[front cover]
DECEMBER 31, 1999
AMERICAN CENTURY (reg.sm)
VARIABLE PORTFOLIOS
ANNUAL REPORT
[graphic of runners]
[graphic of person looking at computer screen]
VP Value
[american century logo (reg.sm)]
American
Century
[inside front cover]
Variable Portfolios
VP Value
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Our Message to You
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[photo of James E. Stowers III, seated, with James E.Stowers, Jr.]
JAMES E. STOWERS III, SEATED, WITH JAMES E. STOWERS, JR.
The 12 months ended December 31, 1999, was a frustrating period for
investors in VP Value. In the first half of the year, the market stampeded
toward value stocks, which had been disdained for almost three years. The
rotation, however, was brief. Two interest rate increases over the summer by the
Federal Reserve sent investors retreating to a small number of large-cap growth
stocks. As a result, VP Value declined 0.85% for the year. (See page 4 for the
fund's standardized performance.) As your portfolio managers indicate in their
discussion, though, the prices of value stocks in relation to their growth
counterparts have never been more attractive, particularly among smaller
companies. We believe the value style will return, and likely with a vengeance.
On the corporate front, we are proud to announce that American Century has
been named by FORTUNE magazine as one of its "100 BEST COMPANIES TO WORK FOR."
We do not take this recognition lightly. An acknowledgement like this enables us
to recruit talented and dedicated people, from investment professionals to
service representatives. "Intellectual capital" is our most valuable resource,
and is essential in our efforts to provide you, our shareholders, with excellent
investment management.
As always, we appreciate your continued confidence in American Century.
Sincerely,
/s/ James E. Stowers, Jr. /s/ James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
CHAIRMAN OF THE BOARD AND FOUNDER VICE CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
VP VALUE
Performance Information ................................................ 4
Management Q&A ......................................................... 5
Portfolio at a Glance .................................................. 5
Top Ten Holdings ....................................................... 6
Top Five Industries .................................................... 6
Types of Investments ................................................... 7
Schedule of Investments ................................................ 8
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ........................................................... 10
Statement of Operations ................................................ 11
Statements of Changes
in Net Assets ......................................................... 12
Notes to Financial
Statements ............................................................ 13
Financial Highlights ................................................... 15
Independent Auditors'
Report ................................................................ 16
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ....................................................... 17
Comparative Indices ................................................. 17
Portfolio Managers .................................................. 17
Glossary ............................................................... 18
www.americancentury.com
Report Highlights
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MARKET PERSPECTIVE
* The year ended December 31, 1999, will be remembered as a volatile but
rewarding year for equities. Investors favored stocks of larger growth
companies as many of the major stock indices finished the year, and the
decade, at record levels.
* Value stocks rallied in the spring, but the performance of growth stocks
was too attractive to investors. The divergence between growth and value
equities reached extreme levels by the end of the year.
* Technology stocks, particularly those with an Internet component, were
tough to beat in 1999. Value stocks tend to be traditional bricks-and-
mortar businesses and they couldn't keep up with skyrocketing technology
stocks.
* Value stocks remained inexpensive, leaving them at the most attractive
levels in decades. If growth stocks continue to soar in price, value stocks
may be in a position to produce solid returns with significantly lower
risk.
VP VALUE
* VP Value's performance for 1999 reflected a continuing struggle of value
investors -- the value style has underperformed the growth style for six
consecutive years.
* The fund's best-performing stocks were in the electrical equipment and
specialty chemical industries.
* Food and beverage companies were a drain on performance.
* VP Value's weighting in chemical stocks was reduced by half during the
period. Also trimmed were holdings in consumer durables, oil service
companies, and electrical equipment providers.
[left margin]
VP VALUE
TOTAL RETURNS: AS OF 12/31/99
6 Months -12.37%*
1 Year -0.85%
INCEPTION DATE: 5/1/96
NET ASSETS: $416.2 million
* Not annualized.
Investment terms are defined in the Glossary on pages 18-19.
2 1-800-345-6488
Market Perspective from Mark Mallon
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[photo of Mark Mallon}
MARK MALLON, HEAD OF SPECIALTY, ASSET ALLOCATION, AND GROWTH AND INCOME EQUITY
FUNDS AT AMERICAN CENTURY
ANOTHER RECORD YEAR
The final year of the twentieth century will be remembered as a volatile
but rewarding year for equities. The healthy U.S. economy was good news for
stocks and, despite a brief summer swoon, all major stock indices posted
double-digit returns. As they have in recent years, investors continued to favor
larger growth companies--especially in the technology sector.
The spectacular 86.1% gain in the technology-heavy NASDAQ Composite grabbed
most of the headlines. No broad index of American stocks has ever risen that
much in one calendar year. More than half of that gain occurred in the final two
months.
Meanwhile, the S&P 500 Index, the Dow Jones Industrials, the NASDAQ
Composite, and the Russell 2000 all finished the year, and the decade, at record
levels. Good performers were relatively few, however; just 10 large growth
stocks accounted for 66% of the gain in the S&P 500.
VALUE REMAINED INEXPENSIVE
Value stocks--those issues considered undervalued relative to their
earnings growth--came to the fore in the second quarter. In April, undervalued
larger-capitalization stocks surged amid signs of renewed global economic growth
and after the first of three interest rate hikes by the Federal Reserve.
But the rally was short-lived, and when the flirtation with value ended,
the divergence between growth and value equities went on to reach extreme
levels. This was the sixth consecutive year that value lagged growth, and it
left value stocks at the most attractive levels in decades.
TECHNOLOGY LED THE WAY
Put simply, if you didn't own high-growth technology
companies--particularly those with an Internet component--you paid the price in
1999. Most value stocks tend to be traditional bricks-and-mortar businesses.
These types of companies simply couldn't keep up as the "dot-coms" and other
Internet-related stocks rocketed higher.
In a volatile market environment, technology companies were quickly
rewarded for future earnings potential, while other sectors were often punished
even when earnings exceeded expectations.
In this atmosphere, high- flying technology companies quickly became too
expensive and were not candidates for the value portfolio.
STAYING THE COURSE
Throughout the year, the value team remained faithful to its investment
process of buying leading businesses that were undervalued. We believe the
companies in the portfolio offer exceptional values and should ultimately
produce solid returns, with significantly lower risk than growth stocks.
[right margin]
"WE BELIEVE THE COMPANIES IN THE PORTFOLIO OFFER EXCEPTIONAL VALUES AND SHOULD
ULTIMATELY PRODUCE SOLID RETURNS, WITH SIGNIFICANTLY LOWER RISK THAN GROWTH
STOCKS."
MARKET RETURNS
FOR THE YEAR ENDED DECEMBER 31, 1999
S&P 500/BARRA VALUE 12.72%
S&P MIDCAP 400/BARRA VALUE 2.32%
S&P SMALLCAP 600/BARRA VALUE 3.03%
Source: Lipper Inc. and Russell/Mellon Analytical
These indices represent the performance of large-, medium-, and
small-capitalization value stocks.
[mountain chart data below]
MARKET PERFORMANCE (GROWTH OF $1.00)
FOR THE YEAR ENDED DECEMBER 31, 1999
S&P/BARRA 500 S&P/BARRA 400 S&P/BARRA 600
12/31/1998 $1.00 $1.00 $1.00
01/31/1999 $1.02 $0.95 $0.99
02/28/1999 $1.00 $0.90 $0.91
03/31/1999 $1.03 $0.92 $0.90
04/30/1999 $1.12 $1.01 $0.98
05/31/1999 $1.10 $1.02 $1.02
06/30/1999 $1.14 $1.06 $1.08
07/31/1999 $1.10 $1.04 $1.07
08/31/1999 $1.08 $1.00 $1.02
09/30/1999 $1.03 $0.95 $1.00
10/31/1999 $1.09 $0.97 $0.98
11/30/1999 $1.09 $0.99 $1.00
12/31/1999 $1.13 $1.02 $1.03
Value on 12/31/99
S&P/500 BARRA Value $1.13
S&P/400 BARRA Value $1.02
S&P/600 BARRA Value $1.03
www.americancentury.com 3
VP Value--Performance
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TOTAL RETURNS AS OF DECEMBER 31, 1999
VP VALUE S&P 500 S&P 500/BARRA VALUE INDEX
6 MONTHS(1) -12.37% 7.69% -1.09%
1 YEAR -0.85% 21.04% 12.72%
AVERAGE ANNUAL RETURNS
3 YEARS 9.43% 27.56% 18.88%
LIFE OF FUND(2) 11.10% 26.75% 19.24%
(1) Returns for periods less than one year are not annualized.
(2) The fund's inception date was 5/1/96.
See pages 17-18 for information about the indices and returns.
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 separate account prospectus
for a discussion of the charges related to the insurance contracts.
[mountain chart data below]
GROWTH OF $10,000 OVER LIFE OF FUND
The graph at left shows the growth of a $10,000 investment over the life of the
fund, while the graph below shows the fund's year-by-year performance. The S&P
500 Index and the S&P 500/BARRA Value Index are provided for comparison. VP
Value'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. Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
Value on 12/31/99
S&P 500 $23,870
S&P/500
BARRA Value $19,072
VP Value $14,712
$10,000 investment made 5/1/96
VP Value S&P 500 S&P/BARRA 500 Value
05/01/1996 $10,000 $10,000 $10,000
07/18/1900 $10,275 $10,297 $10,102
09/30/1996 $10,322 $10,615 $10,369
12/31/1996 $11,228 $11,499 $11,351
03/31/1997 $11,256 $11,808 $11,552
06/30/1997 $12,727 $13,870 $13,223
09/30/1997 $14,218 $14,908 $14,435
12/31/1997 $14,157 $15,336 $14,755
03/31/1998 $15,764 $17,475 $16,459
06/30/1998 $14,992 $18,052 $16,545
09/30/1998 $13,360 $16,256 $14,409
12/31/1998 $14,838 $19,718 $16,920
03/31/1999 $14,218 $20,702 $17,403
06/30/1999 $16,790 $22,164 $19,282
09/30/1999 $14,935 $20,778 $17,502
12/31/1999 $14,712 $23,870 $19,072
[bar chart data below]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDED DECEMBER 31)
VP Value S&P/ BARRA 500 Value
12/31/1996 12.28% 13.51%
12/31/1997 26.08% 29.99%
12/31/1998 4.81% 14.68%
12/31/1999 -0.85% 12.72%
* From 5/1/96 to 12/31/96.
4 1-800-345-6488
VP Value--Q&A
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[photo of Phil Davidson and Scott Moore]
AN INTERVIEW WITH PHIL DAVIDSON AND SCOTT MOORE, PORTFOLIO MANAGERS ON THE
VP VALUE INVESTMENT TEAM.
HOW DID VP VALUE PERFORM FOR THE YEAR ENDED DECEMBER 31, 1999?
VP Value declined 0.85% during the year. It underperformed its benchmark,
the S&P 500/BARRA Value Index, which gained 12.72%. The S&P 500 Index posted a
21.04% gain.
WHAT EXPLAINS THE FUND'S PERFORMANCE RELATIVE TO ITS INDEX AND THE BROADER
MARKET?
Several factors were at play, perhaps the most significant being that the
value investing style has continued to struggle. In fact, the value style has
now underperformed the growth style (as measured by the S&P 500/BARRA Growth and
Value indices) for the sixth consecutive year.
It's also important to note that market leadership has grown increasingly
narrow; just half of the stocks in the S&P 500 posted a positive return in 1999,
and just seven stocks contributed 50% of the index's performance. Equally
significant is that technology companies--which are generally outside of VP
Value's investment parameters--were the year's best performers.
VP Value's performance in 1999 was a tale of two quarters. For the second
quarter, in which investors briefly returned to value stocks, VP Value rose
18.1%, compared to the 10.8% gain posted by the S&P 500/BARRA Value Index and
the S&P 500's 7.1% return. In the fourth quarter, when technology stocks
dominated the market, VP Value declined 1.5%.
A second factor was the dominance of larger-capitalization companies, which
explains the fund's performance relative to its benchmark. Our search for the
most attractive value opportunities has consistently led us toward the mid-cap
sector. As a result, VP Value's weighted average market capitalization at
year-end was nearly $9 billion. The year-end weighted average market
capitalization of the S&P 500/BARRA Value Index, by comparison, was
significantly greater at almost $64 billion.
Although it can be tempting to invest in larger growth companies when their
performance is so attractive, we have remained committed to our value discipline
and continue to buy what we believe are fundamentally sound, stable companies
whose shares are attractively priced. We believe that these are the types of
companies that are likely to reward investors the most when the value investing
style is back in favor.
WHICH STOCKS OR SECTORS CONTRIBUTED TO PERFORMANCE?
VP Value's best-performing stocks were in the electrical equipment and
specialty chemical industries. Specialty chemical companies performed well in
general, especially earlier in the period as the market's rotation into cyclical
stocks rekindled investor interest. The chemical sector has grown increasingly
competitive in recent years, partly due to economic slowdown overseas, and as a
result, many producers have implemented restructuring programs to increase
efficiency and lower their costs. Those efforts have been successful and have
also led to a wave of mergers.
[right margin]
"ALTHOUGH IT CAN BE TEMPTING TO INVEST IN LARGER GROWTH COMPANIES WHEN THEIR
PERFORMANCE IS SO ATTRACTIVE, WE HAVE REMAINED COMMITTED TO OUR VALUE DISCIPLINE
AND CONTINUE TO BUY WHAT WE BELIEVE ARE FUNDAMENTALLY SOUND, STABLE COMPANIES
WHOSE SHARES ARE ATTRACTIVELY PRICED."
PORTFOLIO AT A GLANCE
12/31/99 12/31/98
NO. OF COMPANIES 64 65
MEDIAN P/E RATIO 13.1 15.7
MEDIAN MARKET $2.94 $2.44
CAPITALIZATION BILLION BILLION
PORTFOLIO TURNOVER 118% 158%
Investment terms are defined in the Glossary on pages 18-19.
www.americancentury.com 5
VP Value--Q&A
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(Continued)
VP Value's heavier concentration in energy stocks also proved beneficial in
the first half of the year, when rising oil prices contributed to rising stock
prices in this sector.
CAN YOU GIVE SOME EXAMPLES?
Minnesota Mining and Manufacturing (3M), VP Value's top-performer for the
year, is a good example. 3M manufactures a variety of products, including tapes
and various adhesives, chemicals, floor coverings, and medical and dental
products. As was the case with many specialty chemical companies, 3M's
international business has improved in line with the economic recovery underway
in Asia and Latin America. The company also is benefiting from an aggressive
restructuring begun in 1998.
Nalco Chemical is another example. Nalco is one of the largest U.S.
manufacturers of water treatment chemicals. The company announced in July that
it would be acquired by Suez Lyonnaise, a similar firm in France. We sold the
stock at a significant gain when the acquisition was announced.
WHAT DROVE GROWTH IN THE ELECTRIC EQUIPMENT INDUSTRY?
Recovery in foreign markets was an important catalyst for improvement in
1999. We saw selected companies gain from cost-cutting efforts, productivity
improvements, new products and acquisitions. One example is Vishay
Intertechnologies, which was also one of VP Value's largest holdings during the
period. Vishay makes electronic components for the computer, military, aerospace
and automotive industries. Business in the company's Asian markets is improving
steadily, and its Siliconix subsidiary, which provides components for computers
and cell phones, is leading its recovery. We sold this stock as it approached
what we believe is fair market value.
Vishay is a good example of the type of technology stock that VP Value
seeks to own. Generally speaking, value technology stocks are a difficult group
for value managers because many technology stocks that are undervalued have
fallen in price due to major fundamental shortcomings, rather than transitory
issues.
WERE THERE ANY OTHER STANDOUT PERFORMERS DURING THE YEAR?
Yes. Mercantile Bancorporation, a significant holding, was a great
performer. The banking sector in general had a very difficult time in 1999;
however, Mercantile's share price rocketed on news the bank would be acquired by
another bank, First Star. We sold the stock at a substantial gain and Mercantile
ended up on our list of best-performing companies for the year.
WHAT CAUSED THE FINANCIAL SERVICES SECTOR TO STRUGGLE? WERE ANY OF VP VALUE'S
HOLDINGS AFFECTED?
Several factors worked against banks during the period, including the two
quarter-point interest rate hikes by the Federal Reserve (our central bank)
during the summer. Higher rates are typically harmful for banks because they
squeeze profit margins and increase concern about asset quality. A second factor
was high investor expectations. Because banks had enjoyed an extended period of
success, when some major banks announced earnings disappointments in a rising
rate environment, investors were quick to abandon them.
VP Value's stake in banks was underweight relative to its index during the
first half of 1999. However, we began to build positions in undervalued bank
stocks in the second half of the year, as rising.
[left margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF AS OF
12/31/99 6/30/99
FIRST VIRGINIA
BANKS, INC. 4.6% 4.0%
SUMMIT BANCORP. 4.3% 3.3%
FPL GROUP, INC. 3.8% 3.0%
ARCHER-DANIELS-
MIDLAND CO. 3.8% 3.1%
COLUMBIA/HCA
HEALTHCARE CORP. 3.7% 1.9%
MINNESOTA MINING &
MANUFACTURING CO. 3.6% 3.6%
KEYCORP 3.2% 2.9%
BURLINGTON
RESOURCES INC. 3.0% 2.4%
INTERSTATE BAKERIES
CORP. 3.0% 3.2%
SUPERIOR INDUSTRIES
INTERNATIONAL, INC. 3.0% 3.0%
TOP FIVE INDUSTRIES
% OF FUND INVESTMENTS
AS OF AS OF
12/31/99 6/30/99
BANKS 14.5% 13.2%
FOOD & BEVERAGE 9.1% 7.1%
ELECTRICAL UTILITIES 7.4% 9.4%
ENERGY RESERVES &
PRODUCTION 7.1% 5.1%
PROPERTY & CASUALTY
INSURANCE 6.1% 3.3%
6 1-800-345-6488
VP Value--Q&A
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(Continued)
interest rates drove prices down. This overweight position dampened performance
in the fourth quarter. Names that detracted from performance included KeyCorp,
Summit Bancorp, and First Union.
Another disappointing holding was Aetna. Aetna has acquired Prudential and
is now the nation's largest provider of health benefits. The acquisition has
been more of a drag on earnings than originally anticipated. On a positive note,
however, we saw this turn somewhat in the fourth quarter, and medical service
providers became one of the strongest-performing sectors in the portfolio.
WHICH OTHER SECTORS OR INDUSTRIES DAMPENED RETURNS?
Food and beverage companies were a drain on performance. The defensive
nature of these stocks, combined with historically slower growth of the
industry, caused this sector to lag the technology stock rally that fueled the
market in the second half of the year. One of the worst performers was
Archer-Daniels-Midland (ADM). ADM is a large grain and foodstuff supplier. The
company struggled throughout 1999 due to declining soybean prices and reduced
demand in Asian markets. ADM remains fundamentally strong, however. We believe
its long-term prospects are positive, so we are maintaining our position.
Another food and beverage stock that performed poorly was Interstate
Bakeries, a wholesale baker of bread and snack cakes. Interstate Bakeries has
struggled in a tougher retail environment, and earnings and a small acquisition
has slowed its growth. We view these as transitory problems and are holding our
position.
WHAT SIGNIFICANT CHANGES DID YOU MAKE TO THE PORTFOLIO IN THE PAST SIX MONTHS?
Our most significant move was in chemicals, where we reduced our weighting
by slightly more than half with the elimination of two key holdings. We also
trimmed the fund's stake in consumer durables, oil services companies and
electrical equipment providers consistent with the performance of these groups.
On the buy side, we continued to build a small position in telephone
companies and added to our stake in industrial parts and services companies and
computer software and hardware makers.
We've also taken advantage of the weakness in the banking and financial
services arena to build positions in a number of very strong companies.
WHAT IS YOUR STRATEGY GOING FORWARD?
Although we're disappointed that the market's shift to value stocks in the
second quarter didn't continue, we believe it shows how quickly and dramatically
a change in sentiment can occur--and VP Value's ability to produce strong
returns when its style of investing is in favor. We continue to believe the
growth style of investing will run its course and the value style will return to
favor. In the meantime, we will be true to our discipline of investing in
high-quality companies with attractive values. Such companies should provide
good long-term prospects for appreciation, and we believe they will reward
investors well when the market rotates.
[right margin]
"ALTHOUGH WE'RE DISAPPOINTED THAT THE MARKET'S SHIFT TO VALUE STOCKS IN THE
SECOND QUARTER DIDN'T CONTINUE, WE BELIEVE IT SHOWS HOW QUICKLY AND
DRAMATICALLY A CHANGE IN SENTIMENT CAN OCCUR..."
TYPES OF INVESTMENTS IN THE PORTFOLIO
[pie chart data below]
AS OF DECEMBER 31, 1999
Temporary Cash Investments 2.6%
Common Stocks 97.4%
AS OF JUNE 30, 1999
Temporary Cash Investments 6.2%
Common Stocks 93.8%
www.americancentury.com 7
VP Value--Schedule of Investments
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This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period. The
securities are grouped by asset class (such as common stocks, corporate bonds,
temporary cash investments, as applicable), and some asset classes are further
broken down by industry or country.
DECEMBER 31, 1999
Shares Value
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COMMON STOCKS - 97.4%
APPAREL & TEXTILES -- 1.1%
41,400 Liz Claiborne, Inc. $ 1,557,675
95,700 VF Corp. 2,871,000
----------------------------------
4,428,675
----------------------------------
BANKS -- 14.5%
99,100 Banc One Corp. 3,177,394
202,200 First Union Corp. 6,634,688
451,100 First Virginia Banks, Inc. 19,397,300
610,400 KeyCorp 13,505,100
593,600 Summit Bancorp. 18,179,000
----------------------------------
60,893,482
----------------------------------
CHEMICALS -- 4.5%
179,700 IMC Global Inc. 2,942,587
26,000 Lubrizol Corp. 802,750
156,000 Minnesota Mining & Manufacturing Co. 15,268,500
----------------------------------
19,013,837
----------------------------------
COMPUTER HARDWARE &
BUSINESS MACHINES -- 1.2%
213,800 Xerox Corp. 4,850,588
----------------------------------
COMPUTER SOFTWARE -- 1.6%
201,700 Autodesk, Inc. 6,801,072
------------------------------------
CONSUMER DURABLES -- 0.5%
35,200 Whirlpool Corp. 2,290,200
-----------------------------------
DEFENSE/AEROSPACE -- 0.5%
90,200 Lockheed Martin Corp. 1,973,125
-----------------------------------
ELECTRICAL EQUIPMENT -- 1.5%
258,600 Littelfuse, Inc.(1) 6,279,131
-----------------------------------
ELECTRICAL UTILITIES -- 7.3%
117,300 Florida Progress Corp. 4,963,256
376,300 FPL Group, Inc. 16,110,344
472,700 Niagara Mohawk Holdings Inc.(1) 6,588,256
183,307 Sierra Pacific Resources 3,173,501
----------------------------------
30,835,357
---------------------------------
ENERGY RESERVES & PRODUCTION -- 7.1%
383,000 Burlington Resources Inc. 12,662,938
162,900 Murphy Oil Corp. 9,346,388
227,400 Unocal Corp. 7,632,112
----------------------------------
29,641,438
---------------------------------
ENVIRONMENTAL SERVICES -- 2.0%
478,700 Waste Management, Inc. 8,227,656
----------------------------------
Shares Value
----------------------------------------------------------------------------------------
FOOD & BEVERAGE -- 9.1%
1,295,818 Archer-Daniels-Midland Co. $ 15,792,782
696,400 Interstate Bakeries Corp. 12,622,250
41,900 Lance, Inc. 419,000
574,500 Tyson Foods, Inc. Cl A 9,335,625
---------------------------------
38,169,657
---------------------------------
FOREST PRODUCTS & PAPER -- 3.1%
140,100 Bemis Co., Inc. 4,885,988
49,600 Sonoco Products Co. 1,128,400
208,500 Westvaco Corp. 6,802,312
-----------------------------
12,816,700
-----------------------------------
GAS & WATER UTILITIES -- 3.3%
607,200 AGL Resources Inc. 10,322,400
124,500 Washington Gas Light Co. 3,423,750
----------------------------------
13,746,150
-----------------------------------
HEAVY ELECTRICAL EQUIPMENT -- 2.8%
154,000 Cooper Industries, Inc. 6,227,375
98,200 Emerson Electric Co. 5,634,225
---------------------------------
11,861,600
----------------------------------
HOME PRODUCTS -- 0.2%
23,200 Lancaster Colony Corp. 769,225
------------------------------------
INDUSTRIAL PARTS -- 3.7%
551,800 Flowserve Corp. 9,380,600
64,500 Tecumseh Products Cl A 3,041,578
119,600 York International Corp. 3,281,525
------------------------------------
15,703,703
--------------------------------------
INDUSTRIAL SERVICES -- 1.5%
150,600 XTRA Corp.(1) 6,419,325
-------------------------------------
INFORMATION SERVICES -- 1.2%
167,700 Dun & Bradstreet Corp. (The) 4,947,150
-----------------------------------
LEISURE -- 3.0%
113,700 Department 56, Inc.(1) 2,572,462
21,400 Eastman Kodak Co. 1,417,750
396,000 GTECH Holdings Corp.(1) 8,712,000
------------------------------------
12,702,212
---------------------------------
LIFE & HEALTH INSURANCE -- 1.9%
143,600 Aetna Inc. 8,014,675
-----------------------------------
MEDICAL PRODUCTS & SUPPLIES -- 2.9%
167,400 Beckman Coulter Inc. 8,516,475
150,800 Dentsply International Inc. 3,572,075
---------------------------------
12,088,550
------------------------------
8 1-800-345-6488 See Notes to Financial Statements
VP Value--Schedule of Investments
-----------------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1999
Shares Value
-----------------------------------------------------------------------------------------
MEDICAL PROVIDERS & SERVICES -- 3.9%
526,600 Columbia/HCA Healthcare Corp. $ 15,435,962
126,750 LabOne, Inc. 847,641
-------------------------------
16,283,603
--------------------------------
MOTOR VEHICLES & PARTS -- 4.0%
272,900 Delphi Automotive Systems Corp. 4,298,175
464,400 Superior Industries International, Inc. 12,451,725
--------------------------------
16,749,900
--------------------------------
OIL SERVICES -- 1.2%
235,195 Baker Hughes Inc. 4,953,795
-------------------------------
PROPERTY & CASUALTY INSURANCE -- 6.1%
89,500 Allstate Corp. 2,148,000
118,400 Argonaut Group, Inc. 2,375,400
164,000 Berkley (W.R.) Corp. 3,444,000
190,700 Chubb Corp. (The) 10,738,794
69,400 CNA Financial Corp.(1) 2,702,262
212,200 Horace Mann Educators Corp. 4,164,425
---------------------------------
25,572,881
----------------------------------
PUBLISHING -- 1.3%
236,600 Banta Corp. 5,338,288
-----------------------------------
RAILROADS -- 0.4%
59,300 CSX Corp. 1,860,538
-----------------------------------
Shares Value
--------------------------------------------------------------------------------------
RESTAURANTS -- 1.5%
32,400 Brinker International, Inc.(1) $ 777,600
567,300 CBRL Group, Inc. 5,504,583
-----------------------------------
6,282,183
----------------------------------
SPECIALTY STORES -- 0.2%
47,500 Toys 'R' Us, Inc.(1) 679,844
-------------------------------
TELEPHONE -- 2.7%
163,200 GTE Corp. 11,515,800
--------------------------------
TOBACCO -- 1.6%
268,800 UST Inc. 6,770,400
---------------------------------
TOTAL COMMON STOCKS 408,480,740
----------------------------------
(Cost $441,812,827)
TEMPORARY CASH INVESTMENTS -- 2.6%
Repurchase Agreement, State Street Boston
Corp., (U.S. Treasury obligations), in a joint
trading account at 3.30%, dated 12/31/99,
due 1/3/00 (Delivery value $10,902,997) 10,900,000
-------------------------
(Cost $10,900,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $419,380,740
=========================
(Cost $452,712,827)
NOTES TO SCHEDULE OF INVESTMENTS
(1) Non-income producing.
See Notes to Financial Statements www.americancentury.com 9
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. The net assets divided by shares outstanding is the share price, or NET
ASSET VALUE PER SHARE. This statement also breaks down the fund's net assets
into capital (shareholder investments) and performance (investment income and
gains/losses).
DECEMBER 31, 1999
ASSETS
Investment securities, at value
(identified cost of $452,712,827) (Note 3) ................. $ 419,380,740
Cash ....................................................... 335,437
Receivable for investments sold ............................ 4,370,494
Dividends and interest receivable .......................... 536,029
-------------
424,622,700
-------------
LIABILITIES
Payable for investments purchased .......................... 8,111,310
Accrued management fees (Note 2) ........................... 344,687
Payable for directors' fees and expenses ................... 222
-------------
8,456,219
-------------
NET ASSETS ................................................. $ 416,166,481
=============
CAPITAL SHARES, $0.01 PAR VALUE
Authorized ................................................. 500,000,000
=============
Outstanding ................................................ 69,972,646
=============
NET ASSET VALUE PER SHARE .................................. $ 5.95
=============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) .................... $ 448,115,118
Undistributed net investment income ........................ 5,342,414
Accumulated undistributed net realized loss
on investment transactions ................................. (3,958,964)
Net unrealized depreciation on investments (Note 3) ........ (33,332,087
-------------
$ 416,166,481
=============
10 1-800-345-6488 See Notes to Financial Statements
Statement of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
YEAR ENDED DECEMBER 31, 1999
INVESTMENT INCOME
INCOME:
Dividends (net of foreign taxes withheld of $4,307) ........... $ 8,353,920
Interest ...................................................... 832,658
------------
9,186,578
------------
EXPENSES (Note 2):
Management fees ............................................... 3,822,423
Directors' fees and expenses .................................. 3,181
------------
3,825,604
------------
NET iNVESTMENT INCOME ......................................... 5,360,974
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3)
Net realized gain on investments .............................. 4,515,520
Change in net unrealized depreciation on investments .......... (22,021,458)
------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS ............... (17,505,938)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS .......... $(12,144,964)
============
See Notes to Financial Statements www.americancentury.com 11
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
INCREASE IN NET ASSETS
1999 1998
OPERATIONS
Net investment income ...................... $ 5,360,974 $ 3,186,540
Net realized gain on investments ........... 4,515,520 23,459,587
Change in net unrealized appreciation
(depreciation) on investments .............. (22,021,458) (17,029,740)
------------- -------------
Net increase (decrease) in net assets
resulting from operations .................. (12,144,964) 9,616,387
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ................. (3,196,325) (1,377,964)
From net realized gains
on investment transactions ................. (26,323,259) (16,451,672)
In excess of net realized gains
on investment transactions ................. (3,958,964) --
------------- -------------
Decrease in net assets
from distributions ......................... (33,478,548) (17,829,636)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold .................. 232,496,146 178,536,583
Proceeds from reinvestment
of distributions ........................... 33,478,548 17,829,636
Payments for shares redeemed ............... (120,809,008) (59,543,821)
------------- -------------
Net increase in net assets from
capital share transactions ................. 145,165,686 136,822,398
------------- -------------
NET INCREASE IN NET ASSETS ................. 99,542,174 128,609,149
NET ASSETS
Beginning of period ........................ 316,624,307 188,015,158
------------- -------------
End of period .............................. $ 416,166,481 $ 316,624,307
============= =============
Undistributed net investment income ........ $ 5,342,414 $ 3,177,765
TRANSACTIONS IN SHARES OF THE FUND
Sold ....................................... 36,007,005 26,235,037
Issued in reinvestment of distributions .... 5,752,328 2,558,054
Redeemed ................................... (18,855,575) (8,855,524)
------------- -------------
Net increase ............................... 22,903,758 19,937,567
12 1-800-345-6488 See Notes to Financial Statements
Notes to Financial Statements
--------------------------------------------------------------------------------
DECEMBER 31, 1999
--------------------------------------------------------------------------------
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 of the six funds issued by the corporation. The fund is diversified under
the 1940 Act. The fund's investment objective is long-term capital growth.
Income is a secondary objective. The fund seeks to achieve its investment
objective by investing in securities management believes to be undervalued at
the time of purchase. The following significant accounting policies are in
accordance with generally accepted accounting principles; these policies may
require the use of estimates by fund management.
SECURITY VALUATIONS -- Portfolio 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.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price, depending on local convention or regulation. 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. When
valuations are not readily available, securities are valued at fair value as
determined in accordance with procedures adopted by the Board of Directors.
SECURITY TRANSACTIONS -- Security transactions are accounted for as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld (if any) is
recorded as of the ex-dividend date. Interest income is recorded on the accrual
basis and includes accretion of discounts and amortization of premiums.
FUTURES CONTRACTS -- The fund may enter into stock index 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 changes
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 an unrealized gain or loss. 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 investments and unrealized appreciation
(depreciation) on investments, respectively.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that the fund's investment manager, 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, 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 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 are expected to be declared and paid annually.
For the two month period ended December 31, 1999, the fund incurred net
capital losses of $6,615,251. The fund has elected to treat such losses as
having been incurred in the following fiscal year.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes and may result in reclassification among certain
capital accounts.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the corporation's
distributor. Certain officers of FDI are also officers of the corporation.
www.americancentury.com 13
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1999
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
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 fee. The Agreement provides that all expenses of
the fund, except brokerage commissions, taxes, interest, fees and expenses of
those directors who are not considered "interested persons" as defined in the
1940 Act (including counsel fees) and extraordinary expenses, will be paid by
ACIM. The fee is computed daily and paid monthly based on the fund's average
daily closing net assets during the previous month.
The annualized fee schedule for the fund is as follows:
1.00% on the first $500 million
0.95% on the next $500 million
0.90% over $ 1 billion
Certain officers and directors of the corporation are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the corporation's investment manager, ACIM, and
the corporation's transfer agent, American Century Services Corporation.
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the year ended December 31, 1999, totaled $543,919,822 and
$428,284,919, respectively.
As of December 31, 1999, accumulated net unrealized depreciation was
$44,368,158, based on the aggregate cost of investments for federal income tax
purposes of $463,748,898, which consisted of unrealized appreciation of
$17,537,223 and unrealized depreciation of $61,905,381.
--------------------------------------------------------------------------------
4. BANK LOANS
The fund, along with certain other funds managed by ACIM, entered into an
unsecured $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The fund did not borrow from the line during the
year ended December 31, 1999.
14 1-800-345-6488
VP Value--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the fund is not five years old). It also includes several key statistics for
each reporting period, including TOTAL RETURN, INCOME RATIO (net income as a
percentage of average net assets), EXPENSE RATIO (operating expenses as a
percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the fund's
trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31 (EXCEPT AS NOTED)
1999 1998 1997 1996(1)
PER-SHARE DATA
Net Asset Value,
Beginning of Period .................... $ 6.73 $ 6.93 $ 5.58 $ 5.00
----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ................ 0.08 0.08(2) 0.07 0.05
Net Realized and Unrealized Gain
(Loss) on Investment Transactions ...... (0.15) 0.27 1.37 0.56
----------- ----------- ----------- -----------
Total From Investment Operations ..... (0.07) 0.35 1.44 0.61
----------- ----------- ----------- -----------
Distributions
From Net Investment Income ........... (0.07) (0.04) (0.04) (0.03)
From Net Realized Gains on
Investment Transactions .............. (0.57) (0.51) (0.05) --
In Excess of Net Realized Gains
on Investment Transactions ............. (0.07) -- -- --
----------- ----------- ----------- -----------
Total Distributions .................. (0.71) (0.55) (0.09) (0.03)
----------- ----------- ----------- -----------
Net Asset Value, End of Period ......... $ 5.95 $ 6.73 $ 6.93 $ 5.58
=========== =========== =========== ===========
Total Return(3) ...................... (0.85)% 4.81% 26.08% 12.28%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets ..................... 1.00% 1.00% 1.00% 1.00%(4)
Ratio of Net Investment Income to
Average Net Assets ..................... 1.40% 1.21% 1.60% 1.98%(4)
Portfolio Turnover Rate ................ 118% 158% 138% 49%
Net Assets, End of Period
(in thousands) ......................... $ 416,166 $ 316,624 $ 188,015 $ 23,894
(1) May 1, 1996 (inception) through December 31, 1996.
(2) Computed using average shares outstanding throughout the year.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
See Notes to Financial Statements www.americancentury.com 15
Independent Auditors' Report
--------------------------------------------------------------------------------
The Board of Directors and Shareholders,
American Century Variable Portfolios, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of VP Value Fund (the "Fund") (formerly
known as American Century VP Value), one of the funds comprising American
Century Variable Portfolios, Inc., as of December 31, 1999, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the three years in the period then ended and for the
period May 1, 1996 (inception) through December 31, 1996. These financial
statements and the financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at December
31, 1999 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above and financial
highlights present fairly, in all material respects, the financial position of
VP Value Fund as of December 31, 1999, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
February 4, 2000
16 1-800-345-6488
Background Information
--------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
Conservative investment practices are the hallmark of American Century's
Variable Portfolios Value Fund. Broad diversification across many industries is
stressed to reduce the impact of one sector on fund performance. The management
team also looks for dividend yield, because dividend income can help offset the
impact of market downturns on fund performance.
VP VALUE'S investment objective is long-term capital growth, with income as
a secondary objective. To achieve this objective, the fund invests in the equity
securities of well-established businesses that the fund's management team
believes are temporarily undervalued. This is determined by comparing a stock's
share price with key financial measures, including earnings, book value, cash
flow and dividends. If the stock's price relative to these measures is low and
the company's balance sheet is solid, its securities are candidates for
purchase. The management team may secondarily look for income when making
portfolio selections.
COMPARATIVE INDICES
The following indices are used in the report to serve as fund performance
comparisons. They are not investment products available for purchase.
The S&P 500 is a capitalization-weighted index of the stocks of 500
publicly traded U.S. companies that are considered to be leading firms in
dominant industries. Created by Standard & Poor's Corporation, it is considered
to be a broad measure of U.S. stock market performance.
The S&P 500/BARRA VALUE INDEX is a capitalization-weighted index consisting
of S&P 500 stocks that have lower price/book ratios and, in general, share other
characteristics associated with value stocks.
ThE S&P 500/BARRA GROWTH INDEX is a capitalization-weighted index
consisting of S&P 500 stocks that have higher price-to-book ratios and, in
general, share other characteristics associated with "growth" stocks.
The S&P MIDCAP 400/BARRA VALUE INDEX is a capitalization-weighted index
consisting of S&P MidCap 400 stocks that have lower price-to-book ratios and, in
general, share other characteristics associated with "value" stocks.
The S&P SMALLCAP 600/BARRA VALUE INDEX is a capitalization-weighted index
consisting of S&P 600 stocks that have lower price-to-book ratios and, in
general, share other characteristics associated with "value" stocks.
[right margin]
PORTFOLIO MANAGERS
VP Value
PHIL DAVIDSON
SCOTT MOORE
www.americancentury.com 17
Glossary
--------------------------------------------------------------------------------
RETURNS
* TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
* AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year total returns, please refer to the "Financial
Highlights" on page 15.
INVESTMENT TERMS
* MEDIAN MARKET CAPITALIZATION-- Market capitalization (market cap) is the total
value of a company's stock and is calculated by multiplying the number of
outstanding common shares by the current share price. The company whose market
cap is in the middle of the portfolio is the median market cap. Half the
companies in the portfolio have values greater than the median, and half have
values that are less. If there is an even number of companies, then the median
is the average of the two companies in the middle.
* NUMBER OF COMPANIES-- the number of different companies held by a fund on a
given date.
* PORTFOLIO TURNOVER-- the percentage of a fund's investment portfolio that is
replaced during a given time period, usually a year. Actively managed portfolios
tend to have higher turnover than passively managed portfolios such as index
funds.
* PRICE/BOOK RATIO-- a stock value measurement calculated by dividing a
company's stock price by its book value per share, with the result expressed as
a multiple instead of as a percentage. (Book value per share is calculated by
subtracting a company's liabilities from its assets, then dividing that value by
the number of outstanding shares.)
* PRICE/EARNINGS (P/E) RATIO-- a stock value measurement calculated by dividing
a company's stock price by its earnings per share, with the result expressed as
a multiple instead of as a percentage. (Earnings per share is calculated by
dividing the after-tax earnings of a corporation by its outstanding shares.)
TYPES OF STOCKS
* BLUE CHIP STOCKS-- stocks of the most established companies in American
industry. They are generally large, fairly stable companies that have
demonstrated consistent earnings and usually have long-term growth potential.
Examples include General Electric and Coca-Cola.
* CYCLICAL STOCKS-- generally considered to be stocks whose price and earnings
fluctuations tend to follow the ups and downs of the business cycle. Examples
include the stocks of automobile manufacturers, steel producers and textile
operators.
* GROWTH STOCKS-- stocks of companies that have experienced above-average
earnings growth and are expected to continue such growth. These stocks often
sell at high P/E ratios. Examples can include the stocks of high-tech,
healthcare and consumer staple companies.
* LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS-- the stocks of companies with a
market capitalization (the total value of a company's outstanding stock) of more
than $9.0 billion. This is Lipper's market capitalization breakpoint as of
December 31, 1999, although it may be subject to change based on market
fluctuations. The Dow Jones Industrial Average and the S&P 500 Index generally
consist of stocks in this range.
* MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS-- the stocks of companies with a
market capitalization (the total value of a company's outstanding stock) of
between $2.2 billion and $9.0 billion. This is Lipper's market capitalization
breakpoint as of December 31, 1999, although it may be subject to change based
on market fluctuations. The S&P 400 Index and Russell 2500 Index generally
consist of stocks in this range.
18 1-800-345-6488
Glossary
--------------------------------------------------------------------------------
(Continued)
* SMALL-CAPITALIZATION ("SMALL-CAP") STOCKS-- the stocks of companies with a
market capitalization (the total value of a company's outstanding stock) of less
than $2.2 billion. This is Lipper's market capitalization breakpoint as of
December 31, 1999, although it may be subject to change based on market
fluctuations. The S&P 600 Index and the Russell 2000 Index generally consist of
stocks in this range.
* VALUE STOCKS-- generally considered to be stocks that are purchased because
they are relatively inexpensive. These stocks are typically characterized by low
P/E ratios.
FUND CLASSIFICATIONS
Please be aware that the fund's category may change over time. Therefore, it
is important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatility levels
than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income provided
by either dividend-paying equities or a combination of equity and fixed-income
securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high
price-fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price-fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price-fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price-fluctuation risk.
www.americancentury.com 19
Notes
--------------------------------------------------------------------------------
20 1-800-345-6488
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation: Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Large Cap Value
Strategic Allocation: Tax-Managed Value
Moderate Income & Growth
Strategic Allocation: Value
Conservative Equity Income
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
Veedot(reg.tm) Global Gold Emerging Markets
New Opportunities International Discovery
Giftrust(reg.tm) International Growth
Vista Global Growth
Heritage
Growth
Ultra(reg.tm)
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs. For a definition of fund categories, see the Glossary.
*While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
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[back cover]
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[front cover]
December 31, 1999
AMERICAN CENTURY(reg.sm)
VARIABLE PORTFOLIOS
Annual Report
[graphic of runners]
[graphic of person looking at computer screen]
VP International
[american century logo(reg.sm)]
American
Century
[inside front cover]
VARIABLE PORTFOLIOS
VP INTERNATIONAL
---------------------------------
Our Message to You
--------------------------------------------------------------------------------
[photo of James E. Stowers III and James E. Stowers, Jr.]
James E. Stowers III, seated, with James E. Stowers, Jr.
The 12 months ended December 31, 1999, was an outstanding period for
investors in VP International. Recovery in many parts of Asia and strengthening
in more-established markets in Europe provided compelling growth opportunities
for our management team. As a result, VP International was up over 60% for the
year. (See page 4 for the fund's standardized performance.) As pleased as we are
to provide this performance, we should quickly add that results like these are
an exception and usually are not sustainable. While we'll do everything we can
to make 2000 another banner year, we think it's wise to maintain reasonable
expectations for VP International's future results.
On the corporate front, we are proud to announce that American Century has
been named by Fortune magazine as one of its "100 Best Companies to Work
For." We do not take this recognition lightly. An acknowledgement like this
enables us to recruit talented and dedicated people, from investment
professionals to service representatives. "Intellectual capital" is
our most valuable resource, and is essential in our efforts to provide you, our
shareholders, with excellent investment management.
As always, we appreciate your continued confidence in American Century.
Sincerely,
/s/James E. Stowers, Jr.
James E. Stowers, Jr.
Chairman of the Board and Founder
/s/James E. Stowers III
James E. Stowers III
Vice Chairman of the Board and Chief Executive Officer
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
VP INTERNATIONAL
Performance Information ................................................ 4
Management Q&A ..................................................... 5
Portfolio at a Glance .................................................. 5
Top Ten Holdings ....................................................... 6
Top Five Industries .................................................... 6
Types of Investments ................................................... 7
Investments by Country ................................................. 7
Schedule of Investments ................................................ 8
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ......................................................... 12
Statement of Operations ................................................ 13
Statements of Changes
in Net Assets ....................................................... 14
Notes to Financial
Statements .......................................................... 15
Financial Highlights ................................................... 17
Independent Auditors'
Report ............................................................. 18
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ..................................................... 19
How Currency Returns
Affect Fund
Performance ...................................................... 19
Comparative Indices ................................................. 19
Portfolio Managers .................................................. 19
Glossary ............................................................... 20
www.americancentury.com 1
Report Highlights
--------------------------------------------------------------------------------
MARKET PERSPECTIVE
* This was a remarkable year for international markets, full of powerful and
positive changes. But it was far from easy for investors, who had to
contend with some dramatic regional shifts in capital flows.
* At the start of the year, money moved out of large European growth stocks
and into Japanese and Asian firms, particularly those in cyclical-oriented
industries.
* Emerging world markets saw a comeback, as developing economies stabilized
and moved forward after enduring a rough 1998.
* In both Europe and Asia, entrepreneurialism is having a profound effect,
spurred on by an American-style equity culture that is taking hold in both
regions.
VP INTERNATIONAL
* VP International posted a remarkable gain for the year, more than twice
that of its benchmark and well ahead of its peer funds tracked by Lipper
Inc.
* The fund's best contributors were companies involved in information
technology, especially wireless communications and other telecommunications
services.
* A move into Japanese stocks during the second half of the period also
helped the fund outperform its benchmark. At the end of the period,
Japanese companies accounted for more than one-fourth of the fund's
investments, making Japan the largest single-country weighting. Next in
line were the United Kingdom, France and the United States.
* VP International's results point to the fact that few stocks in the
portfolio failed to meet expectations. Positions in food and beverage
companies dampened performance (food stocks generally underperformed across
world markets), and the fund's investments in financial services firms were
hampered by interest rate increases in the United States.
[left margin]
VP INTERNATIONAL
TOTAL RETURNS: AS OF 12/31/99
6 Months 52.81%*
1 Year 64.04%
INCEPTION DATE: 5/1/94
NET ASSETS: $799.8 million
*Not annualized.
Investment terms are defined in the Glossary on pages 20-21.
2 1-800-345-6488
Market Perspective from Henrik Strabo
--------------------------------------------------------------------------------
[photo of Henrik Strabo]
Henrik Strabo, Chief Investment Officer of international investments at
American Century
A YEAR OF OUTSTANDING RETURNS
This was a remarkable year for international markets. Our team has been
involved in global markets for many years, but we have rarely seen a year with
so many powerful and positive changes.
Yet the year was far from easy. It also contained some very dramatic shifts
of investment capital. Early in the year, when Asia began to recover, capital
flooded out of large European growth stocks and into Japanese and Asian
economically sensitive companies. At the same time, the Japanese yen appreciated
dramatically at the expense of the euro and U.S. dollar. As the year progressed,
investors turned to the big growth opportunities now available from the
revolution taking place in global telecommunications and Internet usage. This
helped fuel strong gains in growth stocks globally, including the emerging
markets where we saw an impressive turnaround.
POSITIVE CHANGES AROUND THE GLOBE
U.S.-style capitalism, specifically the restructuring that swept the United
States in the 1980s and '90s, has fostered a similar transformation in Europe.
Merger and acquisition activity is at record levels and is transforming the
corporate landscape in a significant way. Shareholder value and corporate
governance have become focal points. Privatizations and labor and pension
reforms are moving ahead, paving the way for more efficient and competitive
economies and corporations. In Euroland and the U.K., corporations are realizing
that not only must they compete in the global marketplace to sell their goods
and services, but they must also compete for capital and human talent.
Japan is becoming reform-minded as well, though for now changes there are
likely to be more gradual. Nevertheless, deregulation and the breakdown of
cross-owner relationships among the Keiretsu, the large conglomerates that
dominate the Japanese economy, are driving change. Entrepreneurs are also
gaining in importance as the changing economy opens up new opportunities --
witness the recent introduction of MOTHERS, a stock exchange for small Japanese
companies.
In emerging markets, developing economies stabilized and moved forward
after a rough 1998. Reforms and privatizations are at the forefront there as
well. Technology and telecommunications are transforming many economies as
governments step aside and allow industry to leapfrog into the most advanced
infrastructure.
GOING FORWARD
We believe deregulation and the success of U.S.-style capitalism will very
likely continue to drive Europe and Asia's transformation, with Internet and
e-commerce acting as major catalysts. These trends are currently creating an
unprecedented number of investment opportunities globally, and should they
continue, will have a profound impact on corporations and investors alike.
Whatever the market environment, we feel confident our earnings growth
discipline will continue to generate highly competitive returns.
[right margin]
"WE BELIEVE DEREGULATION AND THE SUCCESS OF U.S.-STYLE CAPITALISM WILL VERY
LIKELY CONTINUE TO DRIVE EUROPE AND ASIA'S TRANSFORMATION, WITH INTERNET AND
E-COMMERCE ACTING AS MAJOR CATALYSTS."
MARKET RETURNS
FOR THE YEAR ENDED DECEMBER 31, 1999
MSCI EUROPE 15.89%
MSCI FAR EAST 62.41%
S&P 500 21.04%
Source: Lipper Inc.
MARKET PERFORMANCE (GROWTH OF $1.00)
FOR THE YEAR ENDED DECEMBER 31, 1999
[data shown in line chart]
Value on 12/31/99
S&P 500 $1.21
MSCI Europe $1.16
MSCI Far East $1.62
S&P 500 Index MSCI Europe Index MSCI Far East Index
12/31/98 $1.00 $1.00 $1.00
1/31/99 $1.04 $0.99 $1.00
2/28/99 $1.01 $0.97 $0.98
3/31/99 $1.05 $0.98 $1.12
4/30/99 $1.09 $1.01 $1.19
5/31/99 $1.06 $0.96 $1.12
6/30/99 $1.12 $0.98 $1.23
7/31/99 $1.09 $0.98 $1.33
8/31/99 $1.08 $1.00 $1.32
9/30/99 $1.05 $0.99 $1.39
10/31/99 $1.12 $1.02 $1.45
11/30/99 $1.14 $1.05 $1.52
12/31/99 $1.21 $1.16 $1.62
www.americancentury.com 3
VP International--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF DECEMBER 31, 1999
VP MSCI EAFE
INTERNATIONAL INDEX S&P 500
6 MONTHS(1) 52.81% 22.12% 7.69%
1 YEAR 64.04% 26.96% 21.04%
--------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
--------------------------------------------------------------------------------
3 YEARS 32.21% 15.74% 27.56%
5 YEARS 24.28% 12.83% 28.56%
LIFE OF FUND(2) 20.07% 11.21% 25.66%
(1) Returns for periods less than one year are not annualized.
(2) The fund's inception date was 5/1/94.
See pages 19-20 for information about the indices and returns.
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 separate account prospectus
for a discussion of the charges related to the insurance contracts.
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 12/31/99
S&P 500 $36,514
VP International $28,186
MSCI EAFE $18,270
$10,000 investment made 5/1/94
[data shown in mountain chart]
VP International MSCI EAFE S&P 500
5/1/94 $10,000 $10,000 $10,000
6/30/94 $9,780 $10,083 $9,915
9/30/94 $10,100 $10,093 $10,400
12/31/94 $9,500 $9,990 $10,398
3/31/95 $9,299 $10,176 $11,411
6/30/95 $9,880 $10,250 $12,500
9/30/95 $10,360 $10,678 $13,494
12/31/95 $10,660 $11,110 $14,306
3/31/96 $10,920 $11,431 $15,075
6/30/96 $11,439 $11,612 $15,751
9/30/96 $11,521 $11,597 $16,238
12/31/96 $12,197 $11,781 $17,591
3/31/97 $12,841 $11,596 $18,062
6/30/97 $14,491 $13,101 $21,218
9/30/97 $15,020 $13,010 $22,805
12/31/97 $14,470 $11,991 $23,459
3/31/98 $17,048 $13,755 $26,732
6/30/98 $18,131 $13,901 $27,614
9/30/98 $14,817 $11,925 $24,866
12/31/98 $17,184 $14,389 $30,163
3/31/99 $17,454 $14,589 $31,668
6/30/99 $18,446 $14,960 $33,904
9/30/99 $19,100 $15,616 $31,785
12/31/99 $28,186 $18,270 $36,514
The graph at left shows the growth of a $10,000 investment over the life of the
fund, while the graph below shows the fund's year-by-year performance. The MSCI
EAFE Index and the S&P 500 are provided for comparison. VP International'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. Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDED DECEMBER 31)
[data shown in bar chart]
VP International MSCI EAFE
12/31/94* -5.00% -0.10%
12/31/95 12.21% 11.21%
12/31/96 14.41% 6.05%
12/31/97 18.63% 1.78%
12/31/98 18.76% 20.00%
12/31/99 64.04% 26.96%
* From May 1, 1994 to December 31, 1994.
4 1-800-345-6488
VP International--Q&A
--------------------------------------------------------------------------------
[photo of Mark Kopinski and Henrik Strabo]
An interview with Mark Kopinski and Henrik Strabo, portfolio managers on
the VP International team.
HOW DID VP INTERNATIONAL PERFORM FOR THE 12 MONTHS ENDED DECEMBER 31, 1999?
VP International gained 64.04%, far above the 26.96% increase posted by its
benchmark, the Morgan Stanley Capital International EAFE Index (EAFE). The fund
also outperformed the majority of its peers--the average international fund
underlying variable insurance products tracked by Lipper Inc. gained 42.88% for
the period.
Our results for the fourth quarter were especially strong. The fund gained
47.58% from September 30 through December 31. The EAFE Index was up 16.99% for
the final three months of the year.
We're pleased with these short-term returns, but our overarching goal is to
provide you with solid performance over time. Those investors who have been
invested in VP International for the last five years have received an average
annual return of 24.28%. The average annual return for the EAFE Index for the
same period is 12.83%. According to Lipper, VP International's five-year results
place it in the 13th percentile (7th out of 53 underlying international funds
for variable insurance products).*
WHAT FACTORS HELPED VP INTERNATIONAL POST SUCH A LARGE GAIN?
We think the credit goes to an investment process that enables our team to
focus on fast-growing successful companies, wherever they may be. We combine
earnings information from our proprietary database with extensive company
analysis, including management interviews and industry research. We believe this
helps us put together a portfolio of strong, growing companies.
We found a number of such opportunities in Europe and Japan, where wireless
telephone and information service-related companies performed very well. These
sectors are benefiting from the explosion of cellular phone usage and expansion
of the Internet. This was a major factor behind our higher weighting in Japanese
stocks. When we closed the fund's December books, Japanese companies accounted
for nearly 27% of investments--our largest single-country weighting--and those
holdings contributed most to performance.
In our last report to you, we described the cautious approach we were
taking in Japan. At the time, too many restructuring announcements coming from
Japanese companies appeared to be more bark than bite. The situation is about
the same today, but there are a number of firms in our portfolio that are
actively tackling their problems. There are also signs that a quiet
"corporate revolution" is underway in the world's second-largest
economy. A "new Japan" is emerging.
YOU HAVE SLIGHTLY MORE THAN 12% OF YOUR ASSETS IN FIRMS INVOLVED IN WIRELESS
COMMUNICATIONS. WHAT IS ATTRACTING YOU TO THESE COMPANIES?
There is a revolution occurring worldwide in information technology,
especially
* Lipper ranked VP International 21 out of 126 of the average international fund
underlying variable insurance products for the one-year period. Lipper
rankings are based on average annual total returns. Past performance is no
guarantee of future results.
[right margin]
"THOSE INVESTORS WHO HAVE BEEN INVESTED IN VP INTERNATIONAL FOR THE LAST FIVE
YEARS HAVE RECEIVED AN AVERAGE ANNUAL RETURN OF 24.28%."
PORTFOLIO AT A GLANCE
12/31/99 12/31/98
NO. OF COMPANIES 131 146
MEDIAN MARKET $16.3 $7.26
CAPITALIZATION BILLION BILLION
PORTFOLIO TURNOVER 109% 181%
Investment terms are defined in the Glossary on pages 20-21.
www.americancentury.com 5
VP International--Q&A
--------------------------------------------------------------------------------
(Continued)
in wireless and other telecommunications services. In the United States,
cellular service is booming, but that doesn't come close to what's happening
overseas. Across Europe and in Japan (and in many emerging economies), the
portable phone has become the communications medium of choice.
That theme is hinged to another--the Internet and the explosion of data
riding the Web. We are in an age of information instancy. Cell-phone users
around the world are now able to dial remote databases, to access email or scour
the Internet for information from wherever they may be--in a car or walking
through an airport. As a result, portable phones are fast becoming hand-held
computers in every sense of the word. The marriage of the Internet and wireless
communications is one of the major growth stories of the decade, and we're
approaching it from several angles.
WHICH OF YOUR INVESTMENTS ILLUSTRATE SOME OF THOSE ANGLES?
We can begin with our second largest holding, Mannesmann AG. We've held a
position in this German firm since 1994. Mannesmann's initial claim to fame was
as a successful industrial firm making steel tubes, auto parts and machinery.
Today, the company is focusing on telecommunications, and is Germany's largest
wireless service provider.
In electrical equipment, we own shares in Finland's Nokia, the world's
biggest maker of cellular handsets, and now Europe's largest company in terms of
market capitalization (the number of shares outstanding, multiplied by the share
price). In September, Nokia introduced its first cellular phone with Wireless
Application Protocol (WAP) technology that lets users send email or pull data
from the Internet. Owning a market share of about 25%, Nokia could produce 68
million phones in 1999, including models that have become very popular with
teen-agers (who have turned out to be tremendously active cell-phone users).
There are 450 million cellular subscribers worldwide, a number Nokia
expects to more than triple to over one billion by 2003. At that point, there
would be more portable phones connected to the Internet than personal computers.
Nokia is an aggressive, smart company that has impressed investors with its
ability to produce increasingly smarter handsets.
NTT Mobile Communications Network, Inc. (sometimes referred to as NTT
DoCoMo), Japan's largest cellular operator, is also benefiting from this
technology. The firm started its "i-mode" service in April 1999, and
by the end of December 1999, the service had more than three million users
accessing email and Internet Web sites with their cellular phones.
WHAT OTHER FIRMS CONTRIBUTED TO VP INTERNATIONAL'S STRONG PERFORMANCE?
Shares of Sony Corp., one of the world's best-known consumer electronic
brands, performed strongly. The company is viewed as one of the pillars of the
"new Japan" that is emerging. In addition, the firm is benefiting from
the upcoming launch of Playstation 2, which will be a key platform in Sony's
strategy to conquer the networked digital entertainment market.
Hennes & Mauritz AB, Sweden's largest clothing retailer, has been on a
growth curve for years. We first purchased the company in 1997 and have owned it
since. H&M has been a fine long-term performer.
Another Swedish firm, Skandia Forsakrings AB, a leading provider of
financial services and insurance, also has been a successful investment. The
Nordic region's largest insurer, Skandia
[left margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF AS OF
12/31/99 6/30/99
SONY CORP. 3.7% 1.7%
MANNESMANN AG 3.3% 2.9%
KYOCERA CORP. 3.0% --
SOFTBANK CORP. 2.8% 0.2%
SONERA GROUP OYJ 2.3% 0.3%
CHINA TELECOM
(HONG KONG) LTD. 2.0% 0.7%
NTT MOBILE
COMMUNICATIONS
NETWORK, INC. 1.9% 0.2%
NORTEL NETWORKS
CORP. NEW YORK
SHARES 1.8% 1.0%
NOKIA CORP. CL A ADR 1.8% 1.4%
JDS UNIPHASE CORP. 1.7% 0.5%(1)
TOP FIVE INDUSTRIES
% OF FUND INVESTMENTS
AS OF AS OF
12/31/99 6/30/99
ELECTRICAL EQUIPMENT 19.5% 9.2%
TELEPHONE 12.5% 10.5%
WIRELESS
TELECOMMUNICATIONS 12.1% 12.4%
MEDIA 6.4% 5.6%
SEMICONDUCTOR 6.0% 0.6%
(1) Uniphase Corp. acquired JDS Fitel Inc. on 7/6/99. Surviving name is JDS
Uniphase Corp. Percentage represents JDS Fitel Inc. shares owned by
the fund.
6 1-800-345-6488
VP International--Q&A
--------------------------------------------------------------------------------
(Continued)
is now focusing on the U.S. market for variable annuities, mutual funds,
and other savings products.
In addition, Tokyo-based Softbank Corp., our fourth-largest position, is
one of the world's largest investors in Internet companies. Its $32 billion
portfolio holds significant investments in hugely successful firms such as
Yahoo! and E*Trade Group.
WHICH STOCKS DIDN'T WORK OUT AS YOU HAD EXPECTED?
Several investments in food and beverage companies were disappointments; in
fact, throughout the world, food stocks generally underperformed. One of our
holdings, Groupe Danone, is a case in point. A French company, Danone produces a
number of packaged foods, including Dannon Yogurt, Evian water, and Lea &
Perrins worcestershire sauce. More than anything else, consolidation in food
retailing is pressuring margins of food manufacturers. In this country and
abroad, the retailing model is moving toward giant national food outlets
(Wal-Mart or Target in the United States, for example) that can exert pricing
leverage.
WHAT ARE YOUR THOUGHTS CONCERNING THE EURO, THE NEW EUROPEAN CURRENCY THAT HAS
WEAKENED CONSIDERABLY SINCE ITS INTRODUCTION IN JANUARY 1999?
A declining euro is not necessarily bad for the European Monetary Union; in
fact, it has already given a boost to economic growth there. Germany and France
are big exporters, and their goods are now attractively priced to consumers in
the United States and elsewhere. In addition, the common currency has already
begun to "harmonize" the business environment across the continent,
particularly in terms of pricing from country to country.
In Japan, meanwhile, the yen has strengthened in part at the expense of the
euro, as investors have sold European stocks to put their money in Japanese
companies. Over the short term, a strong currency normally slows the earning
power of exporters because their products grow more expensive to foreign buyers
and demand falls. Over the long term, which is the lens through which we view
our investments, we think companies with good products and good management will
succeed and overcome the relative strength or weakness of their country's
currency.
WHAT IS YOUR OUTLOOK ON INTERNATIONAL INVESTING AS WE HEAD INTO 2000?
Many constructive, positive trends are changing the investment landscape in
Europe and Japan. Falling economic boundaries are forcing consolidation in
virtually every industry in Europe, Japanese companies are transforming
themselves, and an American-style equity culture is catching hold in both
regions. In fact, what is happening in Europe, and to a lesser extent in Japan,
is similar to the restructuring American companies went through at the start of
this decade, which spurred the U.S. economy on to new heights. This is a
powerful combination of events that we feel should have huge positive
implications for international investors.
[left margin]
TYPES OF INVESTMENTS IN THE PORTFOLIO
AS OF DECEMBER 31, 1999
[data shown in pie chart]
Common Stocks 95.3%
Temporary Cash Investments 3.9%
Preferred Stocks 0.8%
AS OF JUNE 30, 1999
[data shown in pie chart]
Common Stocks 95.2%
Temporary Cash Investments 3.6%
Preferred Stocks 1.2%
VP INTERNATIONAL'S INVESTMENTS BY COUNTRY
[data shown in bar chart]
12/31/99 6/30/99
Japan 26.6% 17.0%
United Kingdom 13.2% 16.2%
France 10.6% 11.4%
United States* 7.7% 5.6%
Netherlands 6.4% 6.9%
Germany 5.0% 5.7%
Sweden 4.9% 3.0%
Finland 4.0% 1.7%
Italy 4.0% 3.9%
Other 17.6% 28.6%
*Includes temporary cash investments.
www.americancentury.com 7
VP International--Schedule of Investments
--------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period. The
securities are grouped by asset class (such as common stocks, corporate bonds,
temporary cash investments, as applicable), and some asset classes are further
broken down by industry or country.
NOTE: For securities denominated in foreign currencies, the market value is
translated into U.S. dollars based on exchange rates as of the last day of the
reporting period.
DECEMBER 31, 1999
Shares Value
--------------------------------------------------------------------------------
COMMON STOCKS -- 95.3%
AUSTRALIA -- 0.4%
987,029 Cable & Wireless Optus Limited(1) $ 3,295,729
(wireless telecommunications) -----------------------
BELGIUM -- 0.2%
51,644 Fortis (B) 1,861,635
(property & casualty insurance) -----------------------
CANADA -- 2.5%
102,400 Celestica Inc. New York Shares(1) 5,683,200
(semiconductor)
147,400 Nortel Networks Corp.
New York Shares 14,887,400
(electrical equipment) -----------------------
20,570,600
-----------------------
DENMARK -- 1.0%
26,700 ISS International Service
System A/S(1) 1,795,219
(industrial services)
20,911 Novo Nordisk A/S Cl B 2,772,367
(drugs)
51,900 Tele Danmark A/S 3,854,690
(telephone) -----------------------
8,422,276
-----------------------
FINLAND -- 4.0%
75,400 Nokia Corp. Cl A ADR 14,326,000
(electrical equipment)
265,659 Sonera Group Oyj 18,192,891
(wireless telecommunications) -----------------------
32,518,891
-----------------------
FRANCE -- 10.6%
57,370 Accor SA 2,769,514
(hotels)
38,157 Alcatel Alsthom Compagnie Generale 8,755,040
(information services)
12,754 Altran Technologies SA 7,700,993
(information services)
37,432 Axa 5,213,486
(property & casualty insurance)
16,637 Cap Gemini SA 4,219,147
(information services)
33,480 Carrefour SA 6,169,115
(specialty stores)
15,200 Groupe Danone 3,579,386
(food & beverage)
Shares Value
--------------------------------------------------------------------------------
18,000 Lafarge SA $ 2,094,013
(construction & real property)
25,900 Pinault-Printemps-Redoute SA 6,828,890
(department stores)
17,800 Societe Generale Cl A 4,137,910
(banks)
18,600 Societe Television Francaise 1 9,733,417
(media)
62,800 STMicroelectronics N.V.
New York Shares 9,510,275
(semiconductor)
16,807 Total SA Cl B 2,241,068
(oil refining)
141,845 Vivendi 12,797,153
(multi-industry) -----------------------
85,749,407
-----------------------
GERMANY -- 5.0%
11,700 DePfa Deutsche Pfandbriefbank AG 862,585
(banks)
26,773 EM.TV & Merchandising AG 1,681,244
(media)
56,300 Infonet Services Corp. Cl B(1) 1,477,875
(computer hardware
& business machines)
11,370 Intershop Communications AG(1) 3,192,374
(computer software)
109,560 Mannesmann AG 26,681,881
(wireless telecommunications)
53,400 Siemens AG 6,824,864
(electrical equipment) -----------------------
40,720,823
-----------------------
HONG KONG -- 2.0%
2,554,000 China Telecom (Hong Kong) Ltd.(1) 15,967,634
(wireless telecommunications) -----------------------
IRELAND -- 0.2%
77,500 CRH plc 1,661,232
(multi-industry) -----------------------
ISRAEL -- 0.3%
14,100 Check Point Software
Technologies Ltd.(1) 2,802,375
(computer software) -----------------------
ITALY -- 4.0%
423,500 Banca Intesa S.p.A. 1,717,543
(banks)
282,348 Mediaset SpA 4,387,136
(media)
308,400 Mediolanum SpA 4,034,658
(life & health insurance)
8 1-800-345-6488 See Notes to Financial Statements
VP International--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1999
Shares Value
--------------------------------------------------------------------------------
243,700 Mondadori (Arnoldo) Editore SpA $ 7,725,296
(media)
1,534,449 Seat Pagine Gialle SpA 5,034,068
(internet)
609,200 Telecom Italia SpA 8,582,958
(telephone)
1,171 Tiscali SpA(1) 474,910
(internet) -----------------------
31,956,569
-----------------------
JAPAN -- 26.6%
178,000 Fujitsu Ltd. 8,118,626
(electrical equipment)
737,000 Hitachi Ltd. 11,830,087
(electrical equipment)
199 Japan Telecom Co. Ltd. 7,985,710
(telephone)
186,000 Kao Corporation 5,306,744
(home products)
43,200 KDD Corp. 5,987,198
(telephone)
8,300 Keyence Corporation 3,371,342
(electrical equipment)
93,000 KYOCERA CORP. 24,121,562
(semiconductor)
22,000 Matsushita Communication
Industrial Co., Ltd. 5,813,840
(electrical equipment)
124,000 Matsushita Electric Industrial Co., Ltd. 3,434,668
(electrical equipment)
132,000 NEC Corp. 3,145,933
(electrical equipment)
439 Nippon Telegraph & Telephone 7,519,331
(telephone)
285,000 Nomura Securities Co., Ltd. 5,146,569
(securities & asset management)
485 NTT Data Corp. 11,155,427
(information services)
407 NTT Mobile Communications
Network, Inc. 15,655,378
(wireless telecommunications)
134,000 Omron Corp. 3,088,676
(electrical equipment)
115,000 PIONEER CORP. 3,039,053
(consumer durables)
20,900 Ryohin Keikaku Co. Limited 4,195,547
(specialty stores)
10,000 SMC Corp. 2,212,978
(industrial parts)
23,800 Softbank Corp. 22,782,030
(internet)
100,800 Sony Corp. 29,893,707
(electrical equipment)
44,000 Takeda Chemical Industries, Ltd. 2,174,807
(drugs)
150,300 Tokyo Electric Power Co. 4,030,753
(electrical utilities)
77,000 Tokyo Electron Ltd. 10,551,042
(electrical equipment)
Shares Value
--------------------------------------------------------------------------------
248,000 Toyota Motor Corp. $ 12,015,269
(motor vehicles & parts)
8,000 Trend Micro Inc.(1) 2,020,162
(computer software) -----------------------
214,596,439
-----------------------
MEXICO -- 1.5%
55,800 Grupo Televisa S.A. GDR(1) 3,808,350
(media)
71,600 Telefonos de Mexico, S.A. Cl L ADR 8,055,000
(telephone) -----------------------
11,863,350
-----------------------
NETHERLANDS -- 6.4%
37,300 ASM Lithography Holding N.V.
New York Shares(1) 4,226,556
(semiconductor)
31,000 ASR Verzekeringsgroep N.V. 1,971,641
(life & health insurance)
85,700 Getronics N.V. 6,830,540
(information services)
48,000 Gucci Group N.V. New York Shares 5,496,000
(apparel & textiles)
78,876 ING Groep N.V. 4,757,849
(financial services)
68,320 Phillips Electronics N.V.
New York Shares 9,223,200
(electrical equipment)
65,900 Randstad Holdings N.V. 3,170,023
(industrial services)
59,678 United Pan-Europe
Communications NV(1) 7,627,233
(telephone)
122,200 VNU N.V. 6,416,886
(publishing)
58,749 Wolters Kluwer NV 1,986,501
(publishing) -----------------------
51,706,429
-----------------------
PORTUGAL -- 0.4%
53,721 PT MULTIMEDIA(1) 3,052,888
(internet) -----------------------
SINGAPORE -- 1.9%
190,438 DBS Group Holdings Ltd. 3,121,560
(banks)
210,410 Singapore Press Holdings Ltd. 4,560,673
(media)
2,349,000 Singapore Technologies
Engineering Ltd. 3,638,799
(industrial services)
237,102 United Overseas Bank Ltd. 2,092,705
(banks)
176,000 Venture Manufacturing
(Singapore) Ltd. 2,018,373
(semiconductor) -----------------------
15,432,110
-----------------------
See Notes to Financial Statements www.americancentury.com 9
VP International--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1999
Shares Value
--------------------------------------------------------------------------------
SOUTH KOREA -- 1.1%
38,350 Samsung Electronics $ 8,983,796
(electrical equipment) -----------------------
SPAIN -- 1.8%
46,986 Sogecable, S.A.(1) 2,997,828
(media)
447,691 Telefonica S.A.(1) 11,173,239
(telephone) -----------------------
14,171,067
-----------------------
SWEDEN -- 4.9%
203,800 Assa Abloy AB Cl B 2,864,177
(consumer durables)
74,300 Ericsson (L.M.) Telephone Co. ADR 4,878,259
(electrical equipment)
191,300 Europolitan Holdings AB 3,374,691
(wireless telecommunications)
306,300 Hennes & Mauritz AB Cl B 10,266,435
(specialty stores)
70,230 Modern Times Group
MTG AB Cl B(1) 3,485,483
(media)
183,100 Securitas AB Cl B 3,316,171
(industrial services)
376,800 Skandia Forsakrings AB 11,388,639
(financial services) -----------------------
39,573,855
-----------------------
SWITZERLAND -- 3.5%
80,472 ABB Ltd. 9,842,317
(heavy electrical equipment)
27,900 Credit Suisse Group 5,545,657
(financial services)
2,078 Holderbank Financiere
Glarus AG Cl B 2,844,966
(construction & real property)
1,388 Nestle S.A. 2,542,734
(food & beverage)
3,355 Novartis AG 4,926,201
(drugs)
2,200 PubliGroupe S.A. 2,176,097
(media) -----------------------
27,877,972
-----------------------
UNITED KINGDOM -- 13.2%
455,900 Amvescap Plc 5,302,846
(financial services)
38,499 ARM Holdings plc(1) 2,597,891
(semiconductor)
79,600 AstraZeneca Group plc 3,302,289
(drugs)
82,900 Barclays PLC 2,386,543
(banks)
234,500 BBA Group plc 1,894,174
(industrial parts)
42,300 BP Amoco Plc ADR 2,508,919
(oil refining)
380,378 British Telecommunications plc 9,297,395
(telephone)
Shares Value
--------------------------------------------------------------------------------
229,602 Cable & Wireless
Communications plc(1) $ 3,301,206
(telephone)
188,783 Cable & Wireless plc 3,199,229
(wireless telecommunications)
218,200 Capita Group Plc 3,983,274
(industrial services)
1,006,717 Centrica plc 2,854,247
(gas & water utilities)
33,400 CMG plc 2,458,852
(information services)
154,738 COLT Telecom Group plc(1) 7,921,842
(telephone)
230,700 Compass Group PLC 3,167,915
(industrial services)
88,764 Energis plc(1) 4,264,664
(telephone)
510,600 Invensys plc 2,779,826
(industrial parts)
219,085 Logica plc 5,652,291
(information services)
326,100 Marconi plc 5,771,253
(electrical equipment)
102,100 Orange plc(1) 3,447,299
(wireless telecommunications)
144,700 Pearson plc 4,684,608
(media)
170,800 Prudential Corporation PLC 3,366,314
(property & casualty insurance)
852,871 TeleWest Communications plc(1) 4,550,228
(telephone)
468,913 Thus plc(1) 2,939,212
(telephone)
906,972 Vodafone AirTouch PLC 4,494,542
(wireless telecommunications)
72,900 Vodafone AirTouch PLC ADR 3,608,550
(wireless telecommunications)
430,200 WPP Group plc 6,817,833
(media) -----------------------
106,553,242
-----------------------
UNITED STATES -- 3.8%
78,600 Amdocs Ltd.(1) 2,711,700
(computer software)
28,300 Comverse Technology, Inc.(1) 4,095,541
(computer software)
118,000 Global TeleSystems Group, Inc.(1) 4,085,750
(telephone)
83,892 JDS Uniphase Corp.(1) 13,532,828
(electrical equipment)
29,200 NTL Inc.(1) 3,639,050
(telephone)
70,200 Tyco International Ltd. 2,729,025
(industrial parts) -----------------------
30,793,894
-----------------------
TOTAL COMMON STOCKS 770,132,213
(Cost $419,148,921) -----------------------
10 1-800-345-6488 See Notes to Financial Statements
VP International--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1999
Shares Value
--------------------------------------------------------------------------------
PREFERRED STOCKS -- 0.8%
BRAZIL
26,410,000 Petroleo Brasileiro S.A. $ 6,724,938
(energy reserves & production) -----------------------
(Cost $4,387,841)
TEMPORARY CASH INVESTMENTS -- 3.9%
Repurchase Agreement, State Street Boston
Corp., (U.S. Treasury obligations), in a joint
trading account at 3.30%, dated 12/31/99,
due 1/3/00 (Delivery value $31,208,580) 31,200,000
-----------------------
(Cost $31,200,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $808,057,151
=======================
(Cost $454,736,762)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Contracts Settlement Unrealized
to Sell Date Value Gain
--------------------------------------------------------------------------------
11,784,905 EURO 1/28/00 $11,881,424 $24,473
==========================================
(Value on Settlement Date $11,905,897)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS are designed to protect the fund's
foreign investments against declines in foreign currencies (also known as
hedging). The contracts are called "forward" because they allow the
fund to exchange a foreign currency for U.S. dollars on a specific date in the
future--and at a prearranged exchange rate.
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
GDR = Global Depositary Receipt
(1) Non-income producing.
See Notes to Financial Statements www.americancentury.com 11
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. The net assets divided by shares outstanding is the share price, or NET
ASSET VALUE PER SHARE. This statement also breaks down the fund's net assets
into capital (shareholder investments) and performance (investment income and
gains/losses).
DECEMBER 31, 1999
ASSETS
Investment securities, at value
(identified cost of $454,736,762) (Note 3) .................. $808,057,151
Foreign currency holdings, at value
(identified cost of $383,240) ............................... 382,935
Cash ........................................................... 1,369,958
Receivable for forward foreign currency exchange contracts ..... 24,473
Receivable for investments sold ................................ 1,136,448
Dividends and interest receivable .............................. 696,734
------------
811,667,699
------------
LIABILITIES
Payable for investments purchased .............................. 3,520,512
Payable for capital shares redeemed ............................ 7,528,763
Accrued management fees (Note 2) ............................... 776,491
Payable for directors' fees and expenses ....................... 393
------------
11,826,159
------------
NET ASSETS ..................................................... $799,841,540
============
CAPITAL SHARES, $0.01 PAR VALUE
Authorized ..................................................... 200,000,000
============
Outstanding .................................................... 63,968,016
============
NET ASSET VALUE PER SHARE ...................................... $ 12.50
============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) ........................ $431,308,466
Undistributed net investment income ............................ 1,149,432
Accumulated undistributed net realized gain on
investments and foreign currency transactions ............... 14,059,086
Net unrealized appreciation on investments and
translation of assets and liabilities
in foreign currencies (Note 3) .............................. 353,324,556
------------
$799,841,540
============
12 1-800-345-6488 See Notes to Financial Statements
Statement of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
YEAR ENDED DECEMBER 31, 1999
INVESTMENT LOSS
INCOME:
Dividends (net of foreign taxes withheld of $693,695) ....... $ 5,064,512
Interest .................................................... 845,002
-------------
5,909,514
-------------
EXPENSES (Note 2):
Management fees ............................................. 6,779,803
Directors' fees and expenses ................................ 4,122
-------------
6,783,925
-------------
NET INVESTMENT LOSS ......................................... (874,411)
-------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY (NOTE 3)
NET REALIZED GAIN (LOSS) ON:
Investments ................................................. 46,312,026
Foreign currency transactions
(net of foreign taxes withheld of $17,847) ............... (2,616,721)
-------------
43,695,305
-------------
CHANGE IN NET UNREALIZED APPRECIATION ON:
Investments ................................................. 272,495,465
Translation of assets and
liabilities in foreign currencies .......................... (9,007,931)
-------------
263,487,534
-------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FOREIGN CURRENCY ..................................... 307,182,839
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........ $ 306,308,428
=============
See Notes to Financial Statements www.americancentury.com 13
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
INCREASE IN NET ASSETS 1999 1998
OPERATIONS
Net investment income (loss) ................................ $ (874,411) $ 884,825
Net realized gain (loss) on investments
and foreign currency transactions ......................... 43,695,305 (26,673,060)
Change in net unrealized appreciation
on investments and translation
of assets and liabilities in foreign currencies .......... 263,487,534 66,336,554
------------- -------------
Net increase in net assets resulting from operations ........ 306,308,428 40,548,319
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income .................................. -- (1,512,683)
From net realized gains on investment transactions .......... -- (12,713,908)
In excess of net realized gains ............................. -- (2,814,898)
------------- -------------
Decrease in net assets from distributions ................... -- (17,041,489)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ................................... 849,452,226 677,603,582
Proceeds from reinvestment of distributions ................. -- 17,041,489
Payments for shares redeemed ................................ (774,881,238) (515,712,499)
------------- -------------
Net increase in net assets from capital share transactions .. 74,570,988 178,932,572
------------- -------------
NET INCREASE IN NET ASSETS .................................. 380,879,416 202,439,402
NET ASSETS
Beginning of period ......................................... 418,962,124 216,522,722
------------- -------------
End of period ............................................... $ 799,841,540 $ 418,962,124
============= =============
Undistributed net investment income ......................... $ 1,149,432 $ 156,660
============= =============
TRANSACTIONS IN SHARES OF THE FUND
Sold ........................................................ 99,625,040 91,449,353
Issued in reinvestment of distributions ..................... -- 2,328,072
Redeemed .................................................... (90,616,064) (70,474,226)
------------- -------------
Net increase ................................................ 9,008,976 23,303,199
============= =============
14 1-800-345-6488 See Notes to Financial Statements
Notes to Financial Statements
--------------------------------------------------------------------------------
DECEMBER 31, 1999
--------------------------------------------------------------------------------
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
of the six funds issued by the corporation. The fund is diversified under the
1940 Act. The fund's investment objective is capital growth. The fund seeks to
achieve its investment objective by investing primarily in an internationally
diversified portfolio of equity securities that are considered by management to
have prospects for appreciation. The fund will invest primarily in securities of
issuers located in developed markets. The following significant accounting
policies are in accordance with generally accepted accounting principles; these
policies may require the use of estimates by fund management.
SECURITY VALUATIONS -- Portfolio 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.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price, depending on local convention or regulation. When valuations are
not readily available, securities are valued at fair value as determined in
accordance with procedures adopted by the Board of Directors.
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. 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.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The fund may enter into
forward foreign currency exchange contracts to facilitate transactions of
securities denominated in a foreign currency or to hedge the fund's exposure to
foreign currency exchange rate fluctuations. The net U.S. dollar value of
foreign currency underlying all contractual commitments held by the fund and the
resulting unrealized appreciation or depreciation are determined daily using
prevailing exchange rates. The fund bears the risk of an unfavorable change in
the foreign currency exchange rate underlying the forward contract.
Additionally, losses may arise if the counterparties do not perform under the
contract terms.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that the fund's investment manager, 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, each fund, along with other registered
investment companies having management agreements with ACIM, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by U.S.
Treasury or Agency obligations.
INCOME TAX STATUS -- It is the fund's policy to distribute 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 are declared and paid annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences are primarily due to differing
treatments for foreign currency transactions and wash sales and may result in
reclassification among certain capital accounts.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the corporation's
distributor. Certain officers of FDI are also officers of the corporation.
www.americancentury.com 15
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1999
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
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 fee. The Agreement provides that all expenses of
the fund, except brokerage commissions, taxes, interest, fees and expenses of
those directors who are not considered "interested persons" as defined
in the 1940 Act (including counsel fees) and extraordinary expenses, will be
paid by ACIM. The fee is computed daily and paid monthly based on the fund's
average daily closing net assets during the previous month.
The annualized fee schedule for the fund is as follows:
1.50% on the first $250 million
1.20% on the next $250 million
1.10% over $500 million
Certain officers and directors of the corporation are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the corporation's investment manager, ACIM, and
the corporation's transfer agent, American Century Services Corporation.
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the year ended December 31, 1999, totaled $609,641,840 and
$542,801,762, respectively.
As of December 31, 1999, accumulated net unrealized appreciation on
investments was $349,976,628, based on the aggregate cost of investments for
federal income tax purposes of $458,080,523, which consisted of unrealized
appreciation of $352,262,278 and unrealized depreciation of $2,285,650.
--------------------------------------------------------------------------------
4. BANK LOANS
The fund, along with certain other funds managed by ACIM, entered into an
unsecured $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The fund did not borrow from the line during the
year ended December 31, 1999.
16 1-800-345-6488
VP International--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years. It also
includes several key statistics for each reporting period, including TOTAL
RETURN, INCOME RATIO (net income as a percentage of average net assets), EXPENSE
RATIO (operating expenses as a percentage of average net assets), and PORTFOLIO
TURNOVER (a gauge of the fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31
1999 1998 1997 1996 1995
PER-SHARE DATA
Net Asset Value, Beginning of Period ............... $ 7.62 $ 6.84 $ 5.96 $ 5.33 $ 4.75
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income (Loss) ..................... (0.01) 0.02 (0.02) 0.02(1) 0.03(1)
Net Realized and Unrealized Gain
on Investment Transactions ..................... 4.89 1.24 1.11 0.74 0.55
----------- ----------- ----------- ----------- -----------
Total From Investment Operations ................. 4.88 1.26 1.09 0.76 0.58
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income ....................... -- (0.04) (0.06) (0.03) --
In Excess of Net Investment Income ............... -- -- (0.01) (0.07) --
From Net Realized Gains
on Investment Transactions ..................... -- (0.36) (0.14) (0.03) --
In Excess of Net Realized Gains .................. -- (0.08) -- -- --
----------- ----------- ----------- ----------- -----------
Total Distributions .............................. -- (0.48) (0.21) (0.13) --
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ..................... $ 12.50 $ 7.62 $ 6.84 $ 5.96 $ 5.33
=========== =========== =========== =========== ===========
TOTAL RETURN(2) .................................. 64.04% 18.76% 18.63% 14.41% 12.21%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets .. 1.34% 1.47%(3) 1.50% 1.50% 1.50%
Ratio of Net Investment Income (Loss)
to Average Net Assets .......................... (0.17)% 0.25%(3) (0.08)% 0.31% 0.70%
Portfolio Turnover Rate ............................ 109% 181% 173% 154% 214%
Net Assets, End of Period (in thousands) ........... $ 799,842 $ 418,962 $ 216,523 $ 101,335 $ 51,609
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
(3) ACIM voluntarily waived a portion of its management fee from October 1,
1998 through November 16, 1998. In absence of the waiver, the annualized
ratio of operating expenses to average net assets and annualized ratio of
net investment income to average net assets would have been 1.48% and
0.24%, respectively, for the year ended December 31, 1998.
See Notes to Financial Statements www.americancentury.com 17
Independent Auditors' Report
--------------------------------------------------------------------------------
The Board of Directors and Shareholders,
American Century Variable Portfolios, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of VP International Fund (the
"Fund") (formerly known as American Century VP International), one of
the funds comprising American Century Variable Portfolios, Inc., as of December
31, 1999, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and the financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at December
31, 1999 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above and financial
highlights present fairly, in all material respects, the financial position of
VP International Fund as of December 31, 1999, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Kansas City, Missouri
February 4, 2000
18 1-800-345-6488
Background Information
--------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
The philosophy behind American Century's Variable Portfolios growth funds
focuses on three important principles. Chiefly, the funds seek to own successful
companies, which we define as those whose earnings and revenues are growing at
accelerating rates. In addition, we attempt to keep the funds fully invested,
regardless of short-term market activity. Experience has shown that market gains
can occur in unpredictable spurts and that missing even some of these
opportunities may significantly limit potential for gain. Of course, remaining
fully invested also means the funds may experience greater losses in market
downturns. Finally, American Century Variable Portfolios funds are managed by
teams, rather than by one "star" manager. We believe this enables us
to make better, more consistent management decisions.
VP INTERNATIONAL'S investment objective is capital growth. The fund invests
primarily in the equity securities of foreign companies that exhibit
accelerating earnings growth. It favors companies based in developed markets. It
will typically have significant share price fluctuations.
International investing involves special risks including political
instability and economic risk.
HOW CURRENCY RETURNS AFFECT FUND PERFORMANCE
For U.S. investors, the total return from international stocks includes the
effects of currency fluctuations -- the movement of international currency
values in relation to the value of the U.S. dollar. Currency exchange rates
come into play when international stock income, gains and losses are converted
into U.S. dollars.
Changing currency values may have a significant impact on the total returns
of international stock funds. The value of the foreign investments held by
international stock funds may be reduced or increased by changes in currency
exchange rates. The U.S. dollar value of a foreign security generally decreases
when the value of the dollar rises against the foreign currency in which the
security is denominated. This tended to be the case in 1997, when the dollar
increased in value against most major foreign currencies. (The weakened foreign
currencies bought fewer dollars.) Conversely, the U.S. dollar value of a foreign
security tends to increase when the value of the dollar falls against the
foreign currency. (The stronger foreign currency buys more dollars.) In
addition, the value of fund assets may be affected by losses and other expenses
incurred in converting between U.S. dollars and various currencies in order to
purchase and sell foreign securities. Currency restrictions, exchange control
regulations, currency devaluations and political developments may also affect
net asset value.
COMPARATIVE INDICES
The following indices are used in the report to serve as fund performance
comparisons. They are not investment products available for purchase.
The S&P 500 is a capitalization-weighted index of the stocks of 500
publicly traded U.S. companies that are considered to be leading firms in
dominant industries. Created by Standard & Poor's Corporation, the index is
viewed as a broad measure of U.S. stock market performance.
MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) has developed several indices
that measure the performance of foreign stock markets. The best known is the
EUROPE, AUSTRALASIA, FAR EAST INDEX (EAFE(reg.tm)), which is a widely followed
group of stocks from 20 countries. Within this index are two narrower indices.
The MSCI EUROPE measures stock performance in 14 European countries. The MSCI
FAR EAST measures stock performance in Japan, Hong Kong, Malaysia and Singapore.
[right margin]
PORTFOLIO MANAGERS
-----------------------------------
VP International
HENRIK STRABO
MARK KOPINSKI
www.americancentury.com 19
Glossary
--------------------------------------------------------------------------------
RETURNS
* TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
* AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year total returns, please refer to the
"Financial Highlights" on page 17.
INVESTMENT TERMS
* MEDIAN MARKET CAPITALIZATION-- Market capitalization (market cap) is the total
value of a company's stock and is calculated by multiplying the number of
outstanding common shares by the current share price. The company whose market
cap is in the middle of the portfolio is the median market cap. Half the
companies in the portfolio have values greater than the median, and half have
values that are less. If there is an even number of companies, then the median
is the average of the two companies in the middle.
* NUMBER OF COMPANIES-- the number of different companies held by a fund on a
given date.
* PORTFOLIO TURNOVER-- the percentage of a fund's investment portfolio that is
replaced during a given time period, usually a year. Actively managed portfolios
tend to have higher turnover than passively managed portfolios such as index
funds.
* PRICE/BOOK RATIO-- a stock value measurement calculated by dividing a
company's stock price by its book value per share, with the result expressed as
a multiple instead of as a percentage. (Book value per share is calculated by
subtracting a company's liabilities from its assets, then dividing that value by
the number of outstanding shares.)
* PRICE/EARNINGS (P/E) RATIO-- a stock value measurement calculated by dividing
a company's stock price by its earnings per share, with the result expressed as
a multiple instead of as a percentage. (Earnings per share is calculated by
dividing the after-tax earnings of a corporation by its outstanding shares.)
TYPES OF STOCKS
* BLUE CHIP STOCKS-- stocks of the most established companies in American
industry. They are generally large, fairly stable companies that have
demonstrated consistent earnings and usually have long-term growth potential.
Examples include General Electric and Coca-Cola.
* CYCLICAL STOCKS-- generally considered to be stocks whose price and earnings
fluctuations tend to follow the ups and downs of the business cycle. Examples
include the stocks of automobile manufacturers, steel producers and textile
operators.
* GROWTH STOCKS-- stocks of companies that have experienced above-average
earnings growth and are expected to continue such growth. These stocks often
sell at high P/E ratios. Examples can include the stocks of high-tech,
healthcare and consumer staple companies.
* LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS-- generally considered to
be stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of more than $5 billion. These tend to be the
stocks that make up the Dow Jones Industrial Average and the S&P 500.
* MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS-- generally considered to
be stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of between $1 billion and $5 billion. These tend to
be the stocks that make up the S&P 400.
20 1-800-345-6488
Glossary
--------------------------------------------------------------------------------
(Continued)
* SMALL-CAPITALIZATION ("SMALL-CAP") STOCKS-- generally considered to
be stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of less than $1 billion. These tend to be the
stocks that make up the Russell 2000 Index.
* VALUE STOCKS-- generally considered to be stocks that are purchased because
they are relatively inexpensive. These stocks are typically characterized by low
P/E ratios.
FUND CLASSIFICATIONS
Please be aware that the fund's category may change over time. Therefore, it
is important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatility levels
than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income
provided by either dividend-paying equities or a combination of equity and
fixed-income securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high
price-fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price-fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price- fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price-fluctuation risk.
www.americancentury.com 21
Notes
--------------------------------------------------------------------------------
22 1-800-345-6488
Notes
--------------------------------------------------------------------------------
www.americancentury.com 23
Notes
--------------------------------------------------------------------------------
24 1-800-345-6488
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation: Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Large Cap Value
Strategic Allocation: Tax-Managed Value
Moderate Income & Growth
Strategic Allocation: Value
Conservative Equity Income
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
Veedot(reg.sm) Global Gold Emerging Markets
New Opportunities International Discovery
Giftrust(reg.tm) International Growth
Vista Global Growth
Heritage
Growth
Ultra(reg.tm)
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs. For a definition of fund categories, see the Glossary.
*While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
[graphic of runners]
Who we are
American Century offers investors more than 70 mutual funds that span the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, with a range of services designed to
make investing easy and convenient.
For four decades, American Century has been a leader in performance, service and
innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have remained committed to building long-term relationships and to
helping investors achieve their dreams.
In a very real sense, investors put their future in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[american century logo (reg.sm)]
American
Century
P.O. BOX 419385
KANSAS CITY, MISSOURI 64141-6385
WWW.AMERICANCENTURY.COM
INVESTMENT PROFESSIONAL SERVICE REPRESENTATIVES
1-800-345-6488
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-4360
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
--------------------------------------------------------------------------------
American Century Investments BULK RATE
P.O. Box 419385 U.S. POSTAGE PAID
Kansas City, MO 64141-6385 AMERICAN CENTURY
www.americancentury.com COMPANIES
0002 Funds Distributor, Inc., Distributor
SH-ANN-19217 (c)2000 American Century Services Corporation
[front cover]
December 31, 1999
AMERICAN CENTURY(reg.sm)
VARIABLE PORTFOLIOS
Annual Report
[graphic of runners]
[graphic of person looking at computer screen]
VP Capital Appreciation
[american century logo(reg.sm)]
American
Century
[inside front cover]
[left margin]
VARIABLE PORTFOLIOS
VP CAPITAL APPRECIATION
-----------------------------------------
Our Message to You
--------------------------------------------------------------------------------
[photo of James E. Stowers III and James E. Stowers, Jr.]
James E. Stowers III, seated, with James E. Stowers, Jr.
Growth-oriented investors -- including those in VP Capital Appreciation --
were well-rewarded over the 12 months ended December 31, 1999. It was no
cakewalk, however. The period will be remembered as one of heightened stock
market volatility, particularly over the summer when the Federal Reserve twice
raised interest rates. Nonetheless, several sectors of the economy, especially
those connected directly or indirectly with the Internet, displayed strong
earnings growth. As a result, VP Capital Appreciation was up over 60% for the
year. (See page 4 for the fund's standardized performance.) As pleased as we are
to provide this performance, we should quickly add that results like these are
an exception, and usually are not sustainable. While we'll do everything we can
to make 2000 another banner year, we think it's wise to maintain reasonable
expectations for VP Capital Appreciation's future results.
VP Capital Appreciation fund manager Harold Bradley was promoted to senior
vice president of Strategic Investments for American Century. He relinquished
his portfolio management responsibilities in November 1999 to oversee our
private equity investments in technology-based companies. These investments
benefit you by keeping us on the cutting edge of new investment technologies.
Joining Linda Peterson on VP Capital Appreciation is portfolio manager Kurt
Stalzer. Kurt joined American Century in January from Scudder Kemper in Chicago.
He brings 17 years of experience to his new position.
On the corporate front, we are proud to announce that American Century has
been named by Fortune magazine as one of its "100 Best Companies to Work
For." We do not take this recognition lightly. An acknowledgment like this
enables us to recruit talented and dedicated people, from investment
professionals to service representatives. "Intellectual capital" is
our most valuable resource, and is essential in our efforts to provide you, our
shareholders, with excellent investment management.
As always, we appreciate your continued confidence in American Century.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder Vice Chairman of the Board and
Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ....................................................... 2
Market Perspective ...................................................... 3
VP CAPITAL APPRECIATION
Performance Information ................................................. 4
Management Q&A ...................................................... 5
Portfolio at a Glance ................................................... 5
Top Ten Holdings ........................................................ 6
Top Five Industries ..................................................... 6
Types of Investments .................................................... 7
Schedule of Investments ................................................. 8
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities .......................................................... 10
Statement of Operations ................................................. 11
Statements of Changes
in Net Assets ........................................................ 12
Notes to Financial
Statements ........................................................... 13
Financial Highlights .................................................... 15
Independent Auditors'
Report ............................................................... 16
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ...................................................... 17
Comparative Indices .................................................. 17
Portfolio Managers ................................................... 17
Glossary ................................................................ 18
www.americancentury.com 1
Report Highlights
--------------------------------------------------------------------------------
MARKET PERSPECTIVE
* The year ended December 31, 1999, tested the mettle of common stock
investors, who will remember the period as one of heightened stock market
volatility. Nonetheless, the year was rewarding for growth investors,
particularly those invested in technology-oriented firms. The NASDAQ
Composite, where many technology companies are listed, was up more than 85%
for the 12 months.
* After several years in the doldrums, small- and mid-cap stocks gained
traction in 1999. Mid-cap stocks had an especially strong fourth quarter.
* In July, the first of two Federal Reserve interest rate hikes left the
markets unscathed, and the major stock indices continued to climb. A second
interest rate increase in August sent a ripple of anxiety through the
market. From then until the end of the year, earnings-conscious investors
quickly rewarded companies whose earnings exceeded expectations and just as
swiftly punished companies whose results fell short.
VP CAPITAL APPRECIATION
* VP Capital Appreciation posted exceptional results for the year,
significantly outperforming its benchmark. Its larger positions fared
especially well.
* The fund had more than a third of its assets in technology-oriented firms,
an area of the economy that saw strong earnings growth. The wireless
communications industry was a significant source of performance for VP
Capital Appreciation. The fund is also taking advantage of the demand for
specialized software by businesses.
* The fund's results point to the fact that few stocks in the portfolio
failed to meet expectations. Two stocks that were disappointments included
a pharmaceutical distribution company, and a firm that makes construction
equipment used in road paving.
[left margin]
VP CAPITAL APPRECIATION
TOTAL RETURNS: AS OF 12/31/99
6 Months 41.74%*
1 Year 64.52%
INCEPTION DATE: 11/20/87
NET ASSETS: $607.3 million
*Not annualized.
Investment terms are defined in the Glossary on pages 18-19.
2 1-800-345-6488
Market Perspective from James E. Stowers III
--------------------------------------------------------------------------------
[photo of James E. Stowers III]
James E. Stowers III, Chief Executive Officer of American Century
THE YEAR IN BRIEF
This was a year of sharp contrasts. Just consider the climate in which
stocks began the year, and the atmosphere in which they ended it. In late 1998,
we were coming off a substantial downturn, which saw the S&P 500 drop 18% in
just over 80 days. The Asian financial crises were with us, and the financial
markets had been shaken by the collapse of a major U.S. hedge fund.
Credit the Federal Reserve with quickly stepping in and lowering interest
rates. Stocks began to recover--to the point where the Dow Jones Industrials
went beyond the 10,000 level for the first time ever and closed above 11,000 a
month later. By year-end, all major U.S. stock market indices were at or near
record levels.
For most of the year, a handful of large growth stocks led the market. In
April, long-neglected value stocks and those of smaller companies suddenly
rallied amid signs of economic recovery in Asia. Unfortunately, their
performance run ended only a few weeks later when the Federal Reserve reversed
course and raised rates in July. But inflation remained dormant--despite the
lowest unemployment rate in 30 years--corporate earnings strengthened, and stock
prices rallied again in the fall.
A GREAT YEAR FOR GROWTH
The period was rewarding for growth investors, particularly those focused
on technology. The Internet economy--as measured by equipment and software
spending--surged over the last 12 months. "Technology" once stood for
microchips and computers. Today it includes companies involved in endeavors as
diverse as electronics, telecommunications, cable TV and media, software, and
medical products.
The growth enjoyed by many high-tech companies was reflected in the
performance of the NASDAQ Composite, where many such firms are represented.
NASDAQ gained a spectacular 85.6% during the 12 months ended December 31, 1999.
It was also an outstanding year for small- and mid-cap stocks as the
technology fervor moved down to smaller companies. For the first time in six
years, the small-cap Russell 2000 Index outpaced two large-cap indices--the
S&P 500 and the Russell 1000. Mid-cap stocks rebounded in the fourth quarter
after a rough start to post healthy gains.
A FINAL THOUGHT
The last 12 months saw heightened stock market volatility as
earnings-conscious investors quickly rewarded companies that exceeded
expectations and swiftly punished those that fell short. Volatility can be
unnerving, but it doesn't always lead to negative returns, as our results this
year demonstrate.
Ultimately, fiscal 1999 illustrates why we try to remain fully invested.
Market upturns can be sudden and powerful. We want investors in position to take
full advantage of "good" volatility.
[right margin]
"IT WAS ALSO AN OUTSTANDING YEAR FOR SMALL- AND MID-CAP STOCKS AS THE
TECHNOLOGY FERVOR MOVED DOWN TO SMALLER COMPANIES."
MARKET RETURNS
FOR THE YEAR ENDED DECEMBER 31, 1999
S&P 500 21.04%
S&P MIDCAP 400 14.72%
RUSSELL 2000 21.26%
Source: Lipper Inc.
These indices represent the performance of large-, medium-, and
small-capitalization stocks.
[line chart - data below]
MARKET PERFORMANCE (GROWTH OF $1.00)
FOR THE YEAR ENDED DECEMBER 31, 1999
S&P 500 S&P Midcap 400 Russell 2000
12/31/1998 $1.00 $1.00 $1.00
01/31/1999 $1.04 $0.96 $1.01
02/28/1999 $1.01 $0.91 $0.93
03/31/1999 $1.05 $0.94 $0.95
04/30/1999 $1.09 $1.01 $1.03
05/31/1999 $1.06 $1.01 $1.05
06/30/1999 $1.12 $1.07 $1.09
07/31/1999 $1.09 $1.05 $1.06
08/31/1999 $1.08 $1.01 $1.02
09/30/1999 $1.05 $0.98 $1.02
10/31/1999 $1.12 $1.03 $1.03
11/30/1999 $1.14 $1.08 $1.09
12/31/1999 $1.13 $1.15 $1.21
Value on 12/31/1999
S&P 500 $1.21
S&P MidCap 400 $1.15
Russell 2000 $1.21
www.americancentury.com 3
VP Capital Appreciation --Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF DECEMBER 31, 1999
VP CAPITAL S&P MIDCAP S&P MIDCAP
APPRECIATION 400 INDEX S&P 500 400/BARRA GROWTH
6 MONTHS(1) 41.74% 7.35% 7.69% 18.99%
1 YEAR 64.52% 14.72% 21.04% 28.74%
---------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
---------------------------------------------------------------------------------
3 YEARS 15.91% 21.81% 27.56% 31.27%
5 YEARS 14.32% 23.05% 28.56% 27.81%
10 YEARS 11.39% 17.32% 18.21% N/A
LIFE OF FUND(2) 12.06% 19.63%(3) 19.73%(3) N/A
(1) Returns for periods less than one year are not annualized.
(2) The fund's inception date was 11/20/87.
(3) Since 11/30/87, the date nearest the fund's inception for which data are
available.
See pages 17-18 for information about the indices and returns.
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 separate account prospectus
for a discussion of the charges related to the insurance contracts.
[mountain chart - data below]
Value on 12/31/99
S&P 500 $53,282
S&P MidCap 400 $49,394
VP capital Appreciation $29,436
GROWTH OF $10,000 OVER 10 YEARS
$10,000 investment made 12/31/89
VP Capital S&P MidCap S&P 500
Appreciation 400 Index Index
Date
12/31/1989 $10,000 $10,000 $10,000
12/31/1990 $9,875 $9,488 $9,690
12/31/1991 $14,011 $14,241 $12,643
12/31/1992 $13,823 $15,938 $13,606
12/31/1993 $15,248 $18,161 $14,977
12/31/1994 $15,070 $17,511 $15,175
12/31/1995 $19,756 $22,930 $20,878
12/31/1996 $18,903 $27,333 $25,671
12/31/1997 $18,287 $36,148 $34,235
12/31/1998 $17,892 $43,056 $44,020
12/31/1999 $29,436 $49,394 $53,282
The graph at left shows the growth of a $10,000 investment in the fund over 10
years, while the graph below shows the fund's year-by-year performance. The
S&P MidCap 400 Index and the S&P 500 Index are provided for comparison.
VP Capital Appreciation'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. Past performance does not guarantee future
results. Investment return and principal value will fluctuate, and redemption
value may be more or less than original cost.
[bar chart - data below]
ONE-YEAR RETURNS OVER 10 YEARS (PERIODS ENDED DECEMBER 31)
VP Capital Appreciation S&P MidCap 400 Index
Date
12/31/1990 -1.25% -5.12%
12/31/1991 41.88% 50.10%
12/31/1992 -1.34% 11.91%
12/31/1993 10.31% 13.95%
12/31/1994 -1.17% -3.58%
12/31/1995 31.10% 30.95%
12/31/1996 -4.32% 19.20%
12/31/1997 -3.26% 32.25%
12/31/1998 -2.16% 19.11%
12/31/1999 64.52% 14.72%
4 1-800-345-6488
VP Capital Appreciation--Q&A
--------------------------------------------------------------------------------
[photo of Harold Bradley and Linda Peterson}
An interview with Harold Bradley and Linda Peterson, portfolio managers on
the VP Capital Appreciation investment team.
HOW DID VP CAPITAL APPRECIATION PERFORM FOR THE 12 MONTHS ENDED DECEMBER 31,
1999?
VP Capital Appreciation had a great year. The fund gained 64.52% -- more
than four times the 14.72% increase posted by its benchmark, the Standard &
Poor's MidCap 400 Index.
The fund's benchmark will change to the S&P MidCap 400/BARRA Growth
Index in January 2000. To serve as a meaningful standard for comparative
performance, a benchmark should resemble a fund's holdings as closely as
possible. The new benchmark more accurately reflects VP Capital Appreciation's
portfolio.
WHAT HELPED YOU ACHIEVE THAT INDEX-BEATING RETURN?
To begin with, we were invested heavily in the part of the market that
performed best -- technology stocks. For the most part, if you weren't in
technology companies, you missed out. The NASDAQ Composite, where many such
firms are represented, gained 85% for the 12 months. We were there. More than a
third of VP Capital Appreciation's assets were invested in technology- oriented
firms.
Our assets were also concentrated in several stocks that did particularly
well. We look for medium-sized companies whose earnings are accelerating. As
part of our strategy, VP Capital Appreciation carries larger weightings in
"high-confidence" holdings -- companies our research says have the
best chance to sustain their growth. When we closed the books in December, the
fund's 10 largest holdings accounted for 41% of assets. Our three largest
positions performed very well.
WHICH COMPANIES OR SECTORS POWERED THE FUND?
Gemstar International Group, our largest position, continued to lead the
fund. Gemstar holds the patent on some much-needed technology for television
viewers: an on-screen, interactive program guide. Most cable systems are
delivering 100 channels, and that number is expected to grow. Gemstar's pending
merger with TV Guide, Inc., will make it the dominant player in this space. As
more users have access to the program guide, we believe it will become an
important future source of advertising revenue. Gemstar's shares gained more
than 400% over the year.
QUALCOMM, a company we added to the portfolio during the year, made a big
impact. This company's fortunes are directly tied to the exploding demand for
wireless phone service. QUALCOMM holds the patent for the dominant wireless
technology known as CDMA, or "code division multiple access." CDMA
makes it possible to more easily send data -- words and pictures -- over
wireless networks. In essence, this technology turns cellular phones into tiny
portable computers, giving users the ability to reach for information whenever
they need it, from wherever they may
[right margin]
"AS PART OF OUR STRATEGY, VP CAPITAL APPRECIATION
CARRIES LARGER WEIGHTINGS IN "HIGH-CONFIDENCE" HOLDINGS -- COMPANIES OUR
RESEARCH SAYS HAVE THE BEST CHANCE TO SUSTAIN THEIR GROWTH."
PORTFOLIO AT A GLANCE
12/31/99 12/31/98
NO. OF COMPANIES 80 84
MEDIAN P/E RATIO 35.5 29.3
MEDIAN MARKET $4.02 $3.37
CAPITALIZATION BILLION BILLION
PORTFOLIO TURNOVER 119% 206%
Investment terms are defined in the Glossary on pages 18-19.
www.americancentury.com 5
VP Capital Appreciation--Q&A
--------------------------------------------------------------------------------
(Continued)
be at the time. QUALCOMM has licensed its technology to more than 60
manufacturers of portable phones and other wireless products.
We've also been pleased with our investment in UnitedGlobalCom. The stock
was our third-best contributor for the year. UnitedGlobalCom is one of the
largest cable firms in Europe. The company provides cable service in more than
20 countries. The cable industry in the United States has broadened its
offerings to include premium movie channels, Internet access, and telephone
service. We think the international cable industry will undergo the same type of
transformation.
WHICH STOCKS DID NOT LIVE UP TO YOUR EXPECTATIONS?
We didn't get the boost we'd hoped for from Bergen Brunswick. This is a
pharmaceutical distribution company that serves drug retailers and healthcare
providers. Over the year, the firm's earnings began to slow as it found itself
in a price war with competitors. We sold the stock and redeployed the money in
better growth opportunities.
We were also disappointed by Aztec Industries. This company makes asphalt
mixing and construction equipment used in road paving. Aztec's shares declined
during the fourth quarter as weakness in international markets slowed equipment
orders. Looking ahead, we hope to see new orders as a result of the recently
passed federal highway spending bill, so we are continuing to hold the stock.
WHAT MAJOR CHANGES DID YOU MAKE IN THE PORTFOLIO'S STRUCTURE?
Based on the performance of QUALCOMM and others, we are enthusiastic about
the future of wireless communications, and are spreading investments across that
part of the telecommunications arena. We own the most prominent service
provider, Sprint PCS. We feel Sprint has the best wireless network in the United
States. That asset has attracted another investor -- MCI WorldCom, which is in
the process of acquiring Sprint.
The equipment end of the wireless business is also fertile ground. The
makers of portable phones, and the companies that provide their electronic
ingredients, can't produce them fast enough. A great example is one of our new
investments, Vishay Intertechnology. If you own a portable phone, chances are
Vishay made many of the 450 passive components inside it, such as capacitors,
diodes, and transistors. The Pennsylvania-based company is the largest U.S. and
European manufacturer of this kind of circuitry.
At the beginning of the year, we made a sizeable investment in companies
that make semiconductors -- computer chips that store, process, and send
information. These tiny wafers are the nerve centers of hundreds of everyday
products -- computers, phones, TVs, automobiles, and household appliances.
Novellus Systems and KLA-Tencor are two semiconductor capital equipment
makers. Novellus has anticipated the transition from aluminum to cop-
[left margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF AS OF
12/31/99 6/30/99
GEMSTAR INTERNATIONAL
GROUP LTD. 9.0% 6.9%
QUALCOMM INC. 8.0% 2.0%
UNITEDGLOBALCOM CL A 5.5% 3.6%
CITRIX SYSTEMS, INC. 4.3% 2.3%
OPTICAL COATING
LABORATORY, INC. 3.1% --
VOICESTREAM
WIRELESS CORP. 2.7% 0.7%
SPRINT PCS 2.5% 1.9%
DIGEX, INC. 2.3% --
GLOBAL TELESYSTEMS
GROUP, INC. 2.0% 4.9%
MONTANA POWER CO. 2.0% 4.5%
TOP FIVE INDUSTRIES
% OF FUND INVESTMENTS
AS OF AS OF
12/31/99 6/30/99
WIRELESS
TELECOMMUNICATIONS 14.1% 5.1%
COMPUTER SOFTWARE 12.5% 5.8%
ELECTRICAL EQUIPMENT 11.2% 7.9%
MEDIA 10.3% 9.7%
INFORMATION SERVICES 9.2% 8.4%
6 1-800-345-6488
VP Capital Appreciation--Q&A
--------------------------------------------------------------------------------
(Continued)
per-based integrated circuits. Copper is superior to aluminum as an electrical
conductor. KLA-Tencor makes measurement and inspection technologies that help
customers increase profitability in their semiconductor manufacturing
operations.
YOU INCREASED VP CAPITAL APPRECIATION'S INVESTMENTS IN COMPUTER SOFTWARE TO
OVER 12% OF ASSETS. WHAT LED YOU TO INCREASE YOUR INVESTMENT IN THAT INDUSTRY?
We want to take advantage of the demand for special software by businesses.
To do so, we've added two software companies to our roster, Citrix Systems and
Siebel Systems.
Citrix operates in the corporate computing realm. It provides software that
allows for software applications to reside on a server instead of the desktop.
This helps companies decrease their costs of desktop computing. Software
installations or updates are made only once -- on the server -- to be used by
PCs across the organization. It also enables employees to have remote access to
software, a growing trend in the industry.
Siebel Systems makes software that enables companies to automate their
marketing and service functions. Its products help companies develop marketing
strategies, shorten sales cycles and resolve customer service issues. Siebel is
a dominant player in this rapidly growing area of the software industry.
WHAT'S YOUR STRATEGY AND OUTLOOK FOR VP CAPITAL APPRECIATION MOVING FORWARD?
The market has been very narrow over the past year. By picking good stocks,
we have been rewarded in this type of environment. The investment approach that
drives VP Capital Appreciation is direct and disciplined. We think the fund's
assets belong in successful firms whose earnings and revenues are growing at an
accelerating rate.
We're optimistic that technology stocks could be good growth investments in
2000. The Internet, wireless communications, computers, software -- these are
not shooting stars. They are here to stay and are changing the way we live and
work with great speed.
Hopefully, the stock market's leadership will begin to broaden past
technology. We see -- and own -- decidedly successful companies in other fields
that deserve investors' attention.
[right margin]
"THE INVESTMENT APPROACH THAT DRIVES VP CAPITAL APPRECIATION IS DIRECT AND
DISCIPLINED."
[pie charts - data below]
TYPES OF INVESTMENTS IN THE PORTFOLIO
AS OF DECEMBER 31, 1999
Common Stocks 96.3%
Temporary Cash Investments 3.7%
AS OF JUNE 30, 1999
Common Stocks 98.4%
Temporary Cash Investments 1.6%
www.americancentury.com 7
VP Capital Appreciation--Schedule of Investments
--------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period. The
securities are grouped by asset class (such as common stocks, corporate bonds,
temporary cash investments, as applicable), and some asset classes are further
broken down by industry or country.
NOTE: For securities denominated in foreign currencies, the market value is
translated into U.S. dollars based on exchange rates as of the last day of the
reporting period.
DECEMBER 31, 1999
Shares Value
----------------------------------------------------------------------------------
COMMON STOCKS & WARRANTS -- 96.3%
ALCOHOL -- 0.8%
89,400 Coors (Adolph) Co. Cl B $ 4,693,500
--------------------
BANKS -- 2.0%
208,800 Toronto-Dominion Bank (The) ORD 5,603,574
110,900 Zions Bancorporation 6,563,894
--------------------
12,167,468
--------------------
CHEMICALS -- 0.9%
35,100 Avery Dennison Corp. 2,557,912
37,900 Lubrizol Corp. 1,170,162
84,100 Olin Corp. 1,666,231
--------------------
5,394,305
--------------------
COMPUTER HARDWARE &
BUSINESS MACHINES -- 0.5%
25,200 Emulex Corp.(1) 2,846,812
--------------------
COMPUTER SOFTWARE -- 12.5%
48,500 Adobe Systems Inc. 3,261,625
138,500 Amdocs Ltd.(1) 4,778,250
33,900 AudioCodes Ltd.(1) 3,103,969
144,700 Aware, Inc.(1) 5,308,681
4,300 CacheFlow Inc.(1) 561,822
213,195 Citrix Systems, Inc.(1) 26,216,323
235,700 National Instruments Corp.(1) 9,067,084
131,200 Rational Software Corp.(1) 6,457,500
235,800 Sagent Technology, Inc.(1) 7,051,894
128,400 Siebel Systems, Inc.(1) 10,801,650
--------------------
76,608,798
--------------------
DRUGS -- 0.9%
75,300 Pharmacyclics, Inc.(1) 3,115,537
35,200 Teva Pharmaceutical
Industries Ltd. ADR 2,520,100
--------------------
5,635,637
--------------------
ELECTRICAL EQUIPMENT -- 11.2%
163,000 ANTEC Corp.(1) 5,954,594
62,300 Copper Mountain Networks, Inc.(1) 3,029,338
128,700 Kent Electronics Corp.(1) 2,927,925
34,100 KLA-Tencor Corporation(1) 3,796,822
152,200 Millipore Corp. 5,878,725
57,700 Molex Inc. 3,269,066
34,500 Novellus Systems, Inc.(1) 4,227,328
64,100 Optical Coating Laboratory, Inc. 18,893,475
Shares Value
----------------------------------------------------------------------------------
230,700 Pinnacle Systems, Inc.(1) $ 9,350,559
346,375 Vishay Intertechnology, Inc.(1) 10,954,109
--------------------
68,281,941
--------------------
ELECTRICAL UTILITIES -- 2.8%
74,600 Calpine Corp.(1) 4,774,400
340,500 Montana Power Co. 12,279,281
--------------------
17,053,681
--------------------
ENERGY RESERVES & PRODUCTION -- 1.1%
217,000 Alberta Energy Co. Ltd. ORD 6,762,934
--------------------
ENTERTAINMENT -- 0.2%
45,800 Premier Parks Inc.(1) 1,322,475
--------------------
FINANCIAL SERVICES -- 2.8%
299,850 Concord EFS, Inc.(1) 7,711,767
2,027 Julius Baer Holding AG ORD 6,123,136
129,000 MBNA Corp. 3,515,250
--------------------
17,350,153
--------------------
HEAVY MACHINERY-- 0.8%
266,100 Astec Industries, Inc.(1) 5,014,322
--------------------
INDUSTRIAL PARTS -- 0.4%
94,400 Ballard Power Systems Inc.(1) 2,663,850
9,558 Indigo N.V. Warrants(1) 5,526
--------------------
2,669,376
--------------------
INDUSTRIAL SERVICES -- 0.6%
104,300 Manpower Inc. 3,924,288
--------------------
INFORMATION SERVICES -- 9.2%
3,800 FreeMarkets, Inc.(1) 1,297,344
770,600 Gemstar International Group Ltd.(1) 54,857,088
--------------------
56,154,432
--------------------
INTERNET -- 5.0%
206,500 Digex, Inc.(1) 14,145,250
137,900 NetRatings, Inc.(1) 6,563,178
32,900 S1 Corp.(1) 2,566,200
147,000 WorldGate Communications, Inc.(1) 6,987,094
--------------------
30,261,722
--------------------
LEISURE -- 0.3%
32,400 Harley-Davidson, Inc. 2,075,625
--------------------
MEDIA -- 10.3%
132,000 Adelphia Communications Corp. Cl A(1) 8,658,375
211,000 Charter Communications, Inc.(1) 4,615,625
183,600 TV Guide, Inc. Cl A(1) 7,866,112
474,600 UnitedGlobalCom Cl A(1) 33,459,300
8 1-800-345-6488 See Notes to Financial Statements
VP Capital Appreciation--Schedule of Investments
----------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1999
Shares Value
----------------------------------------------------------------------------------
155,300 USA Networks Inc.(1) $ 8,575,472
--------------------
63,174,884
--------------------
MEDICAL PRODUCTS & SUPPLIES -- 2.7%
30,700 Affymetrix, Inc.(1) 5,208,447
39,800 MiniMed Inc.(1) 2,917,838
71,700 PE Corp-PE Biosystems Group 8,626,406
--------------------
16,752,691
--------------------
MEDICAL PROVIDERS & SERVICES -- 2.1%
148,000 Columbia/HCA Healthcare Corp. 4,338,250
420,100 Health Management Associates, Inc.(1) 5,618,838
229,600 Omnicare, Inc. 2,755,200
--------------------
12,712,288
--------------------
MINING & METALS -- 1.9%
296,050 Stillwater Mining Co.()(1) 9,436,594
128,600 Worthington Industries, Inc. 2,125,919
--------------------
11,562,513
--------------------
OIL SERVICES -- 5.1%
182,600 Diamond Offshore Drilling, Inc. 5,580,712
277,600 Ensco International Inc. 6,350,100
243,500 Rowan Companies, Inc.(1) 5,280,906
158,300 Sante Fe International 4,096,012
154,300 Tidewater Inc. 5,554,800
136,500 Transocean Sedco Forex, Inc.(1) 4,598,344
--------------------
31,460,874
--------------------
PROPERTY & CASUALTY INSURANCE -- 1.8%
92,700 MGIC Investment Corp. 5,579,381
105,400 PMI Group Inc. 5,144,837
--------------------
10,724,218
--------------------
SEMICONDUCTOR -- 3.9%
56,400 Analog Devices, Inc.(1) 5,245,200
56,600 Conexant Systems, Inc.(1) 3,747,981
271,300 International Rectifier Corp.(1) 7,053,800
86,100 National Semiconductor Corp.(1) 3,686,156
27,100 PMC-Sierra, Inc.(1) 4,343,622
--------------------
24,076,759
--------------------
Shares Value
----------------------------------------------------------------------------------
TELEPHONE -- 2.4%
360,100 Global TeleSystems Group, Inc.(1) $ 12,468,462
7,500 Next Level Communications, Inc.(1) 562,266
72,300 NorthPoint Communications
Group, Inc.(1) 1,728,422
--------------------
14,759,150
--------------------
WIRELESS TELECOMMUNICATIONS -- 14.1%
276,800 QUALCOMM Inc.(1) 48,742,750
150,600 Sprint PCS(1) 15,436,500
114,600 VoiceStream Wireless Corp.(1) 16,283,944
82,600 Western Wireless Corp. Cl A(1) 5,508,388
--------------------
85,971,582
--------------------
TOTAL COMMON STOCKS & WARRANTS 589,412,428
--------------------
(Cost $317,647,787)
TEMPORARY CASH INVESTMENTS -- 3.7%
Repurchase Agreement, State Street Boston
Corp., (U.S. Treasury obligations), in a joint
trading account at 3.30%, dated 12/31/99,
due 1/3/00 (Delivery value $22,406,160) 22,400,000
--------------------
(Cost $22,400,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $611,812,428
====================
(Cost $340,047,787)
FUTURES CONTRACTS
Expiration Underlying Face Unrealized
Purchased Date Amount at Value Gain
-----------------------------------------------------------------------------
30 S&P Midcap March
400 Futures 2000 $6,697,500 $227,332
=====================================
FUTURES CONTRACTS are typically based on a stock index, such as the S&P 400,
and they tend to track the performance of the index while remaining very liquid
(easy to buy and sell). By investing its cash assets in index futures, the fund
can stay fully invested in stocks while having easy access to the money.
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
ORD = Foreign Ordinary Share
(1) Non-income producing.
See Notes to Financial Statements www.americancentury.com 9
Statement of Assets and Liabilities
----------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. The net assets divided by shares outstanding is the share price, or NET
ASSET VALUE PER SHARE. This statement also breaks down the fund's net assets
into capital (shareholder investments) and performance (investment income and
gains/losses).
DECEMBER 31, 1999
ASSETS
Investment securities, at value
(identified cost of $340,047,787) ........................ $ 611,812,428
Receivable for investments sold ............................. 1,958,337
Receivable for variation margin on futures contracts ........ 330,288
Dividends and interest receivable ........................... 97,192
-------------
614,198,245
-------------
LIABILITIES
Disbursements in excess of demand deposit cash .............. 1,601,950
Payable for investments purchased ........................... 4,862,713
Accrued management fees (Note 2) ............................ 461,010
Payable for directors' fees and expenses .................... 100
Accrued liabilities and other expenses ...................... 9,667
-------------
6,935,440
-------------
NET ASSETS .................................................. $ 607,262,805
=============
CAPITAL SHARES, $0.01 PAR VALUE
Authorized .................................................. 200,000,000
=============
Outstanding ................................................. 40,915,561
=============
NET ASSET VALUE PER SHARE ................................... $ 14.84
=============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) ..................... $ 313,364,074
Accumulated net investment loss ............................. (42,951)
Accumulated undistributed net realized gain
on investments and foreign currency transactions ......... 21,947,065
Net unrealized appreciation on investments
and translation of assets and liabilities
in foreign currencies (Note 3) ........................... 271,994,617
-------------
$ 607,262,805
=============
10 1-800-345-6488 See Notes to Financial Statements
Statement of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
YEAR ENDED DECEMBER 31, 1999
INVESTMENT LOSS
INCOME:
Dividends (net of foreign taxes withheld of $48,715) ........ $ 1,765,211
Interest .................................................... 889,996
-------------
2,655,207
-------------
EXPENSES (Note 2):
Management fees ............................................. 4,482,927
Directors' fees and expenses ................................ 3,714
-------------
4,486,641
-------------
NET INVESTMENT LOSS ......................................... (1,831,434)
-------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS AND FOREIGN CURRENCY (NOTE 3)
NET REALIZED GAIN ON:
Investments ................................................. 62,986,146
Foreign currency transactions ............................... 292,247
-------------
63,278,393
-------------
CHANGE IN NET UNREALIZED APPRECIATION ON:
Investments ................................................. 179,757,106
Translation of assets and
liabilities in foreign currencies ......................... 17,468
-------------
179,774,574
-------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS AND FOREIGN CURRENCY ...................... 243,052,967
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........ $ 241,221,533
=============
See Notes to Financial Statements www.americancentury.com 11
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
INCREASE (DECREASE) IN NET ASSETS 1999 1998
OPERATIONS
Net investment loss ..................................... $ (1,831,434) $ (334,600)
Net realized gain (loss) on investments
and foreign currency transactions .................... 63,278,393 (41,109,709)
Change in net unrealized appreciation on investments
and translation of assets and liabilities in
foreign currencies ................................... 179,774,574 29,971,452
------------- -------------
Net increase (decrease) in net assets
resulting from operations ............................ 241,221,533 (11,472,857)
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net realized gains on investment transactions ...... -- (27,508,013)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ............................... 226,396,536 89,576,218
Proceeds from reinvestment of distributions ............. -- 27,508,013
Payments for shares redeemed ............................ (309,056,334) (223,100,347)
------------- -------------
Net decrease in net assets from
capital share transactions ........................... (82,659,798) (106,016,116)
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS ................... 158,561,735 (144,996,986)
NET ASSETS
Beginning of period ..................................... 448,701,070 593,698,056
------------- -------------
End of period ........................................... $ 607,262,805 $ 448,701,070
============= =============
Accumulated undistributed net investment income (loss) .. $ (42,951) $ 15,357
============= =============
TRANSACTIONS IN SHARES OF THE FUND
Sold .................................................... 21,281,429 9,910,966
Issued in reinvestment of distributions ................. -- 2,859,461
Redeemed ................................................ (30,122,539) (24,365,539)
------------- -------------
Net decrease ............................................ (8,841,110) (11,595,112)
============= =============
12 1-800-345-6488 See Notes to Financial Statements
Notes to Financial Statements
--------------------------------------------------------------------------------
DECEMBER 31, 1999
--------------------------------------------------------------------------------
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 of the six series of funds issued by the corporation. The fund
is diversified under the 1940 Act. The fund's investment objective is capital
growth. The fund seeks to achieve its investment objective by investing
primarily in common stocks that are considered by management to have
better-than-average prospects for appreciation. The following significant
accounting policies are in accordance with generally accepted accounting
principles; these policies may require the use of estimates by fund management.
SECURITY VALUATIONS -- Portfolio 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.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price, depending on local convention or regulation. When valuations are
not readily available, securities are valued at fair value as determined in
accordance with procedures adopted by the Board of Directors.
SECURITY TRANSACTIONS -- Security transactions are accounted for as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld (if any) is
recorded as of the ex-dividend date. Interest income is recorded on the accrual
basis and includes accretion of discounts and amortization of premiums.
FUTURES CONTRACTS -- The fund may enter into stock index 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 changes
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 an unrealized gain or loss. 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 investments and unrealized appreciation
(depreciation) on investments, respectively.
FOREIGN CURRENCY TRANSACTIONS -- All assets and liabilities initially
expressed in foreign currencies are translated into U.S. dollars at prevailing
exchange rates at period end. Purchases and sales of investment securities,
dividend and interest income, and certain expenses are translated at the rates
of exchange prevailing on the respective dates of such transactions. For assets
and liabilities, other than investments in securities, net realized and
unrealized gains and losses from foreign currency translations arise from
changes in currency exchange rates.
Net realized and unrealized foreign currency exchange gains or losses
occurring during the holding period of investment securities are a component of
realized gain (loss) on investments and unrealized appreciation (depreciation)
on investments, respectively.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The fund may enter into
forward foreign currency exchange contracts to facilitate transactions of
securities denominated in a foreign currency or to hedge the fund's exposure to
foreign currency exchange rate fluctuations. The net U.S. dollar value of
foreign currency underlying all contractual commitments held by the fund and the
resulting unrealized appreciation or depreciation are determined daily using
prevailing exchange rates. The fund bears the risk of an unfavorable change in
the foreign currency exchange rate underlying the forward contract.
Additionally, losses may arise if the counterparties do not perform under the
contract terms.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that the fund's investment manager, 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, 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 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 are declared and paid annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes and may result in reclassification among certain
capital accounts.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the corporation's
distributor. Certain officers of FDI are also officers of the corporation.
www.americancentury.com 13
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1999
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
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 fee. The Agreement provides that all expenses of
the fund, except brokerage commissions, taxes, interest, fees and expenses of
those directors who are not considered "interested persons" as defined
in the 1940 Act (including counsel fees) and extraordinary expenses, will be
paid by ACIM. The fee is computed daily and paid monthly based on the fund's
average daily closing net assets during the previous month.
The annualized fee schedule for the fund is as follows:
1.00% on the first $500 million
0.95% on the next $500 million
0.90% over $1 billion
Certain officers and directors of the corporation are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the corporation's investment manager, ACIM, and
the corporation's transfer agent, American Century Services Corporation.
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the year ended December 31, 1999, totaled $521,907,196 and
$620,384,370, respectively.
As of December 31, 1999, accumulated net unrealized appreciation was
$271,439,868, based on the aggregate cost of investments for federal income tax
purposes of $340,372,560, which consisted of unrealized appreciation of
$274,725,156 and unrealized depreciation of $3,285,288.
--------------------------------------------------------------------------------
4. BANK LOANS
The fund, along with certain other funds managed by ACIM, entered into an
unsecured $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The fund did not borrow from the line during the
year ended December 31, 1999.
14 1-800-345-6488
VP Capital Appreciation--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years. It also
includes several key statistics for each reporting period, including TOTAL
RETURN, INCOME RATIO (net income as a percentage of average net assets), EXPENSE
RATIO (operating expenses as a percentage of average net assets), and PORTFOLIO
TURNOVER (a gauge of the fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31
1999 1998 1997 1996 1995
PER-SHARE DATA
Net Asset Value, Beginning of Period ....... $ 9.02 $ 9.68 $ 10.24 $ 12.06 $ 9.21
------------- ------------- ------------- ------------- -------------
Income From Investment Operations
Net Investment Loss ...................... (0.05) (0.01) (0.05)(1) (0.06)(1) (0.02)
Net Realized and Unrealized Gain (Loss) on
Investment Transactions .................. 5.87 (0.17) (0.30) (0.40) 2.88
------------- ------------- ------------- ------------- -------------
Total From Investment Operations ......... 5.82 (0.18) (0.35) (0.46) 2.86
------------- ------------- ------------- ------------- -------------
Distributions
From Net Investment Income ............... -- -- -- -- (0.01)
From Net Realized Gains
on Investment Transactions ............ -- (0.48) (0.21) (1.36) --
------------- ------------- ------------- ------------- -------------
Total Distributions ...................... -- (0.48) (0.21) (1.36) (0.01)
------------- ------------- ------------- ------------- -------------
Net Asset Value, End of Period ............. $ 14.84 $ 9.02 $ 9.68 $ 10.24 $ 12.06
============= ============= ============= ============= =============
TOTAL RETURN(2) .......................... 64.52% (2.16)% (3.26)% (4.32)% 31.10%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................... 1.00% 1.00% 1.00% 1.00% 0.99%
Ratio of Net Investment Loss
to Average Net Assets ................... (0.41)% (0.07)% (0.53)% (0.59)% (0.23)%
Portfolio Turnover Rate .................... 119% 206% 107% 182% 147%
Net Assets, End of Period (in thousands) ... $ 607,263 $ 448,701 $ 593,698 $ 1,313,865 $ 1,461,124
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
See Notes to Financial Statements www.americancentury.com 15
Independent Auditors' Report
--------------------------------------------------------------------------------
The Board of Directors and Shareholders,
American Century Variable Portfolios, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of VP Capital Appreciation Fund (the
"Fund") (formerly known as American Century VP Capital Appreciation),
one of the funds comprising American Century Variable Portfolios, Inc., as of
December 31, 1999, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and the financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and the financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at December
31, 1999 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above and financial
highlights present fairly, in all material respects, the financial position of
VP Capital Appreciation Fund as of December 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
February 4, 2000
16 1-800-345-6488
Background Information
--------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
The philosophy behind American Century's Variable Portfolios growth funds
focuses on three important principles. Chiefly, the funds seek to own successful
companies, which we define as those whose earnings and revenues are growing at
accelerating rates. In addition, we attempt to keep the funds fully invested,
regardless of short-term market activity. Experience has shown that market gains
can occur in unpredictable spurts and that missing even some of those
opportunities may significantly limit potential for gain. Of course, remaining
fully invested also means the funds may experience more/greater losses in market
downturns. Finally, American Century funds are managed by teams, rather than by
one "star" manager. We believe this enables us to make better, more
consistent management decisions.
VP CAPITAL APPRECIATION seeks capital growth over time by investing in
growth companies. Although the fund may purchase securities across all
capitalization ranges, since mid-1996, VP Capital Appreciation has invested
mainly in the securities of medium-sized firms with accelerating growth. Such a
strategy results in volatility over the short term and offers the potential for
long-term growth.
COMPARATIVE INDICES
The indices listed below are used in the report to serve as a comparison
for the performance of the fund. They are not investment products available for
purchase.
The S&P 500 is a capitalization-weighted index of the stocks of 500
publicly traded U.S. companies that are considered leading firms in leading
industries. Created by Standard & Poor's Corporation, the index is viewed as
a broad measure of U.S. stock performance.
The S&P MIDCAP 400 is an index created by Standard & Poor's
Corporation of the 400 leading companies not included in the S&P 500. It is
considered to represent the performance of mid-capitalization stocks generally.
The index was created in March 1994. Data presented for prior periods have been
provided by S&P.
The S&P MIDCAP 400/BARRA GROWTH is an index created by Standard &
Poor's Corporation and BARRA. The index divides the S&P 400 into two
mutually exclusive groups based on price/book ratios. The half of the S&P
400 with higher ratios falls into the growth index, while a value index tracks
the performance of the other half. Similar growth and value indices are
available for the S&P 500.
The RUSSELL 2000 INDEX was created by the Frank Russell Company. It
measures 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
represents approximately 10% of the total market capitalization of the top 3,000
companies. The average market capitalization of the index is approximately $420
million.
[right margin]
PORTFOLIO MANAGERS
VP Capital Appreciation
HAROLD BRADLEY
LINDA PETERSON, CFA
www.americancentury.com 17
Glossary
--------------------------------------------------------------------------------
RETURNS
* TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
* AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year total returns, please refer to the
"Financial Highlights" on page 15.
INVESTMENT TERMS
* MEDIAN MARKET CAPITALIZATION-- Market capitalization (market cap) is the total
value of a company's stock and is calculated by multiplying the number of
outstanding common shares by the current share price. The company whose market
cap is in the middle of the portfolio is the median market cap. Half the
companies in the portfolio have values greater than the median, and half have
values that are less. If there is an even number of companies, then the median
is the average of the two companies in the middle.
* NUMBER OF COMPANIES-- the number of different companies held by a fund on a
given date.
* PORTFOLIO TURNOVER-- the percentage of a fund's investment portfolio that is
replaced during a given time period, usually a year. Actively managed portfolios
tend to have higher turnover than passively managed portfolios such as index
funds.
* PRICE/BOOK RATIO-- a stock value measurement calculated by dividing a
company's stock price by its book value per share, with the result expressed as
a multiple instead of as a percentage. (Book value per share is calculated by
subtracting a company's liabilities from its assets, then dividing that value by
the number of outstanding shares.)
* PRICE/EARNINGS (P/E) RATIO-- a stock value measurement calculated by dividing
a company's stock price by its earnings per share, with the result expressed as
a multiple instead of as a percentage. (Earnings per share is calculated by
dividing the after-tax earnings of a corporation by its outstanding shares.)
TYPES OF STOCKS
* BLUE CHIP STOCKS-- stocks of the most established companies in American
industry. They are generally large, fairly stable companies that have
demonstrated consistent earnings and usually have long-term growth potential.
Examples include General Electric and Coca-Cola.
* CYCLICAL STOCKS-- generally considered to be stocks whose price and earnings
fluctuations tend to follow the ups and downs of the business cycle. Examples
include the stocks of automobile manufacturers, steel producers and textile
operators.
* GROWTH STOCKS-- stocks of companies that have experienced above-average
earnings growth and are expected to continue such growth. These stocks often
sell at high P/E ratios. Examples can include the stocks of high-tech,
healthcare and consumer staple companies.
* LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS-- the stocks of companies
with a market capitalization (the total value of a company's outstanding stock)
of more than $9.0 billion. This is Lipper's market capitalization breakpoint as
of December 31, 1999, although it may be subject to change based on market
fluctuations. The Dow Jones Industrial Average and the S& P 500 Index
generally consist of stocks in this range.
* MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS-- the stocks of companies
with a market capitalization (the total value of a company's outstanding stock)
of between $2.2 billion and $9.0 billion. This is Lipper's market capitalization
breakpoint as of December 31, 1999, although it may be subject to change based
on market fluctuations. The S&P 400 Index and Russell 2500 Index generally
consist of stocks in this range.
18 1-800-345-6488
Glossary
--------------------------------------------------------------------------------
(Continued)
* SMALL-CAPITALIZATION ("SMALL-CAP") STOCKS-- the stocks of companies
with a market capitalization (the total value of a company's outstanding stock)
of less than $2.2 billion. This is Lipper's market capitalization breakpoint as
of December 31, 1999, although it may be subject to change based on market
fluctuations. The S&P 600 Index and the Russell 2000 Index generally consist
of stocks in this range.
* VALUE STOCKS-- generally considered to be stocks that are purchased because
they are relatively inexpensive. These stocks are typically characterized by low
P/E ratios.
FUND CLASSIFICATIONS
Please be aware that the fund's category may change over time. Therefore, it
is important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatility levels
than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income
provided by either dividend-paying equities or a combination of equity and
fixed-income securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high
price-fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price-fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price-fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price-fluctuation risk.
www.americancentury.com 19
Notes
--------------------------------------------------------------------------------
20 1-800-345-6488
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation: Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Large Cap Value
Strategic Allocation: Tax-Managed Value
Moderate Income & Growth
Strategic Allocation: Value
Conservative Equity Income
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
Veedot(reg.tm) Global Gold Emerging Markets
New Opportunities International Discovery
Giftrust(reg.tm) International Growth
Vista Global Growth
Heritage
Growth
Ultra(reg.tm)
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs. For a definition of fund categories, see the Glossary.
*While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
[graphic of runners]
Who we are
American Century offers investors more than 70 mutual funds that span the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, with a range of services designed to
make investing easy and convenient.
For four decades, American Century has been a leader in performance, service and
innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have remained committed to building long-term relationships and to
helping investors achieve their dreams.
In a very real sense, investors put their future in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[american century logo (reg.sm)]
American
Century
P.O. BOX 419385
KANSAS CITY, MISSOURI 64141-6385
WWW.AMERICANCENTURY.COM
INVESTMENT PROFESSIONAL SERVICE REPRESENTATIVES
1-800-345-6488
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-4360
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
--------------------------------------------------------------------------------
American Century Investments BULK RATE
P.O. Box 419385 U.S. POSTAGE PAID
Kansas City, MO 64141-6385 AMERICAN CENTURY
www.americancentury.com COMPANIES
0002 Funds Distributor, Inc., Distributor
SH-ANN-19215 (c)2000 American Century Services Corporation
[front cover]
DECEMBER 31, 1999
AMERICAN CENTURY(reg.sm)
VARIABLE PORTFOLIOS
ANNUAL REPORT
[graphic of runners]
VP Balanced
[american century logo (reg.sm)]
American
Century
[inside front cover]
[left margin]
VARIABLE PORTFOLIOS
VP BALANCED
---------------------------------------
Our Message to You
--------------------------------------------------------------------------------
[photo of James E. Stowers III, seated, with James E. Stowers, Jr.]
James E. Stowers III, seated, with James E. Stowers, Jr.
The past year demonstrated why investors should focus on long-term
investment strategies and maintain diversified portfolios. The consensus
expectation going into 1999 was that U.S. bonds would do well while U.S. stocks
would cool off. Instead, the reverse happened--stocks compiled strong returns
for the fifth consecutive year, while bonds suffered their worst year since
1994.
Although fund investors have benefited from exceptional stock returns over
the past several years, we wish to stress that these results are unprecedented
and not sustainable indefinitely. It is important to remember that market
corrections are an inevitable, even necessary, part of the investment process.
That's why diversified portfolios like VP Balanced are useful--they can help
mitigate losses during market downturns.
Turning to corporate matters, we are constantly looking for ways to lower
the costs of trading securities and generate better returns for shareholders. To
that end, we have made strategic investments in several companies that allow
buyers and sellers of securities to connect directly, efficiently, and
anonymously. Today, more than one-third of our equity trades are executed over
these "alternative" networks. Savings in this area directly affect the
performance of your American Century funds.
We're also pleased to announce that American Century has been named by
Fortune magazine as one of its "100 Best Companies to Work For."
We do not take this recognition lightly; it is acknowledgements like this
that allow us to recruit talented and dedicated people, from service
representatives to investment professionals. This "intellectual
capital" is our most valuable resource and one that is essential in our
effort to provide you with excellent investment management and service.
As always, we appreciate your continued confidence in American Century.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder Vice Chairman of the Board and
Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ....................................................... 2
Market Perspective ...................................................... 3
VP BALANCED
Performance Information ................................................. 4
Management Q&A ...................................................... 5
Types of Investments
in the Portfolio ..................................................... 5
Top Five Stock Industries ............................................... 5
Top Ten Stock Holdings .................................................. 6
Fixed-Income Portfolio .................................................. 6
Schedule of Investments ................................................. 7
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities .......................................................... 14
Statement of Operations ................................................. 15
Statements of Changes
in Net Assets ........................................................ 16
Notes to Financial
Statements ........................................................... 17
Financial Highlights .................................................... 19
Independent Auditors'
Report ............................................................... 20
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ...................................................... 21
Comparative Indices .................................................. 21
Investment Team
Leaders ........................................................... 21
Credit Rating
Guidelines ........................................................ 21
Glossary ................................................................ 22
www.americancentury.com 1
Report Highlights
--------------------------------------------------------------------------------
MARKET PERSPECTIVE
* U.S. financial market performance in 1999 surprised many analysts and
investors. U.S. stocks gained more than expected, while bonds performed
worse.
* Economic growth in the U.S. and overseas was stronger than predicted,
leading to inflation concerns.
* The Federal Reserve raised short-term interest rates three times to fight
inflation.
* U.S. stocks, led by the high-flying technology sector, produced strong
returns.
* Stocks bounced back in the fourth quarter after losing ground in the third
quarter.
* Growth stocks generally outperformed value stocks.
* Rising interest rates led to the worst year for U.S. bonds since 1994.
* The benchmark 30-year Treasury bond yield rose to its highest level in over
two years.
* Mortgage-backed securities generally outperformed other U.S. bond sectors,
while Treasury securities lagged.
MANAGEMENT Q&A
* VP Balanced rode the strength of its stock portfolio to produce a 10% gain
for 1999, the fifth straight year that the fund has produced a double-digit
return.
* Technology stocks helped boost the fund's performance. Microsoft continued
to be the top equity holding.
* Interest rate-sensitive stocks, such as financial services and electric
utilities shares, lagged other holdings.
* The stock portfolio lost some ground to the S&P 500 early in the year
that it never quite made up. We made some adjustments to help the portfolio
track the index better.
* The bond portfolio declined during the year, but benefited from our
decisions to keep its interest rate sensitivity (duration) relatively low
and to add mortgage-backed securities at an opportune time.
[left margin]
VP BALANCED
TOTAL RETURNS: AS OF 12/31/99
6 Months 5.70%*
1 Year 10.06%
INCEPTION DATE: 5/1/91
NET ASSETS: $285.1 million
* Not annualized.
See Total Returns on page 4.
Investment terms are defined in the Glossary on pages 22-23.
2 1-800-345-6488
Market Perspective from Mark Mallon
--------------------------------------------------------------------------------
[photo of Mark Mallon]
Mark Mallon, head of growth and income equity, specialty, and asset allocation
funds at American Century
OVERVIEW
U.S. financial market performance in 1999 surprised many analysts and
investors. Demonstrating how unpredictable markets can be and how important
portfolio diversification remains, global economies exhibited
stronger-than-anticipated growth in 1999, which caused stocks and bonds to
diverge from forecasted performance. U.S. stocks gained more than expected while
bonds performed worse.
Many economists and analysts had predicted that residual problems from 1998
would cause a lukewarm environment for stocks and a potentially good one for
bonds. Instead, struggling economies--led by Japan--rebounded, commodity prices
jumped, and the U.S. economy continued to expand.
Corporate profits in the U.S. surpassed expectations, and interest rates
soared as inflation fears accelerated. The Federal Reserve (the U.S. central
bank) raised short-term interest rates three times in 1999 to pre-empt
inflation.
U.S. STOCKS
Reflecting generally good economic and corporate health, U.S. stock indices
posted attractive returns in 1999 (see the table at right). It's worth noting,
though, that nearly half of those gains were generated in the fourth quarter,
when huge price gains by technology and telecommunications stocks powered the
market. That was particularly true for the Nasdaq Composite, which gained over
48% during the fourth quarter alone.
By contrast, most U.S. stock indices suffered losses during the third
quarter. The Fed's actions played a big role in this performance disparity.
Three interest rate cuts in 1998, plus surprisingly strong economic growth in
the fourth quarter of 1998, revitalized investor confidence and helped spur a
stock rebound in early 1999. However, by May, inflation became an issue and
investors feared that the Fed would raise interest rates, as it did, beginning
in June. Rising interest rates eroded stock returns in the third quarter.
U.S. BONDS
Rising interest rates caused U.S. bonds to suffer their worst year since
1994. The Lehman Brothers Aggregate Bond Index--a broad measure of U.S.
fixed-income performance--fell nearly 1%, and the benchmark 30-year U.S.
Treasury bond yield rose to 6.48%, its highest level in over two years.
That's not surprising given what happened in 1999. May turned out to be a
pivotal month. First, the inflation report for April (released in mid-May)
showed the biggest monthly consumer price increase in almost nine years. Then
the Fed announced its policy shift toward higher interest rates, which led to
its first rate hikes since March 1997.
Mortgage-backed securities were the best performing U.S. bond sector (see
the bond returns in the table at right). Rising interest rates helped reduce
mortgage prepayments in 1999. Treasury bonds lagged the other bond sectors.
[right margin]
"U.S. financial market performance in 1999 surprised many analysts and
investors."
INDEX RETURNS
FOR THE YEAR ENDED DECEMBER 31, 1999
BLENDED INDEX* 12.30%
S&P 500* 21.04%
S&P MIDCAP 400 14.72%
S&P SMALLCAP 600 12.41%
NASDAQ COMPOSITE 86.13%
LEHMAN BROS. AGGREGATE
BOND INDEX* -0.82%
LEHMAN BROS. GOVT.
AGENCY BOND INDEX -0.94%
LEHMAN BROS. CORPORATE
BOND INDEX -1.95%
LEHMAN BROS. MORTGAGE-
BACKED SECURITIES INDEX 1.86%
LEHMAN BROS. TREASURY
BOND INDEX -2.56%
Source: Lipper Inc., Russell/Mellon Analytical, and Bloomberg Financial Markets
* Defined on page 21.
www.americancentury.com 3
VP Balanced--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF DECEMBER 31, 1999
LEHMAN AGGREGATE
VP BALANCED BLENDED INDEX(2) S&P 500 BOND INDEX
================================================================================
6 MONTHS(1) 5.70% 4.84% 7.69% 0.56%
1 YEAR 10.06% 12.30% 21.04% -0.82%
================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 13.85% 18.83% 27.56% 5.73%
5 YEARS 14.92% 20.23% 28.56% 7.73%
LIFE OF FUND 11.47% 14.83% 19.80% 7.38%
The fund's inception date was 5/1/91.
(1) Returns for periods less than one year are not annualized.
(2) In December 1998, the bond portion of the blended index was changed from
the Lehman Brothers Intermediate Government/Corporate Index to the Lehman
Brothers Aggregate Bond Index, which we believe better represents the
broader U.S. taxable bond market.
See pages 21-22 for information about the blended index and returns.
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 separate account prospectus
for a discussion of the charges related to the insurance contracts.
[mountain graph - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 12/31/99
S&P 500 $47,905
Blended Index $33,332
Old Blended Index $32,834
VP Balanced $25,629
Lehman Aggregate Bond Index $18,538
Lehman Int. Govt./Corp. Index $17,822
Lehman Int.
VP Govt./Corp. Old Blended Lehman Aggregate Blended
Balanced S&P 500 Index Index Bond Index Index
DATE VALUE VALUE VALUE VALUE VALUE VALUE
5/1/1991 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
6/30/1991 $9,660 $9,954 $10,069 $9,999 $10,053 $9,994
9/30/1991 $10,844 $10,487 $10,554 $10,513 $10,624 $10,542
12/31/1991 $12,553 $11,365 $11,061 $11,244 $11,163 $11,286
3/31/1992 $11,752 $11,078 $10,960 $11,032 $11,020 $11,057
6/30/1992 $11,349 $11,288 $11,394 $11,332 $11,465 $11,362
9/30/1992 $11,523 $11,644 $11,897 $11,746 $11,958 $11,772
12/31/1992 $11,795 $12,231 $11,854 $12,084 $11,990 $12,141
3/31/1993 $11,941 $12,765 $12,323 $12,593 $12,485 $12,659
6/30/1993 $12,246 $12,828 $12,590 $12,739 $12,816 $12,830
9/30/1993 $12,783 $13,159 $12,874 $13,051 $13,151 $13,162
12/31/1993 $12,701 $13,464 $12,896 $13,242 $13,159 $13,348
3/31/1994 $12,696 $12,954 $12,634 $12,833 $12,781 $12,891
6/30/1994 $12,378 $13,008 $12,558 $12,834 $12,649 $12,871
9/30/1994 $12,748 $13,644 $12,661 $13,252 $12,727 $13,280
12/31/1994 $12,778 $13,641 $12,647 $13,244 $12,775 $13,299
3/31/1995 $13,264 $14,970 $13,203 $14,251 $13,419 $14,344
6/30/1995 $14,386 $16,400 $13,861 $15,352 $14,236 $15,514
9/30/1995 $15,128 $17,704 $14,092 $16,186 $14,515 $16,375
12/31/1995 $15,476 $18,769 $14,588 $16,999 $15,133 $17,246
3/31/1996 $15,806 $19,777 $14,467 $17,490 $14,865 $17,679
6/30/1996 $16,280 $20,665 $14,558 $18,004 $14,950 $18,196
9/30/1996 $16,744 $21,304 $14,815 $18,467 $15,227 $18,669
12/31/1996 $17,365 $23,078 $15,178 $19,571 $15,684 $19,826
3/31/1997 $16,864 $23,697 $15,162 $19,876 $15,596 $20,100
6/30/1997 $18,914 $27,837 $15,609 $22,194 $16,168 $22,502
9/30/1997 $20,208 $29,919 $16,030 $23,430 $16,705 $23,811
12/31/1997 $20,111 $30,778 $16,373 $24,035 $17,196 $24,502
3/31/1998 $21,748 $35,071 $16,629 $26,195 $17,464 $26,705
6/30/1998 $23,005 $36,228 $16,941 $26,913 $17,873 $27,484
9/30/1998 $21,330 $32,624 $17,702 $25,791 $18,629 $26,308
12/31/1998 $23,284 $39,572 $17,755 $29,118 $18,692 $29,704
3/31/1999 $23,191 $41,547 $17,721 $29,968 $18,599 $30,533
6/30/1999 $24,244 $44,480 $17,651 $31,191 $18,435 $31,718
9/30/1999 $23,749 $41,700 $17,813 $30,136 $18,561 $30,614
12/31/1999 $25,629 $47,905 $17,822 $32,834 $18,538 $33,332
$10,000 investment made 5/1/91
The graph at left shows the growth of a $10,000 investment over the life of the
fund, while the graph below shows the fund's year-by-year performance. Both the
blended index and old blended index and their components are provided in the
graph at left, while the blended index is provided in the graph below. VP
Balanced'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. Past performance does not guarantee future results. Investment return
and principal value will fluctuate, and redemption value may be more or less
than original cost.
[bar graph - data below]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDED DECEMBER 31)
VP Balanced Blended Index
DATE RETURN RETURN
12/31/91* 25.54% 12.41%
12/31/92 -6.04% 7.43%
12/31/93 7.69% 9.55%
12/31/94 0.61% 0.01%
12/31/95 21.12% 28.65%
12/31/96 12.21% 15.39%
12/31/97 15.81% 23.16%
12/31/98 15.77% 20.54%
12/31/99 10.06% 12.30%
* From 5/1/91 (the fund's inception date) to 12/31/91.
4 1-800-345-6488
VP Balanced--Q&A
--------------------------------------------------------------------------------
[photos of Kurt Borgwardt, John Schniedwind]
Equity team leaders: Kurt Borgwardt, John Schniedwind
[photos of Jeff Houston, John Walsh]
Fixed-income team leaders: Jeff Houston, John Walsh
Based on interviews with VP Balanced's equity and fixed-income team leaders
(pictured above).
HOW DID THE FUND PERFORM DURING 1999?
VP Balanced's portfolio of approximately 60% U.S. stocks and 40% U.S. bonds
returned 10.06%. It was the fifth straight year that the fund produced a
double-digit return.
VP Balanced's benchmark (a blended index that combines the S&P 500 and
the Lehman Brothers Aggregate Bond Index in the same 60%/40% proportion)
returned 12.30%.
WHAT CAUSED THE RETURN DIFFERENTIAL BETWEEN THE FUND AND THE BLENDED INDEX?
First, the fund's operating expenses will always put VP Balanced at a
slight disadvantage relative to the unmanaged index, which has no such expenses.
Second, the S&P 500 outperformed VP Balanced's equity portfolio. Most
of the underperformance took place during the first three months of the year,
before we made some changes in our approach. The adjustments we made (such as
bringing our industry positions more in line with the S&P 500 and focusing
more on stock selection) helped the stock portfolio outperform the index during
the remainder of the year.
WHAT OTHER FACTORS AFFECTED THE PERFORMANCE OF VP BALANCED'S EQUITY PORTFOLIO?
On the plus side, our exposure to the soaring technology sector certainly
helped. Three of our top 10 holdings at the end of the period--Cisco Systems,
Applied Materials, and Adaptec--were technology stocks that each gained over
130% during the year, and two others--Microsoft and Hewlett-Packard--each gained
over 68% during that time frame.
But on the downside, we were underweight in some technology stocks that
could have helped us. The most notable was Qualcomm, one of the emerging leaders
in wireless technology. Qualcomm was one of the amazing stories of 1999--its
stock increased over 2,600%. Unfortunately, we owned only 2,000 shares as of
year end 1999--not enough to make a big impact on fund performance.
WHAT STOCK SECTORS DIDN'T PERFORM WELL?
Financial services was one of the lagging sectors that had the greatest
impact on fund performance. Our holdings in that area--particularly banks, other
lending institutions, and title companies--were hurt by rising interest rates.
Their share prices were subjected to downward pressure by the threat that
profits would be squeezed by higher costs of capital and declining lending
volumes.
[right margin]
"The adjustments we made helped the stock portfolio outperform the index
during the remainder of the year."
[pie chart - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF DECEMBER 31, 1999
Common Stocks 60%
Corporate Bonds 14%
Mortgage- & Asset-Backed
Securities 14%
U.S. Treasury Securities 9%
Other 3%
TOP FIVE STOCK INDUSTRIES
% OF EQUITY PORTFOLIO
AS OF AS OF
12/31/99 6/30/99
COMPUTER SOFTWARE 8.6% 8.0%
ELECTRICAL EQUIPMENT 8.0% 4.6%
TELEPHONE 7.7% 8.9%
DRUGS 7.5% 7.8%
COMPUTER HARDWARE
& BUSINESS
MACHINES 6.1% 5.0%
Security types are defined on page 22.
www.americancentury.com 5
VP Balanced--Q&A
--------------------------------------------------------------------------------
(Continued)
Examples of struggling financial services stocks we owned during the year
include First Union, First American Financial, Bank One, Fidelity National
Financial, LandAmerica Financial, and Fannie Mae.
WHAT FACTORS AFFECTED THE PERFORMANCE OF VP BALANCED'S BOND PORTFOLIO?
Rising interest rates and our management of the portfolio's interest rate
sensitivity were two key factors. Higher interest rates caused U.S. bonds to
post low returns. Fortunately, we kept the portfolio's duration relatively
short--less than five years. Duration is a measure of interest rate sensitivity.
A fund with a shorter duration is less sensitive to interest rate changes.
We also added attractively valued mortgage-backed securities when the
spread, or difference in yield, between Treasury securities and mortgage-backed
securities widened during the summer. The wider the yield spread, the more
attractive mortgages became. Spreads later snapped back, which allowed mortgage
securities to outperform Treasurys.
WHAT'S YOUR OUTLOOK FOR THE U.S. ECONOMY AND THE MARKETS?
Here's a summary of our thoughts:
* We expect strong economic growth to continue in the U.S., at least through
the first half of 2000. The economy could slow later in the year as higher
interest rates and rising wages increase borrowing costs and expenses.
* We think there's a high probability that the Fed will raise short-term
interest rates at least once in the first quarter of 2000.
* We believe that different sectors of the U.S. stock market will outperform
those that did so well in 1999, such as technology. That should be
especially true if economic growth slows.
* A lot of bad news is already priced into U.S. bonds. We think bonds could
rally in 2000, particularly later in the year.
Of course, no one knows for sure what will happen. Just look at how 1999
differed from expectations.
WHAT'S YOUR OUTLOOK FOR VP BALANCED?
We'll maintain our disciplined management approach, using the blended index
as our benchmark.
On the stock side, we'll continue to try to outperform the S&P 500. We
look for stocks with compelling expected returns (based on both growth and value
measures), and then we build a portfolio that can potentially provide higher
returns than the index without taking on more risk.
On the bond side, we'll continue to track the Aggregate Bond Index, aiming
to outperform the index by modestly overweighting sectors of the market that we
think are undervalued.
[left margin]
TOP TEN STOCK HOLDINGS
% OF EQUITY PORTFOLIO
AS OF AS OF
12/31/99 6/30/99
MICROSOFT CORP. 5.4% 4.5%
WAL-MART STORES, INC. 3.8% 2.8%
MORGAN STANLEY DEAN
WITTER & CO. 3.0% 2.1%
CISCO SYSTEMS INC. 2.7% 1.2%
CHASE MANHATTAN
CORP. 2.5% 3.0%
APPLIED MATERIALS, INC. 2.3% --
GENERAL ELECTRIC CO.
(U.S.) 2.3% 1.7%
HOME DEPOT, INC. 2.2% 1.3%
HEWLETT-PACKARD CO. 2.1% 2.1%
ADAPTEC, INC. 2.1% --
FIXED-INCOME PORTFOLIO
AS OF AS OF
12/31/99 6/30/99
PORTFOLIO SENSITIVITY TO INTEREST RATES
WEIGHTED AVERAGE MATURITY 8.7 YEARS 8.3 YEARS
DURATION 4.8 YEARS 4.7 YEARS
PORTFOLIO CREDIT QUALITY % OF FIXED-INCOME PORTFOLIO
AAA 65% 62%
AA 4% 3%
A 15% 20%
BBB 11% 12%
BB 5% 3%
------- -------
100% 100%
======= =======
Investment terms are defined in the Glossary on pages 22-23. Ratings provided by
Standard & Poor's. See Credit Rating Guidelines on page 21 for more
information.
6 1-800-345-6488
VP Balanced--Schedule of Investments
--------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period. The
securities are grouped by asset class (such as common stocks, corporate bonds,
temporary cash investments, as applicable), and some asset classes are further
broken down by industry or country.
DECEMBER 31, 1999
Shares Value
--------------------------------------------------------------------------------
COMMON STOCKS -- 60.4%
AIRLINES -- 0.1%
4,600 AMR Corp.(1) $ 308,200
2,100 Delta Air Lines Inc. 104,606
------------
412,806
------------
ALCOHOL -- 0.3%
6,100 Anheuser-Busch Companies, Inc. 432,339
5,800 Coors (Adolph) Co. Cl B 304,500
------------
736,839
------------
APPAREL & TEXTILES(2)
5,100 Jones Apparel Group, Inc.(1) 138,338
------------
BANKS -- 3.4%
20,500 Bank of America Corp. 1,028,844
55,500 Chase Manhattan Corp. 4,311,656
18,000 Citigroup Inc. 1,000,125
18,700 Old Kent Financial Corp. 661,512
38,400 UnionBanCal Corp. 1,514,400
7,200 Wells Fargo & Co. 291,150
14,800 Zions Bancorporation 875,975
------------
9,683,662
------------
CHEMICALS -- 2.6%
13,400 Dexter Corp. (The) 532,650
17,900 Dow Chemical Co. 2,391,888
12,400 du Pont (E.I.) de Nemours
& Co. 816,850
43,960 Illinois Tool Works Inc. 2,970,048
8,000 Kerr-McGee Corp. 496,000
2,700 Sealed Air Corp.(1) 139,894
------------
7,347,330
------------
CLOTHING STORES -- 0.3%
7,500 Abercrombie & Fitch
Co. Cl A(1) 200,156
2,100 American Eagle Outfitters, Inc.(1) 94,500
12,500 AnnTaylor Stores Corp.(1) 430,469
10,800 Tommy Hilfiger Corp.(1) 251,775
------------
976,900
------------
COMPUTER HARDWARE &
BUSINESS MACHINES -- 3.7%
71,500 Adaptec, Inc.(1) 3,563,828
6,300 Dell Computer Corp.(1) 321,103
42,100 Electronics for Imaging, Inc.(1) 2,468,112
31,400 Hewlett-Packard Co. 3,577,638
700 SanDisk Corp.(1) 67,112
5,800 Sun Microsystems, Inc.(1) 448,956
------------
10,446,749
------------
Shares Value
--------------------------------------------------------------------------------
COMPUTER SOFTWARE -- 5.2%
6,100 Computer Associates
International, Inc. $ 426,619
7,900 Comverse Technology, Inc.(1) 1,143,278
16,700 International Business
Machines Corp. 1,803,600
80,100 Microsoft Corp.(1)(3) 9,349,172
8,300 NCR Corp.(1) 314,362
6,300 Novell, Inc.(1) 251,409
16,900 Sybase, Inc.(1) 286,772
5,400 Symantec Corp.(1) 317,081
30,500 Unisys Corp.(1) 974,094
------------
14,866,387
------------
CONSTRUCTION & REAL PROPERTY -- 0.1%
2,800 Owens Corning 54,075
7,500 Pulte Corp. 168,750
------------
222,825
------------
CONSUMER DURABLES(2)
2,000 Whirlpool Corp. 130,125
------------
DEFENSE/AEROSPACE -- 0.5%
22,800 Boeing Co. 947,625
10,200 General Dynamics Corp. 538,050
------------
1,485,675
------------
DEPARTMENT STORES -- 2.4%
2,600 Kohl's Corp.(1) 187,688
95,500 Wal-Mart Stores, Inc. 6,601,438
------------
6,789,126
------------
DRUGS -- 4.5%
5,200 Allergan, Inc. 258,700
28,000 Amgen Inc.(1) 1,680,875
12,000 Andrx Corp.(1) 505,125
7,500 Biogen, Inc.(1) 633,516
24,200 Bristol-Myers Squibb Co. 1,553,338
11,100 Forest Laboratories, Inc.(1) 681,956
45,800 IVAX Corp.(1) 1,179,350
5,800 Jones Pharma Inc. 251,938
4,800 MedImmune, Inc.(1) 795,900
6,800 Merck & Co., Inc. 456,025
36,500 Pfizer, Inc. 1,183,969
45,300 Schering-Plough Corp. 1,911,094
5,213 Shire Pharmaceuticals Group
PLC ADR(1) 150,851
19,200 Warner-Lambert Co. 1,573,200
------------
12,815,837
------------
See Notes to Financial Statements www.americancentury.com 7
VP Balanced--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1999
Shares Value
--------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 4.8%
44,100 Cisco Systems Inc.(1) $ 4,722,834
18,800 Corning Inc. 2,424,025
4,000 Harmonic Inc.(1) 379,375
41,700 Lucent Technologies Inc. 3,119,669
10,300 Millipore Corp. 397,838
4,500 Motorola, Inc. 662,625
11,800 Nortel Networks Corp. New York
Shares 1,191,800
14,700 Scientific-Atlanta, Inc. 817,688
------------
13,715,854
------------
ELECTRICAL UTILITIES -- 1.0%
4,800 Energy East Corp. 99,900
17,600 Minnesota Power & Light Co. 298,100
21,000 Public Service Enterprise
Group Inc. 731,062
9,400 Reliant Energy, Inc. 215,025
24,600 Southern Co. 578,100
7,100 Texas Utilities Co. 252,494
29,450 Utilicorp United Inc. 572,434
------------
2,747,115
------------
ENERGY RESERVES & PRODUCTION -- 2.9%
50,600 Amerada Hess Corp. 2,871,550
5,400 Anadarko Petroleum Corp. 184,275
42,600 Apache Corp. 1,573,538
17,000 Atlantic Richfield Co. 1,470,500
12,001 Exxon Mobil Corp. 966,831
68,300 Union Pacific Resources 870,825
3,300 Vastar Resources, Inc. 194,700
------------
8,132,219
------------
ENTERTAINMENT -- 0.4%
5,600 Carnival Corp. Cl A 267,750
5,600 Pixar, Inc.(1) 197,925
10,900 Viacom, Inc. Cl B(1) 658,769
------------
1,124,444
------------
FINANCIAL SERVICES -- 3.1%
39,900 Fannie Mae 2,491,256
17,900 Federal Home Loan Mortgage
Corporation 842,419
10,000 Gallagher (Arthur J.) & Co. 647,500
25,400 General Electric Co. (U.S.) 3,930,650
9,500 Providian Financial Corp. 865,094
------------
8,776,919
------------
FOOD & BEVERAGE -- 1.6%
5,600 ConAgra, Inc. 126,350
6,400 General Mills, Inc. 228,800
10,500 Hormel Foods Corp. 426,562
44,000 IBP, Inc. 792,000
32,000 Quaker Oats Co. (The) 2,100,000
18,300 Suiza Foods Corp.(1) 725,138
4,900 Unilever N.V. New York Shares 266,744
------------
4,665,594
------------
Shares Value
--------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER -- 0.7%
6,400 Georgia-Pacific Corp. $ 324,800
8,300 Kimberly-Clark Corp. 541,575
3,600 Temple-Inland Inc. 237,375
14,100 Weyerhaeuser Co. 1,012,556
------------
2,116,306
------------
GAS & WATER UTILITIES -- 0.1%
20,200 LG&E Energy Corp. 352,238
------------
HEAVY ELECTRICAL EQUIPMENT -- 0.5%
7,700 American Power Conversion
Corp.(1) 202,847
19,500 CommScope, Inc.(1) 786,094
5,200 Cummins Engine Company, Inc. 251,225
4,200 Rockwell International Corp. 201,075
------------
1,441,241
------------
HOME PRODUCTS -- 0.8%
8,900 Fortune Brands, Inc. 294,256
15,400 Procter & Gamble Co. (The) 1,687,262
2,900 Ralston Purina Co. 80,838
11,000 Tupperware Corp. 186,312
------------
2,248,668
------------
HOTELS -- 0.1%
4,200 Anchor Gaming(1) 182,044
------------
INDUSTRIAL PARTS -- 0.5%
17,100 Ingersoll-Rand Co. 941,569
6,700 United Technologies Corp. 435,500
------------
1,377,069
------------
INDUSTRIAL SERVICES -- 0.2%
14,400 Hertz Corp. Cl A 721,800
------------
INFORMATION SERVICES -- 0.7%
4,800 Automatic Data Processing, Inc. 258,600
8,600 Electronic Data Systems Corp. 575,662
5,800 MedQuist Inc.(1) 149,169
27,200 Valassis Communications, Inc.(1) 1,149,200
------------
2,132,631
------------
INTERNET -- 1.6%
32,400 America Online Inc.(1) 2,444,175
12,600 USWeb Corp.(1) 560,306
3,500 Yahoo! Inc.(1) 1,514,516
------------
4,518,997
------------
LEISURE(2)
5,300 Station Casinos, Inc.(1) 118,919
------------
LIFE & HEALTH INSURANCE -- 0.7%
1,400 Aetna Inc. 78,138
47,400 Lincoln National Corp. 1,896,000
------------
1,974,138
------------
8 1-800-345-6488 See Notes to Financial Statements
VP Balanced--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1999
Shares Value
--------------------------------------------------------------------------------
MEDIA -- 1.4%
4,000 Adelphia Communications Corp.
Cl A(1) $ 262,375
36,400 CBS Corp.(1) 2,327,325
9,200 Comcast Corp. Cl A 464,888
10,700 Cox Communications, Inc. Cl A(1) 551,050
5,000 EchoStar Communications Corp.
Cl A(1) 486,875
------------
4,092,513
------------
MEDICAL PRODUCTS & SUPPLIES -- 1.3%
16,000 Bard (C.R.), Inc. 848,000
6,600 IDEC Pharmaceuticals Corp.(1) 647,831
15,700 Johnson & Johnson 1,462,062
9,800 Mallinckrodt Inc. 311,762
6,300 VISX, Inc.(1) 326,222
------------
3,595,877
------------
MEDICAL PROVIDERS & SERVICES -- 0.3%
18,800 Oxford Health Plans, Inc.(1) 239,112
6,100 PacifiCare Health Systems, Inc.(1) 323,491
3,500 United HealthCare Corp. 185,938
------------
748,541
------------
MINING & METALS -- 0.5%
7,800 Alcan Aluminium Ltd. 321,262
5,600 Alcoa Inc. 464,800
8,600 Ball Corporation 338,625
6,400 Centex Construction Products Inc. 249,600
------------
1,374,287
------------
MOTOR VEHICLES & PARTS -- 0.8%
6,800 Delphi Automotive Systems Corp. 107,100
24,000 Ford Motor Co. 1,282,500
8,700 General Motors Corp. 632,381
6,900 PACCAR Inc. 305,541
------------
2,327,522
------------
MULTI-INDUSTRY -- 0.2%
15,400 Tyco International Ltd. 598,675
------------
OIL REFINING -- 0.1%
4,600 Texaco Inc. 249,838
------------
OIL SERVICES -- 0.2%
17,500 Ensco International Inc. 400,312
3,100 Noble Drilling Corp.(1) 101,525
------------
501,837
------------
PROPERTY & CASUALTY INSURANCE -- 0.8%
31,400 Ambac Financial Group, Inc. 1,638,688
2,350 American International Group, Inc. 254,094
6,500 Radian Group Inc. 310,375
------------
2,203,157
------------
PUBLISHING -- 0.3%
29,000 Deluxe Corp. 795,688
------------
Shares Value
--------------------------------------------------------------------------------
RESTAURANTS -- 0.3%
14,000 Brinker International, Inc.(1) $ 336,000
6,300 Darden Restaurants, Inc. 114,188
20,800 Jack in the Box Inc.(1) 430,300
------------
880,488
------------
SECURITIES & ASSET MANAGEMENT -- 1.9%
2,700 Merrill Lynch & Co., Inc. 225,450
35,900 Morgan Stanley Dean
Witter & Co. 5,124,725
------------
5,350,175
------------
SEMICONDUCTOR -- 2.4%
31,600 Applied Materials, Inc.(1) 4,002,338
33,400 Integrated Device Technology,
Inc.(1) 967,556
5,000 Lam Research Corp.(1) 558,125
11,800 National Semiconductor Corp.(1) 505,188
8,800 PerkinElmer, Inc. 366,850
3,400 Texas Instruments Inc. 329,375
------------
6,729,432
------------
SPECIALTY STORES -- 1.7%
7,700 Best Buy Co., Inc.(1) 386,444
55,050 Home Depot, Inc. 3,774,366
13,400 Zale Corp.(1) 648,225
------------
4,809,035
------------
TELEPHONE -- 4.7%
51,900 AT&T Corp. 2,633,925
12,100 Bell Atlantic Corp. 744,906
47,200 BellSouth Corp. 2,209,550
5,700 Dycom Industries, Inc.(1) 251,156
18,200 GTE Corp. 1,284,238
56,800 SBC Communications Inc. 2,769,000
45,800 Sprint Corp. 3,082,912
4,300 U S WEST, Inc. 309,600
------------
13,285,287
------------
TOBACCO -- 0.1%
11,500 Universal Corp. 262,344
------------
TRUCKING, SHIPPING & AIR FREIGHT -- 0.1%
2,100 United Parcel Service, Inc. Cl B 144,900
2,000 USFreightways Corp. 95,250
------------
240,150
------------
WIRELESS TELECOMMUNICATIONS -- 0.5%
4,500 Nextel Communications, Inc.(1) 463,922
2,000 QUALCOMM Inc.(1) 352,188
6,100 Sprint PCS(1) 625,250
------------
1,441,360
------------
TOTAL COMMON STOCKS 171,885,001
------------
(Cost $126,470,114)
See Notes to Financial Statements www.americancentury.com 9
VP Balanced--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1999
Principal Amount Value
--------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 8.9%
$ 500,000 U.S. Treasury Notes, 5.75%,
10/31/00 $ 498,684
4,000,000 U.S. Treasury Notes, 4.875%,
3/31/01 3,938,673
1,200,000 U.S. Treasury Notes, 6.625%,
7/31/01 1,207,468
3,000,000 U.S. Treasury Notes, 7.50%,
11/15/01 3,065,792
2,000,000 U.S. Treasury Notes, 6.25%,
2/28/02 1,999,793
450,000 U.S. Treasury Notes, 5.75%,
10/31/02 443,983
1,000,000 U.S. Treasury Notes, 6.00%,
8/15/04 984,533
500,000 U.S. Treasury Notes, 7.50%,
2/15/05 521,639
1,350,000 U.S. Treasury Notes, 7.00%,
7/15/06 1,383,262
1,000,000 U.S. Treasury Bonds, 12.00%,
8/15/08 1,337,079
500,000 U.S. Treasury Bonds, 9.25%,
2/15/16 617,634
1,000,000 U.S. Treasury Bonds, 9.125%,
5/15/18 1,239,200
750,000 U.S. Treasury Bonds, 8.875%,
2/15/19 913,184
2,500,000 U.S. Treasury Bonds, 7.50%,
11/15/24 2,730,570
1,500,000 U.S. Treasury Bonds, 6.50%,
11/15/26 1,462,689
500,000 U.S. Treasury Bonds, 6.375%,
8/16/27 480,235
1,400,000 U.S. Treasury Bonds, 5.25%,
11/15/28 1,154,366
250,000 U.S. Treasury Bonds, 5.25%,
2/15/29 207,121
1,300,000 U.S. Treasury Bonds, 6.125%,
8/15/29 1,239,440
------------
TOTAL U.S. TREASURY SECURITIES 25,425,345
------------
(Cost $26,763,794)
U.S. GOVERNMENT AGENCY SECURITIES -- 2.2%
1,500,000 FHLB, 5.50%, 8/13/01 1,478,184
750,000 FNMA, 5.25%, 1/15/09 661,354
1,000,000 FNMA, 6.50%, 4/29/09 938,742
1,250,000 FNMA MTN, 5.83%, 2/2/04 1,191,127
1,250,000 FNMA MTN, 5.54%, 2/5/04 1,183,014
1,000,000 FNMA MTN, 5.74%, 1/21/09 897,329
------------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES 6,349,750
------------
(Cost $6,748,273)
Principal Amount Value
--------------------------------------------------------------------------------
SOVEREIGN GOVERNMENTS & AGENCIES -- 0.2%
$ 500,000 Quebec Province, 7.50%,
9/15/29 $ 486,603
------------
(Cost $496,910)
MORTGAGE-BACKED SECURITIES(4) -- 10.5%
827,896 FHLMC Pool #C00578, 6.50%,
1/1/28 783,623
1,295,087 FHLMC Pool #C30257, 7.00%,
8/1/29 1,254,346
896,519 FHLMC Pool #C30060, 7.50%,
8/1/29 888,581
1,147,127 FNMA Pool #248679, 5.50%,
12/1/08 1,088,805
148,783 FNMA Pool #365462, 6.50%,
11/1/11 144,994
995,304 FNMA Pool #313481, 7.00%,
4/1/12 986,616
321,117 FNMA Pool #421624, 6.00%,
4/1/13 305,252
132,014 FNMA Pool #421727, 6.00%,
4/1/13 125,492
352,643 FNMA Pool #425391, 6.00%,
5/1/13 335,220
452,092 FNMA Pool #421501, 6.50%,
6/1/13 439,381
218,383 FNMA Pool #431722, 6.50%,
6/1/13 212,243
170,015 FNMA Pool #433184, 6.50%,
6/1/13 165,235
175,675 FNMA Pool #437505, 6.00%,
7/1/13 166,995
1,358,235 FNMA Pool #433885, 6.50%,
7/1/13 1,320,047
1,265,165 FNMA Pool #252736, 7.50%,
7/1/14 1,273,599
1,383,002 FNMA Pool #412562, 6.50%,
1/1/28 1,309,101
774,609 FNMA Pool #413812, 6.50%,
1/1/28 733,218
1,017,045 FNMA Pool #411821, 7.00%,
1/1/28 985,480
916,858 FNMA Pool #440691, 6.50%,
11/1/28 866,202
477,999 FNMA Pool #450619, 6.00%,
12/1/28 438,028
948,913 FNMA Pool #453956, 6.00%,
12/1/28 869,565
1,068,131 FNMA Pool #454947, 6.00%,
12/1/28 978,814
954,974 FNMA Pool #252211, 6.00%,
1/1/29 875,119
948,573 FNMA Pool #252212, 6.50%,
1/1/29 896,164
1,198,498 FNMA Pool #485403, 6.00%,
2/1/29 1,098,280
10 1-800-345-6488 See Notes to Financial Statements
VP Balanced--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1999
Principal Amount Value
--------------------------------------------------------------------------------
$1,012,023 FNMA Pool #485438, 6.50%,
2/1/29 $ 956,108
1,477,113 FNMA Pool #506995, 7.50%,
7/1/29 1,462,188
2,000,000 FNMA Pool #526231, 7.50%,
12/1/29 1,979,792
1,241,114 GNMA Pool #002202, 7.00%,
4/20/26 1,199,464
861,852 GNMA Pool #780412, 7.50%,
8/15/26 854,273
635,412 GNMA Pool #458862, 7.50%,
2/15/28 629,158
789,605 GNMA Pool #467626, 7.00%,
2/15/28 763,618
457,569 GNMA Pool #444773, 6.50%,
3/15/28 430,192
463,852 GNMA Pool #469149, 6.50%,
3/15/28 436,100
95,251 GNMA Pool #460833, 6.50%,
5/15/28 89,552
46,828 GNMA Pool #474224, 6.50%,
5/15/28 44,026
1,090,834 GNMA Pool #469811, 7.00%,
12/15/28 1,054,932
1,500,000 GNMA Pool #509502, 8.00%,
12/15/29 1,516,563
------------
TOTAL MORTGAGE-BACKED SECURITIES 29,956,366
------------
(Cost $31,144,808)
ASSET-BACKED SECURITIES(4) -- 2.9%
750,000 CIT RV Trust, Series 1998 A,
Class A4 SEQ, 6.09%,
2/15/12 732,814
389,464 First Merchants Auto Receivables
Corp., Series 1996 B, Class A2,
6.80%, 5/15/01 390,186
1,376,135 First Union-Lehman Brothers
Commercial Mortgage, Series
1998 C2, Class A1 SEQ,
6.28%, 6/18/07 1,328,442
676,805 FNMA Whole Loan, Series
1995 W1, Class A6, 8.10%,
4/25/25 683,627
1,500,000 GMAC Commercial Mortgage
Securities Inc., Series 1999 C1,
Class A2 SEQ, 6.18%,
5/15/33 1,365,496
466,667 Nationslink Funding Corp., Series
1998-2, Class A1 SEQ, 6.00%,
11/20/07 444,652
1,250,000 PECO Energy Transition Trust,
Series 1999 A, Class A6 SEQ,
6.05%, 3/1/09 1,168,256
1,250,000 United Companies Financial Corp.,
Home Equity Loan, Series
1996 D1, Class A4, 6.78%,
2/15/16 1,248,156
Principal Amount Value
--------------------------------------------------------------------------------
$1,000,000 United Companies Financial Corp.,
Home Equity Loan, Series
1996 D1, Class A5, 6.92%,
10/15/18 $ 995,805
------------
TOTAL ASSET-BACKED SECURITIES 8,357,434
------------
(Cost $8,682,416)
CORPORATE BONDS -- 13.7%
AIRLINES -- 0.3%
750,000 Delta Air Lines Inc., 8.30%,
12/15/29 (Acquired 12/8/99,
Cost $743,775)(5) 727,438
------------
BANKS -- 2.3%
650,000 Banco Santander Central Hispano
Issuance, Ltd., 7.625%,
11/3/09 643,937
1,000,000 Bank of America N.A., 6.875%,
2/15/05 980,369
1,000,000 Citigroup Inc., 5.80%, 3/15/04 953,773
1,750,000 Corestates Capital Corp., 5.875%,
10/15/03 1,672,038
1,750,000 First Bank System Inc., 7.625%,
5/1/05 1,766,788
500,000 Fleet Boston Financial Corp.,
5.75%, 1/15/09 439,452
------------
6,456,357
------------
CHEMICALS -- 0.3%
1,000,000 du Pont (E.I.) de Nemours
& Co.,
6.875%, 10/15/09 973,224
------------
DEFENSE/AEROSPACE -- 0.3%
750,000 Lockheed Martin Corp., 8.20%,
12/1/09 748,401
------------
DEPARTMENT STORES -- 0.9%
750,000 Saks Inc., 8.25%, 11/15/08 734,726
1,000,000 Sears, Roebuck & Co. MTN,
7.12%, 6/4/04 969,505
1,000,000 Wal-Mart Stores, Inc., 6.875%,
8/10/09 973,621
------------
2,677,852
------------
ELECTRICAL EQUIPMENT -- 0.7%
1,000,000 Qwest Communications
International Inc., Series B,
7.50%, 11/1/08 974,145
1,000,000 Yorkshire Power Finance,
Series B, 6.15%, 2/25/03 959,096
------------
1,933,241
------------
ELECTRICAL UTILITIES -- 0.5%
650,000 Cilcorp, Inc., 8.70%, 10/15/09 656,500
600,000 Texas Utilities Electric Co.,
8.125%, 2/1/02 610,916
------------
1,267,416
------------
See Notes to Financial Statements www.americancentury.com 11
VP Balanced--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1999
Principal Amount Value
--------------------------------------------------------------------------------
ENERGY RESERVES & PRODUCTION -- 0.3%
$1,000,000 EOG Resources Inc., 6.70%,
11/15/06 $ 946,830
------------
FINANCIAL SERVICES -- 2.2%
1,500,000 Associates Corp., N.A., 6.375%,
10/15/02 1,475,759
1,525,000 Comdisco, Inc., 6.375%,
11/30/01 1,492,858
1,000,000 Ford Motor Credit Co., 6.125%,
4/28/03 968,675
750,000 Ford Motor Credit Co., 6.75%,
5/15/05 731,230
700,000 Ford Motor Credit Co., 7.375%,
10/28/09 692,932
1,000,000 Money Store Inc. (The), 8.05%,
4/15/02 1,015,929
------------
6,377,383
------------
FOOD & BEVERAGE -- 0.3%
1,000,000 Pepsi Bottling Group Inc., 5.625%,
2/17/09 (Acquired 2/3/99,
Cost $995,670)(5) 884,981
------------
GAS & WATER UTILITIES -- 0.4%
500,000 K N Energy, Inc., 6.45%,
11/30/01 491,838
750,000 Southern Union Co., 8.25%,
11/15/29 751,534
------------
1,243,372
------------
HEAVY ELECTRICAL EQUIPMENT -- 0.5%
1,500,000 Anixter International Inc., 8.00%,
9/15/03 1,486,573
------------
INDUSTRIAL PARTS -- 0.7%
1,250,000 Caterpillar Financial Services
Corp., 5.90%, 9/10/02 1,213,225
750,000 Petroleum Geo-Services ASA,
7.125%, 3/30/28 659,495
------------
1,872,720
------------
LIFE & HEALTH INSURANCE -- 0.8%
1,200,000 Aetna Services, Inc., 6.75%,
8/15/01 1,191,261
1,000,000 Conseco Inc., 6.40%, 6/15/01 982,485
------------
2,173,746
------------
MEDIA -- 0.3%
500,000 British Sky Broadcasting, 6.875%,
2/23/09 442,941
500,000 CSC Holdings Inc., Series B,
8.125%, 7/15/09 499,815
------------
942,756
------------
Principal Amount Value
--------------------------------------------------------------------------------
MINING & METALS -- 0.6%
$ 750,000 Barrick Gold Corp., 7.50%,
5/1/07 $ 741,190
1,000,000 Owens-Illinois Inc., 7.15%,
5/15/05 929,306
------------
1,670,496
------------
MOTOR VEHICLES & PARTS -- 0.7%
1,000,000 General Motors Corp., 7.00%,
6/15/03 999,037
1,000,000 Lear Corp., 7.96%, 5/15/05
(Acquired 5/13/99, Cost
$1,000,000)(5) 961,250
------------
1,960,287
------------
OIL REFINING -- 0.3%
1,000,000 USX Corp., 6.85%, 3/1/08 939,882
------------
REAL ESTATE -- 0.4%
1,200,000 Spieker Properties, Inc., 6.80%,
12/15/01 1,184,351
------------
SECURITIES & ASSET MANAGEMENT -- 0.2%
600,000 Morgan Stanley Dean
Witter &
Co., 7.125%, 1/15/03 598,936
------------
SPECIALTY STORES -- 0.1%
200,000 Rite Aid Corp., 6.00%, 12/15/05
(Acquired 6/16/99, Cost
$183,602)(5) 148,000
------------
TELEPHONE -- 0.6%
1,300,000 GTE North Inc., Series H, 5.65%,
11/15/08 1,151,591
750,000 MCI WorldCom, Inc., 6.95%,
8/15/28 684,473
------------
1,836,064
------------
TOTAL CORPORATE BONDS 39,050,306
------------
(Cost $40,219,133)
FORWARD COMMITMENTS -- 0.4%
1,000,000 FNMA Purchase, 7.50%,
settlement 1/19/00 989,372
------------
(Cost $988,906)
TEMPORARY CASH INVESTMENTS -- 0.8%
Repurchase Agreement, State Street Boston
Corp., (U.S. Treasury obligations), in a joint
trading account at 3.30%, dated 12/31/99,
due 1/3/00 (Delivery value $2,300,632) 2,300,000
------------
(Cost $2,300,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $284,800,177
============
(Cost $243,814,354)
12 1-800-345-6488 See Notes to Financial Statements
VP Balanced--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1999
FUTURES CONTRACTS
Expiration Underlying Face Unrealized
Purchased Date Amount at Value Gain
---------------------------------------------------------------------------------
1 S&P 500 March
Futures 2000 $371,500 $45,126
======================================
Futures contracts are typically based on a stock index, such as the S&P 500,
and they tend to track the performance of the index while remaining very liquid
(easy to buy and sell). By investing its cash assets in index futures, the fund
can stay fully invested in stocks while having easy access to the money.
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
FHLB = Federal Home Loan Bank
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GNMA = Government National Mortgage Association
MTN = Medium Term Note
(1) Non-income producing.
(2) Industry is less than 0.05% of total investment securities.
(3) Security, or a portion thereof, has been segregated at the custodian bank
for Forward Commitments.
(4) Final maturity indicated. Expected remaining maturity used for purposes of
calculating the weighted average portfolio maturity.
(5) 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 December 31, 1999, was
$2,721,669 which represented 1.0% of net assets.
See Notes to Financial Statements www.americancentury.com 13
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. The net assets divided by shares outstanding is the share price, or NET
ASSET VALUE PER SHARE. This statement also breaks down the fund's net assets
into capital (shareholder investments) and performance (investment income and
gains/losses).
DECEMBER 31, 1999
ASSETS
Investment securities, at value (identified
cost of $243,814,354) (Note 3) ............................ $284,800,177
Cash ........................................................ 22,612
Receivable for investments sold ............................. 747,925
Dividends and interest receivable ........................... 1,544,704
Receivable for variation margin
on futures contracts ...................................... 7,484
------------
287,122,902
------------
LIABILITIES
Payable for investments purchased ........................... 1,837,038
Accrued management fees (Note 2) ............................ 213,271
Payable for directors' fees and expenses .................... 153
------------
2,050,462
------------
Net Assets .................................................. $285,072,440
============
CAPITAL SHARES, $0.01 PAR VALUE
Authorized .................................................. 200,000,000
============
Outstanding ................................................. 36,578,991
============
Net Asset Value Per Share ................................... $ 7.79
============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) ..................... $233,476,244
Undistributed net investment income ......................... 6,866,509
Accumulated undistributed net realized
gain on investments ....................................... 3,698,738
Net unrealized appreciation
on investments (Note 3) ................................... 41,030,949
------------
$285,072,440
============
14 1-800-345-6488 See Notes to Financial Statements
Statement of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
YEAR ENDED DECEMBER 31, 1999
INVESTMENT INCOME
Income:
Interest .................................................... $ 7,162,030
Dividends (net of foreign taxes
withheld of $16,557) ...................................... 2,247,072
-----------
9,409,102
-----------
Expenses (Note 2):
Management fees ............................................. 2,516,223
Directors' fees and expenses ................................ 2,339
-----------
2,518,562
-----------
Net investment income ....................................... 6,890,540
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
(NOTE 3)
Net realized gain on investments ............................ 4,426,721
Change in net unrealized
appreciation on investments ............................... 15,444,721
-----------
Net realized and unrealized
gain on investments ....................................... 19,871,442
-----------
Net Increase in Net Assets
Resulting from Operations ................................. $26,761,982
===========
See Notes to Financial Statements www.americancentury.com 15
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
Increase in Net Assets 1999 1998
OPERATIONS
Net investment income ...................... $ 6,890,540 $ 5,384,061
Net realized gain on investments ........... 4,426,721 37,379,163
Change in net unrealized
appreciation on investments .............. 15,444,721 (5,946,383)
------------- -------------
Net increase in net assets
resulting from operations ................ 26,761,982 36,816,841
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ................. (5,391,423) (4,070,492)
From net realized gains on
investment transactions .................. (37,200,820) (25,240,781)
------------- -------------
Decrease in net assets
from distributions ....................... (42,592,243) (29,311,273)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold .................. 30,777,770 86,669,711
Proceeds from reinvestment
of distributions ......................... 42,592,243 29,311,273
Payments for shares redeemed ............... (52,904,132) (62,136,967)
------------- -------------
Net increase in net assets
from capital share transactions .......... 20,465,881 53,844,017
------------- -------------
Net increase in net assets ................. 4,635,620 61,349,585
NET ASSETS
Beginning of period ........................ 280,436,820 219,087,235
------------- -------------
End of period .............................. $ 285,072,440 $ 280,436,820
============= =============
Undistributed net investment income ........ $ 6,866,509 $ 5,367,392
============= =============
TRANSACTIONS IN SHARES OF THE FUND
Sold ....................................... 4,068,981 10,866,022
Issued in reinvestment of distributions .... 6,007,369 3,831,539
Redeemed ................................... (7,103,644) (7,676,450)
------------- -------------
Net increase ............................... 2,972,706 7,021,111
============= =============
16 1-800-345-6488 See Notes to Financial Statements
Notes to Financial Statements
--------------------------------------------------------------------------------
DECEMBER 31, 1999
--------------------------------------------------------------------------------
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 of the six funds issued by the corporation. The fund is diversified under
the 1940 Act. The fund's investment objective is capital growth and current
income. The fund seeks to achieve its investment objective by investing
approximately 60% of the fund's assets in common stocks that are considered by
management to have better than average prospects for appreciation and the
remaining assets in bonds and other fixed income securities. The following
significant accounting policies are in accordance with generally accepted
accounting principles; these policies may require the use of estimates by fund
management.
SECURITY VALUATIONS -- Portfolio 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.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price, depending on local convention or regulation. 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. When
valuations are not readily available, securities are valued at fair value as
determined in accordance with procedures adopted by the Board of Directors.
SECURITY TRANSACTIONS -- Security transactions are accounted for as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld (if any) is
recorded as of the ex-dividend date. Interest income is recorded on the accrual
basis and includes accretion of discounts and amortization of premiums.
FUTURES CONTRACTS -- The funds may enter into stock index futures contracts
in order to manage the funds' exposure to changes in market conditions. One of
the risks of entering into futures contracts is the possibility that the changes
in value of the contract may not correlate with the changes in value of the
underlying securities. Upon entering into a futures contract, the funds are
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 funds. The
variation margin is equal to the daily change in the contract value and is
recorded as an unrealized gain or loss. The funds recognize 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 investments and unrealized appreciation
(depreciation) on investments, respectively.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that the fund's investment manager, 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, 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 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 are declared and paid annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes and may result in reclassification among certain
capital accounts.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the corporation's
distributor. Certain officers of FDI are also officers of the corporation.
www.americancentury.com 17
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1999
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
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 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 Investment Company Act of 1940 (including counsel fees) and extraordinary
expenses, will be paid by ACIM. The fee is computed daily and paid monthly based
on the fund's average daily closing net assets during the previous month.
The annualized fee schedule for the fund is as follows:
0.90% on the first $250 million
0.85% on the next $250 million
0.80% over $500 million
Certain officers and directors of the corporation are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the corporation's investment manager, ACIM, and
the corporation's transfer agent, American Century Services Corporation.
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases of investment securities, excluding short-term investments, for
the year ended December 31, 1999, totaled $229,030,713, including purchases of
U.S. Treasury and Agency obligations totaling $56,560,678. Sales of investment
securities, excluding short-term investments, totaled $245,111,757, including
sales of U.S. Treasury and Agency obligations totaling $38,079,909.
As of December 31, 1999, accumulated net unrealized appreciation was
$40,417,608, based on the aggregate cost of investments for federal income tax
purposes of $244,382,569, which consisted of unrealized appreciation of
$49,070,869 and unrealized depreciation of $8,653,261.
--------------------------------------------------------------------------------
4. BANK LOANS
The fund, along with certain other funds managed by ACIM, entered into an
unsecured $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The fund did not borrow from the line during the
year ended December 31, 1999.
18 1-800-345-6488
VP Balanced--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the fund is not five years old). It also includes several key statistics for
each reporting period, including TOTAL RETURN, INCOME RATIO (net income as a
percentage of average net assets), EXPENSE RATIO (operating expenses as a
percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the fund's
trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31
1999 1998 1997 1996 1995
PER-SHARE DATA
Net Asset Value, Beginning of Period .. $ 8.34 $ 8.24 $ 7.54 $ 7.04 $ 5.96
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ............... 0.19 0.16 0.19 0.18 0.17
Net Realized and Unrealized Gain
on Investment Transactions .......... 0.52 1.04 0.94 0.65 1.08
----------- ----------- ----------- ----------- -----------
Total From Investment Operations .... 0.71 1.20 1.13 0.83 1.25
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income .......... (0.16) (0.15) (0.09) (0.13) (0.17)
From Net Realized Gains on
Investment Transactions ............. (1.10) (0.95) (0.34) (0.20) --
----------- ----------- ----------- ----------- -----------
Total Distributions ................. (1.26) (1.10) (0.43) (0.33) (0.17)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ........ $ 7.79 $ 8.34 $ 8.24 $ 7.54 $ 7.04
=========== =========== =========== =========== ===========
Total Return(1) ..................... 10.06% 15.77% 15.81% 12.21% 21.12%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............... 0.90% 0.97%(2) 1.00% 0.99% 0.97%
Ratio of Net Investment Income
to Average Net Assets ............... 2.45% 2.16%(2) 2.19% 2.43% 2.69%
Portfolio Turnover Rate ............... 83% 158% 125% 130% 87%
Net Assets, End of Period
(in thousands) ...................... $ 285,072 $ 280,437 $ 219,087 $ 215,393 $ 153,823
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
(2) ACIM voluntarily waived a portion of its management fee from October 1, 1998
through November 16, 1998. In absence of the waiver, the annualized ratio of
operating expenses to average net assets and annualized ratio of net
investment income to average net assets would have been 0.99% and 2.15%,
respectively, for the year ended December 31, 1998.
See Notes to Financial Statements www.americancentury.com 19
Independent Auditors' Report
--------------------------------------------------------------------------------
The Board of Directors and Shareholders,
American Century Variable Portfolios, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of VP Balanced Fund (the
"Fund") (formerly known as American Century VP Balanced), one of the
funds comprising American Century Variable Portfolios, Inc., as of December 31,
1999, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and the financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at December
31, 1999 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above and financial
highlights present fairly, in all material respects, the financial position of
VP Balanced Fund as of December 31, 1999, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Kansas City, Missouri
February 4, 2000
20 1-800-345-6488
Background Information
--------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
AMERICAN CENTURY VP BALANCED seeks capital growth and current income. The
fund keeps about 60% of its assets in a diversified portfolio of common stocks.
Under normal market conditions, the remaining assets are held in Treasury,
mortgage-backed, and corporate bonds.
We attempt to keep the fund fully invested at all times, regardless of
short-term market activity. Experience has shown that market gains can occur in
unpredictable spurts and that missing even some of those opportunities may
significantly limit the potential for gain.
For the equity portfolio, the goal is to achieve a total return that
exceeds that of the S&P 500. The portfolio is managed using computer models
as key tools in making investment decisions. One model ranks stocks based on
their expected return, using both growth and value measures such as cash flow,
earnings growth, and price/earnings ratio. Another model is used in creating a
portfolio that balances high-ranking stocks with an overall risk level that is
comparable to the S&P 500.
The fixed-income portfolio is also index based. The management team
attempts to add value by making modest portfolio adjustments based on its
analysis of prevailing market conditions. The team typically seeks to slightly
overweight relatively undervalued, higher-yielding sectors of the market.
COMPARATIVE INDICES
The following indices are used in the report for 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, which reflects
the approximately 60% of the fund's assets invested in equity securities. The
remaining 40% of the index is represented by the Lehman Brothers Aggregate Bond
Index, which reflects the roughly 40% of the fund's assets invested in
fixed-income securities.
The OLD BLENDED INDEX was the benchmark for VP Balanced until January 1,
1999. It is identical to the current blended index except that the bond portion
of the index is represented by the Lehman Brothers Intermediate
Government/Corporate Bond Index, instead of the Lehman Brothers Aggregate Bond
Index.
The LEHMAN BROTHERS AGGREGATE BOND INDEX is composed of the Lehman Brothers
Government/Corporate Index and the Lehman Brothers Mortgage-Backed Securities
Index. It reflects the price fluctuations of Treasury securities, U.S.
government agency securities, corporate bond issues, and mortgage-backed
securities.
The LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX is
considered to represent the performance of a portfolio of intermediate-term U.S.
government and corporate bonds. The index includes the Lehman Brothers
Government and Corporate Bond Indices which are composed of U.S. government,
Treasury, and agency securities with one- to 10-year maturities, as well as
corporate and Yankee bonds with one- to 10-year maturities.
The S&P 500 is a capitalization-weighted index of the stocks of 500
publicly traded U.S. companies that are considered to be leading firms in
dominant industries. Created by Standard & Poor's Corporation, the index is
viewed as a broad measure of U.S. stock market performance.
[right margin]
INVESTMENT TEAM LEADERS
Equity Portfolio
KURT BORGWARDT
JOHN SCHNIEDWIND
Fixed-Income Portfolio
JEFF HOUSTON
JOHN WALSH
Credit Research
GREG AFIESH
CREDIT RATING GUIDELINES
CREDIT RATINGS ARE ISSUED BY INDEPENDENT RESEARCH COMPANIES SUCH AS
STANDARD & POOR'S AND MOODY'S. THEY ARE BASED ON AN ISSUER'S FINANCIAL
STRENGTH AND ABILITY TO PAY INTEREST AND PRINCIPAL IN A TIMELY MANNER.
SECURITIES RATED AAA, AA, A, OR BBB ARE CONSIDERED "INVESTMENT-
GRADE" SECURITIES, MEANING THEY ARE RELATIVELY SAFE FROM DEFAULT. HERE ARE
THE MOST COMMON CREDIT RATINGS AND THEIR DEFINITIONS:
* AAA -- EXTREMELY STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS.
* AA -- VERY STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS.
* A -- STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS.
* BBB -- GOOD ABILITY TO MEET FINANCIAL OBLIGATIONS.
* BB -- SECURITIES THAT ARE LESS VULNERABLE TO DEFAULT THAN OTHER
LOWER-QUALITY ISSUES BUT DO NOT QUITE MEET INVESTMENT-GRADE STANDARDS.
IT'S IMPORTANT TO NOTE THAT CREDIT RATINGS ARE SUBJECTIVE, REFLECTING THE
OPINIONS OF THE RATING AGENCIES; THEY ARE NOT ABSOLUTE STANDARDS OF QUALITY.
www.americancentury.com 21
Glossary
--------------------------------------------------------------------------------
FIXED-INCOME TERMS
* ASSET-BACKED SECURITIES -- debt securities that represent ownership in a pool
of receivables, such as credit-card debt, auto loans, and commercial mortgages.
* CORPORATE BONDS -- debt securities or instruments issued by companies and
corporations.
* MORTGAGE-BACKED SECURITIES -- debt securities that represent ownership in
pools of mortgage loans.
* U.S. GOVERNMENT AGENCY SECURITIES -- debt securities issued by U.S. government
agencies (such as the Federal Home Loan Bank and the Federal Farm Credit Bank).
* U.S. TREASURY SECURITIES -- debt securities issued by the U.S. Treasury and
backed by the direct "full faith and credit" pledge of the U.S.
government.
* DURATION -- a measure of the sensitivity of a fixed-income portfolio to
interest rate changes. It is a time-weighted average of the interest and
principal payments of the securities in a portfolio. As the duration of a
portfolio increases, the impact of a change in interest rates on the value of
the portfolio also increases.
* WEIGHTED AVERAGE MATURITY (WAM) -- another measure of the sensitivity of a
fixed-income portfolio to interest rate changes. WAM indicates the average time
until the securities in the portfolio mature, weighted by dollar amount. The
longer the WAM, the more interest rate exposure and interest rate sensitivity
the portfolio has.
EQUITY TERMS
* BLUE CHIP STOCKS -- generally considered to be the stocks of the most
established companies in American industry. They are generally large, fairly
stable companies that have demonstrated consistent earnings and usually have
long-term growth potential.
* COMMON STOCKS -- units of ownership of public corporations. All of the stocks
described in this section are types of common stock.
* CYCLICAL STOCKS -- generally considered to be stocks whose price and earnings
fluctuations tend to follow the ups and downs of the business cycle.
* GROWTH STOCKS -- generally considered to be the stocks of companies that have
experienced above-average earnings growth and appear likely to continue such
growth.
* VALUE STOCKS -- generally considered to be stocks that are relatively
inexpensive.
* LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS -- the stocks of companies
with a market capitalization (the total value of a company's outstanding stock)
of more than $9.0 billion. This is Lipper's market-capitalization breakpoint as
of December 31, 1999, although it may be subject to change based on market
fluctuations. The Dow Jones Industrial Average and the S&P 500 are
representative indexes of large-cap stock performance.
* MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS -- the stocks of companies
with a market capitalization (the total value of a company's outstanding stock)
between $2.2 billion and $9.0 billion. This is Lipper's market-capitalization
breakpoint as of December 31, 1999, although it may be subject to change based
on market fluctuations. The S&P 400 and Russell 2500 are representative of
mid-cap stock performance.
* SMALL-CAPITALIZATION ("SMALL-CAP") STOCKS -- the stocks of companies
with a market capitalization (the total value of a company's outstanding stock)
of less than $2.2 billion. This is Lipper's market-capitalization breakpoint as
of December 31, 1999, although it may be subject to change based on market
fluctuations. The S&P 600 and the Russell 2000 are representative of
small-cap stock performance.
RETURNS
* TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
* AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as year-by-year results.
For fiscal year-by-year total returns, please refer to the "Financial
Highlights" on page 19.
22 1-800-345-6488
Glossary
--------------------------------------------------------------------------------
(Continued)
FUND CLASSIFICATIONS
Please be aware that the fund's category may change over time. Therefore, it
is important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies, and risk potential are consistent
with your needs.
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatility levels
than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income
provided by either dividend-paying equities or a combination of equity and
fixed-income securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high
price-fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price-fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price-fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price-fluctuation risk.
www.americancentury.com 23
Notes
--------------------------------------------------------------------------------
24 1-800-345-6488
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation -- Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Large Cap Value
Strategic Allocation -- Tax-Managed Value
Moderate Income & Growth
Strategic Allocation -- Value
Conservative Equity Income
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
Veedot(reg.sm) Global Gold Emerging Markets
New Opportunities International Discovery
Giftrust(reg.tm) International Growth
Vista Global Growth
Heritage
Growth
Ultra(reg.tm)
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.For a definition of fund categories, see the Glossary.
* While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
Who we are
American Century offers investors more than 70 mutual funds that span the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, with a range of services designed to
make investing easy and convenient.
For four decades, American Century has been a leader in performance, service and
innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have remained committed to building long-term relationships and to
helping investors achieve their dreams.
In a very real sense, investors put their future in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[american century logo (reg.sm)]
American
Century
P.O. BOX 419385
KANSAS CITY, MISSOURI 64141-6385
WWW.AMERICANCENTURY.COM
INVESTMENT PROFESSIONAL SERVICE REPRESENTATIVES
1-800-345-6488
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-4360
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
--------------------------------------------------------------------------------
American Century Investments BULK RATE
P.O. Box 419385 U.S. POSTAGE PAID
Kansas City, MO 64141-6385 AMERICAN CENTURY
www.americancentury.com COMPANIES
0002 Funds Distributor, Inc., Distributor
SH-ANN-19619 (c)2000 American Century Services Corporation
[front cover]
DECEMBER 31, 1999
AMERICAN CENTURY(reg.sm)
VARIABLE PORTFOLIOS
ANNUAL REPORT
[graphic of runners]
VP Advantage
[american century logo (reg.sm)]
American
Century
[inside front cover]
[left margin]
VARIABLE PORTFOLIOS
VP ADVANTAGE
---------------------------------------
Our Message to You
--------------------------------------------------------------------------------
[photo of James E. Stowers III, seated, with James E. Stowers, Jr.]
James E. Stowers III, seated, with James E. Stowers, Jr.
The past year demonstrated why investors should focus on long-term
investment strategies and maintain diversified portfolios. The consensus
expectation going into 1999 was that U.S. bonds would do well while U.S. stocks
would cool off. Instead, the reverse happened--stocks compiled strong returns
for the fifth consecutive year, while bonds suffered their worst year since
1994.
Although fund investors have benefited from exceptional stock returns over
the past several years, we wish to stress that these results are unprecedented
and not indefinitely sustainable. It is important to remember that market
corrections are an inevitable, even necessary part of the investment process.
That's why diversified portfolios like VP Advantage are useful--they can help
mitigate losses during market downturns.
On January 12, 2000, Nationwide Insurance Company, Nationwide Life and
Annuity Insurance Company, and the principal underwriter, Nationwide Advisory
Services, Inc., filed an amended application to permit the substitution of
shares of American Century VP Balanced for shares of American Century VP
Advantage. Nationwide is the only shareholder in VP Advantage. The application
is currently before the Securities and Exchange Commission. American Century VP
Balanced seeks capital growth and current income. The fund keeps about 60% of
its assets in a diverse portfolio of common stocks, with the remaining assets
normally held in Treasury, mortgage-backed, and corporate bonds.
Turning to corporate matters, we are constantly looking for ways to lower
the costs of trading securities and generate better returns for shareholders. To
that end, we have made strategic investments in several companies that allow
buyers and sellers of securities to connect directly, efficiently, and
anonymously. Today, more than one-third of our equity trades are executed over
these "alternative" networks. Savings in this area directly affect the
performance of your American Century funds.
We're also pleased to announce that American Century has been named by
Fortune magazine as one of its "100 Best Companies to Work For."
We do not take this recognition lightly--acknowledgements like this allow
us to recruit talented and dedicated people, from service representatives to
investment professionals. This "intellectual capital" is our most
valuable resource and is essential in our effort to provide you with excellent
investment management and service.
As always, we appreciate your continued confidence in American Century.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder Vice Chairman of the Board and
Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ....................................................... 2
Market Perspective ...................................................... 3
VP ADVANTAGE
Performance Information ................................................. 4
Management Q&A ...................................................... 5
Types of Investments
in the Portfolio ..................................................... 5
Top Five Stock Industries ............................................... 5
Top Ten Stock Holdings .................................................. 6
Fixed-Income Portfolio .................................................. 6
Schedule of Investments ................................................. 7
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities .......................................................... 9
Statement of Operations ................................................. 10
Statements of Changes
in Net Assets ........................................................ 11
Notes to Financial
Statements ........................................................... 12
Financial Highlights .................................................... 14
Independent Auditors'
Report ............................................................... 15
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ...................................................... 16
Comparative Indices .................................................. 16
Credit Rating
Guidelines ........................................................ 16
Investment Team
Leaders ........................................................... 16
Glossary ................................................................ 17
www.americancentury.com 1
Report Highlights
--------------------------------------------------------------------------------
MARKET PERSPECTIVE
* U.S. financial market performance in 1999 surprised many analysts and
investors. U.S. stocks gained more than expected, while bonds performed
worse.
* Economic growth in the U.S. and overseas was stronger than predicted,
leading to inflation concerns.
* The Federal Reserve raised short-term interest rates three times to fight
inflation.
* U.S. stocks, led by the high-flying technology sector, produced strong
returns.
* Stocks bounced back in the fourth quarter after losing ground in the third
quarter.
* Growth stocks generally outperformed value stocks.
* Rising interest rates led to the worst year for U.S. bonds since 1994.
* The benchmark 30-year Treasury bond yield rose to its highest level in over
two years.
* Mortgage-backed securities generally outperformed other U.S. bond sectors,
while Treasury securities lagged.
MANAGEMENT Q&A
* VP Advantage had its third solid, double-digit return year in a row. The
strength of its stock portfolio produced a gain of nearly 15%.
* Technology stocks boosted fund performance. Microsoft, Cisco Systems, and
America Online continued to be top equity holdings and performers.
* Drug stocks posted significant losses that reduced the fund's overall gains.
Coca-Cola's losses also had an impact on fund performance.
* Rising interest rates hurt the bond portfolio but helped the fund's cash
holdings.
* The declines in the bond portfolio were mitigated somewhat by our decision
to keep its interest rate sensitivity (duration) relatively low.
* We expect more interest rate increases by the Federal Reserve in 2000, but
if they help keep inflation under control, they could set the stage for
favorable long-term bond and stock conditions.
[left margin]
VP ADVANTAGE
TOTAL RETURNS: AS OF 12/31/99
6 Months 10.60%*
1 Year 14.76%
INCEPTION DATE: 8/1/91
NET ASSETS: $22.0 million
* Not annualized.
See Total Returns on page 4.
Investment terms are defined in the Glossary on pages 17-18.
2 1-800-345-6488
Market Perspective from Mark Mallon
--------------------------------------------------------------------------------
[photo of Mark Mallon]
Mark Mallon, head of growth and income equity, specialty, and asset allocation
funds at American Century
OVERVIEW
U.S. financial market performance in 1999 surprised many analysts and
investors. Demonstrating how unpredictable markets can be and how important
portfolio diversification remains, global economies exhibited
stronger-than-anticipated growth in 1999, which caused stocks and bonds to
diverge from forecasted performance. U.S. stocks gained more than expected,
while bonds performed worse.
Many economists and analysts had predicted that residual problems from 1998
would cause a lukewarm environment for stocks and a potentially good one for
bonds. Instead, struggling economies--led by Japan--rebounded, commodity prices
jumped, and the U.S. economy continued to expand.
Corporate profits in the U.S. surpassed expectations, and interest rates
soared as inflation fears accelerated. The Federal Reserve (the U.S. central
bank) raised short-term interest rates three times in 1999 to pre-empt
inflation.
U.S. STOCKS
Reflecting generally good economic and corporate health, U.S. stock indices
posted attractive returns in 1999 (see the table at right). It's worth noting,
though, that nearly half of those gains were generated in the fourth quarter,
when huge price gains by technology and telecommunications stocks powered the
market. That was particularly true for the Nasdaq Composite, which gained nearly
50% during the fourth quarter alone.
By contrast, most U.S. stock indices suffered losses during the third
quarter. The Fed's actions played a big role in this performance disparity.
Three interest rate cuts in 1998, plus surprisingly strong economic growth in
the fourth quarter of 1998, revitalized investor confidence and helped spur a
stock rebound in early 1999. However, by May, inflation became an issue, and
investors feared that the Fed would raise interest rates, as it did, beginning
in June. Rising interest rates eroded stock returns in the third quarter.
U.S. BONDS
Rising interest rates caused U.S. bonds to suffer their worst year since
1994. The benchmark 30-year U.S. Treasury bond yield rose to 6.48%, its highest
level in over two years, which caused Treasury bonds to post negative returns.
For example, the Lehman Brothers Treasury Bond Index lost over 2%.
That's not surprising given what happened in 1999. May turned out to be a
pivotal month. First, the inflation report for April (released in mid-May)
showed the biggest monthly consumer price increase in almost nine years. Then
the Fed announced its policy shift toward higher interest rates, which led to
its first rate hikes since March 1997.
Mortgage-backed securities were the best-performing U.S. bond sector (see
the bond returns in the table at right). Rising interest rates helped reduce
mortgage prepayments in 1999. Treasury bonds lagged the other bond sectors.
[right margin]
"U.S. FINANCIAL MARKET PERFORMANCE IN 1999 SURPRISED MANY ANALYSTS AND
INVESTORS."
INDEX RETURNS
FOR THE YEAR ENDED DECEMBER 31, 1999
BLENDED INDEX* 9.56%
S&P 500* 21.04%
S&P MIDCAP 400 14.72%
S&P SMALLCAP 600 12.41%
NASDAQ COMPOSITE 86.13%
LEHMAN BROS. GOVT.
AGENCY BOND INDEX -0.94%
LEHMAN BROS. MORTGAGE-
BACKED SECURITIES INDEX 1.86%
LEHMAN BROS. TREASURY
BOND INDEX -2.56%
Source: Lipper Inc., Russell/Mellon Analytical, and Bloomberg Financial Markets
* Defined on page 16.
www.americancentury.com 3
VP Advantage--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF DECEMBER 31, 1999
VP BLENDED LEHMAN INT. 90-DAY
ADVANTAGE INDEX S&P 500 GOVERNMENT INDEX T-BILL INDEX
==========================================================================================
6 MONTHS(1) 10.60% 3.95% 7.69% 0.97% 2.45%
1 YEAR 14.76% 9.56% 21.04% 0.49% 4.74%
==========================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 14.91% 14.21% 27.56% 5.50% 4.94%
5 YEARS 14.11% 15.22% 28.56% 6.93% 5.11%
LIFE OF FUND 10.33% 11.54% 19.73% 7.53% 5.40%
The fund's inception date was 8/1/91.
(1) Returns for periods less than one year are not annualized.
See pages 16-17 for information about the indices and returns.
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 separate account prospectus
for a discussion of the charges related to the insurance contracts.
[mountain graph - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 12/31/1999
S&P 500 $45,984
Blended Index $25,158
VP Advantage $22,881
Lehman Int. Govt. Index $17,260
90-Day T-Bill Index $14,566
VP Lehman Int. Blended 90-Day T-Bill
Advantage S&P 500 Govt. Index Index Index
DATE VALUE VALUE VALUE VALUE VALUE
8/1/1991 $10,000 $10,000 $10,000 $10,000 $10,000
9/30/1991 $10,174 $10,066 $10,363 $10,189 $10,087
12/31/1991 $11,381 $10,910 $10,862 $10,750 $10,202
3/31/1992 $10,804 $10,634 $10,748 $10,618 $10,302
6/30/1992 $10,571 $10,836 $11,165 $10,883 $10,396
9/30/1992 $10,773 $11,177 $11,655 $11,228 $10,476
12/31/1992 $10,953 $11,740 $11,616 $11,455 $10,556
3/31/1993 $11,126 $12,253 $12,051 $11,844 $10,635
6/30/1993 $11,350 $12,313 $12,287 $11,978 $10,714
9/30/1993 $11,720 $12,631 $12,546 $12,221 $10,795
12/31/1993 $11,702 $12,924 $12,565 $12,360 $10,877
3/31/1994 $11,716 $12,434 $12,332 $12,101 $10,965
6/30/1994 $11,520 $12,486 $12,263 $12,117 $11,073
9/30/1994 $11,789 $13,097 $12,358 $12,419 $11,196
12/31/1994 $11,824 $13,094 $12,345 $12,447 $11,345
3/31/1995 $12,192 $14,370 $12,859 $13,175 $11,510
6/30/1995 $12,985 $15,742 $13,459 $13,961 $11,672
9/30/1995 $13,512 $16,994 $13,668 $14,529 $11,830
12/31/1995 $13,805 $18,017 $14,125 $15,112 $11,987
3/31/1996 $13,983 $18,984 $14,028 $15,432 $12,136
6/30/1996 $14,324 $19,836 $14,122 $15,789 $12,288
9/30/1996 $14,649 $20,449 $14,365 $16,133 $12,446
12/31/1996 $15,082 $22,153 $14,697 $16,861 $12,601
3/31/1997 $14,798 $22,747 $14,694 $17,083 $12,763
6/30/1997 $16,087 $26,720 $15,104 $18,510 $12,925
9/30/1997 $16,938 $28,719 $15,491 $19,300 $13,089
12/31/1997 $17,016 $29,543 $15,833 $19,742 $13,258
3/31/1998 $18,016 $33,665 $16,072 $21,013 $13,426
6/30/1998 $18,793 $34,775 $16,370 $21,499 $13,594
9/30/1998 $18,131 $31,315 $17,134 $21,097 $13,758
12/31/1998 $19,941 $37,985 $17,177 $22,960 $13,906
3/31/1999 $20,595 $39,881 $17,131 $23,444 $14,060
6/30/1999 $20,690 $42,697 $17,096 $24,140 $14,217
9/30/1999 $20,754 $40,028 $17,269 $23,691 $14,384
12/31/1999 $22,881 $45,984 $17,260 $25,158 $14,566
$10,000 investment made 8/1/91
The graph at left shows the growth of a $10,000 investment over the life of the
fund, while the graph below shows the fund's year-by-year performance. The
blended index is provided for comparison in each graph, while the S&P 500,
Lehman Intermediate Government, and 90-Day T-Bill indices are provided for
comparison in the graph at left. VP Advantage'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. Past performance does not
guarantee future results. Investment return and principal value will fluctuate,
and redemption value may be more or less than original cost.
[bar graph - data below]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDED DECEMBER 31)
VP Advantage Blended Index
DATE RETURN RETURN
12/31/1991* 13.81% 7.49%
12/31/1992 -3.76% 6.52%
12/31/1993 6.84% 7.91%
12/31/1994 1.03% 0.69%
12/31/1995 16.75% 21.92%
12/31/1996 9.25% 11.83%
12/31/1997 12.83% 17.47%
12/31/1998 17.19% 15.80%
12/31/1999 14.76% 9.56%
* From 8/1/91 (the fund's inception date) to 12/31/91.
4 1-800-345-6488
VP Advantage--Q&A
--------------------------------------------------------------------------------
[photo of John Sykora, Jim Stowers III, and Bruce Wimberly
Equity team leaders: John Sykora, Jim Stowers III, Bruce Wimberly
[photos of Jeff Houston and John Walsh]
Fixed-income team leaders: Jeff Houston and John Walsh
Based on interviews with VP Advantage's equity and fixed-income team
leaders (pictured above).
HOW DID THE FUND PERFORM IN 1999?
VP Advantage enjoyed another excellent year. In a volatile period that
underscored the value of a diversified investment approach, VP Advantage's
domestic portfolio of approximately 40% stocks, 40% bonds, and 20% money market
securities posted a solid 14.76% total return.
This gain, the fund's third straight double-digit year-end return,
reflected the blended returns of the fund's three core portfolios. Basically,
U.S. stocks performed very well, bonds struggled, and cash fulfilled its
stabilizing role.
Similarly, VP Advantage's benchmark (a blended index that combines the
S&P 500, the Lehman Intermediate Government Bond Index, and a 90-day
Treasury bill index in the same 40%/40%/20% proportions as the asset mix of the
portfolio) returned 9.56%. This reflected the combined returns of the S&P
500, the Lehman index, and the Treasury bill index, which were 21.04%, 0.49%,
and 4.74%, respectively.
WHAT CAUSED THE FUND TO OUTPERFORM THE BLENDED INDEX?
VP Advantage's bond and cash portfolios tracked the Lehman and Treasury
bill indices pretty closely, but the stock portfolio significantly outperformed
the S&P 500, gaining over 30% (compared with 21% for the index). Growth
stocks led the stock market in 1999, and within that realm, technology stocks
were the strongest performers, particularly those issued by companies involved
with the Internet. VP Advantage's stock portfolio carried a large weighting of
technology stocks during the period. Put simply, we were in a lot of the right
stocks at the right time.
WHAT WERE SOME OF THE TECHNOLOGY STOCKS THAT PERFORMED WELL FOR THE FUND?
Just looking at the stock portfolio's top ten holdings at year end (see
page 6), you'll find Microsoft (up 68% in 1999), Cisco Systems (up 131%), Texas
Instruments (up 126%), America Online (up 88%), Mannesmann AG (up 27%), and
Oracle (up 289%).
Oracle was just the third-best-performing stock in the portfolio. The top
performer was JDS Uniphase Corporation, which gained 829%. JDS Uniphase provides
advanced fiber-optic components and modules to telecommunications and cable
television system providers worldwide. VP Advantage owned 1,400 shares of JDS
Uniphase as of year-end 1999.
[right margin]
"VP ADVANTAGE'S STOCK PORTFOLIO CARRIED A LARGE WEIGHTING OF TECHNOLOGY
STOCKS DURING THE PERIOD. PUT SIMPLY, WE WERE IN A LOT OF THE RIGHT STOCKS AT
THE RIGHT TIME."
[pie chart - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF DECEMBER 31, 1999
Common Stocks 42%
U.S. Treasury Securities 34%
Cash (Repos) 20%
Mortgage-Backed Securities 3%
U.S. Govt. Agency Securities 1%
TOP FIVE STOCK INDUSTRIES
% OF EQUITY PORTFOLIO
AS OF AS OF
12/31/99 6/30/99
COMPUTER SOFTWARE 15.0% 10.3%
ELECTRICAL EQUIPMENT 13.7% 6.9%
DRUGS 10.7% 13.1%
SEMICONDUCTOR 8.1% 6.7%
MULTI-INDUSTRY 6.5% 4.6%
Security types are defined on page 17.
www.americancentury.com 5
VP Advantage--Q&A
--------------------------------------------------------------------------------
(Continued)
WHAT OTHER FACTORS AFFECTED THE PERFORMANCE OF VP ADVANTAGE'S EQUITY PORTFOLIO?
On the downside, several of the fund's worst performers were pharmaceutical
companies, including Schering-Plough (-24%), Pfizer (-22%), and Bristol-Myers
Squibb (-4%). Investor sentiment turned against these companies due to
uncertainty surrounding Medicare coverage for prescription drugs and increased
earnings power in other sectors of the economy.
We stayed with these holdings through the year because their fundamentals
remained solid. These companies have made significant investments in research
and development over the last few years, which should improve future earnings.
Another negative performer that had a significant impact on fund returns
was Coca-Cola Enterprises (-44%). It struggled after foreign economic weakness
and a product recall in Europe slowed sales.
WHAT FACTORS AFFECTED THE PERFORMANCE OF VP ADVANTAGE'S BOND AND CASH
PORTFOLIOS?
Rising interest rates hurt bonds but helped our cash holdings. Higher
interest rates caused U.S. bond prices to fall while simultaneously boosting the
yields of cash investments, such as the repurchase agreements (repos) that make
up most of our cash holdings.
The declines in the bond portfolio were mitigated somewhat by the fact that
we kept the portfolio's duration relatively short--the fixed-income holdings as
a whole had a duration of less than four years. Duration is a measure of
interest rate sensitivity. A fund with a shorter duration is less sensitive to
interest rate changes.
WHAT ARE REPOS?
Repos are short-term debt agreements in which a fund buys a security at one
price and simultaneously agrees to sell it back at a specific price and date
(usually within seven days). The fund doesn't own the security; the security
serves as collateral for the agreement (the repos in VP Advantage's portfolio
are typically collateralized by Treasury securities). We like Treasury-backed
repos because they are very liquid and secure, and they respond quickly to
rising interest rates.
WHAT'S YOUR OUTLOOK FOR THE U.S. FINANCIAL MARKETS AND VP ADVANTAGE?
We expect strong U.S. economic growth to continue through the first half of
2000. We think there's a high probability that the Fed will raise short-term
interest rates at least once in the first quarter of 2000 in an attempt to
reduce inflation pressures. That could slow the stock market somewhat and make
conditions difficult for bonds in the near-term; the most likely winners from
rising interest rates are cash instruments.
But if the Federal Reserve can continue to keep inflation under control,
future rate hikes should set the stage for favorable long-term bond and stock
conditions. We still believe that both bonds and stocks will outperform money
market instruments in the long run. So we'll continue to focus on maintaining a
diversified, moderate-risk portfolio that provides both income and growth.
[left margin]
TOP TEN STOCK HOLDINGS
% OF EQUITY PORTFOLIO
AS OF AS OF
12/31/99 6/30/99
MICROSOFT CORP. 6.7% 4.1%
GENERAL ELECTRIC CO.
(U.S.) 6.5% 4.6%
CISCO SYSTEMS, INC. 6.2% 5.1%
HOME DEPOT, INC. 4.0% 2.4%
CLEAR CHANNEL
COMMUNICATIONS,
INC. 3.9% 3.0%
TEXAS INSTRUMENTS
INC. 3.6% 2.5%
AMERICA ONLINE INC. 3.5% 4.8%
MANNESMANN AG ORD 3.4% 2.1%
AMERICAN
INTERNATIONAL
GROUP, INC. 3.3% 3.8%
ORACLE CORP. 3.2% 1.5%
FIXED-INCOME PORTFOLIO
AS OF AS OF
12/31/99 6/30/99
PORTFOLIO SENSITIVITY TO INTEREST RATES
WEIGHTED AVERAGE MATURITY 4.8 YEARS 5.5 YEARS
DURATION 3.4 YEARS 3.8 YEARS
PORTFOLIO CREDIT QUALITY % OF FIXED-INCOME PORTFOLIO
AAA 100% 100%
Investment terms are defined in the Glossary on pages 17-18. Ratings provided by
Standard & Poor's. See Credit Rating Guidelines on page 16 for more
information.
6 1-800-345-6488
VP Advantage--Schedule of Investments
--------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period. The
securities are grouped by asset class (such as common stocks, corporate bonds,
temporary cash investments, as applicable), and some asset classes are further
broken down by industry or country.
NOTE: For securities denominated in foreign currencies, the market value is
translated into U.S. dollars based on exchange rates as of the last day of
reporting period.
DECEMBER 31, 1999
Shares Value
--------------------------------------------------------------------------------
COMMON STOCKS -- 41.4%
BANKS -- 0.6%
3,000 Wells Fargo & Co. $ 121,312
-----------
COMPUTER HARDWARE &
BUSINESS MACHINES -- 0.5%
1,000 Hewlett-Packard Co. 113,938
-----------
COMPUTER SOFTWARE -- 6.2%
600 BMC Software, Inc.(1) 47,944
1,500 Computer Associates
International, Inc. 104,906
1,500 International Business Machines
Corp. 162,000
5,200 Microsoft Corp.(1) 606,938
2,600 Oracle Corp.(1) 291,281
2,800 Parametric Technology Corp.(1) 75,688
1,200 PeopleSoft, Inc. 25,538
900 Rational Software Corp.(1) 44,297
-----------
1,358,592
-----------
DEPARTMENT STORES -- 1.2%
3,700 Wal-Mart Stores, Inc. 255,762
-----------
DRUGS -- 4.4%
1,000 Amgen Inc.(1) 60,031
3,700 Bristol-Myers Squibb Co. 237,494
6,500 Pfizer, Inc. 210,844
1,000 Pharmacia & Upjohn Inc. 45,000
3,100 Schering-Plough Corp. 130,781
3,500 Warner-Lambert Co. 286,781
-----------
970,931
-----------
ELECTRICAL EQUIPMENT -- 5.7%
5,200 Cisco Systems Inc.(1) 556,888
1,400 JDS Uniphase Corp.(1) 225,838
2,200 Lucent Technologies Inc. 164,588
1,200 Motorola, Inc. 176,700
400 Nortel Networks Corp. New York
Shares 40,400
1,400 Scientific-Atlanta, Inc. 77,875
-----------
1,242,289
-----------
FINANCIAL SERVICES -- 0.1%
200 American Express Co. 33,250
-----------
Shares Value
--------------------------------------------------------------------------------
FOOD & BEVERAGE -- 1.0%
5,000 Coca-Cola Enterprises, Inc. $ 100,625
3,100 PepsiCo, Inc. 109,275
-----------
209,900
-----------
HOME PRODUCTS -- 1.1%
2,200 Procter & Gamble Co. (The) 241,038
-----------
INDUSTRIAL PARTS -- 0.4%
1,400 United Technologies Corp. 91,000
-----------
INFORMATION SERVICES -- 1.5%
4,000 First Data Corp. 197,250
2,000 Young & Rubicam Inc. 141,500
-----------
338,750
-----------
INTERNET -- 1.4%
4,200 America Online Inc.(1) 316,837
-----------
MEDIA -- 2.4%
2,700 CBS Corp.(1) 172,631
4,000 Clear Channel Communications,
Inc.(1) 357,000
-----------
529,631
-----------
MULTI-INDUSTRY -- 2.7%
3,800 General Electric Co. (U.S.) 588,050
-----------
MEDICAL PRODUCTS & SUPPLIES -- 1.7%
4,300 Guidant Corp.(1) 202,100
4,400 Medtronic, Inc. 160,325
-----------
362,425
-----------
PROPERTY AND
CASUALTY INSURANCE -- 1.4%
2,730 American International Group, Inc. 295,181
-----------
RESTAURANTS -- 0.3%
1,500 McDonald's Corp. 60,469
-----------
SEMICONDUCTOR -- 3.4%
1,500 Intel Corp. 123,422
1,000 Linear Technology Corp. 71,562
1,000 Maxim Integrated Products, Inc.(1) 47,156
3,400 Texas Instruments Inc. 329,375
3,600 Xilinx, Inc.(1) 163,688
-----------
735,203
-----------
SPECIALTY STORES -- 1.9%
1,500 CVS Corp. 59,906
5,250 Home Depot, Inc. 359,953
-----------
419,859
-----------
See Notes to Financial Statements www.americancentury.com 7
VP Advantage--Schedule of Investments A
--------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1999
Shares/Principal Amount Value
--------------------------------------------------------------------------------
TELEPHONE -- 1.1%
1,000 Bell Atlantic Corp. $ 61,562
1,200 GTE Corp. 84,675
1,300 Sprint Corp. 87,506
-----------
233,743
-----------
WIRELESS TELECOMMUNICATIONS -- 2.4%
2,000 ALLTEL Corp. 165,375
1,260 Mannesmann AG ORD 306,856
1,250 Vodafone AirTouch PLC ADR 61,875
-----------
534,106
-----------
TOTAL COMMON STOCKS 9,052,266
-----------
(Cost $5,655,314)
U.S. TREASURY SECURITIES -- 34.4%
$1,000,000 U.S. Treasury Notes, 7.75%,
1/31/00 1,001,874
1,000,000 U.S. Treasury Notes, 5.75%,
10/31/00 997,367
150,000 U.S. Treasury Notes, 5.50%,
12/31/00 149,131
300,000 U.S. Treasury Notes, 6.25%,
1/31/02 299,981
1,200,000 U.S. Treasury Notes, 6.50%,
5/31/02 1,206,253
1,000,000 U.S. Treasury Notes, 7.875%,
11/15/04 1,057,730
1,500,000 U.S. Treasury Notes, 6.50%,
8/15/05 1,500,556
800,000 U.S. Treasury Notes, 6.50%,
10/15/06 798,167
400,000 U.S. Treasury Bonds, 9.125%,
5/15/18 495,680
-----------
TOTAL U.S. TREASURY SECURITIES 7,506,739
-----------
(Cost $7,684,345)
Principal Amount Value
--------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES -- 1.1%
$ 250,000 FNMA MTN, 5.54%, 2/5/04 $ 236,603
-----------
(Cost $250,000)
MORTGAGE-BACKED SECURITIES(2) -- 3.4%
428,207 FNMA Pool #426431, 6.50%,
6/1/13 416,167
194,206 FNMA Pool #454947, 6.00%,
12/1/28 177,966
156,700 GNMA Pool #780412, 7.50%,
8/15/26 155,322
-----------
TOTAL MORTGAGE-BACKED SECURITIES 749,455
-----------
(Cost $783,469)
TEMPORARY CASH INVESTMENTS -- 19.7%
Repurchase Agreement, BA Security Services,
Inc., (U.S. Treasury obligations), in a joint
trading account at 3.00%, dated 12/31/99,
due 1/3/00 (Delivery value $1,100,275) 1,100,000
Repurchase Agreement, Merrill Lynch &
Co., Inc., (U.S. Treasury obligations), in a joint
trading account at 3.00%, dated 12/31/99,
due 1/3/00 (Delivery value $1,100,275) 1,100,000
Repurchase Agreement, Morgan Stanley
Group, Inc., (U.S. Treasury obligations), in a
joint trading account at 2.50%, dated
12/31/99, due 1/3/00 (Delivery value
$1,000,208) 1,000,000
Repurchase Agreement, State Street Boston
Corp., (U.S. Treasury obligations), in a joint
trading account at 3.30%, dated 12/31/99,
due 1/3/00 (Delivery value $1,100,302) 1,100,000
-----------
TOTAL TEMPORARY CASH INVESTMENTS 4,300,000
-----------
(Cost $4,300,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $21,845,063
===========
(Cost $18,673,128)
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
FNMA = Federal National Mortgage Association
GNMA = Government National Mortgage Association
MTN = Medium Term Note
ORD = Foreign Ordinary Share
(1) Non-income producing.
(2) Final maturity indicated. Expected remaining maturity used for purposes of
calculating the weighted average portfolio maturity.
8 1-800-345-6488 See Notes to Financial Statements
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. The net assets divided by shares outstanding is the share price, or NET
ASSET VALUE PER SHARE. This statement also breaks down the fund's net assets
into capital (shareholder investments) and performance (investment income and
gains/losses).
DECEMBER 31, 1999
ASSETS
Investment securities, at value
(identified cost of $18,673,128) (Note 3) ................. $ 21,845,063
Cash ........................................................ 62,944
Dividends and interest receivable ........................... 134,916
------------
22,042,923
------------
LIABILITIES
Accrued management fees (Note 2) ............................ 19,100
Payable for directors' fees and expenses .................... 12
------------
19,112
------------
Net Assets .................................................. $ 22,023,811
============
CAPITAL SHARES, $0.01 PAR VALUE
Authorized .................................................. 200,000,000
============
Outstanding ................................................. 3,058,026
============
Net Asset Value Per Share ................................... $ 7.20
============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) ..................... $ 14,673,984
Undistributed net investment income ......................... 578,354
Accumulated undistributed net
realized gain on investment and
foreign currency transactions ............................. 3,599,538
Net unrealized appreciation on
investments and translation of
assets and liabilities in foreign
currencies (Note 3) ....................................... 3,171,935
------------
$ 22,023,811
============
See Notes to Financial Statements www.americancentury.com 9
Statement of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
YEAR ENDED DECEMBER 31, 1999
INVESTMENT INCOME
Income:
Interest ........................................................ $ 762,982
Dividends ....................................................... 49,051
-----------
812,033
-----------
Expenses (Note 2):
Management fees ................................................. 234,148
Directors' fees and expenses .................................... 195
-----------
234,343
-----------
Net investment income ........................................... 577,690
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3)
Net realized gain on:
Investments ................................................... 3,626,362
Foreign currency transactions ................................. 2,260
-----------
3,628,622
-----------
Change in net unrealized
appreciation on:
Investments ................................................... (1,010,494)
-----------
Net realized and unrealized
gain on investments ........................................... 2,618,128
-----------
Net Increase in Net Assets
Resulting from Operations ..................................... $ 3,195,818
===========
10 1-800-345-6488 See Notes to Financial Statements
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
Increase (Decrease) in Net Assets 1999 1998
OPERATIONS
Net investment income ........................ $ 577,690 $ 694,092
Net realized gain on investments
and foreign currency transactions .......... 3,628,622 1,680,064
Change in net unrealized appreciation
on investments and translation
of assets and liabilities in
foreign currencies ......................... (1,010,494) 1,644,573
------------ ------------
Net increase in net assets
resulting from operations .................. 3,195,818 4,018,729
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ................... (689,104) (550,641)
From net realized gains on
investment transactions .................... (1,635,767) (2,071,936)
------------ ------------
Decrease in net assets
from distributions ......................... (2,324,871) (2,622,577)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold .................... 1,536,176 1,310,979
Proceeds from reinvestment
of distributions ........................... 2,324,871 2,622,577
Payments for shares redeemed ................. (9,016,653) (4,265,031)
------------ ------------
Net decrease in net assets from
capital share transactions ................. (5,155,606) (331,475)
------------ ------------
Net increase (decrease) in
net assets ................................. (4,284,659) 1,064,677
NET ASSETS
Beginning of period .......................... 26,308,470 25,243,793
------------ ------------
End of period ................................ $ 22,023,811 $ 26,308,470
============ ============
Undistributed net investment income .......... $ 578,354 $ 691,174
============ ============
TRANSACTIONS IN SHARES OF THE FUND
Sold ......................................... 230,842 203,590
Issued in reinvestment of distributions ...... 362,129 423,680
Redeemed ..................................... (1,326,974) (657,844)
------------ ------------
Net decrease ................................. (734,003) (30,574)
============ ============
See Notes to Financial Statements www.americancentury.com 11
Notes to Financial Statements
--------------------------------------------------------------------------------
DECEMBER 31, 1999
--------------------------------------------------------------------------------
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 Advantage Fund, (the fund)
is one of the six series of funds issued by the corporation. The fund is
diversified under the 1940 Act. The fund's investment objective is current
income and capital growth. The fund seeks to achieve its investment objective by
investing approximately 20% of the fund's assets in cash or cash equivalents,
40% in fixed income securities and 40% in equity securities that are considered
by management to have better-than-average prospects for appreciation. The
following significant accounting policies are in accordance with generally
accepted accounting principles; these policies may require the use of estimates
by fund management.
SECURITY VALUATIONS -- Portfolio 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.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price, depending on local convention or regulation. 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. When
valuations are not readily available, securities are valued at fair value as
determined in accordance with procedures adopted by the Board of Directors.
SECURITY TRANSACTIONS -- Security transactions are accounted for as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld (if any) is
recorded as of the ex-dividend date. Interest income is recorded on the accrual
basis and includes accretion of discounts and amortization of premiums.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that the fund's investment manager, 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, 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 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 are declared and paid annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes and may result in reclassification among certain
capital accounts.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the corporation's
distributor. Certain officers of FDI are also officers of the corporation.
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
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 fee. The Agreement provides that all expenses of
the fund, except brokerage commissions, taxes, interest, fees and expenses of
those directors who are not considered "interested persons" as defined
in the 1940 Act (including counsel fees) and extraordinary expenses, will be
paid by ACIM. The fee is computed daily and paid monthly based on the fund's
average daily closing net assets during the previous month. The annual
management fee for the fund is 1.00%.
Certain officers and directors of the corporation are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the Corporation's investment manager, ACIM, and
the corporation's transfer agent, American Century Services Corporation.
12 1-800-345-6488
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1999
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases of investment securities, excluding short-term investments, for
the year ending December 31, 1999, totaled $9,777,511, including purchases of
U.S. Treasury and Agency obligations totaling $856,305. Sales of investment
securities, excluding short-term investments, totaled $15,143,304, including
sales of U.S. Treasury and Agency obligations totaling $2,013,875.
As of December 31, 1999, accumulated net unrealized appreciation was
$3,160,877, based on the aggregate cost of investments for federal income tax
purposes of $18,684,186, which consisted of unrealized appreciation of
$3,545,924 and unrealized depreciation of $385,047.
--------------------------------------------------------------------------------
4. BANK LOANS
The fund, along with certain other funds managed by ACIM, entered into an
unsecured $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The fund did not borrow from the line during the
year ended December 31, 1999.
www.americancentury.com 13
VP Advantage--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years. It also
includes several key statistics for each reporting period, including TOTAL
RETURN, INCOME RATIO (net income as a percentage of average net assets), EXPENSE
RATIO (operating expenses as a percentage of average net assets), and PORTFOLIO
TURNOVER (a gauge of the fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31
1999 1998 1997 1996 1995
PER-SHARE DATA
Net Asset Value, Beginning of Period ... $ 6.94 $ 6.60 $ 6.29 $ 6.19 $ 5.48
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income ................ 0.21 0.19 0.19 0.20 0.20
Net Realized and Unrealized Gain
on Investment Transactions ........... 0.73 0.86 0.56 0.34 0.71
---------- ---------- ---------- ---------- ----------
Total From Investment Operations ..... 0.94 1.05 0.75 0.54 0.91
---------- ---------- ---------- ---------- ----------
Distributions
From Net Investment Income ........... (0.20) (0.15) (0.10) (0.15) (0.20)
From Net Realized Gains on
Investment Transactions .............. (0.48) (0.56) (0.34) (0.29) --
---------- ---------- ---------- ---------- ----------
Total Distributions .................. (0.68) (0.71) (0.44) (0.44) (0.20)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ......... $ 7.20 $ 6.94 $ 6.60 $ 6.29 $ 6.19
========== ========== ========== ========== ==========
Total Return(1) ...................... 14.76% 17.19% 12.83% 9.25% 16.75%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................ 1.00% 1.00% 0.99% 0.98% 0.95%
Ratio of Net Investment Income
to Average Net Assets ................ 2.47% 2.74% 2.85% 3.10% 3.32%
Portfolio Turnover Rate ................ 52% 82% 69% 80% 99%
Net Assets, End of Period
(in thousands) ....................... $ 22,024 $ 26,308 $ 25,244 $ 25,230 $ 24,037
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
14 1-800-345-6488 See Notes to Financial Statements
Independent Auditors' Report
--------------------------------------------------------------------------------
The Board of Directors and Shareholders,
American Century Variable Portfolios, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of VP Advantage Fund (the
"Fund") (formerly known as American Century VP Advantage), one of the
funds comprising American Century Variable Portfolios, Inc., as of December 31,
1999, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and the financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at December
31, 1999 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above and financial
highlights present fairly, in all material respects, the financial position of
VP Advantage Fund as of December 31, 1999, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Kansas City, Missouri
February 4, 2000
www.americancentury.com 15
Background Information
--------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
AMERICAN CENTURY VP ADVANTAGE seeks to provide current income and capital
growth. Under normal market conditions, the fund keeps about 40% of its assets
in quality, intermediate-term U.S. bonds, 20% in U.S. government money market
securities with a weighted average maturity of six months or less, and the
remaining 40% in the stocks of firms considered by management to have
better-than-average prospects for appreciation.
We attempt to keep the fund's equity and bond portfolios fully invested at
their respective percentages regardless of short-term market activity.
Experience has shown that market gains can occur in unpredictable spurts and
that missing those opportunities may significantly limit the potential for gain.
Of course, this means the fund also may experience more/greater losses in market
downturns.
For the equity portfolio, the management team seeks to own successful
companies, which we define as those with growing earnings and revenues.
For the fixed-income portfolio, "quality first" is the rule. The
management team seeks only investment-grade bonds and money market
securities--those rated in the top four quality categories by nationally
recognized statistical organizations.
Each portfolio is managed by a team rather than one "star"
manager. We believe this allows us to make better, more consistent management
decisions.
COMPARATIVE INDICES
The following indices are used in the report for fund performance
comparisons. They are not investment products available for purchase.
The BLENDED INDEX is considered the benchmark for VP Advantage. It combines
three widely known indices in proportion to the asset mix of the fund.
Accordingly, 40% of the index is represented by the Lehman Intermediate
Government Bond Index, another 40% is represented by the S&P 500, and the
remaining 20% is represented by a 90-day Treasury bill index.
The LEHMAN INTERMEDIATE GOVERNMENT BOND INDEX is considered to represent
the performance of a high-quality portfolio of intermediate-term U.S. Treasury
and government agency bonds. The index is composed of over 800 U.S. Treasury and
government agency securities with an average maturity of three to five years.
The S&P 500 is a capitalization-weighted index of the stocks of 500
publicly-traded large-capitalization U.S. companies that are considered to be
leading firms in leading industries. Created by Standard & Poor's
Corporation, the index is viewed as a broad measure of U.S. stock performance.
The 90-DAY TREASURY BILL INDEX is derived from secondary market interest
rates as published by the Federal Reserve Bank.
CREDIT RATING GUIDELINES
Credit ratings are issued by independent research companies such as
Standard & Poor's and Moody's. They are based on an issuer's financial
strength and ability to pay interest and principal in a timely manner.
Securities rated AAA, AA, A, or BBB are considered "investment-
grade" securities, meaning they are relatively safe from default.
It's important to note that credit ratings are subjective, reflecting the
opinions of the rating agencies; they are not absolute standards of quality.
[left margin]
INVESTMENT TEAM LEADERS
Equity Portfolio
JIM STOWERS III
JOHN SYKORA
BRUCE WIMBERLY
Fixed-Income Portfolio
JEFF HOUSTON
JOHN WALSH
16 1-800-345-6488
Glossary
--------------------------------------------------------------------------------
FIXED-INCOME TERMS
* CASH (REPOS) -- repurchase agreements (repos) are short-term debt agreements
in which a fund buys a security and agrees to sell it back at a specific price
and date (usually within seven days). The fund does not own the security;
instead, the security serves as collateral for the agreement.
* MORTGAGE-BACKED SECURITIES -- debt securities that represent ownership in
pools of mortgage loans.
* U.S. GOVERNMENT AGENCY SECURITIES -- debt securities issued by U.S. government
agencies (such as the Federal Home Loan Bank and the Federal Farm Credit Bank).
* U.S. TREASURY SECURITIES -- debt securities issued by the U.S. Treasury and
backed by the direct "full faith and credit" pledge of the U.S.
government.
* DURATION -- a measure of the sensitivity of a fixed-income portfolio to
interest rate changes. It is a time-weighted average of the interest and
principal payments of the securities in a portfolio. As the duration of a
portfolio increases, the impact of a change in interest rates on the value of
the portfolio also increases.
* WEIGHTED AVERAGE MATURITY (WAM) -- another measure of the sensitivity of a
fixed-income portfolio to interest rate changes. WAM indicates the average time
until the securities in the portfolio mature, weighted by dollar amount. The
longer the WAM, the more interest rate exposure and interest rate sensitivity
the portfolio has.
EQUITY TERMS
* BLUE CHIP STOCKS -- generally considered to be the stocks of the most
established companies in American industry. They are generally large, fairly
stable companies that have demonstrated consistent earnings and usually have
long-term growth potential.
* COMMON STOCKS -- units of ownership of public corporations. All of the stocks
described in this section are types of common stock.
* CYCLICAL STOCKS -- generally considered to be stocks whose price and earnings
fluctuations tend to follow the ups and downs of the business cycle.
* GROWTH STOCKS -- generally considered to be the stocks of companies that have
experienced above-average earnings growth and appear likely to continue such
growth.
* VALUE STOCKS -- generally considered to be stocks that are relatively
inexpensive.
* LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS -- the stocks of companies
with a market capitalization (the total value of a company's outstanding stock)
of more than $9.0 billion. This is Lipper's market-capitalization breakpoint as
of December 31, 1999, although it may be subject to change based on market
fluctuations. The Dow Jones Industrial Average and the S&P 500 are
representative indexes of large-cap stock performance.
* MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS -- the stocks of companies
with a market capitalization (the total value of a company's outstanding stock)
between $2.2 billion and $9.0 billion. This is Lipper's market-capitalization
breakpoint as of December 31, 1999, although it may be subject to change based
on market fluctuations. The S&P 400 and Russell 2500 are representative of
mid-cap stock performance.
* SMALL-CAPITALIZATION ("SMALL-CAP") STOCKS -- the stocks of companies
with a market capitalization (the total value of a company's outstanding stock)
of less than $2.2 billion. This is Lipper's market-capitalization breakpoint as
of December 31, 1999, although it may be subject to change based on market
fluctuations. The S&P 600 and the Russell 2000 are representative of
small-cap stock performance.
RETURNS
* TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
* AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as year-by-year results.
For fiscal year-by-year total returns, please refer to the "Financial
Highlights" on page 14.
www.americancentury.com 17
Glossary
--------------------------------------------------------------------------------
(Continued)
FUND CLASSIFICATIONS
Please be aware that the fund's category may change over time. Therefore, it
is important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies, and risk potential are consistent
with your needs.
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatility levels
than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income
provided by either dividend-paying equities or a combination of equity and
fixed-income securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high
price-fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price-fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price-fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price-fluctuation risk.
18 1-800-345-6488
Notes
--------------------------------------------------------------------------------
www.americancentury.com 19
Notes
--------------------------------------------------------------------------------
20 1-800-345-6488
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation -- Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Large Cap Value
Strategic Allocation -- Tax-Managed Value
Moderate Income & Growth
Strategic Allocation -- Value
Conservative Equity Income
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
Veedot(reg.sm) Global Gold Emerging Markets
New Opportunities International Discovery
Giftrust(reg.tm) International Growth
Vista Global Growth
Heritage
Growth
Ultra(reg.tm)
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.For a definition of fund categories, see the Glossary.
* While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
Who we are
American Century offers investors more than 70 mutual funds that span the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, with a range of services designed to
make investing easy and convenient.
For four decades, American Century has been a leader in performance, service and
innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have remained committed to building long-term relationships and to
helping investors achieve their dreams.
In a very real sense, investors put their future in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[american century logo (reg.sm)]
American
Century
P.O. BOX 419385
KANSAS CITY, MISSOURI 64141-6385
WWW.AMERICANCENTURY.COM
INVESTMENT PROFESSIONAL SERVICE REPRESENTATIVES
1-800-345-6488
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-4360
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
--------------------------------------------------------------------------------
American Century Investments BULK RATE
P.O. Box 419385 U.S. POSTAGE PAID
Kansas City, MO 64141-6385 AMERICAN CENTURY
www.americancentury.com COMPANIES
0002 Funds Distributor, Inc., Distributor
SH-ANN-19620 (c)2000 American Century Services Corporation
[front cover]
DECEMBER 31, 1999
AMERICAN CENTURY(reg.sm)
VARIABLE PORTFOLIOS
ANNUAL REPORT
[graphic of runners]
VP Income & Growth
[american century logo (reg.sm)]
American
Century
[inside front cover]
[left margin]
VARIABLE PORTFOLIOS
VP INCOME & GROWTH
---------------------------------------
Our Message to You
--------------------------------------------------------------------------------
[photo of James E. Stowers III, seated, with James E. Stowers, Jr.]
James E. Stowers III, seated, with James E. Stowers, Jr.
Equity investors were well rewarded in 1999, as they have been throughout
the 1990s. Many public companies in the U.S. posted strong profit growth,
enabling the stock market to put together another year of spectacular returns.
The year was also notable for heightened market volatility, especially in the
last six months.
Although fund investors have benefited from exceptional stock returns over
the past several years, we wish to stress that these results are unprecedented
and not indefinitely sustainable. It is important to remember that market
corrections are an inevitable, even necessary part of the investment process.
For that reason, it is prudent to maintain reasonable expectations for your
fund's future performance.
Turning to corporate matters, we are constantly looking for ways to lower
the costs of trading securities and generate better returns for shareholders. To
that end, we have made strategic investments in several companies that allow
buyers and sellers of securities to connect directly, efficiently, and
anonymously. Today, more than one-third of our equity trades are executed over
alternative trading networks. Savings in this area directly affect the
performance of your funds.
We're also pleased to announce that American Century has been named by
Fortune magazine as one of its "100 Best Companies to Work For." In
addition, American Century's investor account statement is the first fund
company statement to win the Communications Seal from DALBAR, Inc., an
independent financial services research firm.
We do not take this recognition lightly--acknowledgements like these enable
us to recruit talented and dedicated people, from service representatives to
investment professionals. This "intellectual capital" is our most
valuable resource and an essential one in our effort to provide you with
excellent investment management and service.
As always, we appreciate your continued confidence in American Century.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder Vice Chairman of the Board and
Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ....................................................... 2
Market Perspective ...................................................... 3
VP INCOME & GROWTH
Performance Information ................................................. 4
Management Q&A ...................................................... 5
Portfolio at a Glance ................................................... 5
Top Ten Holdings ........................................................ 6
Top Five Overweights and
Underweights ......................................................... 7
Schedule of Investments ................................................. 8
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities .......................................................... 13
Statement of Operations ................................................. 14
Statements of Changes
in Net Assets ........................................................ 15
Notes to Financial
Statements ........................................................... 16
Financial Highlights .................................................... 18
Independent Auditors'
Report ............................................................... 19
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ...................................................... 20
Comparative Indices .................................................. 20
Investment Team
Leaders ........................................................... 20
Glossary ................................................................ 21
www.americancentury.com 1
Report Highlights
--------------------------------------------------------------------------------
MARKET PERSPECTIVE
* The U.S. stock market had another spectacular year in 1999, capping one of
the best decades in its history.
* All of the major stock indexes posted double-digit returns for the year
despite a modest decline during the summer.
* Technology stocks outperformed the rest of the market by a wide margin.
* Led by the technology sector, small- and mid-cap stocks rebounded after a
dismal 1998.
* Value stocks--those considered to be attractively valued relative to their
earnings growth--were left behind as investors focused on growth-oriented
shares.
MANAGEMENT Q&A
* VP Income & Growth performed well in 1999 but trailed its benchmark
index, the S&P 500.
* The fund's underperformance compared with the S&P 500 occurred during
the first quarter of the year, when just a handful of companies were
responsible for the index's performance.
* We shifted to an "industry-neutral" approach relative to the
S&P500, focusing more on specific stock selection within each industry.
* Stock selection among semiconductor and basic materials stocks enhanced
performance, as did selected underweights among consumer products shares.
* Banking and pharmaceutical stock selection had the biggest negative impact
on fund performance.
[left margin]
VP INCOME & GROWTH
TOTAL RETURNS: AS OF 12/31/99
6 Months 7.53%*
1 Year 18.02%
INCEPTION DATE: 10/30/97
NET ASSETS: $459.1 million
* Not annualized.
See Total Returns on page 4.
Investment terms are defined in the Glossary on pages 21-22.
2 1-800-345-6488
Market Perspective from Mark Mallon
--------------------------------------------------------------------------------
[photo of Mark Mallon]
Mark Mallon, head of growth and income equity, specialty, and asset allocation
funds at American Century
A SPECTACULAR DECADE
The U.S. stock market continued to roll in 1999, capping one of the best
decades in its history. Despite some stumbles along the way, the major stock
indexes posted double-digit returns for the year (see the table at right).
How phenomenal were equity returns in the 1990s? The S&P 500 index
soared by 433% during the decade--one of the best 10-year periods in the index's
history--and achieved two unprecedented feats: nine consecutive years of
positive returns, and five straight years with returns of 20% or more.
SUMMER HIATUS
Stocks did not enjoy a smooth ride to their ultimate destination (see the
graph at right). Small-cap stocks swooned early in the year, dropping 10% in
January and February while large-cap stocks eked out a slight gain.
The market also ran into a rough patch during the summer months. Concerns
about inflation, rising interest rates, and historically high stock valuations
led to a modest downturn punctuated by convulsions of volatility.
However, stocks roared back in the fourth quarter as investors regained
confidence in the health of the U.S. economy. Most of the year's gains in the
major stock indexes occurred in the last three months of the year.
TECHNOLOGY RULED
In 1998, the mantra in the U.S. stock market was "bigger is
better"--investors favored the shares of large, well-known companies that
they could buy or sell at a moment's notice.
In 1999, the refrain became "technology is the future"--investors
embraced the potential of electronic commerce and bid up the stock prices of
"dot-coms" and other Internet- and computer-related companies.
As a result, the technology sector outperformed the rest of the market by a
wide margin. The Nasdaq Composite Index, which is dominated by technology
stocks, returned more than 85% in 1999--including 50% in the fourth quarter
alone--and the S&P 500's return would have been less than 5% without the
contributions of the technology shares in the index.
The popularity of technology stocks extended to companies of all sizes,
which helped boost the performance of some small- and mid-cap stocks that had
been ignored in 1998.
SHUNNING TRADITIONAL VALUES
Value stocks--those considered to be attractively valued relative to their
earnings growth--were left out in the cold. Most value stocks tend to be
traditional bricks-and-mortar businesses, and they simply couldn't compete with
the excitement generated by technology shares.
But many of these stocks appear to be remarkable bargains when compared
with the high valuations of most technology and growth-oriented stocks. It may
still take a while, however, for investors to recognize and appreciate this
value.
[right margin][
"INVESTORS EMBRACED THE POTENTIAL OF ELECTRONIC COMMERCE AND BID UP THE
STOCK PRICES OF 'DOT-COMS' AND OTHER INTERNET- AND COMPUTER-RELATED
COMPANIES."
STOCK MARKET RETURNS
FOR THE YEAR ENDED DECEMBER 31, 1999
S&P 500 21.04%
S&P MIDCAP 400 14.72%
S&P SMALLCAP 600 12.41%
Source: Lipper Inc.
These indices represent the performance of large-, medium-, and
small-capitalization stocks.
[line graph - data below]
STOCK MARKET PERFORMANCE (GROWTH OF $1.00)
FOR THE YEAR ENDED DECEMBER 31, 1999
Value on 12/31/99
S&P 500 $1.21
S&P MidCap 400 $1.15
S&P SmallCap 600 $1.12
S&P 500 S&P MidCap 400 S&P SmallCap 600
12/31/98 $1.00 $1.00 $1.00
1/31/99 $1.04 $0.96 $0.99
2/28/99 $1.01 $0.91 $0.90
3/31/99 $1.05 $0.94 $0.91
4/30/99 $1.09 $1.01 $0.97
5/31/99 $1.06 $1.01 $0.99
6/30/99 $1.12 $1.07 $1.05
7/31/99 $1.09 $1.05 $1.04
8/31/99 $1.08 $1.01 $1.00
9/30/99 $1.05 $0.98 $1.00
10/31/99 $1.12 $1.03 $1.00
11/30/99 $1.14 $1.08 $1.04
12/31/99 $1.21 $1.15 $1.12
Source: Lipper Inc.
www.americancentury.com 3
VP Income & Growth--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF DECEMBER 31, 1999
VP INCOME & GROWTH S&P 500
================================================================================
6 MONTHS(1) 7.53% 7.69%
1 YEAR 18.02% 21.04%
================================================================================
AVERAGE ANNUAL RETURNS
LIFE OF FUND 24.69% 26.88%
The fund's inception date was 10/30/97.
(1) Returns for periods less than one year are not annualized.
See pages 20-21 for information about returns and the comparative index.
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 separate account prospectus
for a discussion of the charges related to the insurance contracts.
[mountain graph - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 12/31/99
S&P 500 $16,565
VP Income & Growth $16,044
VP Income & Growth S&P 500
DATE VALUE VALUE
10/30/97 $10,000 $10,000
11/30/97 $10,477 $10,463
12/31/97 $10,716 $10,643
1/31/98 $10,736 $10,761
2/28/98 $11,691 $11,537
3/31/98 $12,329 $12,128
4/30/98 $12,368 $12,250
5/31/98 $12,169 $12,039
6/30/98 $12,588 $12,528
7/31/98 $12,408 $12,394
8/31/98 $10,573 $10,604
9/30/98 $11,171 $11,281
10/31/98 $12,108 $12,199
11/30/98 $12,827 $12,940
12/31/98 $13,594 $13,685
1/31/99 $14,054 $14,257
2/28/99 $13,473 $13,814
3/31/99 $13,856 $14,366
4/30/99 $14,358 $14,922
5/31/99 $14,077 $14,570
6/30/99 $14,918 $15,380
7/31/99 $14,578 $14,899
8/31/99 $14,498 $14,826
9/30/99 $14,097 $14,420
10/31/99 $14,879 $15,332
11/30/99 $15,139 $15,647
12/31/99 $16,044 $16,565
$10,000 investment made 10/30/97
The graph at left shows the growth of a $10,000 investment over the life of the
fund. The S&P 500 is provided for comparison. VP Income & Growth's total
returns include operating expenses (such as transaction costs and management
fees) that reduce returns, while the returns of the index do not. Past
performance does not guarantee future results. Investment return and principal
value will fluctuate, and redemption value may be more or less than original
cost.
[bar graph - data below]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDED DECEMBER 31)
VP Income & Growth S&P 500
DATE RETURN RETURN
12/31/97* 7.80% 7.71%
12/31/98 26.87% 28.58%
12/31/99 18.02% 21.04%
* From 10/30/97 (the fund's inception date) to 12/31/97.
4 1-800-345-6488
VP Income & Growth--Q&A
--------------------------------------------------------------------------------
[photos of John Schniedwind and Kurt Borgwardt]
An interview with John Schniedwind and Kurt Borgwardt, portfolio managers
on the VP Income & Growth fund investment team.
HOW DID VP INCOME & GROWTH PERFORM IN 1999?
The fund performed well, reflecting the favorable environment for stocks,
but it fell short of its benchmark, the S&P 500. VP Income & Growth's
1999 total return was 18.02%, while the S&P 500 returned 21.04%. (See the
previous page for other fund performance comparisons.)
WHY DID THE FUND UNDERPERFORM THE S&P 500?
When we look at the performance of VP Income & Growth in 1999, we break
the year into two periods. The fund underperformed the S&P 500 in the first
quarter, when just a handful of companies were leading the index higher. The
fund was underweight many of those stocks because they were trading at what we
felt were extremely high prices in relation to their earnings or book values.
Since then, the fund's relative performance has been much better. Part of
the reason is that the stock market's rally has broadened to include a wider
variety of companies, including many of the fund's holdings. But another
important factor was some adjustments we made to the computer models that help
us make investment decisions.
WHAT MODIFICATIONS DID YOU MAKE?
First, it's important to put these changes in context. The foundations of
our investment process--using quantitative models to select stocks and limit our
overall risk relative to the S&P 500--remain in place.
With that in mind, the most important modification was to shift to an
"industry-neutral" approach. In the past, one of our strategies was to
over- and underweight various industries relative to the S&P 500, based on
the recommendations of our stock-picking model. For example, throughout 1998 the
fund held a larger percentage of financial stocks than the S&P 500.
However, we found that, when looking over the life of the fund, these
industry "bets" weren't contributing significantly to outperformance.
What they were contributing was a great deal of volatility to the fund's returns
compared with the S&P 500. This became especially noticeable in the last
half of 1998 and the first quarter of 1999, when VP Income & Growth's return
lagged well behind that of the index.
So we've brought the fund's industry weightings closer to those of the
S&P 500. Instead, we're focusing more closely on a large number of small,
measured bets on the stocks of individual companies. We believe that this is
what our investment process does best.
HOW HAS THIS NEW APPROACH WORKED?
It's only been in place since April, so it's hard to draw any meaningful
conclusions from such a short time frame. However, the fund beat the S&P 500
[right margin]
"THE FUND PERFORMED WELL, REFLECTING THE FAVORABLE ENVIRONMENT FOR STOCKS,
BUT IT FELL SHORT OF THE S&P 500."
PORTFOLIO AT A GLANCE
12/31/99 12/31/98
NO. OF COMPANIES 279 267
MEDIAN P/E RATIO 23.5 20.6
PORTFOLIO TURNOVER 50% 55%
Investment terms are defined in the Glossary on pages 21-22.
www.americancentury.com 5
VP Income & Growth--Q&A
--------------------------------------------------------------------------------
(Continued)
during the last nine months of the year--a 15.77% return vs. 15.29% for the
index--and it tracked the index's performance much better from month to month.
LET'S TALK ABOUT SOME OF YOUR SPECIFIC STOCK PICKS. WHAT WORKED WELL IN 1999?
Technology stocks were the market leaders, and there were plenty of
opportunities to pick winners in that sector of the market.
Early in the year, the fund benefited from key overweights among computer
manufacturers, including Hewlett-Packard, which was a top ten holding at
mid-year, and Apple. HP reported strong profit growth from sales of its printers
and imaging equipment, while Apple found success with the introduction of the
iMac.
In the last six months, the fund's semiconductor stocks, such as Applied
Materials and Lam Research, were strong performers. Both of these stocks surged
when demand for computer microchips rebounded in the last half of the year.
Applied Materials rose by more than 75% in the last six months of 1999, while
Lam was up more than 150%.
We also maintained solid weightings in many of the bigger tech stocks, like
Microsoft, the fund's top holding and the largest stock in the S&P 500.
Microsoft returned 70% in 1999 despite anti-trust litigation against the
company.
WERE THERE ANY MISSTEPS IN THE TECHNOLOGY SECTOR?
Just as some of our overweights enhanced performance, several of our tech
underweights detracted from fund performance.
We were underweight some of the larger computer network companies, like Sun
Microsystems and Cisco Systems. Our models indicated that both of these stocks
were very expensive, with extremely high price/earnings ratios. Nonetheless,
they both posted triple-digit returns in 1999.
We also limited our exposure to Internet stocks, which generally had strong
returns despite some extreme volatility during the year.
HOW DID THE FUND FARE IN OTHER SECTORS OF THE MARKET?
Our models found some value in the basic materials sector, which includes
companies that extract or make products from natural resources. The global
economic recovery in 1999 helped increase demand for commodities, and that
boosted profit margins for many basic materials companies.
VP Income & Growth got excellent performance from several fund
overweights in this area, including Phelps Dodge, a mining company; Dow
Chemical; and two forest products companies, Weyerhaeuser and Georgia Pacific.
One overweight that did well in a difficult industry was Morgan Stanley
Dean Witter, a top ten holding. Although many financial stocks were punished
because of rising interest rates, Morgan Stanley maintained strong profits
through growth in its fee-based underwriting and mergers-and-acquisitions
business, which is not directly tied to the interest rate environment.
YOU'VE TALKED A LOT ABOUT THE SUCCESS OF YOUR OVERWEIGHTS IN CERTAIN STOCKS.
WHAT ABOUT UNDERWEIGHTS?
One of our best underweights throughout the year was the Coca-Cola Company.
Coke had a huge run-up in 1997 and 1998, and we felt that it was priced much too
high relative to its earnings growth. So we sold virtually all of our Coke
holdings prior to the start of this year.
[left margin]
"ONE THING WE DO EXPECT TO SEE IN THE COMING YEAR IS A CONTINUATION OF
THE DAY-TO-DAY VOLATILITY THAT'S BECOME A REGULAR OCCURRENCE IN THE PAST
COUPLE OF YEARS."
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF AS OF
12/31/99 6/30/99
MICROSOFT CORP. 4.8% 3.8%
GENERAL ELECTRIC CO.
(U.S.) 3.2% 2.6%
CISCO SYSTEMS INC. 2.5% 1.4%
WAL-MART STORES, INC. 2.4% 2.1%
MORGAN STANLEY
DEAN WITTER & CO. 1.8% 1.3%
CHASE MANHATTAN
CORP. 1.7% 2.3%
LUCENT TECHNOLOGIES
INC. 1.6% 1.6%
CITIGROUP INC. 1.5% 0.9%
AT&T CORP. 1.5% 1.7%
SBC COMMUNICATIONS
INC. 1.4% 1.1%
6 1-800-345-6488
VP Income & Growth--Q&A
--------------------------------------------------------------------------------
(Continued)
Global demand for Coke's products weakened in 1999, and a product recall
and lawsuit in Belgium negatively affected its stock price. Coke finished the
year down about 15%.
SOUNDS LIKE WE'VE COVERED A LOT OF THE GOOD NEWS IN THE PORTFOLIO. WHAT HURT VP
INCOME & GROWTH'S PERFORMANCE IN 1999?
The banking sector was one area that contributed negatively to fund
performance. Several of our overweights among bank stocks performed very poorly.
For example, shares of Bank One suffered sizable losses after the company
announced an earnings shortfall in the third quarter. Greater competition in
their credit-card business led to lower credit-card interest rates and narrower
profit margins. Bank One's stock price fell by more than 30% in 1999.
For part of the year, we were also overweight several big drug stocks, like
Pfizer and American Home Products. The larger pharmaceutical companies produce
steady profits regardless of the economic environment, so their stocks tend to
perform best when the economy slows down. But with the economy in high gear
throughout the year, these stocks struggled.
LOOKING AHEAD, WHAT DO YOU SEE IN STORE FOR THE U.S. STOCK MARKET IN 2000?
The 1990s were an incredible period for equity investors, and it's hard to
imagine that stocks will produce the same kind of returns in the next decade.
But the conditions that produced these stellar equity returns are still in
place. Corporate earnings are expected to grow at a healthy pace in 2000,
inflation remains modest, and the U.S. economic juggernaut keeps rolling
along--the current economic expansion, which will begin its tenth year in
February, is the longest in U.S. history. These are all positive factors for the
stock market.
One thing we do expect to see in the coming year is a continuation of the
day-to-day volatility that's become a regular occurrence in the past couple of
years. When a bull market lasts this long, investors tend to get a little jumpy
and react to any news--good or bad--in a swift and dramatic fashion. We'll
probably see more of this behavior going forward.
WHAT ARE YOUR PLANS FOR VP INCOME & GROWTH IN THE COMING MONTHS?
Our overall strategy won't change. We plan to keep the fund fully invested
in U.S. stocks, using our quantitative computer models to help us select what we
believe are the most attractive companies in each industry.
We think small-cap stocks look promising going into this year. Small-caps
were left out of the rally in 1998, but they began to turn around in 1999, and
we wouldn't be surprised to see them continue to perform well in 2000.
We also favor value stocks, which are those considered to be undervalued
based on their earnings growth. VP Income & Growth continues to have more of
a value tilt than the S&P 500, and we think that may be a benefit in the
coming year as investors begin to recognize the bargains available in these
stocks.
[right margin]
"WE'RE FOCUSING MORE CLOSELY ON A LARGE NUMBER OF SMALL, MEASURED BETS ON
THE STOCKS OF INDIVIDUAL COMPANIES. WE BELIEVE THAT THIS IS WHAT OUR INVESTMENT
PROCESS DOES BEST."
5 LARGEST OVERWEIGHTS
COMPARED WITH THE S&P 500 (AS OF 12/31/99)
% OF % OF
FUND'S S&P
STOCKS 500
CHASE MANHATTAN
CORP. 1.77% 0.52%
MORGAN STANLEY
DEAN WITTER & CO. 1.85% 0.65%
KERR-MCGEE CORP. 1.20% 0.04%
MARSH & MCLENNAN
COMPANIES, INC. 1.27% 0.21%
ADAPTEC, INC. 0.83% 0.04%
5 LARGEST UNDERWEIGHTS
COMPARED WITH THE S&P 500 (AS OF 12/31/99)
% OF % OF
FUND'S S&P
STOCKS 500
AMERICAN
INTERNATIONAL
GROUP, INC. 0.14% 1.36%
COCA-COLA CO. 0.01% 1.17%
EXXON MOBIL CORP. 1.33% 2.26%
INTEL CORP. 1.35% 2.23%
GENERAL ELECTRIC CO. 3.38% 4.12%
www.americancentury.com 7
VP Income & Growth--Schedule of Investments
--------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period. The
securities are grouped by asset class (such as common stocks, corporate bonds,
temporary cash investments, as applicable), and some asset classes are further
broken down by industry or country.
DECEMBER 31, 1999
Shares Value
--------------------------------------------------------------------------------
COMMON STOCKS -- 95.0%
AIRLINES -- 0.1%
3,700 AMR Corp.(1) $ 247,900
4,200 Delta Air Lines Inc. 209,212
------------
457,112
------------
ALCOHOL -- 0.3%
22,400 Anheuser-Busch Companies, Inc. 1,587,600
------------
APPAREL & TEXTILES -- 0.1%
1,800 Liz Claiborne, Inc. 67,725
17,900 Sara Lee Corp. 394,919
------------
462,644
------------
BANKS -- 6.1%
60,300 AmSouth Bancorporation 1,164,544
31,400 Banc One Corp. 1,006,762
111,900 Bank of America Corp. 5,615,981
99,200 Chase Manhattan Corp. 7,706,600
125,500 Citigroup Inc. 6,973,094
8,800 Cullen/Frost Bankers, Inc. 226,600
15,000 First Union Corp. 492,188
30,300 Fleet Boston Financial Corp. 1,054,819
11,100 KeyCorp 245,588
400 North Fork Bancorporation, Inc. 7,000
6,800 Pacific Century Financial Corp. 127,075
8,000 PNC Bank Corp. 356,000
4,000 Republic New York Corp. 288,000
36,000 UnionBanCal Corp. 1,419,750
28,700 Wells Fargo & Co. 1,160,556
------------
27,844,557
------------
CHEMICALS -- 3.0%
16,200 Dexter Corp. (The) 643,950
33,300 Dow Chemical Co. 4,449,712
10,700 Engelhard Corp. 201,962
9,581 Illinois Tool Works Inc. 647,316
84,200 Kerr-McGee Corp. 5,220,400
23,900 Minnesota Mining &
Manufacturing Co. 2,339,212
21,800 Sherwin-Williams Co. 457,800
------------
13,960,352
------------
CLOTHING STORES -- 0.3%
18,700 Abercrombie & Fitch Co.
Cl A(1) 499,056
1,600 AnnTaylor Stores Corp.(1) 55,100
23,500 Ross Stores, Inc. 424,469
9,800 TJX Companies, Inc. (The) 200,288
14,300 Tommy Hilfiger Corp.(1) 333,369
------------
1,512,282
------------
Shares Value
--------------------------------------------------------------------------------
COMPUTER HARDWARE &
BUSINESS MACHINES -- 5.1%
72,300 Adaptec, Inc.(1) $ 3,603,703
24,700 Apple Computer, Inc.(1) 2,538,697
69,100 Dell Computer Corp.(1) 3,521,941
2,600 Diebold, Inc. 61,100
22,300 Electronics for Imaging, Inc.(1) 1,307,338
24,900 EMC Corp. (Mass.)(1) 2,720,325
2,400 Gateway Inc.(1) 172,950
41,900 Hewlett-Packard Co. 4,773,981
30,000 Pitney Bowes Inc. 1,449,375
44,200 Sun Microsystems, Inc.(1) 3,421,356
------------
23,570,766
------------
COMPUTER SOFTWARE -- 8.5%
17,500 Adobe Systems Inc. 1,176,875
14,600 Computer Associates
International, Inc. 1,021,088
28,700 Compuware Corp.(1) 1,068,178
9,400 Comverse Technology, Inc.(1) 1,360,356
54,100 International Business Machines
Corp. 5,842,800
187,400 Microsoft Corp.(1) 21,873,094
8,200 NCR Corp.(1) 310,575
17,200 Novell, Inc.(1) 686,388
42,300 Oracle Corp.(1) 4,738,922
27,600 Unisys Corp.(1) 881,475
------------
38,959,751
------------
CONSTRUCTION & REAL PROPERTY -- 0.2%
14,900 Armstrong World Industries, Inc. 497,288
2,900 Pulte Corp. 65,250
6,800 USG Corp. 320,450
------------
882,988
------------
CONSUMER DURABLES -- 0.2%
14,200 Whirlpool Corp. 923,888
------------
DEFENSE/AEROSPACE -- 0.8%
40,800 Boeing Co. 1,695,750
12,500 General Dynamics Corp. 659,375
2,800 Goodrich (B.F.) Company (The) 77,000
20,000 Northrop Grumman Corp. 1,081,250
------------
3,513,375
------------
DEPARTMENT STORES -- 3.3%
1,000 Costco Companies, Inc.(1) 91,219
1,800 Dayton Hudson Corp. 132,188
32,500 Federated Department Stores,
Inc.(1) 1,643,281
11,000 Penney (J.C.) Company, Inc. 219,312
8 1-800-345-6488 See Notes to Financial Statements
VP Income & Growth--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1999
Shares Value
--------------------------------------------------------------------------------
64,900 Sears, Roebuck & Co. $ 1,975,394
157,700 Wal-Mart Stores, Inc. 10,901,012
------------
14,962,406
------------
DRUGS -- 5.9%
3,100 American Home Products Corp. 122,256
22,400 Amgen Inc.(1) 1,344,700
16,900 Andrx Corp.(1) 711,384
7,300 Bergen Brunswig Corp. Cl A 60,681
15,200 Biogen, Inc.(1) 1,283,925
65,400 Bristol-Myers Squibb Co. 4,197,862
8,600 Forest Laboratories, Inc.(1) 528,362
300 Genentech, Inc.(1) 40,350
4,700 Herbalife International, Inc. Cl A 66,681
28,100 Lilly (Eli) & Co. 1,868,650
75,700 Merck & Co., Inc. 5,076,631
184,500 Pfizer, Inc. 5,984,719
44,200 Pharmacia & Upjohn Inc. 1,989,000
62,600 Schering-Plough Corp. 2,640,938
13,600 Warner-Lambert Co. 1,114,350
------------
27,030,489
------------
ELECTRICAL EQUIPMENT -- 6.8%
13,500 3Com Corp.(1) 634,078
1,200 AVX Technology 59,925
108,800 Cisco Systems Inc.(1) 11,651,800
10,100 Corning Inc. 1,302,269
3,600 KLA-Tencor Corporation(1) 400,838
95,600 Lucent Technologies Inc. 7,152,075
23,700 Motorola, Inc. 3,489,825
39,300 Nortel Networks Corp. New
York Shares 3,969,300
14,900 Scientific-Atlanta, Inc. 828,812
1,200 Solectron Corp.(1) 114,150
21,300 Tellabs, Inc.(1) 1,366,528
2,100 Xircom, Inc.(1) 157,500
------------
31,127,100
------------
ELECTRICAL UTILITIES -- 2.1%
25,700 Ameren Corp. 841,675
2,125 Conectiv, Inc. Cl A 62,953
19,000 Constellation Energy Group 551,000
23,600 DTE Energy Company 740,450
14,600 Duke Energy Corp. 731,825
33,500 GPU Inc. 1,002,906
30,100 Minnesota Power & Light Co. 509,819
39,300 Public Service Enterprise Group
Inc. 1,368,131
5,700 Reliant Energy, Inc. 130,388
70,700 Sempra Energy 1,228,412
35,700 Texas Utilities Co. 1,269,581
64,600 Utilicorp United Inc. 1,255,662
------------
9,692,802
------------
Shares Value
--------------------------------------------------------------------------------
ENERGY RESERVES & PRODUCTION -- 3.1%
11,500 Amerada Hess Corp. $ 652,625
2,900 Apache Corp. 107,119
17,600 Atlantic Richfield Co. 1,522,400
30,100 Chevron Corp. 2,607,412
71,808 Exxon Mobil Corp. 5,785,032
134,600 Occidental Petroleum Corp. 2,910,725
13,000 Phillips Petroleum Co. 611,000
------------
14,196,313
------------
ENTERTAINMENT -- 1.0%
57,800 Carnival Corp. Cl A 2,763,562
32,200 Viacom, Inc. Cl B(1) 1,946,088
------------
4,709,650
------------
EQUITY REAL ESTATE
INVESTMENT TRUST -- 0.1%
21,200 CarrAmerica Realty Corp. 447,850
------------
FINANCIAL SERVICES -- 5.7%
3,000 Aon Corp. 120,000
15,900 Block (H & R), Inc. 695,625
59,700 Fannie Mae 3,727,519
4,300 Federal Home Loan Mortgage
Corporation 202,369
11,000 Gallagher (Arthur J.) & Co. 712,250
94,900 General Electric Co. (U.S.) 14,685,775
57,900 Marsh & McLennan
Companies, Inc. 5,540,306
10,400 MBNA Corp. 283,400
------------
25,967,244
------------
FOOD & BEVERAGE -- 3.0%
2,200 Bestfoods 115,638
400 Coca-Cola Company (The) 23,300
115,100 ConAgra, Inc. 2,596,944
17,400 Earthgrains Company 280,575
52,700 General Mills, Inc. 1,884,025
2,000 Heinz (H.J.) Co. 79,625
6,300 Hormel Foods Corp. 255,938
19,900 IBP, Inc. 358,200
20,300 Kellogg Co. 625,494
131,100 Nabisco Group Holdings Corp. 1,392,938
10,200 PepsiCo, Inc. 359,550
46,100 Quaker Oats Co. (The) 3,025,312
87,600 Supervalu Inc. 1,752,000
16,567 Unilever N.V. New York Shares 901,866
------------
13,651,405
------------
FOREST PRODUCTS & PAPER -- 1.1%
12,000 Georgia-Pacific Corp. 609,000
4,100 International Paper Co. 231,394
18,000 Kimberly-Clark Corp. 1,174,500
4,600 Louisiana-Pacific Corp. 65,550
9,000 Temple-Inland Inc. 593,438
3,700 Westvaco Corp. 120,712
29,000 Weyerhaeuser Co. 2,082,562
------------
4,877,156
------------
See Notes to Financial Statements www.americancentury.com 9
VP Income & Growth--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1999
Shares Value
--------------------------------------------------------------------------------
GAS & WATER UTILITIES -- 0.1%
11,100 Keyspan Energy Corp. $ 257,381
3,700 LG&E Energy Corp. 64,519
------------
321,900
------------
GOLD -- 0.1%
18,200 Barrick Gold Corp. 321,912
8,400 Homestake Mining Co. 65,625
------------
387,537
------------
GROCERY STORES -- 0.3%
4,400 Albertson's, Inc. 141,900
9,000 Great Atlantic & Pacific
Tea Co., Inc. (The) 250,875
10,100 Kroger Co. (The)(1) 190,638
10,600 Safeway Inc.(1) 376,962
9,200 Winn-Dixie Stores, Inc. 220,225
------------
1,180,600
------------
HEAVY ELECTRICAL EQUIPMENT -- 1.0%
42,100 Cummins Engine Company, Inc. 2,033,956
37,100 Dover Corp. 1,683,412
21,000 Rockwell International Corp. 1,005,375
------------
4,722,743
------------
HEAVY MACHINERY(2)
2,100 Trinity Industries, Inc. 59,719
------------
HOME PRODUCTS -- 2.4%
1,400 Alberto-Culver Company Cl B 36,138
13,700 Avon Products, Inc. 452,100
11,000 Church & Dwight Co., Inc. 293,562
1,300 Clorox Co. (The) 65,488
31,600 Fortune Brands, Inc. 1,044,775
12,300 International Flavors &
Fragrances Inc. 464,325
32,800 National Service Industries, Inc. 967,600
53,300 Procter & Gamble Co. (The) 5,839,681
29,000 Ralston Purina Co. 808,375
51,000 Tupperware Corp. 863,812
------------
10,835,856
------------
HOTELS(2)
2,600 Anchor Gaming(1) 112,694
------------
INDUSTRIAL PARTS -- 0.5%
14,800 Briggs & Stratton Corp. 793,650
11,200 Pall Corp. 241,500
2,300 Pentair, Inc. 88,550
3,900 Stanley Works (The) 117,488
12,600 United Technologies Corp. 819,000
------------
2,060,188
------------
INDUSTRIAL SERVICES -- 0.3%
25,900 Hertz Corp. Cl A 1,298,238
3,300 Manpower Inc. 124,162
------------
1,422,400
------------
Shares Value
--------------------------------------------------------------------------------
INFORMATION SERVICES -- 1.4%
4,400 American Management
System, Inc.(1) $ 137,638
27,300 Dun & Bradstreet Corp. (The) 805,350
45,200 Electronic Data Systems Corp. 3,025,575
7,700 MedQuist Inc.(1) 198,034
4,400 Omnicom Group Inc. 440,000
9,400 Paychex, Inc. 375,706
6,300 Shared Medical Systems Corp. 320,906
20,400 True North Communications Inc. 911,625
------------
6,214,834
------------
INTERNET -- 1.7%
75,300 America Online Inc.(1) 5,680,444
200 CMGI Inc.(1) 55,369
100 Network Solutions, Inc.(1) 21,759
4,500 Yahoo! Inc.(1) 1,947,234
------------
7,704,806
------------
LEISURE -- 0.3%
9,500 Brunswick Corp. 211,375
21,000 Eastman Kodak Co. 1,391,250
------------
1,602,625
------------
LIFE & HEALTH INSURANCE -- 1.0%
24,100 Aetna Inc. 1,345,081
77,200 Lincoln National Corp. 3,088,000
------------
4,433,081
------------
MEDIA -- 1.9%
69,200 CBS Corp.(1) 4,424,475
41,300 Comcast Corp. Cl A 2,086,941
12,800 MediaOne Group Inc.(1) 983,200
8,700 Time Warner Inc. 630,206
10,500 Tribune Co. 578,156
------------
8,702,978
------------
MEDICAL PRODUCTS & SUPPLIES -- 2.1%
14,200 Bard (C.R.), Inc. 752,600
7,100 Bausch & Lomb Inc. Cl A 485,906
29,100 Baxter International, Inc. 1,827,844
53,000 Johnson & Johnson 4,935,625
33,100 Mallinckrodt Inc. 1,052,994
8,200 VISX, Inc.(1) 424,606
------------
9,479,575
------------
MEDICAL PROVIDERS & SERVICES -- 0.4%
10,200 Oxford Health Plans, Inc.(1) 129,731
30,600 United HealthCare Corp. 1,625,625
------------
1,755,356
------------
MINING & METALS -- 0.8%
11,900 Alcan Aluminium Ltd. 490,131
1,400 Alcoa Inc. 116,200
7,500 Ball Corporation 295,312
30,500 Crown Cork & Seal Co., Inc. 682,438
4,000 Nucor Corp. 219,250
10 1-800-345-6488 See Notes to Financial Statements
VP Income & Growth--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1999
Shares Value
--------------------------------------------------------------------------------
25,200 Phelps Dodge Corp. $ 1,691,550
10,100 Worthington Industries, Inc. 166,966
------------
3,661,847
------------
MOTOR VEHICLES & PARTS -- 1.6%
100 Delphi Automotive Systems Corp. 1,575
83,800 Ford Motor Co. 4,478,062
36,100 General Motors Corp. 2,624,019
9,200 PACCAR Inc. 407,388
------------
7,511,044
------------
MULTI-INDUSTRY -- 0.6%
71,600 Tyco International Ltd. 2,783,450
------------
OIL REFINING -- 0.8%
46,100 Texaco Inc. 2,503,806
43,200 Ultramar Diamond Shamrock
Corp. 980,100
------------
3,483,906
------------
OIL SERVICES -- 1.1%
14,600 Diamond Offshore Drilling, Inc. 446,212
7,400 Noble Drilling Corp.(1) 242,350
57,100 Royal Dutch Petroleum Co. New
York Shares 3,450,981
22,000 Tidewater Inc. 792,000
------------
4,931,543
------------
PROPERTY & CASUALTY INSURANCE -- 1.6%
3,400 Allmerica Financial Corp. 189,125
17,400 Ambac Financial Group, Inc. 908,062
5,825 American International Group, Inc. 629,828
18,800 Loews Corp. 1,140,925
12,700 MGIC Investment Corp. 764,381
9,100 PMI Group, Inc. 444,194
1,900 Radian Group Inc. 90,725
76,800 St. Paul Companies, Inc. 2,587,200
11,500 Travelers Property Casualty
Corp. Cl A 393,875
------------
7,148,315
------------
PUBLISHING -- 0.5%
58,300 Deluxe Corp. 1,599,606
10,200 Donnelley (R.R.) & Sons Co. 253,088
4,000 Knight-Ridder, Inc. 238,000
5,100 Reader's Digest Association, Inc.
(The) 149,175
------------
2,239,869
------------
RAILROADS -- 0.1%
7,800 Union Pacific Corp. 340,275
------------
RESTAURANTS -- 0.4%
11,000 Brinker International, Inc.(1) 264,000
31,200 Darden Restaurants, Inc. 565,500
6,400 Tricon Global Restaurants Inc.(1) 247,200
41,900 Wendy's International, Inc. 864,188
------------
1,940,888
------------
Shares Value
--------------------------------------------------------------------------------
SECURITIES & ASSET MANAGEMENT -- 2.1%
9,300 Lehman Brothers Holdings Inc. $ 787,594
11,300 Merrill Lynch & Co., Inc. 943,550
56,400 Morgan Stanley Dean
Witter & Co. 8,051,100
------------
9,782,244
------------
SEMICONDUCTOR -- 3.6%
28,500 Applied Materials, Inc.(1) 3,609,703
30,100 Integrated Device Technology,
Inc.(1) 871,959
71,200 Intel Corp. 5,858,425
17,600 Lam Research Corp.(1) 1,964,600
15,200 Micron Technology, Inc.(1) 1,181,800
3,100 National Semiconductor Corp.(1) 132,719
18,400 PerkinElmer, Inc. 767,050
400 SDL, Inc.(1) 87,275
19,800 Texas Instruments Inc. 1,918,125
------------
16,391,656
------------
SPECIALTY STORES -- 2.1%
21,900 Best Buy Co., Inc.(1) 1,099,106
24,300 Circuit City Stores-Circuit City
Group 1,095,019
70,950 Home Depot, Inc. 4,864,509
8,700 Lowe's Companies, Inc. 519,825
5,900 Tandy Corp. 290,206
1,400 Tiffany & Co. 124,950
71,600 Toys 'R' Us, Inc.(1) 1,024,775
16,000 Zale Corp.(1) 774,000
------------
9,792,390
------------
TELEPHONE -- 7.1%
134,700 AT&T Corp. 6,836,025
48,700 Bell Atlantic Corp. 2,998,094
103,000 BellSouth Corp. 4,821,688
5,400 Dycom Industries, Inc.(1) 237,938
50,700 GTE Corp. 3,577,519
93,600 MCI WorldCom, Inc.(1) 4,963,725
1,500 NEXTLINK Communications,
Inc. Cl A(1) 124,547
127,852 SBC Communications Inc. 6,232,785
19,100 Sprint Corp. 1,285,669
2,400 Talk.com, Inc.(1) 42,525
20,200 U S WEST, Inc. 1,454,400
------------
32,574,915
------------
THRIFTS -- 0.2%
38,400 GreenPoint Financial Corp. 914,400
------------
TOBACCO -- 0.1%
27,400 Philip Morris Companies Inc. 635,338
------------
TRUCKING, SHIPPING & AIR FREIGHT -- 0.1%
6,800 United Parcel Service, Inc. Cl B 469,200
------------
See Notes to Financial Statements www.americancentury.com 11
VP Income & Growth--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1999
Shares Value
--------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATIONS -- 1.9%
11,400 ALLTEL Corp. $ 942,638
3,700 Nextel Communications, Inc.(1) 381,447
33,200 QUALCOMM Inc.(1) 5,846,312
17,100 Sprint PCS(1) 1,752,750
------------
8,923,147
------------
TOTAL COMMON STOCKS 434,859,049
------------
(Cost $367,150,061)
CONVERTIBLE PREFERRED STOCKS(2)
ELECTRICAL UTILITIES
11,400 Avista Corp., Series L, $1.24,
11/01 173,850
------------
(Cost $198,982)
TEMPORARY CASH INVESTMENTS -- 5.0%
Repurchase Agreement, State Street Boston
Corp., (U.S. Treasury obligations), in a joint
trading account at 3.30%, dated 12/31/99,
due 1/3/00 (Delivery value $22,706,243) 22,700,000
------------
(Cost $22,700,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $457,732,899
============
(Cost $390,049,043)
FUTURES CONTRACTS
Expiration Underlying Face Unrealized
Purchased Date Amount at Value Gain
----------------------------------------------------------------------------------
58 S&P 500 March
Futures 2000 $21,547,000 $787,792
======================================
Futures contracts are typically based on a stock index, such as the S&P 500,
and they tend to track the performance of the index while remaining very liquid
(easy to buy and sell). By investing its cash assets in index futures, the fund
can stay fully invested in stocks while having easy access to the money.
NOTES TO SCHEDULE OF INVESTMENTS
(1) Non-income producing.
(2) Investment in industry or security type is less than 0.05% of total
investment securities.
12 1-800-345-6488 See Notes to Financial Statements
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. The net assets divided by shares outstanding is the share price, or NET
ASSET VALUE PER SHARE. This statement also breaks down the fund's net assets
into capital (shareholder investments) and performance (investment income and
gains/losses).
DECEMBER 31, 1999
ASSETS
Investment securities, at value
(identified cost of $390,049,043)
(Note 3) ............................................... $ 457,732,899
Receivable for investments sold .......................... 2,659,376
Receivable for variation margin
on futures contracts ................................... 903,014
Dividends and interest receivable ........................ 545,487
-------------
461,840,776
-------------
LIABILITIES
Disbursements in excess
of demand deposit cash ................................. 2,472,380
Accrued management fees (Note 2) ......................... 257,716
Payable for directors' fees and expenses ................. 238
-------------
2,730,334
-------------
Net Assets ............................................... $ 459,110,442
=============
CAPITAL SHARES, $0.01 PAR VALUE
Authorized ............................................... 200,000,000
=============
Outstanding .............................................. 57,400,631
=============
Net Asset Value Per Share ................................ $ 8.00
=============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) .................. $ 397,799,414
Accumulated undistributed
net investment income .................................. 2,856,827
Accumulated net realized loss
on investments ......................................... (10,017,447)
Net unrealized appreciation
on investments (Note 3) ................................ 68,471,648
-------------
$ 459,110,442
=============
See Notes to Financial Statements www.americancentury.com 13
Statement of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
YEAR ENDED DECEMBER 31, 1999
INVESTMENT INCOME
Income:
Dividends (net of foreign
taxes withheld of $24,971) ............................ $ 4,109,162
Interest ................................................ 609,849
------------
4,719,011
------------
Expenses (Note 2):
Management fees ......................................... 1,846,900
Directors' fees and expenses ............................ 2,417
------------
1,849,317
------------
Net investment income ................................... 2,869,694
------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (NOTE 3)
Net realized loss on investments ........................ (8,621,094)
Change in net unrealized
appreciation on investments ........................... 57,270,882
------------
Net realized and unrealized
gain on investments ................................... 48,649,788
------------
Net Increase in Net Assets
Resulting from Operations ............................. $ 51,519,482
============
14 1-800-345-6488 See Notes to Financial Statements
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
Increase in Net Assets 1999 1998
OPERATIONS
Net investment income .................... $ 2,869,694 $ 532,047
Net realized loss on investments ......... (8,621,094) (1,398,202)
Change in net unrealized
appreciation on investments ............ 57,270,882 11,135,350
------------- -------------
Net increase in net assets
resulting from operations .............. 51,519,482 10,269,195
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ............... (33,729) (510,742)
From net realized gains
on investment transactions ............. -- (11,379)
------------- -------------
Decrease in net assets
from distributions ..................... (33,729) (522,121)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ................ 351,738,457 128,959,725
Proceeds from reinvestment
of distributions ....................... 33,729 522,121
Payments for shares redeemed ............. (53,773,369) (30,833,174)
------------- -------------
Net increase in net assets
from capital share transactions ........ 297,998,817 98,648,672
------------- -------------
Net increase in net assets ............... 349,484,570 108,395,746
NET ASSETS
Beginning of period ...................... 109,625,872 1,230,126
------------- -------------
End of period ............................ $ 459,110,442 $ 109,625,872
============= =============
Accumulated undistributed
net investment income .................. $ 2,856,827 $ 24,915
============= =============
TRANSACTIONS IN SHARES
OF THE FUND
Sold ..................................... 48,627,922 20,962,716
Issued in reinvestment of distributions .. 4,853 80,307
Redeemed ................................. (7,390,601) (5,112,938)
------------- -------------
Net increase ............................. 41,242,174 15,930,085
============= =============
See Notes to Financial Statements www.americancentury.com 15
Notes to Financial Statements
--------------------------------------------------------------------------------
DECEMBER 31, 1999
--------------------------------------------------------------------------------
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 as an open-end management
investment company. VP Income & Growth Fund (the fund) is one of the six
series of funds issued by the corporation. The fund is diversified under the
1940 Act. The fund's investment objective is dividend growth, current income and
capital appreciation through investment in common stocks. The following
significant accounting policies are in accordance with generally accepted
accounting principles; these policies may require the use of estimates by fund
management.
SECURITY VALUATIONS -- Portfolio 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.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price, depending on local convention or regulation. 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. When
valuations are not readily available, securities are valued at fair value as
determined in accordance with procedures adopted by the Board of Directors.
SECURITY TRANSACTIONS -- Security transactions are accounted for as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld (if any) is
recorded as of the ex-dividend date. Interest income is recorded on the accrual
basis and includes accretion of discounts and amortization of premiums.
FUTURES CONTRACTS -- The fund may enter into stock index 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 changes
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 an unrealized gain or loss. 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 investments and unrealized appreciation
(depreciation) on investments, respectively.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that the fund's investment manager, 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, 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 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 are expected to be declared and paid annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes and may result in reclassification among certain
capital accounts.
At December 31, 1999, the fund had accumulated net realized capital loss
carryovers for federal income tax purposes of $5,056,016 (expiring in 2006
through 2007) which may be used to offset future taxable gains.
For the two month period ended December 31, 1999, the fund incurred net
capital losses of $1,636,287. The fund has elected to treat such losses as
having been incurred in the following fiscal year.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the corporation's
distributor. Certain officers of FDI are also officers of the corporation.
16 1-800-345-6488
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 1999
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
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 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 Investment Company Act of 1940 (including counsel fees) and extraordinary
expenses, will be paid by ACIM. The fee is computed daily and paid monthly based
on the fund's average daily closing net assets during the previous month. The
annual management fee for the fund is 0.70%.
Certain officers and directors of the corporation are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the corporation's investment manager, ACIM, and
the corporation's transfer agent, American Century Services Corporation.
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the year ended December 31, 1999, were $408,530,262 and
$126,054,090, respectively.
As of December 31, 1999, accumulated net unrealized appreciation was
$65,144,657 based on the aggregate cost of investments for federal income tax
purposes of $392,588,242, which consisted of unrealized appreciation of
$81,036,630 and unrealized depreciation of $15,891,973.
--------------------------------------------------------------------------------
4. BANK LOANS
The fund, along with certain other funds managed by ACIM, entered into an
unsecured $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The fund did not borrow from the line during the
year ended December 31, 1999.
www.americancentury.com 17
VP Income & Growth--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the fund is not five years old). It also includes several key statistics for
each reporting period, including TOTAL RETURN, INCOME RATIO (net income as a
percentage of average net assets), EXPENSE RATIO (operating expenses as a
percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the fund's
trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31 (EXCEPT AS NOTED)
1999 1998 1997(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period ... $ 6.78 $ 5.39 $ 5.00
----------- ----------- -----------
Income From Investment Operations
Net Investment Income ................ 0.08(2) 0.03 0.02
Net Realized and Unrealized Gain
on Investment Transactions ........... 1.14 1.41 0.37
----------- ----------- -----------
Total From Investment Operations ..... 1.22 1.44 0.39
----------- ----------- -----------
Distributions
From Net Investment Income ........... --(3) (0.04) --
From Net Realized Gains
on Investment Transactions ........... -- (0.01) --
----------- ----------- -----------
Total Distributions .................. --(3) (0.05) --
----------- ----------- -----------
Net Asset Value, End of Period ......... $ 8.00 $ 6.78 $ 5.39
=========== =========== ===========
Total Return(4) ...................... 18.02% 26.87% 7.80%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................ 0.70% 0.70% 0.70%(5)
Ratio of Net Investment Income
to Average Net Assets ................ 1.09% 1.43% 1.94%(5)
Portfolio Turnover Rate ................ 50% 55% 10%
Net Assets, End of Period
(in thousands) ....................... $ 459,110 $ 109,626 $ 1,230
(1) October 30, 1997 (inception) through December 31, 1997.
(2) Computed using average shares outstanding throughout the period.
(3) Per share amount is less than $0.005.
(4) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(5) Annualized.
18 1-800-345-6488 See Notes to Financial Statements
Independent Auditors' Report
--------------------------------------------------------------------------------
The Board of Directors and Shareholders,
American Century Variable Portfolios, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of VP Income & Growth Fund (the
"Fund") (formerly known as American Century VP Income & Growth),
one of the funds comprising American Century Variable Portfolios, Inc., as of
December 31, 1999, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the two years in the
period then ended and for the period October 30, 1997 (inception) through
December 31, 1997. These financial statements and the financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at December
31, 1999 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above and financial
highlights present fairly, in all material respects, the financial position of
VP Income & Growth Fund as of December 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Kansas City, Missouri
February 4, 2000
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Background Information
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INVESTMENT PHILOSOPHY AND POLICIES
AMERICAN CENTURY VP INCOME & GROWTH seeks current income and capital
appreciation by investing in a diversified portfolio of common stocks. Its goal
is to achieve a total return that exceeds the total return of the S&P 500.
The fund's management team also targets a dividend yield that is higher than the
yield of the S&P 500.
COMPARATIVE INDICES
The following indices are used in the report for fund performance
comparisons. They are not investment products available for purchase.
The S&P 500 is composed of 500 large-capitalization stocks traded on
domestic exchanges. It is considered a broad measure of U.S. stock performance.
The S&P MIDCAP 400 is composed of 400 mid-capitalization stocks traded
on domestic exchanges. It is considered a broad measure of mid-sized stock
performance.
The S&P SMALLCAP 600 is composed of 600 small-capitalization stocks
traded on domestic exchanges. It is considered a broad measure of small-company
stock performance.
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INVESTMENT TEAM LEADERS
Portfolio Managers
KURT BORGWARDT
JOHN SCHNIEDWIND
20 1-800-345-6488
Glossary
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RETURNS
* TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
* AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that
wouldhave produced the fund's cumulative total returns if the fund's performance
had been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year total returns, please refer to the
"Financial Highlights" on page 18.
PORTFOLIO STATISTICS
* NUMBER OF COMPANIES -- the number of different companies held by the fund on a
given date.
* PRICE/EARNINGS (P/E) RATIO -- a stock value measurement calculated by dividing
a company's stock price by its earnings per share, with the result expressed as
a multiple instead of as a percentage. (Earnings per share is calculated by
dividing the after-tax earnings of a corporation by its outstanding shares.)
* PORTFOLIO TURNOVER -- the percentage of the fund's investment portfolio that
is replaced during a given time period, usually a year. Actively managed
portfolios tend to have higher turnover than passively managed portfolios such
as index funds.
TYPES OF STOCKS
* BLUE CHIP STOCKS -- stocks of the most established companies in American
industry. They are generally large, fairly stable companies that have
demonstrated consistent earnings and usually have long-term growth potential.
Examples include General Electric and Coca-Cola.
* CYCLICAL STOCKS -- generally considered to be stocks whose price and earnings
fluctuations tend to follow the ups and downs of the business cycle. Examples
include the stocks of automobile manufacturers, steel producers, and textile
operators.
* GROWTH STOCKS -- stocks of companies that have experienced above-average
earnings growth and appear likely to continue such growth. These stocks often
sell at high P/E ratios. Examples can include the stocks of high-tech,
healthcare, and consumer staple companies.
* LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS -- the stocks of companies
with a market capitalization (the total value of a company's outstanding stock)
of more than $9.0 billion. This is Lipper's market-capitalization breakpoint as
of December 31, 1999, although it may be subject to change based on market
fluctuations. The Dow Jones Industrial Average and the S&P 500 are
representative indexes of large-cap stock performance.
* MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS -- the stocks of companies
with a market capitalization (the total value of a company's outstanding stock)
between $2.2 billion and $9.0 billion. This is Lipper's market-capitalization
breakpoint as of December 31, 1999, although it may be subject to change based
on market fluctuations. The S&P 400 and Russell 2500 are representative of
mid-cap stock performance.
* SMALL-CAPITALIZATION ("SMALL-CAP") STOCKS -- the stocks of companies
with a market capitalization (the total value of a company's outstanding stock)
of less than $2.2 billion. This is Lipper's market-capitalization breakpoint as
of December 31, 1999, although it may be subject to change based on market
fluctuations. The S&P 600 and the Russell 2000 are representative of
small-cap stock performance.
* VALUE STOCKS -- generally considered to be stocks that are purchased because
they are relatively inexpensive. These stocks are typically characterized by low
P/E ratios.
EQUITY TERMS
* DIVIDEND YIELD --a percentage return calculated by dividing a company's annual
cash dividend by the current market value of the company's stock.
* PRICE/BOOK RATIO -- a stock value measurement calculated by dividing a
company's stock price by its book value per share, with the result expressed as
a multiple instead of as a percentage. (Book value per share is calculated by
subtracting a company's liabilities from its assets, then dividing that value by
the number of outstanding shares.)
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Glossary
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(Continued)
FUND CLASSIFICATIONS
Please be aware that the fund's category may change over time. Therefore, it
is important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies, and risk potential are consistent
with your needs.
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatility levels
than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income
provided by either dividend-paying equities or a combination of equity and
fixed-income securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high
price-fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price-fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price-fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price-fluctuation risk.
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Notes
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Notes
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24 1-800-345-6488
[inside back cover]
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INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
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RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
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INVESTMENT OBJECTIVE - INCOME
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RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
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INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation -- Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Large Cap Value
Strategic Allocation -- Tax-Managed Value
Moderate Income & Growth
Strategic Allocation -- Value
Conservative Equity Income
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INVESTMENT OBJECTIVE - GROWTH
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RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
Veedot(reg.sm) Global Gold Emerging Markets
New Opportunities International Discovery
Giftrust(reg.tm) International Growth
Vista Global Growth
Heritage
Growth
Ultra(reg.tm)
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.For a definition of fund categories, see the Glossary.
* While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
WHO WE ARE
American Century offers investors more than 70 mutual funds that span the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, with a range of services designed to
make investing easy and convenient.
For four decades, American Century has been a leader in performance, service and
innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have remained committed to building long-term relationships and to
helping investors achieve their dreams.
In a very real sense, investors put their future in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
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[american century logo (reg.sm)]
American
Century
P.O. BOX 419385
KANSAS CITY, MISSOURI 64141-6385
WWW.AMERICANCENTURY.COM
INVESTMENT PROFESSIONAL SERVICE REPRESENTATIVES
1-800-345-6488
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-4360
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
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American Century Investments BULK RATE
P.O. Box 419385 U.S. POSTAGE PAID
Kansas City, MO 64141-6385 AMERICAN CENTURY
www.americancentury.com COMPANIES
0002 Funds Distributor, Inc., Distributor
SH-ANN-19618 (c)2000 American Century Services Corporation
