Aetna
Retirement Services
Laurie M. LeBlanc
President
Portfolio Partners, Inc.
What a year this has been!
Dear Portfolio Partners Shareholders:
The equities market showed two faces in 1998 -- bull and bear. Large-cap growth
and high-tech companies led the market, while small- to mid-sized companies
lagged behind.
In addition, the global liquidity crisis, created by the default on Russian
debt along with Asian economic difficulties, strongly impacted the banking and
financial sectors. This caused investors to gravitate to the comfort of large,
liquid, brand name stocks. As 1998 progressed, investors' fears of inflation
turned to concerns about deflation. All of this bad news led to a significant
market decline in September of '98 and, for the first time since 1990, U.S.
equity mutual funds experienced a net cash redemption.
The market's fourth quarter comeback amazed even the most veteran investor,
however. Spawned by three successive cuts in interest rates, the U.S. Stock
Market actually ended the year with its fourth consecutive double-digit year
annual return (measured by the S&P 500 Index1).
As we enter 1999, I feel compelled to again stress the importance of discipline
to all investors. Particularly during times of market volatility, investors
need to practice regular periodic investing, asset allocation, and asset
rebalancing. Most importantly, investors need to remember that the double-digit
equity returns of the past several years cannot continue indefinitely. Over the
long haul, 9-11% average annual returns in the U.S. equity market is the
historic mean. Both positive and negative return years have contributed to that
long-term result.
With that said, we continue to feel that our portfolio managers are ready and
able to find opportunities in these challenging financial times. We invite you
to read their comments on the following pages.2 As we conclude our first full
year of operation, we are buoyed by the success of the Portfolio Partners
("PPI") series of funds, and by your support, which has made that contributed
to that success possible. Each Portfolio experienced positive asset growth in
1998, and collectively they grew over 30% to $2.7 billion. As we move into the
next millennium, we continue to strive to offer you quality investment choices
that provide solutions for your investment needs.
Sincerely,
/s/ Laura M. LeBlanc
Laurie M. LeBlanc
- -------------------------
(1) The Standard & Poor's (S&P) 500 Index is considered to be representative of
the stock market in general. The S&P returns assume reinvestment of all
dividends. Please note that indexes are unmanaged and do not take into account
any fees and expenses of the individual securities that they track. Individuals
cannot invest directly in any index.
(2) The views expressed are those of the three PPI subadvisers as of December
31, 1998 and are subject to change based on market and other conditions.
Information about a fund's portfolio, asset allocation, or country
diversification is historical, and is no indication of future portfolio
composition, which will vary. Past performance is no indication of future
results. The portfolios' returns shown do not reflect the impact of the
variable annuity of variable life insurance contract charges. If these charges
were reflected, the returns would be lower.
<PAGE>
Portfolio Partners MFS Emerging Equities Portfolio
Portfolio Partners MFS Research Growth Portfolio
Portfolio Partners MFS Value Equity Portfolio
- --------------------------------------------------------------------------------
Dear Portfolio Partners Shareholders:
Through all the turmoil of 1998, including continued economic weakness in Asia,
the Russian default, and stock market volatility, one bright spot kept shining:
the U.S. consumer. Buoyed by low unemployment and flat to declining prices,
consumer confidence seemed immune to the rest of the world's problems. At no
time was this more evident than in the last few months of the year. The
Standard & Poor's 500 Composite Index(1) rose more than 22% in that quarter, to
finish a volatile 1998 with a total return of more than 28%.(2) However, rising
stock prices have continued to create high valuations for companies
experiencing minimal earnings growth, which means there is still some risk in
the market until earnings growth rates justify higher stock prices.
Nonetheless, we believe earnings growth will begin to recover in the second
half of 1999 and put a firmer foundation under stock prices.
Portfolio Partners MFS Emerging Equities Portfolio
The past year was a volatile one buffeted by many crosscurrents. While the U.S.
economy appeared to be in good shape -- helped by low interest rates,
non-existent inflation, and several easings by the Federal Reserve -- the rest
of the world continued to be negatively affected by the Asian contagion of
slowing growth and devaluation. The uncertainty in global markets and the
prospect for a deceleration in U.S. economic growth thus increased the appeal
of liquidity and companies whose businesses were less subject to the vagaries
of international economies. As a result, the mid- and larger-capitalization
stocks in our portfolio did better than our smaller holdings, as did our
companies which had little exposure to countries abroad.
The Portfolio returned 29.7% for 1998, significantly better than the -2.6%
return of its benchmark, the Russell 2000 Growth Index.(3) The Portfolio
continued to benefit from the strong performance of its largest sector,
technology, where earnings were surprisingly robust despite issues relating to
Asia. Stocks which contributed to performance included Compuware, Cisco
Systems, Microsoft, Oracle and Sun Microsystems -- all of whose products were
in solid demand by corporations seeking enhanced productivity.
Deregulation and the rapid growth of data services in the telecommunications
industry boosted the values of holdings such as MCI WorldCom and Global
Telesystems. Consumer demand was more vibrant than expected. This helped
successful specialty retailers such as Staples and Office Depot and also
provided a positive backdrop for food and drug retailing companies such as
Rite-Aid and Fred Meyer where strong pharmacy sales helped storewide sales.
There were a few areas which did not do as well as we hoped. Cendant, the
company created by the merger of HFS and CUC International, suffered because of
accounting irregularities at CUC. In 1999, a major restructuring and refocusing
of core businesses combined with a multi-billion dollar share buyback should
help that company to contribute to performance. Health maintenance
organizations also disappointed as a result of an inability to balance costs
and pricing. Improved pricing and the reduction of unprofitable businesses
should help in 1999.
Technology will continue to be an area of emphasis since software, networking,
and telecom equipment companies are likely to generate some of the strongest
earnings growth in the market. Strong spending on communications and the
Internet is helping this entire area. Another area that offers great promise is
telecommunications services, where mergers and the strong growth of data
transmission are enhancing valuations. In our view, the companies that can grow
the fastest will be well rewarded by the marketplace. Thus, we believe our
strategy of searching out rapidly growing companies at reasonable prices should
benefit shareholders in 1999.
Looking forward, we believe the fundamental outlook for emerging growth stocks
remains positive. We continue to think that we are at the beginning of a
slowdown in profit growth for many of the large-cap
- -----------------------
(1) The Standard & Poor's (S&P) 500 Index is considered to be representative of
the stock market in general. The S&P returns assume reinvestment of all
dividends. Please note that indexes are unmanaged and do not take into account
any fees and expenses of the individual securities that they track. Individuals
cannot invest directly in any index.
(2)Please remember, past performance is no indication of future results.
(3) The Russell 2000 Growth Index (a small cap index) consists of the smallest
2,000 companies in the Russell 3000 Index and represents approximately 10% of
the Russell 3000 total market capitalization. The Russell 2000 returns assume
reinvestment of all dividends. Please note that indexes are unmanaged and do
not take into account any fees and expenses of the individual securities that
they track. Individuals cannot invest directly in any index.
<PAGE>
Portfolio Partners MFS Emerging Equities Portfolio
Portfolio Partners MFS Research Growth Portfolio
Portfolio Partners MFS Value Equity Portfolio, cont'd
- --------------------------------------------------------------------------------
multinational companies that make up the broader market averages. This is
positive for emerging growth stocks that should be able to grow much faster
than the overall economy. Moreover, inflation and interest rates are both low
which provides a favorable backdrop for the valuation of emerging growth
stocks.
Portfolio Partners MFS Research Growth Portfolio
In 1998, the Portfolio returned 23%, underperforming the S&P 500 Index
benchmark of 28.7% and the Lipper Growth Fund Average(4) of 25.7%. Although the
Portfolio underperformed the S&P 500, investors should bear in mind that this
Portfolio is truly a "best ideas" portfolio that invests in what we believe are
strong stocks regardless of their market capitalizations or industry sectors.
The roller coaster ride that the market has been on in the past few months was
driven by a narrow band of large-capitalization, multinational companies, while
the Portfolio had significant holdings in small- and mid-cap stocks. As a
result, the Portfolio did not move in lock-step with the S&P 500, and we felt
this flexibility would better position the Portfolio for long-term growth as
the valuation gap between large and small companies closes. The Portfolio is
being managed applying MFS[RegTM] Original ResearchSM where we select companies
that we believe demonstrate earnings growth under a variety of market
conditions. This approach can be very important in a market like today's, where
we see few companies with the ability to raise prices on their products.
While volatility may have bothered some investors, we believe it created some
compelling bargains for what we felt were fundamentally sound companies. We
tried to take advantage of these during the market's downturn and added to
positions that had shown weaker stock prices, but still demonstrated a sound
fundamental outlook. Now, with share prices rebounding across market
capitalizations, we are paying closer careful attention to companies'
valuations. If we find instances of valuations that are not supported by
stocks' fundamentals, we will pare back our positions in order to preserve
gains for investors.
Two of our best ideas are MCI WorldCom and Lucent Technologies, both of which
benefited from the growth in demand for data communications products. We
believe MCI WorldCom has achieved the best strategic position in the industry
by focusing on the business market, which is the fastest-growing and
most-profitable segment of the data communications and Internet arena. Also, it
expanded internationally and had success in taking market share from larger,
more entrenched European telecommunications companies, many of which were
formerly nationalized industries. MCI is following the same entrepreneurial
model in Europe that it did in the United States, where it had similar success
in competition with AT&T. The stock's current valuation, or the ratio of its
share price to its projected earnings, was attractive at 22 times 1999 earnings
estimates. Lucent Technologies is the leading telecommunications equipment
supplier in the United States. It continued to benefit from increased capital
spending, as telecommunications companies such as MCI WorldCom and AT&T spent
to accommodate the growth in data and Internet traffic. Lucent is also
increasing its market share overseas. Though the stock is not inexpensive at 40
times its estimated 1999 earnings growth, we believe that its strong growth
justified its valuation.
We continued to be overweighted in growth areas such as technology, health
care, and consumer staples. In technology, the Portfolio featured Microsoft as
our largest holding as well as Cisco, Intel, and Oracle. In health care, our
weightings did not change from one year ago and included major pharmaceutical
companies such as Pfizer, American Home Products, and Bristol-Myers Squibb, all
of which had strong product pipelines and benefited from the worldwide trend
toward increased prescription volumes. We also have held onto large holdings in
consumer staples companies such as Colgate Palmolive and Clorox, both of which
benefited from continued consumer confidence in a growing economy.
On the flip side, we were underweight in a number of cyclical and
commodity-driven industries such as oil, chemicals, and paper and forest
products. We saw these industries suffering from pricing pressures that hurt
their ability to generate consistent earnings growth.
- -----------------------
(4) The Lipper Growth Funds Average represents an average return for the
universe of growth funds. Please note that averages are unmanaged and do not
take into account any fees and expenses of the individual funds that they track.
Individuals cannot invest directly in any average.
<PAGE>
Portfolio Partners MFS Emerging Equities Portfolio
Portfolio Partners MFS Research Growth Portfolio
Portfolio Partners MFS Value Equity Portfolio, cont'd
- --------------------------------------------------------------------------------
MFS' commitment to original research has not wavered since the company's
inception in 1924. However, it's fair to say that the process has evolved. In
1924, MFS had virtually no dedicated analysts. Portfolio managers did their own
research and made the investment decisions, and that heritage of informed stock
selection is deeply ingrained in our corporate culture. We started our internal
research department in 1932, and today we have a large global team of analysts
who examine individual companies firsthand by meeting with company management,
interviewing customers, quizzing suppliers, and evaluating new products. This
experience is important in building our long-term track record that will stand
the test of time and market conditions.
Portfolio Partners MFS Value Equity Portfolio
In general, the Portfolio benefited from good industry selection as well as
good stock selection in 1998. This led to 1998 returns of 26.7%, exceeding the
Lipper Capital Appreciation Fund Average(5) of 20%, but slightly underperforming
the S&P 500 Index. Although the Portfolio was slightly underweight relative to
the S&P 500 in technology and health care, two of the strongest-performing
sectors in that Index. It was significantly overweighted in retailing, one of
the best-performing sectors. At the same time, the Portfolio was significantly
underweighted in basic materials, transportation, and energy, all of which were
among the worst performing sectors.
Changes in the Portfolio included: 1) a reduction in the pharmaceutical
weighting because prices reached what we believed were full valuations, and 2)
an increase in the weighting in health maintenance organizations in
anticipation of an industry rebound. We recently made purchases in the
technology sector, including BMC Software, Oracle, and Compuware, at attractive
prices. In financial services, the Portfolio's largest sector, we reduced the
Portfolio's regional bank exposure but added several companies, including
Freddie Mac, Associates First Capital, and State Street Bank and Trust Co. We
believe many financial services companies can offer solid double-digit growth
and attractive valuations. In addition, the performance of these companies has
tended to be good during periods of declining interest rates and slow economic
growth, particularly when their asset quality has remained intact.
Our international investment approach paralleled our domestic objective of
finding long-term growth at attractive valuations. The Portfolio benefited from
good performance from some of its major European holdings, including Sanofi,
Mannesmann, and Cellular Communications International, a U.S. company with
extensive operations in Europe. Total non-U.S. positions represented 7.7% of
overall Portfolio holdings.
Going forward, we anticipate continued slow growth and low inflation in 1999.
Further Federal Reserve Board easing could occur if the economy slows
significantly, since the threat of inflation has been largely subdued. Although
the recent slowdown in real estate markets, as well as the sharp decline in
most commodity prices, has dampened inflation, the equity markets continue to
trade at extremely high valuations. We feel any unforeseen deterioration in the
outlook for corporate profits or any increase in inflation could result in a
decline in stock prices. Meanwhile, foreign affairs will continue to impact
U.S. equity markets. Currently, the Asian outlook appears to have stabilized,
but Latin American economies are highly unpredictable, and there is continued
uncertainty surrounding Brazil. Finally, Year 2000 systems compliance as well
as the conversion to the new European currency, could dampen growth in 1999 as
companies undertake significant testing to ensure smooth operations.
Respectfully,
John W. Ballen -- Portfolio Manager, PPI MFS Emerging Equities
Kevin R. Parke and Research Team, PPI MFS Research Growth
John F. Brennan, Jr. -- Portfolio Manager, PPI MFS Value Equity
- -----------------------
(5) The Lipper Capital Appreciation Fund Average represents an average return
for the universe of funds that aim to maximize capital appreciation. Please
note that averages are unmanaged and do not take into account any fees and
expenses of the individual funds that they track. Individuals cannot invest
directly in any average.
<PAGE>
Portfolio Partners Scudder International Growth Portfolio
- --------------------------------------------------------------------------------
Dear Portfolio Partners Shareholders:
The Portfolio Partners (PPI) Scudder International Growth Portfolio returned
19.1% for the twelve months ending December 31, 1998(1). The Portfolio performed
well relative to its peers, outperforming the 13.0% average return for all
International Equity Funds, as calculated by Lipper Analytical Services.
Nevertheless, the Portfolio was bested by its benchmark, the MSCI EAFE Index(2),
which returned 20.0% for the year.
While 1998 turned in the strongest performance from international equity
markets since 1993, it also marked a period of heightened volatility and
uncertainty. Global market psychology seesawed from extreme confidence and
complacency, to total risk aversion and fear, and then back again. During the
first half of the year, European markets climbed steadily higher, repeatedly
setting new records on the basis of lower interest rates, economic
acceleration, merger activity and optimism towards the European Monetary Union.
In late July, all this ground to an abrupt halt. The problems initially
emanating from emerging Asian countries had spread to debt default in Russia.
This shook banking institutions across the developed world, destabilized
Brazilian finances, and nearly collapsed a large U.S. hedge fund. The global
equity and bond markets corrected downwards in response.
Then, just as suddenly, the start of the fourth quarter marked a sharp rebound
in global markets. Largely in response to a concerted drop in interest rates
around the world, led by the Federal Reserve, confidence quickly returned to
the financial markets. All the problems that so frightened investors in August
and September were now perceived as well contained. Funds flowed back into the
equity markets, and prices and valuations rebounded to their pre-correction
highs. While all this activity was occurring in the rest of the world, the
Japanese market continued to grind downwards in fits and starts. Rising bond
yields, and the surging yen towards the latter part of the year, were further
evidence of the failure of governmental efforts to pull the country out of
economic disarray.
Over the course of the past year, the Portfolio's performance was driven
largely by its holdings in Europe, which represented on average, about
three-quarters of the overall assets. Stock and sector selection were key. The
telecommunications sector in particular offered astronomical returns. We had an
overweighted position, with Portfolio holdings like Olivetti up 487%, Nokia up
220%, Orange up 165%, Mannesmann up 110%, and France Telecom up 103% in local
currencies. The insurance sector was also quite strong. Large holdings like
Aegon rose 155%, Axa 74%, and Skandia 66%. Detracting from these gains were
weak sectors like energy and commodities, where valuations were compelling and
the macroeconomic picture near its worst. Also unhelpful were holdings in Japan
and the emerging markets.
In the fourth quarter, the Portfolio's positions in Europe continued to
contribute positively to absolute returns, but didn't keep pace with the
dramatic rise in the markets overall. At the same time, underexposure to
Japanese equities prohibited a full participation in a yen that surged during
the last quarter. Finally, the devastated smaller markets of emerging Asia
staged a spectacular fourth quarter rally. Our participation in the upswing was
largely limited to our holdings in Hong Kong.
As many equity markets broke through to new all-time highs in the fourth
quarter of 1998, against an environment of weak prices and slowing global
growth, valuations increasingly became a challenge. The global liquidity that
drove prices upward could once again whipsaw the financial markets in 1999. The
deep-seated structural problems that rocked the markets in the summer of 1998
still remain and are yet unsolved. The only certainty going forward is that
volatility and uncertain capital markets are likely to remain with us for
awhile. Against this backdrop our focus for the Portfolio continues to be on
those companies who are likely to sustain their profitability as they benefit
from the constructive processes of long term change underway in the global
economies.
Respectfully,
Nicholas Bratt, Global Equity Director Carol L. Franklin, Portfolio Manager
Irene T. Cheng, Portfolio Manager Joan R. Gregory, Portfolio Manager
- -----------------------
(1) Please remember, past performance is no indication of future results.
(2) Morgan Stanley Capital International Europe, Australia, Far East Index is a
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. Please note that indexes are unmanaged and do not take into account any
fees and expenses of the individual securities they track. Individuals cannot
invest directly in any index.
<PAGE>
Portfolio Partners T. Rowe Price Growth Equity Portfolio
- --------------------------------------------------------------------------------
Over the last six months many negative developments attempted to stand in the
way of the bull market and the robust U.S. economy. Russia defaulted on its
loans, causing panic in emerging markets and a looming credit crunch both here
and abroad. Before much damage could be inflicted on the U.S. economy, the
Federal Reserve Bank stepped in by lowering rates in the U.S. several times,
and the IMF put a package together to stabilize Latin America. This calmed the
market and restored consumer confidence. While the manufacturing sector slowed
noticeably, other elements of the economy remained relatively strong. The
calming effort, combined with the public's insatiable appetite for stocks,
drove the market up sharply at year-end, surpassing highs reached in July.
Performance
<TABLE>
<CAPTION>
Total Returns for Periods Ended 12/31/98 Three Months One Year
- ---------------------------------------- -------------- -----------
<S> <C> <C>
Portfolio Partners, Inc. T. Rowe Price Growth Equity Portfolio(1) 23.08% 27.60%
- ----------------------------------------------------------------------------------------------
Lipper Analytical VA Underlying Growth Funds Average(2) 23.31% 24.94%
- ----------------------------------------------------------------------------------------------
S&P 500 Stock Index(3) 21.28% 28.57%
- ----------------------------------------------------------------------------------------------
</TABLE>
The portfolio outperformed the Lipper Analytical VA Underlying Growth Funds
Average and slightly trailed the S&P 500 Index for the one-year period ending
December 31, 1998. The narrowness of the S&P 500 Index continued as most of the
positive returns came from the largest 50 blue chip stocks. This was also true
for the Portfolio as its smaller companies continued to lag. International
holdings also continued to underperform slightly.
Several of our large holdings did quite well. America Online, which was
purchased early in the year, performed exceedingly well. Network Associates,
EMC, Microsoft, MCI WorldCom, and Intel also added nicely to returns. In other
sectors, the portfolio was helped by our large positions in Freddie Mac,
Safeway, Home Depot, Philip Morris and Danaher. On the international side,
Mannesman Wolters Kluwer and Hutchison Whampoa were positive contributors.
Many financial stock holdings detracted from performance. Trading activities
and poor foreign loans affected Citigroup and Bank America, and generally soft
markets negatively affected insurance holdings. As usual, a few earnings
disappointments, like Parametric Technology and United Healthcare, also
negatively impacted returns. In most cases we held or added to these positions
based on positive fundamentals.
While the market was rewarded with strong returns in 1998, earnings and cash
flow at many companies showed little growth. Over time, stocks cannot continue
to move upward at a faster rate than their underlying cash flows. This could
lead to lower stock market returns in the period ahead. We do, however, feel
confident that the companies that make up the Portfolio will continue to grow
to their "true value" faster than the overall market.
Respectfully,
Robert W. Smith
Portfolio Manager
The views expressed are those of the portfolio manager as of December 31, 1998,
and are subject to change based on market and other conditions. Information
about a fund's portfolio, asset allocation, or country diversification is
historical and is no indication of future portfolio composition, which will
vary. Please remember, past performance is no guarantee of future results.
- -----------------------
(1) Source: Portfolio Partners Inc. Total return includes change in share price,
reinvestment of dividends, and capital gains. Total returns do not include
charges imposed by the insurance company separate account. If these were
included, performance would be lower. Please remember, past performance does
not guarantee future results.
(2) The Lipper Analytical VA Underlying Growth Funds Average represents an
average return for the universe of growth funds. Please note that averages are
unmanaged and do not take into account any fees and expenses of the individual
funds that they track. Individuals cannot invest directly in any average.
(3) The Standard & Poor's (S&P) 500 Index is considered to be representative of
the stock market in general. The S&P returns assume reinvestment of all
dividends. Please note that indexes are unmanaged and do not take into account
any fees and expenses of the individual securities that they track. Individuals
cannot invest directly in any index.
<PAGE>
This Page Intentionally Left Blank
<PAGE>
Portfolio Partners, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share outstanding for the period:
<TABLE>
<CAPTION>
MFS Emerging
Equities Portfolio
For the Year Ended
December 31, 1998
--------------------
<S> <C>
Net asset value, beginning of period ......... $ 42.91
---------
Income from investment operations:
Net investment income (loss) ................ ( 0.21)
Net realized and change in unrealized
gain (loss) on investments, futures,
foreign currency and forward
foreign currency exchange
contracts .................................. 12.88
---------
Total income from investment
operations .............................. 12.67
---------
Less Distributions:
Net investment income ....................... (0.11)
Net realized gain on sale
of investments ............................. (0.03)
---------
Total distributions ...................... (0.14)
---------
Net asset value, end of period ............... $ 55.44
=========
Total return ................................. 29.67%
Net assets, end of period (000's) ............ $1,069,040
Ratio of total expenses to average net
assets ...................................... 0.81%
Ratio of net investment income to
average net assets .......................... (0.45)%
Portfolio turnover rate ...................... 4.64%
<CAPTION>
MFS Emerging MFS Research
Equities Portfolio Growth Portfolio
Period from Period from
November 28, 1997 MFS Research November 28, 1997
(commencement Growth Portfolio (commencement
of operations) For the Year Ended of operations)
to December 31, 1997 December 31, 1998 to December 31, 1997
---------------------- -------------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period ......... $ 43.39 $ 9.71 $ 9.89
-------- ------- --------
Income from investment operations:
Net investment income (loss) ................ 0.09 0.02 --
Net realized and change in unrealized
gain (loss) on investments, futures,
foreign currency and forward
foreign currency exchange
contracts .................................. (0.57) 2.20 (0.18)
-------- ------- --------
Total income from investment
operations .............................. (0.48) 2.22 (0.18)
-------- ------- --------
Less Distributions:
Net investment income ....................... -- --* --
Net realized gain on sale
of investments ............................. -- -- --
-------- -------- --------
Total distributions ...................... -- -- --
-------- -------- --------
Net asset value, end of period ............... $ 42.91 $ 11.93 $ 9.71
======== ======== ========
Total return ................................. (1.13)%(1) 23.00% (1.82)%(1)
Net assets, end of period (000's) ............ $768,108 $491,537 $399,548
Ratio of total expenses to average net
assets ...................................... 0.81%(2) 0.85% 0.85%(2)
Ratio of net investment income to
average net assets .......................... 2.31%(2) 0.23% 0.22%(2)
Portfolio turnover rate ...................... 0.07%(1) 97.51% 57.88%(1)
</TABLE>
(1) Not annualized.
(2) Annualized.
* Dividend on portfolio was less than $0.01.
10 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MFS Value
Equity Portfolio
Period from
MFS Value November 28, 1997 Scudder International
Equity Portfolio (commencement Growth Portfolio
For the Year Ended of operations) For the Year Ended
December 31, 1998 to December 31, 1997 December 31, 1998
- -------------------- ---------------------- -----------------------
<S> <C> <C>
$ 29.91 $ 29.49 $ 14.10
-------- -------- --------
0.05 0.05 0.13
7.94 0.37 2.56
-------- -------- --------
7.99 0.42 2.69
-------- -------- --------
(0.04) -- (0.03)
-- -- --
-------- -------- --------
(0.04) -- (0.03)
-------- -------- --------
$ 37.86 $ 29.91 $ 16.76
======== ======== ========
26.74% 1.43%(1) 19.09%
$194,926 $134,508 $432,651
0.90% 0.90%(2) 1.00%
0.17% 1.98%(2) 0.83%
141.31% 12.06%(1) 68.85%
<CAPTION>
Scudder International T. Rowe Price Growth
Growth Portfolio Equity Portfolio
Period from Period from
November 28, 1997 T. Rowe Price Growth November 28, 1997
(commencement Equity Portfolio (commencement
of operations) For the Year Ended of operations)
to December 31, 1997 December 31, 1998 to December 31, 1997
----------------------- ---------------------- ---------------------
<C> <C> <C>
$ 13.88 $ 43.61 $ 42.74
-------- -------- --------
-- 0.30 0.06
0.22 11.66 0.81
-------- -------- --------
0.22 11.96 0.87
-------- -------- --------
-- (0.17) --
-- (0.09) --
-------- -------- --------
-- (0.26) --
-------- -------- --------
$ 14.10 $ 55.31 $ 43.61
======== ======== ========
1.58%(1) 27.60% 2.03%(1)
$378,200 $521,484 $371,194
1.00%(2) 0.75% 0.75%(2)
0.12%(2) 0.65% 1.58%(2)
3.01%(1) 57.58% 2.94%(1)
</TABLE>
See Notes to Financial Statements. 11
<PAGE>
MFS Emerging Equities Portfolio
Schedule of Investments
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
---------------- --------------
<S> <C> <C>
COMMON STOCKS (98.2%)
Advertising (0.2%)
Mail-Well, Inc.* .................................. 130,000 $ 1,486,875
Outdoor Systems, Inc.* ............................ 10,900 327,000
--------------
1,813,875
--------------
Aerospace (0.2%)
Gulfstream Aerospace Corp.* ....................... 30,600 1,629,450
Ladish Co., Inc.* ................................. 6,900 57,788
Newport News Shipbuilding ......................... 8,600 287,563
--------------
1,974,801
--------------
Airlines (0.1%)
Atlas Air, Inc.* .................................. 27,700 1,355,569
Carey International, Inc.* ........................ 4,000 70,000
--------------
1,425,569
--------------
Automotive (0.2%)
Federal-Mogul Corp. ............................... 30,700 1,826,650
National Equipment Services, Inc.* ................ 16,800 193,200
--------------
2,019,850
--------------
Banks and Credit Companies (0.0%)
U.S. Trust Corp. .................................. 500 38,000
--------------
Business Machines (0.2%)
Compaq Computer Corp. ............................. 47,600 1,996,225
--------------
Business Machines--Peripherals (0.4%)
CHS Electronics, Inc.* ............................ 235,000 3,980,313
--------------
Business Services (11.1%)
ACSYS, Inc.* ...................................... 12,500 48,438
Affiliated Computer Services, Inc., Class A* ...... 7,600 342,000
AnswerThink Consulting Group, Inc.* ............... 2,700 72,563
BISYS Group, Inc.* ................................ 23,100 1,192,538
Bright Horizons Family Solutions, Inc.* ........... 115 3,105
Building One Services Corp.* ...................... 240,000 5,010,000
Cambridge Technology Partners, Inc.* .............. 117,400 2,597,475
Career Education Corp.* ........................... 1,800 54,000
CBT Group PLC ADR (Ireland)* ...................... 93,400 1,389,325
Ceridian Corp.* ................................... 59,000 4,118,938
Compass International Services Corp.* ............. 17,400 184,875
Complete Business Solutions, Inc.* ................ 3,600 121,950
Computer Sciences Corp. ........................... 100,000 6,443,750
Compuware Corp.* .................................. 633,000 49,453,124
Cornell Corrections, Inc.* ........................ 9,400 178,600
Cotelligent Group, Inc.* .......................... 27,200 579,700
Danka Business Systems PLC ADR
(Great Britain) ................................. 347,500 1,455,156
DST Systems, Inc.* ................................ 27,300 1,557,806
Dynamex, Inc.* .................................... 7,400 29,138
Fine Host Corp.* .................................. 1,100 990
First Data Corp. .................................. 494,800 15,678,975
Galileo International, Inc. ....................... 700 30,450
<CAPTION>
Number of Market
Shares Value
---------------- --------------
<S> <C> <C>
Business Services (continued)
ICT Group, Inc.* .................................. 800 $ 2,050
Ikon Office Solutions, Inc. ....................... 208,100 1,781,856
Interim Services, Inc.* ........................... 65,000 1,519,375
Learning Tree International, Inc.* ................ 14,200 128,688
Loewen Group, Inc. ................................ 197,500 1,666,406
Metamor Worldwide, Inc.* .......................... 41,300 1,032,500
Modis Professional Services, Inc.* ................ 885,100 12,833,950
Navigant International, Inc.* ..................... 48,339 371,606
NOVA Corp.* ....................................... 32,150 1,115,203
Personnel Group of America, Inc. .................. 32,100 561,750
Professional Detailing, Inc.* ..................... 1,900 53,675
PRT Group, Inc.* .................................. 148,600 445,800
RCM Technologies, Inc.* ........................... 42,400 1,123,600
Renaissance Worldwide, Inc.* ...................... 148,800 911,400
Snyder Communications, Inc.* ...................... 21,600 729,000
Staff Leasing, Inc.* .............................. 45,000 523,125
Sungard Data Systems, Inc.* ....................... 800 31,750
Syntel, Inc.* ..................................... 15,000 169,688
Taylor Nelson Sofres PLC (Great Britain) .......... 32,000 40,653
Technology Solutions Co.* ......................... 20,100 215,448
United Road Services, Inc.* ....................... 1,200 22,050
Vestcom International, Inc.* ...................... 10,000 90,000
Wesley Jessen VisionCare, Inc.* ................... 94,600 2,625,150
--------------
118,537,619
--------------
Communications Services (6.9%)
Global TeleSystems Group, Inc.* ................... 35,400 1,973,550
Hyperion Telecommunications, Inc., Class A* ....... 7,200 108,900
Intermedia Communications, Inc.* .................. 16,400 282,900
MCI Worldcom, Inc.* ............................... 844,640 60,602,919
NEXTLINK Communications, Inc., Class A* ........... 1,200 34,050
Qwest Communications International, Inc.* ......... 6,347 317,350
Tel-Save Holdings, Inc.* .......................... 637,000 10,669,750
--------------
73,989,419
--------------
Computer Software (0.6%)
F.Y.I., Inc.* ..................................... 72,000 2,304,000
International Integration, Inc.* .................. 2,300 39,100
SAP AG (Germany) .................................. 10,000 4,320,043
Transaction Systems Architects, Inc., Class A*..... 500 25,000
Unigraphics Solutions, Inc.* ...................... 11,700 169,650
--------------
6,857,793
--------------
Computer Software--PC (8.0%)
Autodesk, Inc. .................................... 32,000 1,366,000
Boole & Babbage, Inc.* ............................ 22,300 656,456
Microsoft Corp. ................................... 598,400 82,990,599
Networks Associates, Inc.* ........................ 6,200 410,750
--------------
85,423,805
--------------
Computer Software--Systems (18.5%)
Aspen Technologies, Inc. .......................... 3,900 56,550
BMC Software, Inc. ................................ 811,600 36,166,924
</TABLE>
12 See Notes to Schedule of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
---------------- --------------
<S> <C> <C>
Computer Software--Systems (continued)
Cadence Design Systems, Inc.* ................... 927,900 $ 27,605,024
Computer Associates International, Inc. ......... 873,800 37,245,724
Learning Co., Inc.* ............................. 6,000 155,625
Oracle Systems Corp. ............................ 1,853,300 79,923,562
PeopleSoft, Inc.* ............................... 19,300 365,494
Rational Software Corp.* ........................ 15,800 418,700
Security Dynamics Tech, Inc.* ................... 18,500 425,500
Siebel Systems, Inc. ............................ 67,771 2,299,978
Synopsys, Inc.* ................................. 240,900 13,068,825
Veritas Software Corp.* ......................... 600 35,963
--------------
197,767,869
--------------
Conglomerates (6.0%)
Tyco International Ltd. ......................... 854,100 64,431,168
--------------
Consumer Goods and Services (5.0%)
Carson, Inc.* ................................... 8,800 35,200
Cendant Corp.* .................................. 2,798,642 53,349,112
Ocular Sciences, Inc.* .......................... 8,200 219,350
--------------
53,603,662
--------------
Electrical Equipment (0.2%)
AFC Cable Systems, Inc.* ........................ 7,500 252,188
Cable Design Technologies* ...................... 80,800 1,494,800
--------------
1,746,988
--------------
Electronics (3.4%)
Altera Corp.* ................................... 364,400 22,182,849
Amkor Technology, Inc.* ......................... 12,800 138,400
Analog Devices, Inc.* ........................... 65,500 2,055,063
Burr - Brown Corp.* ............................. 600 14,063
Intel Corp. ..................................... 70,000 8,299,375
Teradyne, Inc.* ................................. 38,400 1,627,200
Xilinx, Inc.* ................................... 26,100 1,699,763
--------------
36,016,713
--------------
Entertainment (6.5%)
American Tower Systems Corp., Class A* .......... 3,200 94,600
CBS Corp. ....................................... 68,200 2,233,550
Chancellor Media Corp.* ......................... 27,200 1,302,200
Citadel Communications Corp.* ................... 8,900 230,288
Clear Channel Communications, Inc.* ............. 205,600 11,205,200
Cox Radio, Inc., Class A* ....................... 20,000 845,000
Fox Entertainment Group, Inc.* .................. 55,900 1,407,981
GameTech International, Inc.* ................... 50,000 103,125
Harrah's Entertainment, Inc.* ................... 41,400 649,463
Hearst-Argyle Television, Inc.* ................. 5,000 165,000
Heftel Broadcasting Corp.* ...................... 9,000 443,250
Infinity Broadasting Corp.* ..................... 60,000 1,642,500
Jacor Communications, Inc.* ..................... 124,800 8,034,000
MediaOne Group, Inc.* ........................... 800 37,600
Mirage Resorts, Inc.* ........................... 67,800 1,012,763
Premier Parks, Inc.* ............................ 106,600 3,233,725
<CAPTION>
Number of Market
Shares Value
---------------- --------------
<S> <C> <C>
Entertainment (continued)
Time Warner, Inc. ............................... 323,600 $ 20,083,424
Univision Communications, Inc., Class A* ........ 453,100 16,396,556
--------------
69,120,225
--------------
Financial Institutions (1.5%)
ARM Financial Group, Inc., Class A .............. 27,700 614,594
Associates First Capital Corp. .................. 130,000 5,508,750
CIT Group, Inc., Class A ........................ 9,500 302,219
Federated Investors, Inc., Class B .............. 14,600 264,625
Franklin Resources, Inc. ........................ 264,200 8,454,400
Healthcare Financial Partners, Inc.* ............ 5,800 231,275
Heller Financial, Inc. .......................... 13,700 402,438
Morgan Stanley Dean Witter Discover & Co. ....... 2,700 191,700
Waddell & Reed Financial, Inc., Class A ......... 6,000 142,125
--------------
16,112,126
--------------
Food and Beverage Products (0.1%)
Suiza Foods Corp.* .............................. 27,900 1,421,156
--------------
Insurance (0.6%)
Ace Ltd. (Bermuda) .............................. 82,300 2,834,206
Annuity and Life Re Holdings Ltd. ............... 2,300 62,100
Conseco, Inc. ................................... 102,830 3,142,742
Hartford Life, Inc., Class A .................... 200 11,650
Mony Group, Inc.* ............................... 3,300 103,331
--------------
6,154,029
--------------
Machinery (0.0%)
Munters AB (Sweden) ............................. 150 1,292
Weatherford International* ...................... 3,705 71,784
--------------
73,076
--------------
Medical and Health Products (0.6%)
Arterial Vascular Engineering Co.* .............. 6,200 325,500
Boston Scientific Corp.* ........................ 220,000 5,898,750
Coast Dental Services, Inc.* .................... 1,000 10,375
CompDent Corp.* ................................. 400 4,150
King Pharmaceuticals, Inc.* ..................... 18,200 475,475
McKesson Corp. .................................. 1,600 126,500
Renex Corp.* .................................... 20,000 145,000
--------------
6,985,750
--------------
Medical and Health Technology Services (5.0%)
Balanced Care Corp.* ............................ 30,300 242,400
Capital Senior Living Corp.* .................... 89,000 1,240,438
Concentra Managed Care, Inc.* ................... 11,900 127,181
Foundation Health Systems* ...................... 100,100 1,194,944
Guidant Corp. ................................... 6,700 738,675
HBO & Co. ....................................... 99,600 2,857,275
Health Management Associates, Inc., Class A*..... 1,350 29,194
Healthsouth Corp. ............................... 364,100 5,620,794
Integrated Health Services, Inc. ................ 4,700 66,388
Medtronic, Inc. ................................. 1,000 74,250
</TABLE>
See Notes to Schedule of Investments. 13
<PAGE>
MFS Emerging Equities Portfolio
Schedule of Investments
December 31, 1998 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
-------------- ------------
<S> <C> <C>
Medical and Health Technology Services (continued)
Orthodontic Centers of America, Inc.* ............. 213,100 $ 4,142,131
Oxford Health Plans, Inc.* ........................ 39,100 581,613
PacifiCare Health Systems, Inc., Class A* ......... 10,000 727,500
PacifiCare Health Systems, Inc., Class B* ......... 3,900 310,050
Province Healthcare Co.* .......................... 1,500 53,813
PSS World Medical, Inc.* .......................... 55,500 1,276,500
Rural/Metro Corp.* ................................ 35,300 386,094
St. Jude Medical, Inc.* ........................... 70 1,938
Total Renal Care Holdings, Inc.* .................. 11,506 340,146
United Healthcare Corp. ........................... 683,400 29,428,912
Wellpoint Health Networks, Inc.* .................. 39,500 3,436,500
-----------
52,876,736
-----------
Oil Services (0.0%)
BJ Services Co.* .................................. 4,000 62,500
Diamond Offshore Drilling, Inc. ................... 2,400 56,850
Noble Drilling Corp.* ............................. 8,200 106,088
NS Group, Inc.* ................................... 50,000 221,875
-----------
447,313
-----------
Pollution Control (0.5%)
Allied Waste Industries, Inc.* .................... 31,970 755,291
Republic Services, Inc., Class A* ................. 87,300 1,609,594
Waste Management, Inc. ............................ 54,712 2,550,947
-----------
4,915,832
-----------
Printing and Publishing (0.0%)
Applied Graphics Technologies, Inc.* .............. 700 11,550
Workflow Management, Inc.* ........................ 68,452 453,495
-----------
465,045
-----------
Railroad (0.1%)
Kansas City Southern Industries ................... 19,500 959,156
-----------
Real Estate (0.1%)
Meristar Hospitality Corp. REIT ................... 70,000 1,299,375
ResortQuest International, Inc.* .................. 5,700 83,363
-----------
1,382,738
-----------
Restaurants and Lodging (2.1%)
Applebee's International, Inc. .................... 236,000 4,867,500
Avis Rent A Car, Inc.* ............................ 11,600 280,575
Buffetts, Inc.* ................................... 99,100 1,183,006
Cavanaughs Hospitality Corp.* ..................... 3,400 36,550
CEC Entertainment, Inc.* .......................... 30,000 832,500
CKE Restaurants, Inc. ............................. 8,800 259,050
Dollar Thrifty Automotive Group, Inc.* ............ 43,900 565,213
Extended Stay America, Inc.* ...................... 800 8,400
Four Seasons Hotels, Inc. (Canada) ................ 5,800 169,650
Friendly Ice Cream Corp.* ......................... 50,000 306,250
Hilton Hotels Corp. ............................... 4,600 87,975
MeriStar Hotels & Resorts, Inc.* .................. 70,000 183,750
Outback Steakhouse, Inc.* ......................... 4,900 195,388
<CAPTION>
Number of Market
Shares Value
---------------- --------------
<S> <C> <C>
Restaurants and Lodging (continued)
Papa John's International, Inc.* .................. 9,300 $ 410,363
Promus Hotel Corp.* ............................... 288,865 9,352,004
Royal Caribbean Cruises Ltd. ...................... 29,700 1,098,900
Schlotzsky's, Inc.* ............................... 130,700 1,290,663
Sunterra Corp.* ................................... 15,000 225,000
United Rentals, Inc.* ............................. 5,600 185,500
U.S. Franchise Systems, Inc., Class A* ............ 50,700 500,663
-----------
22,038,900
-----------
Special Products and Services (0.2%)
Aztec Technology Partners, Inc.* .................. 102,678 372,208
Central Parking Corp. ............................. 9,700 314,644
Coach USA, Inc.* .................................. 22,800 790,875
Cunningham Graphics International, Inc.* .......... 1,000 15,250
Gartner Group, Inc., Class A* ..................... 7,400 157,250
School Specialty, Inc.* ........................... 36,443 778,969
Staff Mark, Inc.* ................................. 36,300 812,213
U.S. Office Products Co.* ......................... 128,348 497,348
-----------
3,738,757
-----------
Steel (0.0%)
Steelcase, Inc., Class A .......................... 4,400 72,325
-----------
Stores (8.6%)
CompUSA, Inc.* .................................... 35,000 457,188
Consolidated Stores Corp.* ........................ 115,100 2,323,581
Corporate Express, Inc.* .......................... 368,900 1,913,669
CVS Corp. ......................................... 26,800 1,474,000
General Nutrition Co., Inc.* ...................... 67,300 1,093,625
Global DirectMail Corp.* .......................... 1,800 42,075
Home Depot, Inc. .................................. 16,600 1,015,713
Micro Warehouse, Inc.* ............................ 245,600 8,304,350
Office Depot, Inc.* ............................... 450,700 16,647,731
Republic Industries, Inc.* ........................ 1,714,400 25,287,399
Rite Aid Corp. .................................... 644,800 31,957,899
Staples, Inc.* .................................... 22,500 982,969
-----------
91,500,199
-----------
Supermarkets (2.4%)
Fred Myer, Inc.* .................................. 68,700 4,139,175
Safeway, Inc. ..................................... 349,900 21,322,030
-----------
25,461,205
-----------
Telecommunications (8.8%)
Amdocs Ltd.* ...................................... 6,000 102,750
Ascend Communications, Inc.* ...................... 59,300 3,898,975
Aspect Telecommunications Corp.* .................. 4,300 74,175
Cisco Systems, Inc. ............................... 945,750 87,777,421
Global Crossing Ltd.* ............................. 7,400 333,925
International Network Services* ................... 10,000 665,000
Lucent Technologies, Inc. ......................... 7,800 858,000
SCC Communications Corp.* ......................... 22,600 105,938
-----------
93,816,184
-----------
</TABLE>
14 See Notes to Schedule of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
---------- -----------------
<S> <C> <C>
Utilities--Electric (0.1%)
Calenergy, Inc.* ......................................................... 23,800 $ 825,563
--------------
Total Common Stocks (Cost $837,763,201) 1,049,989,984
--------------
PREFERRED STOCKS (0.1%)
SAP AG-Vorzug (Germany) .................................................. 2,900 1,383,662
--------------
Total Preferred Stocks (Cost $882,995) 1,383,662
--------------
TOTAL INVESTMENTS (98.3%) (Cost $838,646,196(a)) 1,051,373,646
Other assets less liabilities (1.7%) 17,666,655
--------------
Total Net Assets (100.0%) $1,069,040,301
==============
Notes to Schedule of Investments
(a) The cost of investments for federal income tax purposes amounts to
$838,661,120. Unrealized gains and losses, based on identified tax cost at
December 31, 1998, are as follows:
Unrealized gains ......................................................... $ 320,574,830
Unrealized losses ........................................................ (107,862,304)
-------------
Net unrealized gain ..................................................... $ 212,712,526
=============
</TABLE>
* Non-income producing security.
Category percentages are based on total net assets.
See Notes to Financial Statements. 15
<PAGE>
MFS Research Growth Portfolio
Schedule of Investments
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------------- --------------
<S> <C> <C>
COMMON STOCKS (99.9%)
Aerospace (3.7%)
British Aerospace PLC (Great Britain) ............. 317,128 $ 2,683,252
Lockheed Martin Corp. ............................. 33,900 2,873,025
Newport News Shipbuilding ......................... 40,400 1,350,875
United Technologies ............................... 101,000 10,983,749
------------
17,890,901
------------
Automotive (1.0%)
Federal Signal Corp. .............................. 40,500 1,108,688
Federal-Mogul Corp. ............................... 40,400 2,403,800
LucasVarity PLC (Great Britain) ................... 336,400 1,120,077
------------
4,632,565
------------
Banks and Credit Companies (4.1%)
Bank of New York Co., Inc. ........................ 109,400 4,403,350
Chase Manhattan Bank .............................. 54,900 3,736,631
ING Groep N.V. (Netherlands) ...................... 78,065 4,757,023
San Paolo - IMI SpA (Italy)* ...................... 212,762 3,751,569
Wells Fargo Co. ................................... 85,100 3,398,681
------------
20,047,254
------------
Biotechnology (1.5%)
Guidant Corp. ..................................... 66,000 7,276,500
------------
Business Machines (1.0%)
Sun Microsystems, Inc.* ........................... 59,600 5,103,250
------------
Business Services (3.2%)
3 Com Corp.* ...................................... 78,600 3,522,263
Compuware Corp.* .................................. 102,600 8,015,624
Modis Professional Services, Inc.* ................ 68,900 999,050
Smurfit-Stone Container Corp.* .................... 204,732 3,237,325
------------
15,774,262
------------
Cellular Phones (0.1%)
Sprint Corp. (PCS Group)* ......................... 26,750 618,594
------------
Chemicals (1.4%)
Cambrex Corp. ..................................... 45,100 1,082,400
Du Pont (E I) de Nemours .......................... 28,400 1,506,975
Monsanto Co. ...................................... 86,800 4,123,000
------------
6,712,375
------------
Communications Services (3.9%)
Intermedia Communications, Inc.* .................. 52,800 910,800
MCI Worldcom, Inc.* ............................... 191,789 13,760,860
Sprint Corp. ...................................... 53,500 4,500,688
------------
19,172,348
------------
Computer Software--PC (4.8%)
Microsoft Corp. ................................... 168,700 23,396,580
------------
Computer Software--Systems (8.1%)
Alcatel Alsthom Compagnie Generale
d'electricite ADR (France) ...................... 148,200 3,621,638
BMC Software, Inc. ................................ 132,200 5,891,163
<CAPTION>
Number of Market
Shares Value
--------------- -------------
<S> <C> <C>
Computer Software--Systems (continued)
Cadence Design Systems, Inc.* ..................... 179,000 $ 5,325,250
Computer Associates International, Inc. ........... 130,450 5,560,431
EMC Corp. ......................................... 43,200 3,672,000
Oracle Systems Corp. .............................. 257,600 11,108,999
Synopsys, Inc.* ................................... 82,600 4,481,050
------------
39,660,531
------------
Conglomerates (3.2%)
Tyco International Ltd. ........................... 207,900 15,683,455
------------
Consumer Goods and Services (7.5%)
Black & Decker Corp. .............................. 26,400 1,480,050
Cendant Corp.* .................................... 170,700 3,253,969
Clorox Co. ........................................ 38,000 4,438,875
Colgate-Palmolive Co. ............................. 51,100 4,745,913
Dial Corp. ........................................ 136,500 3,941,438
Gillette Co. ...................................... 111,500 5,386,844
Philip Morris Co., Inc. ........................... 128,800 6,890,800
Proctor & Gamble Co. .............................. 75,900 6,930,619
------------
37,068,508
------------
Consumer Staples (0.5%)
Newell Co. ........................................ 61,600 2,541,000
------------
Electrical Equipment (1.5%)
Emerson Electric Co. .............................. 119,300 7,463,706
------------
Electronics (3.4%)
Analog Devices, Inc.* ............................. 225,400 7,071,925
Intel Corp. ....................................... 71,800 8,512,787
Lattice Semiconductor Corp.* ...................... 25,900 1,188,973
------------
16,773,685
------------
Entertainment (4.4%)
CBS Corp. ......................................... 164,700 5,393,925
Jacor Communications, Inc.* ....................... 7,500 482,813
MediaOne Group, Inc.* ............................. 77,700 3,651,900
Time Warner, Inc. ................................. 99,400 6,169,013
Walt Disney Co. ................................... 201,600 6,048,000
------------
21,745,651
------------
Financial Institutions (6.9%)
American Express Corp. ............................ 26,200 2,678,950
Associates First Capital Corp. .................... 127,504 5,402,982
Bear Stearns Companies, Inc. ...................... 67,000 2,504,125
CIT Group, Inc., Class A .......................... 74,600 2,373,213
Citigroup, Inc. ................................... 51,700 2,559,150
Federal Home Loan Mortgage Corp. .................. 91,100 5,870,256
Federal National Mortgage Association ............. 65,200 4,824,800
First Union Corp. ................................. 84,608 5,145,224
Morgan Stanley Dean Witter Discover & Co. ......... 36,700 2,605,700
------------
33,964,400
------------
Food and Beverage Products (3.2%)
Archer-Daniels-Midland Co. ........................ 143,115 2,459,789
</TABLE>
16 See Notes to Schedule of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------------- -----------
<S> <C> <C>
Food and Beverage Products (continued)
Dean Foods Co. .................................... 39,300 $ 1,603,931
Hershey Foods Corp. ............................... 75,800 4,713,813
Hormel Foods Corp. ................................ 41,800 1,368,950
McCormick & Co, Inc. .............................. 53,900 1,822,494
Ralston-Ralston Purina Group ...................... 120,900 3,914,138
-----------
15,883,115
-----------
Insurance (7.2%)
Ace Ltd. (Bermuda) ................................ 68,700 2,365,856
Allstate Corp. .................................... 47,000 1,815,375
CIGNA Corp. ....................................... 62,000 4,793,375
Conseco, Inc. ..................................... 87,340 2,669,329
Equitable Co., Inc. ............................... 96,300 5,573,363
EXEL Ltd., Class A (Bermuda) ...................... 18,615 1,396,125
Hartford Financial Services Group ................. 79,200 4,346,100
Lincoln National Corp. ............................ 79,800 6,528,638
Nationwide Financial Services, Inc., Class A ...... 49,100 2,537,856
Reliastar Financial Corp. ......................... 76,900 3,547,013
-----------
35,573,030
-----------
Medical and Health Products (5.5%)
American Home Products Corp. ...................... 202,900 11,425,805
Bristol-Myers Squibb Co. .......................... 45,200 6,048,325
Pfizer, Inc. ...................................... 75,800 9,508,162
-----------
26,982,292
-----------
Medical and Health Technology Services (4.8%)
Cardinal Health, Inc. ............................. 36,600 2,777,025
HBO & Co. ......................................... 354,000 10,155,374
Healthsouth Corp. ................................. 291,600 4,501,575
United Healthcare Corp. ........................... 142,300 6,127,794
-----------
23,561,768
-----------
Oil Services (0.2%)
Cooper Cameron Corp. .............................. 32,300 791,350
-----------
Oils (2.0%)
Amoco Corp. ....................................... 5,700 336,300
British Petroleum Co. PLC ADR (Great Britain) ..... 89,584 8,510,479
Mobil Corp. ....................................... 12,700 1,106,488
-----------
9,953,267
-----------
Pollution Control (0.4%)
Browning-Ferris Industries, Inc. .................. 71,400 2,030,438
-----------
Restaurants and Lodging (0.6%)
CKE Restaurants, Inc. ............................. 94,050 2,768,597
-----------
Special Products and Services (2.2%)
Illinois Tool Works, Inc. ......................... 16,000 928,000
McDonald's Corp. .................................. 68,200 5,225,825
Xerox Corp. ....................................... 39,900 4,708,200
-----------
10,862,025
-----------
<CAPTION>
Number of Market
Shares Value
--------------- ------------
<S> <C> <C>
Stores (6.7%)
American Stores Co. ............................... 39,500 $ 1,459,031
CompUSA, Inc.* .................................... 103,300 1,349,356
CVS Corp. ......................................... 115,400 6,347,000
Dayton-Hudson Corp. ............................... 86,300 4,681,775
Home Depot, Inc. .................................. 63,800 3,903,763
Office Depot, Inc.* ............................... 88,200 3,257,888
Rite Aid Corp. .................................... 216,200 10,715,412
TJX Co., Inc. ..................................... 36,300 1,052,700
-----------
32,766,925
-----------
Supermarkets (3.0%)
Albertson's, Inc. ................................. 23,400 1,490,288
Fred Myer, Inc.* .................................. 108,000 6,507,000
Safeway, Inc. ..................................... 110,200 6,715,313
-----------
14,712,601
-----------
Telecommunications (2.6%)
Aspect Telecommunications Corp.* .................. 16,500 284,625
Cisco Systems, Inc. ............................... 75,500 7,007,344
Lucent Technologies, Inc. ......................... 49,100 5,401,000
------------
12,692,969
------------
Utilities--Electric (0.5%)
Calenergy, Inc.* .................................. 76,300 2,646,656
------------
Utilities--Gas (0.8%)
Columbia Energy Group ............................. 32,050 1,850,888
K N Energy, Inc. .................................. 61,500 2,237,063
------------
4,087,951
------------
Total Common Stocks (Cost $393,689,441) 490,838,549
------------
TOTAL INVESTMENTS (99.9%) (Cost $393,689,441 (a)) 490,838,549
Other assets less liabilities (0.1%) 698,728
------------
Total Net Assets (100.0%) $491,537,277
============
Notes to Schedule of Investments
(a) The cost of investments for federal income tax purposes amounts to
$394,935,958. Unrealized gains and losses, based on identified tax cost at
December 31, 1998, are as follows:
Unrealized gains .................................. $109,240,890
Unrealized losses ................................. (13,338,299)
------------
Net unrealized gain .............................. $95,902,591
============
</TABLE>
* Non-income producing security.
Category percentages are based on net assets.
See Notes to Schedule of Investments. 17
<PAGE>
MFS Value Equity Portfolio
Schedule of Investments
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
---------------- -------------
<S> <C> <C>
COMMON STOCKS (90.8%)
Advertising (1.1%)
Outdoor Systems, Inc.* ............................... 69,100 $ 2,073,000
-------------
Aerospace (0.5%)
Saab AB (Sweden)* .................................... 89,300 934,248
-------------
Automotive (0.4%)
Tower Automotive, Inc. ............................... 31,900 795,506
-------------
Banks and Credit Companies (4.4%)
Bankers Trust Corp. .................................. 15,000 1,281,563
Fleet Financial Group, Inc. .......................... 26,600 1,188,688
National City Corp. .................................. 22,900 1,660,250
PNC Bank Corp. ....................................... 21,100 1,142,038
U.S. Bancorp ......................................... 47,700 1,693,350
Wells Fargo Co. ...................................... 40,800 1,629,450
-------------
8,595,339
-------------
Business Services (2.1%)
3 Com Corp.* ......................................... 29,100 1,304,044
Compuware Corp.* ..................................... 5,400 421,875
DST Systems, Inc.* ................................... 6,100 348,081
Galileo International, Inc. .......................... 22,800 991,800
Modis Professional Services, Inc.* ................... 18,900 274,050
SLM Holding Corp. .................................... 12,200 585,600
Smurfit-Stone Container Corp.* ....................... 6,400 101,200
Taylor Nelson Sofres PLC (Great Britain) ............. 93,800 119,164
-------------
4,145,814
-------------
Cellular Phones (2.6%)
AirTouch Communications, Inc.* ....................... 33,700 2,430,613
Century Telephone Enterprises, Inc. .................. 27,150 1,832,625
Sprint Corp. (PCS Group)* ............................ 37,300 862,563
-------------
5,125,801
-------------
Communications Services (7.5%)
ALLTEL Corp. ......................................... 37,500 2,242,969
Capital Radio PLC (Great Britain) .................... 30,000 291,447
Cellular Communications International, Inc.* ......... 145,050 9,863,399
Hellenic Telecommunications (Greece) ................. 39,700 1,056,758
Intermedia Communications, Inc.* ..................... 23,400 403,650
Sprint Corp. ......................................... 8,050 677,206
-------------
14,535,429
-------------
Computer Software (1.1%)
International Business Machines Corp. ................ 11,100 2,050,725
-------------
Computer Software--PC (0.3%)
Networks Associates, Inc.* ........................... 9,700 642,625
-------------
Computer Software--Systems (6.2%)
BMC Software, Inc. ................................... 74,000 3,297,625
Cadence Design Systems, Inc.* ........................ 1,400 41,650
Computer Associates International, Inc. .............. 117,800 5,021,224
<CAPTION>
Number of Market
Shares Value
------------- -------------
<S> <C> <C>
Computer Software--Systems (continued)
Oracle Systems Corp. ................................. 58,900 $ 2,540,063
Synopsys, Inc.* ...................................... 20,100 1,090,425
-------------
11,990,987
-------------
Conglomerates (6.5%)
Tyco International Ltd. .............................. 166,700 12,575,430
-------------
Construction Services (0.7%)
Martin Marietta Materials, Inc. ...................... 21,200 1,318,375
-------------
Drugs (1.9%)
Sanofi SA (France) ................................... 23,100 3,799,749
-------------
Electronics (5.0%)
AMP, Inc. ............................................ 123,200 6,414,099
Analog Devices, Inc.* ................................ 56,000 1,757,000
Lattice Semiconductor Corp.* ......................... 35,900 1,648,036
-------------
9,819,135
-------------
Entertainment (8.2%)
American Tower Systems Corp., Class A* ............... 11,600 342,925
CBS Corp. ............................................ 155,700 5,099,174
Harrah's Entertainment, Inc.* ........................ 162,100 2,542,944
Infinity Broadasting Corp.* .......................... 12,500 342,188
Isle of Capris Casinos, Inc.* ........................ 500 1,984
Jacor Communications, Inc.* .......................... 50,000 3,218,750
MediaOne Group, Inc.* ................................ 76,800 3,609,600
Mirage Resorts, Inc.* ................................ 31,700 473,519
Walt Disney Co. ...................................... 14,800 444,000
-------------
16,075,084
-------------
Financial Institutions (9.8%)
Associates First Capital Corp. ....................... 76,200 3,228,975
Donaldson Lufkin & Jenrette, Inc. .................... 24,700 1,012,700
Federal Home Loan Mortgage Corp. ..................... 142,400 9,175,899
Finova Group, Inc. ................................... 43,100 2,324,706
Paine Webber Group, Inc. ............................. 23,900 923,138
State Street Corp. ................................... 34,600 2,406,863
-------------
19,072,281
-------------
Food and Beverage Products (3.1%)
Anheuser Busch Co., Inc. ............................. 23,900 1,568,438
Archer-Daniels-Midland Co. ........................... 76,085 1,307,711
Hershey Foods Corp. .................................. 28,500 1,772,344
Hormel Foods Corp. ................................... 29,200 956,300
Suiza Foods Corp.* ................................... 7,300 371,844
-------------
5,976,637
-------------
Household and Personal Care (0.3%)
Benckiser N.V. (Netherlands) ......................... 9,970 652,640
-------------
Insurance (5.4%)
Ace Ltd. (Bermuda) ................................... 42,800 1,473,925
Annuity and Life Re Holdings Ltd. .................... 46,100 1,244,700
Chartwell Re Corp. ................................... 19,500 463,125
CIGNA Corp. .......................................... 10,000 773,125
</TABLE>
18 See Notes to Schedule of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------ ------------
<S> <C> <C>
Insurance (continued)
Equitable Co., Inc. ................................... 17,400 $ 1,007,025
EXEL Ltd., Class A (Bermuda) .......................... 6,227 466,992
Hartford Financial Services Group ..................... 18,200 998,725
Nationwide Financial Services, Inc., Class A .......... 35,000 1,809,063
Reliastar Financial Corp. ............................. 41,200 1,900,350
Scottish Annuity & Life Holdings, Ltd.* ............... 28,500 391,875
-------------
10,528,905
-------------
Medical and Health Products (1.1%)
Bristol-Myers Squibb Co. .............................. 8,000 1,070,500
SmithKline Beecham PLC ADR (Great Britain) ............ 14,400 1,000,800
-------------
2,071,300
-------------
Medical and Health Technology Services (2.7%)
Beverly Enterprises, Inc.* ............................ 109,100 736,425
Mid Atlantic Medical Services, Inc.* .................. 79,700 782,056
United Healthcare Corp. ............................... 85,600 3,686,150
-------------
5,204,631
-------------
Oil Services (0.5%)
Zeneca Group PLC (Great Britain) ...................... 23,200 1,008,260
-------------
Oils (2.4%)
Amoco Corp. ........................................... 30,450 1,796,550
British Petroleum Co. PLC ADR (Great Britain) ......... 21,297 2,023,215
Mobil Corp. ........................................... 10,900 949,663
-------------
4,769,428
-------------
Pollution Control (0.2%)
Societe Industrielle de Transports Automobiles
SA (France) ......................................... 1,300 340,515
-------------
Printing and Publishing (0.6%)
Reuters Group PLC ADR (Great Britain) ................. 14,000 887,250
Reuters Group PLC (Great Britain) ..................... 23,700 248,348
-------------
1,135,598
-------------
Railroad (0.2%)
Kansas City Southern Industries ....................... 6,900 339,394
-------------
Restaurants and Lodging (1.9%)
Promus Hotel Corp.* ................................... 111,580 3,612,403
-------------
Stores (2.8%)
Rite Aid Corp. ........................................ 109,200 5,412,224
-------------
Supermarkets (4.8%)
Fred Myer, Inc.* ...................................... 155,900 9,392,974
-------------
Telecommunications (6.3%)
Mannesmann AG (Germany) ............................... 42,500 4,870,547
Mobistar SA (Belgium)* ................................ 20,100 1,008,779
Nokia Oyj ADR (Finland) ............................... 17,100 2,059,481
Tele Sudeste Celular Participacoes SA ADR
(Brazil)* ........................................... 11,300 233,769
<CAPTION>
Number of Market
Shares Value
--------------- --------------
<S> <C> <C>
Telecommunications (continued)
Telecom Italia SpA (Italy) ............................ 275,000 $ 1,727,055
Tele-Communications, Inc. Series A* ................... 37,800 2,090,813
Telesp Celular Participacoes SA ADR (Brazil)* ......... 20,500 358,750
--------------
12,349,194
--------------
Utilities--Gas (0.2%)
Columbia Energy Group ................................. 8,400 485,100
--------------
Total Common Stocks (Cost $143,494,841) 176,828,731
--------------
PREFERRED STOCKS (0.9%)
Household and Personal Care (0.2%)
Henkel KGAA (Germany) ................................. 5,300 473,825
--------------
Telecommunications (0.7%)
Tele Sudeste Celular (Brazil) ......................... 126,200,000 530,040
Telesp Celular Participacoes SA (Brazil)* ............. 54,800,000 405,520
Telesp Participacoes SA (Brazil) ...................... 14,715,000 335,502
--------------
1,271,062
--------------
Total Preferred Stocks (Cost $1,997,962) 1,744,887
--------------
Number of
Contracts
----------------
OPTIONS (3.6%)
S&P 500 Index Puts* ................................... 39,300 7,103,475
--------------
Total Options (Cost $7,658,361) 7,103,475
--------------
TOTAL INVESTMENTS (95.3%) (Cost $153,151,164 (a)) 185,677,093
Other assets less liabilities (4.7%) 9,249,214
--------------
Total Net Assets (100.0%) $ 194,926,307
==============
Notes to Schedule of Investments
(a) The cost of investments for federal income tax purposes amounts to
$153,378,993. Unrealized gains and losses, based on identified tax cost at
December 31, 1998, are as follows:
Unrealized gains ...................................... $ 38,111,210
Unrealized losses ..................................... (5,813,110)
--------------
Net unrealized gain .................................. $ 32,298,100
==============
</TABLE>
* Non-income producing security.
Category percentages are based on net assets.
See Notes to Schedule of Investments. 19
<PAGE>
Scudder International Growth Portfolio
Schedule of Investments
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------ -----------
<S> <C> <C>
COMMON STOCKS (95.9%)
Argentina (0.6%)
YPF Sociedad Anonima ADR (Oil & Gas) .............. 93,000 $ 2,598,188
-----------
Australia (1.4%)
Broken Hill Proprietary Co. (Mining) .............. 361,500 2,661,254
Western Mining Corp. Holding Ltd. (Mining) ........ 697,300 2,101,314
Woodside Petroleum Ltd. (Oil & Gas) ............... 256,600 1,147,336
-----------
Total Australia 5,909,904
-----------
Canada (1.3%)
Canadian National Railway Co. (Transportation)..... 105,000 5,466,962
-----------
China (0.1%)
Jiangsu Expressway Co. Ltd. (Transportation) ...... 2,174,700 474,520
-----------
Denmark (0.3%)
Unidanmark (Banking) .............................. 14,700 1,328,121
-----------
Finland (3.7%)
Fortum Corp. (Financial Services)* ................ 295,700 1,797,767
Nokia Oyj, Class A (Communications) ............... 74,900 9,107,367
Pohjola Insurance Group, Class B (Insurance) ...... 90,000 4,906,890
-----------
Total Finland 15,812,024
-----------
France (16.6%)
Accor SA (Lodging) ................................ 29,586 6,400,691
Air Liquide (Chemicals) ........................... 10,048 1,841,445
Axa UAP (Insurance) ............................... 37,405 5,417,138
BIC (Office Equipment & Supplies) ................. 31,666 1,755,132
Carrefour SA (Food Retailers) ..................... 2,740 2,066,880
Christian Dior SA (Diversified) ................... 27,846 3,076,852
Credit Commercial de France
(Financial Services) ............................ 38,608 3,582,614
Elf Aquitaine SA (Oil & Gas) ...................... 46,771 5,402,121
Etablissements Economiques du Casino
Guichard-Perrachon SA (Food Retailers) .......... 62,150 3,989,247
France Telecom SA (Communications) ................ 361 28,658
Groupe Danone (Beverages, Food & Tobacco) ......... 11,638 3,329,305
Lagardere S.C.A. (Financial Services) ............. 124,330 5,279,524
Michelin, Class B (Automotive) .................... 68,710 2,745,700
Moet Hennessy Louis Vuitton (Beverages,
Food & Tobacco) ................................. 19,371 3,830,561
Pernod-Ricard (Beverages, Food & Tobacco) ......... 21,122 1,370,873
Rhone-Polenc, Class A (Chemicals) ................. 81,586 4,195,266
STMicroelectronics N.V. (Electronics)* ............ 32,545 2,515,540
STMicroelectronics N.V. (Electronics)* ............ 5,586 439,450
Suez Lyonnaise des Eaux (Diversified) ............. 32,822 6,736,932
Thomson CSF (Electronics) ......................... 115,455 4,954,266
Valeo SA (Automotive) ............................. 37,803 2,976,657
-----------
Total France 71,934,852
-----------
Germany (18.1%)
Allianz AG (Insurance) ............................ 17,842 6,540,943
BASF AG (Chemicals) ............................... 116,571 4,448,396
<CAPTION>
Number of Market
Shares Value
----------------- ------------
<S> <C> <C>
Germany (continued)
Bayerische Vereinsbank AG (Banking) ............... 61,952 $ 4,850,891
Deutsche Telekom AG ADR (Communications) .......... 21,900 717,225
Deutsche Telekom AG (Communications) .............. 249,414 8,200,807
Heidelberger Druckmaschinen AG
(Heavy Machinery) ............................... 14,157 1,032,905
Hoechst AG (Chemicals) ............................ 198,636 8,235,528
Mannesmann AG (Communications) .................... 72,555 8,314,883
Metro AG (Retailers) .............................. 83,210 6,540,373
Muenchener Rueckversicherungs-Gesellschaft
AG (Insurance) .................................. 13,511 6,542,091
RWE AG (Diversified) .............................. 55,122 3,017,957
Schering AG (Pharmaceuticals) ..................... 53,464 6,712,475
Siemens AG (Electronics) .......................... 51,585 3,327,263
Veba AG (Electric Utilities) ...................... 104,577 6,255,859
Viag AG (Industrial--Diversified) ................. 6,203 3,636,235
-----------
Total Germany 78,373,831
-----------
Great Britain (17.9%)
BOC Group PLC (Chemicals) ......................... 379,888 5,422,293
British Airways PLC (Airlines) .................... 207,339 1,395,350
British Petroleum Co. PLC (Oil & Gas) ............. 279,275 4,162,426
Carlton Communications PLC (Communications)........ 260,243 2,389,942
Enterprise Oil PLC (Oil & Gas) .................... 227,489 1,114,446
General Electric PLC (Electronics) ................ 678,581 6,113,404
Glaxo Wellcome PLC (Pharmaceuticals) .............. 194,702 6,686,553
Imperial Chemical Industries PLC (Chemicals) ...... 399,728 3,458,447
London & Scotland Marine Oil PLC (Oil & Gas)....... 745,414 1,237,909
Monument Oil & Gas PLC (Oil & Gas)* ............... 1,159,197 673,725
Orange PLC (Communications)* ...................... 692,470 8,032,444
Pearson PLC (Communications) ...................... 280,970 5,566,493
Reed International PLC (Media--Broadcasting
& Publishing) ................................... 413,009 3,223,577
Reuters Group PLC (Financial Services) ............ 769,811 8,066,696
Rio Tinto PLC (Mining) ............................ 484,557 5,624,738
Shell Transport & Trading Co. PLC (Oil & Gas) ..... 710,194 4,354,910
SmithKline Beecham PLC (Pharmaceuticals) .......... 485,867 6,777,602
Zeneca Group PLC (Pharmaceuticals) ................ 72,051 3,131,300
-----------
Total Great Britain 77,432,255
-----------
Hong Kong (4.0%)
Anhui Expressway Co. Ltd. (Transportation) ........ 2,442,100 286,947
Cheung Kong Ltd. (Real Estate) .................... 468,300 3,370,074
China Telecom Ltd. (Communications)* .............. 226,500 391,777
Citic Pacific Ltd. (Diversified) .................. 1,218,800 2,627,367
Cosco Pacific Ltd. (Transportation) ............... 988,600 411,554
GZI Transportation Ltd. (Transportation) .......... 647,600 127,059
Hong Kong and China Gas Co. Ltd. (Oil & Gas)....... 440 559
Hutchison Whampoa Ltd. (Diversified) .............. 336,800 2,380,267
Kerry Properties Ltd. (Real Estate) ............... 1,001,391 807,922
New World Development Co. Ltd. (Real Estate)....... 1,193,337 3,003,749
New World Infrastructure Ltd.
(Heavy Machinery)* .............................. 1,031,200 1,510,811
</TABLE>
20 See Notes to Schedule of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------- -------------
<S> <C> <C>
Hong Kong (continued)
Shenzhen Expressway Co. Ltd. (Transportation)....... 2,172,600 $ 504,912
Sichuan Expressway Co. Ltd. (Transportation) ....... 2,696,000 236,709
Sun Hung Kai Properties Ltd. (Real Estate) ......... 167,000 1,217,964
Zhejiang Expressway Co. Ltd. (Transportation) ...... 2,314,300 469,109
------------
Total Hong Kong 17,346,780
------------
Italy (7.5%)
Arnoldo Mondadori Editore SpA
(Media--Broadcasting & Publishing) ............... 114,000 1,504,162
Banca Commerciale Italiana (Banking) ............... 449,700 3,095,735
Banca Di Roma (Banking)* ........................... 807,600 1,365,490
Banca Nazionale Lavoro (Banking) ................... 847,000 2,529,227
Finmeccanica SpA (Aerospace & Defense)* ............ 3,055,800 3,123,944
Gruppo Editoriale L'Espresso (Media--
Broadcasting & Publishing) ....................... 161,500 1,414,094
Istituto Nazionale delle Assicurazioni
(Insurance) ...................................... 774,800 2,042,295
La Rinascente SpA (Food Retailers) ................. 136,500 1,400,845
Olivetti SpA (Retailers)* .......................... 1,024,000 3,555,533
San Paolo--IMI SpA (Banking) ....................... 91,100 1,606,339
Seat-Pagine Gialle SpA--RNC
(Communications)* ................................ 3,976,900 3,049,885
Telecom Italia SpA (Communications) ................ 864,500 7,360,699
Unione Immobiliare (Multiple Utilities) ............ 774,800 403,283
------------
Total Italy 32,451,531
------------
Japan (11.8%)
Canon, Inc. (Electronics) .......................... 67,000 1,430,001
Chugoku Electric Power Co., Inc.
(Electric Utilities) ............................. 54,000 985,505
Daiwa Securities Co. Ltd. (Financial Services) ..... 477,000 1,627,238
Fujitsu Ltd. (Computers & Information) ............. 276,000 3,671,048
Kyushu Electric Power Co., Inc. (Electric
Utilities) ....................................... 53,000 1,007,069
Matsushita Electric Industrial Co. Ltd.
(Electronics) .................................... 172,000 3,038,690
Minebea Co. Ltd. (Heavy Machinery) ................. 189,000 2,161,423
Murata Manufacturing Co. Ltd. (Electronics) ........ 65,000 2,694,211
Nichiei (Financial Services) ....................... 19,000 1,511,268
Nikko Securities Co. Ltd. (Financial Services) ..... 514,000 1,430,925
Nintendo Corp Ltd. (Entertainment & Leisure) ....... 22,200 2,148,387
Nippon Telegraph & Telephone Corp.
(Communications) ................................. 231 1,780,221
NTT Mobile Communcations Network, Inc.
(Communications)* ................................ 900 3,698,630
Sony Corp. (Electronics) ........................... 19,000 1,381,971
Sumitomo Electric Industries (Electronics) ......... 127,000 1,426,578
Taisho Pharmaceutical Co. Ltd.
(Pharmaceuticals) ................................ 76,000 2,088,906
TDK Corp. (Electronics) ............................ 41,000 3,743,083
Teijin Ltd. (Textiles, Clothing & Fabrics) ......... 568,000 2,088,252
Tokyo Electric Power Co., Inc. (Electric Utilities) 88,400 2,179,723
Tokyo Electron Ltd. (Electronics) .................. 78,000 2,957,315
<CAPTION>
Number of Market
Shares Value
----------- ------------
<S> <C> <C>
Japan (continued)
Toshiba Corp. (Electronics) ........................ 773,000 $ 4,597,727
Yamanouchi Pharmaceutical Co. Ltd.
(Pharmaceuticals) ................................ 103,000 3,313,479
------------
Total Japan 50,961,650
------------
Netherlands (4.7%)
Aegon N.V. (Insurance) ............................. 36,020 4,456,621
Akzo Nobel N.V. (Chemicals) ........................ 71,490 3,253,002
Elsevier N.V. (Media--Broadcasting &
Publishing) ...................................... 147,030 2,057,950
Heineken Holding N.V., Class A (Beverages,
Food & Tobacco) .................................. 128,750 6,166,842
Koninklijke Ahold N.V. (Food Retailers) ............ 64,130 2,368,609
Royal Dutch Petroleum Co. N.V. (Oil & Gas) ......... 36,800 1,831,186
------------
Total Netherlands 20,134,210
------------
Sweden (0.3%)
AGA AB, Class B (Chemicals) ........................ 108,100 1,416,986
------------
Switzerland (5.3%)
Clariant AG (Chemicals) ............................ 3,228 1,508,279
Nestle SA (Beverages, Food & Tobacco) .............. 3,341 7,270,444
Novartis AG--Registered Shares
(Pharmaceuticals) ................................ 4,097 8,050,873
Swisscom AG (Communications)* ...................... 14,374 6,015,321
------------
Total Switzerland 22,844,917
------------
Taiwan (1.7%)
Asustek Computer, Inc. (Computers &
Information)* .................................... 95,000 887,490
China Development (Financial Services)* ............ 662,000 1,212,254
Compal Electronics (Electronics)* .................. 569,000 1,854,257
Far East Textile (Textiles) ........................ 2,204,000 1,799,125
Hon Hai Precision Industry (Electronics)* .......... 267,000 1,475,042
------------
Total Taiwan 7,228,168
------------
Thailand (0.4%)
Siliconware Precision Industries Co.
(Electronics)* ................................... 1,066,000 1,885,861
------------
United States (0.2%)
AMP Ltd. (Insurance)* .............................. 75,900 961,160
------------
Total Common Stocks (Cost $359,801,854) 414,561,920
------------
PREFERRED STOCKS (1.0%)
Germany (1.0%)
SAP AG-Vorzug (Computer Software &
Processing) ...................................... 9,441 4,504,535
------------
Total Preferred Stocks (Cost $3,174,152) 4,504,535
------------
</TABLE>
See Notes to Schedule of Investments. 21
<PAGE>
Scudder International Growth Portfolio
Schedule of Investments
December 31, 1998 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
---------- -------------
<S> <C> <C>
RIGHTS (0.0%)
Hong Kong (0.0%)
Hong Kong and China Gas Co. Ltd.
(Oil & Gas)* ............................... 20 $ 1
-----------
Taiwan (0.0%)
Compal Electronics (Electronics)* ............ 864 671
-----------
Total Rights (Cost $0) 672
-----------
WARRANTS (0.0%)
Germany (0.0%)
Muenchener Rueckversicherungs-Gesellschaft
AG expires 06/03/2002 (Insurance)* ......... 592 27,528
-----------
Total Warrants (Cost $0) 27,528
-----------
TOTAL INVESTMENTS (96.9%) (Cost $362,976,006 (a)) 419,094,655
Other assets less liabilities (3.1%) 13,556,781
-----------
Total Net Assets (100.0%) $432,651,436
===========
Notes to Schedule of Investments
(a) The cost of investments for federal income tax purposes amounts to
$362,976,010. Unrealized gains and losses, based on identified tax cost at
December 31, 1998, are as follows:
Unrealized gains ............................. $71,960,881
Unrealized losses ............................ (15,842,236)
-----------
Net unrealized gain ......................... $56,118,645
===========
</TABLE>
* Non-income producing security.
Category percentages are based on net assets.
22 See Notes to Schedule of Investments.
<PAGE>
T. Rowe Price Growth Equity Portfolio
Schedule of Investments
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------- -------------
<S> <C> <C>
COMMON STOCKS (94.9%)
Advertising (0.9%)
Omnicom Group, Inc. ............................... 81,200 $ 4,709,600
------------
Aerospace & Defense (1.9%)
Allied Signal, Inc. ............................... 137,800 6,106,263
Teleflex, Inc. .................................... 77,700 3,545,063
------------
9,651,326
------------
Banking (5.9%)
Bank of New York Co., Inc. ........................ 139,300 5,606,825
BankAmerica Corp. ................................. 79,556 4,783,305
First Union Corp. ................................. 92,600 5,631,238
Mellon Bank Corp. ................................. 25,600 1,760,000
Toronto-Dominion Bank (Canada) .................... 40,600 1,431,150
UBS AG--Registered Shares (Switzerland)* .......... 3,000 921,398
Wells Fargo Co. ................................... 266,100 10,627,368
------------
30,761,284
------------
Beverages, Food & Tobacco (2.9%)
Coca-Cola Co. ..................................... 30,100 2,012,938
Pepsico, Inc. ..................................... 126,800 5,190,875
Philip Morris Co., Inc. ........................... 124,700 6,671,449
Unilever N.V. (Netherlands) ....................... 12,200 1,011,838
------------
14,887,100
------------
Commercial Services (0.5%)
Halliburton Co. ................................... 80,500 2,384,813
------------
Communications (6.5%)
AirTouch Communications, Inc.* .................... 63,000 4,543,875
Ascend Communications, Inc.* ...................... 48,700 3,202,025
Mannesmann AG (Germany) ........................... 23,000 2,635,825
MCI Worldcom, Inc.* ............................... 175,416 12,586,097
Nokia Oyj ADR (Finland) ........................... 12,200 1,469,338
SBC Communications, Inc. .......................... 68,000 3,646,500
Telecom Italia SpA (Italy) ........................ 335,900 2,859,987
Telecomunicacoes Brasileiras SA--Telebras
ADR (Brazil)* ................................... 44,300 3,220,056
------------
34,163,703
------------
Computer Software & Processing (10.0%)
America Online, Inc. .............................. 24,600 3,936,000
Automatic Data Processing, Inc. ................... 42,800 3,432,025
BMC Software, Inc. ................................ 126,100 5,619,331
Computer Associates International, Inc. ........... 44,600 1,901,075
Compuware Corp.* .................................. 33,300 2,601,563
Gartner Group, Inc., Class A* ..................... 110,100 2,339,625
Getronics N.V. (Netherlands) ...................... 43,682 2,162,014
HBO & Co. ......................................... 57,100 1,638,056
Microsoft Corp. ................................... 78,400 10,873,099
Networks Associates, Inc.* ........................ 130,000 8,612,499
Parametric Technology Co. ......................... 262,900 4,304,988
Platinum Technology, Inc.* ........................ 91,900 1,757,588
<CAPTION>
Number of Market
Shares Value
--------- ------------
<S> <C> <C>
Computer Software & Processing (continued)
Sterling Commerce, Inc.* .......................... 70,500 $ 3,172,500
------------
52,350,363
------------
Computers & Information (3.1%)
Cisco Systems, Inc. ............................... 57,925 5,376,164
Dell Computer Corp. ............................... 42,200 3,088,513
EMC Corp. ......................................... 50,600 4,301,000
Hewlett-Packard Co. ............................... 48,700 3,326,819
------------
16,092,496
------------
Consumer Goods and Services (0.1%)
Newell Co. ........................................ 15,200 627,000
------------
Cosmetics & Personal Care (0.8%)
Gillette Co. ...................................... 41,400 2,000,138
Proctor & Gamble Co. .............................. 26,100 2,383,256
------------
4,383,394
------------
Diversified (0.7%)
Hutchison Whampoa Ltd. ............................ 507,700 3,588,068
------------
Electronics (3.7%)
CBS Corp. ......................................... 151,600 4,964,900
Intel Corp. ....................................... 56,200 6,663,213
Maxim Intergrated Products, Inc.* ................. 126,600 5,530,838
Texas Instruments, Inc. ........................... 19,700 1,685,581
Xilinx, Inc.* ..................................... 10,200 664,275
------------
19,508,807
------------
Entertainment & Leisure (1.1%)
Hasbro, Inc. ...................................... 50,800 1,835,150
Time Warner, Inc. ................................. 40,800 2,532,150
Walt Disney Co. ................................... 45,900 1,377,000
------------
5,744,300
------------
Environmental Controls (1.8%)
Rentokil Initial PLC (Great Britain) .............. 378,800 2,849,637
Waste Management, Inc. ............................ 144,500 6,737,313
------------
9,586,950
------------
Financial Services (5.7%)
Ambac Financial Group, Inc. ....................... 42,000 2,527,875
Associates First Capital Corp. .................... 92,800 3,932,400
Berkshire Hathaway, Inc., Class A* ................ 870 6,090,000
Cendant Corp.* .................................... 71,000 1,353,438
Citigroup, Inc. ................................... 160,400 7,939,799
HSBC Holdings PLC (Hong Kong) ..................... 54,000 1,345,313
Morgan Stanley Dean Witter Discover & Co. ......... 25,300 1,796,300
Mutual Risk Management Ltd. ....................... 121,200 4,741,950
------------
29,727,075
------------
Food Retailers (1.8%)
Koninklijke Ahold N.V. (Netherlands) .............. 34,800 1,285,321
Safeway, Inc. ..................................... 134,000 8,165,624
------------
9,450,945
------------
</TABLE>
See Notes to Schedule of Investments. 23
<PAGE>
T. Rowe Price Equity Portfolio
Schedule of Investments
December 31, 1998 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------------- -----------------
<S> <C> <C>
Forest Products & Paper (1.1%)
Kimberly--Clark Corp. ............................ 80,600 $ 4,392,700
Kimberly--Clark de Mexico, SA de CV
(Mexico) ....................................... 349,200 1,102,494
------------
5,495,194
------------
Health Care Providers (1.5%)
Healthsouth Corp. ................................ 162,600 2,510,138
United Healthcare Corp. .......................... 118,600 5,107,213
------------
7,617,351
------------
Home Construction, Furnishings & Appliances (2.4%)
General Electric Co. ............................. 124,900 12,747,605
------------
Household Products (0.1%)
Corning Inc. ..................................... 9,000 405,000
------------
Industrial--Diversified (3.0%)
Tomkins PLC (Great Britain) ...................... 1,248,700 5,878,880
Tyco International Ltd. .......................... 129,400 9,761,612
------------
15,640,492
------------
Insurance (4.5%)
Ace Ltd. (Bermuda) ............................... 159,400 5,489,338
Fairfax Financial Holdings Ltd. (Canada)** ....... 1,200 423,059
Fairfax Financial Holdings Ltd. .................. 9,900 3,490,240
Fairfax Financial Subcription (Canada)** ......... 3,900 1,306,196
Partner Re Ltd. (Bermuda) ........................ 115,900 5,302,425
Travelers Property Casualty Corp., Class A ....... 45,500 1,410,500
UNUM Corp. ....................................... 100,400 5,860,850
------------
23,282,608
------------
Lodging (0.4%)
Mirage Resorts, Inc.* ............................ 128,200 1,914,988
------------
Media--Broadcasting & Publishing (4.3%)
Clear Channel Communications, Inc.* .............. 47,900 2,610,550
Cox Communications, Inc., Class A* ............... 37,500 2,592,188
Fox Entertainment Group, Inc.* ................... 162,100 4,082,894
Infinity Broadasting Corp.* ...................... 99,900 2,734,763
Jacor Communications, Inc.* ...................... 4,200 270,375
Tribune Co. ...................................... 53,100 3,504,600
VNU--Verenigde Nederlandse
Uitgeversbedrijven Verenigd Bezit N.V.
(Netherlands) .................................. 100,900 3,801,872
Wolters Kluwer N.V. (Netherlands) ................ 13,602 2,908,612
------------
22,505,854
------------
Medical Supplies (1.2%)
Guidant Corp. .................................... 19,100 2,105,775
Johnson & Johnson ................................ 48,300 4,051,163
------------
6,156,938
------------
<CAPTION>
Number of Market
Shares Value
---------- -------------
<S> <C> <C>
Metals (2.1%)
Danaher Corp. .................................... 132,800 $ 7,212,699
Masco Corp. ...................................... 134,600 3,869,750
------------
11,082,449
------------
Oil & Gas (2.8%)
Chevron Corp. .................................... 43,500 3,607,781
Mobil Corp. ...................................... 55,000 4,791,875
Royal Dutch Petroleum Co. N.V. (Netherlands) ..... 124,500 5,960,438
------------
14,360,094
------------
Pharmaceuticals (11.4%)
American Home Products Corp. ..................... 55,900 3,147,869
Biogen, Inc.* .................................... 44,600 3,701,800
Bristol-Myers Squibb Co. ......................... 56,700 7,587,168
Eli Lilly and Co. ................................ 63,000 5,599,125
Gehe AG (Germany) ................................ 26,400 1,821,618
Genentech, Inc.* ................................. 52,100 4,151,719
McKesson Corp. ................................... 35,200 2,783,000
Merck & Co., Inc. ................................ 51,300 7,576,368
Novartis AG--Registered Shares (Switzerland)...... 2,140 4,205,240
Pfizer, Inc. ..................................... 51,700 6,485,119
Roche Holding AG (Switzerland) ................... 1,000 1,219,796
Schering-Plough Corp. ............................ 54,000 2,983,500
Warner-Lambert Co. ............................... 72,100 5,421,019
Zeneca Group PLC (Great Britain) ................. 67,500 2,933,516
------------
59,616,857
------------
Real Estate (1.6%)
Crescent Real Estate Equities Co. REIT ........... 97,000 2,231,000
Security Capital U.S. Realty REIT
(Luxembourg)* .................................. 300,400 2,973,960
Starwood Lodging Trust REIT ...................... 136,200 3,090,038
------------
8,294,998
------------
Restaurants (0.5%)
McDonald's Corp. ................................. 32,100 2,459,663
------------
Retailers (4.8%)
CVS Corp. ........................................ 45,600 2,508,000
Fred Myer, Inc.* ................................. 75,700 4,560,925
Home Depot, Inc. ................................. 89,900 5,500,756
Rite Aid Corp. ................................... 54,500 2,701,156
Saks, Inc.* ...................................... 101,900 3,216,219
Tag Heuer International SA ADR (Switzerland) ..... 46,200 329,175
Tag Heuer International SA (Switzerland) ......... 11,850 815,874
Wal-Mart Stores, Inc. ............................ 64,500 5,252,719
------------
24,884,824
------------
Telecommunications (0.3%)
GTE Corp. ........................................ 25,300 1,706,169
------------
Textiles, Clothing & Fabrics (0.6%)
Sara Lee Corp. ................................... 108,000 3,044,250
------------
</TABLE>
24 See Notes to Schedule of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
---------- -------------
<S> <C> <C>
Transportation (0.4%)
Carnival Corp., Class A .............................. 47,600 $ 2,284,800
------------
U.S. Government (4.5%)
Federal Home Loan Mortgage Corp. ..................... 248,300 15,999,830
Federal National Mortgage Association ................ 101,900 7,540,599
------------
23,540,429
------------
Total Common Stocks (Cost $395,218,268) 494,657,787
------------
Principal
Amount
----------
SHORT-TERM INVESTMENTS (4.7%)
Ciesco LP, Commercial Paper, 5.17%, 01/13/99 ......... $ 5,035,000 $ 4,998,124
General Electric Capital Services, Inc.,
Commercial Paper, 5.25%, 01/21/99 .................. 930,000 919,421
General Electric Capital Services, Inc.,
Commercial Paper, 5.25%, 01/21/99 .................. 13,325,000 13,175,371
International Lease Finance, Commercial Paper,
5.10%, 01/19/99 .................................... 4,000,000 3,965,433
Motorola, Inc., Commercial Paper, 5.12%,
01/26/99 ........................................... 1,500,000 1,477,813
------------
24,536,162
------------
Total Short-Term Investments (Cost $24,536,162) 24,536,162
------------
TOTAL INVESTMENTS (99.6%) (Cost $419,754,430 (a)) 519,193,949
Other assets less liabilities (0.4%) 2,289,564
------------
Total Net Assets (100.0%) $521,483,513
============
Notes to Schedule of Investments
(a) The cost of investments for federal income tax purposes amounts to
$421,910,819. Unrealized gains and losses, based on identified tax cost at
December 31, 1998, are as follows:
Unrealized gains ..................................... $111,683,166
Unrealized losses .................................... (14,400,036)
------------
Net unrealized gain ................................. $97,283,130
============
</TABLE>
*Non-income producing security.
**Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt form
registration, normally to qualify institutional buyers. At December 31,
1998, the market value of these securities amounted to $1,729,255 or $0.33%
of net assets.
Category percentages are based on net assets.
See Notes to Financial Statements. 25
<PAGE>
Portfolio Partners, Inc.
Statements of Assets and Liabilities
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MFS Emerging MFS Research
Equities Portfolio Growth Portfolio
-------------------- ------------------
<S> <C> <C>
Assets:
Investments, at market value ............... $ 1,051,373,646 $ 490,838,549
Cash ....................................... 12,450,035 5,746,037
Cash denominated in foreign currencies ..... -- --
Receivable for:
Dividends and interest .................... 205,354 323,336
Investments sold .......................... 10,911,903 2,844,134
Fund shares sold .......................... 35,079 7,726
Recoverable foreign taxes ................. 48 4,733
Gross unrealized gain on forward foreign
currency exchange contracts ............... -- 6,442
--------------- -------------
Total Assets ............................ 1,074,976,065 499,770,957
--------------- -------------
Liabilities:
Payable for:
Investments purchased ..................... 1,533,338 6,709,597
Fund shares redeemed ...................... 3,713,237 1,185,759
Variation margin on futures contracts ..... -- --
Administrative services fees payable ....... 111,326 59,704
Advisory fees payable ...................... 577,863 278,620
Gross unrealized loss on forward foreign
currency exchange contracts ............... -- --
--------------- -------------
Total Liabilities ....................... 5,935,764 8,233,680
--------------- -------------
NET ASSETS ................................. $ 1,069,040,301 $ 491,537,277
=============== =============
Net assets represented by:
Paid-in Capital ............................ $ 844,549,904 $ 408,147,899
Net unrealized gain on investments,
open futures contracts and foreign
currency related translations ............. 212,727,450 97,148,640
Undistributed net investment income ........ -- 982,830
Accumulated net realized gain (loss)
on investments ............................ 11,762,947 (14,742,092)
--------------- -------------
NET ASSETS ................................. $ 1,069,040,301 $ 491,537,277
=============== =============
Capital Shares, $.001 par value:
Outstanding ............................... 19,282,157 41,184,587
Net Assets ................................ $ 1,069,040,301 $ 491,537,277
Net Asset Value, offering and
redemption price per share (net
assets divided by shares outstanding) $ 55.44 $ 11.93
Cost of investments ........................ $ 838,646,196 $ 393,689,441
Cost of cash denominated in foreign
currencies ................................ $ -- $ --
<CAPTION>
MFS Value Scudder International T. Rowe Price Growth
Equity Portfolio Growth Portfolio Equity Portfolio
------------------ ----------------------- ----------------------
<S> <C> <C> <C>
Assets:
Investments, at market value ............... $ 185,677,093 $ 419,094,655 $ 519,193,949
Cash ....................................... 7,566,977 16,064,880 1,801,010
Cash denominated in foreign currencies ..... 21,151 2,437,152 1,248,308
Receivable for:
Dividends and interest .................... 122,417 173,683 436,130
Investments sold .......................... 6,426,103 -- 2,647,684
Fund shares sold .......................... -- 1,066 64,446
Recoverable foreign taxes ................. 36,984 658,533 40,600
Gross unrealized gain on forward foreign
currency exchange contracts ............... -- 133 4,146
------------- ------------- -------------
Total Assets ............................ 199,850,725 438,430,102 525,436,273
------------- ------------- -------------
Liabilities:
Payable for:
Investments purchased ..................... 4,692,721 1,690,105 3,621,057
Fund shares redeemed ...................... 28,265 1,714,473 11,990
Variation margin on futures contracts ..... -- -- 14
Administrative services fees payable ....... 39,565 71,726 63,273
Advisory fees payable ...................... 102,870 286,903 253,094
Gross unrealized loss on forward foreign
currency exchange contracts ............... 60,997 2,015,459 3,332
------------- ------------- -------------
Total Liabilities ....................... 4,924,418 5,778,666 3,952,760
------------- ------------- -------------
NET ASSETS ................................. $ 194,926,307 $ 432,651,436 $ 521,483,513
============= ============= =============
Net assets represented by:
Paid-in Capital ............................ $ 155,332,755 $ 355,026,870 $ 408,550,006
Net unrealized gain on investments,
open futures contracts and foreign
currency related translations ............. 32,467,393 54,148,270 99,437,212
Undistributed net investment income ........ 279,417 2,628,450 1,804,047
Accumulated net realized gain (loss)
on investments ............................ 6,846,742 20,847,846 11,692,248
------------- ------------- -------------
NET ASSETS ................................. $ 194,926,307 $ 432,651,436 $ 521,483,513
============= ============= =============
Capital Shares, $.001 par value:
Outstanding ............................... 5,148,169 25,816,698 9,428,088
Net Assets ................................ $ 194,926,307 $ 432,651,436 $ 521,483,513
Net Asset Value, offering and
redemption price per share (net
assets divided by shares outstanding) $ 37.86 $ 16.76 $ 55.31
Cost of investments ........................ $ 153,151,164 $ 362,976,006 $ 419,754,430
Cost of cash denominated in foreign
currencies ................................ $ 20,851 $ 2,438,300 $ 1,259,734
</TABLE>
26 See Notes to Financial Statements.
<PAGE>
Portfolio Partners, Inc.
Statements of Operations
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MFS Emerging MFS Research
Equities Portfolio Growth Portfolio
-------------------- ------------------
<S> <C> <C>
Investment Income:
Dividends ..................................... $ 962,612 $ 4,212,267
Interest ...................................... 2,280,574 592,559
------------ --------------
3,243,186 4,804,826
Foreign taxes withheld on dividends ............ (5,210) (64,981)
------------ --------------
Total investment income ..................... 3,237,976 4,739,845
------------ --------------
Investment Expenses:
Investment advisory fee ........................ 6,073,693 3,075,409
Administrative services fees ................... 1,164,739 659,016
------------ --------------
Total expenses .............................. 7,238,432 3,734,425
------------ --------------
Net investment income (loss) ................... (4,000,456) 1,005,420
------------ --------------
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on: ...................
Sale of investments ........................... 9,046,827 (10,095,525)
Futures, foreign currency and forward
foreign currency exchange contracts .......... 8,839,514 (22,224)
------------ --------------
Net realized gain (loss) on investments,
futures, foreign currency and forward
foreign currency exchange contracts .......... 17,886,341 (10,117,749)
------------ --------------
Net change in unrealized gain or (loss) on:
Investments ................................... 223,770,898 99,935,988
Futures, foreign currency and forward
foreign currency exchange contracts .......... (2,122,938) (538)
------------ --------------
Net change in unrealized gain on
investments, futures, foreign
currency and forward foreign
currency exchange contracts ............... 221,647,960 99,935,450
------------ --------------
Net realized and change in unrealized gain
on investments, futures, foreign currency
and forward foreign currency exchange
contracts ..................................... 239,534,301 89,817,701
------------ --------------
Net increase in net assets resulting from
operations .................................... $235,533,845 $ 90,823,121
============ ==============
<CAPTION>
MFS Value Scudder International T. Rowe Price Growth
Equity Portfolio Growth Portfolio Equity Portfolio
------------------ ----------------------- ----------------------
<S> <C> <C> <C>
Investment Income:
Dividends ..................................... $ 1,376,210 $ 7,203,599 $ 4,576,307
Interest ...................................... 454,732 1,226,311 1,731,809
----------- ------------ ------------
1,830,942 8,429,910 6,308,116
Foreign taxes withheld on dividends ............ (59,148) (823,478) (141,394)
----------- ------------ ------------
Total investment income ..................... 1,771,794 7,606,432 6,166,722
----------- ------------ ------------
Investment Expenses:
Investment advisory fee ........................ 1,073,994 3,330,261 2,643,704
Administrative services fees ................... 413,075 832,612 660,926
----------- ------------ ------------
Total expenses .............................. 1,487,069 4,162,873 3,304,630
----------- ------------ ------------
Net investment income (loss) ................... 284,725 3,443,559 2,862,092
----------- ------------ ------------
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on: ...................
Sale of investments ........................... 7,059,192 20,930,031 10,801,082
Futures, foreign currency and forward
foreign currency exchange contracts .......... (8,022) (212,835) (29,505)
----------- ------------ ------------
Net realized gain (loss) on investments,
futures, foreign currency and forward
foreign currency exchange contracts .......... 7,051,170 20,717,196 10,771,577
----------- ------------ ------------
Net change in unrealized gain or (loss) on:
Investments ................................... 30,652,212 50,253,541 94,378,229
Futures, foreign currency and forward
foreign currency exchange contracts .......... (51,510) (1,960,993) (8,189)
----------- ------------ ------------
Net change in unrealized gain on
investments, futures, foreign
currency and forward foreign
currency exchange contracts ............... 30,600,702 48,292,548 94,370,040
----------- ------------ ------------
Net realized and change in unrealized gain
on investments, futures, foreign currency
and forward foreign currency exchange
contracts ..................................... 37,651,872 69,009,744 105,141,617
----------- ------------ ------------
Net increase in net assets resulting from
operations .................................... $37,936,597 $ 72,453,303 $108,003,709
=========== ============ ============
</TABLE>
See Notes to Financial Statements. 27
<PAGE>
Portfolio Partners, Inc.
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MFS Emerging
Equities Portfolio
For the Year Ended
December 31, 1998
--------------------
<S> <C>
From Operations:
Net investment income ......................... $ (4,000,456)
Net realized gain (loss) on investments,
futures, foreign currency and forward
foreign currency exchange contracts .......... 17,886,341
Net change in unrealized gain or (loss)
on investments, futures, foreign
currency, and forward foreign
currency exchange contracts .................. 221,647,960
--------------
Net increase (decrease) in net assets
resulting from operations ................... 235,533,845
--------------
Distributions to Shareholders From:
Net investment income ........................ (2,021,457)
Net realized gain on sale of investments (586,890)
--------------
Total distributions .......................... (2,608,347)
--------------
Fund Share Transactions:
Proceeds from shares sold .................... 250,995,803
Payments for shares redeemed ................. (185,597,540)
Net Asset Value of shares issued
in reinvestment of dividends and
distributions .............................. 2,608,347
--------------
Net increase (decrease) in net
assets from fund share
transactions ............................. 68,006,610
--------------
Change in net assets ......................... 300,932,108
Net Assets:
Beginning of period .......................... 768,108,193
--------------
End of period ................................ $1,069,040,301
==============
End of period net assets includes
undistributed net investment income ......... $ --
==============
Share Transactions:
Number of shares sold ........................ 5,160,626
Number of shares issued through
reinvestment of dividends and
distributions ............................... 64,245
Number of shares redeemed .................... (3,842,650)
--------------
Net increase (decrease) ..................... 1,382,221
==============
<CAPTION>
MFS Emerging MFS Research
Equities Portfolio Growth Portfolio
Period from Period from
November 28, 1997 MFS Research November 28, 1997
(commencement Growth Portfolio (commencement
of operations) For the Year Ended of operations)
to December 31, 1997 December 31, 1998 to December 31, 1997
---------------------- -------------------- ---------------------
<S> <C> <C> <C>
From Operations:
Net investment income ......................... $ 1,629,226 $ 1,005,420 $ 81,976
Net realized gain (loss) on investments,
futures, foreign currency and forward
foreign currency exchange contracts .......... (1,143,817) (10,117,749) (4,625,200)
Net change in unrealized gain or (loss)
on investments, futures, foreign
currency, and forward foreign
currency exchange contracts .................. (8,920,510) 99,935,450 (2,786,810)
------------- ------------- ------------
Net increase (decrease) in net assets
resulting from operations ................... (8,435,101) 90,823,121 (7,330,034)
------------- ------------- ------------
Distributions to Shareholders From:
Net investment income ........................ -- (103,709) --
Net realized gain on sale of investments -- -- --
------------- ------------- ------------
Total distributions .......................... -- (103,709) --
------------- ------------- ------------
Fund Share Transactions:
Proceeds from shares sold .................... 824,137,595 86,437,903 412,691,854
Payments for shares redeemed ................. (47,614,301) (85,271,880) (5,833,687)
Net Asset Value of shares issued
in reinvestment of dividends and
distributions .............................. -- 103,709 --
------------- ------------- ------------
Net increase (decrease) in net
assets from fund share
transactions ............................. 776,523,294 1,269,732 406,858,167
------------- ------------- ------------
Change in net assets ......................... 768,088,193 91,989,144 399,528,133
Net Assets:
Beginning of period .......................... 20,000 399,548,133 20,000
------------- ------------- ------------
End of period ................................ $ 768,108,193 $ 491,537,277 $399,548,133
============= ============= ============
End of period net assets includes
undistributed net investment income ......... $ 1,629,226 $ 982,830 $ 103,342
============= ============= ============
Share Transactions:
Number of shares sold ........................ 19,024,246 7,942,884 41,744,286
Number of shares issued through
reinvestment of dividends and
distributions ............................... -- 10,960 --
Number of shares redeemed .................... (1,124,771) (7,914,947) (600,618)
------------- ------------- ------------
Net increase (decrease) ..................... 17,899,475 38,897 41,143,668
============= ============= ============
</TABLE>
28 See Notes to Financial Statements.
<PAGE>
Portfolio Partners, Inc.
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MFS Value
Equity Portfolio
Period from
MFS Value November 28, 1997 Scudder International
Equity Portfolio (commencement Growth Portfolio
For the Year Ended of operations) For the Year Ended
December 31, 1998 to December 31, 1997 December 31, 1998
-------------------- ---------------------- -----------------------
<S> <C> <C> <C>
From Operations:
Net investment income .......... $ 284,725 $ 241,611 $ 3,443,559
Net realized gain (loss)
on investments, futures,
foreign currency and
forward foreign currency
exchange contracts ............ 7,051,170 (223,629) 20,717,196
Net change in unrealized
gain or (loss) on investments,
futures, foreign currency,
and forward foreign
currency exchange
contracts ..................... 30,600,702 1,866,691 48,292,548
------------- ------------ ---------------
Net increase (decrease)
in net assets resulting
from operations .............. 37,936,597 1,884,673 72,453,303
------------- ------------ ---------------
Distributions to Shareholders From:
Net investment income (227,718) -- (766,921)
Net realized gain on
sale of investments .......... -- -- --
------------- ------------ ---------------
Total distributions ........... (227,718) -- (766,921)
------------- ------------ ---------------
Fund Share Transactions:
Proceeds from shares sold 43,067,470 133,258,100 414,815,500
Payments for shares
redeemed ..................... (20,585,921) (654,612) (432,817,544)
Net Asset Value of shares
issued in reinvestment
of dividends and
distributions ................ 227,718 -- 766,921
------------- ------------ ---------------
Net increase (decrease)
in net assets from fund
share transactions 22,709,267 132,603,488 (17,235,123)
------------- ------------ ---------------
Change in net assets .......... 60,418,146 134,488,161 54,451,259
Net Assets:
Beginning of period ............ 134,508,161 20,000 378,200,177
------------- ------------ ---------------
End of period .................. $ 194,926,307 $134,508,161 $ 432,651,436
============= ============ ===============
End of period net assets
includes undistributed
net investment income.......... $ 279,417 $ 230,432 $ 2,628,450
============= ============ ===============
Share Transactions:
Number of shares sold 1,270,214 4,519,003 26,173,168
Number of shares issued
through reinvestment
of dividends and
distributions ................ 7,706 -- 50,488
Number of shares redeemed (627,340) (22,092) (27,235,224)
------------- ------------ ---------------
Net increase (decrease)........ 650,580 4,496,911 (1,011,568)
============= ============ ===============
<CAPTION>
Scudder International T. Rowe Price Growth
Growth Portfolio Equity Portfolio
Period from Period from
November 28, 1997 T. Rowe Price Growth November 28, 1997
(commencement Equity Portfolio (commencement
of operations) For the Year Ended of operations)
to December 31, 1997 December 31, 1998 to December 31, 1997
----------------------- ---------------------- ----------------------
<S> <C> <C> <C>
From Operations:
Net investment income .......... $ 40,929 $ 2,862,092 $ 532,313
Net realized gain (loss)
on investments, futures,
foreign currency and
forward foreign currency
exchange contracts ............ 41,533 10,771,577 1,797,504
Net change in unrealized
gain or (loss) on investments,
futures, foreign currency,
and forward foreign
currency exchange
contracts ..................... 5,855,722 94,370,040 5,067,172
------------- ------------- -------------
Net increase (decrease)
in net assets resulting
from operations .............. 5,938,184 108,003,709 7,396,989
------------- ------------- -------------
Distributions to Shareholders
From:
Net investment income -- (1,582,874) --
Net realized gain on
sale of investments .......... -- (884,317) --
------------- ------------- -------------
Total distributions ........... -- (2,467,191) --
------------- ------------- -------------
Fund Share Transactions:
Proceeds from shares sold 392,303,919 66,543,519 375,624,450
Payments for shares
redeemed ..................... (20,061,926) (24,257,325) (11,847,829)
Net Asset Value of shares
issued in reinvestment
of dividends and
distributions ................ -- 2,467,191 --
------------- ------------- -------------
Net increase (decrease)
in net assets from fund
share transactions 372,241,993 44,753,385 363,776,621
------------- ------------- -------------
Change in net assets .......... 378,180,177 150,289,903 371,173,610
Net Assets:
Beginning of period ............ 20,000 371,193,610 20,000
------------- ------------- -------------
End of period .................. $ 378,200,177 $ 521,483,513 $ 371,193,610
============= ============= =============
End of period net assets
includes undistributed
net investment income.......... $ 44,729 $ 1,804,047 $ 554,334
============= ============= =============
Share Transactions:
Number of shares sold 28,251,298 1,372,441 8,787,184
Number of shares issued
through reinvestment
of dividends and
distributions ................ -- 56,598 --
Number of shares redeemed (1,424,473) (513,020) (275,583)
------------- ------------- -------------
Net increase (decrease)........ 26,826,825 916,019 8,511,601
============= ============= =============
</TABLE>
See Notes to Financial Statements. 29
<PAGE>
Portfolio Partners, Inc.
Notes to Financial Statements
December 31, 1998
- --------------------------------------------------------------------------------
1. Organization
Aetna Life Insurance and Annuity Company ("Aetna") created Portfolio Partners,
Inc. (the "Company") to serve as an investment option underlying Aetna's
variable insurance products. The Company is an open-end management investment
company registered under the Investment Company Act of 1940 (the "1940 Act").
It was incorporated under the laws of Maryland on May 7, 1997. The Articles of
Incorporation permit the Company to offer separate series ("Portfolios"), each
of which has its own investment objective, policies and restrictions.
The Company currently consists of five diversified Portfolios: MFS Emerging
Equities Portfolio ("MFS Emerging Equities"), MFS Research Growth Portfolio
("MFS Research Growth"), MFS Value Equity Portfolio ("MFS Value Equity"),
Scudder International Growth Portfolio ("Scudder International Growth") and T.
Rowe Price Growth Equity Portfolio ("T. Rowe Price Growth Equity"). Aetna
serves as the Investment Advisor and the principal underwriter to each
Portfolio. Massachusetts Financial Services ("MFS") serves as sub-advisor to
MFS Value Equity, MFS Emerging Equities and MFS Research Growth. Scudder Kemper
Investments, Inc. ("Scudder") serves as sub-advisor to Scudder International
Growth and T. Rowe Price Associates, Inc. ("T. Rowe") serves as sub-advisor to
T. Rowe Price Growth Equity. Shares of each Portfolio were first made available
to the public on November 28, 1997.
The following is a brief description of each Portfolio's investment objective:
MFS Emerging Equities seeks to provide long-term growth of capital;
MFS Research Growth seeks long-term growth of capital and future income;
MFS Value Equity seeks capital appreciation;
Scudder International Growth seeks long-term growth of capital primarily
through a diversified portfolio of marketable foreign equity securities; and
T. Rowe Price Growth Equity seeks long-term capital growth and, secondarily,
increasing dividend income through investments in the common stocks of well
established growth companies.
2. Summary of Significant Accounting Policies
A. Valuation of Investments
The accompanying financial statements of the Portfolios have been prepared in
accordance with generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
amounts reported therein. Although actual results could differ from these
estimates, any such differences are expected to be immaterial to the net assets
of the Portfolios.
Securities of the Portfolios are generally valued by independent pricing
services. The values for equity securities traded on registered securities
exchanges are based on the last sale price or, if there has been no sale that
day, at the mean of the last bid and asked price on the exchange where the
security is principally traded. Securities traded over-the-counter are valued
at the last sale price or at the last bid price if there has been no sale that
day. Short-term debt securities that have a maturity date of more than sixty
days will be valued at the mean of the last bid and asked price obtained from
principal market makers. Long-term debt securities are valued at the mean of
the last bid and asked price of such securities obtained from a broker that is
a market-maker in the securities or a service providing quotations based upon
the assessment of market-makers in those securities.
Options are valued at the mean of the last bid and asked price on the exchange
where the option is primarily traded. Stock index futures contracts and
interest rate futures contracts are valued daily at a settlement price based on
rules of the exchange where the futures contract is primarily traded.
The accounting records of the Portfolios are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars at the prevailing rates of exchange
at the end of each day. Purchases and sales of securities, income receipts, and
expense payments are translated into U.S. dollars at the prevailing exchange
rate on the respective date of the transactions.
30
<PAGE>
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (continued)
B. Option Contracts
MFS Emerging Equities, MFS Value Equity, Scudder International Growth, and T.
Rowe Price Growth Equity may invest in put and call options(MFS Emerging
Equities, MFS Value Equity and T. Rowe Price Growth not more than 5% of their
total assets may be invested in premiums for these options). MFS Emerging
Equities, MFS Value Equity and Scudder International Growth may sell calls on
securities only if the calls are covered.
Option contracts are valued daily and unrealized gains or losses are recorded
based upon the last sales price on the principal exchange on which the options
are traded.
The Portfolios will realize a gain or loss upon the expiration or closing of
the option contract. When an option is exercised, the proceeds on sales of the
underlying security for a written call option, the purchase cost of the
security for a written put option, or the cost of the security for a purchased
put or call option is adjusted by the amount of premium received or paid.
Realized and unrealized gains or losses on option contracts are reflected in
the accompanying financial statements.
The risk in writing a call option is that the Portfolios give up the
opportunity for profit if the market price of the security increases and the
option is exercised. The risk in buying an option is that the Portfolios pay a
premium whether or not the option is exercised. Risks may also arise from an
illiquid secondary market or from the inability of counterparties to meet the
terms of the contract.
C. Futures and Forward Foreign Currency Exchange Contracts
MFS Research Growth may not purchase futures or options on futures and
securities. Scudder International Growth may enter into futures and options on
futures contracts for hedging purposes only. MFS Emerging Equities and the MFS
Value Equity may enter into future contracts if, immediately thereafter, the
value of securities and other underlying obligations does not exceed 50% of
total assets of the Portfolio. T. Rowe Price Growth Equity may enter into
futures contracts to the extent that the value of securities and other
underlying obligations does not exceed 100% of total assets of the Portfolio.
A futures contract is an agreement between two parties to buy and sell a
specific amount of a commodity, security or financial instrument including an
index of stocks at a set price on a future date. The Portfolios sell futures
contracts as a hedge against declines in the value of portfolio securities. The
Portfolios may purchase futures contracts to manage the risk of changes in
interest rates, equity prices, currency exchange rates or in anticipation of
future purchases and sales of portfolio securities.
Upon entering into a futures contract, a Portfolio is required to deposit with
a broker an amount (initial margin) equal to a percentage of the purchase price
indicated by the futures contract. Subsequent deposits (variation margin) are
received or paid each day by the Portfolio equal to the daily fluctuations in
the market value of the contract. These amounts are recorded by the Portfolio
as unrealized gains or losses. When a contract is closed, the Portfolio records
a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
Futures contracts held by the Portfolios are closed prior to expiration.
A forward foreign currency exchange contract is an agreement to pay or receive
specific amounts of a currency at a future date in exchange for another
currency at an agreed upon exchange rate. The Portfolios may use forward
foreign currency exchange contracts to hedge certain foreign currency assets or
liabilities. Contracts are recorded at market value and marked-to-market daily.
The risks associated with futures and forward foreign currency exchange
contracts may arise from an imperfect correlation between the change in market
value of the securities held by the Portfolios and the price of the contracts.
Risks may also arise from an illiquid secondary market or from the inability of
counterparties to meet the terms of the contracts.
Realized and unrealized gains or losses on futures and forward foreign currency
exchange contracts are reflected in the accompanying financial statements. The
amounts at risk under such futures and forward foreign currency exchange
contracts may exceed the amounts reflected in the financial statements. The
notional amounts (economic exposure) of these contracts are disclosed in Note 6
of the Notes to Financial Statements. For federal income tax purposes, any
futures and forward foreign currency exchange contracts which remain open at
fiscal year end are marked-to-market and the resultant net gain or loss is
reported to shareholders as federal taxable income.
31
<PAGE>
Portfolio Partners, Inc.
Notes to Financial Statements
December 31, 1998 (continued)
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (continued)
D. Illiquid and Restricted Securities
Illiquid securities are securities that are not readily marketable. Disposing
of illiquid securities may involve time-consuming negotiation and legal
expenses, and it may be difficult or impossible for the Portfolios to sell them
promptly at an acceptable price. Each Portfolio may invest up to 15% of its net
assets in illiquid securities.
Each Portfolio may also purchase restricted securities, securities not
registrered under the Securities Act of 1933 (the "1933 Act"), including those
that can be offered and sold to "qualified institutional buyers" under Rule
144A of the 1933 Act. Investment in restricted securities is subject to each
portfolio's limit on illiquid securities.
Illiquid and restricted securities are valued using market quotations when
readily available. In the absence of market quotations, restricted securities
are valued based upon their fair value determined under procedures approved by
the Board of Directors.
E. Delayed Delivery Transactions
The Portfolios may purchase or sell securities on a when-issued or delayed
delivery basis. The price of the underlying securities and date when the
securities will be delivered and paid for are fixed at the time the transaction
is negotiated. The market value of the securities purchased or sold are
identified in the Portfolios' schedule of investments. Losses may arise due to
changes in the market value of the securities or from the inability of
counterparties to meet the terms of the contract. A Portfolio will segregate
assets at its custodian in an amount equal to the market value of securities
purchased on a when-issued or delayed delivery basis.
F. Federal Income Taxes
As qualified regulated investment companies, the Portfolios are relieved of
federal income and excise taxes by distributing substantially all of their net
taxable investment income and capital gains, if any, in compliance with the
applicable provisions of the Internal Revenue Code. Therefore, no provision for
income taxes has been made in the accompanying financial statements.
G. Distributions
Distributions from net investment income are based on taxable net income.
Distributions are recorded on the ex-dividend date. Income and capital gain
distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These differences are
primarily due to differing treatments for foreign currency transactions,
investments in certain foreign issuers that derive a majority of their income
from passive investments (e.g., interest or dividends) and deferred losses on
wash sales.
H. Other
Investment transactions are accounted for on the day following trade date,
except same day settlements which are accounted for on trade date. Interest
income is recorded on an accrual basis. Discounts and premiums on securities
purchased are accreted or amortized, respectively, using an effective yield
method over the life of the security. Dividend income and stock splits are
recorded on the ex-dividend date. Realized gains and losses from investment
transactions are determined on an identified cost basis.
3. Investment Advisory and Administrative Service Agreements
Each Portfolio pays the Investment Advisor an annual fee expressed as a
percentage of its average daily net assets. As certain of the Portfolios' net
assets exceed predetermined thresholds, lower advisory fees apply. Below are
the Portfolios' investment advisory fee ranges and the effective rates as of
December 31, 1998:
<TABLE>
<CAPTION>
Fee Range Effective Rate
-------------- ---------------
<S> <C> <C>
MFS Emerging Equities .70%-.65% .68%
MFS Research Growth .70%-.65% .70%
MFS Value Equity .65% .65%
Scudder International Growth .80% .80%
T. Rowe Price Growth Equity .60% .60%
</TABLE>
32
<PAGE>
- --------------------------------------------------------------------------------
3. Investment Advisory and Administrative Service Agreements (continued)
Under the terms of separate Subadvisory Agreements between the Investment
Advisor and each subadvisor, each subadvisor is responsible for the investment
and reinvestment of cash and securities for each Portfolio in exchange for fees
payable by the Investment Advisor, which are expressed as a percentage of the
average daily net assets of each Portfolio. For the year ended ended December
31, 1998, the Investment Advisor paid MFS $5,423,591 for MFS Emerging Equities,
MFS Research Growth, and MFS Value Equity, paid Scudder Kemper Investments
$1,721,358 for Scudder International Growth, and paid T. Rowe $1,762,470 for T.
Rowe Price Growth Equity in accordance with the terms of each agreement.
Under an Administrative Services Agreement between the Company and Aetna, Aetna
provides all administrative services necessary for the Company's operations and
is responsible for the supervision of the Company's other service providers.
Aetna also assumes all ordinary recurring direct costs of the Company, such as
custodian fees, director's fees, transfer agency fees and accounting fees. As
compensation for these services, Aetna receives a monthly fee from each
Portfolio at an annual rate based on the average daily net assets of each
Portfolio as follows:
<TABLE>
<CAPTION>
Portfolio Rate
--------- --------
<S> <C>
MFS Emerging Equities ................ 0.13%
MFS Research Growth .................. 0.15%
MFS Value Equity ..................... 0.25%
Scudder International Growth ......... 0.20%
T. Rowe Price Growth Equity .......... 0.15%
</TABLE>
Each Portfolio's aggregate expenses are limited to the advisory and
administrative service fees disclosed above. Aetna has agreed to reimburse the
Portfolios for expenses and/or waive its fees, so that, through at least April
30, 2000, the aggregate of each Portfolio's expenses will not exceed the
combined investment advisory and administrative service fee rates shown above.
4. Purchases and Sales of Investment Securities
Purchases and sales of investment securities, excluding short-term investments,
for the year ended December 31, 1998 were:
<TABLE>
<CAPTION>
Cost of Purchases Proceeds from Sales
------------------- --------------------
<S> <C> <C>
MFS Emerging Equities $ 282,727,725 $ 39,738,041
MFS Research Growth 428,836,329 418,259,186
MFS Value Equity 242,599,694 219,842,801
Scudder International Growth 270,260,053 279,367,423
T. Rowe Price Growth Equity 285,623,367 236,555,166
</TABLE>
5. Capital Loss Carryforwards
At December 31, 1997, for federal income tax purposes, the Portfolios had the
following capital loss carryforwards:
<TABLE>
<CAPTION>
Capital Loss Year of
Portfolio Carryforward Expiration
- --------- ------------- -----------
<S> <C> <C>
MFS Research Growth $ 4,589,027 2005
MFS Research Growth 8,906,249 2006
</TABLE>
- --------------------------------------------------------------------------------
The Board of Directors will not distribute any realized capital gains until the
above capital loss carryforwards have been used to offset future capital gains
or until they expire.
33
<PAGE>
Portfolio Partners, Inc.
Notes to Financial Statements
December 31, 1998 (continued)
- --------------------------------------------------------------------------------
6. Forward Foreign Currency Exchange Contracts
At December 31, 1998, MFS Research Growth, MFS Value Equity, Scudder
International Growth and T. Rowe Price Growth Equity had open forward foreign
currency exchange contracts that obligate each Portfolio to deliver or receive
currencies at specified future dates. The net unrealized gain (loss) of $6,442,
($60,997), ($2,015,326) and $814 respectively, on these contracts are included
in the accompanying financial statements. The terms of the open contracts are
as follows:
MFS Research Growth
<TABLE>
<CAPTION>
Foreign Currency U.S. Dollar U.S. Dollar Value Net Unrealized
Currency and Exchange Date Units Sold Proceeds at December 31, 1998 Gain
- -------------------------------- ---------------------- -------------------- ----------------------- ------------------
<S> <C> <C> <C> <C>
Sale Contracts
Great British Pound, 01/04/99 11,635 $ 19,488 $ 19,319 $ 169
Great British Pound, 01/05/99 278,463 466,425 462,351 4,074
Great British Pound, 01/07/99 94,411 158,945 156,746 2,199
-----------
$ 6,442
===========
<CAPTION>
MFS Value Equity
Foreign Currency U.S. Dollar U.S. Dollar Value Net Unrealized
Currency and Exchange Date Units Purchased/Sold Proceeds/Cost at December 31, 1998 (Loss)
- -------------------------------- ---------------------- -------------------- ----------------------- -----------
<S> <C> <C> <C> <C>
Purchase Contracts
Hong Kong Dollar, 1/12/99 6,312,125 $ 814,994 $ 814,752 $ (242)
Great British Pound, 9/18/98 13,796 23,231 22,911 (320)
Sale Contract
Hong Kong Dollar, 01/12/99 6,312,125 754,317 814,752 (60,435)
-----------
$ (60,997)
===========
<CAPTION>
Scudder International Growth
Foreign Currency U.S. Dollar U.S. Dollar Value Net Unrealized
Currency and Exchange Date Units Purchased/Sold Proceeds/Cost at December 31, 1998 Gain (Loss)
- -------------------------------- ---------------------- -------------------- ----------------------- ------------------
<S> <C> <C> <C> <C>
Purchase Contracts
Austrian Dollar, 01/04/99 48,232 $ 29,590 $ 29,543 $ (47)
Austrian Dollar, 01/07/99 114,469 70,229 70,117 (112)
Austrian Dollar, 01/08/99 99,907 61,313 61,198 (115)
Hong Kong Dollar, 01/04/99 68,280 8,813 8,814 1
Hong Kong Dollar, 01/05/99 1,247,625 161,043 161,045 2
German Deutsche Mark, 12/30/98 67,555 40,404 40,534 130
Sale Contract
Japanese Yen, 03/04/99 1,436,125,741 10,782,000 12,797,185 (2,015,185)
-----------
$(2,015,326)
===========
<CAPTION>
T. Rowe Price Growth Equity
Foreign Currency U.S. Dollar U.S. Dollar Value Net Unrealized
Currency and Exchange Date Units Purchased/Sold Proceeds/Costs at December 31, 1997 Gain (Loss)
- -------------------------------- ---------------------- -------------------- ----------------------- ------------------
<S> <C> <C> <C> <C>
Purchase Contracts
Hong Kong Dollar, 01/04/99 4,551,091 $ 587,511 $ 587,462 $ (49)
Great British Pound, 01/04/99 190,091 318,916 315,633 (3,283)
Sale Contracts
Great British Pound, 01/04/99 55,456 93,037 92,079 958
Great British Pound, 01/05/99 265,030 443,236 440,048 3,188
-----------
$ 814
===========
</TABLE>
34
<PAGE>
Portfolio Partners, Inc.
Notes to Financial Statements
December 31, 1998 (continued)
- --------------------------------------------------------------------------------
7. Authorized Capital Shares
The Company is authorized to issue a total of 1.0 billion shares of common
stock with a par value of $0.001 per share. The shares may be issued in series
(i.e. portfolios) having separate assets and liabilities and separate
investment objectives and policies. Upon liquidation of a Portfolio, its
shareholders are entitled to share pro rata in the net assets of that portfolio
available for distribution to shareholders. Aetna utilizes the Portfolios as
funding options for certain of their variable annuities and variable life
separate accounts. At December 31, 1998, Aetna owned all shares of beneficial
interest of the Portfolios.
8. Certain Reclassifications
In accordance with generally accepted accounting principles, the following
reclassifications were made in order to present the Portfolios' capital
accounts on a tax basis. These reclassifications have no impact on the net
asset value of the Portfolios.
<TABLE>
<CAPTION>
Accumulated
Net Realized
Undistributed Net Gain/(Loss)
Paid-in Capital Investment Income on Investments
Increase/(Decrease) Increase/(Decrease) Increase/(Decrease)
--------------------- --------------------- --------------------
<S> <C> <C> <C>
MFS Emerging Equities -- 4,392,687 (4,392,687)
MFS Research Growth -- (22,223) 22,223
MFS Value Equity -- (8,022) 8,022
Scudder International Growth -- (92,917) 92,917
T. Rowe Price Growth Equity -- (29,505) 29,505
</TABLE>
- --------------------------------------------------------------------------------
(Unaudited)
Portfolio Partners, Inc. held a Special Meeting of Shareholders of the Scudder
International Growth Portfolio on November 20, 1998. Shareholders were asked to
approve or disapprove a new investment sub-advisory agreement between Aetna
Life Insurance and Annuity Company and Scudder Kemper Investments, Inc. The
results of the vote were as follows:
<TABLE>
<CAPTION>
Shares Voted For: Shares Voted Against: Shares Voted Abstaining:
----------------- -------------------- ------------------------
<S> <C> <C>
15,896,086.778 483,606.325 1,493,022.612
</TABLE>
35
<PAGE>
Independent Auditors' Report
To the Board of Directors and Shareholders
Portfolio Partners, Inc.:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments of MFS Emerging Equities Portfolio, MFS
Research Growth Portfolio, MFS Value Equity Portfolio, Scudder International
Growth Portfolio and T. Rowe Price Growth Portfolio, series of Portfolio
Partners, Inc. (the Portfolios), as of December 31, 1998, and the related
statements of operations for the year then ended and the statements of changes
in net assets and financial highlights for the year then ended and the period
from November 28, 1997 (commencement of operations) to December 31, 1997. The
financial statements and financial highlights are the responsibility of the
Portfolios' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Portfolios as of December 31, 1998, the results of their operations for the
year then ended and the changes in their net assets and financial highlights
for the year then ended and for the period from November 28, 1997 (commencement
of operations) to December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
January 29, 1999
36
