultra
Class II
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2007(1) 2006 2005 2004 2003 2002(2)
PER-SHARE DATA
Net Asset Value,
Beginning of
Period $9.98 $10.33 $10.13 $9.16 $7.34 $9.16
------ ------ ------ ------ ------ ------
Income From
Investment
Operations
Net
Investment
Income
(Loss)(3) (0.01) (0.02) (0.02) --(4) (0.03) --(4)
Net Realized
and
Unrealized
Gain (Loss) 0.70 (0.33) 0.21 0.97 1.85 (1.81)
------ ------ ------ ------ ------ ------
Total From
Investment
Operations 0.69 (0.35) 0.19 0.97 1.82 (1.81)
------ ------ ------ ------ ------ ------
Distributions
From Net
Investment
Income -- -- -- -- -- (0.01)
------ ------ ------ ------ ------ ------
Redemption
Fees(3) --(4) --(4) 0.01 --(4) --(4) --(4)
------ ------ ------ ------ ------ ------
Net Asset Value,
End of Period $10.67 $9.98 $10.33 $10.13 $9.16 $7.34
====== ====== ====== ====== ====== ======
TOTAL RETURN(5) 6.91% (3.39)% 1.97% 10.59% 24.80% (19.80)%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net
Assets 1.15%(6) 1.15% 1.16% 1.15% 1.16% 1.15%(6)
Ratio of Net
Investment
Income (Loss) to
Average Net
Assets (0.25)%(6) (0.21)% (0.23)% (0.10)% (0.30)% 0.07%(6)
Portfolio
Turnover Rate 42% 118% 58% 45% 111% 168%(7)
Net Assets, End
of Period (in
thousands) $683,739 $524,005 $213,594 $91,984 $26,831 $2,635
(1) Six months ended June 30, 2007 (unaudited).
(2) May 1, 2002 (commencement of sale) through December 31, 2002.
(3) Computed using average shares outstanding throughout the period.
(4) Per-share amount was less than $0.005.
(5) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(6) Annualized.
(7) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended December 31, 2002.
See Notes to Financial Statements.
- ------
20
VP Ultra
Class III
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2007(1) 2006 2005 2004 2003 2002(2)
PER-SHARE DATA
Net Asset Value,
Beginning of Period $10.03 $10.37 $10.15 $9.17 $7.34 $9.08
------ ------ ------ ------ ------ ------
Income From
Investment
Operations
Net Investment
Income
(Loss)(3) (0.01) (0.01) --(4) 0.01 (0.02) 0.01
Net Realized
and Unrealized
Gain (Loss) 0.72 (0.33) 0.21 0.97 1.85 (1.74)
------ ------ ------ ------ ------ ------
Total From
Investment
Operations 0.71 (0.34) 0.21 0.98 1.83 (1.73)
------ ------ ------ ------ ------ ------
Distributions
From Net
Investment
Income -- -- -- -- -- (0.01)
------ ------ ------ ------ ------ ------
Redemption Fees(3) --(4) --(4) 0.01 --(4) --(4) --(4)
------ ------ ------ ------ ------ ------
Net Asset Value,
End of Period $10.74 $10.03 $10.37 $10.15 $9.17 $7.34
====== ====== ====== ====== ====== ======
TOTAL RETURN(5) 6.98% (3.28)% 2.17% 10.69% 24.93% (19.02)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to Average
Net Assets 1.00%(6) 1.00% 1.01% 1.00% 1.01% 1.00%(6)
Ratio of Net
Investment Income
(Loss) to Average
Net Assets (0.10)%(6) (0.06)% (0.08)% 0.05% (0.15)% 0.14%(6)
Portfolio Turnover
Rate 42% 118% 58% 45% 111% 168%(7)
Net Assets, End of
Period (in
thousands) $1,322 $1,980 $3,098 $966 $339 $257
(1) Six months ended June 30, 2007 (unaudited).
(2) May 13, 2002 (commencement of sale) through December 31, 2002.
(3) Computed using average shares outstanding throughout the period.
(4) Per-share amount was less than $0.005.
(5) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns are calculated based on the net
asset value of the last business day. Total returns for periods less than one
year are not annualized. The total return of the classes may not precisely
reflect the class expense differences because of the impact of calculating the
net asset values to two decimal places. If net asset values were calculated to
three decimal places, the total return differences would more closely reflect
the class expense differences. The calculation of net asset values to two
decimal places is made in accordance with SEC guidelines and does not result
in any gain or loss of value between one class and another.
(6) Annualized.
(7) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended December 31, 2002.
See Notes to Financial Statements.
- ------
21
APPROVAL OF MANAGEMENT AGREEMENT
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 or trustees (the "Directors") each
year. At American Century, this process is referred to as the "15(c) Process."
As a part of this process, the board reviews fund performance, shareholder
services, audit and compliance information, and a variety of other reports
from the advisor concerning fund operations. In addition to this annual
review, the board of directors oversees and evaluates on a continuous basis at
its quarterly meetings the nature and quality of significant services
performed by the advisor, fund performance, audit and compliance information,
and a variety of other reports relating to fund operations. The board, or
committees of the board, also holds special meetings as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning VP Ultra (the "fund") and the services
provided to the fund under the management agreement. The information
considered and the discussions held at the meetings included, but were not
limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund 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 a similar
fund;
* data comparing the fund's performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two regularly
scheduled meetings and one special meeting to review and discuss the
information provided by the advisor and to complete its negotiations with the
advisor regarding the renewal of the management agreement, including the
setting of the applicable advisory fee. The board also had the benefit of the
advice of its independent counsel throughout the period.
- ------
22
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. The
Directors did not identify any single factor as being all-important or
controlling, and each Director may have attributed different levels of
importance to different factors. In deciding to renew the agreement under the
terms ultimately determined by the board to be appropriate, the Directors'
decision was based on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under
the management agreement, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both
in terms of quantity and complexity in response to shareholder demands,
competition in the industry 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.
- ------
23
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management
services provided is quite complex and allows fund shareholders access to
professional money management, instant diversification of their investments
within an asset class, the opportunity to easily diversify among asset
classes, and liquidity. In evaluating investment performance, the board
expects the advisor to manage the fund in accordance with its investment
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
technology, research, training, compliance and other systems to conduct their
business. At each quarterly meeting the Directors review investment
performance information for the fund, together with comparative information
for appropriate benchmarks and peer groups of funds managed similarly to the
fund. The Directors also review detailed performance information during the
15(c) Process comparing the fund's performance with that of similar funds not
managed by the advisor. If performance concerns are identified, the Directors
discuss with the advisor the reasons for such results (e.g., market
conditions, security selection) and any efforts being undertaken to improve
performance. The fund's performance fell below the median for both the one-
and three-year periods. The board discussed the fund's performance with the
advisor and was satisfied with the efforts being undertaken by the advisor.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the fund with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY 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 consider the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethically. They noted that the advisor's practices generally meet or
exceed industry best practices.
- ------
24
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the fund specifically, the expenses incurred by the advisor
in providing various functions to the fund, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints 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
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the fund and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider 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 above 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.
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25
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the fund. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker-dealers that
execute fund portfolio transactions and concluded that this research is likely
to benefit fund shareholders. The Directors also determined that the advisor
is able to provide investment management services to certain clients other
than the fund, at least in part, due to its existing infrastructure built to
serve the fund complex. The Directors concluded, however, that the assets of
those other clients are not material to the analysis and, in any event, are
included with the assets of the fund to determine breakpoints in the fund's
fee schedule, provided they are managed using the same investment team and
strategy.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the 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,
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
August 1, 2007, contains lower management fees at certain 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 is fair and reasonable in light of the
services provided and should be renewed.
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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. The total expense ratio of Class III shares is the same as 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.
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27
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 website at americancentury.com and on the Securities and
Exchange Commission's website at sec.gov. Information regarding how the
investment advisor voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30 is available on the "About Us" page
at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's website at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330. The fund also makes its complete
schedule of portfolio holdings for the most recent quarter of its fiscal year
available on its website at ipro.americancentury.com (for Investment
Professionals) and, upon request, by calling 1-800-378-9878.
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28
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® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest companies in the Russell 3000 Index (the 3,000 largest publicly traded
U.S. companies, based on total market capitalization).
The RUSSELL 1000® GROWTH INDEX measures the performance of those Russell 1000
Index 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 values.
The RUSSELL 1000® VALUE INDEX measures the performance of those Russell 1000
Index 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 values.
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 2000® GROWTH INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest 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 values.
The RUSSELL 2000® VALUE INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
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 Index companies (the 800 smallest of the 1,000 largest publicly traded
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.
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29
NOTES
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30
NOTES
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31
NOTES
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32
[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.
American Century Investment Services, Inc., Distributor
©2007 American Century Proprietary Holdings, Inc. All rights reserved.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
0708
SH-SAN-55636
[front cover]
AMERICAN CENTURY VARIABLE PORTFOLIOS
Semiannual Report June 30, 2007
[photo of summer]
VP Value Fund
[american century investments logo and text logo]
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Stock Index Returns . . . . . . . . . . . . . . . . . . . . . . 2
VP VALUE
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . 6
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 6
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . 7
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 Value . . . . . . . . . . . . 22
Share Class Information . . . . . . . . . . . . . . . . . . . . . . . 26
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 27
The opinions expressed in the Market Perspective and the Portfolio Commentary
reflect those of the portfolio management team as of the date of the report,
and do not necessarily represent the opinions of American Century 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.
MARKET PERSPECTIVE
[photo of Chief Investment Officer]
By Enrique Chang, Chief Investment Officer, American Century Investments
STOCKS ENJOYED A SOLID RALLY
The U.S. equity market advanced in the first half of 2007, benefiting from a
generally favorable environment for stocks. Although the U.S. economy slowed
markedly in the first quarter of the year, growing at an annual rate of just
0.6% (the lowest growth rate since the fourth quarter of 2002), it showed
signs of improvement in the second quarter. In addition, the Federal Reserve
held short-term interest rates steady, maintaining a policy shift that
occurred in mid-2006.
Corporate earnings growth decelerated during the period -- ending a streak of
double-digit quarterly earnings growth for the S&P 500 Index that began in
2002 -- but continued to outshine expectations. Robust merger activity also
provided support for stocks as a deluge of leveraged buy-outs from private
equity firms put the volume of deal-making ahead of last year's record pace.
Despite the generally positive backdrop, the stock market hit a couple of
speed bumps along the way. Stocks stumbled in late February, mirroring a drop
in the Chinese stock market, but rebounded quickly in early March. The
subsequent rally peaked in early June -- when many of the major stock indexes
hit seven-year highs -- as rising interest rates, higher energy prices, and
deteriorating subprime lending conditions led to a pullback in stock prices
later that month.
MID-CAP AND GROWTH OUTPERFORMED
As the accompanying table shows, mid-cap stocks led the market's advance in
the first six months of 2007, followed by large-cap issues, while small-cap
shares lagged after outperforming in 2006. Growth stocks, which have trailed
value issues for much of the decade, enjoyed a resurgence, outpacing value
shares across all market capitalizations.
The best-performing sectors in the stock market were energy and materials,
driven largely by escalating energy and commodity prices. Telecommunication
services and industrials stocks also generated double-digit returns for the
reporting period. The only sector to decline was financials, which were hurt
by higher interest rates and the subprime lending fallout.
U.S. Stock Index Returns
For the six months ended June 30, 2007(1)
RUSSELL 1000 INDEX (LARGE-CAP) 7.18%
Russell 1000 Growth Index 8.13%
Russell 1000 Value Index 6.23%
RUSSELL MIDCAP INDEX 9.90%
Russell Midcap Growth Index 10.97%
Russell Midcap Value Index 8.69%
RUSSELL 2000 INDEX (SMALL-CAP) 6.45%
Russell 2000 Growth Index 9.33%
Russell 2000 Value Index 3.80%
(1) Total returns for periods less than one year are not annualized.
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2
PERFORMANCE
VP Value
Total Returns as of June 30, 2007
Average Annual Returns
6 10 Since Inception
months(1) 1 year 5 years years Inception Date
CLASS I 6.42% 22.54% 12.19% 10.16% 11.43% 5/1/96
RUSSELL 3000 VALUE
INDEX(2) 6.01% 21.33% 13.41% 9.99% 11.82% --
S&P 500 INDEX(2) 6.96% 20.59% 10.71% 7.13% 9.52% --
LIPPER MULTI-CAP
VALUE INDEX(2) 7.03% 20.17% 12.81% 8.73% 10.32% --
Class II 6.37% 22.35% 12.02% -- 10.02% 8/14/01
Class III 6.42% 22.54% 12.19% -- 11.21% 5/6/02
(1) Total returns for periods less than one year are not annualized.
(2) Data provided by Lipper Inc. -- A Reuters Company. ©2007 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
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.
International investing involves specific 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.
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3
VP Value
Growth of $10,000 Over 10 Years
$10,000 investment made June 30, 1997
One-Year Returns Over 10 Years
Periods ended June 30
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Class I 17.80% 11.98% -15.88% 31.94% 1.12% -0.49% 25.20% 8.08% 7.77% 22.54%
Russell 3000
Value Index 27.95% 14.39% -8.38% 11.64% -7.75% -1.23% 22.14% 14.09% 12.32% 21.33%
S&P 500 Index 30.16% 22.76% 7.25% -14.83% -17.99% 0.25% 19.11% 6.32% 8.63% 20.59%
Lipper
Multi-Cap
Value Index 20.39% 9.61% -6.66% 15.14% -10.89% 2.13% 22.22% 10.95% 9.79% 20.17%
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 specific 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.
- ------
4
PORTFOLIO COMMENTARY
VP Value
Portfolio Managers: Phil Davidson, Scott Moore, and Michael Liss
PERFORMANCE SUMMARY
VP Value gained 6.42%* for the six months ended June 30, 2007. By comparison,
its benchmark, the Russell 3000 Value Index, advanced 6.01%. The Lipper
Multi-Cap Value Index advanced 7.03% while the broader market, as measured by
the S&P 500 Index, returned 6.96%. (The portfolio's returns reflect fund
operating expenses, while the indices' returns do not.) The median return for
Morningstar's Large Cap Value category (whose performance, like VP Value's,
reflects fund operating expenses) was 7.15%.**
VP Value's results were achieved in a market environment (described in the
Market Perspective on page 2) more favorable to growth stocks than to value
stocks across the capitalization spectrum. Value strategies that emphasized
lower-quality names and stocks subject to higher levels of volatility also
performed well. Nonetheless, our emphasis on higher-quality businesses with
sound balance sheets resulted in solid performance. Investments in financials,
consumer staples, and consumer discretionary stocks added most to results
relative to the Russell 3000 Value Index, while our positions in the energy
sector detracted. In addition, during the reporting period, the fund's small
portion of international holdings also contributed to results.
Over time, VP Value's disciplined investment approach has rewarded longer-term
investors. Since the portfolio's inception on May 1, 1996, it has produced an
average annualized return of 11.43%, outperforming the Lipper Multi-Cap Value
Index, Morningstar's Large Cap Value category median,** and the S&P 500 Index
for the same period (see the performance information on pages 3-4).
UNDERWEIGHT POSITION IN FINANCIALS BOOSTED RELATIVE PERFORMANCE
The portfolio's underweight position in the financials sector was one of the
top contributors to performance. In particular, we held no real estate
investment trusts (REITs), which came under pressure due to rising interest
rates and the fallout from the subprime implosion. Our valuation work led us
away from this group and we were rewarded when REITS, which comprise 4% of the
benchmark, posted negative results over the six-month reporting period.
The financials sector also held one of the portfolio's top detracting stocks
- -- Freddie Mac. Freddie Mac is a stockholder-owned corporation chartered by
Congress to keep money flowing to mortgage lenders in support of homeownership
and rental housing.
Top Ten Holdings as of June 30, 2007
% of net % of net
assets as of assets as of
6/30/07 12/31/06
Bank of America Corp. 4.9% 3.8%
General Electric Co. 4.0% 4.6%
Freddie Mac 3.7% 1.8%
BP plc ADR 3.1% 1.5%
Kraft Foods Inc. Cl A 3.0% 1.9%
SunTrust Banks, Inc. 3.0% 1.7%
United Parcel Service, Inc. Cl B 2.8% 1.2%
Berkshire Hathaway Inc. Cl A 2.8% 0.7%
MGIC Investment Corp. 2.6% 1.8%
Johnson & Johnson 2.2% 0.6%
* All fund returns referenced in this commentary are for Class I shares. Total
returns for periods less than one year are not annualized.
** The median returns for Morningstar's Large Cap Value category were 20.91%,
11.45% and 8.07% for the one-, five-, and ten-year periods ended June 30,
2007, respectively, and 10.82% since the fund's inception. ©2007 Morningstar,
Inc. All Rights Reserved. The information contained herein: (1) is proprietary
to Morningstar and/or its content providers; (2) may not be copied or
distributed; and (3) is not warranted to be accurate, complete or timely.
Neither Morningstar nor its content providers are responsible for any damages
or losses arising from any use of this information.
- ------
5
VP Value
Its stock declined in sympathy with the dip in the housing market but was also
affected by the problems of subprime lending stocks -- despite the fact that
Freddie Mac has only modest exposure to subprime loans.
CONSUMER STAPLES POSITION CONTRIBUTED
Another contributor to relative performance was our position in consumer
staples companies. Especially beneficial was our overweight allocation to food
and beverage retailers, which also provided two of the portfolio's strongest
contributors -- Coca-Cola Enterprises and Kraft Foods.
Coca-Cola Enterprises manufactures and distributes Coca-Cola and other
beverages in the United States, Great Britain, and parts of Europe. Its stock
price benefited from the company's cost-cutting efforts, acquisition
activities, and strong earnings. Kraft Foods, the largest branded food company
in the U.S., added to results as its spinoff from Altria Group was completed
and its stock began to trade on its own fundamentals.
CONSUMER DISCRETIONARY ADDED VALUE
The consumer discretionary sector provided one of our top contributors. Retail
discounter Dollar General Corp. announced during the first quarter that it was
being acquired by private-equity giant Kohlberg Kravis Roberts & Co. The stock
performed well in response to the $22-per-share cash buyout offer.
ENERGY POSITION DETRACTED
Our underweight position in energy stocks hurt relative performance. Because
of their valuations, we either did not own or had an underweight position in
several major oil refiners, such as Valero and Conoco-Philips, which
outperformed during the reporting period. Our underweight position in Exxon
Mobil, a top-performing stock for the benchmark, was also a drag on
performance.
STARTING POINT FOR NEXT REPORTING PERIOD
The management team follows a disciplined, bottom-up process, selecting
securities one at a time for the portfolio. As of June 30, 2007, we continued
to see opportunities in consumer staples and industrials, reflected by our
overweight positions in those sectors relative to the benchmark. Our
fundamental and valuation work also led to our smaller relative weightings in
telecommunications, consumer discretionary, and energy stocks.
Top Five Industries as of June 30, 2007
% of net % of net
assets as of assets as of
6/30/07 12/31/06
Insurance 10.2% 5.9%
Food Products 7.9% 5.8%
Commercial Banks 7.9% 6.6%
Thrifts & Mortgage Finance 6.3% 4.5%
Oil, Gas & Consumable Fuels 6.1% 7.3%
Types of Investments in Portfolio
% of net % of net
assets as of assets as of
6/30/07 12/31/06
Domestic Common Stocks 93.7% 92.9%
Foreign Common Stocks(1) 5.8% 2.6%
TOTAL COMMON STOCKS 99.5% 95.5%
Cash and Equivalents(2) 0.5% 4.5%
(1) Includes depositary shares, dual listed securities and foreign ordinary
shares.
(2) Includes temporary cash investments, securities lending collateral and
other assets and liabilities.
- ------
6
SHAREHOLDER FEE EXAMPLE (UNAUDITED)
Fund shareholders may incur two types of costs: (1) transaction costs,
including sales charges (loads) on purchase payments and redemption/exchange
fees; and (2) ongoing costs, including management fees; distribution and
service (12b-1) fees; and other fund expenses. This example is intended to
help you understand your ongoing costs (in dollars) of investing in your fund
and to compare these costs with the ongoing cost of investing in other mutual
funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2007 to June 30, 2007.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is
not the actual return of a fund's share class. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare
this 5% hypothetical example with the 5% hypothetical examples that appear in
the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these transactional
costs were included, your costs would have been higher.
Beginning Ending
Account Account Expenses Paid
Value Value During Period* Annualized
1/1/07 6/30/07 1/1/07 - 6/30/07 Expense Ratio*
ACTUAL
Class I $1,000 $1,064.20 $4.76 0.93%
Class II $1,000 $1,063.70 $5.53 1.08%
Class III $1,000 $1,064.20 $4.76 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
SCHEDULE OF INVESTMENTS
VP Value
JUNE 30, 2007 (UNAUDITED)
Shares Value
Common Stocks -- 99.5%
AEROSPACE & DEFENSE -- 0.4%
138,200 Northrop Grumman Corp. $ 10,761,634
--------------
AIR FREIGHT & LOGISTICS -- 2.8%
1,071,412 United Parcel Service, Inc. Cl B 78,213,076
--------------
AIRLINES -- 2.2%
4,224,200 Southwest Airlines Co.(1) 62,982,822
--------------
AUTO COMPONENTS -- 0.8%
391,600 Autoliv, Inc. 22,270,292
--------------
AUTOMOBILES -- 0.8%
381,800 Toyota Motor Corp. ORD 24,181,235
--------------
BEVERAGES -- 4.2%
677,297 Anheuser-Busch Companies, Inc. 35,327,812
1,511,721 Coca-Cola Enterprises Inc. 36,281,304
753,200 Pepsi Bottling Group Inc. 25,367,776
340,600 PepsiCo, Inc. 22,087,910
--------------
119,064,802
--------------
BIOTECHNOLOGY -- 0.5%
253,900 Amgen Inc.(2) 14,038,131
--------------
BUILDING PRODUCTS -- 0.6%
590,815 Masco Corp. 16,820,503
--------------
CAPITAL MARKETS -- 1.2%
38,800 Bear Stearns Companies Inc. (The) 5,432,000
165,126 Blackstone Group L.P. (The)(2) 4,833,238
164,200 Merrill Lynch & Co., Inc. 13,723,836
171,900 Nuveen Investments Inc. Cl A(1) 10,683,585
--------------
34,672,659
--------------
CHEMICALS -- 1.1%
155,000 du Pont (E.I.) de Nemours & Co. 7,880,200
369,850 Minerals Technologies Inc.(1) 24,761,458
--------------
32,641,658
--------------
COMMERCIAL BANKS -- 7.9%
963,000 BB&T Corporation 39,174,840
412,378 Fifth Third Bancorp(1) 16,400,273
652,666 Marshall & Ilsley Corp. 31,086,482
Shares Value
1,178,450 South Financial Group Inc. (The)(1) $ 26,680,108
987,484 SunTrust Banks, Inc. 84,666,878
739,091 U.S. Bancorp 24,353,048
--------------
222,361,629
--------------
COMMERCIAL SERVICES & SUPPLIES -- 2.4%
667,800 Pitney Bowes, Inc. 31,266,396
818,936 Republic Services, Inc. 25,092,199
287,800 Waste Management, Inc. 11,238,590
--------------
67,597,185
--------------
COMMUNICATIONS EQUIPMENT -- 0.6%
930,000 Motorola, Inc. 16,461,000
--------------
CONTAINERS & PACKAGING -- 1.2%
1,048,983 Bemis Co., Inc. 34,805,256
--------------
DISTRIBUTORS -- 0.2%
104,385 Genuine Parts Company 5,177,496
--------------
DIVERSIFIED -- 1.8%
337,734 Standard and Poor's 500 Depositary Receipt(1) 50,761,420
--------------
DIVERSIFIED FINANCIAL SERVICES -- 5.9%
2,851,921 Bank of America Corp. 139,430,418
546,345 Citigroup Inc. 28,022,035
--------------
167,452,453
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 3.2%
1,230,034 AT&T Inc. 51,046,411
136,000 BCE Inc. ORD(1) 5,149,948
815,621 Verizon Communications Inc. 33,579,117
--------------
89,775,476
--------------
ELECTRIC UTILITIES -- 1.4%
1,064,800 Duke Energy Corp. 19,485,840
616,668 IDACORP, Inc. 19,758,043
--------------
39,243,883
--------------
ELECTRICAL EQUIPMENT -- 0.7%
383,651 Hubbell Inc. Cl B(1) 20,801,557
--------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.0%
742,700 Molex Inc. 22,288,427
140,675 Tyco Electronics Ltd.(2)(3) 5,494,766
--------------
27,783,193
--------------
FOOD & STAPLES RETAILING -- 1.7%
230,800 Costco Wholesale Corp. 13,506,416
703,836 Wal-Mart Stores, Inc. 33,861,550
--------------
47,367,966
--------------
- ------
8
VP Value
Shares Value
FOOD PRODUCTS -- 7.9%
1,447,200 ConAgra Foods, Inc. $ 38,871,792
235,178 General Mills, Inc. 13,739,099
1,001,393 H.J. Heinz Co. 47,536,125
266,500 Kellogg Co. 13,802,035
2,403,182 Kraft Foods Inc. Cl A 84,712,165
800,268 Unilever N.V. New York Shares 24,824,313
--------------
223,485,529
--------------
GAS UTILITIES -- 0.5%
423,224 WGL Holdings Inc.(1) 13,814,031
--------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 1.5%
271,754 Beckman Coulter, Inc. 17,577,049
184,700 Covidien Ltd.(2)(3) 7,960,570
1,108,723 Symmetry Medical Inc.(1)(2) 17,750,655
--------------
43,288,274
--------------
HEALTH CARE PROVIDERS & SERVICES -- 0.3%
135,900 Universal Health Services, Inc. Cl B 8,357,850
--------------
HOTELS, RESTAURANTS & LEISURE -- 1.9%
372,851 International Speedway Corp. 19,652,976
840,031 Speedway Motorsports Inc.(1) 33,584,440
--------------
53,237,416
--------------
HOUSEHOLD PRODUCTS -- 2.5%
265,400 Clorox Company 16,481,340
801,144 Kimberly-Clark Corp. 53,588,522
--------------
70,069,862
--------------
INDUSTRIAL CONGLOMERATES -- 4.0%
2,922,929 General Electric Co. 111,889,722
--------------
INSURANCE -- 10.2%
133,100 Allstate Corp. 8,186,981
534,700 Ambac Financial Group, Inc. 46,620,493
845,106 American International Group, Inc. 59,182,773
714 Berkshire Hathaway Inc. Cl A(1)(2) 78,165,149
577,600 Chubb Corp. 31,271,264
893,700 Genworth Financial Inc. Cl A 30,743,280
1,097,831 Marsh & McLennan Companies, Inc. 33,901,021
--------------
288,070,961
--------------
IT SERVICES -- 0.9%
236,498 International Business Machines Corp. 24,891,415
--------------
Shares Value
METALS & MINING -- 1.1%
797,700 Newmont Mining Corporation $ 31,158,162
--------------
MULTI-UTILITIES -- 5.1%
816,090 Ameren Corp.(1) 39,996,571
237,900 Consolidated Edison, Inc. 10,734,048
91,300 Dominion Resources Inc. 7,880,103
1,673,860 Puget Energy, Inc.(1) 40,473,935
502,805 Wisconsin Energy Corp. 22,239,065
1,088,300 XCEL Energy Inc. 22,277,501
--------------
143,601,223
--------------
OIL, GAS & CONSUMABLE FUELS -- 6.1%
1,211,699 BP plc ADR 87,411,966
63,812 Chevron Corp. 5,375,523
687,119 Exxon Mobil Corp. 57,635,542
221,321 Murphy Oil Corp. 13,155,320
109,500 Royal Dutch Shell plc ADR 8,891,400
--------------
172,469,751
--------------
PAPER & FOREST PRODUCTS -- 0.6%
211,601 Weyerhaeuser Co. 16,701,667
--------------
PHARMACEUTICALS -- 5.3%
255,771 Bristol-Myers Squibb Co. 8,072,133
141,960 Eli Lilly and Company 7,932,725
1,023,600 Johnson & Johnson 63,074,231
2,456,391 Pfizer Inc. 62,809,918
243,100 Watson Pharmaceuticals, Inc.(1)(2) 7,908,043
--------------
149,797,050
--------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 1.6%
1,971,921 Intel Corp. 46,852,843
--------------
SPECIALTY RETAIL -- 1.1%
425,176 Home Depot, Inc. (The) 16,730,676
533,300 Lowe's Companies, Inc. 16,366,977
--------------
33,097,653
--------------
THRIFTS & MORTGAGE FINANCE -- 6.3%
1,730,315 Freddie Mac 105,030,121
1,294,013 MGIC Investment Corp.(1) 73,577,579
--------------
178,607,700
--------------
TOTAL COMMON STOCKS
(Cost $2,558,482,255) 2,814,626,435
--------------
- ------
9
VP Value
Shares Value
Temporary Cash Investments -- 1.1%
Repurchase Agreement, Credit Suisse First Boston, Inc.,
(collateralized by various U.S. Treasury obligations, 5.50%,
8/15/28, valued at $31,235,053), in a joint trading account at
4.35%, dated 6/29/07, due 7/2/07 (Delivery value $30,611,093)(4)
(Cost $30,600,000) $ 30,600,000
--------------
Temporary Cash Investments -- Securities Lending Collateral(5) -- 4.0%
Repurchase Agreement, Morgan Stanley Group, Inc.,
(collateralized by various U.S. Government Agency obligations in
a pooled account at the lending agent), 5.38%, dated 6/29/07,
due 7/2/07 (Delivery value $114,649,908) (Cost $114,598,530) 114,598,530
--------------
TOTAL INVESTMENT SECURITIES -- 104.6%
(Cost $2,703,680,785) 2,959,824,965
--------------
OTHER ASSETS AND LIABILITIES -- (4.6)% (130,092,685)
--------------
TOTAL NET ASSETS -- 100.0% $2,829,732,280
==============
Forward Foreign Currency Exchange Contracts
Unrealized
Contracts to Sell Settlement Date Value Gain (Loss)
4,296,512 CAD for USD 7/31/07 $4,035,932 $ (24,848)
18,353,297 Euro for USD 7/31/07 24,866,481 (165,431)
32,001,654 GBP for USD 7/31/07 64,224,884 (335,822)
2,345,779,200 JPY for USD 7/31/07 19,119,096 118,852
------------ ------------
$112,246,393 $(407,249)
============ ============
(Value on Settlement Date $111,839,144)
Notes to Schedule of Investments
ADR = American Depositary Receipt
CAD = Canadian Dollar
GBP = British Pound
JPY = Japanese Yen
ORD = Foreign Ordinary Share
USD = United States Dollar
(1) Security, or a portion thereof, was on loan as of June 30, 2007.
(2) Non-income producing.
(3) When-issued security.
(4) Security, or a portion thereof, has been segregated for when-issued
securities.
(5) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions.
See Notes to Financial Statements.
- ------
10
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2007 (UNAUDITED)
ASSETS
Investment securities, at value (cost of $2,589,082,255) --
including $112,860,271 of securities on loan $2,845,226,435
Investments made with cash collateral received for securities on
loan, at value (cost of $114,598,530) 114,598,530
--------------
Total investment securities, at value (cost of $2,703,680,785) 2,959,824,965
Cash 6,688,037
Receivable for investments sold 57,746,903
Receivable for forward foreign currency exchange contracts 118,852
Dividends and interest receivable 4,607,291
--------------
3,028,986,048
--------------
LIABILITIES
Payable for collateral received on securities on loan 114,598,530
Payable for investments purchased 81,829,030
Payable for forward foreign currency exchange contracts 526,101
Accrued management fees 2,110,221
Distribution fees payable 189,886
--------------
199,253,768
--------------
NET ASSETS $2,829,732,280
==============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $2,361,378,573
Undistributed net investment income 21,658,783
Undistributed net realized gain on investment and foreign
currency transactions 190,957,993
Net unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 255,736,931
--------------
$2,829,732,280
==============
CLASS I, $0.01 PAR VALUE
Net assets $1,896,224,181
Shares outstanding 226,234,619
Net asset value per share $8.38
CLASS II, $0.01 PAR VALUE
Net assets $916,009,884
Shares outstanding 109,260,271
Net asset value per share $8.38
CLASS III, $0.01 PAR VALUE
Net assets $17,498,215
Shares outstanding 2,087,580
Net asset value per share $8.38
See Notes to Financial Statements.
- ------
11
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
INVESTMENT INCOME (LOSS)
INCOME:
Dividends (net of foreign taxes withheld of $104,610) $ 33,125,652
Interest 2,155,350
Securities lending 161,511
------------
35,442,513
------------
EXPENSES:
Management fees 12,609,047
Distribution fees -- Class II 1,094,134
Directors' fees and expenses 31,111
Other expenses 5,848
------------
13,740,140
------------
NET INVESTMENT INCOME (LOSS) 21,702,373
------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on investment and foreign currency
transactions 238,676,467
Change in net unrealized appreciation (depreciation) on
investments and translation of assets and liabilities in foreign
currencies (82,675,528)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) 156,000,939
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $177,703,312
============
See Notes to Financial Statements.
- ------
12
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED) AND YEAR ENDED
DECEMBER 31, 2006
Increase (Decrease) in Net Assets 2007 2006
OPERATIONS
Net investment income (loss) $ 21,702,373 $ 42,815,173
Net realized gain (loss) 238,676,467 251,697,806
Change in net unrealized appreciation
(depreciation) (82,675,528) 175,939,272
-------------- --------------
Net increase (decrease) in net assets
resulting from operations 177,703,312 470,452,251
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Class I (30,308,484) (31,704,046)
Class II (12,268,816) (8,355,314)
Class III (257,105) (123,198)
From net realized gains:
Class I (157,170,511) (199,994,017)
Class II (70,106,125) (59,269,500)
Class III (1,333,266) (777,151)
-------------- --------------
Decrease in net assets from distributions (271,444,307) (300,223,226)
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets from
capital share transactions 94,410,670 (295,405,664)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS 669,675 (125,176,639)
NET ASSETS
Beginning of period 2,829,062,605 2,954,239,244
-------------- --------------
End of period $2,829,732,280 $2,829,062,605
============== ==============
Undistributed net investment income $21,658,783 $42,790,815
============== ==============
See Notes to Financial Statements.
- ------
13
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2007 (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 to seek long-term capital growth.
Income is a secondary objective. The fund pursues 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 distribution and
shareholder servicing 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. Securities traded on foreign securities exchanges and
over-the-counter markets are normally completed before the close of business
on days that the New York Stock Exchange (the Exchange) is open and may also
take place on days when the Exchange is not open. If an event occurs after the
value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, that
security would be valued as determined in accordance with procedures adopted
by the Board of Directors. If the fund determines that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by, or in accordance with procedures adopted by, the
Board of Directors or its designee if such determination would materially
impact a fund's net asset value. Certain other circumstances may cause the
fund to use alternative procedures to value a security such as: a security has
been declared in default; trading in a security has been halted during the
trading day; or there is a foreign market holiday and no trading will commence.
SECURITY TRANSACTIONS -- 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.
SECURITIES ON LOAN -- The fund may lend portfolio securities through its
lending agent to certain approved borrowers in order to earn additional
income. The fund continues to recognize any gain or loss in the market price
of the securities loaned and records any interest earned or dividends
declared.
FOREIGN CURRENCY TRANSACTIONS -- All assets and liabilities initially
expressed in foreign currencies are translated into U.S. dollars at prevailing
exchange rates at period end. Purchases and sales of investment securities,
dividend and interest income, and certain expenses are translated at the rates
of exchange prevailing on the respective dates of such transactions. 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.
- ------
14
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.
WHEN-ISSUED AND FORWARD COMMITMENTS -- The fund may engage in securities
transactions on a when-issued or forward commitment basis. Under these
arrangements, the securities' prices and yields are fixed on the date of the
commitment, but payment and delivery are scheduled for a future date. During
this period, securities are subject to market fluctuations. The fund will
segregate cash, cash equivalents or other appropriate liquid securities on its
records in amounts sufficient to meet the purchase price.
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 book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of 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.
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.
- ------
15
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 each class of the fund ranges from 0.90% to 1.00%
for Class I and Class III and from 0.80% to 0.90% for Class II. The effective
annual management fee for each class of the fund for the six months ended June
30, 2007 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, 2007, 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.
The fund may invest in a money market fund for temporary purposes, which is
managed by J.P. Morgan Investment Management, Inc. (JPMIM). JPMIM is a wholly
owned subsidiary of JPMorgan Chase & Co. (JPM). JPM is an equity investor in
ACC. 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 JPM.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the six months ended June 30, 2007, were $2,040,997,697 and
$2,088,363,556, respectively.
As of June 30, 2007, 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 $2,735,084,547
===============
Gross tax appreciation of investments $243,286,509
Gross tax depreciation of investments (18,546,091)
---------------
Net tax appreciation (depreciation) of investments $224,740,418
===============
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.
- ------
16
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
Six months ended Year ended
June 30, 2007 December 31, 2006
Shares Amount Shares Amount
CLASS I/SHARES
AUTHORIZED 650,000,000 650,000,000
============ ============
Sold 5,735,562 $ 48,577,478 14,502,289 $ 116,938,401
Issued in
reinvestment of
distributions 24,066,623 187,478,995 30,810,913 231,698,063
Redeemed (29,245,105) (245,685,790) (99,790,936) (785,968,015)
------------ -------------- ------------ --------------
557,080 (9,629,317) (54,477,734) (437,331,551)
------------ -------------- ------------ --------------
CLASS II/SHARES
AUTHORIZED 200,000,000 200,000,000
============ ============
Sold 7,579,267 63,763,323 16,280,437 131,247,567
Issued in
reinvestment of
distributions 10,560,890 82,374,941 8,980,719 67,624,814
Redeemed (5,147,336) (43,247,250) (8,086,522) (63,937,952)
------------ -------------- ------------ --------------
12,992,821 102,891,014 17,174,634 134,934,429
------------ -------------- ------------ --------------
CLASS III/SHARES
AUTHORIZED 50,000,000 50,000,000
============ ============
Sold 356,147 3,017,737 1,249,491 10,154,656
Issued in
reinvestment of
distributions 204,155 1,590,371 119,727 900,349
Redeemed (410,644) (3,459,135)(1) (498,259) (4,063,547)(2)
------------ -------------- ------------ --------------
149,658 1,148,973 870,959 6,991,458
------------ -------------- ------------ --------------
Net increase
(decrease) 13,699,559 $ 94,410,670 (36,432,141) $(295,405,664)
============ ============== ============ ==============
(1) Net of redemption fees of $2,063.
(2) Net of redemption fees of $2,946.
5. SECURITIES LENDING
As of June 30, 2007, securities in the fund valued at $112,860,271 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 $114,598,530. 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
$500,000,000 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 0.40%. The fund did not borrow from the line during the six months
ended June 30, 2007.
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.
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17
8. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an
Interpretation of FASB Statement No. 109" (FIN 48). FIN 48 establishes a
minimum threshold for financial statement recognition of the benefit of
positions taken in filing tax returns (including whether an entity is taxable
in a particular jurisdiction), and requires certain expanded tax disclosures.
FIN 48 is effective for fiscal years beginning after December 15, 2006, and is
to be applied to all open tax years as of the date of effectiveness.
Management has concluded that the adoption of FIN 48 will not materially
impact the financial statements.
The FASB issued Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" (FAS 157), in September 2006, which is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands the required
financial statement disclosures about fair value measurements. Management is
currently evaluating the impact that adopting FAS 157 will have on the
financial statement disclosures.
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18
FINANCIAL HIGHLIGHTS
VP Value
Class I
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2007(1) 2006 2005 2004 2003 2002
PER-SHARE DATA
Net Asset
Value,
Beginning of
Period $8.74 $8.20 $8.75 $7.79 $6.12 $7.44
-------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net
Investment
Income
(Loss)(2) 0.07 0.13 0.13 0.09 0.09 0.08
Net
Realized
and
Unrealized
Gain (Loss) 0.43 1.26 0.28 1.01 1.65 (0.95)
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations 0.50 1.39 0.41 1.10 1.74 (0.87)
-------- -------- -------- -------- -------- --------
Distributions
From Net
Investment
Income (0.14) (0.12) (0.08) (0.08) (0.07) (0.06)
From Net
Realized
Gains (0.72) (0.73) (0.88) (0.06) -- (0.39)
-------- -------- -------- -------- -------- --------
Total
Distributions (0.86) (0.85) (0.96) (0.14) (0.07) (0.45)
-------- -------- -------- -------- -------- --------
Net Asset
Value, End of
Period $8.38 $8.74 $8.20 $8.75 $7.79 $6.12
======== ======== ======== ======== ======== ========
TOTAL
RETURN(3) 6.42% 18.65% 5.03% 14.33% 28.96% (12.62)%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net
Assets 0.93%(4) 0.93% 0.93% 0.93% 0.95% 0.95%
Ratio of Net
Investment
Income (Loss)
to Average Net
Assets 1.59%(4) 1.58% 1.66% 1.16% 1.37% 1.17%
Portfolio
Turnover Rate 74% 132% 133% 139% 109% 106%
Net Assets,
End of Period
(in thousands) $1,896,224 $1,971,620 $2,297,418 $2,248,902 $1,919,580 $1,465,287
(1) Six months ended June 30, 2007 (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.
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19
VP Value
Class II
For a Share Outstanding Throughout the Years Ended December 31
(except as noted)
2007(1) 2006 2005 2004 2003 2002
PER-SHARE DATA
Net Asset
Value,
Beginning of
Period $8.73 $8.19 $8.74 $7.78 $6.11 $7.44
-------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net
Investment
Income
(Loss)(2) 0.06 0.12 0.12 0.08 0.08 0.07
Net Realized
and
Unrealized
Gain (Loss) 0.44 1.25 0.27 1.01 1.65 (0.95)
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations 0.50 1.37 0.39 1.09 1.73 (0.88)
-------- -------- -------- -------- -------- --------
Distributions
From Net
Investment
Income (0.13) (0.10) (0.06) (0.07) (0.06) (0.06)
From Net
Realized
Gains (0.72) (0.73) (0.88) (0.06) -- (0.39)
-------- -------- -------- -------- -------- --------
Total
Distributions (0.85) (0.83) (0.94) (0.13) (0.06) (0.45)
-------- -------- -------- -------- -------- --------
Net Asset
Value, End of
Period $8.38 $8.73 $8.19 $8.74 $7.78 $6.11
======== ======== ======== ======== ======== ========
TOTAL
RETURN(3) 6.37% 18.46% 4.85% 14.17% 28.81% (12.81)%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net
Assets 1.08%(4) 1.08% 1.08% 1.08% 1.10% 1.10%
Ratio of Net
Investment
Income (Loss)
to Average Net
Assets 1.44%(4) 1.43% 1.51% 1.01% 1.22% 1.02%
Portfolio
Turnover Rate 74% 132% 133% 139% 109% 106%
Net Assets,
End of Period
(in thousands) $916,010 $840,512 $648,071 $433,465 $218,141 $82,976
(1) Six months ended June 30, 2007 (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
Class III
For a Share Outstanding Throughout the Years Ended December 31
(except as noted)
2007(1) 2006 2005 2004 2003 2002(2)
PER-SHARE DATA
Net Asset Value,
Beginning of
Period $8.74 $8.20 $8.75 $7.79 $6.12 $6.92
------- ------- ------- ------- ------- -------
Income From
Investment
Operations
Net Investment
Income (Loss)(3) 0.07 0.13 0.13 0.09 0.09 0.06
Net Realized and
Unrealized Gain
(Loss) 0.43 1.26 0.28 1.01 1.65 (0.86)
------- ------- ------- ------- ------- -------
Total From
Investment
Operations 0.50 1.39 0.41 1.10 1.74 (0.80)
------- ------- ------- ------- ------- -------
Distributions
From Net
Investment
Income (0.14) (0.12) (0.08) (0.08) (0.07) --
From Net
Realized Gains (0.72) (0.73) (0.88) (0.06) -- --
------- ------- ------- ------- ------- -------
Total
Distributions (0.86) (0.85) (0.96) (0.14) (0.07) --
------- ------- ------- ------- ------- -------
Net Asset Value,
End of Period $8.38 $8.74 $8.20 $8.75 $7.79 $6.12
======= ======= ======= ======= ======= =======
TOTAL RETURN(4) 6.42% 18.65% 5.03% 14.33% 28.96% (11.56)%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net
Assets 0.93%(5) 0.93% 0.93% 0.93% 0.95% 0.95%(5)
Ratio of Net
Investment Income
(Loss) to Average
Net Assets 1.59%(5) 1.58% 1.66% 1.16% 1.37% 1.50%(5)
Portfolio
Turnover Rate 74% 132% 133% 139% 109% 106%(6)
Net Assets, End
of Period (in
thousands) $17,498 $16,931 $8,750 $6,387 $1,819 $356
(1) Six months ended June 30, 2007 (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.
- ------
21
APPROVAL OF MANAGEMENT AGREEMENT
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 or trustees (the "Directors") each
year. At American Century, this process is referred to as the "15(c) Process."
As a part of this process, the board reviews fund performance, shareholder
services, audit and compliance information, and a variety of other reports
from the advisor concerning fund operations. In addition to this annual
review, the board of directors oversees and evaluates on a continuous basis at
its quarterly meetings the nature and quality of significant services
performed by the advisor, fund performance, audit and compliance information,
and a variety of other reports relating to fund operations. The board, or
committees of the board, also holds special meetings as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning VP Value (the "fund") and the services
provided to the fund under the management agreement. The information
considered and the discussions held at the meetings included, but were not
limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund 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 a similar
fund;
* data comparing the fund's performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two regularly
scheduled meetings and one special meeting to review and discuss the
information provided by the advisor and to complete its negotiations with the
advisor regarding the renewal of the management agreement, including the
setting of the applicable advisory fee. The board also had the benefit of the
advice of its independent counsel throughout the period.
- ------
22
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. The
Directors did not identify any single factor as being all-important or
controlling, and each Director may have attributed different levels of
importance to different factors. In deciding to renew the agreement under the
terms ultimately determined by the board to be appropriate, the Directors'
decision was based on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under
the management agreement, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both
in terms of quantity and complexity in response to shareholder demands,
competition in the industry 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
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
technology, research, training, compliance and other systems to conduct their
business.
- ------
23
At each quarterly meeting the Directors review investment performance
information for the fund, together with comparative information for
appropriate benchmarks and peer groups of funds managed similarly to the fund.
The Directors also review detailed performance information during the 15(c)
Process comparing the fund's performance with that of similar funds not
managed by the advisor. If performance concerns are identified, the Directors
discuss with the advisor the reasons for such results (e.g., market
conditions, security selection) and any efforts being undertaken to improve
performance. The fund's performance was above the median of its peer group for
the one period and fell below the median for the 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 their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY 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 consider the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethically. They noted that the advisor's practices generally meet or
exceed industry best practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the fund specifically, the expenses incurred by the advisor
in providing various functions to the fund, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints as the fund increases in size, and through
reinvestment in its business to provide shareholders additional content and
services.
- ------
24
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
fund's independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the fund and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider 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 above 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 certain clients other
than the fund, at least in part, due to its existing infrastructure built to
serve the fund complex. The Directors concluded, however, that the assets of
those other clients are not material to the analysis and, in any event, are
included with the assets of the fund to determine breakpoints in the fund's
fee schedule, provided they are managed using the same investment team and
strategy.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the independent directors, in the absence of
particular circumstances and assisted by the advice of legal counsel that is
independent of the advisor, taking into account all of the factors discussed
above and the information provided by the advisor 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.
- ------
25
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. The total expense ratio of Class III shares is the same as 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.
- ------
26
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 RUSSELL 1000® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest companies in the Russell 3000 Index (the 3,000 largest publicly traded
U.S. companies, based on total market capitalization).
The RUSSELL 1000® GROWTH INDEX measures the performance of those Russell 1000
Index 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 values.
The RUSSELL 1000® VALUE INDEX measures the performance of those Russell 1000
Index 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 values.
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 2000® GROWTH INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest 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 values.
The RUSSELL 2000® VALUE INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
The RUSSELL 3000® VALUE INDEX measures the performance of those Russell 3000
Index companies (the 3,000 largest U.S. companies based on total market
capitalization) with lower price-to-book ratios and lower forecasted growth
values.
The 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.
- ------
27
The RUSSELL MIDCAP® VALUE 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 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 website at americancentury.com and on the Securities and
Exchange Commission's website at sec.gov. Information regarding how the
investment advisor voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30 is available on the "About Us" page
at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's website at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330. The fund also makes its complete
schedule of portfolio holdings for the most recent quarter of its fiscal year
available on its website at ipro.americancentury.com (for Investment
Professionals) and, upon request, by calling 1-800-378-9878.
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28
[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.
American Century Investment Services, Inc., Distributor
©2007 American Century Proprietary Holdings, Inc. All rights reserved.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
0708
SH-SAN-55633
[front cover]
AMERICAN CENTURY VARIABLE PORTFOLIOS
Semiannual Report June 30, 2007
[photo of summer]
VP Vista(SM) Fund
[american century investments logo and text logo]
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Stock Index Returns . . . . . . . . . . . . . . . . . . . . . . 2
VP VISTA
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . 6
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 6
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . 7
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. . . . . . . . . . . . . . . . . . . . . . . . . 18
OTHER INFORMATION
Approval of Management Agreement for VP Vista . . . . . . . . . . . . 20
Share Class Information . . . . . . . . . . . . . . . . . . . . . . . 24
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 25
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 26
The opinions expressed in the Market Perspective and the Portfolio Commentary
reflect those of the portfolio management team as of the date of the report,
and do not necessarily represent the opinions of American Century 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.
MARKET PERSPECTIVE
[Photo of Chief Investment Officer]
By Enrique Chang, Chief Investment Officer, American Century Investments
STOCKS ENJOYED A SOLID RALLY
The U.S. equity market advanced in the first half of 2007, benefiting from a
generally favorable environment for stocks. Although the U.S. economy slowed
markedly in the first quarter of the year, growing at an annual rate of just
0.6% (the lowest growth rate since the fourth quarter of 2002), it showed
signs of improvement in the second quarter. In addition, the Federal Reserve
held short-term interest rates steady, maintaining a policy shift that
occurred in mid-2006.
Corporate earnings growth decelerated during the period--ending a streak of
double-digit quarterly earnings growth for the S&P 500 Index that began in
2002-- but continued to outshine expectations. Robust merger activity also
provided support for stocks as a deluge of leveraged buy-outs from private
equity firms put the volume of deal-making ahead of last year's record pace.
Despite the generally positive backdrop, the stock market hit a couple of
speed bumps along the way. Stocks stumbled in late February, mirroring a drop
in the Chinese stock market, but rebounded quickly in early March. The
subsequent rally peaked in early June--when many of the major stock indexes
hit seven-year highs--as rising interest rates, higher energy prices, and
deteriorating subprime lending conditions led to a pullback in stock prices
later that month.
MID-CAP AND GROWTH OUTPERFORMED
As the accompanying table shows, mid-cap stocks led the market's advance in
the first six months of 2007, followed by large-cap issues, while small-cap
shares lagged after outperforming in 2006. Growth stocks, which have trailed
value issues for much of the decade, enjoyed a resurgence, outpacing value
shares across all market capitalizations.
The best-performing sectors in the stock market were energy and materials,
driven largely by escalating energy and commodity prices. Telecommunication
services and industrials stocks also generated double-digit returns for the
reporting period. The only sector to decline was financials, which were hurt
by higher interest rates and the subprime lending fallout.
U.S. Stock Index Returns
For the six months ended June 30, 2007(1)
RUSSELL 1000 INDEX (LARGE-CAP) 7.18%
Russell 1000 Growth Index 8.13%
Russell 1000 Value Index 6.23%
RUSSELL MIDCAP INDEX 9.90%
Russell Midcap Growth Index 10.97%
Russell Midcap Value Index 8.69%
RUSSELL 2000 INDEX (SMALL-CAP) 6.45%
Russell 2000 Growth Index 9.33%
Russell 2000 Value Index 3.80%
(1) Total returns less than one year are not annualized.
- ------
2
PERFORMANCE
VP Vista
Total Returns as of June 30, 2007
Average Annual
Returns
Since Inception
6 months(1) 1 year 5 years Inception Date
CLASS I 22.11% 24.81% 14.78% 12.13% 10/5/2001
RUSSELL MIDCAP GROWTH
INDEX(2) 10.97% 19.73% 15.45% 12.69% --
Class II 22.02% 24.64% -- 21.71% 4/29/2005
(1) Total returns for periods less than one year are not annualized.
(2) Data provided by Lipper Inc. - A Reuters Company. ©2007 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
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.
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 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
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 2006 2007
Class I -3.20% -0.52% 31.98% 4.17% 16.72% 24.81%
Russell Midcap Growth Index -3.25% 7.35% 27.33% 10.86% 13.04% 19.73%
*From 10/5/01, Class I's inception date. 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.
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 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.
- ------
4
PORTFOLIO COMMENTARY
VP Vista
Portfolio Managers: Glenn Fogle, David Hollond, and Brad Eixmann
In February 2007, senior investment analyst Brad Eixmann was promoted to
co-portfolio manager for VP Vista. He joined American Century in 2002 and has
served exclusively on the VP Vista team since that time.
PERFORMANCE SUMMARY
VP Vista gained 22.11%* for the six months ended June 30, 2007, surpassing the
10.97% return of its benchmark, the Russell Midcap Growth Index.
As discussed in the Market Perspective on page 2, a pause in Federal Reserve
(Fed) interest rate moves, strong merger activity, and better-than-expected
corporate earnings growth contributed to solid U.S. stock index gains for the
six-month period, despite a slowdown in the housing market and growing
problems among subprime lenders. In this environment, mid-cap stocks outpaced
their small-and large-cap counterparts, and growth stocks outpaced value
shares. During the reporting period, the portfolio derived a meaningful
portion of its returns from investments in international holdings.
Overweight positions in the industrials and telecommunications services
(telecom) sectors, and an underweight in the financials and consumer
discretionary sectors contributed to VP Vista's strong performance relative to
the Russell Midcap Growth Index. Effective stock selection within those
sectors accounted for the majority of VP Vista's strong relative performance,
along with effective stock selection in the information technology sector. An
underweight and stock selection within the energy sector -- plus an
underweight in that sector -- trimmed gains modestly.
INDUSTRIALS LED TOP PERFORMERS
Industrials made the largest sector contribution to VP Vista's performance
relative to its benchmark. Within the sector, the portfolio benefited from an
overweight position in the aerospace and defense industry. The investment
team's focus in the industry is on companies benefiting from a replacement
cycle and expanding orders in global commercial aviation. Precision Castparts,
a manufacturer of components for aerospace applications, was a strong
contributor to VP Vista's gains as its share price soared 55% for the
six-month period. BE Aerospace, another fund overweight, also benefited from
the trend, with its share price climbing 61%.
Top Ten Holdings as of June 30, 2007
% of net % of net
assets as of assets as of
6/30/07 12/31/06
NII Holdings, Inc. Cl B 5.6% 4.8%
Precision Castparts Corp. 5.5% 3.4%
BE Aerospace, Inc. 4.2% 2.5%
Thermo Fisher Scientific Inc. 3.6% 3.2%
Leap Wireless International, Inc. 3.1% 2.7%
SBA Communications Corp. Cl A 3.0% 2.5%
Foster Wheeler Ltd. 3.0% 2.0%
Nintendo Co., Ltd. ORD 2.9% 2.1%
Express Scripts, Inc. 2.4% --
GameStop Corp. Cl A 2.4% 2.2%
*All fund returns referenced in this commentary are for Class I shares. Total
returns for periods less than one year are not annualized.
- ------
5
VP Vista
The portfolio held an overweight stake in industrial conglomerates Foster
Wheeler and McDermott International. Both companies, which are involved in a
variety of heavy construction areas -- including the construction of power
plants -- benefited from growing global demand for energy infrastructure, a
cycle the investment team believes is still in its early stages. Foster
Wheeler was the largest contributor to portfolio performance for the period.
TELECOM AND TECHNOLOGY CONTRIBUTED TO GAINS
The portfolio reaped rewards from its largest sector overweight, telecom.
Within telecom, VP Vista focused on the wireless telecommunications industry
with overweights in NII Holdings, Inc., (NII) the fund's biggest holding, and
Leap Wireless International, (Leap). Combined, the two companies accounted for
9% of the portfolio's average weight for the six-month period.
NII provides cellular service in burgeoning Latin American markets, and Leap
provides service in the U.S., focusing on a younger market that tends to use
wireless as their primary telephone service. Both companies, which contributed
significantly to absolute and relative fund performance, have continued to
experience strong demand and reflect VP Vista's focus on companies with
accelerating financial growth and share price momentum.
Within the technology sector, a stake in video-game maker Nintendo boosted
portfolio returns. Consumer demand for the innovative Wii interactive game
system helped to drive up the company's share price 43% during the six-month
period.
STARTING POINT FOR NEXT REPORTING PERIOD
VP Vista's investment process focuses on medium-sized and smaller companies
with accelerating earnings growth rates and share price momentum. We believe
that active investing in such companies will generate outperformance over time
compared with the Russell Midcap Growth Index.
We are encouraged by the current market environment and the market's behavior
since the Fed stopped raising interest rates. An environment of steady rates
and strong corporate earnings growth complements our process of identifying
companies with accelerating growth and price momentum. Our process has
successfully guided us to companies in the aerospace and wireless
telecommunications areas in particular, which benefit from what we believe to
be long-term trends.
Top Five Industries as of June 30, 2007
% of net % of net
assets as of assets as of
6/30/07 12/31/06
Wireless Telecommunication Services 14.1% 14.5%
Aerospace & Defense 9.7% 6.6%
Construction & Engineering 5.2% 2.9%
Specialty Retail 4.9% 3.2%
Energy Equipment & Services 4.5% 5.3%
Types of Investments in Portfolio
% of net % of net
assets as of assets as of
6/30/07 12/31/06
Domestic Common Stocks 88.5% 65.8%
Foreign Common Stocks(1) 9.6% 12.9%
TOTAL COMMON STOCKS 98.1% 78.7%
Cash and Equivalents(2) 1.9% 21.3%
(1) Includes depositary shares, dual listed securities and foreign ordinary
shares.
(2) Includes temporary cash investments and other assets and liabilities.
- ------
6
SHAREHOLDER FEE EXAMPLE (UNAUDITED)
Fund shareholders may incur two types of costs: (1) transaction costs,
including sales charges (loads) on purchase payments and redemption/exchange
fees; and (2) ongoing costs, including management fees; distribution and
service (12b-1) fees; and other fund expenses. This example is intended to
help you understand your ongoing costs (in dollars) of investing in your fund
and to compare these costs with the ongoing cost of investing in other mutual
funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2007 to June 30, 2007.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is
not the actual return of a fund's share class. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare
this 5% hypothetical example with the 5% hypothetical examples that appear in
the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these transactional
costs were included, your costs would have been higher.
Beginning Ending Expenses Paid
Account Value Account Value During Period* Annualized
1/1/07 6/30/07 1/1/07 - 6/30/07 Expense Ratio*
ACTUAL
Class I $1,000 $1,221.10 $5.51 1.00%
Class II $1,000 $1,220.20 $6.33 1.15%
HYPOTHETICAL
Class I $1,000 $1,019.84 $5.01 1.00%
Class II $1,000 $1,019.09 $5.76 1.15%
*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
SCHEDULE OF INVESTMENTS
VP Vista
JUNE 30, 2007 (UNAUDITED)
Shares Value
Common Stocks -- 98.1%
AEROSPACE & DEFENSE -- 9.7%
84,601 BE Aerospace, Inc.(1) $ 3,494,022
37,617 Precision Castparts Corp. 4,565,200
-----------
8,059,222
-----------
AUTO COMPONENTS -- 1.0%
24,248 Goodyear Tire & Rubber Co. (The)(1) 842,860
-----------
BEVERAGES -- 0.5%
4,477 Molson Coors Brewing Co. 413,943
-----------
BIOTECHNOLOGY -- 0.9%
6,887 Celgene Corp.(1) 394,832
12,136 Onyx Pharmaceuticals, Inc.(1) 326,458
-----------
721,290
-----------
CAPITAL MARKETS -- 1.5%
19,059 Ameriprise Financial Inc. 1,211,581
-----------
CHEMICALS -- 3.3%
26,070 Monsanto Co. 1,760,767
12,578 Mosaic Co. (The)(1) 490,794
20,649 Terra Industries Inc.(1) 524,898
-----------
2,776,459
-----------
COMMERCIAL SERVICES & SUPPLIES -- 1.6%
10,192 Corrections Corp. of America(1) 643,217
20,178 TeleTech Holdings, Inc.(1) 655,382
-----------
1,298,599
-----------
COMMUNICATIONS EQUIPMENT -- 2.2%
5,787 Blue Coat Systems, Inc.(1) 286,572
7,688 CommScope, Inc.(1) 448,595
23,698 Juniper Networks, Inc.(1) 596,478
10,546 Riverbed Technology, Inc.(1) 462,126
-----------
1,793,771
-----------
COMPUTERS & PERIPHERALS -- 1.8%
11,989 Apple Inc.(1) 1,463,138
-----------
CONSTRUCTION & ENGINEERING -- 5.2%
23,183 Foster Wheeler Ltd.(1) 2,480,350
60,564 Quanta Services, Inc.(1) 1,857,498
-----------
4,337,848
-----------
CONTAINERS & PACKAGING -- 1.2%
6,779 Greif, Inc. Cl A 404,096
17,795 Owens-Illinois Inc.(1) 622,825
-----------
1,026,921
-----------
Shares Value
DIVERSIFIED CONSUMER SERVICES -- 0.5%
7,252 Apollo Group Inc. Cl A(1) $ 423,734
-----------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.7%
18,113 Cogent Communications Group, Inc.(1) 541,035
-----------
ELECTRIC UTILITIES -- 1.5%
7,687 Allegheny Energy, Inc.(1) 397,725
31,018 Reliant Energy, Inc.(1) 835,935
-----------
1,233,660
-----------
ELECTRICAL EQUIPMENT -- 2.0%
6,392 First Solar Inc.(1) 570,742
8,867 General Cable Corp.(1) 671,675
5,815 Vestas Wind Systems AS ORD(1) 384,973
-----------
1,627,390
-----------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.1%
5,626 Itron Inc.(1) 438,490
7,364 Sunpower Corp. Cl A(1) 464,301
-----------
902,791
-----------
ENERGY EQUIPMENT & SERVICES -- 4.5%
17,671 Acergy SA 401,430
15,758 Aker Kvaerner ASA ORD 400,715
6,333 Cameron International Corp.(1) 452,620
6,657 Core Laboratories N.V.(1) 676,950
36,792 Dresser-Rand Group Inc.(1) 1,453,284
11,261 Helmerich & Payne, Inc. 398,865
-----------
3,783,864
-----------
FOOD & STAPLES RETAILING -- 0.5%
8,935 SUPERVALU INC. 413,869
-----------
HEALTH CARE EQUIPMENT & SUPPLIES -- 2.0%
7,688 Hologic, Inc.(1) 425,223
14,236 Zimmer Holdings Inc.(1) 1,208,494
-----------
1,633,717
-----------
HEALTH CARE PROVIDERS & SERVICES -- 4.4%
40,710 Express Scripts, Inc.(1) 2,035,907
21,180 Medco Health Solutions Inc.(1) 1,651,828
-----------
3,687,735
-----------
HOTELS, RESTAURANTS & LEISURE -- 1.5%
5,556 Las Vegas Sands Corp.(1) 424,423
28,411 WMS Industries Inc.(1) 819,941
-----------
1,244,364
-----------
- ------
8
VP Vista
Shares Value
HOUSEHOLD DURABLES -- 0.3%
10,297 Tempur-Pedic International Inc. $ 266,692
-----------
INDUSTRIAL CONGLOMERATES -- 1.6%
15,612 McDermott International, Inc.(1) 1,297,669
-----------
INTERNET SOFTWARE & SERVICES -- 1.5%
9,426 Equinix Inc.(1) 862,197
7,630 SAVVIS Inc.(1) 377,761
-----------
1,239,958
-----------
IT SERVICES -- 2.0%
5,324 Cognizant Technology Solutions Corporation Cl A(1) 399,779
15,969 Gartner, Inc.(1) 392,678
5,361 MasterCard Inc. Cl A 889,229
-----------
1,681,686
-----------
LIFE SCIENCES TOOLS & SERVICES -- 3.6%
58,178 Thermo Fisher Scientific Inc.(1) 3,008,966
-----------
MACHINERY -- 4.5%
38,235 AGCO Corp.(1) 1,659,781
6,713 Alfa Laval AB ORD 407,253
22,270 Force Protection, Inc.(1) 459,653
7,570 Manitowoc Co., Inc. (The) 608,477
7,070 Terex Corp.(1) 574,791
-----------
3,709,955
-----------
MEDIA -- 2.2%
45,334 Liberty Global, Inc. Series A(1) 1,860,507
-----------
METALS & MINING -- 0.7%
5,903 Allegheny Technologies Inc. 619,107
-----------
MULTILINE RETAIL -- 0.6%
17,556 Big Lots, Inc.(1) 516,498
-----------
OIL, GAS & CONSUMABLE FUELS -- 1.3%
9,729 Cabot Oil & Gas Corp. 358,806
8,101 Peabody Energy Corp. 391,925
8,169 Southwestern Energy Company(1) 363,521
-----------
1,114,252
-----------
PHARMACEUTICALS -- 2.1%
68,547 Shire plc ORD 1,707,844
-----------
REAL ESTATE INVESTMENT TRUSTS -- 0.6%
14,051 Digital Realty Trust Inc. 529,442
-----------
Shares Value
REAL ESTATE MANAGEMENT & DEVELOPMENT -- 0.7%
5,155 Jones Lang LaSalle Inc. $ 585,093
-----------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 4.5%
19,412 Intersil Corp. Cl A 610,702
18,381 MEMC Electronic Materials Inc.(1) 1,123,447
21,007 National Semiconductor Corp. 593,868
35,113 NVIDIA Corp.(1) 1,450,517
-----------
3,778,534
-----------
SOFTWARE -- 3.0%
6,700 Nintendo Co., Ltd. ORD 2,453,575
2,570 THQ Inc.(1) 78,436
-----------
2,532,011
-----------
SPECIALTY RETAIL -- 4.9%
50,990 GameStop Corp. Cl A(1) 1,993,708
30,341 Guess?, Inc. 1,457,582
12,343 Tiffany & Co. 654,920
-----------
4,106,210
-----------
TEXTILES, APPAREL & LUXURY GOODS -- 2.3%
12,932 Coach Inc.(1) 612,847
11,135 Crocs, Inc.(1) 479,139
13,963 Phillips-Van Heusen Corp. 845,739
-----------
1,937,725
-----------
WIRELESS TELECOMMUNICATION SERVICES -- 14.1%
6,655 America Movil, SAB de CV ADR 412,144
5,796 Clearwire Corp. Cl A(1) 141,596
30,101 Leap Wireless International, Inc.(1) 2,543,535
11,006 MetroPCS Communications, Inc.(1) 363,638
12,814 Millicom International Cellular SA(1) 1,174,275
57,353 NII Holdings, Inc. Cl B(1) 4,630,682
74,644 SBA Communications Corp. Cl A(1) 2,507,292
-----------
11,773,162
-----------
TOTAL COMMON STOCKS
(Cost $61,932,759) 81,703,102
-----------
- ------
9
VP Vista
Shares Value
Temporary Cash Investments -- 5.9%
Repurchase Agreement, Credit Suisse First Boston, Inc.,
(collateralized by various U.S. Treasury obligations, 5.50%,
8/15/28, valued at $4,185,089), in a joint trading account at
4.35%, dated 6/29/07, due 7/2/07 (Delivery value $4,101,486) $ 4,100,000
Repurchase Agreement, Deutsche Bank Securities, Inc.,
(collateralized by various U.S. Treasury obligations, 4.25%,
1/15/14, valued at $816,944), in a joint trading account at 4.25%,
dated 6/29/07, due 7/2/07 (Delivery value $800,283) 800,000
-----------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $4,900,000) 4,900,000
-----------
Shares Value
TOTAL INVESTMENT SECURITIES -- 104.0%
(Cost $66,832,759) $86,603,102
-----------
OTHER ASSETS AND LIABILITIES -- (4.0)% (3,335,809)
-----------
TOTAL NET ASSETS -- 100.0% $83,267,293
===========
Forward Foreign Currency Exchange Contracts
Contracts to Sell Settlement Date Value Unrealized Gain (Loss)
1,656,112 DKK for USD 7/31/07 $ 301,466 $(2,096)
632,591 GBP for USD 7/31/07 1,269,562 (6,638)
151,252,500 JPY for USD 7/31/07 1,232,772 7,663
3,715,281 NOK for USD 7/31/07 630,193 (2,754)
3,364,492 SEK for USD 7/31/07 427,988 (2,831)
---------- --------
$3,861,981 $(6,656)
========== ========
(Value on Settlement Date $3,855,325)
Notes to Schedule of Investments
ADR = American Depositary Receipt
DKK = Danish Krone
GBP = British Pound
JPY = Japanese Yen
NOK = Norwegian Krona
ORD = Foreign Ordinary Share
SEK = Swedish Krona
USD = United States Dollar
(1) Non-income producing.
See Notes to Financial Statements.
- ------
10
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2007 (UNAUDITED)
ASSETS
Investment securities, at value (cost of $66,832,759) $86,603,102
Cash 165,293
Receivable for investments sold 1,820,728
Receivable for forward foreign currency exchange contracts 7,663
Dividends and interest receivable 15,345
-----------
88,612,131
-----------
LIABILITIES
Payable for investments purchased 5,247,819
Payable for forward foreign currency exchange contracts 14,319
Accrued management fees 80,922
Distribution fees payable 1,778
-----------
5,344,838
-----------
NET ASSETS $83,267,293
===========
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $60,961,651
Accumulated net investment loss (149,360)
Undistributed net realized gain on investment and foreign currency
transactions 2,691,008
Net unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 19,763,994
-----------
$83,267,293
===========
CLASS I, $0.01 PAR VALUE
Net assets $71,882,943
Shares outstanding 3,738,936
Net asset value per share $19.23
CLASS II, $0.01 PAR VALUE
Net assets $11,384,350
Shares outstanding 593,903
Net asset value per share $19.17
See Notes to Financial Statements.
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11
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
INVESTMENT INCOME (LOSS)
INCOME:
Dividends (net of foreign taxes withheld of $15,728) $ 185,750
Interest 85,868
-----------
271,618
-----------
EXPENSES:
Management fees 393,594
Distribution fees -- Class II 6,093
Directors' fees and expenses 664
Other expenses 98
-----------
400,449
-----------
NET INVESTMENT INCOME (LOSS) (128,831)
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
Investment transactions 4,226,326
Foreign currency transactions 23,137
-----------
4,249,463
-----------
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
Investments 12,117,595
Translation of assets and liabilities in foreign currencies 870
-----------
12,118,465
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) 16,367,928
-----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $16,239,097
===========
See Notes to Financial Statements.
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12
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2006
Increase (Decrease) in Net Assets 2007 2006
OPERATIONS
Net investment income (loss) $ (128,831) $ (110,423)
Net realized gain (loss) 4,249,463 (1,561,772)
Change in net unrealized appreciation (depreciation) 12,118,465 5,040,812
----------- -----------
Net increase (decrease) in net assets resulting from
operations 16,239,097 3,368,617
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
From net realized gains:
Class I -- (66,565)
Class II -- (6,417)
----------- -----------
Decrease in net assets from distributions -- (72,982)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets from capital
share transactions 3,742,621 41,876,969
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS 19,981,718 45,172,604
NET ASSETS
Beginning of period 63,285,575 18,112,971
----------- -----------
End of period $83,267,293 $63,285,575
=========== ===========
Accumulated net investment loss $(149,360) $(20,529)
=========== ===========
See Notes to Financial Statements.
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13
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2007 (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 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. The
share classes differ principally in their respective distribution and
shareholder servicing expenses and arrangements. All shares of the fund
represent an equal pro rata interest in the 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. Securities traded on foreign securities exchanges and
over-the-counter markets are normally completed before the close of business
on days that the New York Stock Exchange (the Exchange) is open and may also
take place on days when the Exchange is not open. If an event occurs after the
value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, that
security would be valued as determined in accordance with procedures adopted
by the Board of Directors. If the fund determines that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by, or in accordance with procedures adopted by, the
Board of Directors or its designee if such determination would materially
impact a fund's net asset value. Certain other circumstances may cause the
fund to use alternative procedures to value a security such as: a security has
been declared in default; trading in a security has been halted during the
trading day; or there is a foreign market holiday and no trading will commence.
SECURITY TRANSACTIONS -- 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.
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14
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 book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of 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, 2006, the fund had accumulated net realized capital loss
carryovers for federal income tax purposes of $(1,341,473) expiring in 2014,
which may be used to offset future taxable gains.
The fund has elected to treat $(27,747) of net foreign currency losses
incurred in the two-month period ended December 31, 2006, 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.
- ------
15
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 each class of the fund for the six months
ended June 30, 2007 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, 2007, 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.
The fund may invest in a money market fund for temporary purposes, which is
managed by J.P. Morgan Investment Management, Inc. (JPMIM). JPMIM is a wholly
owned subsidiary of JPMorgan Chase & Co. (JPM). JPM is an equity investor in
ACC. 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 JPM.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the six months ended June 30, 2007, were $90,649,124 and
$75,101,025, respectively.
As of June 30, 2007, 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 $67,228,641
===========
Gross tax appreciation of investments $19,884,962
Gross tax depreciation of investments (510,501)
-----------
Net tax appreciation (depreciation) of investments $19,374,461
===========
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.
- ------
16
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
Six months ended June 30, Year ended December 31,
2007 2006
Shares Amount Shares Amount
CLASS I/SHARES
AUTHORIZED 50,000,000 50,000,000
=========== ==========
Sold 2,236,624 $ 39,881,559 2,954,535 $44,536,757
Issued in reinvestment
of distributions -- -- 4,471 66,565
Redeemed (2,328,070) (43,556,703) (292,171) (4,402,623)
----------- ------------ ---------- -----------
(91,446) (3,675,144) 2,666,835 40,200,699
----------- ------------ ---------- -----------
CLASS II/SHARES
AUTHORIZED 50,000,000 50,000,000
=========== ==========
Sold 468,301 8,553,798 188,266 2,911,385
Issued in reinvestment
of distributions -- -- 431 6,417
Redeemed (64,667) (1,136,033) (84,714) (1,241,532)
----------- ------------ ---------- -----------
403,634 7,417,765 103,983 1,676,270
----------- ------------ ---------- -----------
Net increase (decrease) 312,188 $ 3,742,621 2,770,818 $41,876,969
=========== ============ ========== ===========
5. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a
$500,000,000 unsecured bank line of credit agreement with 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 0.40%. The fund did not borrow from the line during the six months
ended June 30, 2007.
6. 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.
7. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (FIN 48). FIN 48 establishes a
minimum threshold for financial statement recognition of the benefit of
positions taken in filing tax returns (including whether an entity is taxable
in a particular jurisdiction), and requires certain expanded tax disclosures.
FIN 48 is effective for fiscal years beginning after December 15, 2006, and is
to be applied to all open tax years as of the date of effectiveness.
Management has concluded that the adoption of FIN 48 will not materially
impact the financial statements.
The FASB issued Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" (FAS 157), in September 2006, which is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands the required
financial statement disclosures about fair value measurements. Management is
currently evaluating the impact that adopting FAS 157 will have on the
financial statement disclosures.
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17
FINANCIAL HIGHLIGHTS
VP Vista
Class I
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2007(1) 2006 2005 2004 2003 2002
PER-SHARE DATA
Net Asset
Value,
Beginning of
Period $15.74 $14.49 $13.40 $11.59 $8.15 $10.15
------ ------ ------ ------ ------ ------
Income From
Investment
Operations
Net
Investment
Income
(Loss) (0.03)(2) (0.05)(2) (0.05)(2) (0.01)(2) (0.05) (0.02)
Net Realized
and
Unrealized
Gain (Loss) 3.52 1.35 1.14 1.82 3.49 (1.98)
------ ------ ------ ------ ------ ------
Total From
Investment
Operations 3.49 1.30 1.09 1.81 3.44 (2.00)
------ ------ ------ ------ ------ ------
Distributions
From Net
Realized
Gains -- (0.05) -- -- -- --
------ ------ ------ ------ ------ ------
Net Asset
Value, End of
Period $19.23 $15.74 $14.49 $13.40 $11.59 $8.15
====== ====== ====== ====== ====== ======
TOTAL RETURN(3) 22.11% 9.01% 8.13% 15.62% 42.21% (19.70)%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net
Assets 1.00%(4) 1.00% 1.01% 1.00% 1.00% 1.00%
Ratio of Net
Investment
Income (Loss)
to Average Net
Assets (0.31)%(4) (0.31)% (0.40)% (0.05)% (0.58)% (0.29)%
Portfolio
Turnover Rate 97% 215% 276% 252% 262% 294%
Net Assets, End
of Period (in
thousands) $71,883 $60,297 $16,863 $9,612 $2,206 $1,164
(1) Six months ended June 30, 2007 (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.
- ------
18
VP Vista
Class II
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2007(1) 2006 2005(2)
PER-SHARE DATA
Net Asset Value, Beginning of Period $15.71 $14.48 $12.56
------ ------ ------
Income From Investment Operations
Net Investment Income (Loss)(3) (0.04) (0.07) (0.05)
Net Realized and Unrealized Gain (Loss) 3.50 1.35 1.97
------ ------ ------
Total From Investment Operations 3.46 1.28 1.92
------ ------ ------
Distributions
From Net Realized Gains -- (0.05) --
------ ------ ------
Net Asset Value, End of Period $19.17 $15.71 $14.48
====== ====== ======
TOTAL RETURN(4) 22.02% 8.88% 15.29%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net
Assets 1.15%(5) 1.15% 1.16%(5)
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.46)%(5) (0.46)% (0.55)%(5)
Portfolio Turnover Rate 97% 215% 276%(6)
Net Assets, End of Period (in thousands) $11,384 $2,988 $1,250
(1) Six months ended June 30, 2007 (unaudited).
(2) April 29, 2005 (commencement of sale) through December 31, 2005.
(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, 2005.
See Notes to Financial Statements.
- ------
19
APPROVAL OF MANAGEMENT AGREEMENT
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 or trustees (the "Directors") each
year. At American Century, this process is referred to as the "15(c) Process."
As a part of this process, the board reviews fund performance, shareholder
services, audit and compliance information, and a variety of other reports
from the advisor concerning fund operations. In addition to this annual
review, the board of directors oversees and evaluates on a continuous basis at
its quarterly meetings the nature and quality of significant services
performed by the advisor, fund performance, audit and compliance information,
and a variety of other reports relating to fund operations. The board, or
committees of the board, also holds special meetings as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning VP Vista (the "fund") and the services
provided to the fund under the management agreement. The information
considered and the discussions held at the meetings included, but were not
limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund 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 a similar
fund;
* data comparing the fund's performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two regularly
scheduled meetings and one special meeting to review and discuss the
information provided by the advisor and to complete its negotiations with the
advisor regarding the renewal of the management agreement, including the
setting of the applicable advisory fee. The board also had the benefit of the
advice of its independent counsel throughout the period.
- ------
20
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. The
Directors did not identify any single factor as being all-important or
controlling, and each Director may have attributed different levels of
importance to different factors. In deciding to renew the agreement under the
terms ultimately determined by the board to be appropriate, the Directors'
decision was based on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under
the management agreement, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of these services have expanded over time both
in terms of quantity and complexity in response to shareholder demands,
competition in the industry 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
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
technology, research, training, compliance and other systems to conduct their
business.
- ------
21
At each quarterly meeting the Directors review investment performance
information for the fund, together with comparative information for
appropriate benchmarks and peer groups of funds managed similarly to the fund.
The Directors also review detailed performance information during the 15(c)
Process comparing the fund's performance with that of similar funds not
managed by the advisor. If performance concerns are identified, the Directors
discuss with the advisor the reasons for such results (e.g., market
conditions, security selection) and any efforts being undertaken to improve
performance. The fund's performance was above the median of its peer group for
the one-year period and fell slightly below the median for the 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 their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY 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 consider the advisor's
commitment to providing quality services to shareholders and to conducting its
business ethically. They noted that the advisor's practices generally meet or
exceed industry best practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the fund specifically, the expenses incurred by the advisor
in providing various functions to the fund, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints as the fund increases in size, and through
reinvestment in its business to provide shareholders additional content and
services.
- ------
22
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
fund's independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the fund and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider 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 equal to 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 certain clients other
than the fund, at least in part, due to its existing infrastructure built to
serve the fund complex. The Directors concluded, however, that the assets of
those other clients are not material to the analysis and, in any event, are
included with the assets of the fund to determine breakpoints in the fund's
fee schedule, provided they are managed using the same investment team and
strategy.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the independent directors, in the absence of
particular circumstances and assisted by the advice of legal counsel that is
independent of the advisor, taking into account all of the factors discussed
above and the information provided by the advisor 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.
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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.
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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 website at americancentury.com and on the Securities and
Exchange Commission's website at sec.gov. Information regarding how the
investment advisor voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30 is available on the "About Us" page
at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's website at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330. The fund also makes its complete
schedule of portfolio holdings for the most recent quarter of its fiscal year
available on its website at ipro.americancentury.com (for Investment
Professionals) and, upon request, by calling 1-800-378-9878.
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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 RUSSELL 1000® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest companies in the Russell 3000 Index (the 3,000 largest publicly traded
U.S. companies, based on total market capitalization).
The RUSSELL 1000® GROWTH INDEX measures the performance of those Russell 1000
Index 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 values.
The RUSSELL 1000® VALUE INDEX measures the performance of those Russell 1000
Index 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 values.
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 2000® GROWTH INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest 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 values.
The RUSSELL 2000® VALUE INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
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 Index companies (the 800 smallest of the 1,000 largest publicly traded
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.
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26
NOTES
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27
NOTES
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28
[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.
American Century Investment Services, Inc., Distributor
©2007 American Century Proprietary Holdings, Inc. All rights reserved.
The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.
0708
SH-SAN-55637
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.
During the reporting period, there were no material changes to the procedures by
which shareholders may recommend nominees to the registrant's board.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company Act of
1940) are effective based on their evaluation of these controls and
procedures as of a date within 90 days of the filing date of this report.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of
1940) that occurred during the registrant's second fiscal quarter of the
period covered by this report that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control
over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Not applicable for semiannual report filings.
(a)(2) Separate certifications by the registrant's principal executive officer
and principal financial officer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment
Company Act of 1940, are filed and attached hereto as Exhibit
99.302CERT.
(a)(3) Not applicable.
(b) A certification by the registrant's chief executive officer and chief
financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, is furnished and attached hereto as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
By: /s/ Jonathan S. Thomas
--------------------------------------------------
Name: Jonathan S. Thomas
Title: President
Date: August 15, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Jonathan S. Thomas
---------------------------------------------------
Name: Jonathan S. Thomas
Title: President
(principal executive officer)
Date: August 15, 2007
By: /s/ Robert J. Leach
---------------------------------------------------
Name: Robert J. Leach
Title: Vice President, Treasurer, and
Chief Financial Officer
(principal financial officer)
Date: August 15, 2007
