[Aetna letterhead]
[Aetna logo]
Laurie M. LeBlanc, CFP
President
Portfolio Partners, Inc.
To: Portfolio Partners, Inc. Shareholders
Date: August 3, 1999
Despite rising interest rates, the stock market continued its winning ways
through the first half of 1999. Growth stocks posted solid gains but were
outpaced in the second quarter by cyclical and value-oriented issues, which
surged amid signs of a robust economy and recovery overseas. Technology
stocks were strong. European stocks struggled, while Asian markets soared.
The second quarter made for quite an improvement in several of our domestic
equity Portfolios' performances relative to the S&P 500 Index.(1) After
more than three years of a narrowly driven large cap growth market, we
finally saw a broadening trend. The Russell 2000 Index,(2) representing
small cap stocks, posted its best relative performance since the early
1990s against the broader S&P 500, with gains of 15.6% versus 7.0%
respectively. Further, value-oriented stocks and fund managers also out
performed growth-oriented stocks and growth managers in the second quarter.
This resulted in marked improvement for most of the Portfolio Partners
domestic equity-based funds, particularly PPI MFS Emerging Equities, PPI
MFS Research Growth, PPI MFS Value Equity, and PPI T. Rowe Price Growth, as
they are all more broadly diversified by capitalization. Foreign economies
also appeared to be healthier as Asia and Japan showed strong corporate
earnings growth. PPI Scudder International Growth continued to outperform
the average fund in its peer group, and its benchmark, the Morgan Stanley
EAFE Index.(3)
Lastly, your patient investing and commitment to diversification is
beginning to be rewarded as we see improved broader market returns. Net
asset growth of nearly $33 million pushed the aggregate assets of the
Portfolio Partners, Inc. funds over the $3 billion mark.
We thank you again for your trust and continued support.
Sincerely,
/s/ Laure 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 500 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 Russell 2000 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.
(3) 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.
<PAGE>
Portfolio Partners MFS Emerging Equities Portfolio
June 30, 1999 Commentary
- --------------------------------------------------------------------------------
For the six months ended June 30, 1999, the Portfolio provided a total return of
14.57% (including the reinvestment of any distributions). This compares to a
9.28% return over the same period for the Russell 2000 Total Return Index (the
Russell 2000),(1) an unmanaged index comprised of 2,000 of the smallest
U.S.-domiciled company common stocks that are traded on the New York Stock
Exchange, the American Stock Exchange, and NASDAQ.
The Portfolio's performance was impacted by three important factors. First, the
Portfolio has holdings in small, mid-sized, and large companies. Until early
April, when the market began to broaden, its best-performing segment was made up
of a narrow group of about 50 of the largest company growth stocks in the S&P
500, as well as some Internet stocks. As a result, prices of the large-company
stocks, relative to their earnings, reached excessive levels. Now, stock market
performance has moved into a broader range of stocks that are selling at cheaper
prices relative to their earnings. We think this broadening of the market will
continue, and be positive for the Portfolio because it invests in companies of
all market capitalizations.
Second, the Portfolio was affected by the fact that we have not invested in many
of the Internet stocks. While we have been reluctant to own Internet companies
that have unproven business models, we do own established companies such as
Cisco Systems, which provides systems to support Internet traffic, and Oracle,
which is the Internet database of choice. Many of the Internet stocks, including
new companies that have shown no profit, performed very well in the early part
of the year. However, when investors became nervous over their valuations, they
rushed out of them. Our investments in stocks with proven business models helped
to protect the Portfolio from a decline in Internet stock speculation.
- --------
(1) The Russell 2000 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.
<PAGE>
The third factor has been our exposure to computer software companies. Many
software companies have faced uncertainty over the Year 2000 (Y2K) computer
issue. Earlier this year, it looked like many businesses would reduce their
spending on computer software and systems to give themselves time to ensure
their existing systems were Y2K ready. Although it now looks like spending won't
be cut as much as people feared, the stocks have been impacted. We think the Y2K
issue will be behind us by next spring. At that time, companies such as BMC
Software and Computer Associates, which are dominant in their markets, should be
among the best positioned in what we expect to be a very rapidly growing
industry.
Technology continued to be the Portfolio's largest sector. Companies increased
earnings growth by aggressively downsizing, restructuring, and outsourcing many
business functions. Technology allowed these companies to be more productive
without necessarily hiring more people. We believe these trends will continue
both domestically and internationally, and they should continue to benefit such
holdings as Microsoft and Compuware.
Several of the Portfolio's telecommunications and media holdings also have
performed well. MCI WorldCom is a dominant player in telecommunications and the
backbone of worldwide cellular traffic. MediaOne, which is being acquired by
AT&T, has been a big beneficiary of the growth of cable, both for entertainment
and for Internet access. Also, after several years of not being able to increase
prices, health maintenance organizations such as United HealthCare have been
raising their rates, which should make them more profitable.
Respectfully,
John W. Ballen
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and are
current only through the end of the period of the report as stated on the cover.
The managers' views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed. The Portfolio is actively
managed, and current holdings may be different.
<PAGE>
Portfolio Partners MFS Research Growth Portfolio
June 30, 1999 Commentary
- --------------------------------------------------------------------------------
For the six months ended June 30, 1999, the Portfolio provided a total return of
9.13% (including the reinvestment of any distributions). This compares to a
12.23% return for the Standard & Poor's 500 Composite Index (the S&P 500),(1) a
popular, unmanaged index of common stock total return performance, for the same
period.
The Portfolio relies on MFS(R) Original ResearchSM to incorporate the best ideas
of our more than 30 equity analysts, who cover small, mid-sized, and large cap
companies. Therefore, the portfolio was broadly diversified. However, the equity
market had, until recently, been very narrow, with only 25 to 50 large growth
stocks outperforming the rest of the stocks in the S&P 500. This Portfolio is
not designed to outperform in a market favoring a narrow group of stocks.
As the market continues to broaden, however, we expect the Portfolio to benefit.
The Portfolio currently has a light position, relative to the S&P 500, in large
cap growth stocks and heavy positions in small and mid-cap stocks, whose
long-term opportunities we think are more attractive. Small and mid-cap stocks
sold at much cheaper prices relative to earnings than large cap growth stocks.
Stocks with lower prices relative to earnings were less vulnerable to negative
events such as earnings disappointments or a broad market downturn. We think the
companies in the Portfolio will see higher growth rates than many of the large
cap stocks. At the same time, we are avoiding Internet stocks or other companies
trading at what we see as unsustainably high prices relative to their earnings.
Three industry sectors helped performance: financial services, leisure, and
technology. The Portfolio's gains in financial services largely came from
brokerage and investment banking stocks. Specifically, the Portfolio had large
holdings in Morgan Stanley Dean Witter
- --------
(1) The Standard & Poor's (S&P) 500 Index is considered to be representative of
the stock market in general. The S&P 500 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>
and Merrill Lynch; both of which are well managed and experienced in the markets
they serve.
Most of the Portfolio's leisure stocks were in the restaurant industry. For the
past dozen years, restaurants, particularly the national chains, generally have
been poor investments because the number of new ones has exceeded demand.
However, in the past year or so restaurants such as McDonald's and Wendy's have
stopped adding domestic capacity. Now, the U.S. economy is strong, and the
result is greater demand at existing restaurants and higher profits.
The leading contributors to technology performance were semiconductor companies
such as LSI Logic and Analog Devices. The semiconductor industry was hurt in
1998 by the Asian economic slowdown as well as by the fact that it had built up
its manufacturing capability to a point at which there was too much supply. In
some market segments, the result was falling prices. Now, demand is beginning to
catch up with supply and Asia seems to be recovering, both of which helped
semiconductor companies.
The continued strength of the U.S. economy supported companies whose businesses
can benefit from strengthening economic cycles. For example, the Portfolio
benefited from its paper holdings such as Abitibi-Consolidated and Bowater that
are, respectively, the number-one and number-two newsprint producers worldwide.
Bowater recently acquired a competitor, Avenor, which should give Bowater
greater market share as well as the cost-savings benefits that can come from
consolidation. Both Bowater and Abitibi are global in scope and are benefiting
from a favorable supply/demand environment, which should result in price
increases.
A few of the Portfolio' retailing holdings underperformed. Although the retail
environment has been very good and Dayton Hudson, the department store chain,
has performed well, the Portfolio was hurt by two stocks, Rite Aid and CompUSA.
We had a significant position in Rite Aid because we believe that as the
population ages people will use more prescription medicines. However, Rite Aid
opened too many stores in a short period of time and underestimated the cost of
closing old stores. The company also had
<PAGE>
inventory and accounting problems. Over the long term, however, we believe Rite
Aid will continue to benefit from increasing prescription sales. CompUSA,
meanwhile, is losing computer and software sales to companies that sell over the
telephone or on the Internet. Also, some business customers, who tend to buy
more expensive equipment, are cutting orders to prepare for any Year 2000 (Y2K)
computer problems. By the end of this year, we think the Y2K issue will largely
be resolved, and the company should perform better.
Looking ahead, we see a continuation of a low-inflation, low-interest-rate
environment, which would mean steady economic growth and a strong consumer
sector. However, we expect the U.S. economy to slow from its rapid pace of the
past few quarters and the S&P 500's average growth rate to fall to single digits
this year. Given that earnings growth is falling while stock prices are rising,
we do not believe prices of many companies, particularly the larger ones, are
attractive. Therefore, the Portfolio is avoiding companies with declining
earnings and, instead, is focusing on companies with at least flat to
accelerating growth.
Respectfully,
Alec C. Murray
Associate Director of Equity Research
The committee of MFS research analysts is responsible for the day-to-day
management of the Portfolio under the general supervision of Mr. Murray.
The opinions expressed in this report are those of the Associate Director of
Equity Research and are only through the end of the period of the report as
stated on the cover. His views are subject to change at any time based on market
and other conditions, and no forecasts can be guaranteed.
The Portfolio is actively managed, and current holdings may be different.
<PAGE>
Portfolio Partners MFS Value Equity Portfolio
June 30, 1999 Commentary
- --------------------------------------------------------------------------------
For the six months ended June 30, 1999, the Portfolio provided a total return of
18.55% (including the reinvestment of any distributions). This compares to a
13.68% return for the average capital appreciation fund tracked by Lipper
Analytical Services, Inc.(1), an independent firm that reports mutual fund
performance and to a 12.23% return for the Standard & Poor's 500 Composite
Index(2), a popular, unmanaged index of common stock total return performance.
Since becoming portfolio manager of the Portfolio in February, my goal has been
to increase the Portfolio's diversification, which I have done by adding some
new stocks and selling or reducing positions in some existing companies. New
holdings include paper companies such as Asia Pulp & Paper Ltd. Previously,
oversupply had made paper company stocks unattractive, but we believe an upturn
in Asia's economy will boost demand. The Portfolio's position in industrial
conglomerate Tyco International was reduced to increase diversification among
the largest holdings. When Tyco recently acquired AMP, we felt that the already
significant position in the resulting company was too concentrated for this
portfolio. The Portfolio's holding in Freddie Mac, the Federal Home Loan
Mortgage Corporation, was also reduced to increase diversification.
Utilities and communications are currently the Portfolio's largest sector, led
by telecommunications companies. Holdings include AirTouch Communications, which
was acquired by Vodafone early this year. We believe the stock should benefit
from planned cost cutting and consolidation in the United States and abroad.
Also, AirTouch is penetrating the global wireless market successfully, a
strategy that has helped the stock's performance. MCI WorldCom also has helped
performance. The company is very well run and has a strong position in the
expanding telecommunications market. The Portfolio also owns Mannesmann, a
German company that is becoming a bigger player in telecommunications. The
company not only competes strongly in Germany, but throughout Europe, with
increased presence in Italy and France.
The Portfolio's second-largest sector is technology, where we avoided the pure
Internet stocks because we felt they were speculative and overvalued. Instead,
the Portfolio gained exposure to the sector
- --------
(1) Lipper Analytical Services capital appreciation fund average represents an
average return for the universe of capital appreciation 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.
(2) 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>
through companies that provide infrastructure to the Internet such as Cisco
Systems, a manufacturer of networking hardware. Although an expensive stock, we
believe it was a well-positioned company. Other technology holdings were in the
semiconductor area, which finally rebounded in sales, due in part to the
recovery in Asia. LSI Logic, which manufactures integrated circuits and storage
systems, is attractive to us because it has consolidated by closing some plants
and it has increased its sales of computer chips.
This year's increase in oil prices created potential opportunities in the energy
sector, including natural gas companies. Enron Oil and Gas, a major producer of
natural gas in the United States and Asia, was recently added to the Portfolio,
as was Burlington Resources, one of the largest U.S. oil and gas companies.
The Portfolio's health care weighting was also reduced. Drug companies within
the health care sector are looking less attractive now, partly due to new
regulations on drug coverage. In addition, cutbacks in Medicare prescription
benefits do not favor pharmaceuticals at this point. In the medical device area,
Becton, Dickinson and Company has underperformed in 1999. The company missed its
earnings projections for three quarters in a row and is having trouble executing
its business plan. Rite Aid, a drug store holding, declined by 50% due to
overexpansion of its retail chain and difficulty financing the acquisition of
PCS, a leading mail order prescription service. However, we are maintaining a
small position in Rite Aid because the company has brought in new management
that could improve its outlook.
My philosophy on managing money is to be flexible and open about the companies
in which I invest. I will look for stronger potential growth in the small and
mid cap areas, where it may be easier to find reasonable stock prices.
Respectfully,
Maura A. Shaughnessy
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and are
current only through the end of the period of the report as stated on the cover.
The manager's views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
The Portfolio is actively managed, and current holdings may be different.
<PAGE>
Portfolio Partners Scudder International Growth Portfolio
June 30, 1999 Commentary
- --------------------------------------------------------------------------------
During the second quarter of 1999, the Portfolio extended its performance lead
against both the benchmark and the competition. The Portfolio returned a solid
7.41%(1), while the benchmark index of MSCI EAFE(2) returned 2.54%. The peer
group average as measured by Lipper International, returned an average gain of
5.61%. Year-to-date, the Portfolio has returned 10.68%, outperforming both the
benchmark gain of 3.79% and the peer universe of 7.38%.(3)
The overall investment backdrop proved to be favorable for international
equities during the past three months, in spite of some heightened market
volatility. Broader trends that had started to take hold earlier in the year
continued to unfold in the recent months. Asian markets powered ahead further in
their rebound from the depths of last year. European markets remained generally
lackluster after the strong 1998 rally. Among the major developed markets, Japan
continued on its rebound, with a U.S. dollar gain of 7.6%. The smaller markets
of Asia were also robust, with Korea surging 64%, and Taiwan and Hong Kong
jumping 28% and 23%, respectively. European markets were broadly mixed, moving
generally higher during the quarter but restrained by more weakness in the euro.
Notably to the upside, Germany rebounded 5.7% and Finland was up 9.0%. The
United Kingdom, Italy, and Switzerland were all negative for U.S. investors.
Year-to-date, the Japanese market has run 21%, against a decline for Europe of
2.4%. The Japanese market has been propelled by a potent combination of several
forces. At the macroeconomic level, the banking system has been stabilized with
an injection of public monies and interest rates held near zero. The recent
release of stronger economic data added to expectations that the economy's long
decline may finally be over. At the same time, numerous restructuring
initiatives at major Japanese corporations suggest a greater focus on
profitability and shareholder interests than has been the case in the past. All
of this has fueled the growth of investor confidence. In contrast, the European
markets have suffered from early expectations of the monetary union that were
simply too high, incoherent political leadership, and disappointing prospects
for economic growth.
Strong stock selection was instrumental to the Portfolio's performance during
the quarter. Within Europe, our stock picks were particularly helpful in France,
Italy, and the United Kingdom. Within Asia, Japanese picks were the key driver,
but strong contributions also
- --------
(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 that past performance does
not guarantee 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.
(3) Please remember that international investments involve currency, economic
and political risks as well as differences in accounting.
<PAGE>
came from the stock selection in Hong Kong, Australia, and Taiwan. Our
successful stock emphasis in Japan was equally weighted in industrial
restructures, financials, and global technology players. Sectors that stood out
across all markets included technology, media, commodity metals, and economic
cyclicals. The notably weak sectors were European financials and
pharmaceuticals. Outstanding individual performers included the industrial gases
company BOC, which rose 40% as the global economy improved and it became the
object of takeover rumors. Among the technology names, STMicroelectronics rose
35% on the back of surging chip demand. The French luxury goods company LVMH
gained 31% on Asian recovery, while the Japanese brokerage firm Nikko Securities
rose 39% as market activity has surged.
The overall strategy for the Portfolio has not changed. While we continue to
make stock-specific adjustments to the positioning of the Portfolio, we have
generally opted to stick with the broader strategies that were chosen early in
the year. Looking forward, we are optimistic that international markets will
continue to be propelled by the prospect of further recovery in Asia, better
prospects for economic growth, greater corporate focus on profitability through
restructuring, and the discipline of increased corporate activity.
Sincerely,
Nicholas Bratt, Global Equity Director Carol L. Franklin, Portfolio Manager
Irene T. Cheng, Portfolio Manager Joan R. Gregory, Portfolio Manager
The opinions expressed in this report are those of the portfolio managers and
are current only through the end of the period of the report as stated on the
cover. The managers' views are subject to change at any time based on market and
other conditions, and no forecasts can be guaranteed.
The Portfolio is actively managed, and current holdings may be different.
<PAGE>
Portfolio Partners T. Rowe Price Growth Equity Portfolio
June 30, 1999 Commentary
- --------------------------------------------------------------------------------
The strength of both the U.S. economy and the stock market continued through the
second quarter. The Portfolio generated a good return for the three months ended
June 30, but results lagged the Lipper VA Underlying Growth Funds Average, since
we were somewhat underweighted in powerful technology and Internet stocks.
However, many of our large technology holdings did extremely well during the
period and made valuable contributions to the Portfolio's good absolute return.
Performance
<TABLE>
<CAPTION>
Total Returns for Periods Ended 6/30/99 Three Months Six Months
<S> <C> <C>
Portfolio Partners, Inc. T. Rowe
Price Growth Equity Portfolio(1) 5.88% 8.75%
Lipper Analytical VA Underlying Growth
Funds Average(2) 7.39% 12.62%
S&P 500 Stock Index(3) 7.05% 12.38%
</TABLE>
The stocks that benefited performance the most were Tyco International, BMC
Software, and Hewlett-Packard. The stocks that detracted from performance were
Network Associates, Pfizer, and Parametric Technology.
In general, since we stressed consistent earnings growers, the Portfolio tended
to do better in a modest or decelerating economic environment. When we saw the
economy accelerating in the second quarter, we added to our position in Altera,
a specialized semiconductor company that we like.
So far this year, the market has been excited about growth in the Internet,
cellular phone use, and data transmission. The second quarter of 1999 was no
exception, and while we shared the enthusiasm we were more mindful of the
current prices of many stocks. Accordingly, we increased our holdings in
Corning, the leader in fiber optic cables with an attractive stock valuation. We
also added Nextel and General Instrument, which respectively benefited from the
growth in cellular service use and from the growth in digital television. As
valuations become more reasonable in these segments, we will continue to add to
our holdings.
- --------
(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 that 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 500 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>
It is worth noting that over the long term, an allocation to international
stocks helped reduce volatility and offered broad opportunities to enhance
returns. Recently in Europe, one of the major culprits was the weak euro, which
had fallen about 12% versus the dollar since its inauguration in January 1999,
reducing returns for U.S. investors. However, we remain optimistic about our
foreign holdings and expect better returns in coming quarters.
Finally, we continue to be consistent in our approach to stock selection. We
look for leaders in growing markets companies with solid managements that
generate strong cash flow - and stay with them for the long term. Reflecting
this strategy, companies like Pfizer, Freddie Mac and Safeway have been
rewarding investments for shareholders over time.
While we believe stock market gains will moderate in the second half -
particularly if interest rates move higher many positive factors remain.
Productivity is strong and the Internet is a positive force in containing costs
and inflation. Foreign economies appear much healthier than they did last year,
and global earnings growth is improving. Over time these factors should benefit
the fund, which holds many of the leading companies in a wide variety of
industries.
Respectfully submitted,
Robert W. Smith, Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and are
current only through the end of the period of the report as stated on the cover.
The manager's views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
The Portfolio is actively managed, and current holdings may be different.
<PAGE>
Portfolio Partners, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share outstanding for the period:
<TABLE>
<CAPTION>
MFS Emerging
Equities Portfolio
For the six months
Ended June 30, 1999
(unaudited)
-------------------
<S> <C>
Net asset value, beginning of period ......... $ 55.44
----------
Income from investment operations:
Net investment income (loss) ................ (0.20)
Net realized and change in unrealized
gain (loss) on investments, futures,
foreign currency and forward
foreign currency exchange
contracts .................................. 8.28
----------
Total income from investment
operations .............................. 8.08
----------
Less Distributions:
Net investment income ....................... --
Net realized gain on sale of
investment ................................. --
----------
Total distributions ...................... --
----------
Net asset value, end of period ............... $ 63.52
==========
Total Return ................................. 14.57%(1)
Net asset, end of period (000's) ............. $1,167,167
Ratio of total expenses to average
net assets .................................. 0.80%(2)
Ratio of net investment income to
average net assets .......................... (0.69%)(2)
Portfolio Turnover Rate ...................... 5.29%(1)
<CAPTION>
MFS Emerging
Equities Portfolio
Period from MFS Research
MFS Emerging November 28, 1997 Growth Portfolio
Equities Portfolio (commencement of For the six months
Year Ended operations) to Ended June 30, 1999
December 31, 1998 December 31, 1997 (unaudited)
------------------ ------------------ -------------------
<S> <C> <C> <C>
Net asset value, beginning of period ......... $ 42.91 $ 43.39 $ 11.93
---------- ---------- ----------
Income from investment operations:
Net investment income (loss) ................ (0.21) 0.09 --
Net realized and change in unrealized
gain (loss) on investments, futures,
foreign currency and forward
foreign currency exchange
contracts .................................. 12.88 (0.57) 1.10
---------- ---------- ----------
Total income from investment
operations .............................. 12.67 (0.48) 1.10
---------- ---------- ----------
Less Distributions:
Net investment income ....................... (0.11) -- --
Net realized gain on sale of
investment ................................. (0.03) -- --
---------- ---------- ----------
Total distributions ...................... (0.14) -- --
---------- ---------- ----------
Net asset value, end of period ............... $ 55.44 $ 42.91 $ 13.03
========== ========== ==========
Total Return ................................. 29.67% (1.13%)(1) 9.13%(1)
Net asset, end of period (000's) ............. $1,069,040 $ 768,108 $ 515,102
Ratio of total expenses to average
net assets .................................. 0.81% 0.81%(2) 0.85%(2)
Ratio of net investment income to
average net assets .......................... (0.45%) 2.31%(2) (0.02%)(2)
Portfolio Turnover Rate ...................... 4.64% 0.07%(1) 47.48%(1)
</TABLE>
(1) Not annualized.
(2) Annualized.
* Dividend on portfolio was less than $0.01.
14 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MFS Research Growth
Portfolio Period from MFS Value
MFS Research November 28, 1997 Equity Portfolio
Growth Portfolio (commencement of For the six months
Year Ended operations) to Ended June 30, 1999
December 31, 1998 December 31, 1997 (unaudited)
----------------- --------------------- -------------------
<S> <C> <C>
$ 9.71 $ 9.89 $ 37.86
--------- ---------- ----------
0.02 -- (0.02)
2.20 (0.18) 7.04
--------- ---------- ----------
2.22 (0.18) 7.02
--------- ---------- ----------
--* -- --
-- -- --
--------- ---------- ----------
-- -- --
--------- ---------- ----------
$ 11.93 $ 9.71 $ 44.88
========= ========== ==========
23.00% (1.82%)(1) 18.55%(1)
$ 491,537 $ 399,548 $ 237,895
0.85% 0.85%(2) 0.90%(2)
0.23% 0.22%(2) ( 0.10%)(2)
97.51% 57.88%(1) 82.17%(1)
<CAPTION>
MFS Value Equity Scudder
Portfolio Period from International Scudder
MFS Value November 28, 1997 Growth Portfolio International
Equity Portfolio (commencement of For the six months Growth Portfolio
Year Ended operations) to Ended June 30, 1999 Year Ended
December 31, 1998 December 31, 1997 (unaudited) December 31, 1998
----------------- --------------------- ------------------- -----------------
<S> <C> <C> <C>
$ 29.91 $ 29.49 $ 16.76 $ 14.10
-------- --------- --------- --------
0.05 0.05 0.13 0.13
7.94 0.37 1.65 2.56
------- --------- --------- -------
7.99 0.42 1.78 2.69
------- --------- --------- -------
(0.04) -- -- (0.03)
-- -- -- --
-------- --------- --------- --------
(0.04) -- -- (0.03)
-------- --------- --------- --------
$ 37.86 $ 29.91 $ 18.54 $ 16.76
======== ========= ========= =========
26.74% 1.43%(1) 10.68%(1) 19.09%
$194,926 $ 134,508 $ 487,959 $432,651
0.90% 0.90%(2) 1.00%(2) 1.00%
0.17% 1.98%(2) 1.53%(2) 0.83%
141.31% 12.06%(1) 46.75%(1) 68.85%
</TABLE>
See Notes to Financial Statements. 15
<PAGE>
Portfolio Partners, Inc.
Financial Highlights (continued)
- --------------------------------------------------------------------------------
Selected data for a share outstanding for the period:
<TABLE>
<CAPTION>
Scudder International
Growth Portfolio Period
from November 28, 1997
(commencement of
operations) to
December 31, 1997
-----------------------
<S> <C>
Net asset value, beginning of period ......... $ 13.88
---------
Income from investment operations:
Net investment income (loss) ................ --
Net realized and change in unrealized
gain (loss) on investments, futures,
foreign currency and forward
foreign currency exchange
contracts .................................. 0.22
---------
Total income from investment
operations .............................. 0.22
---------
Less Distributions:
Net investment income ....................... --
Net realized gain on sale of
investment ................................. --
---------
Total distributions ...................... --
---------
Net asset value, end of period ............... $ 14.10
=========
Total Return ................................. 1.58%(1)
Net asset, end of period (000's) ............. $ 378,200
Ratio of total expenses to average
net assets .................................. 1.00%(2)
Ratio of net investment income to
average net assets .......................... 0.12%(2)
Portfolio Turnover Rate ...................... 3.01%(1)
<CAPTION>
T. Rowe Price Growth
Equity Portfolio Period
T. Rowe Price Growth T. Rowe Price Growth from November 28, 1997
Equity Portfolio Equity Portfolio (commencement of
For the six months Ended Year Ended operations) to
June 30, 1999 (unaudited) December 31, 1998 December 31, 1997
------------------------- -------------------- -----------------------
<S> <C> <C> <C>
Net asset value, beginning of period ......... $ 55.31 $ 43.61 $ 42.74
--------- -------- ---------
Income from investment operations:
Net investment income (loss) ................ 0.22 0.30 0.06
Net realized and change in unrealized
gain (loss) on investments, futures,
foreign currency and forward
foreign currency exchange
contracts .................................. 4.62 11.66 0.81
--------- -------- ---------
Total income from investment
operations .............................. 4.84 11.96 0.87
--------- -------- ---------
Less Distributions:
Net investment income ....................... -- (0.17) --
Net realized gain on sale of
investment ................................. -- (0.09) --
--------- -------- ---------
Total distributions ...................... -- (0.26) --
--------- -------- ---------
Net asset value, end of period ............... $ 60.15 $ 55.31 $ 43.61
========= ======== =========
Total Return ................................. 8.75%(1) 27.60% 2.03%(1)
Net asset, end of period (000's) ............. $ 664,049 $521,484 $ 371,194
Ratio of total expenses to average
net assets .................................. 0.75%(2) 0.75% 0.75%(2)
Ratio of net investment income to
average net assets .......................... 0.40%(2) 0.65% 1.58%(2)
Portfolio Turnover Rate ...................... 31.60%(1) 57.58% 2.94%(1)
</TABLE>
(1) Not annualized.
(2) Annualized.
* Dividend on portfolio was less than $0.01.
16 See Notes to Financial Statements.
<PAGE>
MFS Emerging Equities Portfolio
Schedule of Investments
June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------------- -----------------
<S> <C> <C>
COMMON STOCKS (100.1%)
Advertising (0.4%)
Mail-Well, Inc.* .................................. 130,000 $ 2,104,375
Outdoor Systems, Inc.* ............................ 10,700 390,550
Young & Rubicam, Inc. ............................. 51,100 2,321,856
--------------
4,816,781
--------------
Aerospace (0.1%)
Gulfstream Aerospace Corp.* ....................... 24,200 1,635,013
Ladish Co., Inc.* ................................. 6,900 53,475
--------------
1,688,488
--------------
Automotive (2.8%)
Autonation, Inc.* ................................. 1,714,400 30,537,749
Federal-Mogul Corp. ............................... 30,300 1,575,600
National Equipment Services, Inc.* ................ 11,800 141,600
--------------
32,254,949
--------------
Banks and Credit Companies (0.0%)
U.S. Trust Corp. .................................. 500 46,250
--------------
Biotechnology (0.1%)
Guidant Corp. ..................................... 13,400 689,263
--------------
Business Machines (0.1%)
Compaq Computer Corp. ............................. 40,000 947,500
--------------
Business Machines--Peripherals (0.1%)
CHS Electronics, Inc.* ............................ 236,500 1,034,688
--------------
Business Services (6.3%)
ACSYS, Inc.* ...................................... 13,700 52,231
Affiliated Computer Services, Inc., Class A* ...... 7,600 384,750
BISYS Group, Inc.* ................................ 22,100 1,292,850
Building One Services Corp.* ...................... 97,277 1,349,718
Cambridge Technology Partners, Inc.* .............. 117,400 2,061,838
CBT Group PLC ADR (Ireland)* ...................... 73,400 1,211,100
Ceridian Corp.* ................................... 118,000 3,857,125
Compass International Services Corp.* ............. 17,400 121,800
Complete Business Solutions, Inc.* ................ 29,100 521,981
Computer Sciences Corp.* .......................... 104,600 7,237,013
Concord EFS, Inc.* ................................ 36,700 1,552,869
Cotelligent Group, Inc.* .......................... 27,200 212,500
Danka Business Systems PLC ADR
(Great Britain)* ................................ 337,500 1,898,438
DST Systems, Inc.* ................................ 25,900 1,628,463
Dynamex, Inc.* .................................... 7,400 21,275
First Data Corp ................................... 491,600 24,057,674
Galileo International, Inc. ....................... 23,400 1,250,438
ICT Group, Inc.* .................................. 800 4,000
Ikon Office Solutions, Inc. ....................... 208,100 3,121,500
IMR Global Corp.* ................................. 66,000 1,270,500
Interim Services, Inc.* ........................... 65,000 1,340,625
Learning Tree International, Inc.* ................ 14,200 155,313
Metamor Worldwide, Inc.* .......................... 41,300 993,781
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------------- -----------------
<S> <C> <C>
Business Services (continued)
Modis Professional Services, Inc.* ................ 885,100 $ 12,170,125
Navigant International, Inc.* ..................... 15,939 125,521
NOVA Corp.* ....................................... 33,150 828,750
Personnel Group of America, Inc.* ................. 32,100 321,000
PRT Group, Inc.* .................................. 148,600 427,225
RCM Technologies, Inc.* ........................... 42,400 561,800
Renaissance Worldwide, Inc.* ...................... 148,800 1,185,757
Romac International, Inc.* ........................ 48,300 428,663
Snyder Communications, Inc.* ...................... 21,600 707,400
SPR, Inc.* ........................................ 17,800 94,563
Sungard Data Systems, Inc.* ....................... 1,400 48,300
Syntel, Inc.* ..................................... 15,000 135,000
Technology Solutions Co.* ......................... 20,100 217,331
Tier Technologies, Inc.* .......................... 2,500 17,500
Vestcom International, Inc.* ...................... 10,000 35,000
Wesley Jessen VisionCare, Inc.* ................... 36,100 1,168,737
--------------
74,070,454
--------------
Communications Services (6.6%)
Frontier Corp. .................................... 23,400 1,380,600
Global TeleSystems Group, Inc. .................... 34,200 2,770,200
Hyperion Telecommunications, Inc., Class A* ....... 7,019 132,043
Intermedia Communications, Inc.* .................. 17,700 531,000
MCI Worldcom, Inc.* ............................... 823,040 70,987,199
Qwest Communications International, Inc.* ......... 30,000 991,875
Radio One, Inc.* .................................. 1,300 60,450
--------------
76,853,367
--------------
Computer Software (4.8%)
Backweb Technologies Ltd.* ........................ 1,800 49,275
Compuware Corp.* .................................. 1,539,100 48,962,618
Copper Mountain Networks, Inc.* ................... 900 69,525
F.Y.I., Inc.* ..................................... 72,000 2,259,000
SAP AG (Germany) .................................. 10,000 3,376,605
Software.Com, Inc.* ............................... 1,400 32,463
Transaction Systems Architects, Inc., Class A*..... 500 19,500
--------------
54,768,986
--------------
Computer Software--PC (9.1%)
Autodesk, Inc. .................................... 40,300 1,191,369
Microsoft Corp.* .................................. 1,166,800 105,230,774
Networks Associates, Inc.* ........................ 6,200 91,063
--------------
106,513,206
--------------
Computer Software--Systems (19.3%)
Ariba, Inc.* ...................................... 1,850 179,913
Aspen Technologies, Inc.* ......................... 3,900 45,825
BMC Software, Inc.* ............................... 921,152 49,742,207
Cadence Design Systems, Inc.* ..................... 990,700 12,631,425
Computer Associates International, Inc. ........... 866,300 47,646,499
Goto.Com, Inc.* ................................... 400 11,200
Oracle Systems Corp.* ............................. 2,704,750 100,413,843
</TABLE>
See Notes to Schedule of Investments. 17
<PAGE>
MFS Emerging Equities Portfolio
Schedule of Investments
June 30, 1999 (unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------------- -----------------
<S> <C> <C>
Computer Software--Systems (continued)
PeopleSoft, Inc.* ............................... 19,300 $ 332,925
Rational Software Corp.* ........................ 15,400 507,238
Redback Networks, Inc.* ......................... 600 75,338
Security Dynamics Tech, Inc.* ................... 18,500 393,125
Synopsys, Inc.* ................................. 240,900 13,294,669
U.S. Internetworking, Inc.* ..................... 2,300 96,600
Veritas Software Corp. .......................... 600 56,963
--------------
225,427,770
--------------
Conglomerates (6.9%)
Tyco International Ltd. ......................... 852,400 80,764,899
--------------
Consumer Goods and Services (5.2%)
Carson, Inc.* ................................... 2,800 9,275
Cendant Corp.* .................................. 2,963,442 60,750,560
--------------
60,759,835
--------------
Electrical Equipment (0.1%)
AFC Cable Systems, Inc.* ........................ 6,500 229,531
Cable Design Technologies* ...................... 48,000 741,000
--------------
970,531
--------------
Electronics (3.8%)
Altera Corp.* ................................... 743,800 27,381,137
Amkor Technology, Inc.* ......................... 7,100 72,775
Analog Devices, Inc.* ........................... 70,100 3,518,144
Burr--Brown Corp.* .............................. 600 21,975
Globespan, Inc.* ................................ 1,200 47,700
Intel Corp. ..................................... 138,900 8,264,550
Teradyne, Inc.* ................................. 28,200 2,023,350
Xilinx, Inc.* ................................... 52,200 2,988,450
--------------
44,318,081
--------------
Entertainment (7.6%)
CBS Corp.* ...................................... 68,200 2,962,438
Chancellor Media Corp.* ......................... 27,200 1,499,400
Citadel Communications Corp.* ................... 10,000 361,875
Clear Channel Communications, Inc.* ............. 357,092 24,617,029
Cox Radio, Inc., Class A* ....................... 20,000 1,085,000
Entercom Communications Corp.* .................. 3,400 145,350
GameTech International, Inc.* ................... 50,000 237,500
Hearst-Argyle Television, Inc.* ................. 5,000 120,000
Hispanic Broadcasting Corp.* .................... 6,900 523,537
Infinity Broadasting Corp.* ..................... 50,500 1,502,375
MediaOne Group, Inc.* ........................... 800 59,500
Premier Parks, Inc.* ............................ 104,000 3,822,000
Time Warner, Inc. ............................... 329,300 24,203,549
Univision Communications, Inc., Class A* ........ 411,600 27,165,599
Young Broadcasting, Inc., Class A* .............. 1,000 42,563
--------------
88,347,715
--------------
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------------- -----------------
<S> <C> <C>
Financial Institutions (0.9%)
ARM Financial Group, Inc., Class A .............. 27,300 $ 232,050
Associates First Capital Corp. .................. 130,000 5,760,625
CIT Group, Inc., Class A ........................ 8,600 248,325
Federated Investors, Inc., Class B .............. 14,600 261,888
Franklin Resources, Inc. ........................ 75,400 3,063,125
Goldman Sachs Group, Inc. ....................... 9,200 664,700
Healthcare Financial Partners, Inc.* ............ 5,800 198,650
Heller Financial, Inc. .......................... 11,000 305,938
Morgan Stanley Dean Witter Discover & Co. ....... 1,400 143,500
--------------
10,878,801
--------------
Food and Beverage Products (0.2%)
Suiza Foods Corp.* .............................. 44,100 1,846,688
--------------
Insurance (0.4%)
Ace, Ltd. (Bermuda) ............................. 70,400 1,988,800
Conseco, Inc. ................................... 86,830 2,642,888
Hartford Life, Inc., Class A .................... 2,200 115,775
--------------
4,747,463
--------------
Medical and Health Products (0.8%)
Boston Scientific Corp.* ........................ 220,000 9,666,250
Coast Dental Services, Inc.* .................... 1,000 4,688
Renex Corp.* .................................... 20,000 108,750
--------------
9,779,688
--------------
Medical and Health Tech Services (5.6%)
Balanced Care Corp.* ............................ 30,300 60,600
Capital Senior Living Corp.* .................... 89,000 890,000
Concentra Managed Care, Inc.* ................... 11,900 176,269
Foundation Health Systems* ...................... 100,100 1,501,500
General Instrument Corp.* ....................... 6,000 255,000
Health Management Associates, Inc., Class A*..... 1,350 15,188
Healthsouth Corp.* .............................. 364,100 5,438,744
McKesson HBOC, Inc. ............................. 90,352 2,902,558
Medtronic, Inc. ................................. 5,157 401,601
Mid Atlantic Medical Services, Inc.* ............ 3,400 33,575
Orthodontic Centers of America, Inc.* ........... 224,500 3,171,063
Oxford Health Plans, Inc.* ...................... 39,100 608,494
PacifiCare Health Systems, Inc., Class A* ....... 13,700 985,544
PSS World Medical, Inc.* ........................ 55,500 620,906
Rural/Metro Corp.* .............................. 28,000 269,500
Total Renal Care Holdings, Inc.* ................ 20,706 322,237
United Healthcare Corp. ......................... 694,200 43,474,274
United Payors & United Providers, Inc.* ......... 3,400 78,837
Wellpoint Health Networks, Inc.* ................ 55,300 4,693,587
--------------
65,899,477
--------------
Pollution Control (0.9%)
Allied Waste Industries, Inc.* .................. 47,170 931,608
Republic Services, Inc., Class A* ............... 296,500 7,338,375
Waste Management, Inc ........................... 47,112 2,532,270
--------------
10,802,253
--------------
</TABLE>
18 See Notes to Schedule of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------------- -----------------
<S> <C> <C>
Printing and Publishing (0.0%)
Applied Graphics Technologies, Inc.* ............ 700 $ 8,838
Workflow Management, Inc.* ...................... 32,852 468,141
--------------
476,979
--------------
Railroad (0.5%)
Kansas City Southern Industries ................. 89,400 5,704,838
--------------
Real Estate (0.1%)
Meristar Hospitality Corp. REIT ................. 26,500 594,595
--------------
Restaurants and Lodging (2.1%)
Applebee's International, Inc. .................. 236,000 7,109,500
Buffetts, Inc.* ................................. 97,900 1,125,850
Cavanaughs Hospitality Corp.* ................... 1,600 13,500
CEC Entertainment, Inc. ......................... 30,000 1,267,500
CKE Restaurants, Inc. ........................... 10,000 162,500
Dollar Thrifty Automotive Group, Inc.* .......... 30,500 709,125
Extended Stay America, Inc.* .................... 800 9,600
Four Seasons Hotels, Inc. (Canada) .............. 5,800 255,563
Friendly Ice Cream Corp.* ....................... 40,000 320,000
MeriStar Hotels & Resorts, Inc.* ................ 50,000 171,875
Papa John's International, Inc.* ................ 9,800 437,938
Promus Hotel Corp.* ............................. 322,365 9,993,315
Royal Caribbean Cruises Ltd. .................... 21,500 940,625
Schlotzsky's, Inc.* ............................. 131,500 1,438,281
Sunterra Corp.* ................................. 15,000 209,063
U.S. Franchise Systems, Inc., Class A* .......... 31,300 725,769
--------------
24,890,004
--------------
Special Products and Services (0.3%)
Adelphia Communications Corp., Class A* ......... 4,900 311,763
Aztec Technology Partners, Inc.* ................ 102,678 192,522
Central Parking Corp. ........................... 9,700 332,225
Coach USA, Inc.* ................................ 22,800 956,175
Gartner Group, Inc., Class A* ................... 5,900 120,950
Staff Mark, Inc.* ............................... 65,900 661,063
U.S. Office Products Co.* ....................... 96,748 520,019
--------------
3,094,717
--------------
Stores (3.9%)
CompUSA, Inc.* .................................. 35,000 260,313
Consolidated Stores Corp.* ...................... 115,100 3,107,700
Corporate Express, Inc.* ........................ 368,900 2,582,300
CVS Corp ........................................ 22,200 1,134,975
General Nutrition Co., Inc.* .................... 67,300 1,568,931
Home Depot, Inc ................................. 16,400 1,056,775
Micro Warehouse, Inc.* .......................... 245,600 4,390,100
Office Depot, Inc.* ............................. 676,050 14,915,353
Rite Aid Corp ................................... 675,000 16,621,874
--------------
45,638,321
--------------
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------------- -----------------
<S> <C> <C>
Supermarkets (0.4%)
Kroger Co.* ..................................... 176,400 $ 4,928,175
--------------
Telecommunications (10.7%)
Amdocs Ltd.* .................................... 3,100 70,525
American Tower Systems Corp., Class A* .......... 2,800 67,200
Cisco Systems, Inc.* ............................ 1,701,500 109,746,749
International Network Services* ................. 15,000 605,625
Lucent Technologies, Inc. ....................... 97,845 6,598,422
Rythms Netconnections, Inc.* .................... 1,700 99,238
SCC Communications Corp.* ....................... 22,600 98,875
Talk.com, Inc.* ................................. 637,000 7,166,250
Time Warner Telecom, Inc.* ...................... 4,800 139,200
--------------
124,592,084
--------------
Total Common Stocks (Cost $821,241,613) 1,168,146,846
--------------
PREFERRED STOCKS (0.1%)
SAP AG-Vorzug (Germany) ......................... 2,900 1,156,847
--------------
Total Preferred Stocks (Cost $882,995) 1,156,847
--------------
TOTAL INVESTMENTS (100.2%) (Cost $822,124,608) (a) 1,169,303,693
Other assets less liabilities (-0.2%) (2,136,782)
--------------
Total Net Assets (100.0%) $1,167,166,911
==============
Notes to Schedule of Investments
(a) Unrealized gains and losses, based on identified tax cost at June 30,
1999, are as follows:
Unrealized gains ................................ $ 444,767,894
Unrealized losses ............................... (97,588,809)
--------------
Net unrealized gain ............................ $ 347,179,085
==============
</TABLE>
* Non-income producing security.
Category percentages are based on total net assets.
See Notes to Schedule of Investments. 19
<PAGE>
MFS Research Growth Portfolio
Schedule of Investments
June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------------- -----------------
<S> <C> <C>
COMMON STOCKS (99.7%)
Aerospace (4.3%)
British Aerospace PLC (Great Britian) .............. 3,171 $ 20,582
Gulfstream Aerospace Corp.* ........................ 79,900 5,398,244
Newport News Shipbuilding .......................... 8,900 262,550
Raytheon Co., Class B .............................. 50,800 3,575,050
United Technologies ................................ 175,800 12,602,662
------------
21,859,088
------------
Automotive (0.9%)
Federal-Mogul Corp. ................................ 88,900 4,622,800
------------
Banks and Credit Companies (5.8%)
Bank of America Corp. .............................. 37,200 2,727,225
Bank of New York Co., Inc. ......................... 111,900 4,105,331
Chase Manhattan Bank ............................... 33,600 2,910,600
PNC Bank Corp. ..................................... 88,900 5,122,863
Providian Financial Corp. .......................... 12,300 1,150,050
Union Bank of Switzerland AG (Switzerland) ......... 17,400 5,191,692
U.S. Bancorp ....................................... 68,600 2,332,400
Wells Fargo & Co. .................................. 144,200 6,164,550
------------
29,704,711
------------
Biotechnology (1.3%)
Guidant Corp. ...................................... 124,900 6,424,544
------------
Business Machines (3.8%)
Hewlett-Packard Co. ................................ 26,800 2,693,400
Motorola, Inc. ..................................... 98,500 9,332,874
Sun Microsystems, Inc.* ............................ 111,100 7,652,013
------------
19,678,287
------------
Business Services (2.1%)
Ericsson AB (Sweden) ............................... 194,800 6,253,703
First Data Corp. ................................... 54,200 2,652,413
Modis Professional Services, Inc.* ................. 5,100 70,125
Smurfit-Stone Container Corp.* ..................... 73,132 1,503,777
Visx, Inc.* ........................................ 4,100 324,669
------------
10,804,687
------------
Cellular Phones (2.0%)
Sprint Corp. (PCS Group)* .......................... 179,300 10,242,512
------------
Chemicals (0.2%)
Cambrex Corp. ...................................... 44,400 1,165,500
------------
Communications Services (5.3%)
Bell Atlantic Corp. ................................ 143,200 9,361,699
MCI Worldcom, Inc.* ................................ 145,989 12,591,550
Sprint Corp. ....................................... 88,400 4,668,625
Telefonaktiebolaget LM Ericsson (Sweden) ........... 21,700 714,744
------------
27,336,618
------------
Computer Software (0.8%)
Backweb Technologies Ltd.* ......................... 2,100 57,488
Compuware Corp.* ................................... 126,700 4,030,644
Phone.Com* ......................................... 3,800 212,800
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------------- -----------------
<S> <C> <C>
Computer Software (continued)
Software.Com, Inc.* ................................ 700 $ 16,231
------------
4,317,163
------------
Computer Software--PC (4.9%)
Intuit, Inc. ....................................... 1,200 108,150
Microsoft Corp.* ................................... 281,200 25,360,724
------------
25,468,874
------------
Computer Software--Systems (6.1%)
BMC Software, Inc.* ................................ 137,200 7,408,800
Cadence Design Systems, Inc.* ...................... 187,900 2,395,725
Citrix Systems, Inc.* .............................. 14,400 813,601
Computer Associates International, Inc. ............ 50,450 2,774,750
EMC Corp.* ......................................... 62,600 3,443,000
Oracle Systems Corp.* .............................. 315,900 11,727,787
Synopsys, Inc.* .................................... 55,500 3,062,906
------------
31,626,569
------------
Conglomerates (3.2%)
Tyco International Ltd. ............................ 172,500 16,344,374
------------
Consumer Goods and Services (5.3%)
Clorox Co. ......................................... 45,900 4,902,694
Colgate-Palmolive Co. .............................. 28,700 2,834,125
Dial Corp. ......................................... 108,800 4,046,000
Gillette Co. ....................................... 109,800 4,501,800
Newell Rubbermaid, Inc. ............................ 93,000 4,324,500
Procter & Gamble Co. ............................... 74,400 6,640,200
------------
27,249,319
------------
Electrical Equipment (1.3%)
Cooper Industries, Inc. ............................ 48,700 2,532,400
Honeywell, Inc. .................................... 34,300 3,974,513
------------
6,506,913
------------
Electronics (4.0%)
Analog Devices, Inc.* .............................. 237,200 11,904,474
LSI Logic Corp.* ................................... 193,900 8,943,637
------------
20,848,111
------------
Entertainment (5.5%)
Carnival Corp., Class A ............................ 59,600 2,890,600
CBS Corp.* ......................................... 65,100 2,827,781
Comcast Corp. ...................................... 49,300 1,894,969
Infinity Broadcasting Corp.* ....................... 117,900 3,507,525
MediaOne Group, Inc.* .............................. 32,200 2,394,875
Time Warner, Inc. .................................. 105,200 7,732,199
Walt Disney Co. .................................... 231,500 7,133,094
------------
28,381,043
------------
Financial Institutions (3.7%)
Associates First Capital Corp. ..................... 136,804 6,062,128
Charles Schwab & Co., Inc. ......................... 11,200 1,230,600
CIT Group, Inc., Class A ........................... 68,300 1,972,163
Citigroup, Inc. .................................... 146,350 6,951,625
</TABLE>
20 See Notes to Schedule of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------------- -----------------
<S> <C> <C>
Financial Institutions (continued)
Goldman Sachs Group, Inc. ............................ 4,700 $ 339,575
Morgan Stanley Dean Witter Discover & Co. ............ 25,200 2,583,000
------------
19,139,091
------------
Food and Beverage Products (3.0%)
Anheuser Busch Co., Inc. ............................. 55,900 3,965,406
Bestfoods ............................................ 10,900 539,550
Coca-Cola Co. ........................................ 50,500 3,156,250
Nabisco Holdings Corp., Class A ...................... 56,100 2,426,325
Ralston-Ralston Purina Group ......................... 174,100 5,299,169
------------
15,386,700
------------
Forest Products & Paper (0.5%)
Bowater, Inc. ........................................ 50,200 2,371,950
------------
Insurance (6.5%)
American International Group, Inc. ................... 36,100 4,225,956
CIGNA Corp. .......................................... 78,600 6,995,400
Conseco, Inc. ........................................ 56,040 1,705,718
Equitable Companies, Inc. ............................ 71,200 4,770,400
Hartford Financial Services Group .................... 77,900 4,542,544
Lincoln National Corp. ............................... 105,000 5,492,813
Nationwide Financial Services, Inc., Class A ......... 43,100 1,950,275
Reliastar Financial Corp. ............................ 81,700 3,574,375
------------
33,257,481
------------
Machinery (1.1%)
Danaher Corp. ........................................ 90,900 5,283,563
SPX Corp.* ........................................... 7,300 609,550
------------
5,893,113
------------
Medical and Health Products (5.1%)
American Home Products Corp. ......................... 173,200 9,958,999
Bristol-Myers Squibb Co. ............................. 123,500 8,699,030
Pharmacia & Upjohn, Inc. ............................. 136,600 7,760,588
------------
26,418,617
------------
Medical and Health Tech Services (3.6%)
Cardinal Health, Inc. ................................ 73,100 4,687,538
Healthsouth Corp.* ................................... 256,900 3,837,444
Medtronic, Inc. ...................................... 58,100 4,524,538
United Healthcare Corp. .............................. 85,700 5,366,963
------------
18,416,483
------------
Oil Services (1.2%)
Conoco, Inc. ......................................... 89,400 2,492,025
Zeneca Group PLC (Great Britian) ..................... 94,900 3,671,178
------------
6,163,203
------------
Oils (3.6%)
Atlantic Richfield Co. (ARCO) ........................ 5,900 493,019
BP Amoco PLC (Great Britian) ......................... 67,674 7,342,629
Mobil Corp. .......................................... 76,200 7,543,800
Repsol SA (Spain) .................................... 126,300 2,574,398
Total Fina SA (France)* .............................. 9,800 631,488
------------
18,585,334
------------
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------------- -----------------
<S> <C> <C>
Printing and Publishing (0.5%)
Gannett Co., Inc. .................................... 38,300 $ 2,733,663
------------
Restaurants and Lodging (0.0%)
CKE Restaurants, Inc. ................................ 700 11,375
------------
Special Products and Services (3.2%)
Abitibi Consolidated, Inc. (Canada) .................. 44,100 501,638
McDonald's Corp. ..................................... 184,500 7,622,156
Owens-Illinois, Inc.* ................................ 76,700 2,507,131
VeriSign, Inc.* ...................................... 13,300 1,147,125
Xerox Corp. .......................................... 78,600 4,642,313
------------
16,420,363
------------
Stores (4.4%)
CompUSA, Inc.* ....................................... 101,900 757,881
CVS Corp. ............................................ 124,700 6,375,288
Dayton-Hudson Corp. .................................. 45,700 2,970,500
Office Depot, Inc.* .................................. 130,200 2,872,538
Rite Aid Corp. ....................................... 167,700 4,129,612
TJX Co., Inc. ........................................ 77,500 2,581,719
Wal-Mart Stores, Inc. ................................ 61,800 2,981,850
------------
22,669,388
------------
Supermarkets (2.2%)
Kroger Co.* .......................................... 212,600 5,939,513
Safeway, Inc.* ....................................... 112,700 5,578,650
------------
11,518,163
------------
Telecommunications (2.9%)
Cisco Systems, Inc.* ................................. 167,000 10,771,499
Mannesmann AG (Germany) .............................. 27,200 4,051,761
------------
14,823,260
------------
Utilities--Gas (0.4%)
Columbia Energy Group ................................ 31,550 1,977,791
------------
Utilities--Electric (1.0%)
CMS Energy Corp. ..................................... 58,000 2,428,750
Midamerican Energy Holdings Co.* ..................... 75,100 2,600,338
------------
5,029,088
------------
Total Common Stocks (Cost $400,204,733) $513,396,176
------------
TOTAL INVESTMENTS (99.7%) (Cost 400,204,733) (a) 513,396,176
------------
Other assets less liabilities (0.3%) 1,705,546
------------
Total Net Assets (100.0%) $515,101,722
============
Notes to Schedule of Investments
(a) Unrealized gains and losses, based on identified tax cost at June 30,
1999, are as follows:
Unrealized gains ..................................... $122,917,127
Unrealized losses .................................... (9,725,684)
------------
Net unrealized gain ................................. $113,191,443
============
</TABLE>
* Non-income producing security.
Category percentages are based on total net assets.
See Notes to Schedule of Investments. 21
<PAGE>
MFS Value Equities Portfolio
Schedule of Investments
June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------------- -----------------
<S> <C> <C>
COMMON STOCKS (97.0%)
Advertising (0.9%)
Outdoor Systems, Inc.* ............................. 22,500 $ 821,250
Young & Rubicam, Inc. .............................. 29,500 1,340,406
------------
2,161,656
------------
Banks and Credit Companies (1.8%)
Bank of New York Co., Inc. ......................... 43,800 1,606,913
Chase Manhattan Bank ............................... 8,400 727,650
Development Bank Of Singapore (Singapore) .......... 11,000 134,430
Providian Financial Corp. .......................... 2,900 271,150
Wells Fargo & Co. .................................. 37,300 1,594,575
------------
4,334,718
------------
Business Machines (2.7%)
Hewlett-Packard Co. ................................ 17,800 1,788,900
Motorola, Inc. ..................................... 30,400 2,880,400
Texas Instruments, Inc. ............................ 12,700 1,841,500
------------
6,510,800
------------
Business Services (1.4%)
Computer Sciences Corp.* ........................... 9,000 622,688
Galileo International, Inc. ........................ 19,800 1,058,063
Smurfit Jefferson (Ireland) ........................ 558,500 1,320,629
Smurfit-Stone Container Corp.* ..................... 18,100 372,181
Telefonica Publicidad (Spain)* ..................... 2,400 47,808
------------
3,421,369
------------
Cellular Phones (0.9%)
Sprint Corp. (PCS Group)* .......................... 38,100 2,176,463
------------
Communications Services (10.2%)
Cable and Wireless PLC (Great Britain)* ............ 21,300 204,821
Capital Radio PLC (Great Britain) .................. 29,000 384,009
Colt Telecom Group PLC (Great Britain)* ............ 14,100 1,217,888
Frontier Corp. ..................................... 66,200 3,905,799
GTE Corp. .......................................... 26,400 1,999,800
MCI Worldcom, Inc.* ................................ 60,600 5,226,749
Nextel Communications, Inc.--A* .................... 54,200 2,720,163
Nippon Telegraph & Telephone Corp. (Japan) ......... 1,050 1,223,857
NTT Mobile Communcations Network, Inc.
(Japan) .......................................... 1,200 1,626,850
Orange PLC (Great Britain)* ........................ 163,000 2,389,645
Qwest Communications International, Inc.* .......... 20,100 664,556
SBC Communications, Inc. ........................... 21,900 1,270,200
Telefonaktiebolaget LM Ericsson (Sweden) ........... 17,000 559,938
Winstar Communications, Inc.* ...................... 16,700 814,125
------------
24,208,400
------------
Computer Software (0.5%)
America Online, Inc.* .............................. 1,300 143,650
Phone.Com* ......................................... 400 22,400
Psinet, Inc.* ...................................... 21,500 940,625
------------
1,106,675
------------
Computer Software--PC (0.8%)
Microsoft Corp.* ................................... 21,600 1,948,050
------------
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------------- -----------------
<S> <C> <C>
Computer Software--Systems (4.9%)
Ariba, Inc.* ....................................... 300 $ 29,175
BMC Software, Inc.* ................................ 91,800 4,957,199
EMC Corp.* ......................................... 22,300 1,226,500
Oracle Systems Corp.* .............................. 94,850 3,521,306
Unisys Corp.* ...................................... 46,400 1,806,700
------------
11,540,880
------------
Conglomerates (6.0%)
Allied Signal, Inc. ................................ 29,200 1,839,600
Tyco International Ltd. ............................ 130,694 12,383,256
------------
14,222,856
------------
Consumer Goods and Services (0.6%)
Newell Rubbermaid, Inc. ............................ 32,100 1,492,650
------------
Electronics (5.7%)
Altera Corp.* ...................................... 40,700 1,498,269
Analog Devices, Inc.* .............................. 62,900 3,156,794
Intel Corp. ........................................ 12,800 761,600
Kulicke & Soffa Industries, Inc.* .................. 32,600 874,088
Lattice Semiconductor Corp.* ....................... 31,200 1,942,200
LSI Logic Corp.* ................................... 79,000 3,643,874
Micron Technology, Inc.* ........................... 12,000 483,750
Teradyne, Inc.* .................................... 16,900 1,212,575
------------
13,573,150
------------
Entertainment (10.3%)
CBS Corp.* ......................................... 58,300 2,532,406
Clear Channel Communications, Inc.* ................ 30,321 2,090,254
Comcast Corp. ...................................... 88,100 3,386,344
Harrah's Entertainment, Inc.* ...................... 131,100 2,884,200
Hearst-Argyle Television, Inc.* .................... 75,600 1,814,400
Infinity Broadasting Corp.* ........................ 75,300 2,240,175
MediaOne Group, Inc.* .............................. 49,900 3,711,312
Time Warner, Inc. .................................. 49,200 3,616,199
Walt Disney Co. .................................... 73,700 2,270,881
------------
24,546,171
------------
Financial Institutions (6.7%)
Associates First Capital Corp. ..................... 46,500 2,060,531
Citigroup, Inc. .................................... 73,100 3,472,250
Donaldson Lufkin & Jenrette, Inc. .................. 4,500 271,125
Federal Home Loan Mortgage Corp. ................... 42,800 2,482,400
Finova Group, Inc. ................................. 72,200 3,799,524
Mellon Bank Corp. .................................. 45,800 1,665,975
Merrill Lynch & Co. ................................ 18,600 1,486,838
PaineWebber Group, Inc. ............................ 12,900 603,075
------------
15,841,718
------------
Food and Beverage Products (0.8%)
Anheuser Busch Co., Inc. ........................... 15,100 1,071,156
Suiza Foods Corp.* ................................. 25,200 1,055,250
------------
2,126,406
------------
</TABLE>
22 See Notes to Schedule of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------------- -----------------
<S> <C> <C>
Forest Products & Paper (1.6%)
Asia Pulp & Paper Co. Ltd. ADR (Singapore)* ...... 206,700 $ 1,989,488
Bowater, Inc. .................................... 21,200 1,001,700
Champion International Corp. ..................... 6,100 292,037
Westvaco Corp. ................................... 17,800 516,200
------------
3,799,425
------------
Household and Personal Care (0.2%)
Benckiser NV (Netherlands) ....................... 8,425 448,835
------------
Insurance (7.4%)
Ace, Ltd. (Bermuda) .............................. 44,800 1,265,600
American International Group, Inc. ............... 12,300 1,439,869
Annuity and Life Re (Holdings), Ltd. ............. 26,400 592,350
Axa UAP .......................................... 2,900 353,173
CIGNA Corp. ...................................... 34,800 3,097,200
Equitable Companies, Inc. ........................ 45,600 3,055,200
Hartford Financial Services Group ................ 58,100 3,387,956
Nationwide Financial Services, Inc., Class A ..... 24,000 1,086,001
Reliastar Financial Corp. ........................ 76,400 3,342,500
XL Capital Ltd. (Bermuda) ........................ 1 57
------------
17,619,906
------------
Machinery (1.1%)
Bouygues SA (France) ............................. 6,600 1,741,401
Grupo Acciona SA (Spain) ......................... 19,800 942,314
------------
2,683,715
------------
Medical and Health Products (2.7%)
American Home Products Corp. ..................... 52,100 2,995,750
Becton Dickinson & Co. ........................... 55,200 1,656,000
Pfizer, Inc. ..................................... 5,800 636,550
Pharmacia & Upjohn, Inc. ......................... 19,600 1,113,525
------------
6,401,825
------------
Medical and Health Tech Services (2.8%)
General Instrument Corp.* ........................ 44,900 1,908,250
Mid Atlantic Medical Services, Inc.* ............. 67,400 665,575
United Healthcare Corp. .......................... 53,400 3,344,175
Wellpoint Health Networks, Inc.* ................. 9,700 823,288
------------
6,741,288
------------
Oil Services (1.5%)
Baker Hughes, Inc. ............................... 27,200 911,200
Burlington Resources, Inc. ....................... 24,300 1,050,975
Conoco, Inc. ..................................... 53,400 1,488,525
------------
3,450,700
------------
Oils (1.5%)
BP Amoco PLC (Great Britian) ..................... 1 109
Coastal Corp. .................................... 54,200 2,168,000
Enron Oil & Gas Co. .............................. 69,500 1,407,375
------------
3,575,484
------------
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------------- -----------------
<S> <C> <C>
Printing and Publishing (2.0%)
E.W. Scripps Co. ................................. 38,600 $ 1,835,913
Gannett Co., Inc. ................................ 7,600 542,450
Meredith Corp. ................................... 30,800 1,066,450
Tribune Co. ...................................... 14,000 1,219,750
------------
4,664,563
------------
Railroad (0.5%)
Canadian National Railway Co. (Canada) ........... 17,200 1,152,400
------------
Restaurants and Lodging (1.3%)
Promus Hotel Corp.* .............................. 40,900 1,267,900
Wendy's International, Inc. ...................... 61,300 1,735,556
------------
3,003,456
------------
Special Products and Services (2.0%)
Abitibi Consolidated, Inc. (Canada) .............. 95,900 1,090,863
Jefferson Smurfit Group (Ireland) ................ 10,000 235,625
Xerox Corp. ...................................... 60,100 3,549,655
------------
4,876,143
------------
Stores (3.4%)
CVS Corp. ........................................ 45,100 2,305,738
Office Depot, Inc.* .............................. 10,800 238,275
Rite Aid Corp. ................................... 93,700 2,307,363
Tandy Corp. ...................................... 44,200 2,160,275
TJX Co., Inc. .................................... 29,900 996,044
------------
8,007,695
------------
Supermarkets (2.4%)
Kroger Co.* ...................................... 205,000 5,727,187
------------
Telecommunications (9.9%)
AT&T Canada, Inc. (Canada)* ...................... 6,800 435,625
Centurytel, Inc. ................................. 33,975 1,350,506
Cisco Systems, Inc.* ............................. 49,800 3,212,100
Hellenic Telecommunications (Greece) ............. 39,200 838,829
Mannesmann AG (Germany) .......................... 42,200 6,286,187
Nokia Oyj (Finland) .............................. 23,000 2,105,938
Nortel Networks Corp. (Canada) ................... 8,600 746,588
NTL, Inc.* ....................................... 36,900 3,180,319
Scientific-Atlanta, Inc. ......................... 26,300 946,800
Telecel-Comunicacoes Pessoais SA (Portugal) ...... 4,300 553,331
Vodafone Group PLC ADR (Great Britian) ........... 20,250 3,989,249
------------
23,645,472
------------
Utilities--Electric (0.9%)
AES Corp.* ....................................... 10,000 581,250
Duke Energy Corp. ................................ 27,500 1,495,313
------------
2,076,563
------------
Utilities--Gas (1.6%)
Sonat, Inc. ...................................... 34,900 1,156,063
Williams Companies, Inc. ......................... 61,400 2,613,338
------------
3,769,401
------------
Total Common Stocks (Cost $194,668,483) $230,856,020
------------
</TABLE>
See Notes to Schedule of Investments. 23
<PAGE>
MFS Value Equities Portfolio
Schedule of Investments
June 30, 1999 (unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------ ---------------
<S> <C> <C>
CONVERTIBLE DEBT (1.4%)
Stores (0.6%)
United Global Com ....................................................... 26,600 $ 1,366,575
------------
Telecommunications (0.7%)
Bell Atlantic Financial (144A)** ........................................ 1,770,000 1,820,976
------------
Total Convertible Debt (Cost $3,337,587) 3,187,551
------------
PREFERRED STOCKS (0.3%)
Telecommunications (0.3%)
Telephone Cooperative HPY (Finland)* .................................... 260 670,750
------------
Total Preferred Stocks (Cost $976,574) 670,750
------------
RIGHTS (0.0%)
Business Services (0.0%)
Bouygues SA (France)* ................................................... 6,600 17,424
------------
Total Rights (Cost $0) 17,424
------------
WARRANTS (0.0%)
Forest Products & Paper (0.0%)
Asia Pulp & Paper (Singapore)* .......................................... 41,340 108,518
------------
Total Warrants (Cost $0) 108,518
------------
TOTAL INVESTMENTS (98.7%) (Cost $198,982,644) (a) 234,840,263
Other assets less liabilities (1.3%) 3,055,002
------------
Total Net Assets (100.0%) $237,895,265
============
Notes to Schedule of Investments
(a) Unrealized gains and losses, based on identified tax cost at June 30, 1999,
are as follows:
Unrealized gains ........................................................ $39,823,544
Unrealized losses ....................................................... (3,965,925)
------------
Net unrealized gain .................................................... $35,857,619
============
</TABLE>
*Non-income producing security.
**Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualify institutional buyers. At June 30, 1999, the market value
of this security amounted to $1,820,976 or 0.70% of net assets.
Category percentages are based on total net assets.
24 See Notes to Schedule of Investments.
<PAGE>
Scudder International Growth Portfolio
Schedule of Investments
June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------------- -----------------
<S> <C> <C>
COMMON STOCKS (94.3%)
Australia (2.0%)
Broken Hill Proprietary Co. (Mining) ................ 411,200 $ 4,756,926
Western Mining Corp. Holding Ltd. (Mining) .......... 707,400 3,034,887
Woodside Petroleum Ltd. (Oil & Gas) ................. 256,600 1,735,283
------------
9,527,096
------------
Canada (1.4%)
Canadian National Railway Co. (Transportation)....... 105,000 7,035,000
------------
China (0.1%)
Jiangsu Expressway Co. Ltd. (Transportation) ........ 1,714,700 371,233
------------
Finland (1.9%)
Nokia Oyj (Communications) .......................... 104,500 9,144,116
------------
France (13.7%)
Accor SA (Lodging) .................................. 20,443 5,124,482
Alstom (Machinery) .................................. 43,684 1,371,603
Axa UAP (Insurance) ................................. 25,039 3,049,355
Bic (Office Equipment & Supplies) ................... 90,683 4,775,049
Carrefour SA (Food Retailers) ....................... 17,490 2,565,731
Christian Dior SA (Diversified) ..................... 27,846 4,529,249
Club Mediterranee SA (Lodging)* ..................... 8,974 950,622
Elf Aquitaine SA (Oil & Gas) ........................ 65,488 9,593,410
Etablissements Economiques du Casino
Guichard-Perrachon SA (Food Retailers) ............ 62,150 3,397,361
Eurotunnel SA (Financial Services)* ................. 3,053,985 4,495,771
Lagardere S.C.A. (Financial Services) ............... 113,727 4,226,459
Moet Hennessy Louis Vuitton
(Beverages, Food & Tobacco) ....................... 8,692 2,540,338
Pinault-Printemps-Redoute SA (Retailers) ............ 13,586 2,327,294
Renault SA (Automotive) ............................. 53,832 2,338,618
Rhone-Polenc, Class A (Chemicals) ................... 133,308 6,080,844
Suez Lyonnaise des Eaux (Diversified) ............... 26,809 4,826,995
Total SA--Series B (Oil & Gas) ...................... 16,775 2,160,360
Union Assurances Federale SA
(Financial Services) .............................. 20,251 2,397,457
------------
66,750,998
------------
Germany (9.1%)
BASF AG (Chemicals) ................................. 125,159 5,521,014
Bayerische Vereinsbank AG (Banking) ................. 39,058 2,480,855
Heidelberger Druckmaschinen AG
(Heavy Machinery) ................................. 16,988 967,105
Hoechst AG (Chemicals) .............................. 133,605 6,038,011
Karstadt AG (Retailers) ............................. 6,035 2,895,140
Mannesmann AG (Communications) ...................... 46,496 6,926,128
Metro AG (Retailers) ................................ 81,793 5,068,958
Siemens AG (Electronics) ............................ 80,459 6,195,592
Veba AG (Electric Utilities) ........................ 91,995 5,398,156
Viag AG (Industrial) ................................ 6,203 2,924,648
------------
44,415,607
------------
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------------- -----------------
<S> <C> <C>
Hong Kong (3.6%)
Anhui Expressway Co. Ltd. (Transportation) .......... 1,780,100 $ 243,162
Citic Pacific Ltd. (Diversified) .................... 1,285,800 4,101,702
Dao Heng Bank Group Ltd. (Banking) .................. 42,000 188,383
GZI Transportation Ltd. (Transportation) ............ 475,600 104,204
Hong Kong and China Gas Co. Ltd. (Oil & Gas)......... 484 702
Kerry Properties Ltd. (Real Estate) ................. 1,001,391 1,322,938
New World Development Co. Ltd. (Real Estate)......... 1,202,968 3,604,934
New World Infrastructure Ltd.
(Heavy Machinery)* ................................ 666,600 1,254,407
Shenzhen Expressway Co. Ltd. (Transportation)........ 1,629,600 344,497
Sichuan Expressway Co. (Transportation) ............. 1,231,000 130,117
Sun Hung Kai Properties Ltd. (Real Estate) .......... 207,000 1,887,612
Zhejiang Expressway Co. Ltd. (Transportation) ....... 1,131,300 224,563
Cheung Kong Ltd. (Real Estate) ...................... 471,300 4,191,459
------------
17,598,680
------------
Italy (5.8%)
Arnoldo Mondadori Editore SpA
(Media--Broadcasting & Publishing) ................ 114,000 1,971,607
Assicurazione Generali Itl (Insurance) .............. 47,000 1,625,711
Banca Nazionale del Lavoro (Banking)* ............... 424,700 1,333,473
Class Editori SpA (Heavy Machinery) ................. 127,000 1,013,244
Finmeccanica SpA (Aerospace & Defense)* ............. 3,352,700 3,082,137
Gruppo Editoriale L'Espresso
(Media--Broadcasting & Publishing) ................ 86,100 1,391,583
Istituto Nazionale delle Assicurazioni (INA)
(Insurance) ....................................... 262,300 607,565
La Rinascente SpA (Food Retailers) .................. 136,500 1,031,421
Mediaset SpA (Media--Broadcasting
& Publishing) ..................................... 265,000 2,351,584
Seat-Pagine Gialle SpA, Torino
(Media--Broadcasting & Publishing) ................ 3,203,700 4,369,847
Telecom Italia SpA (Communications) ................. 897,000 9,308,080
------------
28,086,252
------------
Japan (21.7%)
Advantest Corp. (Electronics) ....................... 22,300 2,451,765
Asahi Glass Co. Ltd. (Industrial) ................... 325,000 2,108,990
Benesse Corp. (Commercial Services) ................. 23,000 2,500,206
Canon, Inc. (Electronics) ........................... 67,000 1,927,423
Daiwa Securities Co. Ltd. (Financial Services) ...... 783,000 5,178,136
Fuji Bank (Banking) ................................. 509,000 3,551,242
Fujitsu Ltd. (Computers & Information) .............. 276,000 5,555,604
Hitachi Ltd. (Electronics) .......................... 310,000 2,908,575
Komatsu Ltd (Heavy Machinery) ....................... 256,000 1,635,840
Matsushita Electric Industrial Co., Ltd.
(Electronics) ..................................... 231,000 4,487,475
Mitsubishi Estate Co. Ltd. (Real Estate) ............ 211,000 2,059,951
Mitsui Fudosan Co. Ltd. (Real Estate) ............... 228,000 1,847,074
Murata Manufacturing Co., Ltd. (Electronics) ........ 65,000 4,277,091
NEC Corp. (Electronics) ............................. 376,000 4,677,854
Nikko Securities Co., Ltd. (Financial Services) ..... 881,000 5,687,824
</TABLE>
See Notes to Schedule of Investments. 25
<PAGE>
Scudder International Growth Portfolio
Schedule of Investments
June 30, 1999 (unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------------- -----------------
<S> <C> <C>
Japan (continued)
Nippon Telegraph & Telephone Corp.
(Communications) ................................... 4,810 $ 5,606,431
Nissan Motor Co. Ltd. (Transportation) ............... 544,000 2,599,232
NSK Ltd. (Machinery) ................................. 480,000 2,634,720
NTT Mobile Communications Network, Inc.
(Communications) ................................... 5,300 7,185,253
Sakura Bank Ltd. (Banking) ........................... 917,000 3,479,373
Sanwa Bank Ltd. (Banking) ............................ 326,000 3,209,600
Shin-Etsu Chemical Co. (Chemicals) ................... 95,000 3,180,543
Sony Corp. (Electronics) ............................. 39,000 4,207,242
Sony Corp. (Electronics) ............................. 10,000 1,103,750
Sumitomo Trust & Banking (Banking) ................... 731,000 3,516,914
TDK Corp. (Electronics) .............................. 29,000 2,653,799
Teijin Ltd. (Textiles, Clothing & Fabrics) ........... 568,000 2,300,741
Tokyo Electron Ltd. (Electronics) .................... 78,000 5,293,712
Toshiba Corp. (Electronics) .......................... 773,000 5,514,582
Yamanouchi Pharmaceutical Co., Ltd.
(Pharmaceuticals) .................................. 74,000 2,832,276
------------
106,173,218
------------
Netherlands (6.5%)
Aegon N.V. (Insurance) ............................... 36,020 2,663,686
Akzo Nobel N.V. (Chemicals) .......................... 71,490 3,002,702
DSM N.V. (Chemicals) ................................. 15,460 1,655,196
Elsevier N.V. (Media--Broadcasting &
Publishing) ........................................ 147,030 1,702,799
Equant N.V. (Computer Software
& Processing)* ..................................... 51,554 4,744,674
Gucci Group N.V. (Textiles, Clothing & Fabrics)....... 68,590 4,801,300
Heineken Holding N.V., Class A
(Beverages, Food & Tobacco) ........................ 98,220 3,690,617
Koninklijke Ahold N.V. (Food Retailers) .............. 65,412 2,249,107
Stmicroelectronics N.V. (Electronics) ................ 56,456 3,754,471
United Pan-Europe Communications N.V.
(Electronics)* ..................................... 31,430 1,701,909
VNU N.V. (Media--Broadcasting & Publishing)........... 55,120 2,198,808
------------
32,165,269
------------
Singapore (0.5%)
Development Bank Of Singapore (Banking) .............. 113,000 1,380,962
Overseas Chinese Banking Corp. (Banking) ............. 130,000 1,084,603
------------
2,465,565
------------
South Korea (0.6%)
Samsung Electronics (Electronics) .................... 26,856 2,946,619
------------
Spain (0.7%)
Telefonica Pulicidad E Informacion SA
(Media--Broadcasting & Publishing)
(144A)** ........................................... 13,547 269,855
Telefonica SA (Communications)* ...................... 61,812 2,972,273
------------
3,242,128
------------
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------------- -----------------
<S> <C> <C>
Switzerland (3.5%)
Nestle SA (Beverages, Food & Tobacco) ................ 2,509 $ 4,519,136
Novartis AG (Pharmaceuticals) ........................ 1,999 2,917,967
Roche Holding AG (Pharmaceuticals) ................... 2,530 2,599,794
Swisscom AG (Communications) ......................... 8,912 3,352,530
Union Bank of Switzerland AG (Banking) ............... 13,030 3,887,801
------------
17,277,228
------------
Taiwan (3.2%)
China Motor Co. Ltd. (Heavy Machinery) ............... 1,045,000 1,649,951
Chinatrust Commercial Bank (Banking)* ................ 1,530,000 1,837,836
Compal Electronics (Electronics) ..................... 769,316 3,024,875
Far East Textile (Textiles, Clothing & Fabrics)* ..... 1,275,000 1,894,778
Hon Hai Precision Industry (Electronics)* ............ 267,000 2,413,733
Taiwan Semiconductor (Electronics)* .................. 749,070 2,864,069
Yang Ming Marine Transport (Transportation)* ......... 2,718,000 1,767,244
------------
15,452,486
------------
Thailand (0.5%)
Siliconware Precision Industries Co.
(Electronics)* ..................................... 1,372,680 2,613,583
------------
United Kingdom (19.5%)
Barclays PLC (Banking) ............................... 94,113 2,738,707
BOC Group PLC (Chemicals) ............................ 379,888 7,425,785
British Petroleum Co. PLC (Oil & Gas) ................ 279,275 5,005,613
Carlton Communications PLC (Communications)........... 314,177 2,605,093
Enterprise Oil PLC (Oil & Gas) ....................... 227,489 1,481,067
General Electric PLC (Electronics) ................... 542,571 5,533,844
Glaxo Wellcome PLC (Pharmaceuticals) ................. 110,691 3,076,302
London & Scotland Marine Oil PLC (Oil & Gas).......... 745,414 1,703,867
Marks & Spencer PLC (Retailers) ...................... 1,011,318 5,850,879
Orange PLC (Communications)* ......................... 412,654 6,049,673
Pearson PLC (Communications) ......................... 161,603 3,283,724
Prudential Corporation PLC (Insurance) ............... 319,203 4,699,785
Reed International PLC (Media--Broadcasting
& Publishing) ...................................... 573,936 3,829,358
Rentokil Initial PLC (Environmental Controls) ........ 480,114 1,873,213
Reuters Group PLC (Financial Services) ............... 663,326 8,726,054
Rio Tinto PLC (Mining) ............................... 484,557 8,123,550
Royal & Sun Alliance Insurance Group PLC
(Insurance) ........................................ 365,381 3,277,360
Sainsbury (J) PLC (Food Retailers) ................... 253,205 1,596,609
Select Appointment PLC (Business Services)* .......... 162,137 1,934,829
Shell Transport & Trading Co. PLC (Oil & Gas) ........ 872,486 6,543,383
SmithKline Beecham PLC (Pharmaceuticals) ............. 247,505 3,216,921
United News & Media PLC
(Media--Broadcasting & Publishing) ................. 192,223 1,848,416
Vodafone Group PLC (Communications) .................. 228,254 4,497,722
------------
94,921,754
------------
Total Common Stocks (Cost $386,653,440) 460,186,832
------------
</TABLE>
26 See Notes to Schedule of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value
------------- ---------------
<S> <C> <C>
CORPORATE DEBT (0.4%)
France (0.4%)
Eurotunnel Finance Limited (Financial Services)..... $1,100,000 $ 1,453,203
Eurotunnel SA (Financial Services) ................. 300,000 396,328
------------
1,849,531
------------
Total Corporate Debt (Cost $1,823,737) 1,849,531
------------
</TABLE>
<TABLE>
<CAPTION>
Number of
Shares
----------
<S> <C> <C>
PREFERRED STOCKS (1.0%)
Germany (1.0%)
SAP AG-Vorzug (Computer Software
& Processing) ................................ 11,678 4,658,505
----------
Total Preferred Stocks (Cost $4,038,916) 4,658,505
----------
RIGHTS (0.1%)
France (0.1%)
LVMH-Rights (Beverages, Food & Tobacco)* ....... 8,692 253,676
----------
Hong Kong (0.0%)
Hong Kong and China Gas Co. Ltd.
(Oil & Gas)* ................................. 20 3
----------
Total Rights (Cost $0) 253,679
----------
TOTAL INVESTMENTS (95.7%) (Cost $392,516,093) (a) 466,948,547
Other assets less liabilities (4.3%) 21,010,941
------------
Total Net Assets (100.0%) $487,959,488
============
Notes to Schedule of Investments
(a) Unrealized gains and losses, based on identified tax cost at June 30,
1999, are as follows:
Unrealized gains ............................... $86,838,098
Unrealized losses .............................. (12,405,644)
------------
Net unrealized gain ........................... $74,432,454
============
</TABLE>
*Non-income producing security.
**Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At June 30, 1999, the market value
of this security amounted to $269,855 or 0.06% of net assets.
Category percentages are based on total net assets.
See Notes to Schedule of Investments. 27
<PAGE>
T. Rowe Price Growth Equities Portfolio
Schedule of Investments
June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------------- -----------------
<S> <C> <C>
COMMON STOCKS (95.6%)
Advertising (1.1%)
Omnicom Group, Inc. ................................ 94,100 $ 7,528,000
------------
Aerospace & Defense (1.7%)
Allied Signal, Inc. ................................ 117,100 7,377,300
Teleflex, Inc. ..................................... 92,200 4,004,938
------------
11,382,238
------------
Banking (4.8%)
Bank of America Corp. .............................. 107,856 7,907,193
Bank of New York Co., Inc. ......................... 199,600 7,322,824
Mellon Bank Corp. .................................. 94,000 3,419,250
Union Bank of Switzerland AG (Switzerland) ......... 3,900 1,163,655
Wells Fargo & Co. .................................. 267,700 11,444,175
------------
31,257,097
------------
Beverages, Food & Tobacco (2.6%)
Coca-Cola Co. ...................................... 41,900 2,618,750
Pepsico, Inc. ...................................... 158,400 6,128,100
Philip Morris Co., Inc. ............................ 153,300 6,160,744
Sara Lee Corp. ..................................... 108,300 2,457,056
------------
17,364,650
------------
Commercial Services (0.7%)
Halliburton Co. .................................... 104,700 4,737,675
------------
Communications (7.8%)
General Instrument Corp.* .......................... 50,100 2,129,250
Lucent Technologies, Inc. .......................... 103,290 6,965,619
Mannesmann AG (Germany) ............................ 23,000 3,426,121
MCI Worldcom, Inc.* ................................ 187,216 16,147,379
Nextel Communications, Inc., Class A* .............. 62,700 3,146,756
SBC Communications, Inc. ........................... 56,400 3,271,199
Sprint Corp. ....................................... 31,400 1,658,312
Telecom Italia Mobile (Italy) ...................... 376,200 1,382,571
Telecom Italia SpA (Italy) ......................... 373,900 3,879,923
Telecomunicacoes Brasileiras S.A.--Telebras
ADR (Brazil) ..................................... 46,900 4,229,794
Vodafone Group PLC ADR (Great Britain) ............. 28,550 5,624,350
------------
51,861,274
------------
Computer Software & Processing (9.4%)
America Online, Inc.* .............................. 41,400 4,574,700
Automatic Data Processing, Inc. .................... 114,600 5,042,400
BMC Software, Inc.* ................................ 161,800 8,737,200
Citrix Systems, Inc.* .............................. 22,500 1,271,250
Compuware Corp.* ................................... 123,600 3,932,025
First Data Corp. ................................... 87,800 4,296,713
Gartner Group, Inc., Class A* ...................... 104,200 2,136,099
Getronics N.V. (Netherlands) ....................... 48,082 1,846,281
IMS Health, Inc. ................................... 120,500 3,765,625
Microsoft Corp.* ................................... 182,800 16,486,274
Oracle Systems Corp.* .............................. 46,400 1,722,599
Parametric Technology Co.* ......................... 271,000 3,760,125
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------------- -----------------
<S> <C> <C>
Computer Software & Processing (continued)
Sterling Commerce, Inc.* ........................... 55,500 $ 2,025,750
Sun Microsystems, Inc.* ............................ 37,500 2,582,813
------------
62,179,854
------------
Computers & Information (3.6%)
Cisco Systems, Inc.* ............................... 119,250 7,691,625
Dell Computer Corp.* ............................... 108,600 4,018,200
EMC Corp.* ......................................... 59,000 3,245,000
Fujitsu Ltd. (Japan) ............................... 74,000 1,489,543
Hewlett-Packard Co. ................................ 74,700 7,507,350
------------
23,951,718
------------
Cosmetics & Personal Care (0.7%)
Colgate-Palmolive Co. .............................. 28,200 2,784,750
Gillette Co. ....................................... 39,300 1,611,300
Procter & Gamble Co. ............................... 6,300 562,275
------------
4,958,325
------------
Diversified (4.5%)
Hutchison Whampoa Ltd. (Hong Kong) ................. 598,700 5,420,929
Tomkins PLC (Great Britain) ........................ 1,196,560 5,187,207
Tyco International Ltd. ............................ 200,700 19,016,324
------------
29,624,460
------------
Electronics (4.7%)
Altera Corp.* ...................................... 104,900 3,861,631
Intel Corp. ........................................ 146,700 8,728,650
Maxim Intergrated Products, Inc.* .................. 107,600 7,155,400
Motorola, Inc. ..................................... 18,800 1,781,300
Solectron Corp.* ................................... 70,300 4,688,131
Texas Instruments, Inc. ............................ 35,000 5,075,000
------------
31,290,112
------------
Entertainment & Leisure (1.4%)
Hasbro, Inc. ....................................... 37,600 1,050,450
Mattel, Inc. ....................................... 67,080 1,773,428
Time Warner, Inc. .................................. 75,000 5,512,500
Walt Disney Co. .................................... 32,500 1,001,406
------------
9,337,784
------------
Environmental Controls (1.8%)
Rentokil Initial PLC (Great Britian) ............... 501,000 1,954,702
Waste Management, Inc. ............................. 184,000 9,890,000
------------
11,844,702
------------
Financial Services (7.1%)
Ambac Financial Group, Inc. ........................ 38,500 2,199,313
American Express Corp. ............................. 27,400 3,565,425
Associates First Capital Corp. ..................... 165,800 7,347,021
Berkshire Hathaway, Inc., Class A* ................. 950 6,545,500
Citigroup, Inc. .................................... 308,850 14,670,374
Concord EFS, Inc.* ................................. 41,000 1,734,813
Goldman Sachs Group, Inc. .......................... 12,000 867,000
HSBC Holdings PLC (Great Britain) .................. 54,000 1,969,688
Morgan Stanley Dean Witter Discover & Co. .......... 27,400 2,808,500
</TABLE>
28 See Notes to Schedule of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------------- -----------------
<S> <C> <C>
Financial Services (continued)
Mutual Risk Management Ltd .......................... 148,100 $ 4,942,838
TD Waterhouse Group* ................................ 13,200 330,825
------------
46,981,297
------------
Food Retailers (1.5%)
Safeway, Inc.* ...................................... 195,600 9,682,200
------------
Forest Products & Paper (0.4%)
Kimberly--Clark Corp. ............................... 50,200 2,861,400
------------
Health Care Providers (1.7%)
Healthsouth Corp.* .................................. 126,300 1,886,606
United Healthcare Corp. ............................. 154,900 9,700,613
------------
11,587,219
------------
Heavy Machinery (0.7%)
Applied Materials, Inc.* ............................ 65,300 4,824,038
------------
Home Construction, Furnishings & Appliances (2.5%)
General Electric Co ................................. 145,000 16,384,999
------------
Household Products (0.8%)
Corning, Inc. ....................................... 79,000 5,539,875
------------
Insurance (3.5%)
Ace, Ltd. (Bermuda) ................................. 216,400 6,113,300
Fairfax Financial Holdings Ltd. (Canada)* ........... 14,285 3,830,669
Fairfax Financial Holdings Ltd. (Canada)* ........... 1,200 321,792
Partner Re Ltd. (Bermuda) ........................... 100,000 3,737,500
Travelers Property Casualty Corp., Class A .......... 44,000 1,721,500
UNUM Corp. .......................................... 75,300 4,122,675
Wellpoint Health Networks, Inc.* .................... 36,300 3,080,962
------------
22,928,398
------------
Lodging (0.4%)
Mirage Resorts, Inc.* ............................... 143,600 2,405,300
------------
Media--Broadcasting & Publishing (5.4%)
CBS Corp.* .......................................... 156,900 6,815,344
Clear Channel Communications, Inc.* ................. 61,500 4,239,656
Comcast Corp. ....................................... 47,600 1,829,625
Fox Entertainment Group Inc.* ....................... 159,500 4,296,531
Infinity Broadcasting Corp.* ........................ 137,900 4,102,525
MediaOne Group, Inc.* ............................... 66,400 4,938,500
Tribune Co. ......................................... 40,700 3,545,988
VNU N.V. (Netherlands) .............................. 87,600 3,494,478
Wolters Kluwer N.V. (Netherlands) ................... 73,208 2,909,059
------------
36,171,706
------------
Medical Supplies (1.3%)
Baxter International, Inc. .......................... 40,500 2,455,313
Boston Scientific Corp.* ............................ 42,600 1,871,738
Johnson & Johnson ................................... 44,600 4,370,800
------------
8,697,851
------------
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------------- -----------------
<S> <C> <C>
Metals (1.4%)
Danaher Corp. ....................................... 94,100 $ 5,469,563
Masco Corp. ......................................... 144,000 4,158,000
------------
9,627,563
------------
Oil & Gas (2.8%)
Chevron Corp. ....................................... 43,300 4,121,619
Mobil Corp. ......................................... 74,400 7,365,600
Royal Dutch Petroleum Co. N.V. (Netherlands) ........ 118,600 7,145,650
------------
18,632,869
------------
Pharmaceuticals (9.8%)
American Home Products Corp. ........................ 81,500 4,686,250
Amgen, Inc.* ........................................ 31,400 1,911,475
Bristol-Myers Squibb Co. ............................ 176,900 12,460,393
Cardinal Health, Inc. ............................... 73,400 4,706,775
Eli Lilly and Co. ................................... 67,800 4,856,175
Gehe AG (Germany) ................................... 15,400 707,069
Merck & Co., Inc. ................................... 115,300 8,532,200
Pfizer, Inc. ........................................ 85,800 9,416,550
Roche Holding AG (Switzerland) ...................... 4,540 4,665,243
Schering-Plough Corp. ............................... 95,200 5,045,600
Warner-Lambert Co ................................... 107,800 7,478,625
------------
64,466,355
------------
Real Estate (1.5%)
Crescent Real Estate Equities Co. REIT .............. 141,100 3,351,125
Security Capital U.S. Realty REIT (Luxembourg)* ..... 172,500 3,277,500
Starwood Hotels & Resorts Worldwide, Inc. REIT 113,300 3,462,731
------------
10,091,356
------------
Restaurants (0.8%)
Compass Group PLC (Switzerland) ..................... 239,400 2,373,771
McDonald's Corp. .................................... 73,200 3,024,075
------------
5,397,846
------------
Retailers (5.1%)
Cifra SA (Mexico)* .................................. 43,300 830,464
CVS Corp. ........................................... 100,600 5,143,175
Dayton-Hudson Corp. ................................. 12,600 819,000
Home Depot, Inc. .................................... 98,400 6,340,650
Kroger Co.* ......................................... 208,400 5,822,175
Nike, Inc. .......................................... 47,600 3,013,675
Saks, Inc.* ......................................... 75,200 2,171,400
Tag Heuer International SA (Switzerland) ............ 130,300 1,351,863
Wal-Mart Stores, Inc. ............................... 176,800 8,530,600
------------
34,023,002
------------
Transportation (0.2%)
Carnival Corp., Class A ............................. 33,800 1,639,300
------------
U.S. Government (3.9%)
Federal Home Loan Mortgage Corp. .................... 314,100 18,217,799
Federal National Mortgage Association ............... 109,300 7,473,388
------------
25,691,187
------------
Total Common Stocks (Cost $513,208,564) $634,951,649
------------
</TABLE>
See Notes to Schedule of Investments. 29
<PAGE>
T. Rowe Price Growth Equities Portfolio
Schedule of Investments
June 30, 1999 (unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value
------------- ---------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (0.4%)
Repsol International Finance Commercial
Paper, 4.82%, 08/12/99 .............. $2,335,000 $ 2,299,673
------------
Total Short-Term Investments (Cost $2,299,673) 2,299,673
------------
TOTAL INVESTMENTS (96.0%) (Cost $515,508,237) (a) 637,251,322
Other assets less liabilities (4.0%) 26,798,076
------------
Total Net Assets (100.0%) $664,049,398
============
Notes to Schedule of Investments
(a) Unrealized gains and losses, based on identified tax cost at June 30,
1999, are as follows:
Unrealized gains ...................... $132,334,346
Unrealized losses ..................... (10,591,261)
------------
Net unrealized gain .................. $121,743,085
============
</TABLE>
* Non-income producing security.
Category percentages are based on total net assets.
30 See Notes to Financial Statements.
<PAGE>
Portfolio Partners, Inc.
Statements of Assets and Liabilities
June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MFS Emerging MFS Research
Equities Portfolio Growth Portfolio
-------------------- ------------------
<S> <C> <C>
Assets:
Investments, at market value ................ $1,169,303,693 $ 513,396,176
Cash ........................................ 2,420,908 4,551,818
Cash denominated in foreign currencies ...... -- --
Receivable for:
Dividends and interest ..................... 102,809 238,148
Investments sold ........................... 712,612 4,586,092
Fund shares sold ........................... 28,437 43,715
Recoverable foreign taxes .................. 3,453 21,379
Gross unrealized gain on forward foreign
currency exchange contracts ................ -- --
-------------- -------------
Total Assets ............................. 1,172,571,912 522,837,328
-------------- -------------
Liabilities:
Payable for:
Investments purchased ...................... 3,108,781 7,003,594
Fund shares redeemed ....................... 1,568,873 380,829
Variation margin on futures contracts ...... -- --
Due to custodian ............................ 3,070 --
Administrative services fees payable ........ 117,290 61,108
Advisory fees payable ....................... 606,987 285,090
Gross unrealized loss on forward foreign
currency exchange contracts ................ -- 4,985
-------------- -------------
Total Liabilities ........................ 5,405,001 7,735,606
-------------- -------------
NET ASSETS .................................. $1,167,166,911 $ 515,101,722
============== =============
Net assets represented by:
Paid-in Capital ............................. $ 794,685,882 $ 387,807,944
Net unrealized gain on investments, open
futures contracts and foreign currency
related translations ....................... 347,178,936 113,189,776
Undistributed/(distribution in excess of)
net investment income ...................... (3,640,139) 934,308
Accumulated net realized gain
on investments ............................. 28,942,232 13,169,694
-------------- -------------
NET ASSETS .................................. $1,167,166,911 $ 515,101,722
============== =============
Capital Shares, $.001 par value:
Outstanding ................................ 18,374,306 39,533,777
Net Assets ................................. $1,167,166,911 $ 515,101,722
Net Asset Value, offering and
redemption price per share (net
assets divided by shares outstanding) $ 63.52 $ 13.03
Cost of investments ......................... $ 822,124,608 $ 400,204,733
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 ................ $ 234,840,263 $ 466,948,547 $ 637,251,322
Cash ........................................ 4,364,607 7,516,601 27,442,704
Cash denominated in foreign currencies ...... 58,228 2,462,355 --
Receivable for:
Dividends and interest ..................... 238,634 232,373 525,492
Investments sold ........................... 6,756,671 11,173,511 10,028,735
Fund shares sold ........................... 320,528 7,805,647 6,301
Recoverable foreign taxes .................. 36,040 836,502 37,897
Gross unrealized gain on forward foreign
currency exchange contracts ................ -- 55,177 3,822
------------- ------------- -------------
Total Assets ............................. 246,614,971 497,030,713 675,296,273
------------- ------------- -------------
Liabilities:
Payable for:
Investments purchased ...................... 8,546,340 8,682,105 9,916,142
Fund shares redeemed ....................... 3 679 931,493
Variation margin on futures contracts ...... -- -- 14
Due to custodian ............................ -- -- --
Administrative services fees payable ........ 46,979 76,829 79,319
Advisory fees payable ....................... 122,145 307,315 317,274
Gross unrealized loss on forward foreign
currency exchange contracts ................ 4,239 4,297 2,633
------------- ------------- -------------
Total Liabilities ........................ 8,719,706 9,071,225 11,246,875
------------- ------------- -------------
NET ASSETS .................................. $ 237,895,265 $ 487,959,488 $ 664,049,398
============= ============= =============
Net assets represented by:
Paid-in Capital ............................. $ 161,786,724 $ 363,082,514 $ 497,220,753
Net unrealized gain on investments, open
futures contracts and foreign currency
related translations ....................... 35,837,904 74,407,143 121,739,735
Undistributed/(distribution in excess of)
net investment income ...................... 173,304 6,054,472 3,044,804
Accumulated net realized gain
on investments ............................. 40,097,333 44,415,359 42,044,106
------------- ------------- -------------
NET ASSETS .................................. $ 237,895,265 $ 487,959,488 $ 664,049,398
============= ============= =============
Capital Shares, $.001 par value:
Outstanding ................................ 5,300,290 26,312,478 11,039,760
Net Assets ................................. $ 237,895,265 $ 487,959,488 $ 664,049,398
Net Asset Value, offering and
redemption price per share (net
assets divided by shares outstanding) $ 44.88 $ 18.54 $ 60.15
Cost of investments ......................... $ 198,982,644 $ 392,516,093 $ 515,508,237
Cost of cash denominated in foreign
currencies ................................. $ 58,241 $ 2,441,229 $ --
</TABLE>
See Notes to Financial Statements. 31
<PAGE>
Portfolio Partners, Inc.
Statements of Operations
For the Six Months Ended June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MFS Emerging MFS Research
Equities Portfolio Growth Portfolio
-------------------- ------------------
<S> <C> <C>
Investment Income:
Dividends .................................... $ 500,547 $ 1,930,435
Interest ..................................... 106,368 113,282
------------ -----------
606,915 2,043,717
Foreign taxes withheld on dividends ........... (2,209) (21,175)
------------ -----------
Total investment income ................... 604,706 2,022,542
------------ -----------
Investment Expenses:
Investment advisory fee ....................... 3,558,030 1,705,568
Administrative services fees .................. 686,815 365,496
------------ -----------
Total expenses ............................ 4,244,845 2,071,064
------------ -----------
Net investment income (loss) .................. (3,640,139) (48,522)
------------ -----------
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on:
Sales of investments ......................... 17,179,432 27,938,642
Futures, foreign currency and forward
foreign currency exchange contracts ......... (147) (26,856)
------------ -----------
Net realized gain (loss) on investments,
futures, foreign currency and forward
foreign currency exchange contracts ......... 17,179,285 27,911,786
------------ -----------
Net change in unrealized gain or (loss) on:
Investments .................................. 134,451,635 16,042,335
Futures, foreign currency and forward
foreign currency exchange contracts ......... (149) (1,199)
------------ -----------
Net change in unrealized gain or (loss) on investments, futures, foreign
currency and forward foreign currency exchange
contracts ................................ 134,451,486 16,041,136
------------ -----------
Net realized and change in unrealized gain on investments, futures, foreign
currency and forward foreign currency exchange
contracts .................................... 151,630,771 43,952,922
------------ -----------
Net increase in net assets resulting from
operations ................................... $147,990,632 $43,904,400
============ ===========
<CAPTION>
MFS Value Scudder International T. Rowe Price Growth
Equity Portfolio Growth Portfolio Equity Portfolio
------------------ ----------------------- ----------------------
<S> <C> <C> <C>
Investment Income:
Dividends .................................... $ 751,353 $ 5,970,231 $ 2,897,860
Interest ..................................... 89,101 228,133 747,997
----------- ------------ -----------
840,454 6,198,364 3,645,857
Foreign taxes withheld on dividends ........... (6,492) (537,331) (86,767)
----------- ------------ -----------
Total investment income ................... 833,962 5,661,033 3,559,090
----------- ------------ -----------
Investment Expenses:
Investment advisory fee ....................... 678,942 1,788,009 1,854,347
Administrative services fees .................. 261,133 447,002 463,986
----------- ------------ -----------
Total expenses ............................ 940,075 2,235,011 2,318,333
----------- ------------ -----------
Net investment income (loss) .................. (106,113) 3,426,022 1,240,757
----------- ------------ -----------
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on:
Sales of investments ......................... 33,896,263 24,917,218 30,405,336
Futures, foreign currency and forward
foreign currency exchange contracts ......... (645,672) (1,349,705) (53,478)
----------- ------------ -----------
Net realized gain (loss) on investments,
futures, foreign currency and forward
foreign currency exchange contracts ......... 33,250,591 23,567,513 30,351,858
----------- ------------ -----------
Net change in unrealized gain or (loss) on:
Investments .................................. 3,331,690 18,313,806 22,303,566
Futures, foreign currency and forward
foreign currency exchange contracts ......... 38,821 1,945,067 (1,043)
----------- ------------ -----------
Net change in unrealized gain or (loss) on investments, futures, foreign
currency and forward foreign currency exchange
contracts ................................ 3,370,511 20,258,873 22,302,523
----------- ------------ -----------
Net realized and change in unrealized gain on investments, futures, foreign
currency and forward foreign currency exchange
contracts .................................... 36,621,102 43,826,386 52,654,381
----------- ------------ -----------
Net increase in net assets resulting from
operations ................................... $36,514,989 $ 47,252,408 $53,895,138
=========== ============ ===========
</TABLE>
32 See Notes to Financial Statements.
<PAGE>
Portfolio Partners, Inc.
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MFS Emerging
Equities Portfolio MFS Emerging
For the six months Equity Portfolio
Ended June 30, 1999 Year Ended
(unaudited) December 31, 1998
--------------------- -------------------
<S> <C> <C>
From Operations:
Net investment income ......................... $ (3,640,139) $ (4,000,456)
Net realized gain (loss) on investments,
futures, foreign currency and forward
foreign currency exchange contracts .......... 17,179,285 17,886,341
Net change in unrealized gain (loss) on
investments, futures, foreign currency,
and forward foreign currency exchange
contracts .................................... 134,451,486 221,647,960
-------------- --------------
Net increase (decrease) in net assets
resulting from operations ................... 147,990,632 235,533,845
-------------- --------------
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 .................... 116,160,765 250,995,803
Payments for shares redeemed ................. (166,024,787) (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 ............................. (49,864,022) 68,006,610
-------------- --------------
Change in net assets ......................... 98,126,610 300,932,108
Net Assets:
Beginning of period .......................... 1,069,040,301 768,108,193
-------------- --------------
End of period ................................ $1,167,166,911 $1,069,040,301
============== ==============
End of period net assets includes
undistributed/(distribution in excess of)
net investment income ....................... $ (3,640,139) $ --
============== ==============
Share Transactions:
Number of shares sold ........................ 2,031,148 5,160,626
Number of shares issued through
reinvestment of dividends and
distributions ............................... -- 64,245
Number of shares redeemed .................... (2,938,999) (3,842,650)
-------------- --------------
Net increase (decrease) ..................... (907,851) 1,382,221
============== ==============
<CAPTION>
MFS Research MFS Value
Growth Portfolio MFS Research Equities Portfolio
For the six months Growth Portfolio For the six months
Ended June 30, 1999 Year Ended Ended June 30, 1999
(unaudited) December 31, 1998 (unaudited)
--------------------- ------------------- --------------------
<S> <C> <C> <C>
From Operations:
Net investment income ......................... $ (48,522) $ 1,005,420 $ (106,113)
Net realized gain (loss) on investments,
futures, foreign currency and forward
foreign currency exchange contracts .......... 27,911,786 (10,117,749) 33,250,591
Net change in unrealized gain (loss) on
investments, futures, foreign currency,
and forward foreign currency exchange
contracts .................................... 16,041,136 99,935,450 3,370,511
------------- ------------- ------------
Net increase (decrease) in net assets
resulting from operations ................... 43,904,400 90,823,121 36,514,989
------------- ------------- ------------
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 .................... 19,556,961 86,437,903 15,514,108
Payments for shares redeemed ................. (39,896,916) (85,271,880) (9,060,139)
Net Asset Value of shares issued
in reinvestment of dividends and
distributions ............................. -- 103,709 --
------------- ------------- ------------
Net increase (decrease) in net
assets from fund share
transactions ............................. (20,339,955) 1,269,732 6,453,969
------------- ------------- ------------
Change in net assets ......................... 23,564,445 91,989,144 42,968,958
Net Assets:
Beginning of period .......................... 491,537,277 399,548,133 194,926,307
------------- ------------- ------------
End of period ................................ $ 515,101,722 $ 491,537,277 $237,895,265
============= ============= ============
End of period net assets includes
undistributed/(distribution in excess of)
net investment income ....................... $ 934,308 $ 982,830 $ 173,304
============= ============= ============
Share Transactions:
Number of shares sold ........................ 1,598,852 7,942,884 374,037
Number of shares issued through
reinvestment of dividends and
distributions ............................... -- 10,960 --
Number of shares redeemed .................... (3,249,662) (7,914,947) (221,916)
------------- ------------- ------------
Net increase (decrease) ..................... (1,650,810) 38,897 152,121
============= ============= ============
</TABLE>
See Notes to Financial Statements. 33
<PAGE>
Portfolio Partners, Inc.
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Scudder International
MFS Value Growth Portfolio
Equity Portfolio For the six months
Year Ended Ended June 30, 1999
December 31, 1998 (unaudited)
------------------- ----------------------
<S> <C> <C>
From Operations:
Net investment income ........................ $ 284,725 $ 3,426,022
Net realized gain (loss) on investments,
futures, foreign currency and forward
foreign currency exchange contracts ......... 7,051,170 23,567,513
Net change in unrealized gain (loss) on
investments, futures, foreign currency,
and forward foreign currency exchange
contracts ................................... 30,600,702 20,258,873
------------- ---------------
Net increase (decrease) in net assets
resulting from operations .................. 37,936,597 47,252,408
------------- ---------------
Distributions to Shareholders From:
Net investment income ....................... (227,718) --
Net realized gain on sale of investments -- --
------------- ---------------
Total distributions ......................... (227,718) --
------------- ---------------
Fund Share Transactions:
Proceeds from shares sold ................... 43,067,470 230,707,049
Payments for shares redeemed ................ (20,585,921) (222,651,405)
Net Asset Value of shares issued
in reinvestment of dividends
and distributions ........................ 227,718 --
------------- ---------------
Net increase (decrease) in net
assets from fund share
transactions ............................ 22,709,267 8,055,644
------------- ---------------
Change in net assets ........................ 60,418,146 55,308,052
Net Assets:
Beginning of period .......................... 134,508,161 432,651,436
------------- ---------------
End of period ............................... $ 194,926,307 $ 487,959,488
============= ===============
End of period net assets includes
undistributed/(distribution in excess of)
net investment income ...................... $ (279,417) $ 6,054,472
============= ===============
Share Transactions:
Number of shares sold ....................... 1,270,214 13,202,974
Number of shares issued through
reinvestment of dividends and
distributions .............................. 7,706 --
Number of shares redeemed ................... (627,340) (12,707,194)
------------- ---------------
Net increase (decrease) .................... (650,580) 495,780
============= ===============
<CAPTION>
T. Rowe Price Growth
Scudder International Equity Portfolio T. Rowe Price Growth
Growth Portfolio For the six months Equity Portfolio
Year Ended Ended June 30, 1999 Year Ended
December 31, 1998 (unaudited) December 31, 1998
----------------------- ---------------------- ---------------------
<S> <C> <C> <C>
From Operations:
Net investment income ........................ $ 3,443,559 $ 1,240,757 $ 2,862,092
Net realized gain (loss) on investments,
futures, foreign currency and forward
foreign currency exchange contracts ......... 20,717,196 30,351,858 10,771,577
Net change in unrealized gain (loss) on
investments, futures, foreign currency,
and forward foreign currency exchange
contracts ................................... 48,292,548 22,302,523 94,370,040
--------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations .................. 72,453,303 53,895,138 108,003,709
--------------- ------------- -------------
Distributions to Shareholders From:
Net investment income ....................... (766,921) -- (1,582,874)
Net realized gain on sale of investments -- -- (884,317)
--------------- ------------- -------------
Total distributions ......................... (766,921) -- (2,467,191)
--------------- ------------- -------------
Fund Share Transactions:
Proceeds from shares sold ................... 414,815,500 138,729,321 66,543,519
Payments for shares redeemed ................ (432,817,544) (50,058,574) (24,257,325)
Net Asset Value of shares issued
in reinvestment of dividends
and distributions ........................ 766,921 -- 2,467,191
--------------- ------------- -------------
Net increase (decrease) in net
assets from fund share
transactions ............................ (17,235,123) 88,670,747 44,753,385
--------------- ------------- -------------
Change in net assets ........................ 54,451,259 142,565,885 150,289,903
Net Assets:
Beginning of period .......................... 378,200,177 521,483,513 371,193,610
--------------- ------------- -------------
End of period ............................... $ 432,651,436 $ 664,049,398 $ 521,483,513
=============== ============= =============
End of period net assets includes
undistributed/(distribution in excess of)
net investment income ...................... $ 2,628,450 $ 3,044,804 $ 1,804,047
=============== ============= =============
Share Transactions:
Number of shares sold ....................... 26,173,168 2,490,468 1,372,441
Number of shares issued through
reinvestment of dividends and
distributions .............................. 50,488 -- 56,598
Number of shares redeemed ................... (27,235,224) (878,796) (513,020)
--------------- ------------- -------------
Net increase (decrease) .................... (1,011,568) 1,611,672 916,019
=============== ============= =============
</TABLE>
34 See Notes to Financial Statements.
<PAGE>
Portfolio Partners, Inc.
Notes to Financial Statements
June 30, 1999
- --------------------------------------------------------------------------------
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 Emerging Equities, MFS Research Growth and MFS Value Equity. 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; and
T. Rowe Price Growth Equity seeks long-term capital growth and, secondarily,
increasing dividend income.
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.
35
<PAGE>
Portfolio Partners, Inc.
Notes to Financial Statements
June 30, 1999 (continued)
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (unaudited) (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. The amounts are recorded by the Portfolio as
unrealized gain/loss.
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.
36
<PAGE>
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (unaudited) (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 June
30, 1999:
<TABLE>
<CAPTION>
Fee Range Effective Rate
--------- --------------
<S> <C> <C>
MFS Emerging Equities .70%-.65% .67%
MFS Research Growth .70%-.65% .70%
MFS Value Equity .65% .65%
Scudder International Growth .80% .80%
T. Rowe Price Growth Equity .60% .60%
</TABLE>
37
<PAGE>
Portfolio Partners, Inc.
Notes to Financial Statements
June 30, 1999 (continued)
- --------------------------------------------------------------------------------
3. Investment Advisory and Administrative Service Agreements (unaudited)
(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 six months ended ended June
30, 1999, the Investment Advisor paid MFS $3,013,304 for MFS Emerging Equities,
MFS Research Growth, and MFS Value Equity, paid Scudder Kemper Investments
$905,062 for Scudder International Growth, and paid T. Rowe $1,320,377 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 six months ended June 30, 1999 were:
<TABLE>
<CAPTION>
Cost of Purchases Proceeds from Sales
----------------- ------------------
<S> <C> <C>
MFS Emerging Equities $ 56,949,211 $ 90,244,726
MFS Research Growth 232,127,140 253,852,210
MFS Value Equity 197,322,367 171,600,606
Scudder International Growth 210,051,122 205,469,643
T. Rowe Price Growth Equity 278,733,184 185,401,179
</TABLE>
5. Capital Loss Carryforwards (unaudited)
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.
38
<PAGE>
- --------------------------------------------------------------------------------
6. Forward Foreign Currency Exchange Contracts
At June 30, 1999, 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 $(4,985), $(4,239),
$50,880 and $1,189 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 Purchased Cost at June 30, 1999 Gain (Loss)
- ------------------------------ ---------------------- ------------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Purchase Contracts
Great British Pound, 7/1/99 330,469 $ 524,570 $ 520,987 $(3,583)
Great British Pound, 7/2/99 129,588 205,700 204,298 (1,402)
MFS Value Equity
Foreign Currency U.S. Dollar U.S. Dollar Value Net Unrealized
Currency and Exchange Date Units Purchased Cost at June 30, 1999 Gain (Loss)
- ------------------------------ ---------------------- -------- -------------------- ------------------
Purchase Contracts
Euro, 7/30/99 340,047 $ 352,526 $ 351,037 $(1,489)
Great British Pound, 7/1/99 391,594 622,028 617,352 (4,676)
Japanese Yen, 7/1/99 142,716,954 1,178,019 1,179,954 1,926
Scudder International Growth
Foreign Currency U.S. Dollar U.S. Dollar Value Net Unrealized
Currency and Exchange Date Units Purchased/Sold Proceeds/Cost at June 30, 1999 Gain (Loss)
- ------------------------------ ---------------------- --------------- -------------------- ------------------
Purchase Contracts
Great British Pound, 7/2/99 10,855 $ 17,231 $ 17,114 $ (117)
Great British Pound, 7/6/99 426,982 673,010 673,162 152
Great British Pound, 7/7/99 624,532 986,264 984,616 (1,648)
Japanese Yen, 7/2/99 156,462,154 1,294,180 1,293,776 (404)
Sale Contracts
Euro, 7/1/99 1,315,220 $1,366,908 $1,354,778 $12,130
Euro, 7/2/99 772,956 806,154 796,264 9,890
Euro, 7/6/99 1,051,984 1,092,064 1,084,031 8,033
Euro, 7/7/99 381,628 394,928 393,284 1,644
Euro, 7/30/99 511,282 544,613 527,806 16,807
Great British Pound, 7/1/99 629,676 999,181 992,691 6,490
Hong Kong Dollar, 7/2/99 902,457 116,322 116,311 11
Hong Kong Dollar, 7/7/99 3,127,220 403,018 402,998 20
Japanese Yen, 7/1/99 22,627,648 184,951 187,079 (2,128)
T. Rowe Price Growth Equity
Foreign Currency U.S. Dollar U.S. Dollar Value Net Unrealized
Currency and Exchange Date Units Purchased/Sold Proceeds/Cost at June 30, 1999 Gain (Loss)
- ------------------------------ ---------------------- --------- -------------------- ------------------
Purchase Contracts
Euro, 7/2/99 46,004 $ 47,641 $ 47,390 $ (251)
Euro 7/6/99 615,222 635,961 633,964 (1,997)
Euro 7/7/99 90,439 93,586 93,201 (385)
Japanese Yen, 7/6/99 183,472,503 1,516,678 1,518,014 1,336
Sale Contracts
Foreign Currency U.S. Dollar U.S. Dollar Value Net Unrealized
Currency and Exchange Date Units Purchased/Sold Proceeds/Cost at June 30, 1999 Gain (Loss)
- ------------------------------ ---------------------- ------------- -------------------- ------------------
Swiss Franc, 7/1/99 574,864 $ 371,503 $ 369,706 $ 1,797
Swiss Franc, 7/2/99 1,155,229 743,726 743,037 689
</TABLE>
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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
June 30, 1999, Aetna owned all shares of beneficial interest of the Portfolios.
40
