UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

 

 

Investment Company Act file number

811-10155

   
   
   

AMERICAN CENTURY VARIABLE PORTFOLIOS II, INC.

(Exact name of registrant as specified in charter)

   
   
   

4500 MAIN STREET, KANSAS CITY, MISSOURI

64111

(Address of principal executive offices)

(Zip Code)

   
   
   

CHARLES A. ETHERINGTON

4500 MAIN STREET, KANSAS CITY, MISSOURI 64111

(Name and address of agent for service)

   
   

Registrant’s telephone number, including area code:

816-531-5575

   
   

Date of fiscal year end:

12-31

   
   

Date of reporting period:

12-31-2013

 

 
 

 

 

ITEM 1. REPORTS TO STOCKHOLDERS.

 

 

 

ANNUAL REPORT  

  DECEMBER 31, 2013

 

 

 

 

VP Inflation Protection Fund

 

 
 

 

 

Table of Contents

 

Market Perspective

2

Performance

3

Portfolio Commentary

5

Fund Characteristics

7

Shareholder Fee Example

8

Schedule of Investments

9

Statement of Assets and Liabilities

20

Statement of Operations

21

Statement of Changes in Net Assets

22

Notes to Financial Statements

23

Financial Highlights

31

Report of Independent Registered Public Accounting Firm

32

Management

33

Additional Information

36

 

Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments ® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.

 

 
 

 

 

Market Perspective

 

By David MacEwen, Co-Chief Investment Officer

 

Slow Growth Led to Muted Inflation

 

Despite the continuation of the Federal Reserve’s (the Fed’s) low interest rate and bond-buying strategies designed to spark economic growth (and, ultimately, inflation), U.S. economic expansion remained relatively modest overall during 2013. In conjunction with limited global growth, inflationary pressures remained largely contained, and inflation-sensitive assets, including Treasury inflation-protected securities (TIPS), generally declined in value.

 

Muted inflation wasn’t the only obstacle facing TIPS investors during 2013. It was a challenging year for U.S. government bond investors in general, as yields on Treasury notes and bonds increased sharply. Investors expected improvements in certain economic sectors (particularly housing and the labor market) to trigger tapering in the Fed’s long-standing quantitative easing (QE) program, despite uncertainties about whether the economy was strong enough to withstand tapering.

 

Fed’s Taper Talk Triggered Treasury Sector Sell-Off

 

The Fed validated investor speculation about QE changes last spring, hinting it may begin tapering its $85 billion monthly bond purchases later in the year (the financial markets focused on September) if the economy and labor markets continued to improve. This “taper talk” rattled the fixed income market (where QE had helped suppress yields at historically low levels), driving yields higher and triggering a widespread sell-off. Volatility was greatest among less-liquid and longer-duration (greater price sensitivity to interest rate changes) securities, including TIPS. At the same time, weak inflation data and declining long-term inflation expectations weighed on inflation-indexed bonds.

 

Although the Fed surprised the financial markets with its September announcement of a taper delay, improving economic data in the fourth quarter suggested the delay would be short-lived. In December, the Fed announced it would reduce its monthly bond buying by $10 billion, starting in January 2014.

 

The prospect of reduced Fed bond buying tempered long-term inflation expectations. But the massive expansion of the Fed’s balance sheet since 2008, along with the Fed’s ongoing low interest rate policy, ultimately may lead to higher inflation.

 

U.S. Fixed-Income Total Returns

For the 12 months ended December 31, 2013

Barclays U.S. Bond Market Indices

 

Barclays U.S. Treasury Bellwethers

Corporate High-Yield

  7.44%

 

10-Year Note

-7.81%

MBS (mortgage-backed securities)

-1.41%

 

3-Month Bill

 0.08%

Corporate (investment-grade)

-1.53%

     

Aggregate (multi-sector)

-2.02%

     

Treasury

-2.75%

     

Treasury Inflation Protected Securities (TIPS)

-8.61%

     

 

 
2

 

 

Performance

 

Total Returns as of December 31, 2013

     

Average Annual Returns

 
 

Ticker

Symbol

1 year

5 years

10 years

Since

Inception

Inception

Date

Class II

AIPTX

-8.48%

4.93%

4.11%

4.25%

12/31/02

Barclays U.S. Treasury

Inflation Protected

Securities (TIPS) Index

-8.61%

5.63%

4.84%

5.17%

Class I

APTIX

-8.21%

5.19%

4.66%

5/7/04

 

The performance information presented does not include charges and deductions imposed by the insurance company separate account under the variable annuity or variable life insurance contracts. The inclusion of such charges could significantly lower performance. Please refer to the insurance company separate account prospectus for a discussion of the charges related to insurance contracts.

 

Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-6488. As interest rates rise, bond values will decline.

 

Unless otherwise indicated, performance reflects Class II shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not.   

 

 
3

 

 

Growth of $10,000 Over 10 Years

$10,000 investment made December 31, 2003

 

 

 

 

Total Annual Fund Operating Expenses

Class I

Class II

0.48%

0.73%

 

The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.

 

Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-6488. As interest rates rise, bond values will decline.

 

Unless otherwise indicated, performance reflects Class II shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not.   

 

 
4

 

 

Portfolio Commentary

 

 

Portfolio Managers: Bob Gahagan, Brian Howell, Jim Platz, Hando Aguilar, and Jeff Houston

 

Performance Summary

 

VP Inflation Protection declined -8.48%* for the 12 months ended December 31, 2013. The portfolio’s benchmark, the Barclays U.S. Treasury Inflation Protected Securities (TIPS) Index, declined -8.61% for the same time period. Fund returns reflect operating expenses, while benchmark returns do not.

 

The portfolio’s absolute performance reflected the challenging environment for TIPS, including subdued inflation and rising Treasury yields. The portfolio’s outperformance versus the benchmark was due to better relative results from the portfolio’s non-benchmark securities (held in the portfolio but not in the benchmark).

 

Market Backdrop

 

The headline inflation rate remained well below the Federal Reserve’s (the Fed’s) target level throughout the year, providing plenty of room for the central bank to maintain its accommodative monetary policies—policies that eventually may trigger higher inflation than what currently is priced into the financial markets. Specifically, the Fed continued its $85 billion monthly bond-buying program, known as quantitative easing (QE), and kept short-term interest rates at the ultra-low range of 0.00% to 0.25%.

 

But as the period progressed, it became increasingly evident the central bank was contemplating winding down QE, which in the wake of the financial crisis had helped drive down Treasury yields to record lows and support broad financial market gains. Although overall economic growth remained subpar, improvements in select indicators ultimately provided a catalyst for the Fed to announce it would begin tapering QE in January 2014.

 

Despite continued Fed bond buying throughout the period, all investment-grade bond sectors posted negative returns in the improving economy/taper-anticipation environment. TIPS underperformed nominal Treasuries and the broad investment-grade bond market primarily due to the market’s general preference for higher-yielding, higher-risk securities; TIPS’s less-liquid and longer-duration (greater price sensitivity to interest rate changes) characteristics; the absence of significant current inflation pressures; and declining longer-term inflation expectations.

 

Inflation Backdrop

 

Overall, current U.S. inflation, as measured by the Consumer Price Index (CPI), remained muted during the 12-month period, providing little support to TIPS. At the end of December 2013, the 12-month headline inflation rate was 1.5%, below the Fed’s long-term target rate of 2% and lower than the 1.7% annual inflation rate at the end of 2012.

 

 

 

*All fund returns referenced in this commentary are for Class II shares.

 

 
5

 

 

Global commodity prices, which influence the inflation rate, declined slightly during 2013. But oil prices were mixed, with Brent crude starting and ending the period at $111 a barrel and West Texas Intermediate (WTI) crude futures advancing from $92 a barrel at the end of 2012 to $98 at the close of 2013.

 

Subpar growth and muted current inflation also led to declining longer-term inflation expectations. Specifically, the 10-year breakeven rate (the yield difference between 10-year TIPS and nominal 10-year Treasuries) narrowed from 2.45 percentage points at the end of December 2012 to 2.23 percentage points at the end of 2013. Theoretically, this rate indicates the market’s expectations for inflation for the next 10 years and also reflects the inflation rate required for TIPS to outperform nominal Treasuries during that period.

 

Portfolio Positioning

 

IRS portfolio diversification regulations for insurance products limit the portfolio’s TIPS exposure to a maximum of 55%. As of December 31, 2013, the portfolio’s TIPS exposure was 52%. The remainder of the portfolio included non-dollar inflation-linked bonds (hedged against currency fluctuations) and investment-grade corporate and mortgage securities. Although these sectors generally declined for the 12-month period, they outperformed TIPS and helped account for the portfolio’s better results relative to the all-TIPS benchmark.

 

In an effort to maintain maximum portfolio inflation protection without investing further in TIPS, we used inflation “swaps” to create an inflation-linked “overlay” for the non-inflation-linked securities. Inflation swaps are fixed-maturity instruments, negotiated through a counterparty (investment bank), that return the rate of inflation (CPI). All swaps bear counterparty credit risk, but American Century Investments applies stringent controls and oversight with regard to counterparty credit risk. This strategy contributed to the portfolio’s better relative results, primarily because we used corporate and higher-yielding mortgage securities as the counterparts to the swap agreements, and these securities generally outperformed TIPS.

 

Outlook

 

Although inflation was tame throughout 2013, we believe longer-term inflation threats remain intact, including growing federal debt, relatively low interest rates, and ongoing, albeit slightly reduced, Fed bond buying. We believe these factors, combined with an improving economic environment, eventually may trigger higher inflation than currently is priced into the bond market. This underscores, in our view, the importance of securing potential long-term inflation protection through investments in TIPS and other inflation-linked securities.

 

 
6

 

 

Fund Characteristics

 

DECEMBER 31, 2013

 

Types of Investments in Portfolio

% of net assets

U.S. Treasury Securities

52.8%

Corporate Bonds

16.2%

Sovereign Governments and Agencies

16.1%

U.S. Government Agency Mortgage-Backed Securities

 5.6%

Commercial Mortgage-Backed Securities

 2.7%

Collateralized Mortgage Obligations

 1.3%

Municipal Securities

 0.1%

Temporary Cash Investments

 5.6%

Other Assets and Liabilities

 (0.4)%

   

Portfolio at a Glance

 

Average Duration (effective)

        5.9 years

Weighted Average Life

        8.4 years

 

 
7

 

Shareholder Fee Example

 

Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.

 

The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from July 1, 2013 to December 31, 2013.

 

Actual Expenses

 

The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

 

Hypothetical Example for Comparison Purposes

 

The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

 

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

 

 

Beginning
Account Value

7/1/13

Ending
Account Value

12/31/13

Expenses Paid

During Period (1)
7/1/13 - 12/31/13

Annualized
Expense Ratio (1)

Actual

       

Class I

$1,000

   $988.20

$2.41

0.48%

Class II

$1,000

   $987.50

$3.66

0.73%

Hypothetical

       

Class I

$1,000

$1,022.79

$2.45

0.48%

Class II

$1,000

$1,021.53

$3.72

0.73%

 

(1)

Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period.

 

 
8

 

 

Schedule of Investments

 

DECEMBER 31, 2013

 

     

Principal

Amount

   

Value

 

U.S. Treasury Securities — 52.8%

 

U.S. Treasury Inflation Indexed Bonds, 2.375%, 1/15/25

  $18,717,452     $21,519,230  

U.S. Treasury Inflation Indexed Bonds, 2.00%, 1/15/26 (1)

  16,527,841     18,308,451  

U.S. Treasury Inflation Indexed Bonds, 2.375%, 1/15/27

  11,561,672     13,318,051  

U.S. Treasury Inflation Indexed Bonds, 1.75%, 1/15/28

  12,825,968     13,727,288  

U.S. Treasury Inflation Indexed Bonds, 3.625%, 4/15/28

  3,170,717     4,192,778  

U.S. Treasury Inflation Indexed Bonds, 2.50%, 1/15/29

  12,046,388     14,143,207  

U.S. Treasury Inflation Indexed Bonds, 3.875%, 4/15/29

  1,683,364     2,306,536  

U.S. Treasury Inflation Indexed Bonds, 3.375%, 4/15/32

  5,396,878     7,178,059  

U.S. Treasury Inflation Indexed Bonds, 2.125%, 2/15/40

  10,712,761     12,027,999  

U.S. Treasury Inflation Indexed Bonds, 2.125%, 2/15/41

  12,056,605     13,538,254  

U.S. Treasury Inflation Indexed Bonds, 0.75%, 2/15/42

  12,904,281     10,372,319  

U.S. Treasury Inflation Indexed Bonds, 0.625%, 2/15/43

  10,219,360     7,854,937  

U.S. Treasury Inflation Indexed Notes, 1.875%, 7/15/15

  9,975,868     10,522,985  

U.S. Treasury Inflation Indexed Notes, 2.00%, 1/15/16

  3,673,376     3,917,740  

U.S. Treasury Inflation Indexed Notes, 0.125%, 4/15/16 (1)

  26,700,494     27,434,757  

U.S. Treasury Inflation Indexed Notes, 2.50%, 7/15/16

  8,951,460     9,828,077  

U.S. Treasury Inflation Indexed Notes, 2.375%, 1/15/17

  650,807     716,625  

U.S. Treasury Inflation Indexed Notes, 0.125%, 4/15/17

  7,003,962     7,203,414  

U.S. Treasury Inflation Indexed Notes, 2.625%, 7/15/17

  11,267,700     12,682,326  

U.S. Treasury Inflation Indexed Notes, 1.625%, 1/15/18

  880,629     957,615  

U.S. Treasury Inflation Indexed Notes, 0.125%, 4/15/18

  45,958,293     46,891,798  

U.S. Treasury Inflation Indexed Notes, 2.125%, 1/15/19

  2,137,350     2,388,072  

U.S. Treasury Inflation Indexed Notes, 1.875%, 7/15/19

  477,960     531,432  

U.S. Treasury Inflation Indexed Notes, 1.375%, 1/15/20

  5,114,548     5,494,145  

U.S. Treasury Inflation Indexed Notes, 1.25%, 7/15/20

  13,538,377     14,487,120  

U.S. Treasury Inflation Indexed Notes, 1.125%, 1/15/21

  14,638,383     15,384,604  

U.S. Treasury Inflation Indexed Notes, 0.625%, 7/15/21

  25,691,339     26,081,719  

U.S. Treasury Inflation Indexed Notes, 0.125%, 1/15/22

  14,102,506     13,550,519  

U.S. Treasury Inflation Indexed Notes, 0.125%, 7/15/22

  21,884,241     20,960,135  

U.S. Treasury Inflation Indexed Notes, 0.125%, 1/15/23

  16,221,067     15,314,342  

U.S. Treasury Inflation Indexed Notes, 0.375%, 7/15/23

  11,038,390     10,640,401  

TOTAL U.S. TREASURY SECURITIES   (Cost $379,046,709)

    383,474,935  

Corporate Bonds — 16.2%

 

AEROSPACE AND DEFENSE — 0.5%

 

L-3 Communications Corp., 5.20%, 10/15/19

  312,000     337,453  

Lockheed Martin Corp., 2.125%, 9/15/16

  562,000     576,944  

 

 
9

 

 

             
   

Principal

Amount

   

Value

 

Lockheed Martin Corp., 4.25%, 11/15/19

  $740,000     $796,302  

United Technologies Corp., 4.875%, 5/1/15

  1,686,000     1,782,351  

United Technologies Corp., 4.50%, 6/1/42

  268,000     260,315  
            3,753,365  

AUTOMOBILES — 0.5%

 

Daimler Finance North America LLC, 1.875%, 1/11/18 (2)

  499,000     491,791  

Ford Motor Credit Co. LLC, 2.375%, 1/16/18

  1,249,000     1,262,091  

Toyota Motor Credit Corp., MTN, 3.30%, 1/12/22

  1,686,000     1,687,018  
            3,440,900  

BEVERAGES — 0.7%

 

Anheuser-Busch InBev Worldwide, Inc., 7.75%, 1/15/19

  893,000     1,115,698  

Anheuser-Busch InBev Worldwide, Inc., 5.375%, 1/15/20

  749,000     859,796  

Diageo Capital plc, 2.625%, 4/29/23

  500,000     456,028  

Dr Pepper Snapple Group, Inc., 2.90%, 1/15/16

  712,000     739,275  

PepsiCo, Inc., 2.75%, 3/1/23

  568,000     525,907  

SABMiller Holdings, Inc., 2.45%, 1/15/17 (2)

  980,000     1,003,900  

SABMiller Holdings, Inc., 3.75%, 1/15/22 (2)

  230,000     230,929  
            4,931,533  

BIOTECHNOLOGY — 0.2%

 

Amgen, Inc., 5.85%, 6/1/17

  637,000     723,043  

Gilead Sciences, Inc., 4.40%, 12/1/21

  837,000     894,134  
            1,617,177  

CAPITAL MARKETS — 0.2%

 

Ameriprise Financial, Inc., 4.00%, 10/15/23

  300,000     299,218  

Bank of New York Mellon Corp. (The), MTN, 2.50%, 1/15/16

  1,249,000     1,289,117  
            1,588,335  

CHEMICALS — 0.4%

 

Dow Chemical Co. (The), 2.50%, 2/15/16

  737,000     760,293  

Eastman Chemical Co., 3.60%, 8/15/22

  999,000     959,412  

Ecolab, Inc., 4.35%, 12/8/21

  624,000     647,239  

EI du Pont de Nemours & Co., 4.15%, 2/15/43

  187,000     165,009  

LyondellBasell Industries NV, 5.00%, 4/15/19

  225,000     250,047  
            2,782,000  

COMMERCIAL BANKS — 0.6%

 

Bank of Montreal, MTN, 1.45%, 4/9/18

  250,000     243,572  

BB&T Corp., MTN, 2.05%, 6/19/18

  300,000     297,180  

Capital One Financial Corp., 3.15%, 7/15/16

  562,000     587,651  

Cooperatieve Centrale Raiffeisen-Boerenleenbank BA, 3.875%, 2/8/22

  499,000     501,875  

Fifth Third Bancorp, 4.30%, 1/16/24

  165,000     161,666  

Northern Trust Co. (The), MTN, 6.50%, 8/15/18

  468,000     551,978  

PNC Funding Corp., 3.625%, 2/8/15

  231,000     239,017  

Standard Chartered plc, 5.20%, 1/26/24 (2)

  160,000     159,734  

U.S. Bancorp., MTN, 2.95%, 7/15/22

  499,000     463,787  

Wells Fargo & Co., 5.625%, 12/11/17

  1,249,000     1,432,287  
            4,638,747  

COMMERCIAL SERVICES AND SUPPLIES — 0.1%

 

Republic Services, Inc., 3.80%, 5/15/18

  468,000     495,943  

COMMUNICATIONS EQUIPMENT — 0.2%

 

Apple, Inc., 1.00%, 5/3/18

  250,000     241,874  

Apple, Inc., 2.40%, 5/3/23

  250,000     224,885  

CC Holdings GS V LLC/ Crown Castle GS III Corp., 3.85%, 4/15/23

  175,000     163,874  

Cisco Systems, Inc., 5.90%, 2/15/39

  521,000     579,359  
            1,209,992  

CONSUMER FINANCE — 0.5%

 

American Express Co., 1.55%, 5/22/18

  1,050,000     1,025,799  

American Express Credit Corp., 1.30%, 7/29/16

  370,000     373,073  

Caterpillar Financial Services Corp., MTN, 1.125%, 12/15/14

  812,000     818,555  

Caterpillar Financial Services Corp., MTN, 1.25%, 11/6/17

  262,000     258,376  

Discover Bank, 2.00%, 2/21/18

  400,000     393,074  

 

 
10

 

 

             
   

Principal

Amount

   

Value

 

John Deere Capital Corp., MTN, 3.15%, 10/15/21

  $468,000     $461,578  

PNC Bank N.A., 6.00%, 12/7/17

  499,000     568,904  
            3,899,359  

DIVERSIFIED CONSUMER SERVICES

 

Catholic Health Initiatives, 2.95%, 11/1/22

  281,000     255,473  

DIVERSIFIED FINANCIAL SERVICES — 2.2%

 

Bank of America Corp., 5.75%, 12/1/17

  1,705,000     1,941,408  

Bank of America Corp., MTN, 3.30%, 1/11/23

  1,030,000     974,990  

BNP Paribas SA, MTN, 2.70%, 8/20/18

  170,000     173,289  

BNP Paribas SA, MTN, 2.40%, 12/12/18

  350,000     350,441  

Citigroup, Inc., 6.01%, 1/15/15

  924,000     973,258  

Citigroup, Inc., 1.75%, 5/1/18

  499,000     490,937  

Citigroup, Inc., 4.05%, 7/30/22

  400,000     395,670  

General Electric Capital Corp., MTN, 5.00%, 1/8/16

  1,186,000     1,282,277  

General Electric Capital Corp., MTN, 6.00%, 8/7/19

  1,123,000     1,318,486  

General Electric Capital Corp., MTN, 4.65%, 10/17/21

  400,000     435,908  

Goldman Sachs Group, Inc. (The), 2.375%, 1/22/18

  500,000     502,160  

Goldman Sachs Group, Inc. (The), 2.90%, 7/19/18

  250,000     254,563  

Goldman Sachs Group, Inc. (The), 5.75%, 1/24/22

  624,000     702,635  

Goldman Sachs Group, Inc. (The), 3.625%, 1/22/23

  1,312,000     1,270,912  

HSBC Holdings plc, 5.10%, 4/5/21

  624,000     693,734  

JPMorgan Chase & Co., 4.625%, 5/10/21

  780,000     841,076  

JPMorgan Chase & Co., 4.50%, 1/24/22

  1,249,000     1,321,506  

Morgan Stanley, 5.00%, 11/24/25

  1,580,000     1,585,355  

Morgan Stanley, MTN, 5.95%, 12/28/17

  499,000     570,393  
            16,078,998  

DIVERSIFIED TELECOMMUNICATION SERVICES — 0.7%

 

AT&T, Inc., 5.10%, 9/15/14

  481,000     496,414  

AT&T, Inc., 2.625%, 12/1/22

  468,000     422,406  

AT&T, Inc., 6.55%, 2/15/39

  533,000     605,237  

British Telecommunications plc, 5.95%, 1/15/18

  624,000     713,873  

Deutsche Telekom International Finance BV, 6.75%, 8/20/18

  918,000     1,088,768  

Verizon Communications, Inc., 6.10%, 4/15/18

  799,000     928,428  

Verizon Communications, Inc., 5.15%, 9/15/23

  750,000     805,545  
            5,060,671  

ENERGY EQUIPMENT AND SERVICES — 0.1%

 

Ensco plc, 4.70%, 3/15/21

  468,000     495,158  

Transocean, Inc., 5.05%, 12/15/16

  312,000     344,870  

Transocean, Inc., 3.80%, 10/15/22

  250,000     237,034  
            1,077,062  

FOOD AND STAPLES RETAILING — 0.6%

 

CVS Caremark Corp., 2.75%, 12/1/22

  1,249,000     1,153,193  

Safeway, Inc., 4.75%, 12/1/21

  656,000     658,925  

Wal-Mart Stores, Inc., 2.875%, 4/1/15

  425,000     438,481  

Wal-Mart Stores, Inc., 3.25%, 10/25/20

  1,074,000     1,096,966  

Wal-Mart Stores, Inc., 5.625%, 4/15/41

  812,000     922,216  

Walgreen Co., 3.10%, 9/15/22

  250,000     234,451  
            4,504,232  

FOOD PRODUCTS — 0.4%

 

General Mills, Inc., 3.15%, 12/15/21

  1,196,000     1,171,118  

Kraft Foods Group, Inc., 5.375%, 2/10/20

  784,000     884,718  

Unilever Capital Corp., 2.20%, 3/6/19

  500,000     499,685  
            2,555,521  

GAS UTILITIES — 0.7%

 

Energy Transfer Partners LP, 4.15%, 10/1/20

  400,000     405,958  

Energy Transfer Partners LP, 3.60%, 2/1/23

  312,000     289,022  

Enterprise Products Operating LLC, 3.70%, 6/1/15

  468,000     487,416  

Enterprise Products Operating LLC, 4.85%, 3/15/44

  250,000     235,157  

 

 
11

 

 

             
   

Principal

Amount

   

Value

 

Kinder Morgan Energy Partners LP, 5.30%, 9/15/20

  $812,000     $895,961  

Plains All American Pipeline LP/PAA Finance Corp., 3.65%, 6/1/22

  712,000     699,759  

Sunoco Logistics Partners Operations LP, 3.45%, 1/15/23

  499,000     458,660  

TransCanada PipeLines Ltd., 2.50%, 8/1/22

  312,000     284,663  

Williams Partners LP, 3.80%, 2/15/15

  812,000     839,125  

Williams Partners LP, 4.125%, 11/15/20

  531,000     544,513  
            5,140,234  

HEALTH CARE EQUIPMENT AND SUPPLIES — 0.1%

 

Baxter International, Inc., 3.20%, 6/15/23

  350,000     334,493  

Medtronic, Inc., 2.75%, 4/1/23

  312,000     288,700  
            623,193  

HEALTH CARE PROVIDERS AND SERVICES — 0.2%

 

Aetna, Inc., 2.75%, 11/15/22

  406,000     374,116  

Express Scripts Holding Co., 3.125%, 5/15/16

  531,000     554,495  

Express Scripts Holding Co., 7.25%, 6/15/19

  324,000     393,247  

UnitedHealth Group, Inc., 4.25%, 3/15/43

  406,000     364,447  
            1,686,305  

HOUSEHOLD DURABLES — 0.1%

 

Mohawk Industries, Inc., 3.85%, 2/1/23

  375,000     358,125  

INDUSTRIAL CONGLOMERATES — 0.1%

 

General Electric Co., 5.25%, 12/6/17

  687,000     778,019  

INSURANCE — 0.9%

 

Allstate Corp. (The), 4.50%, 6/15/43

  350,000     331,243  

American International Group, Inc., 4.875%, 6/1/22

  780,000     838,622  

American International Group, Inc., MTN, 5.85%, 1/16/18

  400,000     459,463  

Berkshire Hathaway, Inc., 4.50%, 2/11/43

  712,000     658,366  

Boeing Capital Corp., 2.125%, 8/15/16

  743,000     767,029  

Hartford Financial Services Group, Inc., 5.125%, 4/15/22

  350,000     381,340  

ING US, Inc., 2.90%, 2/15/18

  499,000     510,636  

Liberty Mutual Group, Inc., 4.25%, 6/15/23 (2)

  400,000     386,345  

MetLife, Inc., 6.75%, 6/1/16

  659,000     749,682  

Metropolitan Life Global Funding I, 3.00%, 1/10/23 (2)

  999,000     931,085  

Prudential Financial, Inc., MTN, 2.30%, 8/15/18

  300,000     298,398  

Prudential Financial, Inc., VRN, 3.24%, 1/2/14

  189,000     196,363  

XLIT Ltd., 2.30%, 12/15/18

  250,000     245,701  
            6,754,273  

IT SERVICES — 0.1%

 

Fidelity National Information Services, Inc., 3.50%, 4/15/23

  125,000     113,979  

International Business Machines Corp., 1.95%, 7/22/16

  818,000     840,837  
            954,816  

LIFE SCIENCES TOOLS AND SERVICES — 0.2%

 

Thermo Fisher Scientific, Inc., 3.20%, 3/1/16

  1,249,000     1,306,434  

MACHINERY — 0.1%

 

Deere & Co., 2.60%, 6/8/22

  262,000     245,069  

Deere & Co., 5.375%, 10/16/29

  468,000     525,577  
            770,646  

MEDIA — 1.2%

 

21st Century Fox America, Inc., 6.90%, 8/15/39

  705,000     840,426  

Comcast Corp., 6.50%, 11/15/35

  556,000     648,645  

DirecTV Holdings LLC/DirecTV Financing Co., Inc., 4.75%, 10/1/14

  387,000     398,587  

DirecTV Holdings LLC/DirecTV Financing Co., Inc., 3.55%, 3/15/15

  718,000     741,889  

NBCUniversal Media LLC, 5.15%, 4/30/20

  1,280,000     1,431,064  

NBCUniversal Media LLC, 4.375%, 4/1/21

  730,000     772,863  

Time Warner Cable, Inc., 8.25%, 2/14/14

  418,000     421,601  

Time Warner Cable, Inc., 6.75%, 7/1/18

  1,061,000     1,190,472  

Time Warner, Inc., 4.875%, 3/15/20

  718,000     787,176  

Viacom, Inc., 4.50%, 3/1/21

  843,000     882,277  

Walt Disney Co. (The), MTN, 2.35%, 12/1/22

  499,000     453,544  
            8,568,544  

 

 
12

 

 

             
   

Principal

Amount

   

Value

 

METALS AND MINING — 0.4%

 

Barrick North America Finance LLC, 4.40%, 5/30/21

  $574,000     $552,827  

BHP Billiton Finance USA Ltd., 3.25%, 11/21/21

  936,000     930,741  

Freeport-McMoRan Copper & Gold, Inc., 3.875%, 3/15/23

  87,000     82,299  

Newmont Mining Corp., 6.25%, 10/1/39

  662,000     585,661  

Rio Tinto Finance USA Ltd., 3.75%, 9/20/21

  468,000     472,632  
            2,624,160  

MULTI-UTILITIES — 0.6%

 

CMS Energy Corp., 6.25%, 2/1/20

  250,000     289,096  

Constellation Energy Group, Inc., 5.15%, 12/1/20

  800,000     851,502  

Dominion Resources, Inc., 6.40%, 6/15/18

  1,105,000     1,289,327  

Duke Energy Corp., 3.55%, 9/15/21

  780,000     780,425  

Georgia Power Co., 4.30%, 3/15/42

  250,000     224,957  

Sempra Energy, 2.00%, 3/15/14

  624,000     625,959  

Sempra Energy, 6.50%, 6/1/16

  356,000     400,775  
            4,462,041  

OIL, GAS AND CONSUMABLE FUELS — 1.4%

 

Apache Corp., 4.75%, 4/15/43

  599,000     581,138  

BP Capital Markets plc, 2.50%, 11/6/22

  262,000     238,630  

BP Capital Markets plc, 2.75%, 5/10/23

  375,000     342,535  

Chevron Corp., 2.43%, 6/24/20

  350,000     340,680  

ConocoPhillips, 4.75%, 2/1/14

  509,000     510,735  

ConocoPhillips Co., 2.40%, 12/15/22

  887,000     807,999  

EOG Resources, Inc., 2.50%, 2/1/16

  1,686,000     1,740,262  

Noble Energy, Inc., 4.15%, 12/15/21

  874,000     898,961  

Occidental Petroleum Corp., 1.75%, 2/15/17

  375,000     376,443  

Petro-Canada, 6.80%, 5/15/38

  250,000     299,276  

Petroleos Mexicanos, 3.50%, 1/30/23

  331,000     304,106  

Shell International Finance BV, 2.375%, 8/21/22

  2,510,000     2,299,117  

Statoil ASA, 2.45%, 1/17/23

  468,000     426,740  

Talisman Energy, Inc., 3.75%, 2/1/21

  375,000     363,158  

Total Capital SA, 2.125%, 8/10/18

  350,000     351,564  
            9,881,344  

PAPER AND FOREST PRODUCTS

 

International Paper Co., 6.00%, 11/15/41

  325,000     353,012  

PHARMACEUTICALS — 0.6%

 

AbbVie, Inc., 2.90%, 11/6/22

  577,000     539,482  

GlaxoSmithKline Capital plc, 2.85%, 5/8/22

  499,000     470,784  

Merck & Co., Inc., 2.40%, 9/15/22

  499,000     455,960  

Mylan, Inc., 2.60%, 6/24/18 (2)

  210,000     210,240  

Mylan, Inc., 2.55%, 3/28/19

  300,000     297,200  

Roche Holdings, Inc., 6.00%, 3/1/19 (2)

  1,161,000     1,359,468  

Sanofi, 1.20%, 9/30/14

  843,000     848,352  

Teva Pharmaceutical Finance IV LLC, 2.25%, 3/18/20

  312,000     296,759  
            4,478,245  

REAL ESTATE INVESTMENT TRUSTS (REITs) — 0.3%

 

Boston Properties LP, 3.80%, 2/1/24

  210,000     201,456  

Essex Portfolio LP, 3.625%, 8/15/22

  250,000     234,486  

HCP, Inc., 5.375%, 2/1/21

  312,000     339,723  

Host Hotels & Resorts LP, 3.75%, 10/15/23

  250,000     231,879  

Kilroy Realty LP, 3.80%, 1/15/23

  331,000     308,779  

ProLogis LP, 4.25%, 8/15/23

  250,000     247,050  

Ventas Realty LP/Ventas Capital Corp., 3.25%, 8/15/22

  468,000     433,734  
            1,997,107  

ROAD AND RAIL — 0.3%

 

Burlington Northern Santa Fe LLC, 4.95%, 9/15/41

  250,000     246,520  

Canadian National Railway Co., 4.50%, 11/7/43

  375,000     362,232  

CSX Corp., 4.25%, 6/1/21

  799,000     834,546  

Norfolk Southern Corp., 5.75%, 4/1/18

  250,000     284,975  

 

 
13

 

 

             
   

Principal

Amount

   

Value

 

Norfolk Southern Corp., 3.85%, 1/15/24

  $100,000     $98,262  

Penske Truck Leasing Co. LP/PTL Finance Corp., 2.875%, 7/17/18 (2)

  250,000     251,614  

Union Pacific Corp., 2.75%, 4/15/23

  250,000     228,857  
            2,307,006  

SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 0.1%

 

Intel Corp., 2.70%, 12/15/22

  868,000     800,408  

SOFTWARE — 0.6%

 

Adobe Systems, Inc., 3.25%, 2/1/15

  936,000     961,591  

Intuit, Inc., 5.75%, 3/15/17

  443,000     495,509  

Microsoft Corp., 2.125%, 11/15/22

  787,000     711,220  

Oracle Corp., 5.75%, 4/15/18

  999,000     1,155,011  

Oracle Corp., 2.50%, 10/15/22

  999,000     915,338  
            4,238,669  

SPECIALTY RETAIL — 0.1%

 

Home Depot, Inc. (The), 4.20%, 4/1/43

  499,000     454,852  

Staples, Inc., 4.375%, 1/12/23

  356,000     344,986  
            799,838  

TEXTILES, APPAREL AND LUXURY GOODS — 0.1%

 

NIKE, Inc., 2.25%, 5/1/23

  468,000     418,607  

WIRELESS TELECOMMUNICATION SERVICES — 0.1%

 

Cellco Partnership/Verizon Wireless Capital LLC, 8.50%, 11/15/18

  449,000     568,810  

TOTAL CORPORATE BONDS (Cost $117,645,089)

    117,759,144  

Sovereign Governments and Agencies — 16.1%

 

AUSTRALIA — 0.3%

 

Australia Government Inflation Linked Bond, 4.00%, 8/20/20

AUD   1,517,000     2,475,499  

CANADA — 0.7%

 

Canadian Government Inflation Linked Bond, 4.25%, 12/1/21

CAD   1,738,166     2,081,201  

Canadian Government Inflation Linked Bond, 4.25%, 12/1/26

CAD   2,273,012     2,993,678  
            5,074,879  

FRANCE — 5.2%

 

France Government Inflation Linked Bond OAT, 1.30%, 7/25/19

EUR   3,329,554     4,931,489  

France Government Inflation Linked Bond OAT, 2.25%, 7/25/20

EUR   8,277,361     12,937,295  

France Government Inflation Linked Bond OAT, 1.10%, 7/25/22

EUR   10,893,073     15,710,596  

France Government Inflation Linked Bond OAT, 1.85%, 7/25/27

EUR   2,680,477     4,102,481  
            37,681,861  

GERMANY — 1.6%

 

Deutsche Bundesrepublik Inflation Linked Bond, 1.75%, 4/15/20

EUR   5,222,963     7,949,612  

Deutsche Bundesrepublik Inflation Linked Bond, 0.10%, 4/15/23

EUR   3,023,892     4,066,858  
            12,016,470  

JAPAN — 0.2%

 

Japanese Government CPI Linked Bond, 1.10%, 12/10/16

JPY   141,382,200     1,468,879  

MEXICO — 0.1%

 

Mexico Government International Bond, MTN, 4.75%, 3/8/44

  500,000     453,125  

UNITED KINGDOM — 8.0%

 

United Kingdom Gilt Inflation Linked, 2.50%, 4/16/20

GBP   2,466,000     14,688,308  

United Kingdom Gilt Inflation Linked, 1.875%, 11/22/22

GBP   6,000,099     11,840,111  

United Kingdom Gilt Inflation Linked, 2.50%, 7/17/24

GBP   5,812,000     30,903,213  

United Kingdom Gilt Inflation Linked, 0.25%, 3/22/52

GBP   292,473     512,751  
            57,944,383  

TOTAL SOVEREIGN GOVERNMENTS AND AGENCIES (Cost $116,825,663)

    117,115,096  

 

 
14

 

 

             
   

Principal

Amount

   

Value

 

U.S. Government Agency Mortgage-Backed Securities (3) — 5.6%

 

FHLMC, 4.50%, 4/1/41

  $19,534,791     $20,735,059  

FNMA, 4.50%, 5/1/39

  6,047,186     6,472,461  

FNMA, 4.00%, 5/1/41

  5,145,129     5,309,277  

FNMA, 4.00%, 11/1/41

  2,139,889     2,206,102  

FNMA, 4.00%, 11/1/41

  1,432,864     1,477,357  

FNMA, 4.00%, 2/1/42

  2,250,955     2,320,537  

FNMA, 4.00%, 5/1/42

  2,078,887     2,141,971  

GNMA, 6.00%, 7/20/17

  13,416     14,193  

TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Cost $40,971,315)

    40,676,957  

Commercial Mortgage-Backed Securities (3) — 2.7%

 

Banc of America Commercial Mortgage, Inc., Series 2004-1, Class A4 SEQ, 4.76%, 11/10/39

  360,308     360,105  

Banc of America Commercial Mortgage, Inc., Series 2005-5, Class A4, VRN, 5.12%, 1/1/14

  1,311,000     1,388,284  

Banc of America Commercial Mortgage, Inc., Series 2005-5, Class AM, VRN, 5.18%, 1/1/14

  999,000     1,066,605  

BB-UBS Trust, Series 2012-SHOW, Class A SEQ, 3.43%, 11/5/36 (2)

  2,175,000     1,999,847  

Greenwich Capital Commercial Funding Corp., Series 2005-GG3, Class A4, VRN, 4.80%, 1/1/14

  936,000     960,729  

GS Mortgage Securities Corp. II, Series 2004-GG2, Class A6 SEQ, VRN, 5.40%, 1/1/14

  2,696,243     2,724,103  

GS Mortgage Securities Corp. II, Series 2005-GG4, Class A4 SEQ, 4.76%, 7/10/39

  740,529     767,769  

GS Mortgage Securities Corp. II, Series 2005-GG4, Class A4A SEQ, 4.75%, 7/10/39

  3,835,770     3,975,628  

Irvine Core Office Trust, Series 2013-IRV, Class A2 SEQ, VRN, 3.17%, 1/10/14 (2)

  2,877,000     2,703,669  

JPMorgan Chase Commercial Mortgage Securities Corp., Series 2013-C16, Class AS, 4.52%, 12/15/46

  1,075,000     1,108,628  

LB-UBS Commercial Mortgage Trust, Series 2004-C4, Class A4, VRN, 5.49%, 1/11/14

  $277,987     $279,894  

LB-UBS Commercial Mortgage Trust, Series 2005-C5, Class AM, VRN, 5.02%, 1/11/14

  1,249,000     1,323,962  

LB-UBS Commercial Mortgage Trust, Series 2005-C7, Class AM, VRN, 5.26%, 1/11/14

  1,108,000     1,188,151  

TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES (Cost $20,210,608)

    19,847,374  

Collateralized Mortgage Obligations (3) — 1.3%

 

ABN Amro Mortgage Corp., Series 2003-4, Class A4, 5.50%, 3/25/33

  301,253     312,728  

ABN Amro Mortgage Corp., Series 2003-6, Class 1A4, 5.50%, 5/25/33

  578,792     600,490  

Banc of America Mortgage Securities, Inc., Series 2004-7, Class 7A1, 5.00%, 8/25/19

  235,122     241,176  

Cendant Mortgage Corp., Series 2003-6, Class A3, 5.25%, 7/25/33

  814,150     844,520  

Countrywide Home Loan Mortgage Pass-Through Trust, Series 2003-35, Class 1A3 SEQ, 5.00%, 9/25/18

  263,901     272,486  

Countrywide Home Loan Mortgage Pass-Through Trust, Series 2004-5, Class 2A4, 5.50%, 5/25/34

  444,114     462,056  

MASTR Asset Securitization Trust, Series 2003-10, Class 3A1, 5.50%, 11/25/33

  563,848     601,949  

PHHMC Mortgage Pass-Through Certificates, Series 2007-6, Class A1, VRN, 5.65%, 1/1/14

  587,677     610,268  

Sequoia Mortgage Trust, Series 2011-1, Class A1, VRN, 4.125%, 1/1/14

  155,122     155,444  

Sequoia Mortgage Trust, Series 2012-1, Class 1A1, VRN, 2.87%, 1/1/14

  492,302     490,730  

Sequoia Mortgage Trust, Series 2013-12, Class A1 SEQ, VRN, 4.00%, 1/1/14 (2)

  1,980,115     1,995,754  

 

 
15

 

 

             
   

Principal

Amount

   

Value

 

Wamu Mortgage Pass-Through Certificates, Series 2003-S11, Class 3A5, 5.95%, 11/25/33

  $756,702     $805,656  

Wells Fargo Mortgage-Backed Securities Trust, Series 2003-17, Class 1A14, 5.25%, 1/25/34

  493,936     521,459  

Wells Fargo Mortgage-Backed Securities Trust, Series 2004-1, Class A10, 5.50%, 2/25/34

  868,446     916,266  

Wells Fargo Mortgage-Backed Securities Trust, Series 2007-3, Class 3A1, 5.50%, 4/25/22

  225,843     233,495  

TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $9,076,146)

    9,064,477  

Municipal Securities — 0.1%

 

Bay Area Toll Authority Toll Bridge Rev., Series 2010 S1, (Building Bonds), 6.92%, 4/1/40

  110,000     134,863  

Los Angeles Department of Water & Power Rev., (Building Bonds), 5.72%, 7/1/39

  95,000     105,006  

Texas GO, (Building Bonds), 5.52%, 4/1/39

  215,000     241,993  

TOTAL MUNICIPAL SECURITIES

(Cost $419,855)

    481,862  

 

   

Principal

Amount/

Shares

   

Value

 

Temporary Cash Investments — 5.6%

 

CRC Funding LLC, 0.01%, 1/2/14 (2)(4)

  $2,980,000     $2,979,982  

Govco LLC, 0.01%, 1/2/14 (2)(4)

  6,800,000     6,800,000  

SSgA U.S. Government Money Market Fund

  30,932,522     30,932,522  

TOTAL TEMPORARY CASH INVESTMENTS

(Cost $40,712,519)

    40,712,504  

TOTAL INVESTMENT SECURITIES — 100.4%

(Cost $724,907,904)

    729,132,349  

OTHER ASSETS AND LIABILITIES — (0.4)%

    (3,225,416 )

TOTAL NET ASSETS — 100.0%

    $725,906,933  

 

 

 

Forward Foreign Currency Exchange Contracts

 

Currency Purchased

 

Currency Sold

 

Counterparty

Settlement Date

 

Unrealized Gain (Loss)

AUD

  950,000  

USD

  884,932  

Deutsche Bank

1/23/14

  $(37,787 )

AUD

  700,000  

USD

  618,443  

Westpac Group

1/23/14

  5,769  

AUD

  1,050,000  

USD

  937,850  

Westpac Group

1/23/14

  (1,531 )

USD

  609,681  

AUD

  650,000  

Barclays Bank plc

1/23/14

  30,055  

USD

  679,004  

AUD

  731,567  

Westpac Group

1/23/14

  26,642  

USD

  897,913  

AUD

  984,500  

Westpac Group

1/23/14

  20,003  

CAD

  1,761,126  

USD

  1,650,000  

Barclays Bank plc

1/23/14

  7,091  

CAD

  1,049,160  

USD

  1,000,000  

Deutsche Bank

1/23/14

  (12,817 )

CAD

  1,765,574  

USD

  1,650,000  

UBS AG

1/23/14

  11,277  

USD

  1,000,000  

CAD

  1,051,090  

Deutsche Bank

1/23/14

  11,001  

USD

  650,000  

CAD

  685,484  

Deutsche Bank

1/23/14

  5,010  

USD

  1,050,000  

CAD

  1,126,577  

Deutsche Bank

1/23/14

  (10,026 )

USD

  1,550,000  

CAD

  1,650,637  

Deutsche Bank

1/23/14

  (3,129 )

USD

  1,700,000  

CAD

  1,806,335  

Deutsche Bank

1/23/14

  370  

USD

  6,792,366  

CAD

  7,138,369  

HSBC Holdings plc

1/23/14

  75,681  

CHF

  578,520  

USD

  650,000  

Barclays Bank plc

1/23/14

  (1,380 )

CHF

  1,069,745  

USD

  1,200,000  

Deutsche Bank

1/23/14

  (632 )

 

 
16

 

 

Currency Purchased

 

Currency Sold

 

Counterparty

Settlement Date

 

Unrealized Gain (Loss)

CHF

  578,208  

USD

  650,000  

Deutsche Bank

1/23/14

  $(1,730 )

USD

  1,700,000  

CHF

  1,542,886  

Barclays Bank plc

1/23/14

  (29,840 )

USD

  1,100,000  

CHF

  1,002,745  

Deutsche Bank

1/23/14

  (24,249 )

USD

  650,000  

CHF

  578,169  

Deutsche Bank

1/23/14

  1,774  

EUR

  5,504,822  

USD

  7,421,326  

Barclays Bank plc

1/23/14

  151,583  

EUR

  1,350,000  

USD

  1,861,826  

Barclays Bank plc

1/23/14

  (4,649 )

EUR

  900,000  

USD

  1,237,428  

Barclays Bank plc

1/23/14

  690  

EUR

  1,150,000  

USD

  1,578,789  

Barclays Bank plc

1/23/14

  3,250  

EUR

  480,335  

USD

  661,772  

Barclays Bank plc

1/23/14

  (982 )

EUR

  500,000  

USD

  689,360  

Deutsche Bank

1/23/14

  (1,517 )

EUR

  450,000  

USD

  621,174  

Deutsche Bank

1/23/14

  (2,115 )

USD

  56,733,276  

EUR

  42,128,347  

Barclays Bank plc

1/23/14

  (1,222,121 )

USD

  1,488,369  

EUR

  1,100,000  

Barclays Bank plc

1/23/14

  (24,886 )

USD

  1,545,083  

EUR

  1,150,000  

Barclays Bank plc

1/23/14

  (36,957 )

USD

  948,504  

EUR

  700,000  

Barclays Bank plc

1/23/14

  (14,477 )

USD

  1,237,581  

EUR

  900,000  

Barclays Bank plc

1/23/14

  (537 )

USD

  544,554  

EUR

  400,000  

HSBC Holdings plc

1/23/14

  (5,721 )

GBP

  659,839  

USD

  1,062,982  

Barclays Bank plc

1/23/14

  29,533  

GBP

  1,632,216  

USD

  2,626,595  

Barclays Bank plc

1/23/14

  75,915  

GBP

  350,000  

USD

  570,283  

Barclays Bank plc

1/23/14

  9,223  

GBP

  346,378  

USD

  566,619  

Barclays Bank plc

1/23/14

  6,890  

GBP

  950,000  

USD

  1,560,309  

Barclays Bank plc

1/23/14

  12,636  

USD

  1,290,598  

GBP

  800,000  

Barclays Bank plc

1/23/14

  (33,986 )

USD

  60,524,325  

GBP

  37,670,429  

HSBC Holdings plc

1/23/14

  (1,847,755 )

JPY

  133,402,100  

USD

  1,300,000  

Deutsche Bank

1/23/14

  (33,148 )

USD

  1,000,000  

JPY

  100,178,500  

Barclays Bank plc

1/23/14

  48,656  

USD

  550,000  

JPY

  55,635,250  

Barclays Bank plc

1/23/14

  21,660  

USD

  850,000  

JPY

  87,521,950  

Barclays Bank plc

1/23/14

  18,849  

USD

  2,536,354  

JPY

  253,371,582  

Westpac Group

1/23/14

  130,213  

USD

  800,000  

JPY

  82,047,520  

Westpac Group

1/23/14

  20,836  

KRW

  2,827,520,748  

USD

  2,629,763  

Westpac Group

1/23/14

  53,318  

KRW

  743,400,000  

USD

  700,000  

Westpac Group

1/23/14

  5,424  

KRW

  1,486,800,000  

USD

  1,400,000  

Westpac Group

1/23/14

  10,849  

USD

  206,341  

KRW

  221,857,499  

Westpac Group

1/23/14

  (4,183 )

USD

  1,600,000  

KRW

  1,704,800,000  

Westpac Group

1/23/14

  (17,712 )

USD

  1,550,000  

KRW

  1,645,325,000  

Westpac Group

1/23/14

  (11,275 )

NOK

  7,312,412  

USD

  1,200,000  

Deutsche Bank

1/23/14

  4,712  

NOK

  5,526,315  

USD

  900,000  

Deutsche Bank

1/23/14

  10,455  

USD

  1,500,000  

NOK

  9,232,650  

Deutsche Bank

1/23/14

  (21,069 )

USD

  950,000  

NOK

  5,770,965  

Deutsche Bank

1/23/14

  (760 )

NZD

  1,800,000  

USD

  1,483,668  

Westpac Group

1/23/14

  (5,119 )

NZD

  4,550,000  

USD

  3,742,557  

Westpac Group

1/23/14

  (5,113 )

USD

  2,554,382  

NZD

  3,150,000  

Westpac Group

1/23/14

  (33,079 )

SEK

  14,892,158  

USD

  2,250,000  

Deutsche Bank

1/23/14

  64,581  

SEK

  5,253,120  

USD

  800,000  

Deutsche Bank

1/23/14

  16,455  

SEK

  4,244,370  

USD

  650,000  

Deutsche Bank

1/23/14

  9,672  

USD

  750,000  

SEK

  4,894,658  

Deutsche Bank

1/23/14

  (10,741 )

USD

  650,000  

SEK

  4,253,893  

Deutsche Bank

1/23/14

  (11,152 )

   

 
17

 

 

Currency Purchased

 

Currency Sold

 

Counterparty

Settlement Date

 

Unrealized Gain (Loss)

USD

  600,000  

SEK

  3,993,950  

UBS AG

1/23/14

  $ (20,751 )

SGD

  1,430,336  

USD

  1,150,000  

Deutsche Bank

1/23/14

  (16,573 )

SGD

  2,316,259  

USD

  1,850,000  

Deutsche Bank

1/23/14

  (14,549 )

SGD

  1,937,690  

USD

  1,550,000  

Deutsche Bank

1/23/14

  (14,535 )

SGD

  1,186,312  

USD

  950,076  

HSBC Holdings plc

1/23/14

  (10,018 )

USD

  600,000  

SGD

  750,312  

Barclays Bank plc

1/23/14

  5,437  

USD

  2,200,000  

SGD

  2,767,500  

Barclays Bank plc

1/23/14

  6,977  

USD

  2,650,000  

SGD

  3,329,987  

Westpac Group

1/23/14

  11,250  

TWD

  23,963,150  

USD

  810,387  

Westpac Group

1/23/14

  (6,864 )

TWD

  22,996,595  

USD

  778,490  

Westpac Group

1/23/14

  (7,377 )

USD

  1,042,543  

TWD

  30,828,000  

Westpac Group

1/23/14

  8,830  

USD

  550,000  

TWD

  16,142,500  

Westpac Group

1/23/14

  8,716  

USD

  1,050,000  

TWD

  31,074,750  

Westpac Group

1/23/14

  8,013  
                      $(2,613,546 )

 

Futures Contracts

                             Contracts Sold

Expiration Date

Underlying Face
Amount at Value

Unrealized Gain (Loss)

140    

U.S. Treasury 10- Year Notes

March 2014

$17,226,563 $330,240
24    

U.S. Treasury Long Bonds

March 2014

   3,079,500     33,954
16    

U.S. Treasury Ultra Long Bonds

March 2014

   2,180,000     25,709
      $22,486,063 $389,903

 

Total Return Swap Agreements

 

Counterparty

 

Notional
Amount

 

Floating Rate
Referenced Index

Pay/Receive

Total
Return of

Referenced

Index

 

Fixed
Rate

Termination
Date

 

Value

Bank of
America N.A.

  $6,000,000    

U.S. CPI Urban
Consumers NSA Index

Receive

  2.33 %

1/22/15

  $(149,903 )

Bank of
America N.A.

  35,000,000    

U.S. CPI Urban
Consumers NSA Index

Receive

  2.15 %

11/16/16

  (767,844 )

Bank of
America N.A.

  5,000,000    

U.S. CPI Urban
Consumers NSA Index

Receive

  2.42 %

4/1/18

  (181,172 )

Bank of
America N.A.

  40,000,000    

U.S. CPI Urban
Consumers NSA Index

Receive

  2.66 %

12/4/19

  (2,270,370 )

Bank of
America N.A.

  5,000,000    

U.S. CPI Urban
Consumers NSA Index

Receive

  2.67 %

4/1/22

  (241,978 )

Barclays
Bank plc

  13,800,000    

U.S. CPI Urban
Consumers NSA Index

Receive

  2.10 %

10/23/15

  (191,405 )

Barclays
Bank plc

  19,200,000    

U.S. CPI Urban
Consumers NSA Index

Receive

  2.30 %

1/11/16

  (277,763 )

Barclays
Bank plc

  20,000,000    

U.S. CPI Urban
Consumers NSA Index

Receive

  2.74 %

4/25/17

  (1,702,750 )

Barclays
Bank plc

  38,000,000    

U.S. CPI Urban
Consumers NSA Index

Receive

  2.35 %

9/28/17

  (787,650 )

Barclays
Bank plc

  15,100,000    

U.S. CPI Urban
Consumers NSA Index

Receive

  2.90 %

12/21/27

  (1,312,862 )
                        $(7,883,697 )

 

 
18

 

 

Notes to Schedule of Investments


AUD = Australian Dollar

 

CAD = Canadian Dollar

 

CHF = Swiss Franc

 

CPI = Consumer Price Index

 

EUR = Euro

 

FHLMC = Federal Home Loan Mortgage Corporation

 

FNMA = Federal National Mortgage Association

 

GBP = British Pound

 

GNMA = Government National Mortgage Association

 

GO = General Obligation

 

JPY = Japanese Yen

 

KRW = South Korea Won

 

MTN = Medium Term Note

 

NOK = Norwegian Krone

 

NSA = Not Seasonally Adjusted

 

NZD = New Zealand Dollar

 

SEK = Swedish Krona

 

SEQ = Sequential Payer

 

SGD = Singapore Dollar

 

TWD = Taiwanese Dollar

 

USD = United States Dollar

 

VRN = Variable Rate Note. Interest reset date is indicated. Rate shown is effective at the period end.

 

Category is less than 0.05% of total net assets.

 

(1)

Security, or a portion thereof, has been pledged at the custodian bank or with a broker for margin requirements on futures contracts and/or swap agreements. At the period end, the aggregate value of securities pledged was $9,214,062.

 

(2)

Security was purchased pursuant to Rule 144A or Section 4(2) under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional investors. The aggregate value of these securities at the period end was $21,504,358, which represented 3.0% of total net assets.

 

(3)

Final maturity date indicated, unless otherwise noted.

 

(4)

The rate indicated is the yield to maturity at purchase.

 

 

 

See Notes to Financial Statements.

 

 
19

 

 

Statement of Assets and Liabilities

 

DECEMBER 31, 2013

 

Assets

 

Investment securities, at value (cost of $724,907,904)

  $729,132,349  

Foreign currency holdings, at value (cost of $179,544)

  180,859  

Receivable for capital shares sold

  4,807,398  

Receivable for variation margin on futures contracts

  48,313  

Unrealized gain on forward foreign currency exchange contracts

  949,296  

Interest receivable

  3,951,371  
    739,069,586  
       

Liabilities

 

Payable for capital shares redeemed

  1,282,338  

Unrealized loss on forward foreign currency exchange contracts

  3,562,842  

Swap agreements, at value

  7,883,697  

Accrued management fees

  287,060  

Distribution fees payable

  146,716  
    13,162,653  
       

Net Assets

  $725,906,933  
       

Net Assets Consist of:

 

Capital (par value and paid-in surplus)

  $714,476,284  

Undistributed net investment income

  134,374  

Undistributed net realized gain

  17,161,306  

Net unrealized depreciation

  (5,865,031 )
    $725,906,933  

 

 

Net assets

Shares outstanding

Net asset value per share

Class I, $0.01 Par Value

  $33,622,510

  3,208,153

$10.48

Class II, $0.01 Par Value

$692,284,423

66,247,573

$10.45

 

 

See Notes to Financial Statements.

 

 
20

 

 

Statement of Operations

 

YEAR ENDED DECEMBER 31, 2013

 

Investment Income (Loss)

 

Income:

 

Interest

  $19,504,007  
       

Expenses:

     

Management fees

  4,572,140  

Distribution fees - Class II

  2,333,741  

Directors’ fees and expenses

  90,748  

Other expenses

  247  
    6,996,876  
       

Net investment income (loss)

  12,507,131  
       

Realized and Unrealized Gain (Loss)

 

Net realized gain (loss) on:

     

Investment transactions (see Note 4)

  59,939,388  

Futures contract transactions

  (1,810,863 )

Swap agreement transactions

  (9,081,400 )

Foreign currency transactions

  2,261,454  
    51,308,579  
       

Change in net unrealized appreciation (depreciation) on:

     

Investments

  (142,437,801 )

Futures contracts

  389,903  

Swap agreements

  1,922,459  

Translation of assets and liabilities in foreign currencies

  (1,315,229 )
    (141,440,668 )
       

Net realized and unrealized gain (loss)

  (90,132,089 )
       

Net Increase (Decrease) in Net Assets Resulting from Operations

  $(77,624,958 )

 

 

See Notes to Financial Statements.

 

 
21

 

 

Statement of Changes in Net Assets

 

YEARS ENDED DECEMBER 31, 2013 AND DECEMBER 31, 2012

 

Increase (Decrease) in Net Assets

 

December 31, 2013

   

December 31, 2012

 

Operations

 

Net investment income (loss)

  $12,507,131     $31,660,672  

Net realized gain (loss)

  51,308,579     62,868,078  

Change in net unrealized appreciation (depreciation)

  (141,440,668 )   7,489,695  

Net increase (decrease) in net assets resulting from operations

  (77,624,958 )   102,018,445  
             

Distributions to Shareholders

 

From net investment income:

           

Class I

  (826,567 )   (2,239,318 )

Class II

  (14,617,485 )   (31,708,761 )

From net realized gains:

           

Class I

  (2,520,167 )   (3,622,132 )

Class II

  (44,491,612 )   (29,775,615 )

Decrease in net assets from distributions

  (62,455,831 )   (67,345,826 )
             

Capital Share Transactions

 

Net increase (decrease) in net assets from capital share transactions

  (522,855,570 )   (61,601,071 )
             

Net increase (decrease) in net assets

  (662,936,359 )   (26,928,452 )
             

Net Assets

 

Beginning of period

  1,388,843,292     1,415,771,744  

End of period

  $725,906,933     $1,388,843,292  
             

Undistributed net investment income

  $134,374     $4,029,515  

 

 

See Notes to Financial Statements.

 

 
22

 

 

Notes to Financial Statements

 

December 31, 2013

 

1. Organization

 

American Century Variable Portfolios II, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. VP Inflation Protection Fund (the fund) is the sole fund issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to pursue long-term total return using a strategy that seeks to protect against U.S. inflation.

 

The fund offers Class I and Class II. The share classes differ principally in their respective distribution and shareholder servicing expenses and arrangements.

 

2. Significant Accounting Policies

 

The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates.

 

Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share at the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open. The Board of Directors has adopted valuation policies and procedures to guide the investment advisor in the fund’s investment valuation process and to provide methodologies for the oversight of the fund’s pricing function.

 

Fixed income securities maturing in greater than 60 days at the time of purchase are valued at the evaluated mean as provided by independent pricing services or at the mean of the most recent bid and asked prices as provided by investment dealers. Fixed income securities maturing within 60 days at the time of purchase may be valued at cost, plus or minus any amortized discount or premium or at the evaluated mean as provided by an independent pricing service. Evaluated mean prices are commonly derived through utilization of market models, which may consider, among other factors: trade data, quotations from dealers and active market makers, relevant yield curve and spread data, related sector levels, creditworthiness, trade data or market information on comparable securities, and other relevant security specific information. Fixed income securities initially expressed in local currencies are translated into U.S. dollars at the mean of the appropriate currency exchange rate at the close of the NYSE as provided by an independent pricing service.

 

Open-end management investment companies are valued at the reported net asset value per share. Exchange-traded futures contracts are valued at the settlement price as provided by the appropriate clearing corporation. Swap agreements are valued at an evaluated price as provided by independent pricing services or independent brokers. Forward foreign currency exchange contracts are valued at the mean of the appropriate forward exchange rate at the close of the NYSE as provided by an independent pricing service.

 

If the fund determines that the market price for an investment is not readily available or the valuation methods mentioned above do not reflect an investment’s fair value, such investment is valued as determined in good faith by the Board of Directors or its delegate, in accordance with policies and procedures adopted by the Board of Directors. In its determination of fair value, the fund may review several factors including, but not limited to, market information regarding the specific investment or comparable investments and correlation with other investment types, futures indices or general market indicators. Circumstances that may cause the fund to use these procedures to value an investment include, but are not limited to: an investment has been declared in default or is distressed; trading in a security has been suspended during the trading day or a security is not actively trading on its principal exchange; prices received from a regular pricing source are deemed unreliable; or there is a foreign market holiday and no trading occurred.

 

 
23

 

 

The fund monitors for significant events occurring after the close of an investment’s primary exchange but before the fund’s net asset value per share is determined. Significant events may include, but are not limited to: corporate announcements and transactions; governmental action and political unrest that could impact a specific investment or an investment sector; or armed conflicts, natural disasters and similar events that could affect investments in a specific country or region.

 

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 — Interest income is recorded on the accrual basis and includes paydown gain (loss) and accretion of discounts and amortization of premiums. Inflation adjustments related to inflation-linked debt securities are reflected as interest income.

 

Segregated Assets — In accordance with the 1940 Act, the fund segregates assets on its books and records to cover certain types of investments, including, but not limited to, futures contracts, forward commitments, when-issued securities, swap agreements and certain forward foreign currency exchange contracts. American Century Investment Management, Inc. (ACIM) (the investment advisor) monitors, on a daily basis, the securities segregated to ensure the fund designates a sufficient amount of liquid assets, marked-to-market daily. The fund may also receive assets or be required to pledge assets at the custodian bank or with a broker for margin requirements on futures contracts and swap agreements.

 

Foreign Currency Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.

 

Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund’s tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.

 

Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.

 

Distributions to Shareholders — Distributions from net investment income, if any, are generally declared and paid quarterly. Distributions from net realized gains, if any, are generally declared and paid annually.

 

Indemnifications — Under the corporation’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business, the fund enters into contracts that provide general indemnifications. The maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.

 

 
24

 

 

3. Fees and Transactions with Related Parties

 

Management Fees — The corporation has entered into a management agreement with ACIM, under which ACIM provides the fund with investment advisory and management services in exchange for a single, unified management fee (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fee consists of (1) an Investment Category Fee based on the daily net assets of the fund and certain other accounts managed by the investment advisor that are in the same broad investment category as the fund and (2) a Complex Fee based on the assets of all the funds in the American Century Investments family of funds. The rates for the Investment Category Fee range from 0.1625% to 0.2800%. The rates for the Complex Fee range from 0.2500% to 0.3100%. The effective annual management fee for each class for the year ended December 31, 2013 was 0.46%.

 

Distribution Fees — The Board of Directors has adopted the Master Distribution Plan (the plan) for Class II, pursuant to Rule 12b-1 of the 1940 Act. The plan provides that Class II will pay American Century Investment Services, Inc. (ACIS) an annual distribution fee equal to 0.25%. The fee is computed and accrued daily based on the Class II daily net assets and paid monthly in arrears. The distribution fee provides compensation for expenses incurred in connection with distributing shares of Class II including, but not limited to, payments to brokers, dealers, and financial institutions that have entered into sales agreements with respect to shares of the fund. Fees incurred under the plan during the year ended December 31, 2013 are detailed in the Statement of Operations.

 

Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation’s distributor, ACIS, and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.

 

4. Investment Transactions

 

Purchases of investment securities, excluding short-term investments, for the year ended December 31, 2013 totaled $346,787,350, of which $251,534,604 represented U.S. Treasury and Government Agency obligations.

 

Sales of investment securities, excluding short-term investments, for the year ended December 31, 2013 totaled $922,379,891, of which $658,799,606 represented U.S. Treasury and Government Agency obligations.

 

For the year ended December 31, 2013, the fund incurred net realized gains of $33,989,106 from redemptions in kind. A redemption in kind occurs when a fund delivers securities from its portfolio in lieu of cash as payment to a redeeming shareholder.

 

 
25

 

 

5. Capital Share Transactions

 

Transactions in shares of the fund were as follows:

 

   

Year ended December 31, 2013

   

Year ended December 31, 2012

 
   

Shares

   

Amount

   

Shares

   

Amount

 

Class I/Shares Authorized

  250,000,000           250,000,000        

Sold

  703,260     $7,832,192     1,618,843     $19,371,142  

Issued in reinvestment of distributions

  293,001     3,346,734     500,252     5,861,450  

Redeemed

  (4,035,685 )   (45,948,938 )   (9,570,973 )   (114,988,372 )
    (3,039,424 )   (34,770,012 )   (7,451,878 )   (89,755,780 )

Class II/Shares Authorized

  250,000,000           250,000,000        

Sold

  11,267,671     124,189,667     13,808,753     164,385,088  

Issued in reinvestment of distributions

  5,192,101     59,109,097     5,232,227     61,484,376  

Redeemed

  (59,438,061 )   (671,384,322 )   (16,557,883 )   (197,714,755 )
    (42,978,289 )   (488,085,558 )   2,483,097     28,154,709  

Net increase (decrease)

  (46,017,713 )   $(522,855,570 )   (4,968,781 )   $(61,601,071 )

 

6. Fair Value Measurements

 

The fund’s investments valuation process is based on several considerations and may use multiple inputs to determine the fair value of the investments held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels.

 

Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical investments.

 

Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for comparable investments, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.). These inputs also consist of quoted prices for identical investments initially expressed in local currencies that are adjusted through translation into U.S. dollars.

 

Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions).

 

The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments.

 

 
26

 

 

The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.

 

   

Level 1

 

Level 2

 

Level 3

Assets

 

Investment Securities

 

U.S Treasury Securities

      $383,474,935      

Corporate Bonds

      117,759,144      

Sovereign Governments and Agencies

      117,115,096      

U.S. Government Agency Mortgage-Backed Securities

      40,676,957      

Commercial Mortgage-Backed Securities

      19,847,374      

Collateralized Mortgage Obligations

      9,064,477      

Municipal Securities

      481,862      

Temporary Cash Investments

  $30,932,522     9,779,982      
    $30,932,522     $698,199,827      

Other Financial Instruments

                 

Futures Contracts

  $389,903          

Forward Foreign Currency Exchange Contracts

      $949,296      
    $389,903     $949,296      
                   

Liabilities

                 

Other Financial Instruments

                 

Swap Agreements

      $(7,883,697 )    

Forward Foreign Currency Exchange Contracts

      (3,562,842 )    
        $(11,446,539 )    

 

7. Derivative Instruments

 

Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign currency exchange rates. The 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 and tends to increase when the value of the dollar declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund’s exposure to foreign currency exchange rate fluctuations or to gain exposure to the fluctuations in the value of foreign currencies. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The foreign currency risk derivative instruments held at period end as disclosed on the Schedule of Investments are indicative of the fund’s typical volume during the period.

 

Interest Rate Risk — The fund is subject to interest rate risk in the normal course of pursuing its investment objectives. The value of bonds generally declines as interest rates rise. A fund may enter into futures contracts based on a bond index or a specific underlying security. A fund may purchase futures contracts to gain exposure to increases in market value or sell futures contracts to protect against a decline in market value. Upon entering into a futures contract, a fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet requirements. Subsequent payments (variation margin) are made or received daily, in cash, by a fund. The variation

 

 
27

 

 

margin is equal to the daily change in the contract value and is recorded as unrealized gains and losses. A fund recognizes a realized gain or loss when the futures contract is closed or expires. Net realized and unrealized gains or losses occurring during the holding period of futures contracts are a component of net realized gain (loss) on futures contract transactions and change in net unrealized appreciation (depreciation) on futures contracts, respectively. One of the risks of entering into futures contracts is the possibility that the change in value of the contract may not correlate with the changes in value of the underlying securities. The fund purchased and sold interest rate risk derivative instruments throughout the reporting period, and the instruments held at period end as disclosed on the Schedule of Investments are indicative of the fund’s typical volume.

 

Other Contracts — A fund may enter into total return swap agreements in order to attempt to obtain or preserve a particular return or spread at a lower cost than obtaining a return or spread through purchases and/or sales of instruments in other markets or gain exposure to certain markets in the most economical way possible. A fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet requirements. Changes in value, including the periodic amounts of interest to be paid or received on swap agreements, are recorded as unrealized appreciation (depreciation) on swap agreements. Realized gain or loss is recorded upon receipt or payment of a periodic settlement or termination of swap agreements. Net realized and unrealized gains or losses occurring during the holding period of swap agreements are a component of net realized gain (loss) on swap agreement transactions and change in net unrealized appreciation (depreciation) on swap agreements, respectively. The risks of entering into swap agreements include the possible lack of liquidity, failure of the counterparty to meet its obligations, and that there may be unfavorable changes in the underlying investments or instruments. The other contracts derivative instruments held at period end as disclosed on the Schedule of Investments are indicative of the fund’s typical volume during the period.

 

Value of Derivative Instruments as of December 31, 2013

 

 

Asset Derivatives

 

Liability Derivatives

Type of Risk Exposure

Location on Statement
of Assets and Liabilities

Value

 

Location on Statement
of Assets and Liabilities

Value

Foreign Currency Risk

Unrealized gain on
forward foreign currency

exchange contracts

$949,296

 

Unrealized loss on
forward foreign currency

exchange contracts

  $3,562,842

           

Interest Rate Risk

Receivable for variation
margin on futures contracts*

    48,313

 

Payable for variation margin

on futures contracts*

               —

           

Other Contracts

Swap agreements

          —

 

Swap agreements

    7,883,697

   

$997,609

   

$11,446,539

 

*Included in the unrealized gain (loss) on futures contracts as reported in the Schedule of Investments.

 

 
28

 

 

Effect of Derivative Instruments on the Statement of Operations for the Year Ended December 31, 2013

 

 

Net Realized Gain (Loss)

 

Change in Net Unrealized
Appreciation (Depreciation)

Type of Risk

Exposure

Location on Statement
of Operations

Value

 

Location on Statement
of Operations

Value

Foreign Currency Risk

Net realized gain (loss)
on foreign currency

transactions

$2,381,840

 

Change in net unrealized

appreciation (depreciation)

on translation of assets and

liabilities in foreign currencies

  $(1,309,215)

           

Interest Rate Risk

Net realized gain (loss)
on futures contract

transactions

  (1,810,863)

 

Change in net unrealized

appreciation (depreciation)
on futures contracts

       389,903

           

Other Contracts

Net realized gain (loss)
on swap agreement

transactions

  (9,081,400)

 

Change in net unrealized

appreciation (depreciation)
on swap agreements

    1,922,459

   

$(8,510,423)

   

  $1,003,147

 

Counterparty Risk — The fund is subject to counterparty risk, or the risk that an institution will fail to perform its obligations to the fund. The investment advisor attempts to minimize counterparty risk prior to entering into transactions by performing extensive reviews of the creditworthiness of all potential counterparties. The fund may also enter into agreements that provide provisions for legally enforceable master netting arrangements to manage the credit risk between counterparties related to forward foreign currency exchange contracts and/or swap agreements. A master netting arrangement provides for the net settlement of multiple contracts with a single counterparty through a single payment in the event of default or termination of any one contract. To mitigate counterparty risk, the fund may receive assets or be required to pledge assets at the custodian bank or with a broker as designated under prescribed collateral provisions.

 

The fund does not offset assets and liabilities subject to master netting arrangements on the Statement of Assets and Liabilities for financial reporting purposes. The fund’s asset derivatives and liability derivatives that are subject to legally enforceable offsetting arrangements as of period end were as follows:

 

Counterparty

Gross Amount on

Statement of Assets

and Liabilities

Amount Eligible
for Offset

Collateral

Net
Exposure*

Assets

Barclays Bank plc

     $428,445

$(428,445)

             —

             —

Deutsche Bank

       124,030

  (124,030)

             —

             —

HSBC Holdings plc

         75,681

    (75,681)

             —

             —

UBS AG

         11,277

    (11,277)

             —

             —

Westpac Group

       309,863

    (92,253)

             —

   $217,610

 

    $949,296

$(731,686)

             —

   $217,610

         

Liabilities

Bank of America N.A.

  $3,611,267

         —

$(3,611,267)

             —

Barclays Bank plc

    5,642,245

$(428,445)

  (4,848,540)

   $365,260

Deutsche Bank

       216,529

  (124,030)

             —

       92,499

HSBC Holdings plc

    1,863,494

     (75,681)

             —

  1,787,813

UBS AG

         20,751

    (11,277)

             —

         9,474

Westpac Group

         92,253

    (92,253)

             —

             —

 

$11,446,539

$(731,686)

$(8,459,807)

 $2,255,046

 

*

The net exposure represents the amount receivable from the counterparty or amount payable to the counterparty in the event of default or termination.

 

 
29

 

 

8. Federal Tax Information

 

The tax character of distributions paid during the years ended December 31, 2013 and December 31, 2012 were as follows:

 

 

2013

2012

Distributions Paid From

Ordinary income

$20,560,370

$38,130,352

Long-term capital gains

$41,895,461

$29,215,474

 

The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.

 

The reclassifications, which are primarily due to redemptions in kind, were made to capital $33,447,291, undistributed net investment income $(958,220), and undistributed net realized gain $(32,489,071).

 

As of December 31, 2013, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:

 

Federal tax cost of investments

$725,292,013

Gross tax appreciation of investments

  $20,991,605

Gross tax depreciation of investments

    (17,151,269)

Net tax appreciation (depreciation) of investments

    $3,840,336

Net tax appreciation (depreciation) on derivatives and translation
of assets and liabilities in foreign currencies

    $(7,886,525)

Net tax appreciation (depreciation)

    $(4,046,189)

Other book-to-tax adjustments

    $(1,358,403)

Undistributed ordinary income

                 —

Accumulated long-term gains

  $18,119,924

Late-year ordinary loss deferral

    $(1,284,683)

 

The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the realization for tax purposes of unrealized gain (losses) on certain foreign currency exchange contracts. Other book-to-tax adjustments are attributable primarily to the tax deferral of losses on straddle positions.

 

Loss deferrals represent certain qualified losses that the fund has elected to treat as having been incurred in the following fiscal year for federal income tax purposes.

 

 
30

 

 

Financial Highlights

 

For a Share Outstanding Throughout the Years Ended December 31 (except as noted)

Per-Share Data

Ratios and Supplemental Data

   

Income From Investment Operations:

Distributions From:

   

Ratio to Average Net Assets of:

   
 

Net Asset

Value,

Begin ing
of Period

Net
Investment
Income
(Loss)
(1)

Net
Realized and
Unrealized
Gain (Loss)

Total From
Investment
Operations

Net
Investment
Income

Net
Realized
Gains

Total
Distributions

Net Asset
Value, End
of Period

Total
Return
(2)

Operating
Expenses

Net
Investment
Income
(Loss)

Portfolio
Turnover
Rate

Net
Assets, End of Period (in
thousands)

Class I

2013

$12.05

0.17

(1.12)

(0.95)

(0.20)

(0.42)

(0.62)

$10.48

  (8.21)%

0.47%

1.52%

36%

$33,623

2012

$11.78

0.32

0.55

0.87

(0.32)

(0.28)

(0.60)

$12.05

 7.55%

0.48%

2.45%

40%

$75,279

2011

$11.11

0.40

0.90

1.30

(0.49)

(0.14)

(0.63)

$11.78

12.09%

0.48%

3.61%

63%

$161,320

2010

$10.74

0.30

0.27

0.57

(0.20)

(0.20)

$11.11

 5.39%

0.49%

2.70%

44%

$111,872

2009

  $9.91

0.26

0.77

1.03

(0.20)

(0.20)

$10.74

10.43%

0.49%

2.61%

43%

$101,956

Class II

2013

$12.03

0.14

(1.12)

(0.98)

(0.18)

(0.42)

(0.60)

$10.45

  (8.48)%

0.72%

1.27%

36%

$692,284

2012

$11.75

0.26

0.59

0.85

(0.29)

(0.28)

(0.57)

$12.03

 7.39%

0.73%

2.20%

40%

$1,313,564

2011

$11.09

0.38

0.88

1.26

(0.46)

(0.14)

(0.60)

$11.75

11.74%

0.73%

3.36%

63%

$1,254,452

2010

$10.73

0.27

0.27

0.54

(0.18)

(0.18)

$11.09

 5.12%

0.74%

2.45%

44%

$1,173,585

2009

  $9.91

0.25

0.75

1.00

(0.18)

(0.18)

$10.73

10.22%

0.74%

2.36%

43%

$1,058,286

 

Notes to Financial Highlights


(1)

Computed using average shares outstanding throughout the period.

 

(2)

Total returns are calculated based on the net asset value of the last business day. Total returns for periods less than one year are not annualized.

 

 

 

See Notes to Financial Statements.

 

 
31

 

 

Report of Independent Registered Public Accounting Firm

 

To the Directors of the American Century Variable Portfolios II, Inc.
and Shareholders of the VP Inflation Protection Fund:

 

In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the VP Inflation Protection Fund (the sole fund comprising the American Century Variable Portfolios II, Inc. (the “Fund”)) at December 31, 2013, 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 accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2013 by correspondence with the custodian, provide a reasonable basis for our opinion.

 

 

PricewaterhouseCoopers LLP

Kansas City, Missouri

February 13, 2014

 

 
32

 

   

Management

 

Board of Directors

 

The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire on December 31 of the year in which they reach their 75th birthday; provided, however, that on or after January 1, 2022, independent directors shall retire on December 31 of the year in which they reach their 76th birthday.

 

Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor).The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and American Century Services, LLC (ACS), and do not have any other affiliations, positions or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for eight (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.

 

The following table presents additional information about the directors. The mailing address for each director other than Mr. Thomas is 1665 Charleston Road, Mountain View, California 94043. The mailing address for Mr. Thomas is 4500 Main Street, Kansas City, Missouri 64111.

 

Name
(Year of Birth)

Position(s)

Held with

Funds

Length of

Time Served

Principal Occupation(s)

During Past 5 Years

 

Number of

American

Century

Portfolios

Overseen by

Director

Other

Directorships

Held During

Past 5 Years

Independent Directors

Tanya S. Beder
(1955)

Director

Since 2011

Chairman, SBCC Group Inc. (independent advisory services) (2006 to present)

 

42

CYS Investments,

Inc. (specialty

finance company)

Jeremy I. Bulow
(1954)

Director

Since 2011

Professor of Economics, Stanford University, Graduate School of Business (1979 to present)

 

42

None

Ronald J. Gilson
(1946)

Director and

Chairman of

the Board

Since 1995

Charles J. Meyers Professor of Law and Business, Stanford Law School (1979 to present); Marc and Eva Stern Professor of Law and Business, Columbia University School of Law (1992 to present)

 

42

None

Frederick L. A. Grauer
(1946)

Director

Since 2008

Senior Advisor, BlackRock, Inc. (investment management firm) (2010 to 2011); Senior Advisor, Barclays Global Investors (investment management firm) (2003 to 2009)

 

42

None

 
33

 

 

Name
(Year of Birth)

Position(s)

Held with

Funds

Length of

Time Served

Principal Occupation(s)

During Past 5 Years

 

Number of

American

Century

Portfolios

Overseen by

Director

Other

Directorships

Held During

Past 5 Years

Independent Directors

Peter F. Pervere
(1947)

Director

Since 2007

Retired

 

42

Intraware, Inc.

(2003 to 2009)

Myron S. Scholes
(1941)

Director

Since 1980

Chairman, Platinum Grove Asset Management, L.P. (asset manager) (1999 to 2009); Frank E. Buck Professor of Finance-Emeritus, Stanford Graduate School of Business (1996 to present)

 

42

Dimensional

Fund Advisors

(investment

advisor); CME

Group, Inc.

(futures and

options exchange)

John B. Shoven
(1947)

Director

Since 2002

Professor of Economics, Stanford University (1973 to present)

 

42

Cadence Design

Systems;

E x ponent;

Financial Engines

 

Interested Director

Jonathan S. Thomas
(1963)

Director and

President

Since 2007

President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries

 

116

None

 
34

 

 

Officers

 

The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each of the officers listed below is 4500 Main Street, Kansas City, Missouri 64111.

 

Name
(Year of Birth)

Offices with the Funds

Principal Occupation(s) During the Past Five Years

Jonathan S. Thomas
(1963)

Director and President

since 2007

President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries

Maryanne L. Roepke
(1956)

Chief Compliance Officer

since 2006 and Senior Vice

President since 2000

Chief Compliance Officer, American Century funds, ACIM and ACS (August 2006 to present). Also serves as Senior Vice President, ACS

Charles A. Etherington
(1957)

General Counsel since 2007

and Senior Vice President

since 2006

Attorney, ACC (February 1994 to present); Vice President, ACC (November 2005 to present); General Counsel, ACC (March 2007 to present). Also serves as General Counsel, ACIM, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS

C. Jean Wade
(1964)

Vice President, Treasurer

and Chief Financial Officer

since 2012

Vice President, ACS (February 2000 to present)

Robert J. Leach
(1966)

Vice President since 2006

and Assistant Treasurer

since 2012

Vice President, ACS (February 2000 to present)

David H. Reinmiller
(1963)

Vice President since 2001

Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS

Ward D. Stauffer
(1960)

Secretary since 2005

Attorney, ACC (June 2003 to present)

 

The Statement of Additional Information has additional information about the fund’s directors and is available without charge, upon request, by calling 1-800-378-9878.

 

 
35

 

 

Additional Information

 

Proxy Voting Policies

 

Descriptions of the principles and policies that the fund’s investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund are available without charge, upon request, by calling 1-800-378-9878 or visiting the “About Us” page of American Century Investments’ website at americancentury.com. A description of the policies is also available on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.

 

Quarterly Portfolio Disclosure

 

The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at ipro.americancentury.com (for Investment Professionals) and, upon request, by calling 1-800-378-9878.

 

Other Tax Information

 

The following information is provided pursuant to provisions of the Internal Revenue Code.

 

The fund hereby designates $41,895,461, or up to the maximum amount allowable, as long-term capital gain distributions for the fiscal year ended December 31, 2013.

 

The fund hereby designates $5,108,928 as qualified short-term capital gain distributions for purposes of Internal Revenue Code Section 871.

 

 
36

 

 

 

Contact Us

americancentury.com

Automated Information Line

1-800-345-8765

Investment Professional Service Representatives

1-800-345-6488

Telecommunications Relay Service for the Deaf

711

 

American Century Variable Portfolios II, Inc.

 

Investment Advisor:    

American Century Investment Management, Inc.

Kansas City, Missouri

 

This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.

 

 

©2014 American Century Proprietary Holdings, Inc. All rights reserved.

CL-ANN-81035 1402      

 

 

 

 
 

 

 

ITEM 2. CODE OF ETHICS.

 

(a)

The registrant has adopted a Code of Ethics for Senior Financial Officers that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer, and persons performing similar functions.

 

(b)

No response required.

 

(c)

None.

 

(d)

None.

 

(e)

Not applicable.

 

(f)

The registrant’s Code of Ethics for Senior Financial Officers was filed as Exhibit 12 (a)(1) to American Century Asset Allocation Portfolios, Inc.’s Annual Certified Shareholder Report on Form N-CSR, File No. 811-21591, on September 29, 2005, and is incorporated herein by reference.

 

 

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

 

(a)(1)

The registrant's board has determined that the registrant has at least one audit committee financial expert serving on its audit committee.

 

(a)(2)

Tanya S. Beder, Peter F. Pervere and Ronald J. Gilson are the registrant's designated audit committee financial experts. They are "independent" as defined in Item 3 of Form N-CSR.

 

(a)(3)

Not applicable.

 

(b)

No response required.

 

(c)

No response required.

 

(d)

No response required.

 

 

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

(a)

Audit Fees.

 

The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were as follows:

 

FY 2012:     $38,898

FY 2013:     $42,735

 

(b)

Audit-Related Fees.

 

 
 

 

 

The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this Item were as follows:

 

For services rendered to the registrant:

 

FY 2012:    $0

FY 2013:    $0

 

Fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X (relating to certain engagements for non-audit services with the registrant’s investment adviser and its affiliates):

 

FY 2012:    $0

FY 2013:    $0

 

(c)

Tax Fees.

 

The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning were as follows:

 

For services rendered to the registrant:

 

FY 2012:     $0

FY 2013:     $0

 

Fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X (relating to certain engagements for non-audit services with the registrant’s investment adviser and its affiliates):

 

FY 2012:     $0

FY 2013:     $0

 

(d)

All Other Fees.

 

The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item were as follows:

 

For services rendered to the registrant:

 

FY 2012:    $0

FY 2013:    $0

 

Fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X (relating to certain engagements for non-audit services with the registrant’s investment adviser and its affiliates):

 

FY 2012:    $0

FY 2013:    $0

 

(e)(1)

In accordance with paragraph (c)(7)(i)(A) of Rule 2-01 of Regulation S-X, before the accountant is engaged by the registrant to render audit or non-audit services, the engagement is approved by the registrant’s audit committee. Pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, the registrant’s audit committee also pre-approves its accountant’s engagements for non-audit services with the registrant’s investment adviser, its parent company, and any entity controlled by, or under common control with the investment adviser that provides ongoing services to the registrant, if the engagement relates directly to the operations and financial reporting of the registrant.

 

 
 

 

 

(e)(2)

All services described in each of paragraphs (b) through (d) of this Item were pre-approved before the engagement by the registrant’s audit committee pursuant to paragraph (c)(7)(i)(A) of Rule 2-01 of Regulation S-X. Consequently, none of such services were required to be approved by the audit committee pursuant to paragraph (c)(7)(i)(C).

 

(f)

The percentage of hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees was less than 50%.

 

(g)

The aggregate non-audit fees billed by the registrant’s accountant for services rendered to the registrant, and rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant were as follows:

 

FY 2012:     $138,806

FY 2013:     $108,600

 

(h)

The registrant’s investment adviser and accountant have notified the registrant’s audit committee of all non-audit services that were rendered by the registrant’s accountant to the registrant’s investment adviser, its parent company, and any entity controlled by, or under common control with the investment adviser that provides services to the registrant, which services were not required to be pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. The notification provided to the registrant’s audit committee included sufficient details regarding such services to allow the registrant’s audit committee to consider the continuing independence of its principal accountant.

 

 

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.

 

Not applicable.

 

 

ITEM 6. INVESTMENTS.

 

(a)

The schedule of investments is included as part of the report to stockholders filed under Item 1 of this Form.

 

(b)

Not applicable.

 

 

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

 

Not applicable.

 

 
 

 

 

ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

 

Not applicable.

 

 

ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.

 

Not applicable.

 

 

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

 

During the reporting period, there were no material changes to the procedures by which shareholders may recommend nominees to the registrant’s board.

 

 

ITEM 11. CONTROLS AND PROCEDURES.

 

(a)

The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this report.

 

(b)

There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the registrant's second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting.

 

 

ITEM 12. EXHIBITS.

 

(a)(1)

Registrant’s Code of Ethics for Senior Financial Officers, which is the subject of the disclosure required by Item 2 of Form N-CSR, was filed as Exhibit 12(a)(1) to American Century Asset Allocation Portfolios, Inc.’s Certified Shareholder Report on Form N-CSR, File No. 811-21591, on September 29, 2005.

 

(a)(2)

Separate certifications by the registrant’s principal executive officer and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are filed and attached hereto as EX-99.CERT.

 

(a)(3)

Not applicable.

 

(b)

A certification by the registrant’s chief executive officer and chief financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, is furnished and attached hereto as EX-99.906CERT.

 

 
 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Registrant:

American Century Variable

Portfolios II, Inc.

 
       
       

By:

/s/ Jonathan S. Thomas

 
 

Name:

Jonathan S. Thomas

 
 

Title:

President

 
       

Date:

February 18, 2014

 
     

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

 

By:

/s/ Jonathan S. Thomas

 
 

Name:

Jonathan S. Thomas

 
 

Title:

President

 
   

(principal executive officer)

 
       
       

Date:

February 18, 2014

 

 

 

 

By:

/s/ C. Jean Wade

 
 

Name:

C. Jean Wade

 
 

Title:

Vice President, Treasurer, and

 
   

Chief Financial Officer

 
   

(principal financial officer)

 
       

Date:

February 18, 2014

 

 

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