SUPPLEMENT TO PROSPECTUS
AND STATEMENT OF ADDITIONAL INFORMATION
OF PORTFOLIO PARTNERS, INC.
THIS SUPPLEMENT IS DATED OCTOBER 31, 1997.
The following information supplements and should be read in
conjunction with the Prospectus and Statement of Additional
Information of Portfolio Partners, Inc. (the "Fund"), each dated
August 19, 1997.
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ACQUISITION OF SCUDDER
On June 26, 1997, Scudder, Stevens & Clark ("Scudder"), investment
sub-adviser to the Scudder International Growth Portfolio (the
"Portfolio") entered into a Transaction Agreement (the "Transaction
Agreement") with Zurich Insurance Company ("Zurich"). Under the terms
of the Transaction Agreement, Zurich will acquire a majority interest
in Scudder, and Zurich Kemper Investments, Inc. ("ZKI"), a Zurich subsidiary,
will become part of Scudder. Scudder's name will be changed to Scudder Kemper
Investments, Inc. ("Scudder Kemper"). The foregoing are referred to as the
"Transactions." The headquarters of Scudder Kemper will be in New York.
Edmond D. Villani, Scudder's CEO, will continue as CEO of Scudder Kemper and
will become a member of Zurich's Corporate Executive Board.
As required by the Investment Company Act of 1940, the Sub-advisory
Agreement with Scudder will terminate upon consummation of the Transactions.
At a meeting held on August 11, 1997, the Board of Directors of the Fund
approved the selection of Scudder Kemper as investment sub-adviser to the
Portfolio subsequent to the Transactions and approved a new Sub-advisory
Agreement. The new Sub-advisory Agreement will become effective upon the
consummation of the Transactions. The new Sub-advisory
Agreement with Scudder Kemper will not change any of the terms of the
Sub-advisory Agreement with Scudder that will then be in effect, except for
the effective date and the change to Scudder's name.
INFORMATION ABOUT THE TRANSACTIONS AND SCUDDER KEMPER
Under the Transaction Agreement, Zurich will pay $866.7 million in
cash to acquire two-thirds of Scudder's outstanding shares and will contribute
ZKI to Scudder for additional shares, following which Zurich will have a 79.1%
fully diluted equity interest in the combined business. Zurich will then
transfer a 9.6% fully diluted equity interest in Scudder Kemper to a
compensation pool for the benefit of Scudder and ZKI employees, as well as
cash and warrants on Zurich shares for award to Scudder
employees, in each case subject to five-year vesting schedules. After giving
effect to the Transactions, current Scudder shareholders will have a 29.6%
fully diluted equity interest in Scudder Kemper and Zurich will have a 69.5%
fully diluted interest in Scudder Kemper.
The purchase price for Scudder or for ZKI in the Transactions is
subject to adjustment based on the impact to revenues of non-consenting
clients, and will be reduced if the annualized investment management fee
revenues (excluding the effect of market changes, but taking into account new
assets under management) from clients at the time of closing, as a percentage
of revenue run rates as of June 30, 1997 (the "Revenue Run Rate Percentage"),
is less than 90%.
The names, addresses and principal occupations of the initial
directors of Scudder Kemper are as follows: LYNN S. BIRDSONG, 345 Park Avenue,
New York, New York, Managing Director of Scudder; CORNELIA M. SMALL, 345 Park
Avenue, New York, New York, Managing Director of Scudder; and EDMOND D.
VILLANI, 345 Park Avenue, New York, New York, President and Chief Executive
Officer of Scudder; LAWRENCE W. CHENG, Mythenquai 2, Zurich, Switzerland,
Chief Investment Officer for Investments and Institutional Asset Management
and the corporate functions of Securities and Real Estate for Zurich; STEVEN
M. GLUCKSTERN, Mythenquai 2, Zurich, Switzerland, responsible for Reinsurance,
Structured Finance, Capital Market Products and Strategic Investments, and a
member of the Corporate Executive Board of Zurich; ROLF HUEPPI, Mythenquai 2,
Zurich, Switzerland, Chairman of the Board and Chief Executive Officer of
Zurich; and MARKUS ROHRBASSER, Mythenquai 2, Zurich, Switzerland, Chief
Financial Officer and member of the Corporate Executive Board of Zurich. The
initial Executive Committee members will be Messrs. Birdsong and Villani
(Chairman) and Messrs. Cheng and Rohrbasser.
The Transactions are subject to a number of conditions, including
approval by Scudder shareholders; the Revenue Run Rate Percentages of Scudder
and ZKI being at least 75%; Scudder and ZKI having obtained director and
shareholder approvals from registered funds representing 90% of assets of
such funds under management as of June 30, 1997; the absence of any
restraining order or injunction preventing the Transactions, or any
litigation challenging the Transactions that is reasonably likely to result
in an injunction or invalidation of the Transactions; and the continued
accuracy of the representations and warranties contained in the Transaction
Agreement. The Transactions are expected to close during the fourth quarter
of 1997.
Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings
have resulted from its operations as an insurer as well as from its ownership
of its subsidiaries and affiliated companies (the "Zurich Insurance Group").
Zurich and the Zurich Insurance Group provide an extensive range of insurance
products and services, and have branch offices and subsidiaries in more than
40 countries throughout the world. Zurich Insurance Group is particularly
strong in the insurance of international companies and organizations. Over
the past few years, Zurich's global presence, particularly in the United
States, has been strengthened by means of selective acquisitions.
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The third sentence of the section of the Prospectus entitled "PURCHASE
AND REDEMPTION OF SHARES" found on page 11, is hereby amended and supplemented
as follows:
Orders received by the insurance company before the earlier of 4:00
p.m. or the close of regular trading on the New York Stock Exchange will be
priced at the net asset value per share ("NAV") calculated that day, as
described below.
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The section of the Prospectus entitled "PERFORMANCE - PERFORMANCE OF
SIMILARLY MANAGED MUTUAL FUNDS" found on page 12, is hereby amended and
supplemented as follows:
PERFORMANCE OF SIMILARLY MANAGED MUTUAL FUNDS
Each Portfolio is newly organized and does not yet have its own
performance record. Each Portfolio, however, has substantially the same
investment objective, policies and strategies as one or more existing
mutual funds ("other Mutual Funds") that are either sold directly to the
public or through variable products, advised by MFS, Scudder or T. Rowe
Price, as the case may be.
The historical performance of the Funds that are comparable to the
Portfolios is presented below. Investors should not consider the performance
of the other Mutual Funds as an indication of the future performance of a
similarly managed Portfolio. The performance figures shown below reflect the
deduction of the historical fees and expenses paid by each other Mutual Fund,
and not those to be paid by the Portfolio. The figures do not reflect the
deduction of any insurance fees or charges that are imposed by the insurance
company in connection with its sale of the VA Contracts and VLI Policies.
Investors should refer to the separate account prospectuses describing the
VA Contracts and VLI Policies for information pertaining to these insurance
fees and charges. The insurance separate account fees will have a detrimental
effect on the performance of the Portfolios. The results shown below reflect
the reinvestment of dividends and distributions, and were calculated in the
same manner that will be used by each Portfolio to calculate its own
performance.
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* The S&P 500 (Standard & Poor's 500) Index is a value-weighted, unmanaged
index of 500 widely held stocks considered to be representative of the
stock market in general. The Russell 2000 Index is a value-weighted,
unmanaged index of small capitalization stocks. Both indices assume
reinvestment of all dividends. The Morgan Stanley Capital International-
Europe, Australia, Far East (MSCI EAFE) Index is an unmanaged, market
value-weighted average of the performance of more than 900 securities
listed on the stock exchanges of countries in Europe, Australia and the
Far East.
<PAGE>
The following table shows average annualized total returns of the
other Mutual Funds for the stated periods ending September 30, 1997, as well
as a comparison with the performance of the applicable benchmark.*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
MFS Emerging Growth Fund
(Class A)(1) 25.53 27.32 26.89 18.58
(Model for MFS Emerging
Equities)(2)
Russell 2000 33.19 22.96 20.51 12.23
S&P 500 40.45 29.92 20.77 14.75
MFS Research Fund (Class A)(1) 28.72 26.57 22.88 14.25
(Model for MFS Research
Growth)(3)
S&P 500 40.45 29.92 20.77 14.75
MFS Value Fund (Class A)(1) 28.46 24.79 22.36 14.01
(Model for MFS Value
Equity)(4)
S&P 500 40.45 29.92 20.77 14.75
Scudder VLIF International 21.51 12.34 14.27 9.14
Portfolio (Model for Scudder
International Growth)
MSCI EAFE 12.49 9.15 12.66 6.24
Scudder International Fund 21.61 12.17 14.04 8.46
(Model for Scudder International
Growth)
MSCI EAFE 12.49 9.15 12.66 6.24
T. Rowe Price Growth Stock Fund 32.71 24.65 19.79 12.49
(Model for T. Rowe Price Growth
Equity)
S&P 500 40.45 29.92 20.77 14.75
<FN>
- ----------------------------
(1) Class A share performance includes the performance of the Fund's Class B
shares for periods prior to the commencement of offering of Class A shares
on September 13, 1993, adjusted to include Class A's 5.75% front-end sales
charge, but not adjusted to reflect differences in internal operating
expenses.
(2) MFS also manages another fund with substantially the same investment
objective, policies and strategies as those of Portfolio Partners - MFS
Emerging Equities. The performance of that fund, MFS Variable Insurance
Trust - Emerging Growth Series, was not included in the chart because it
has been in existence only since July 24, 1995, and thus has a much
shorter track record than MFS Emerging Growth Fund (Class A). The
performance of MFS Variable Insurance Trust - Emerging Growth Series for
the one-year period ending September 30, 1997, was 25.53%.
(3) MFS also manages another fund with substantially the same investment
objective, policies and strategies as those of Portfolio Partners - MFS
Research Growth. The performance of that fund, MFS Variable Insurance
Trust - Research Series, was not included in the chart because it has been
in existence only since July 26, 1995, and thus has a much shorter track
record than MFS Research Fund (Class A). The performance of MFS Variable
Insurance Trust - Research Series for the one-year period ending September
30, 1997, was 28.72%.
(4) MFS also manages another fund with substantially the same investment
objective, policies and strategies as those of Portfolio Partners - MFS
Value Equity. The performance of that fund, MFS Variable Insurance Trust
- Value Series, was not included in the chart because it has been in
existence only since August 14, 1996, and thus has a much shorter track
record than MFS Value Fund (Class A). The performance of MFS Variable
Insurance Trust - Value Series for the one year period ending September
30, 1997, was 28.46%.
</FN>
</TABLE>
