Laurie M. LeBlanc
President
Portfolio Partners, Inc.
Aetna
Financial Services
To: Portfolio Partners, Inc. Investors
Date: February 9, 2000
One of the biggest parties at the close of the millennium took place in the U.S.
stock market. Not only did the established Dow Jones Industrial Average(1) and
the Standard & Poor's (S&P) 500(2) Composite Index finish the year at record
levels (27.2% and 21.04% respectively), they also completed a fifth year of
unprecedented returns, defying the odds and many investment industry
forecasters.
Continued strong U.S. economic growth and low inflation were the underlying
factors in the continuing bull market. There was, however, another emerging
factor; an insatiable desire to embrace technological innovation symbolized by
the Internet. This emerging "dot.com mania" is changing the rules of both the
economy and the stock market.
Fueled by Internet stocks, even small capitalization stocks surged in 1999.
Gaining much of their ground late in the year, the Russell 2000 Index(3)
delivered 21.26% just edging out the S&P 500 Index.
Foreign equity markets also delivered double digit returns in 1999. The Morgan
Stanley Capital International Europe, Australia, Far East (MSCI EAFE) non-U.S.
stock index(4) exceeded the S&P 500 for the first time since 1994, rising 27.3%.
It will go down as a year of a significant global stock market recovery after
the economic difficulties of 1998. Outside the U.S., growth in the first half of
the year was lead by the emerging market economies, especially in Asia. A
rebound in corporate profits also boosted Japan's stock market returns. In the
second half of the year, growth in Europe and Latin America led to some healthy
market gains.
- -------------------------
Please note that total returns include changes in share price, reinvestment of
dividends and capital gains. Past performance cannot guarantee future results.
Total returns do not include charges imposed by the insurance company separate
account. If these were included, performance would be lower.
(1) The Dow Jones Industrial Average is a price-weighted average of 30 actively
traded blue chip stocks.
(2) The Standard & Poor's (S&P) 500 Composite 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.
(3) 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. 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.
(4) The Morgan Stanley Capital International Europe, Australia, Far East Index
(MSCI EAFE) 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 that they track.
Individuals cannot invest directly in any index.
<PAGE>
The Nasdaq Composite Index(5), however, and a few hundred technology stocks
listed on that market "took the cake" at the century's ending party. Posting
record gains of 85.6%, this sector group reached highs that have never been seen
by a U.S. stock index. The laggards for the year continued to be value-oriented
equities and non-tech, small- and mid-capitalization stocks.
Is this a mania or a new era? That is still to be decided. Although the global
technology sector led global growth in 1999, there were signs indicating
caution. Growing U.S. inflationary pressures, the Federal Reserve's increased
focus on raising interest rates, sky-high valuations, and surging oil (up 112%)
and commodity prices threaten ahead.
Technology is a wonderful long-term story albeit with a significant level of
short-term volatility. Long-term mutual fund investors with non-taxable accounts
may be best suited to "ride the tech wave". Investors should know that many
mutual fund managers are already investing heavily in technology. The average
U.S. Growth Stock fund had 34% of its assets in this sector; more than any other
sector of the market.
Key criteria for growth managers operating in this sector are investment
experience and depth of research. We feel confident that the investment
managers of Portfolio Partners, Inc. are well qualified in this regard.
All of the Portfolio Partners, Inc. funds ended the year on a high note;
outperforming their unmanaged market benchmarks. The four domestic equity
portfolios all beat the S&P 500 Composite Index. Further, PPI MFS Emerging
Equities and PPI Scudder International Growth also exceeded the Russell 2000
and MSCI EAFE Indices, respectively.
Great market returns and steady cash flows have contributed to healthy asset
growth in the Portfolios. As of December 31, 1999, aggregate assets now total
$3.8 billion.
I encourage you to read the commentaries of the portfolio managers that follow.
Our goal in the year 2000 is to continue to provide you with smart financial
solutions.
We look forward to continued good relative performance in 2000 and thank you for
your trust and confidence.
Sincerely,
/s/ Laurie M. LeBlanc
Laurie M. LeBlanc
- -----------------------
(5) The Nasdaq OTC Composite Index covers 4,500 stocks traded over the counter.
It represents many small company stocks but is heavily influenced by the largest
100 over the counter stocks. It is a value weighted index calculated on price
change only and does not include income. Please note that indexes are unmanaged
and do not take into account any fees and expenses of the individual securities
that they track.
<PAGE>
Portfolio Partners MFS Emerging Equities Portfolio
December 31, 1999 Commentary
- --------------------------------------------------------------------------------
For the year ended December 31, 1999, the Portfolio Partners MFS Emerging
Equities Portfolio (Portfolio) provided a total return of 50.88%. This compared
to a 21.04% return over the same period for the Standard & Poor's 500 Composite
Index(6) (the S&P 500), a popular, unmanaged index of common stock total return
performance. The Russell 2000 Total Return Index(7) (Russell 2000), an unmanaged
index comprised of 2,000 small U.S.-domiciled company common stocks that are
traded on the New York Stock Exchange, the American Stock Exchange, and NASDAQ,
returned 21.26% for the same time period.
[Start of Tabular Representation of Line Chart]
PPI MFS
Emerging Russell
Equities 2000
Portfolio Index
11/27/97 10000 10000
3/31/98 12040 11198
6/30/98 11876 10676
9/30/98 9951 8525
12/31/98 12821 9915
3/31/99 12525 9378
6/30/99 14689 10836
9/30/99 14400 10151
12/31/99 19343 12023
Average Annual Total Return for the Fund for the periods ended 12/31/99:
One Year: 50.88%
Since Inception: 37.11%
[End of Tabular Representation of Line Chart]
Past performance is not predictive of future performance. Persons who invest in
the Fund through a variable annuity contract should note this graph does not
reflect separate account expenses deducted by the insurance company.
- -----------------------
*Please note comparative index hypothetical $10,000 growth numbers have an
initial date of 11/30/97.
Three main factors held the Portfolio's performance back in the first six
months and then propelled it forward in the last six. The first was the
perception that year 2000 (Y2K) computer concerns would severely hamper a lot
of the technology companies. However despite the poor performance of some of
these companies in the first half of the year, the Portfolio held on to them.
By the second half of the year, people perceived that Y2K was largely under
control, and performance actually came back a lot quicker than expected.
Portfolio holdings such as BMC Software and Computer Associates performed very
well at the end of 1999.
The second factor was the Internet. In the first half of the year, the
so-called "dot.com" companies did well. The Portfolio positioned more in the
companies that provided Internet tools and infrastructure. It was reminiscent
of the California gold rush of 1849, where Levi Strauss made a fortune -- not
in gold mining, but in selling jeans to the miners. The strategy of trying to
figure out which Internet site is going to strike gold is very risky. But
regardless of which sites met with success, they all need software and
infrastructure. In the second half of the year, the market began to reward that
kind of thinking. As a result, some of the Portfolio's holdings, such as Cisco
and Oracle, did very well.
- -----------------------
(6) The Standard & Poor's 500 Composite Index (S&P 500) 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.
(7) 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. Please note that indexes are unmanaged and do not
take into account any fees and expenses of the individual securities that they
track. Individuals cannot invest directly in any index.
<PAGE>
Portfolio Partners MFS Emerging Equities Portfolio
December 31, 1999 Commentary, cont'd
- --------------------------------------------------------------------------------
The third factor was the stock market started to broaden out after four years
of being very narrow, where the only stocks that did very well were a small
number of large-cap, slow earnings-growth companies. Investors perceived that
the high valuations of those companies did not make a lot of sense. So the
market started to broaden, rewarding smaller companies that the Portfolio
invests in with faster growth rates and lower valuations.
A broadening market is more likely to reward the Portfolio's style of bottom-up
fundamental research than the narrow market seen over the past few years. We
believe that a continued market broadening will reward active management based
on fundamental research even more. And remember, the market had been narrowing
for four years, so it's conceivable the market can broaden for a long period of
time.
Looking forward into 2000 we still feel there is room for growth. In 1999, only
a small number of holdings drove a large part of the Portfolio's performance.
Cisco and Oracle, primarily because of their Internet exposure, were both up
over 100%. Each of those companies added tremendous value to the Portfolio last
year. Although most software stocks started to come back up in the second half,
they were still suffering from Y2K perceptions, in terms of slower business and
lower P/E (price-to-earnings) multiples. That group includes five of our top 10
holdings: BMC Software, Microsoft, Computer Associates, Compuware and Oracle.
We feel that on the other side of Y2K, people are going to spend a lot more
money on software and the Internet, and the market's perception of those
companies should improve even further.
Respectfully,
John W. Ballen
Portfolio Manager
The opinions expressed in this report are those of the Portfolio Manager and
are only through the end of the period of the report as stated on the cover.
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
December 31, 1999 Commentary
- --------------------------------------------------------------------------------
For the year ended December 31, 1999, the Portfolio Partners MFS Research Growth
Portfolio (the Portfolio) provided a total return of 24.03%. This compared to a
21.04% return for the Standard & Poor's 500 Composite Index (S&P 500)(8), a
popular, unmanaged index of common stock total return performance, for the same
period.
[Start of Tabular Representation of Line Chart]
PPI MFS
Research S&P
Growth 500
Portfolio Index
11/27/97 10000 10000
3/31/98 11314 11590
6/30/98 11587 11973
9/30/98 9841 10781
12/31/98 12076 13077
3/31/99 12268 13729
6/30/99 13178 14697
9/30/99 12283 13778
12/31/99 14978 15828
Average Annual Total Return for the Fund for the periods ended 12/31/99:
One Year: 24.04%
Since Inception: 21.32%
[End of Tabular Representation of Line Chart]
Past performance is not predictive of future performance. Persons who invest in
the Fund through a variable annuity contract should note this graph does not
reflect separate account expenses deducted by the insurance company.
- -----------------------
*Please note comparative index hypothetical $10,000 growth numbers have an
initial date of 11/30/97.
The Portfolio's significant exposure to large-cap telecommunications and
technology stocks, added considerably to total return. Despite an overweighting
in technology stocks, Internet companies with expensive valuations, weak
business models or unproven track records were avoided. At the same time, it
was recognized that growth in Internet services and data traffic would continue
for some time. Consequently, a number of technology and communications stocks
in the networking and telecommunications equipment industries were added. Some
examples that met the Portfolio's strict investment criteria included, Cisco,
Nortel, Ericsson and Motorola. These companies represented the nuts and bolts
of Internet and telecommunications infrastructure and helped the Portfolio
outpace its benchmark.
The Portfolio also maintained considerable exposure to software stocks, such as
Microsoft, Oracle and Veritas. Software holdings hurt performance in the first
quarter of this past year, but we held on to these positions. Over the last six
months of 1999, they came back to provide a significant boost to performance
due to increased demand for data storage and software products.
Other leading contributors included semiconductor companies such as LSI Logic
and Analog Devices. The semiconductor industry was hurt in 1998 by the Asian
economic slowdown and by a build up in supply in some market segments. In 1999,
demand began to catch up with supply as a result of economic strength in the
U.S. and the Asian recovery.
- -----------------------
(8) The Standard & Poor's 500 Composite Index (S&P 500) 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>
Portfolio Partners MFS Research Growth Portfolio
December 31, 1999 Commentary, cont'd
- --------------------------------------------------------------------------------
Outside the technology and telecommunications sectors, the Portfolio benefited
from a number of stocks in the financial services, media and energy sectors.
Gains in financial services came primarily from brokerage and investment
banking stocks, such as Citigroup and Morgan Stanley Dean Witter, both well
managed industry leaders. Media holdings such as Infinity Broadcasting,
Echostar Communications and CBS benefited from tremendous growth in advertising
spending due to the highly competitive business environment, especially among
Internet companies.
The Portfolio maintained a slightly underweighted position in health care
stocks versus the index and, in general, this group hurt performance. Nursing
homes, hospitals, HMOs and pharmaceutical companies were all hurt by fears of
Medicare reform and potential government price controls. Despite this generally
negative environment, we found good opportunities in the medical device area.
Companies such as Guidant and Medtronic had a number of new products in their
pipelines that drove revenues and earnings growth higher.
Other detractors to performance included Nabisco, Safeway, and CVS. Despite
solid fundamental business and growth prospects, these companies suffered from
generally downbeat industry outlooks and weak investor sentiment. In the
consumer goods and services sector, electronics equipment conglomerate Tyco
International was a major disappointment for the Portfolio. Despite no evidence
of irregular accounting methods, its shares plunged during the period after an
analyst raised suspicions regarding the company's accounting of recent
acquisitions. Having met with management a number of times, we continued to
believe that its business fundamentals were strong. As a result, the Portfolio
maintained its holding in Tyco.
During the past year, the equity market was extremely narrow with 25
large-growth stocks outperforming the rest of the stocks in the S&P 500. While
market leadership started to show signs of broadening, which helped
performance, we believed the long-term opportunities for small- and mid-cap
stocks were attractive primarily because they were selling at much cheaper
prices relative to earnings and expected growth rates compared to large-cap
growth stocks. In addition, we believed our exposure to stocks with lower
prices relative to earnings made the Portfolio less vulnerable to negative
events such as earnings disappointments or a broad market downturn.
The current bull market is one of the most unusual in recent memory. There are
widespread indications of immense speculation and entrenched optimism toward
equities. Yet, if we exclude technology and communications, the equity market
has been in a downtrend since April of 1999. As a result, we expect market
strength to broaden into other sectors of the market, which could create
opportunities for the Portfolio. Of course, much of the bull market's fate
rests on corporate earnings and the performance of the economy. While opinions
range from total conviction in a new era of trouble-free prosperity, to a view
that inflation is just around the corner and the market is in a classic asset
bubble waiting to burst, the truth most likely lies somewhere in the middle.
Given this uncertain environment, however, we continue to focus our energy on
finding what we believe are top-quality companies that should provide favorable
long-term performance regardless of short-term market volatility.
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 Portfolio Manager and
are only through the end of the period of the report as stated on the cover.
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
December 31, 1999 Commentary
- -------------------------------------------------------------------------------
For the year ended December 31, 1999, the Portfolio Partners MFS Value Equity
Portfolio (the Portfolio) provided a total return of 48.79%. This compared to a
21.04% return over the same period for the Standard & Poor's 500 Composite Index
(S&P 500)(9), a popular, unmanaged index of common stock total return
performance.
[Start of Tabular Representation of Line Chart]
PPI MFS
Value S&P
Equities 500
Portfolio Index
11/27/97 10000 10000
3/31/98 11879 11590
6/30/98 12045 11973
9/30/98 10311 10781
12/31/98 12854 13077
3/31/99 13387 13729
6/30/99 15238 14697
9/30/99 14796 13778
12/31/99 19126 15828
Average Annual Total Return for the Fund for the periods ended 12/31/99:
One Year: 48.79%
Since Inception: 36.37%
Past performance is not predictive of future performance. Persons who invest in
the Fund through a variable annuity contract should note this graph does not
reflect separate account expenses deducted by the insurance company.
- -----------------------
*Please note comparative index hypothetical $10,000 growth numbers have an
initial date of 11/30/97.
The Portfolio's wireless communications stocks provided exceptionally strong
performance. Included in this group were some of the largest holdings, such as
Nextel in the United States, Mannesmann in Germany, Bouygues in France, and NTT
Mobile Communications Network in Japan. Wireless stocks moved to the forefront
of the market due to then higher-than-expected subscriber growth. In addition,
many of these wireless communications service providers either started to offer
or were on the cusp of offering data transmission. The prospect of customers
accessing e-mail or the Internet over wireless handsets helped make these
companies even more attractive. Telecommunications and cable equipment
providers also fared well due to continued strong infrastructure spending. In
this area, holdings such as General Instruments, Motorola, and Corning were
excellent performers.
- -----------------------
(9) The Standard & Poor's 500 Composite Index (S&P 500) 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>
Portfolio Partners MFS Value Equity Portfolio
December 31, 1999 Commentary, cont'd
- -------------------------------------------------------------------------------
Over the course of the year, technology, especially semiconductor and software
stocks were favored. On the semiconductor side, LSI Logic and Analog Devices
were two companies that were boosted by an industry rebound that followed signs
of an economic recovery in Asia. In addition, wireless communications equipment
manufacturers had a steady appetite for the computer chips that enable their
products. BMC Software and other software stocks rebounded from difficulties
they faced earlier in 1999. However, companies like BMC proved resilient as Y2K
approached, meeting or beating earnings expectations. As a result, investor
sentiment toward them became more positive because of a better outlook for next
year.
It is important to note that even though stocks of Internet companies have
skyrocketed due to incredible market momentum, the Portfolio's investment
decisions were not made by following trends. Stocks were chosen for the
Portfolio based on the value they offer and on thorough fundamental research
into their prospects. Although Internet stock prices climbed, many of these
companies have never posted any earnings. As a result, it's nearly impossible
to figure out how to appropriately value the stocks based on fundamental
analysis or traditional research techniques. In addition, the "dot.com"
companies, particularly those that cater exclusively to consumers, have very
questionable business models. If those businesses can't be sustained, the
stocks could plummet just as quickly as they have risen.
This is not to say the Portfolio hasn't participated in investment
opportunities that were a play on the Internet theme. There were many
opportunities in companies involved in the explosive growth of this new tool,
but with much sounder business fundamentals and quantifiable valuations. For
example, the Portfolio owned stocks of companies that provide the networking
infrastructure for the Internet, such as Cisco Systems, as well as radio
broadcasting firms such as Infinity Broadcasting which benefit from all the
"dot.com" advertising.
For most of this year, we've seen a two-tiered, momentum-based stock market.
Technology and wireless communications stocks enjoyed substantial gains, but
stocks in many other sectors languished at low valuations despite positive
fundamentals. With this backdrop, the Portfolio continued to pursue a basic
investment approach: look for companies who offered the potential for solid
earnings growth and whose stocks sold at reasonable prices relative to
alternatives within their sectors. While some of the investments struggled a
bit in the market environment, the Portfolio remained comfortable with the
long-term fundamentals they offered.
One such sector was oil services. Rising oil prices bolstered the performance
of domestic oil services concerns such as BJ Services, Schlumberger, and Cooper
Cameron. Supermarkets, including Kroger, a strong player in an industry
experiencing considerable consolidation activity, were also good examples of
the Portfolio's relative "value" approach. Although they have suffered from
fears related to Wal-Mart's plan to offer groceries, and from hype regarding
Internet-based grocery sales, these fears were generally overblown and
subsided. Insurance was another attractive sector, including our investment in
Lincoln National. For most of the period, insurance stocks were hurt by the
rise in interest rates and regulatory concerns. That changed in the fourth
quarter of 1999, when Congress passed legislation eliminating many of the
barriers that had existed among banks, insurance companies, brokerages and
other financial services companies. Insurance companies like Lincoln National
rebounded because the market recognized their attractiveness as acquisition
candidates.
A few stocks did disappoint during the past year. The first was Rite-Aid, the
drug store chain. Not only did this company overextend itself by trying to make
too many acquisitions in too short a time period, but it was also suspected of
committing accounting fraud. This holding was eliminated from the Portfolio.
Another example came from Office Depot in the retail industry. It's stock
faltered because investors
<PAGE>
Portfolio Partners MFS Value Equity Portfolio
December 31, 1999 Commentary, cont'd
- -------------------------------------------------------------------------------
became concerned that the office supplies industry had become saturated with
too many alternatives. However, we felt the prospects for this company remained
solid, so the Portfolio continued to hold a small stake in it.
For an investor focused on company fundamentals, the market has been hard to
understand. It has been driven by momentum and speculation, instead of the
historically proven method of analyzing a company's business prospects and how
they relate to the valuation of its stock. The main question at this point is:
How sustainable is the current market environment? There is no easy answer, the
Portfolio will continue to invest in companies offering positive earnings
growth and whose stocks sell at reasonable valuations.
Respectfully,
Maura A. Shaughnessy
Portfolio Manager
The opinions expressed in this report are those of the Portfolio Manager and
are only through the end of the period of the report as stated on the cover.
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
December 31, 1999 Commentary
- -------------------------------------------------------------------------------
The PPI Scudder International Growth Portfolio (the Portfolio) outperformed both
its benchmark and its competition for the twelve-month period ended December 31,
1999. The Portfolio returned 58.41%, well above the 26.96% return of its
unmanaged benchmark, the MSCI EAFE Index(10). The Portfolio also performed well
relative to its peers, outperforming the 40.80% return averaged by all
International Funds, as calculated by Lipper Analytical Services.(11) During the
fourth quarter of 1999, the Portfolio returned 30.9% to outpace the 17.0% gain
in the benchmark. We attributed our strong showing to individual stock selection
across all sectors and regions.
[Start of Tabular Representation of Line Chart]
Scudder
International MSCI
Growth EAFE
Portfolio Index
11/27/97 10000 10000
3/31/98 11571 11581
6/30/98 12277 11712
9/30/98 10503 10054
12/31/98 12098 12141
3/31/99 12466 12318
6/30/99 13390 12640
9/30/99 14638 13203
12/31/99 19164 15455
Average Annual Total Return for the Fund for the periods ended 12/31/99:
One Year: 58.41%
Since Inception: 36.50%
[End of Tabular Representation of Line Chart]
Past performance is not predictive of future performance. Persons who invest in
the Fund through a variable annuity contract should note this graph does not
reflect separate account expenses deducted by the insurance company.
- -----------------------
*Please note comparative index hypothetical $10,000 growth numbers have an
initial date of 11/30/97.
The overseas markets posted outstanding performance in 1999 on the strength of
favorable liquidity conditions, powerful corporate growth, particularly in
telecomunications and technology areas, and the ongoing benefits of corporate
restructuring. The European markets once again produced impressive returns, with
the bulk of the gains coming in a furious fourth quarter rally. Japanese stocks
also staged a strong rally as the combination of renewed growth and
corporate-level reforms prompted investors to return to the market in force. The
benchmark Nikkei 225 Index(12) closed the year just short of 19,000, a level not
seen since the summer of 1997. Across all of the global markets, technology and
telecommunications stocks produced outstanding returns as investors poured money
into companies with the strongest growth characteristics. During the second half
of 1999, our fundamental investment strategy remained essentially unchanged. The
Portfolio was positioned to benefit from two key global trends: 1) the vigorous
growth in areas such as telecommunications and technology, and 2) the renewed
pricing power of large industrial commodity companies. As such, we tried to
avoid companies squeezed by either the impact of new technological advances such
as the Internet or those corporations facing significantly higher input prices
as a result of the rise in many commodity prices.
- -----------------------
(10) The Morgan Stanley Capital International Europe, Australia, Far East (MSCI
EAFE) 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.
(11) The Lipper International Fund average represents an average return for the
universe of international funds. Please note that averages are unmanaged, and
individuals cannot invest directly in any average.
(12) Nikkei 225 Index, a commonly used index to measure the Japanese stock
market, is composed of the top 225 companies on the Tokyo exchange. Please note
that indexes are unmanaged and do not take into account any fees and expenses of
the individual securities that they
<PAGE>
Portfolio Partners Scudder International Growth Portfolio
December 31, 1999 Commentary, cont'd
- -------------------------------------------------------------------------------
Also, we continued to focus on a wide range of international equities that were
poised to benefit from positive changes taking place on the macroeconomic
and/or company-specific levels.
A good example of our focus on companies undergoing significant restructuring
in Japan were our investments in Japanese financial services companies such as
Daiwa and Nikko Securities; both posted rises in excess of 350% over the year.
Financial and operational restructuring announcements also boosted our
commercial bank investments such as Fuji Bank and Sakura Bank, which rose 60%
and 95% respectively while in the Portfolio.
Despite performing strongly for the first five months of the year, our holdings
in Japanese cyclicals have not performed as well during the last few months of
the year. This reflects general worries about the sustainability of the
country's nascent recovery in the light of the government's need to potentially
reduce its fiscal stimulus programs. Economically sensitive Japanese stocks,
such as Asahi glass and Teijin chemicals generated disappointing returns in the
fourth quarter after strong performance earlier in the year. These returns,
however, were more than offset by the high-octane performance derived from our
excellent stock picking within the Japanese technology and telecommunications
sectors. Holdings in Sony (+306%) and NTT Docomo (+227%), a leading cellular
operator and Internet portal, generated exceptional returns for the year.
Industrial electronics companies such as Murata also exceeded our high
expectations.
In Europe, the Portfolio continued to hold a large position in European
cyclicals, which have performed well as the region's economy has picked up
steam. Positions in RioTinto, the large metals and mining conglomerate in the
United Kingdom, and Total, the French integrated oil company, added to
performance. Furthermore, our investments in the chemicals sector through
holdings in BOC, up 50%, and BASF, which rose 34%, also worked well. On the
consumer cyclical side, our holdings in luxury goods companies such as LVMH and
Gucci also proved well timed.
Nevertheless, our strongest European performance by far was generated by our
telecommunications and technology investments, which gained sharply during the
last months of the year. Apart from the very lucrative investments in Sonera,
the Finnish cellular operator, which rose by 157% while in the Portfolio, and
equipment maker Nokia (up 195%), we were particularly successful with our early
entry into the emerging Italian Internet sector. As Italian publishing houses
such as Seat and Espresso developed successful Internet initiatives using their
strong domestic brand names, their shares both rose significantly.
Looking ahead, we are confident that the improving fundamentals of the major
overseas markets will continue to support strong stock market performance,
albeit with a higher level of volatility. Merges and acquisitions,
restructuring, and stronger economic growth are likely to remain in place as
key themes in the foreign markets. We continue to see opportunities in the
manufacturing, technology, and financial sectors in Japan, despite the runup
that market experienced over the past year. In Europe, we remain focused on the
technology and telecommunication sectors as well as companies who are poised to
capitalize on the economic and regulatory changes currently taking place. While
higher interest rates and potential weakness in the U.S. market continue to
represent potential risks, we believe that the Portfolio is positioned to
outperform in any environment.
Sincerely,
Irene Cheng and International investment team
The opinions expressed in this report are those of the Portfolio Manager and
the International investment team and are only through the end of the period of
the report as stated on the cover.
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
December 31, 1999 Commentary
- -------------------------------------------------------------------------------
Last year was a fitting conclusion to the decade, the century, and the
millennium. The bull market stormed into the future, propelled by the narrow
but powerful rally in technology stocks. Internet stocks in particular were the
source of much of the market's strength. This explosive performance spread
through international markets as well, driving a relatively small number of
stocks to valuation levels not seen in years.
[Start of Tabular Representation of Line Chart]
PPI T. Rowe
Price
Growth S&P
Equity 500
Portfolio Index
11/27/97 10000 10000
3/31/98 11729 11590
6/30/98 11890 11973
9/30/98 10578 10781
12/31/98 13019 13077
3/31/99 13373 13729
6/30/99 14159 14697
9/30/99 13344 13778
12/31/99 15926 15828
Average Annual Total Return for the Fund for the periods ended 12/31/99:
One Year: 22.32%
Since Inception: 24.94%
[End of Tabular Representation of Line Chart]
Past performance is not predictive of future performance. Persons who invest in
the Fund through a variable annuity contract should note this graph does not
reflect separate account expenses deducted by the insurance company.
- -----------------------
*Please note comparative index hypothetical $10,000 growth numbers have an
initial date of 11/30/97.
The second half of 1999 was particularly volatile, as a steep correction in the
third quarter was followed by strong global rallies in the fourth. The Portfolio
returned 22.32% for the year, just ahead of the unmanaged S&P 500 Stock
Index(13) (21.04% return) but behind the Lipper VA Growth Funds Average(14)
(31.48% return). Virtually all performance over the past 12 months can be
attributed to technology holdings. The Portfolio entered the year underweighted
in this sector, which hurt early results. Subsequently, a shift toward a more
aggressive approach vis-a-vis this sector helped to regain lost ground versus
the S&P 500. However, we did not consider it prudent to focus too heavily on
technology shares in order to keep up with some exceptionally aggressive members
of our Lipper peer group.
During the past six months, the U.S. stock market continued to benefit from
strong gross domestic product growth, low inflation, and improvement in many
international economies. Japan and the rest of Asia enjoyed a general economic
recovery and some of the strongest stock market performance in the world.
European markets as a whole also began to improve. Growth was apparent not only
in the small "hot" economies such as Ireland and Spain, but also in the
region's giant economies -- France, Germany, and the United Kingdom.
Many central banks raised interest rates in response to rapid economic growth
and concerns about accelerating inflation. Higher rates did little to slow
rising stock markets in the aggregate, but they did
- -----------------------
(13) The Standard & Poor's 500 Composite Index (S&P 500) 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.
(14) The Lipper 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.
<PAGE>
Portfolio Partners T. Rowe Price Growth Equity Portfolio
December 31, 1999 Commentary, cont'd
- -------------------------------------------------------------------------------
channel market strength into the technology sector and away from more
traditional, interest-rate-sensitive sectors such as financial services. Within
the technology arena, investors couldn't get enough of stocks sporting
"dot.com" names with a claim to the Internet. It is virtually impossible to
overstate the impact of the Internet on portfolio holdings.
A case in point is Safeway, an extremely well run supermarket chain. At the
beginning of 1999, Safeway traded at $61 per share, or 28 times the company's
expected earnings in 2000 -- a high but fair value in our opinion, since the
company has consistently delivered 15%-20% earnings growth and is expected to
continue doing so. In 1999, earnings grew 17%, right in line with expectations.
Yet the stock fell to $35 -- a loss of more than 40%! Why? Because the Internet
is changing retailing, leading to heavy media focus on new e-grocery sites such
as Peapod and Netgrocer. Safeway, a so-called "bricks and mortar" company, was
declared a loser by investors before the battle for market share had even
begun. We vigorously disagree and believe time will prove us right. In the
meantime, Safeway's share price languished despite the company's outstanding
management and consistent growth.
Conversely, Oracle is an example of a stock whose Internet connection made an
altogether different kind of impact. We bought the stock at mid-year for about
$35 a share after a strong second quarter for the company. In the second half,
Oracle reported mixed results yet the stock ended the year at $112, up more
than 200% in less than six months! Why? The company's database software is used
as the backbone for most Internet applications, and its new
business-to-business applications look promising. Some might regard a
price/earnings multiple of more than 100 to be somewhat excessive even in light
of so much promise, but as long as that promise is connected to the Internet,
investors have been willing to pay the price.
In the current market environment, speculation about a company's future is
given more weight than the facts we know about its present circumstances. In
addition, the histories of many wonderful corporations are being ignored in
favor of new Internet companies with no track records whatsoever. This change
in market sentiment has been swift, relentless, and painful for investors who
believe that the past does matter, and that the future will also belong to many
traditional companies with solid histories and sound management. For this
reason, we have been somewhat hesitant to jump with both feet aboard the
dot.com bandwagon; we would rather err on the side of caution, even if it costs
us a bit in relative performance over the short term.
As in most years, 1999 offered several surprises in terms of economic
development and stock market performance. The U.S. economy showed no signs of
slowing, which was widely expected by many. Asian economies sprang back to life
far more quickly than was forecast. The hiccup in technology spending expected
in the second half of 1999 did occur, but it was smaller than many had
previously believed. These three factors were very positive for the earnings of
technology companies and the performance of their stocks.
Also unexpected were the extraordinary valuations that investors were willing
to pay for select groups of stocks. As mentioned, there was no ceiling on what
investors would pay for Internet stocks, while tobacco and insurance companies
found no solid floor for their own share prices. These extremes were
highlighted by a price/earnings multiple of more that 200 for America Online
and a multiple of six accorded to Philip Morris.
The Portfolio was initially positioned for the projected market slowdown in
1999, which never materialized. As we came to the conclusion that strong
economic growth would continue through the year, we aggressively added
technology holdings throughout the second quarter. This turned out to be a
<PAGE>
Portfolio Partners T. Rowe Price Growth Equity Portfolio
December 31, 1999 Commentary, cont'd
- -------------------------------------------------------------------------------
fortunate decision as almost all of the Portfolio's 20 best-performing stocks
were in this sector. America Online, Cisco Systems, Micro-soft, Maxim
Integrated Products, and Nextel all made positive contributions. In other
areas, performance benefited from large positions in Citigroup, GE, and
Wal-Mart.
Performance was hurt by a few companies, such as Waste Management and Network
Associates, whose fundamentals failed to meet expectations, and by the decline
of large holdings like Freddie Mac and Safeway, solid enterprises that were
sadly untouched by the Internet euphoria. We maintained and added to these
positions since we are sanguine about their prospects.
Technology positions were added to along with several software names including
Veritas, Citrix, and Oracle. Shares of Solectron and Flextronics, should
benefit from the trend to outsource technology manufacturing. In addition, the
Portfolio purchased Nextel, Telecom Italia Mobile, Nokia, and Kyocera to
position the Portfolio for the coming development of wireless data. During the
summer, when Internet valuations dipped, positions in America Online and Yahoo!
were established.
As financial stocks fell during the third quarter, positions in Firstar and
Capital One Financial were initiated. While results to date have been less than
spectacular, we believe these stocks can perform well in 2000.
Most of the Portfolio's sales were made with the view of reducing exposure to
consumer nondurables, banks, and insurance.
The year closed with a roaring domestic economy, growing international
economies, and rising interest rates. We entered the New Year with a strangely
bifurcated stock market: technology was in demand and expensive, while most
other stocks were tame but substantially cheaper. The early days of 2000
redressed this imbalance to some extent, as cyclicals started to rally. It will
take a bit longer to see whether or not this is the beginning of a real change
in investor sentiment.
We expect technology spending to remain strong, fueled by the Internet and
wireless applications, and our technology investments are positioned to benefit
from these trends. As the year progresses, we expect the U.S. economy to cool a
bit and traditional businesses to compete more effectively with new Internet
competitors. Perhaps more important, investors will perceive how traditional
business models can continue to thrive alongside the Internet -- a point the
recent Christmas shopping season may have already made. This shifting
perception should reward many of the Portfolio's holdings whose valuations have
been lowered due to competitive uncertainty.
Overseas, prospects look bright. We expect further economic recovery to boost
European markets, and the Euro will gain strength against the dollar in 2000.
The quest for shareholder value will continue to drive more businesses to
restructure and reposition themselves in an expanding global economy.
As always, we will continue to work diligently on your behalf in our search for
attractive investments, both here and abroad.
Respectfully submitted,
Robert W. Smith
Portfolio Manager
The opinions expressed in this report are those of the Portfolio Manager and
are only through the end of the period of the report as stated on the cover.
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 each period:
<TABLE>
<CAPTION>
MFS Emerging
Equities Portfolio
Period from
MFS Emerging MFS Emerging November 28, 1997
Equities Portfolio Equities Portfolio (commencement
Year Ended Year Ended of operations)
December 31, 1999 December 31, 1998 to December 31, 1997
-------------------- -------------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period ......... $ 55.44 $ 42.91 $ 43.39
--------- --------- ---------
Income from investment operations:
Net investment income (loss) ................ (0.43) (0.21) 0.09
Net realized and change in unrealized
gain (loss) on investments, futures,
foreign currency exchange
contracts .................................. 28.46 12.88 (0.57)
--------- --------- ---------
Total income (loss) from
investment operations ................... 28.03 12.67 (0.48)
--------- --------- ---------
Less Distributions:
Net investment income ....................... -- (0.11) --
Net realized gain on sale
of investments ............................. (0.64) (0.03) --
--------- --------- ---------
Total distributions ...................... (0.64) (0.14) --
--------- --------- ---------
Net asset value, end of period ............... $ 82.83 $ 55.44 $ 42.91
========= ========= =========
Total return ................................. 50.88% 29.67% (1.13)%(1)
Net assets, end of period (000's) ............ $1,532,002 $1,069,040 $ 768,108
Ratio of total expenses to average net
assets ...................................... 0.80% 0.81% 0.81%(2)
Ratio of net investment income (loss) to
average net assets .......................... (0.70)% (0.45)% 2.31%(2)
Portfolio turnover rate ...................... 9.97% 4.64% 0.07%(1)
</TABLE>
(1) Not annualized.
(2) Annualized.
16 See Notes to Financial Statements.
<PAGE>
Portfolio Partners, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share outstanding for each period:
<TABLE>
<CAPTION>
MFS Research
Growth Portfolio
Period from
MFS Research MFS Research November 28, 1997
Growth Portfolio Growth Portfolio (commencement
Year Ended Year Ended of operations)
December 31, 1999 December 31, 1998 to December 31, 1997
------------------- ------------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period ......... $ 11.93 $ 9.71 $ 9.89
------- ------- ---------
Income from investment operations:
Net investment income (loss) ................ (0.00)* 0.02 --
Net realized and change in unrealized
gain (loss) on investments, futures,
foreign currency and forward
foreign currency exchange
contracts .................................. 2.88 2.20 (0.18)
------- ------- ---------
Total income (loss) from
investment operations ................... 2.88 2.22 (0.18)
------- ------- ---------
Less Distributions:
Net investment income ....................... (0.03) -- --
------- -------- ---------
Total distributions ...................... (0.03) -- --
------- -------- ---------
Net asset value, end of period ............... $ 14.78 $ 11.93 $ 9.71
======= ======== =========
Total return ................................. 24.03% 23.00% (1.82)%(1)
Net assets, end of period (000's) ............ $553,414 $491,537 $ 399,548
Ratio of total expenses to average net
assets ...................................... 0.85% 0.85% 0.85%(2)
Ratio of net investment income (loss) to
average net assets .......................... (0.03)% 0.23% 0.22%(2)
Portfolio turnover rate ...................... 86.07% 97.51% 57.88%(1)
</TABLE>
(1) Not annualized.
(2) Annualized.
* Rounds to less than $0.01.
See Notes to Financial Statements. 17
<PAGE>
Portfolio Partners, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share outstanding for each period:
<TABLE>
<CAPTION>
MFS Value
Equity Portfolio
Period from
MFS Value MFS Value November 28, 1997
Equity Portfolio Equity Portfolio (commencement
Year Ended Year Ended of operations)
December 31, 1999 December 31, 1998 to December 31, 1997
------------------- ------------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period ......... $ 37.86 $ 29.91 $ 29.49
------- ------- --------
Income from investment operations:
Net investment income (loss) ................ (0.08) 0.05 0.05
Net realized and change in unrealized
gain on investments, futures,
foreign currency and forward
foreign currency exchange
contracts .................................. 18.22 7.94 0.37
------- ------- --------
Total income from investment
operations .............................. 18.14 7.99 0.42
------- ------- --------
Less Distributions:
Net investment income ....................... (0.05) (0.04) --
Net realized gain on sale of
investments ................................ (1.18) -- --
------- -------- --------
Total distributions ...................... (1.23) (0.04) --
------- -------- --------
Net asset value, end of period ............... $ 54.77 $ 37.86 $ 29.91
======= ======== ========
Total return ................................. 48.79% 26.74% 1.43%(1)
Net assets, end of period (000's) ............ $323,059 $194,926 $134,508
Ratio of total expenses to average net
assets ...................................... 0.90% 0.90% 0.90%(2)
Ratio of net investment income (loss) to
average net assets .......................... (0.20)% 0.17% 1.98%(2)
Portfolio turnover rate ...................... 170.59% 141.31% 12.06%(1)
</TABLE>
(1) Not annualized.
(2) Annualized.
18 See Notes to Financial Statements.
<PAGE>
Portfolio Partners, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share outstanding for each period:
<TABLE>
<CAPTION>
Scudder International
Growth Portfolio
Period from
Scudder International Scudder International November 28, 1997
Growth Portfolio Growth Portfolio (commencement
Year Ended Year Ended of operations)
December 31, 1999 December 31, 1998 to December 31, 1997
----------------------- ----------------------- ----------------------
<S> <C> <C> <C>
Net asset value, beginning of period ......... $ 16.76 $ 14.10 $ 13.88
-------- -------- --------
Income from investment operations:
Net investment income ....................... 0.12 0.13 --
Net realized and change in unrealized
gain on investments, futures,
foreign currency and forward
foreign currency exchange
contracts .................................. 9.44 2.56 0.22
-------- -------- --------
Total income from investment
operations .............................. 9.56 2.69 0.22
-------- -------- --------
Less Distributions:
Net investment income ....................... (0.02) (0.03) --
Net realized gain on sale of
investments ................................ (0.81) -- --
--------- -------- --------
Total distributions ...................... (0.83) (0.03) --
--------- --------- --------
Net asset value, end of period ............... $ 25.49 $ 16.76 $ 14.10
========= ======== ========
Total return ................................. 58.41% 19.09% 1.58%(1)
Net assets, end of period (000's) ............ $704,999 $432,651 $378,200
Ratio of total expenses to average net
assets ...................................... 1.00% 1.00% 1.00%(2)
Ratio of net investment income to
average net assets .......................... 0.70% 0.83% 0.12%(2)
Portfolio turnover rate ...................... 82.03% 68.85% 3.01%(1)
</TABLE>
(1) Not annualized.
(2) Annualized.
See Notes to Financial Statements. 19
<PAGE>
Portfolio Partners, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share outstanding for each period:
<TABLE>
<CAPTION>
T. Rowe Price Growth
Equity Portfolio
Period from
T. Rowe Price Growth T. Rowe Price Growth November 28, 1997
Equity Portfolio Equity Portfolio (commencement
Year Ended Year Ended of operations)
December 31, 1999 December 31, 1998 to 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 ....................... 0.15 0.30 0.06
Net realized and change in unrealized
gain on investments, futures,
foreign currency and forward
foreign currency exchange
contracts .................................. 11.99 11.66 0.81
------- ------- --------
Total income from investment
operations .............................. 12.14 11.96 0.87
------- ------- --------
Less Distributions:
Net investment income ....................... (0.26) (0.17) --
Net realized gain on sale of
investments ................................ (1.19) (0.09) --
--------- -------- --------
Total distributions ...................... (1.45) (0.26) --
--------- -------- --------
Net asset value, end of period ............... $ 66.00 $ 55.31 $ 43.61
======== ======== ========
Total return ................................. 22.32% 27.60% 2.03%(1)
Net assets, end of period (000's) ............ $703,454 $521,484 $371,194
Ratio of total expenses to average net
assets ...................................... 0.75% 0.75% 0.75%(2)
Ratio of net investment income to
average net assets .......................... 0.30% 0.65% 1.58%(2)
Portfolio turnover rate ...................... 53.40% 57.58% 2.94%(1)
</TABLE>
(1) Not annualized.
(2) Annualized.
20 See Notes to Financial Statements.
<PAGE>
MFS Emerging Equities Portfolio
Schedule of Investments
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -------
<S> <C> <C>
COMMON STOCKS (100.0%)
Advertising (0.3%)
Mail-Well, Inc.* ..................................... 130,000 $ 1,755,000
Young & Rubicam, Inc. ................................ 48,000 3,396,000
--------------
5,151,000
--------------
Automotive (0.0%)
Federal-Mogul Corp. .................................. 31,300 629,913
National Equipment Services, Inc.* ................... 11,300 70,625
--------------
700,538
--------------
Banks and Credit Companies (0.1%)
Nextcard, Inc.* ...................................... 42,400 1,224,300
U.S. Trust Corp. ..................................... 500 40,094
--------------
1,264,394
--------------
Biotechnology (0.0%)
Guidant Corp. ........................................ 12,800 601,600
--------------
Business Machines (0.1%)
Dell Computer Corp.* ................................. 2,200 112,200
Motorola, Inc. ....................................... 6,900 1,016,025
--------------
1,128,225
--------------
Business Machines--Peripherals (0.0%)
Immersion Corp.* ..................................... 830 31,851
--------------
Business Services (5.7%)
ACSYS, Inc.* ......................................... 13,700 23,119
Affiliated Computer Services, Inc., Class A* ......... 7,600 349,600
BISYS Group, Inc.* ................................... 22,100 1,442,025
Breakaway Solutions, Inc.* ........................... 1,675 122,275
Building One Services Corp.* ......................... 97,277 918,052
Cambridge Technology Partners, Inc.* ................. 107,400 2,819,250
CBT Group PLC ADR (Ireland)* ......................... 72,100 2,415,350
Ceridian Corp.* ...................................... 193,100 4,163,719
Chemdex Corp.* ....................................... 4,225 468,975
Complete Business Solutions, Inc.* ................... 29,100 731,138
Computer Sciences Corp.* ............................. 74,300 7,030,637
Concord EFS, Inc.* ................................... 55,050 1,417,538
Cotelligent Group, Inc.* ............................. 27,200 146,200
Cysive, Inc.* ........................................ 3,650 263,028
Danka Business Systems PLC ADR
(Great Britain)* ................................... 334,900 4,249,044
Digital Impact, Inc.* ................................ 1,460 73,183
DST Systems, Inc.* ................................... 20,900 1,594,931
Dynamex, Inc.*+ ...................................... 7,400 7,400
First Data Corp. ..................................... 481,600 23,748,899
Galileo International, Inc. .......................... 23,800 712,513
ICT Group, Inc.* ..................................... 800 9,800
Ikon Office Solutions, Inc. .......................... 208,100 1,417,681
IMR Global Corp.* .................................... 66,200 831,638
Interim Services, Inc.* .............................. 65,000 1,608,750
ITXC Corp.* .......................................... 7,675 258,072
<CAPTION>
Number of Market
Shares Value
--------- -------
<S> <C> <C>
Business Services (continued)
Keynote Systems, Inc.* ............................... 1,475 $ 108,781
Learning Tree International, Inc.* ................... 14,200 397,600
Liberate Technologies, Inc.* ......................... 3,100 796,700
Management Network Group, Inc.* ...................... 1,130 36,866
Metamor Worldwide, Inc.* ............................. 41,300 1,202,863
Modis Professional Services, Inc.* ................... 981,800 13,990,649
Netsolve, Inc.* ...................................... 950 29,925
Network Solutions, Inc.* ............................. 11,800 2,567,238
NOVA Corp.* .......................................... 33,150 1,046,297
Official Payments Corp.* ............................. 2,270 118,040
Personnel Group of America, Inc.* .................... 32,100 325,013
Pfsweb, Inc.* ........................................ 900 33,750
Predictive Systems, Inc.* ............................ 400 26,200
Proxicom, Inc.* ...................................... 22,600 2,809,463
PRT Group, Inc.* ..................................... 148,600 325,063
RCM Technologies, Inc.* .............................. 42,400 731,400
Renaissance Worldwide, Inc.* ......................... 148,800 1,097,400
Romac International, Inc.* ........................... 48,300 649,031
Silverstream Software, Inc.* ......................... 4,500 535,500
Snyder Communications, Inc.* ......................... 21,600 415,800
SPR, Inc.* ........................................... 7,800 47,775
Stewart Enterprises, Inc. ............................ 22,000 104,500
Sungard Data Systems, Inc.* .......................... 24,700 586,625
Syntel, Inc.* ........................................ 15,000 242,813
Tanning Technology Corp.* ............................ 3,000 176,813
Technology Solutions Co.* ............................ 20,100 658,275
Tickets.com, Inc.* ................................... 3,050 43,653
Tier Technologies, Inc.* ............................. 2,500 21,094
Trintech Group PLC ADR (Ireland)* .................... 16,325 808,088
Vestcom International, Inc.* ......................... 10,000 35,000
Wireless Facilities, Inc.* ........................... 1,000 43,625
------------
86,834,657
------------
Cellular Phones (0.3%)
Sprint Corp. (PCS Group)* ............................ 45,100 4,622,749
Tritel, Inc.* ........................................ 1,750 55,453
Triton PCS Holdings, Inc., Class A* .................. 4,450 202,475
------------
4,880,677
------------
Communications Services (5.5%)
Bell Atlantic Corp. .................................. 800 49,250
Charter Communications, Inc., Class A* ............... 20,730 453,469
Classic Communications, Inc.* ........................ 2,590 94,697
Global TeleSystems Group, Inc.* ...................... 68,400 2,368,350
Illuminet Holdings, Inc.* ............................ 2,275 125,125
Intermedia Communications, Inc.* ..................... 17,700 686,981
MCI Worldcom, Inc.* .................................. 1,234,560 65,508,839
Metromedia Fiber Network, Inc.* ...................... 13,430 643,801
NDS Group PLC ADR (Great Britain)* ................... 440 13,420
Nextel Communications, Inc., Class A* ................ 15,600 1,608,750
Nippon Telegraph & Telephone Corp. (Japan) ........... 60 102,770
</TABLE>
See Notes to Schedule of Investments. 21
<PAGE>
MFS Emerging Equities Portfolio
Scheduled of Investments
December 31, 1999 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -------
<S> <C> <C>
Communications Services (continued)
Partner Communications Co. Ltd. ADR (Israel)* 2,175 $ 56,278
Qwest Communications International, Inc.* ......... 30,000 1,290,000
Sprint Corp. ...................................... 8,200 551,963
Talk.com, Inc.* ................................... 580,400 10,302,099
Time Warner Telecom, Inc.* ........................ 4,000 199,750
Williams Communications Group, Inc.* .............. 27,875 806,633
Wink Communications, Inc.* ........................ 875 52,555
-----------
84,914,730
-----------
Computer Software (23.2%)
Acency.com, Inc.* ................................. 700 35,700
Active Software, Inc.* ............................ 8,125 747,500
Agile Software Corp.* ............................. 3,375 733,166
Akamai Technologies, Inc.* ........................ 2,125 696,203
America Online, Inc. .............................. 3,400 256,488
Art Technology Group, Inc.* ....................... 900 115,313
Backweb Technologies Ltd.* ........................ 1,500 63,188
Be Free, Inc.* .................................... 1,025 73,672
Broadbase Software, Inc.* ......................... 2,200 247,500
BSquare Corp.* .................................... 800 33,550
CacheFlow, Inc.* .................................. 1,780 232,624
C-Bridge Internet Solutions, Inc.* ................ 870 42,304
Compuware Corp.* .................................. 1,668,800 62,162,799
Data Return Corp.* ................................ 2,600 139,100
Digex, Inc.* ...................................... 5,925 407,344
Digimarc Corp.* ................................... 1,370 68,500
Digital Insight Corp.* ............................ 2,150 78,206
eBenx, Inc.* ...................................... 610 27,603
Ecollege.com, Inc.* ............................... 1,920 21,000
Egreetings Network, Inc.* ......................... 880 8,910
Engage Technologies, Inc.* ........................ 1,200 72,000
eSPEED, Inc., Class A* ............................ 2,900 103,131
E.Piphany, Inc.* .................................. 1,075 239,859
FreeMarkets, Inc.* ................................ 530 180,896
F.Y.I., Inc.* ..................................... 72,000 2,448,000
GetThere.com, Inc.* ............................... 860 34,615
Gric Communications, Inc.* ........................ 560 14,210
Harris Interactive, Inc.* ......................... 1,010 13,193
iManage, Inc.* .................................... 260 8,353
Interliant, Inc.* ................................. 600 15,600
Internap Network Services* ........................ 4,550 787,150
Interrust Technologies Corp.* ..................... 1,525 179,378
Interwoven, Inc.* ................................. 1,325 161,153
Kana Communications, Inc.* ........................ 1,150 235,750
Knot, Inc.* ....................................... 480 4,050
Lifeminders.com, Inc.* ............................ 1,000 57,750
Luminant Worldwide Corp.* ......................... 4,325 196,788
Mediaplex, Inc.* .................................. 1,220 76,555
MedicaLogic, Inc.* ................................ 1,700 35,700
Metasolv Software, Inc.* .......................... 1,210 98,918
Navisite, Inc.* ................................... 550 55,000
<CAPTION>
Number of Market
Shares Value
--------- -------
<S> <C> <C>
Computer Software (continued)
OnDisplay, Inc.* .................................. 330 $ 29,989
OpenTV Corp.* ..................................... 1,860 149,265
Oracle Systems Corp.* ............................. 2,464,750 276,206,046
Quintus Corp.* .................................... 1,720 78,905
Radware Ltd.* ..................................... 1,550 66,844
Retek, Inc.* ...................................... 1,210 91,053
RSA Security, Inc.* ............................... 18,500 1,433,750
SAP AG (Germany) .................................. 10,000 4,880,797
SciQuest.com* ..................................... 1,220 96,990
SonicWall, Inc.* .................................. 880 35,420
Tibco Software, Inc.* ............................. 3,200 489,600
Transaction Systems Architects, Inc., Class A*..... 500 14,000
VA Linux Systems, Inc.* ........................... 1,300 268,613
Vitria Technology, Inc.* .......................... 1,700 397,800
Xpedior, Inc.* .................................... 1,670 48,013
-----------
355,495,804
-----------
Computer Software--PC (9.0%)
Autodesk, Inc. .................................... 36,600 1,235,250
Bluestone Software* ............................... 1,400 161,000
McAfee.com Corp.* ................................. 2,800 126,000
Microsoft Corp.* .................................. 1,166,800 136,223,899
Networks Associates, Inc.* ........................ 6,200 165,463
-----------
137,911,612
-----------
Computer Software--Systems (11.7%)
Ariba, Inc.* ...................................... 3,700 656,288
Aspen Technologies, Inc.* ......................... 3,900 103,106
BMC Software, Inc.* ............................... 921,152 73,634,587
Cadence Design Systems, Inc.* ..................... 1,105,000 26,519,999
Calico Commerce, Inc.* ............................ 875 46,375
Caliper Technologies Corp.* ....................... 930 62,078
Circle.com* ....................................... 5,400 66,488
Citrix Systems, Inc.* ............................. 2,700 332,100
Computer Associates International, Inc. ........... 866,300 60,586,855
PeopleSoft, Inc. .................................. 19,300 411,331
Rational Software Corp.* .......................... 15,400 756,525
Synopsys, Inc.* ................................... 240,900 16,080,074
Veritas Software Corp.* ........................... 6,900 987,563
-----------
180,243,369
-----------
Conglomerates (4.3%)
Tyco International Ltd ............................ 1,712,000 66,553,999
-----------
Consumer Goods and Services (5.0%)
Cendant Corp.* .................................... 2,892,329 76,827,488
E-Stamp Corp.* .................................... 1,225 27,256
Netiq Corp.* ...................................... 1,650 85,903
Quest Software, Inc.* ............................. 2,450 249,900
U.S. Internetworking, Inc.* ....................... 3,450 241,069
-----------
77,431,616
-----------
Electrical Equipment (0.1%)
Cable Design Technologies* ........................ 35,900 825,700
-----------
</TABLE>
22 See Notes to Schedule of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
-------- -----------
<S> <C> <C>
Electronics (4.4%)
Agilent Technologies, Inc.* ....................... 15,530 $ 1,200,663
Altera Corp.* ..................................... 743,800 36,864,587
Amkor Technology, Inc.* ........................... 4,200 118,650
Analog Devices, Inc.* ............................. 69,700 6,482,099
Burr--Brown Corp.* ................................ 900 32,513
Intel Corp. ....................................... 138,900 11,433,205
JDS Uniphase Corp.* ............................... 10,900 1,758,306
Metalink Ltd.* .................................... 1,310 26,691
Rudolph Technologies, Inc.* ....................... 560 18,760
Sage, Inc.* ....................................... 570 11,044
Silicon Image, Inc.* .............................. 975 68,311
Stmicroelectronics N.V. (Netherlands) ............. 2,900 445,934
Teradyne, Inc.* ................................... 56,400 3,722,400
Thomson Multimedia (France)* ...................... 350 18,844
Virata Corp.* ..................................... 900 26,888
Xilinx, Inc.* ..................................... 104,400 4,746,942
-----------
66,975,837
-----------
Entertainment (7.6%)
Acme Communications, Inc.* ........................ 1,600 53,200
AMFM, Inc.* ....................................... 27,200 2,128,400
CBS Corp.* ........................................ 68,200 4,360,538
Citadel Communications Corp.* ..................... 8,800 570,900
Clear Channel Communications, Inc.* ............... 357,092 31,870,460
Cox Radio, Inc., Class A* ......................... 20,000 1,995,000
Emmis Broadcasting Corp., Class A* ................ 5,800 722,915
Entercom Communications Corp.* .................... 20,200 1,333,200
GameTech International, Inc.* ..................... 50,000 250,000
Hearst-Argyle Television, Inc.* ................... 5,000 133,125
Hispanic Broadcasting Corp.* ...................... 7,800 719,307
Infinity Broadasting Corp.* ....................... 63,875 2,311,477
Insight Communications, Inc.* ..................... 13,300 394,013
Premier Parks, Inc.* .............................. 104,700 3,023,213
Radio One, Inc.* .................................. 6,500 598,000
Radio Unica Communications Corp.* ................. 2,550 73,631
Spanish Broadcasting System, Inc.* ................ 5,075 204,269
Time Warner, Inc. ................................. 347,300 25,157,543
UnitedGlobalCom, Inc., Class A* ................... 21,800 1,539,625
Univision Communications, Inc., Class A* .......... 380,500 38,882,343
Young Broadcasting, Inc., Class A* ................ 1,000 51,000
-----------
116,372,159
-----------
Financial Institutions (0.5%)
Associates First Capital Corp ..................... 130,000 3,566,875
CIT Group, Inc., Class A .......................... 8,600 181,675
Federated Investors, Inc., Class B ................ 14,600 292,913
Franklin Resources, Inc. .......................... 65,100 2,087,269
Goldman Sachs Group, Inc. ......................... 4,200 395,588
Heller Financial, Inc. ............................ 12,060 241,954
Morgan Stanley Dean Witter Discover & Co. ......... 1,300 185,575
-----------
6,951,849
-----------
<CAPTION>
Number of Market
Shares Value
-------- -----------
<S> <C> <C>
Food and Beverage Products (0.1%)
Suiza Foods Corp.* ................................ 25,100 $ 994,588
-----------
Insurance (0.2%)
Ace, Ltd. (Bermuda) ............................... 70,400 1,174,800
Conseco, Inc. ..................................... 60,030 1,073,036
Hartford Life, Inc., Class A ...................... 2,200 96,800
-----------
2,344,636
-----------
Machinery (0.0%)
Mannesmann AG (Germany) ........................... 2,800 677,394
-----------
Medical and Health Products (0.5%)
Boston Scientific Corp.* .......................... 221,500 4,845,312
Coast Dental Services, Inc.* ...................... 1,000 2,438
Genentech, Inc.* .................................. 16,200 2,178,900
Renex Corp.* ...................................... 20,000 186,250
-----------
7,212,900
-----------
Medical and Health Technology Services (3.4%)
Capital Senior Living Corp.* ...................... 59,900 303,244
Foundation Health Systems* ........................ 100,100 994,744
General Instrument Corp.* ......................... 6,000 510,000
Healthsouth Corp.* ................................ 364,100 1,957,038
Maxygen, Inc.* .................................... 780 55,380
McKesson HBOC, Inc. ............................... 90,352 2,038,567
Medtronic, Inc. ................................... 10,314 375,816
Mid Atlantic Medical Services, Inc.* .............. 3,400 28,263
Orthodontic Centers of America, Inc.* ............. 228,400 2,726,525
Oxford Health Plans, Inc.* ........................ 39,100 496,081
PacifiCare Health Systems, Inc., Class A* ......... 13,700 726,100
Provantage Health Services* ....................... 2,100 16,800
PSS World Medical, Inc.* .......................... 55,500 523,781
Rural/Metro Corp.* ................................ 17,500 74,923
Total Renal Care Holdings, Inc.* .................. 20,706 138,471
United Healthcare Corp. ........................... 694,200 36,879,374
Wellpoint Health Networks, Inc.* .................. 53,900 3,554,031
-----------
51,399,138
-----------
Pollution Control (0.5%)
Allied Waste Industries, Inc.* .................... 33,170 292,311
Republic Services, Inc., Class A* ................. 426,300 6,128,062
Waste Management, Inc. ............................ 67,112 1,153,488
-----------
7,573,861
-----------
Printing and Publishing (0.1%)
Aether Systems, Inc.* ............................. 2,725 195,178
Applied Graphics Technologies, Inc.* .............. 700 6,038
Ventiv Health, Inc.* .............................. 7,200 66,150
Workflow Management, Inc.* ........................ 20,252 579,714
-----------
847,080
-----------
Railroad (0.4%)
Kansas City Southern Industries ................... 89,400 6,671,474
-----------
</TABLE>
See Notes to Schedule of Investments. 23
<PAGE>
MFS Emerging Equities Portfolio
Schedule of Investments
December 31, 1999 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
-------- --------------
<S> <C> <C>
Restaurants and Lodging (0.9%)
Applebee's International, Inc. .................. 236,000 $ 6,961,999
Buffetts, Inc.* ................................. 96,800 968,000
CEC Entertainment, Inc.* ........................ 44,900 1,274,038
CKE Restaurants, Inc. ........................... 8,100 47,588
Extended Stay America, Inc.** ................... 800 6,100
Four Seasons Hotels, Inc. (Canada) .............. 5,800 308,850
Friendly Ice Cream Corp.* ....................... 40,000 177,500
Hilton Hotels Corp. ............................. 228,446 2,198,789
MeriStar Hotels & Resorts, Inc.* ................ 50,000 178,125
Papa John's International, Inc.* ................ 9,400 244,988
Schlotzsky's, Inc.* ............................. 131,500 871,188
Sunterra Corp.* ................................. 15,000 172,500
U.S. Franchise Systems, Inc., Class A* .......... 29,700 133,650
--------------
13,543,315
--------------
Special Products and Services (0.1%)
Adelphia Communications Corp., Class A* ......... 3,700 242,813
Aztec Technology Partners, Inc.* ................ 102,678 468,469
Central Parking Corp. ........................... 9,700 185,513
Expedia, Inc., Class A* ......................... 1,590 55,650
Gartner Group, Inc., Class A .................... 5,900 89,975
KPNQwest N.V. (Netherlands)* .................... 1,080 71,841
Staff Mark, Inc.* ............................... 65,900 498,369
U.S. Office Products Co.* ....................... 96,748 302,337
--------------
1,914,967
--------------
Stores (2.8%)
Autonation, Inc.* ............................... 1,714,400 15,858,199
Consolidated Stores Corp.* ...................... 115,100 1,870,375
CVS Corp. ....................................... 23,600 942,525
Home Depot, Inc. ................................ 24,600 1,686,638
Micro Warehouse, Inc.* .......................... 245,600 4,543,599
Office Depot, Inc.* ............................. 1,023,750 11,197,265
Rite Aid Corp. .................................. 644,000 7,204,749
--------------
43,303,350
--------------
Supermarkets (0.2%)
Kroger Co.* ..................................... 184,700 3,486,213
--------------
Telecommunications (12.8%)
Adelphia Business Solutions, Inc.* .............. 6,800 326,400
Airgate PCS, Inc.* .............................. 2,925 154,294
Airnet Communications Corp.* .................... 2,420 88,028
Alteon Websystems, Inc.* ........................ 1,150 100,913
Amdocs Ltd.* .................................... 3,232 111,504
American Tower Systems Corp., Class A* .......... 300 9,169
Cisco Systems, Inc.* ............................ 1,691,500 181,201,937
Cobalt Networks, Inc.* .......................... 940 101,873
Crossroads Systems, Inc.* ....................... 2,700 228,150
Deltathree.com, Inc., Class A* .................. 1,090 28,068
Echostar Communications Corp.* .................. 17,900 1,745,250
Efficient Networks, Inc.* ....................... 600 40,800
Finisar Corp.* .................................. 1,890 169,864
<CAPTION>
Number of Market
Shares Value
-------- --------------
<S> <C> <C>
Telecommunications (continued)
Foundry Networks, Inc.* ......................... 1,575 $ 475,158
Gadzoox Networks, Inc.* ......................... 1,400 60,988
Global Crossing Ltd.* ........................... 17,470 873,500
Ibasis, Inc.* ................................... 550 15,813
Interspeed, Inc.* ............................... 2,275 40,239
Jazztel PLC ADR (Great Britain)* ................ 140 9,118
JNI Corp.* ...................................... 1,375 90,750
Lucent Technologies, Inc. ....................... 110,554 8,270,820
MCK Communications, Inc.* ....................... 350 7,875
Next Level Communications, Inc.* ................ 1,190 89,101
Packeteer, Inc.* ................................ 1,325 94,075
Paradyne Networks, Inc.* ........................ 2,800 76,300
PC-Tel, Inc.* ................................... 3,000 157,500
Redback Networks, Inc.* ......................... 1,200 213,000
SCC Communications Corp.* ....................... 14,400 84,600
Sycamore Networks, Inc.* ........................ 1,875 577,500
Telecorp PCS, Inc.* ............................. 2,510 95,380
Thus PLC (Great Britain)* ....................... 4,430 27,969
Vixel Corp.* .................................... 675 11,517
Z-Tel Technologies, Inc.* ....................... 3,170 127,989
--------------
195,705,442
--------------
Trucking (0.1%)
United Parcel Service, Class B .................. 21,330 1,471,770
--------------
Utilities-Electric (0.1%)
Calpine Corp.* .................................. 15,300 979,200
--------------
Total Common Stocks (Cost $816,781,013) 1,532,394,945
--------------
PREFERRED STOCKS (0.1%)
Computer Software (0.1%)
SAP AG-Vorzug (Germany) ......................... 2,900 1,748,131
--------------
Total Preferred Stocks (Cost $882,995) 1,748,131
--------------
RIGHTS (0.0%)
Communications Services (0.0%)
Talk.com, Inc. .................................. 31,850 23,888
--------------
Total Rights (Cost $0) 23,888
--------------
TOTAL INVESTMENTS (100.1%) (Cost $817,664,008 (a)) 1,534,166,964
Other assets less liabilities (-0.1%) (2,165,047)
--------------
Total Net Assets (100.0%) $1,532,001,917
==============
</TABLE>
24 See Notes to Schedule of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Notes to Schedule of Investments
(a) The cost of investments for federal income tax purposes amounts to
$818,382,048. Unrealized gains and losses, based on identified tax cost at
December 31, 1999, are as follows:
Unrealized gains ......................................................... $819,243,375
Unrealized losses ........................................................ (103,458,459)
------------
Net unrealized gain ..................................................... $715,784,916
============
</TABLE>
* Non-income producing security.
** Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualify institutional buyers. At December 31,
1999 the market value of these securities amounted to $6,100 or 0% of net
assets.
+ Fair valued by the Board of Directors.
ADR American Depository Receipt.
Category percentages are based on net assets.
See Notes to Financial Statements 25
<PAGE>
MFS Research Growth Portfolio
Schedule of Investments
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
COMMON STOCKS (98.6%)
Aerospace (1.8%)
General Dynamics Corp. ............................. 80,300 $ 4,235,825
United Technologies ................................ 88,500 5,752,500
-----------
9,988,325
-----------
Automotive (0.3%)
Federal-Mogul Corp. ................................ 87,900 1,768,988
-----------
Banks and Credit Companies (3.7%)
Bank of America Corp. .............................. 59,600 2,991,175
Bank of Ireland (Ireland) .......................... 461,000 3,665,042
Bank One Corp. ..................................... 64,800 2,077,650
Capital One Financial Corp. ........................ 56,900 2,741,869
Chase Manhattan Bank ............................... 29,100 2,260,706
Providian Financial Corp. .......................... 32,600 2,968,638
U.S. Bancorp ....................................... 106,500 2,536,031
Wells Fargo & Co. .................................. 36,400 1,471,925
-----------
20,713,036
-----------
Biotechnology (0.8%)
Guidant Corp. ...................................... 92,800 4,361,600
-----------
Business Machines (6.3%)
Hewlett-Packard Co. ................................ 21,800 2,483,838
International Business Machines Corp. .............. 44,200 4,773,600
Motorola, Inc. ..................................... 80,900 11,912,524
Sun Microsystems, Inc.* ............................ 208,200 16,122,487
-----------
35,292,449
-----------
Business Machines--Peripherals (0.6%)
Seagate Technology, Inc.* .......................... 66,800 3,110,375
-----------
Business Services (1.6%)
First Data Corp. ................................... 54,200 2,672,738
Liberate Technologies, Inc.* ....................... 11,300 2,904,100
Trintech Group PLC ADR (Ireland)* .................. 17,925 887,288
Visx. Inc.* ........................................ 41,000 2,121,750
-----------
8,585,876
-----------
Cellular Phones (2.4%)
Sprint Corp. (PCS Group)* .......................... 128,600 13,181,499
-----------
Chemicals (0.3%)
Cambrex Corp. ...................................... 44,400 1,529,025
-----------
Communications Services (6.2%)
Bell Atlantic Corp. ................................ 130,700 8,046,218
Ericsson AB (Sweden) ............................... 40,600 2,609,967
GTE Corp. .......................................... 23,300 1,644,106
MCI Worldcom, Inc.* ................................ 157,184 8,340,548
Nippon Telegraph & Telephone Corp. (Japan) ......... 2,800 4,795,928
SBC Communications, Inc. ........................... 72,600 3,539,250
Sprint Corp. ....................................... 76,900 5,176,331
-----------
34,152,348
-----------
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
Computer Software (4.1%)
America Online, Inc. ............................... 48,200 $ 3,636,088
Bea Systems, Inc.* ................................. 9,000 629,438
Compuware Corp.* ................................... 126,700 4,719,575
Digimarc Corp.* .................................... 4,930 246,500
FreeMarkets, Inc.* ................................. 210 71,676
Oracle Systems Corp.* .............................. 116,700 13,077,693
Phone.com* ......................................... 4,300 498,531
-----------
22,879,501
-----------
Computer Software--PC (4.5%)
Macromedia, Inc.* .................................. 17,100 1,250,438
Microsoft Corp.* ................................... 203,700 23,781,974
-----------
25,032,412
-----------
Computer Software--Systems (5.9%)
Ariba, Inc.* ....................................... 7,800 1,383,525
BMC Software, Inc.* ................................ 81,000 6,474,938
Citrix Systems, Inc.* .............................. 18,300 2,250,900
Computer Associates International, Inc. ............ 42,150 2,947,866
EMC Corp.* ......................................... 78,400 8,565,199
Veritas Software Corp.* ............................ 77,750 11,127,968
-----------
32,750,396
-----------
Conglomerates (1.8%)
Tyco International Ltd. ............................ 257,900 10,025,862
-----------
Consumer Goods and Services (3.2%)
Cendant Corp.* ..................................... 22,900 608,281
Clorox Co. ......................................... 82,400 4,150,900
Colgate-Palmolive Co. .............................. 86,500 5,622,500
Dial Corp. ......................................... 141,200 3,432,925
Procter & Gamble Co. ............................... 37,700 4,130,506
-----------
17,945,112
-----------
Containers (0.5%)
Owens-Illinois, Inc.* .............................. 104,300 2,614,019
-----------
Electrical Equipment (2.3%)
Danaher Corp. ...................................... 97,300 4,694,725
General Electric Co. ............................... 30,500 4,719,875
Oak Industries, Inc.* .............................. 29,900 3,173,138
-----------
12,587,738
-----------
Electronics (7.7%)
Analog Devices, Inc.* .............................. 177,200 16,479,599
DII Group, Inc.* ................................... 21,200 1,504,539
Flextronics International Ltd.* .................... 52,600 2,419,600
Hitachi Ltd. (Japan) ............................... 268,000 4,301,856
Intel Corp. ........................................ 31,000 2,551,688
LSI Logic Corp.* ................................... 176,200 11,893,499
Micron Technology, Inc.* ........................... 32,500 2,526,875
SCI Systems, Inc.* ................................. 18,900 1,553,344
-----------
43,231,000
-----------
</TABLE>
26 See Notes to Schedule of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
Entertainment (4.2%)
Carnival Corp., Class A ........................... 65,100 $ 3,112,594
CBS Corp.* ........................................ 55,500 3,548,531
Comcast Corp. ..................................... 64,100 3,241,056
Infinity Broadasting Corp.* ....................... 126,400 4,574,100
Polaroid Corp. .................................... 58,900 1,108,056
Time Warner, Inc. ................................. 102,200 7,403,112
-----------
22,987,449
-----------
Financial Institutions (3.7%)
Associates First Capital Corp. .................... 95,304 2,614,904
Citigroup, Inc. ................................... 112,650 6,259,116
Federal Home Loan Mortgage Corp. .................. 74,000 3,482,625
Marsh & McLennan Co., Inc. ........................ 19,700 1,885,044
Merrill Lynch & Co. ............................... 13,500 1,127,250
Morgan Stanley Dean Witter Discover & Co. ......... 21,000 2,997,750
Orix Corp. (Japan) ................................ 8,700 1,960,204
-----------
20,326,893
-----------
Food and Beverage Products (2.2%)
Anheuser Busch Co., Inc. .......................... 90,400 6,407,100
Nabisco Holdings Corp., Class A ................... 76,500 2,419,313
Quaker Oats Co. ................................... 55,000 3,609,375
-----------
12,435,788
-----------
Forest Products & Paper (0.6%)
Bowater, Inc. ..................................... 57,100 3,101,244
-----------
Insurance (4.7%)
American International Group, Inc. ................ 55,975 6,052,297
Aon Corp. ......................................... 20,500 820,000
Axa Financial, Inc. ............................... 126,100 4,271,638
CIGNA Corp. ....................................... 73,500 5,921,344
Hartford Financial Services Group ................. 65,400 3,098,325
Lincoln National Corp. ............................ 73,800 2,952,000
Reliastar Financial Corp. ......................... 78,200 3,064,463
-----------
26,180,067
-----------
Machinery (1.2%)
Deere & Co. ....................................... 25,500 1,106,063
Ingersoll Rand Co. ................................ 12,500 688,281
Mannesmann AG (Germany) ........................... 18,300 4,456,722
SPX Corporation* .................................. 7,300 589,931
-----------
6,840,997
-----------
Medical and Health Products (4.6%)
American Home Products Corp. ...................... 195,200 7,698,199
Boston Scientific Corp.* .......................... 86,800 1,898,750
Bristol-Myers Squibb Co. .......................... 90,300 5,796,131
Pharmacia & Upjohn, Inc. .......................... 129,000 5,805,000
Sanofi-Synthelabo SA (France)* .................... 105,700 4,397,384
-----------
25,595,464
-----------
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
Medical and Health Technology Services (1.6%)
General Instrument Corp.* ......................... 6,400 $ 544,000
Medtronic, Inc. ................................... 144,500 5,265,219
United Healthcare Corp. ........................... 54,700 2,905,938
-----------
8,715,157
-----------
Oil Services (1.8%)
Cooper Cameron Corp.* ............................. 30,600 1,497,488
Noble Drilling Corp.* ............................. 58,200 1,906,050
Transocean Sedco Forex, Inc. ...................... 70,800 2,385,075
Zeneca Group PLC (Great Britain) .................. 94,900 3,935,076
-----------
9,723,689
-----------
Oils (4.6%)
Atlantic Richfield Co. (ARCO) ..................... 19,600 1,695,400
BP Amoco PLC ...................................... 61,548 3,650,566
Conoco, Inc., Class B ............................. 238,000 5,920,250
Devon Energy Corp. ................................ 23,100 759,413
EOG Resources, Inc. ............................... 81,700 1,434,856
Exxon Mobil Corp. ................................. 89,596 7,218,078
Total Fina SA ..................................... 9,800 678,650
Total SA--Series B (France) ....................... 32,800 4,373,598
-----------
25,730,811
-----------
Printing and Publishing (0.9%)
Tribune Co. ....................................... 91,600 5,043,725
-----------
Special Products and Services (1.1%)
Abitibi Consolidated, Inc. ........................ 44,100 523,688
VeriSign, Inc.* ................................... 29,800 5,689,938
-----------
6,213,626
-----------
Stores (4.6%)
Costco Wholesale Corp.* ........................... 35,000 3,193,750
CVS Corp. ......................................... 129,700 5,179,894
Office Depot, Inc.* ............................... 193,800 2,119,688
Tandy Corp. ....................................... 23,700 1,165,744
The Gap, Inc. ..................................... 55,200 2,539,200
TJX Co., Inc. ..................................... 94,500 1,931,344
Wal-Mart Stores, Inc. ............................. 133,500 9,228,187
-----------
25,357,807
-----------
Supermarkets (1.7%)
Kroger Co.* ....................................... 141,200 2,665,150
Safeway, Inc.* .................................... 185,800 6,607,513
-----------
9,272,663
-----------
Telecommunications (5.6%)
Ancor Communications, Inc.* ....................... 3,525 239,259
Cisco Systems, Inc.* .............................. 157,100 16,829,337
Corning, Inc. ..................................... 32,900 4,242,044
Echostar Communications Corp.* .................... 20,000 1,950,000
Nortel Networks Corp. (Canada) .................... 74,400 7,514,399
-----------
30,775,039
-----------
</TABLE>
See Notes to Schedule of Investments. 27
<PAGE>
MFS Research Growth Portfolio
Schedule of Investments
December 31, 1999 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
---------- ------------
<S> <C> <C>
Utilities--Electric (1.1%)
AES Corp.* ............................................................... 27,700 $ 2,070,575
CMS Energy Corp. ......................................................... 58,000 1,808,875
Texas Utilities Co. ...................................................... 55,800 1,984,388
------------
5,863,838
------------
Utilities--Gas (0.4%)
Columbia Energy Group .................................................... 30,750 1,944,938
------------
Total Common Stocks (Cost $394,688,099) 545,858,756
------------
TOTAL INVESTMENTS (98.6%) (Cost $ 394,688,099 (a)) 545,858,756
Other assets less liabilities (1.4%) 7,555,576
------------
Total Net Assets (100.0%) $553,414,332
============
Notes to Schedule of Investments
(a) The cost of investments for federal income tax purposes amounts to
$395,085,257. Unrealized gains and losses, based on identified tax cost at
December 31, 1999, are as follows:
Unrealized gains ......................................................... $171,049,652
Unrealized losses ........................................................ (20,276,153)
------------
Net unrealized gain ..................................................... $150,773,499
============
</TABLE>
* Non-income producing security.
ADR American Depository Receipt.
Category percentages are based on net assets.
28 See Notes to Financial Statements.
<PAGE>
MFS Value Equity Portfolio
Schedule of Investments
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- ------------
<S> <C> <C>
COMMON STOCKS (97.8%)
Advertising (0.6%)
Young & Rubicam, Inc. ............................... 26,200 $ 1,853,650
------------
Aerospace (0.5%)
Honeywell International, Inc. ....................... 25,262 1,457,302
------------
Banks and Credit Companies (1.0%)
Chase Manhattan Bank ................................ 20,000 1,553,750
Providian Financial Corp. ........................... 14,700 1,338,619
Softbank Corp. (Japan) .............................. 500 478,614
------------
3,370,983
------------
Business Machines (2.6%)
Dell Computer Corp.* ................................ 41,100 2,096,100
Motorola, Inc. ...................................... 28,600 4,211,349
Texas Instruments, Inc. ............................. 20,500 1,985,938
------------
8,293,387
------------
Business Machines--Peripherals (0.1%)
Seagate Technology, Inc.* ........................... 6,600 307,313
------------
Business Services (0.9%)
Smurfit Jefferson (Ireland) ......................... 512,600 1,535,391
Unisys Corp.* ....................................... 43,200 1,379,700
------------
2,915,091
------------
Cellular Phones (2.2%)
Libertel N.V. (Netherlands) ......................... 116,700 3,053,467
Sprint Corp. (PCS Group)* ........................... 40,900 4,192,249
Tritel, Inc.* ....................................... 880 27,885
------------
7,273,601
------------
Communications Services (16.7%)
AT&T Corp. .......................................... 50,800 2,578,100
Broadwing, Inc. ..................................... 100,805 3,717,184
Cable and Wireless PLC (Great Britain)* ............. 94,100 1,352,292
Cable & Wireless Optus Ltd. (Australia)* ............ 522,700 1,747,961
Colt Telecom Group PLC ADR (Great Britain)* ......... 7,600 1,550,400
Colt Telecom Group PLC (Great Britain)* ............. 13,600 695,911
Deutsche Telekom AG (Germany) ....................... 10,100 721,654
Ericsson AB (Sweden) ................................ 49,100 3,156,389
Ericsson LM ADR (Sweden) ............................ 5,200 341,575
GTE Corp. ........................................... 20,100 1,418,306
Koninklijke N.V. (Netherlands) ...................... 12,550 1,223,817
Level 3 Communications, Inc.* ....................... 16,500 1,350,938
MCI Worldcom, Inc.* ................................. 90,750 4,815,421
Metromedia Fiber Network, Inc.* ..................... 43,580 2,089,116
NDS Group PLC ADR (Great Britain)* .................. 25,750 785,375
Netcom Systems AB (Sweden)* ......................... 19,700 1,384,486
Nextel Communications, Inc., Class A* ............... 25,000 2,578,125
Nippon Telegraph & Telephone Corp. (Japan) .......... 1,330 2,278,066
NTT Mobile Communcations Network, Inc.
(Japan) ........................................... 1,020 3,923,461
Partner Communications Co. Ltd. ADR (Israel)* 124,175 3,213,028
<CAPTION>
Number of Market
Shares Value
--------- ------------
<S> <C> <C>
Communications Services (continued)
Telecom Italia Mobile SpA (Italy) ................... 550,900 $ 6,148,263
United Pan-Europe Communications N.V
(Netherlands)* .................................... 28,800 3,680,827
Viatel, Inc.* ....................................... 6,700 359,288
Western Wireless Corp., Class A* .................... 4,200 280,350
Williams Communications Group, Inc.* ................ 30,300 876,806
Winstar Communications, Inc.* ....................... 25,800 1,941,450
------------
54,208,589
------------
Computer Software (2.6%)
Computer Network Technology Corp.* .................. 4,600 105,513
Compuware Corp.* .................................... 65,300 2,432,425
Equant N.V. (Netherlands)* .......................... 16,670 1,890,640
FreeMarkets, Inc.* .................................. 100 34,131
Oracle Systems Corp.* ............................... 31,450 3,524,366
Phone.com* .......................................... 3,100 359,406
------------
8,346,481
------------
Computer Software--PC (3.2%)
Microsoft Corp.* .................................... 87,800 10,250,649
------------
Computer Software--Systems (3.1%)
Ariba, Inc.* ........................................ 1,800 319,276
BMC Software, Inc.* ................................. 47,600 3,805,025
Computer Associates International, Inc. ............. 28,000 1,958,250
EMC Corp.* .......................................... 16,500 1,802,625
Veritas Software Corp.* ............................. 14,300 2,046,688
------------
9,931,864
------------
Conglomerates (3.1%)
Tyco International Ltd. ............................. 171,688 6,674,370
Vivendi (France) .................................... 37,200 3,356,158
------------
10,030,528
------------
Electronics (6.5%)
Altera Corp.* ....................................... 27,900 1,382,794
Analog Devices, Inc.* ............................... 38,900 3,617,700
California Amplifier, Inc.* ......................... 10,100 265,756
Chartered Semiconductor Manufacturing ADR
(Singapore)* ...................................... 4,750 346,750
Etec Systems, Inc.* ................................. 34,700 1,557,163
Hitachi Ltd. (Japan) ................................ 161,000 2,584,324
Intel Corp. ......................................... 7,100 584,419
Lam Research Corp.* ................................. 6,700 747,469
LSI Logic Corp.* .................................... 44,600 3,010,500
Novellus Systems, Inc.* ............................. 17,800 2,181,057
Stmicroelectronics N.V. (Netherlands) ............... 12,975 1,995,170
Teradyne, Inc.* ..................................... 39,600 2,613,600
------------
20,886,702
------------
Entertainment (8.1%)
CBS Corp.* .......................................... 51,500 3,292,781
Comcast Corp. ....................................... 35,600 1,800,025
Harrah's Entertainment, Inc.* ....................... 104,300 2,757,431
</TABLE>
See Notes to Schedule of Investments. 29
<PAGE>
MFS Value Equity Portfolio
Schedule of Investments
December 31, 1999 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- ------------
<S> <C> <C>
Entertainment (continued)
Hearst-Argyle Television, Inc.* ..................... 60,900 $ 1,621,463
Infinity Broadasting Corp.* ......................... 212,725 7,697,985
Insight Communications, Inc.* ....................... 24,300 719,888
MediaOne Group, Inc.* ............................... 21,700 1,666,831
Polaroid Corp. ...................................... 38,700 728,044
PrimaCom AG (Germany)* .............................. 3,000 193,219
Time Warner, Inc. ................................... 37,900 2,745,381
UnitedGlobalCom, Inc., Class A* ..................... 39,600 2,796,750
------------
26,019,798
------------
Financial Institutions (1.8%)
Associates First Capital Corp. ...................... 51,700 1,418,519
Citigroup, Inc. ..................................... 36,100 2,005,806
Federal Home Loan Mortgage Corp. .................... 33,000 1,553,063
Merrill Lynch & Co. ................................. 7,900 659,650
------------
5,637,038
------------
Food and Beverage Products (0.5%)
Seagrams Co. Ltd. ................................... 34,400 1,545,850
------------
Forest Products & Paper (1.3%)
Asia Pulp & Paper Co. Ltd. ADR (Singapore)* ......... 161,800 1,274,175
Bowater, Inc. ....................................... 31,900 1,732,569
Weyerhauser Co. ..................................... 15,400 1,105,913
------------
4,112,657
------------
Insurance (2.8%)
Axa Financial, Inc. ................................. 81,100 2,747,263
Hartford Financial Services Group ................... 53,600 2,539,300
Hartford Life, Inc., Class A ........................ 11,800 519,200
Lincoln National Corp. .............................. 78,500 3,140,000
Travelers Property Casualty Corp., Class A .......... 4,300 147,275
XL Captial Ltd. (Bermuda) ........................... 1 52
------------
9,093,090
------------
Machinery (3.2%)
Bouygues SA (France) ................................ 3,877 2,461,922
Ingersoll Rand Co. .................................. 6,000 330,375
Mannesmann AG (Germany) ............................. 31,302 7,623,184
------------
10,415,481
------------
Medical and Health Products (2.2%)
American Home Products Corp. ........................ 48,400 1,908,775
Bausch & Lomb, Inc. ................................. 12,700 869,156
Boston Scientific Corp.* ............................ 104,700 2,290,313
Pharmacia & Upjohn, Inc. ............................ 47,500 2,137,500
------------
7,205,744
------------
Medical and Health Technology Services (1.1%)
General Instrument Corp.* ........................... 40,000 3,400,000
------------
Oil Services (4.5%)
Baker Hughes, Inc. .................................. 138,100 2,908,731
BJ Services Co.* .................................... 34,300 1,434,169
Conoco, Inc., Class A ............................... 55,800 1,381,050
<CAPTION>
Number of Market
Shares Value
--------- ------------
<S> <C> <C>
Oil Services (continued)
Cooper Cameron Corp.* ............................... 36,200 $ 1,771,538
Halliburton Co. ..................................... 23,400 941,850
Noble Drilling Corp.* ............................... 64,900 2,125,475
Schlumberger Ltd. ................................... 12,200 686,250
Transocean Sedco Forex, Inc. ........................ 35,262 1,187,886
Weatherford International* .......................... 54,600 2,180,588
------------
14,617,537
------------
Oils (2.2%)
Apache Corp. ........................................ 21,300 786,769
BP Amoco PLC (Great Britain) ........................ 2 119
Coastal Corp. ....................................... 54,900 1,945,519
Conoco, Inc., Class B ............................... 90,200 2,243,725
EOG Resources, Inc. ................................. 126,600 2,223,413
------------
7,199,545
------------
Printing and Publishing (0.9%)
Meredith Corp. ...................................... 25,200 1,050,525
Tribune Co. ......................................... 36,200 1,993,263
------------
3,043,788
------------
Railroad (1.0%)
Canadian National Railway Co. (Canada) .............. 40,200 1,057,763
Kansas City Southern Industries ..................... 18,300 1,365,638
Union Pacific Corp. ................................. 16,500 719,813
------------
3,143,214
------------
Special Products and Services (0.4%)
Abitibi Consolidated, Inc. .......................... 116,300 1,381,063
Freenet.De AG (Germany)* ............................ 210 23,035
------------
1,404,098
------------
Stores (2.6%)
Costco Wholesale Corp.* ............................. 14,800 1,350,500
CVS Corp. ........................................... 49,100 1,960,931
Fast Retailing, Inc. ................................ 2,000 814,329
Office Depot, Inc.* ................................. 100,400 1,098,125
Tandy Corp. ......................................... 36,100 1,775,669
TJX Co., Inc. ....................................... 61,500 1,256,906
------------
8,256,460
------------
Supermarkets (2.2%)
Kroger Co.* ......................................... 244,300 4,611,162
Safeway, Inc.* ...................................... 66,500 2,364,906
------------
6,976,068
------------
Telecommunications (15.4%)
Adelphia Business Solutions, Inc.* .................. 41,200 1,977,600
Amdocs Ltd.* ........................................ 20,000 690,000
Ancor Communications, Inc.* ......................... 11,175 758,503
Antec Corp.* ........................................ 61,300 2,237,450
AT&T Canada, Inc.* .................................. 60,100 2,419,025
Centurytel, Inc. .................................... 12,300 582,713
China Telecom Hong Kong Ltd. (Hong Kong)* ........... 266,000 1,663,032
Cisco Systems, Inc.* ................................ 39,200 4,199,299
</TABLE>
30 See Notes to Schedule of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- ------------
<S> <C> <C>
Telecommunications (continued)
Corning, Inc. ................................... 51,800 $ 6,678,961
Echostar Communications Corp.* .................. 6,300 614,250
Global Crossing Ltd.* ........................... 29,100 1,455,000
Jazztel PLC ADR (Great Britain)* ................ 41,420 2,697,478
MobilCom AG (Germany) ........................... 16,400 1,402,853
Nokia Oyj (Finland) ............................. 22,000 4,180,000
Nortel Networks Corp. (Canada) .................. 19,700 1,989,700
NTL, Inc.* ...................................... 38,950 4,859,012
Panafon SA (Greece) ............................. 154,110 2,076,416
RSL Communications, Ltd.* ....................... 63,900 1,094,288
Sonera Oyj (Finland) ............................ 48,500 3,321,382
Telecom Italia SpA (Italy) ...................... 153,800 2,166,873
Telesystem International Wireless, Inc. (Canada)* 66,600 2,480,850
Tellabs, Inc.* .................................. 10,100 648,294
Thus PLC (Great Britain)* ....................... 22,700 143,316
Z-Tel Technologies, Inc.* ....................... 710 28,666
------------
50,364,961
------------
Utilities--Electric (2.9%)
AES Corp.* ...................................... 59,600 4,455,099
Calpine Corp.* .................................. 37,500 2,400,000
CMS Energy Corp. ................................ 78,600 2,451,338
------------
9,306,437
------------
Utilities--Gas (1.6%)
Enron Corp. ..................................... 61,100 2,711,313
Williams Companies, Inc. ........................ 79,700 2,435,831
------------
5,147,144
------------
Total Common Stocks (Cost $243,727,815) 316,015,050
------------
CONVERTIBLE DEBT (0.5%)
Entertainment (0.5%)
UnitedGlobalCom, Inc.** ......................... 18,200 1,656,200
------------
Total Convertible Debt (Cost $910,000) 1,656,200
------------
PREFERRED STOCKS (0.5%)
Communications Services (0.5%)
Telephone Cooperative HPY (Finland)* ............ 39,000 1,461,974
------------
Total Preferred Stocks (Cost $976,574) 1,461,974
------------
WARRANTS (0.0%)
Forest Products & Paper (0.0%)
Asia Pulp & Paper (Singapore) ................... 9,460 8,869
------------
Total Warrants (Cost $0) 8,869
------------
TOTAL INVESTMENTS (98.8%) (Cost $245,614,389 (a)) 319,142,093
Other assets less liabilities (1.2%) 3,917,264
------------
Total Net Assets (100.0%) $323,059,357
============
</TABLE>
Notes to Schedule of Investments
(a) The cost of investments for federal income tax purposes amounts to
$245,900,139. Unrealized gains and losses, based on identified tax cost at
December 31, 1999, are as follows:
<TABLE>
<S> <C>
Unrealized gains .............. $82,825,055
Unrealized losses ............. (9,583,101)
-----------
Net unrealized gain .......... $73,241,954
===========
</TABLE>
* Non-income producing security.
** Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualify institutional buyers. At December 31,
1999 the market value of these securities amounted to $1,656,200 or .051%
of net assets.
ADR American Depository Receipt.
Category percentages are based on net assets.
See Notes to Financial Statements. 31
<PAGE>
Scudder International Growth Portfolio
Schedule of Investments
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- ----------
<S> <C> <C>
COMMON STOCKS (96.2%)
Australia (1.6%)
Broken Hill Proprietary Co. (Mining) ................ 411,200 $5,403,456
Western Mining Corp. Holding Ltd. (Mining) .......... 772,100 4,261,065
Woodside Petroleum Ltd. (Oil & Gas) ................. 256,600 1,896,608
----------
11,561,129
----------
Canada (0.8%)
Canadian National Railway Co. (Transportation) 210,000 5,525,625
----------
Finland (3.6%)
Nokia Oyj (Communications) .......................... 92,200 16,701,385
Sonera Oyj (Communications) ......................... 126,400 8,656,137
----------
25,357,522
----------
France (13.6%)
Axa UAP (Insurance) ................................. 37,673 5,247,050
Bic SA (Office Equipment & Supplies) ................ 101,033 4,593,657
Carrefour Supermarche SA (Food Retailers) ........... 23,570 4,343,072
Christian Dior SA (Diversified) ..................... 27,846 6,893,614
Club Mediterranee SA (Lodging)* ..................... 8,974 1,036,757
Dassault Systemes SA (Computer Software &
Processing) ....................................... 34,605 2,253,159
Establissements Economiques du Casino SA
(Food Retailers) .................................. 60,850 4,687,647
Eurotunnel SA (Financial Services)* ................. 3,470,436 4,086,091
Lafarge SA (Industrial) ............................. 47,128 5,482,593
Moet Hennessy Louis Vuitton (Beverages, Food
& Tobacco) ........................................ 9,561 4,278,776
Pinault-Printemps-Redoute SA (Retailers) ............ 20,923 5,516,636
Renault SA (Automotive) ............................. 53,832 2,592,759
Rhodia SA (Chemicals) ............................... 257,985 5,825,946
Aventis S.A. (Chemicals) ............................ 189,143 10,982,842
Schneider SA (Electronics) .......................... 48,485 3,803,406
Total SA--Series B (Oil & Gas) ...................... 102,597 13,680,428
Union Assurances Federale SA (Financial
Services) ......................................... 20,251 2,376,260
Usinor SA (Metals) .................................. 169,903 3,188,807
Vivendi (Industrial) ................................ 55,494 5,006,630
----------
95,876,130
----------
Germany (11.8%)
Allianz AG (Insurance) .............................. 15,713 5,273,561
BASF AG (Chemicals) ................................. 125,159 6,448,830
Bayerische Vereinsbank AG (Banking) ................. 67,052 4,574,991
Celanese AG (Chemicals)* ............................ 13,360 247,384
Commerzbank AG (Banking) ............................ 72,500 2,659,409
Deutsche Telekom AG (Communications) ................ 52,850 3,715,017
Dresdner Bank AG (Banking) .......................... 91,116 4,942,341
Epcos AG (Electronics)* ............................. 118,803 8,847,248
Heidelberger Druckmaschinen AG
(Heavy Machinery) ................................. 16,988 896,679
Mannesmann AG (Heavy Machinery) ..................... 94,670 23,055,619
Siemens AG .......................................... 83,575 10,681,428
<CAPTION>
Number of Market
Shares Value
--------- ----------
<S> <C> <C>
Germany (continued)
Thyssen Krupp (Heavy Machinery) ..................... 245,563 $7,599,021
Veba AG (Electric Utilities) ........................ 91,995 4,485,465
----------
83,426,993
----------
Hong Kong (1.2%)
Cheung Kong Ltd. (Real Estate) ...................... 293,300 3,725,907
Citic Pacific Ltd. (Diversified) .................... 478,800 1,801,629
New World China Land Ltd. (Real Estate)* ............ 6,014 2,224
New World Development Co. Ltd. (Real Estate) 1,202,968 2,708,122
New World Infrastructure Ltd.
(Heavy Machinery)* ................................ 323,200 413,696
----------
8,651,578
----------
Italy (4.1%)
Arnoldo Mondadori Editore SpA (Media--
Broadcasting & Publishing) ........................ 114,000 3,613,800
Banca Nazionale del Lavoro (Banking)* ............... 1,109,300 3,695,078
Gruppo Editoriale L'Espresso (Media--
Broadcasting & Publishing) ........................ 404,872 4,681,535
Mediaset SpA (Media--Broadcasting &
Publishing) ....................................... 341,200 5,301,566
Seat Pagine Gialle SpA--RNC (Media--
Broadcasting & Publishing) ........................ 5,275,000 11,625,573
----------
28,917,552
----------
Japan (30.1%)
Advantest Corp. (Electronics) ....................... 23,900 6,315,943
Asahi Glass Co. Ltd. (Industrial) ................... 325,000 2,516,150
Benesse Corp. (Commercial Services) ................. 11,000 2,648,527
Canon, Inc. (Electronics) ........................... 93,000 3,695,606
CSK Corp. (Computer Software & Processing) .......... 28,000 4,549,280
Daiwa Securities Co. Ltd. (Financial Services) ...... 647,000 10,125,809
DDI Corp. (Communications) .......................... 6,300 8,632,671
Fanuc Ltd. (Electronics) ............................ 21,700 2,763,209
Fuji Bank (Banking) ................................. 503,000 4,888,707
Fujisawa Pharmaceutical (Pharmaceuticals) ........... 45,000 1,092,299
Fujitsu Ltd. (Computers & Information) .............. 276,000 12,588,443
Fujitsu Support & Service (Computer Software
& Processing) ..................................... 7,400 3,628,658
Hitachi Ltd. (Electronics) .......................... 515,000 8,266,626
Kyocera Corp. (Electronics) ......................... 40,000 10,374,864
Matsushita Electric Industrial Co., Ltd.
(Electronics) ..................................... 287,000 7,949,584
Murata Manufacturing Co., Ltd. (Electronics) ........ 59,000 13,859,253
NEC Corp. (Computers & Information) ................. 441,000 10,510,265
Nikko Securities Co., Ltd. (Financial Services) ..... 530,000 6,707,362
Nippon Telegraph & Telephone Corp.
(Communications) .................................. 5,920 10,139,963
Nissan Motor Co. Ltd. (Transportation)* ............. 948,000 3,730,001
Nomura Securities Co. Ltd. (Financial Services) 370,000 6,681,497
NSK Ltd. (Heavy Machinery) .......................... 480,000 3,283,920
NTT Mobile Communications Network, Inc.
(Communications) .................................. 4,420 17,001,664
Sakura Bank Ltd. (Banking) .......................... 873,000 5,058,424
</TABLE>
32 See Notes to Schedule of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
Japan (continued)
Sanwa Bank Ltd. (Banking) ........................... 24,000 $ 291,984
SMC Corp. (Heavy Machinery) ......................... 9,200 2,035,940
Sony Corp. ADR (Electronics) ........................ 10,000 2,847,500
Sony Corp. (Electronics) ............................ 39,000 11,566,016
Sumitomo Trust & Banking (Banking) .................. 717,000 4,842,260
Teijin Ltd. (Textiles, Clothing & Fabrics) .......... 83,000 306,262
THK Co. Ltd. (Industrial) ........................... 59,400 2,401,114
Tokyo Electron Ltd. (Electronics) ................... 78,000 10,688,067
Toray Industries Inc. (Textiles, Clothing &
Fabrics) .......................................... 494,000 1,914,695
Toshiba Corp. (Electronics) ......................... 773,000 5,901,314
Yamanouchi Pharmaceutical Co., Ltd.
(Pharmaceuticals) ................................. 74,000 2,585,693
-----------
212,389,570
-----------
Netherlands (7.7%)
Aegon N.V. (Insurance) .............................. 36,020 3,404,517
Akzo Nobel N.V. (Chemicals) ......................... 71,490 3,582,807
Equant N.V. (Computer Software &
Processing)* ...................................... 92,559 10,497,644
Fortis Amev N.V. (Insurance) ........................ 84,510 3,040,416
Gucci Group N.V. (Textiles, Clothing & Fabrics) ..... 55,690 6,376,505
Koninklijke N.V. (Communications) ................... 49,190 4,796,778
KPNQwest N.V. (Computers & Information)* ............ 30,680 2,040,824
Laurus N.V. (Food Retailers) ........................ 117,980 2,125,256
Stmicroelectronics N.V. (Electronics) ............... 82,397 12,670,211
United Pan-Europe Communications N.V.
(Communications)* ................................. 44,230 5,652,881
-----------
54,187,839
-----------
Singapore (0.5%)
DBS Group Holdings Ltd. (Real Estate) ............... 131,419 2,154,155
Overseas-Chinese Banking (Banking) .................. 136,500 1,253,944
-----------
3,408,099
-----------
South Korea (3.1%)
Dacom Corp. (Communications)* ....................... 6,370 3,281,770
Samsung Electronics (Electronics) ................... 37,316 8,741,572
SK Telecom Co. Ltd. (Communications) ................ 2,660 9,534,302
-----------
21,557,644
-----------
Spain (0.8%)
Telefonica Pulicidad E Informacion SA
(Media--Broadcasting & Publishing)** .............. 13,547 657,794
Telefonica SA (Communications)* ..................... 189,144 4,720,561
-----------
5,378,355
-----------
Sweden (0.5%)
Ericsson AB (Commercial Services) ................... 54,200 3,484,242
-----------
Switzerland (1.5%)
Nestle SA (Beverages, Food & Tobacco) ............... 2,509 4,596,340
Novartis AG (Pharmaceuticals) ....................... 1,999 2,935,164
Roche Holding AG (Pharmaceuticals) .................. 2,530 3,003,015
-----------
10,534,519
-----------
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
Taiwan (3.4%)
Asustek Computer, Inc. (Computers &
Information) ...................................... 228,000 $ 2,404,579
Chinatrust Commercial Bank (Banking)* ............... 996,800 1,159,278
Far East Textile (Textiles, Clothing & Fabrics) ..... 2,287,660 5,466,821
Hon Hai Precision Industry (Industrial)* ............ 282,800 2,108,500
Taiwan Semiconductor (Electronics)* ................. 1,023,070 5,443,755
United Microelectronics Corp. Ltd.
(Electronics)* .................................... 2,160,000 7,708,176
-----------
24,291,109
-----------
Thailand (0.5%)
Siliconware Precision Industries Co.
(Electronics)* .................................... 1,372,680 3,498,961
-----------
United Kingdom (11.4%)
Billiton PLC (Mining) ............................... 582,930 3,437,946
BOC Group PLC (Chemicals) ........................... 286,346 6,149,424
BP Amoco PLC (Oil & Gas) ............................ 587,560 5,905,859
British Aerospace PLC (Aerospace & Defense) 860,675 5,697,927
Glaxo Wellcome PLC (Pharmaceuticals) ................ 110,691 3,127,829
London & Scotland Marine Oil PLC (Oil & Gas) 4 8
Marconi Electronic Systems PLC
(Communications) .................................. 218,612 3,867,028
Prudential Corporation PLC (Insurance) .............. 429,480 8,460,455
Rentokil Initial PLC (Environmental Controls) ....... 480,114 1,750,112
Reuters Group PLC (Financial Services) .............. 663,326 9,098,776
Rio Tinto PLC (Mining) .............................. 525,548 12,686,624
Royal & Sun Alliance Insurance Group PLC
(Insurance) ....................................... 422,611 3,217,464
Shell Transport & Trading Co. PLC (Oil & Gas) ....... 1,020,001 8,473,761
SmithKline Beecham PLC (Pharmaceuticals) ............ 247,505 3,157,199
Standard Chartered PLC (Banking) .................... 348,837 5,413,008
-----------
80,443,420
-----------
Total Common Stocks (Cost $426,243,721) 678,490,287
-----------
PREFERRED STOCKS (1.1%)
Germany (1.1%)
SAP AG-Vorzug (Computer Software &
Processing) ....................................... 12,800 7,715,887
-----------
Total Preferred Stocks (Cost $4,578,716) 7,715,887
-----------
CORPORATE DEBT (0.3%)
France (0.3%)
Eurotunnel Finance Limited (Financial Services) 1,100,000 $ 1,533,174
Eurotunnel SA (Financial Services) .................. 300,000 418,138
-----------
1,951,312
-----------
</TABLE>
See Notes to Schedule of Investments. 33
<PAGE>
Scudder International Growth Portfolio
Schedule of Investments
December 31, 1999 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
---------- ------------
<S> <C> <C>
United Kingdom (0.0%)
British Aerospace PLC (Aerospace & Defense) 73,479 $ 115,680
------------
Total Corporate Debt (Cost $1,871,360) 2,066,992
------------
TOTAL INVESTMENTS (97.6%) (Cost $432,693,797 (a)) 688,273,166
Other assets less liabilities (2.4%) 16,725,668
------------
Total Net Assets (100.0%) $704,998,834
============
Notes to Schedule of Investments
(a) The cost of investments for federal income tax purposes amounts to
$432,693,801. Unrealized gains and losses, based on identified tax cost at
December 31, 1999, are as follows:
Unrealized gains ......................................................... $264,291,312
Unrealized losses ........................................................ (8,711,947)
------------
Net unrealized gain ..................................................... $255,579,365
============
</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 form registration,
normally to qualify institutional buyers. At December 31, 1999, the market
value of this security amounted to $657,794 or 0.1% of net assets.
ADR American Depository Receipt.
Category percentages are based on net assets.
34 See Notes to Financial Statements.
<PAGE>
T. Rowe Price Growth Equity Portfolio
Schedule of Investments
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
---------- ----------
<S> <C> <C>
COMMON STOCKS (97.2%)
Advertising (1.2%)
Omnicom Group, Inc. ................................ 81,300 $8,130,000
----------
Aerospace & Defense (0.9%)
Honeywell International, Inc. ...................... 63,100 3,640,081
Teleflex, Inc. ..................................... 81,300 2,545,706
----------
6,185,787
----------
Banking (3.4%)
Bank of America Corp. .............................. 59,956 3,009,042
Bank of New York Co., Inc. ......................... 161,900 6,476,000
Firstar Corp. ...................................... 272,700 5,760,788
HSBC Holdings PLC (Great Britain). ................. 162,000 2,271,564
Wells Fargo & Co. .................................. 160,600 6,494,263
----------
24,011,657
----------
Beverages, Food & Tobacco (1.2%)
Pepsico, Inc. ...................................... 125,400 4,420,350
Philip Morris Co., Inc. ............................ 159,500 3,698,406
----------
8,118,756
----------
Commercial Services (0.5%)
Randstad Holdings N.V. (Netherlands) ............... 71,400 3,434,590
----------
Communications (8.9%)
Charter Communications, Inc., Class A* ............. 77,300 1,690,938
General Instrument Corp.* .......................... 21,700 1,844,500
Lucent Technologies, Inc. .......................... 106,790 7,989,227
MCI Worldcom, Inc.* ................................ 214,374 11,375,219
Nextel Communications, Inc., Class A* .............. 55,200 5,692,500
Nippon Telegraph & Telephone Corp. (Japan) ......... 1,380 2,363,708
Nokia Oyj (Finland) ................................ 22,300 4,237,000
SBC Communications, Inc. ........................... 41,000 1,998,750
Sprint Corp. ....................................... 78,200 5,263,838
Telecom Italia Mobile (Italy) ...................... 1,541,600 7,338,016
Telecom Italia SpA (Italy) ......................... 272,900 3,844,861
Telecomunicacoes Brasileiras SA--Telebras
ADR (Brazil) ..................................... 45,800 5,885,300
Vodafone Group PLC ADR (Great Britain) ............. 69,150 3,422,925
----------
62,946,782
----------
Computer Software & Processing (13.7%)
America Online, Inc. ............................... 120,800 9,112,850
Automatic Data Processing, Inc. .................... 114,600 6,174,075
BMC Software, Inc.* ................................ 99,900 7,985,756
Ceridian Corp.* .................................... 152,600 3,290,438
Citrix Systems, Inc.* .............................. 26,700 3,284,100
CMGI, Inc.* ........................................ 3,900 1,079,813
Computer Associates International, Inc. ............ 109,500 7,658,156
First Data Corp. ................................... 101,800 5,020,013
Getronics N.V. (Netherlands) ....................... 18,782 1,496,980
IMS Health, Inc. ................................... 87,500 2,378,906
Microsoft Corp.* ................................... 206,700 24,132,224
Oracle Systems Corp.* .............................. 78,800 8,830,525
<CAPTION>
Number of Market
Shares Value
---------- ----------
<S> <C> <C>
Computer Software & Processing (continued)
Parametric Technology Co.* ......................... 149,200 $4,037,725
PE Corp. Biosystems Group .......................... 6,300 757,969
Sun Microsystems, Inc.* ............................ 54,400 4,212,600
Veritas Software Corp.* ............................ 28,850 4,129,156
Yahoo! Inc.* ....................................... 8,700 3,764,381
----------
97,345,667
----------
Computers & Information (5.9%)
3 Com Corp.* ....................................... 99,400 4,671,800
Cisco Systems, Inc.* ............................... 130,050 13,931,605
Dell Computer Corp.* ............................... 190,800 9,730,800
Fujitsu Ltd. (Japan) ............................... 87,000 3,968,096
Hewlett-Packard Co. ................................ 55,700 6,346,319
Lexmark International Group, Inc.* ................. 31,000 2,805,500
----------
41,454,120
----------
Cosmetics & Personal Care (0.5%)
Colgate-Palmolive Co. .............................. 37,200 2,418,000
Gillette Co. ....................................... 26,400 1,087,350
----------
3,505,350
----------
Diversified (3.6%)
Hutchison Whampoa Ltd. (Hong Kong) ................. 598,700 8,703,062
Tomkins PLC (Great Britain) ........................ 517,660 1,671,731
Tyco International Ltd. ............................ 385,500 14,986,312
----------
25,361,105
----------
Electronics (8.0%)
Altera Corp.* ...................................... 92,800 4,599,400
Epcos AG (Germany)* ................................ 24,200 1,826,526
Flextronics International Ltd.* .................... 120,800 5,556,800
Intel Corp. ........................................ 108,700 8,947,369
JDS Uniphase Corp.* ................................ 22,200 3,581,138
Koninklijke Philips Electonics N.V. (Netherlands) 48,700 6,616,251
Kyocera Corp. ...................................... 13,000 3,371,831
Maxim Intergrated Products, Inc.* .................. 145,600 6,870,500
Solectron Corp.* ................................... 70,300 6,687,288
Sony Corp. (Japan) ................................. 6,000 1,779,387
Texas Instruments, Inc. ............................ 63,900 6,190,313
----------
56,026,803
----------
Entertainment & Leisure (0.6%)
Time Warner, Inc. .................................. 49,800 3,607,388
Walt Disney Co. .................................... 25,100 734,175
----------
4,341,563
----------
Environmental Controls (0.3%)
Rentokil Initial PLC (Great Britain) ............... 588,000 2,143,378
----------
Financial Services (6.0%)
Ambac Financial Group, Inc. ........................ 25,100 1,309,906
American Express Corp. ............................. 6,300 1,047,375
Associates First Capital Corp. ..................... 138,900 3,811,069
Berkshire Hathaway, Inc., Class A* ................. 710 3,983,100
Capital One Financial Corp. ........................ 106,400 5,127,150
</TABLE>
See Notes to Schedule of Investments. 35
<PAGE>
T. Rowe Price Growth Equity Portfolio
Schedule of Investments
December 31, 1999 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
-------- -----------
<S> <C> <C>
Financial Services (continued)
Citigroup, Inc. .................................. 316,650 $17,593,865
Mellon Financial Corp. ........................... 94,000 3,201,875
Morgan Stanley Dean Witter Discover & Co. ........ 31,300 4,468,075
Mutual Risk Management Ltd. ...................... 113,900 1,914,944
-----------
42,457,359
-----------
Food Retailers (1.3%)
Koninklijke Ahold N.V. (Netherlands) ............. 62,800 1,857,410
Safeway, Inc.* ................................... 214,200 7,617,488
-----------
9,474,898
-----------
Forest Products & Paper (0.5%)
Kimberly--Clark Corp. ............................ 50,200 3,275,550
-----------
Health Care Providers (0.8%)
United Healthcare Corp. .......................... 102,700 5,455,938
-----------
Heavy Machinery (2.2%)
Applied Materials, Inc.* ......................... 52,500 6,651,094
Mannesmann AG (Germany) .......................... 36,300 8,840,382
-----------
15,491,476
-----------
Home Construction, Furnishings & Appliances (2.2%)
General Electric Co. ............................. 98,700 15,273,824
-----------
Household Products (1.4%)
Corning, Inc. .................................... 75,600 9,747,675
-----------
Insurance (2.7%)
Ace, Ltd. (Bermuda) .............................. 271,700 4,533,994
Fairfax Financial Holdings Ltd. (Canada)* ........ 8,785 1,503,218
Hartford Financial Services Group ................ 49,900 2,364,013
Partner Re Ltd. (Bermuda) ........................ 56,500 1,832,719
Unum Provident Corp. ............................. 56,300 1,805,119
Wellpoint Health Networks, Inc.* ................. 105,500 6,956,406
-----------
18,995,469
-----------
Lodging (0.4%)
Mirage Resorts, Inc.* ............................ 172,800 2,646,000
-----------
Media--Broadcasting & Publishing (6.7%)
AMFM, Inc.* ...................................... 11,300 884,225
AT&T Corp. Liberty Media Group* .................. 108,500 6,157,375
CBS Corp.* ....................................... 119,100 7,614,956
Clear Channel Communications, Inc.* .............. 61,500 5,488,875
Comcast Corp. .................................... 97,700 4,939,956
Fox Entertainment Group, Inc.* ................... 73,100 1,822,931
Infinity Broadasting Corp.* ...................... 126,600 4,581,338
MediaOne Group, Inc.* ............................ 94,500 7,258,781
Tribune Co. ...................................... 50,200 2,764,138
VNU N.V. (Netherlands) ........................... 86,800 4,557,981
Wolters Kluwer N.V. (Netherlands) ................ 25,508 862,512
-----------
46,933,068
-----------
<CAPTION>
Number of Market
Shares Value
-------- -----------
<S> <C> <C>
Medical Supplies (1.3%)
Baxter International, Inc. ....................... 75,900 $ 4,767,469
Johnson & Johnson ................................ 44,600 4,153,375
-----------
8,920,844
-----------
Metals (1.0%)
Danaher Corp. .................................... 75,200 3,628,400
Masco Corp. ...................................... 137,000 3,476,375
-----------
7,104,775
-----------
Oil & Gas (3.2%)
Baker Hughes, Inc. ............................... 161,300 3,397,381
Chevron Corp. .................................... 46,800 4,054,050
Exxon Mobil Corp. ................................ 98,219 7,912,768
Royal Dutch Petroleum Co. N.V. (Netherlands) ..... 118,600 7,167,888
-----------
22,532,087
-----------
Pharmaceuticals (7.4%)
American Home Products Corp. ..................... 93,500 3,687,406
Amgen, Inc.* ..................................... 62,600 3,759,913
Bristol-Myers Squibb Co. ......................... 122,400 7,856,550
Eli Lilly and Co. ................................ 65,000 4,322,500
Genentech, Inc.* ................................. 37,100 4,989,950
Merck & Co., Inc. ................................ 82,500 5,532,656
Pfizer, Inc. ..................................... 185,200 6,007,425
Schering-Plough Corp. ............................ 119,200 5,028,750
Warner-Lambert Co. ............................... 103,300 8,464,144
Waters Corp.* .................................... 45,500 2,411,500
-----------
52,060,794
-----------
Real Estate (0.7%)
Crescent Real Estate Equities Co. REIT ........... 81,700 1,501,238
Security Capital U.S. Realty ADR (Luxembourg)* 86,250 1,212,891
Starwood Hotels & Resorts Worldwide, Inc. ........ 94,300 2,216,050
-----------
4,930,179
-----------
Restaurants (0.9%)
Compass Group PLC (Great Britain) ................ 239,400 3,285,765
McDonald's Corp. ................................. 73,200 2,950,875
-----------
6,236,640
-----------
Retailers (6.0%)
Cifra SA ADR (Mexico)* ........................... 74,200 1,487,124
CVS Corp. ........................................ 117,000 4,672,688
Dayton-Hudson Corp. .............................. 59,500 4,369,531
Home Depot, Inc. ................................. 159,600 10,942,574
Kroger Co.* ...................................... 223,400 4,216,675
Nike, Inc. ....................................... 53,700 2,661,506
Staples, Inc.* ................................... 101,200 2,099,900
Wal-Mart Stores, Inc. ............................ 169,600 11,723,599
-----------
42,173,597
-----------
Transportation (0.5%)
Kansas City Southern Industries .................. 49,800 3,716,325
-----------
</TABLE>
36 See Notes to Schedule of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
U.S. Government (3.3%)
Federal Home Loan Mortgage Corp. ......................................... 349,700 16,457,755
Federal National Mortgage Association .................................... 109,300 6,824,419
----------
23,282,174
----------
Total Common Stocks (Cost $512,603,614) 683,714,230
-----------
TOTAL INVESTMENTS (97.2%) (Cost $512,603,614 (a)) 683,714,230
Other assets less liabilities (2.8%) 19,739,277
-----------
Total Net Assets (100.0%) $703,453,507
============
Notes to Schedule of Investments
(a) The cost of investments for federal income tax purposes amounts to
$514,886,023. Unrealized gains and losses, based on identified tax cost at
December 31, 1999, are as follows:
Unrealized gains ......................................................... $196,159,813
Unrealized losses ........................................................ (27,331,606)
------------
Net unrealized gain ..................................................... $168,828,207
============
</TABLE>
* Non-income producing security.
ADR American Depository Receipt.
Category percentages are based on net assets.
See Notes to Financial Statements. 37
<PAGE>
Portfolio Partners, Inc.
Statements of Assets and Liabilities
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MFS Emerging MFS Research
Equities Portfolio Growth Portfolio
-------------------- ------------------
<S> <C> <C>
Assets:
Investments, at market value ............... $1,534,166,964 $545,858,756
Cash ....................................... 645,528 9,435,419
Receivable for:
Dividends and interest .................... 134,200 264,046
Investments sold .......................... 71,728 1,372,455
Fund shares sold .......................... 239,381 --
Recoverable foreign taxes ................. 787 29,501
Gross unrealized gain on forward foreign
currency exchange contracts ............... -- --
-------------- ------------
1,535,258,588 556,960,177
-------------- ------------
Liabilities:
Payable for:
Investments purchased ..................... -- 2,458,465
Fund shares redeemed ...................... 2,319,002 707,552
Due to custodian ........................... -- --
Administrative services fees payable ....... 152,739 67,237
Advisory fees payable ...................... 784,930 312,591
-------------- ------------
Total Liabilities ....................... 3,256,671 3,545,845
-------------- ------------
NET ASSETS ................................. $1,532,001,917 $553,414,332
============== ============
Net assets represented by:
Paid-in Capital ............................ $ 800,120,804 $360,230,684
Net unrealized gain on investments and
foreign currency related translations ..... 716,502,901 151,168,650
Undistributed net investment income
(distribution in excess) .................. -- --
Accumulated net realized gain
on investments ............................ 15,378,212 42,014,998
-------------- ------------
NET ASSETS ................................. $1,532,001,917 $553,414,332
============== ============
Capital Shares, $.001 par value:
Outstanding ............................... 18,495,276 37,444,138
Net Assets ................................ $1,532,001,917 $553,414,332
Net Asset Value, offering and
redemption price per share (net
assets divided by shares outstanding) ..... $ 82.83 $ 14.78
Cost of investments ........................ $ 817,664,008 $394,688,099
<CAPTION>
MFS Value Scudder International T. Rowe Price Growth
Equity Portfolio Growth Portfolio Equity Portfolio
----------------- --------------------- ----------------------
<S> <C> <C> <C>
Assets:
Investments, at market value ............... $ 319,142,093 $ 688,273,166 $ 683,714,230
Cash ....................................... 231,125 15,477,422 19,441,343
Receivable for:
Dividends and interest .................... 111,373 251,479 488,175
Investments sold .......................... 7,222,903 4,189,103 2,325,420
Fund shares sold .......................... 1,443 482,975 36,786
Recoverable foreign taxes ................. 7,868 350,554 25,838
Gross unrealized gain on forward foreign
currency exchange contracts ............... 2,993 -- --
------------- -------------- --------------
326,719,798 709,024,699 706,031,792
------------- -------------- --------------
Liabilities:
Payable for:
Investments purchased ..................... 3,106,238 -- 1,125,275
Fund shares redeemed ...................... 50,885 60,198 1,019,794
Due to custodian ........................... 275,696 3,411,342 --
Administrative services fees payable ....... 63,228 110,865 86,643
Advisory fees payable ...................... 164,394 443,460 346,573
------------- -------------- --------------
Total Liabilities ....................... 3,660,441 4,025,865 2,578,285
------------- -------------- --------------
NET ASSETS ................................. $ 323,059,357 $ 704,998,834 $ 703,453,507
============= ============== ==============
Net assets represented by:
Paid-in Capital ............................ $ 188,612,731 $ 387,490,473 $ 473,671,194
Net unrealized gain on investments and
foreign currency related translations ..... 73,528,981 255,562,477 171,109,449
Undistributed net investment income
(distribution in excess) .................. (2,993) 3,156,561 1,822,326
Accumulated net realized gain
on investments ............................ 60,920,638 58,789,323 56,850,538
------------- -------------- --------------
NET ASSETS ................................. $ 323,059,357 $ 704,998,834 $ 703,453,507
============= ============== ==============
Capital Shares, $.001 par value:
Outstanding ............................... 5,898,203 27,661,881 10,657,664
Net Assets ................................ $ 323,059,357 $ 704,998,834 $ 703,453,507
Net Asset Value, offering and
redemption price per share (net
assets divided by shares outstanding) ..... $ 54.77 $ 25.49 $ 66.00
Cost of investments ........................ $ 245,614,389 $ 432,693,797 $ 512,603,614
</TABLE>
38 See Notes to Financial Statements.
<PAGE>
Portfolio Partners, Inc.
Statements of Operations
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MFS Emerging MFS Research
Equities Portfolio Growth Portfolio
-------------------- ------------------
<S> <C> <C>
Investment Income:
Dividends ................................... $ 985,408 $ 3,858,529
Interest .................................... 175,434 256,036
------------ ------------
1,160,842 4,114,565
Foreign taxes withheld on dividends .......... (2,242) (35,615)
------------ ------------
Total investment income ................... 1,158,600 4,078,950
------------ ------------
Investment Expenses:
Investment advisory fee ...................... (7,639,150) (3,464,967)
Administrative services fees ................. (1,477,831) (743,001)
------------ ------------
Total expenses ............................ (9,116,981) (4,207,968)
------------ ------------
Net investment income (loss) ................. (7,958,381) (129,018)
------------ ------------
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on:
Sales of investments ........................ 22,016,644 56,756,790
Futures, foreign currency and forward
foreign currency exchange contracts ........ (8,192) (128,593)
------------ ------------
Net realized gain (loss) on investments,
futures, foreign currency and forward
foreign currency exchange contracts ........ 22,008,452 56,628,197
------------ ------------
Net change in unrealized gain (loss) on:
Investments ................................. 503,775,500 54,021,549
Futures, foreign currency and forward
foreign currency exchange contracts ........ (49) (1,539)
------------ ------------
Net change in unrealized gain (loss)
on investments, futures, foreign
currency and forward foreign
currency exchange contracts ............... 503,775,451 54,020,010
------------ ------------
Net realized and change in unrealized gain
on investments, futures, foreign currency
and forward foreign currency exchange
contracts ................................... 525,783,903 110,648,207
------------ ------------
Net increase in net assets resulting from
operations .................................. $517,825,522 $110,519,189
============ ============
<CAPTION>
MFS Value Scudder International T. Rowe Price Growth
Equity Portfolio Growth Portfolio Equity Portfolio
------------------ ----------------------- ----------------------
<S> <C> <C> <C>
Investment Income:
Dividends ................................... $ 1,514,250 $ 9,242,505 $ 5,571,033
Interest .................................... 181,763 533,580 1,238,797
------------ ------------ ------------
1,696,013 9,776,085 6,809,830
Foreign taxes withheld on dividends .......... (45,570) (1,259,245) (151,084)
------------ ------------ ------------
Total investment income ................... 1,650,443 8,516,840 6,658,746
------------ ------------ ------------
Investment Expenses:
Investment advisory fee ...................... (1,522,602) (4,015,403) (3,812,815)
Administrative services fees ................. (585,618) (1,003,850) (953,603)
------------ ------------ ------------
Total expenses ............................ (2,108,220) (5,019,253) (4,766,418)
------------ ------------ ------------
Net investment income (loss) ................. (457,777) 3,497,587 1,892,328
------------ ------------ ------------
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on:
Sales of investments ........................ 61,821,077 58,789,327 59,006,927
Futures, foreign currency and forward
foreign currency exchange contracts ........ (773,034) (2,356,081) (69,138)
------------ ------------ ------------
Net realized gain (loss) on investments,
futures, foreign currency and forward
foreign currency exchange contracts ........ 61,048,043 56,433,246 58,937,789
------------ ------------ ------------
Net change in unrealized gain (loss) on:
Investments ................................. 41,001,776 199,460,721 71,671,097
Futures, foreign currency and forward
foreign currency exchange contracts ........ 59,812 1,953,486 1,140
------------ ------------ ------------
Net change in unrealized gain (loss)
on investments, futures, foreign
currency and forward foreign
currency exchange contracts ............... 41,061,588 201,414,207 71,672,237
------------ ------------ ------------
Net realized and change in unrealized gain
on investments, futures, foreign currency
and forward foreign currency exchange
contracts ................................... 102,109,631 257,847,453 130,610,026
------------ ------------ ------------
Net increase in net assets resulting from
operations .................................. $101,651,854 $261,345,040 $132,502,354
============ ============ ============
</TABLE>
See Notes to Financial Statements. 39
<PAGE>
Portfolio Partners, Inc.
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MFS Emerging MFS Emerging
Equities Portfolio Equities Portfolio
Year Ended Year Ended
December 31, 1999 December 31, 1998
-------------------- --------------------
<S> <C> <C>
From Operations:
Net investment income (loss) ................. $ (7,958,381) $ (4,000,456)
Net realized gain (loss) on investments,
futures, foreign currency and forward
foreign currency exchange contracts ......... 22,008,452 17,886,341
Net change in unrealized gain (loss) on
investments, futures, foreign currency,
and forward foreign currency exchange
contracts ................................... 503,775,451 221,647,960
-------------- --------------
Net increase in net assets resulting from
operations .................................. 517,825,522 235,533,845
-------------- --------------
Distributions to Shareholders From:
Net investment income ....................... -- (2,021,457)
Net realized gain on sale of investments (11,777,873) (586,890)
-------------- --------------
Total distributions ......................... (11,777,873) (2,608,347)
-------------- --------------
Fund Share Transactions:
Proceeds from shares sold ................... 214,534,039 250,995,803
Payments for shares redeemed ................ (269,397,945) (185,597,540)
Net Asset Value of shares issued in
reinvestment of dividends and
distributions ............................. 11,777,873 2,608,347
-------------- --------------
Net increase (decrease) in net
assets from fund share
transactions ............................. (43,086,033) 68,006,610
-------------- --------------
Change in net assets ........................ 462,961,616 300,932,108
Net Assets:
Beginning of year ........................... 1,069,040,301 768,108,193
-------------- --------------
End of year ................................. $1,532,001,917 $1,069,040,301
============== ==============
End of period net assets includes
undistributed net investment income
(distribution in excess) ................... $ -- $ --
============== ==============
Share Transactions:
Number of shares sold ....................... 3,549,758 5,160,626
Number of shares issued through
reinvestment of dividends and
distributions .............................. 182,151 64,245
Number of redeemed .......................... (4,518,790) (3,842,650)
-------------- --------------
Net increase (decrease) .................... (786,881) 1,382,221
============== ==============
<CAPTION>
MFS Research MFS Research MFS Value
Growth Portfolio Growth Portfolio Equity Portfolio
Year Ended Year Ended Year Ended
December 31, 1999 December 31, 1998 December 31, 1999
------------------- ------------------- ------------------
<S> <C> <C> <C>
From Operations:
Net investment income (loss) ................. $ (129,018) $ 1,005,420 $ (457,777)
Net realized gain (loss) on investments,
futures, foreign currency and forward
foreign currency exchange contracts ......... 56,628,197 (10,117,749) 61,048,043
Net change in unrealized gain (loss) on
investments, futures, foreign currency,
and forward foreign currency exchange
contracts ................................... 54,020,010 99,935,450 41,061,588
------------- ------------- -------------
Net increase in net assets resulting from
operations .................................. 110,519,189 90,823,121 101,651,854
------------- ------------- -------------
Distributions to Shareholders From:
Net investment income ....................... (989,272) (103,709) (279,096)
Net realized gain on sale of investments -- -- (6,519,684)
------------- ------------- -------------
Total distributions ......................... (989,272) (103,709) (6,798,780)
------------- ------------- -------------
Fund Share Transactions:
Proceeds from shares sold ................... 30,056,736 86,437,903 45,080,345
Payments for shares redeemed ................ (78,698,870) (85,271,880) (18,599,149)
Net Asset Value of shares issued in
reinvestment of dividends and
distributions ............................. 989,272 103,709 6,798,780
------------- ------------- -------------
Net increase (decrease) in net
assets from fund share
transactions ............................. (47,652,862) 1,269,732 33,279,976
------------- ------------- -------------
Change in net assets ........................ 61,877,055 91,989,144 128,133,050
Net Assets:
Beginning of year ........................... 491,537,277 399,548,133 194,926,307
------------- ------------- -------------
End of year ................................. $ 553,414,332 $ 491,537,277 $ 323,059,357
============= ============= =============
End of period net assets includes
undistributed net investment income
(distribution in excess) ................... $ -- $ 982,830 $ (2,993)
============= ============= =============
Share Transactions:
Number of shares sold ....................... 2,414,242 7,942,884 1,023,579
Number of shares issued through
reinvestment of dividends and
distributions .............................. 78,020 10,960 155,757
Number of redeemed .......................... (6,232,711) (7,914,947) (429,302)
------------- ------------- -------------
Net increase (decrease) .................... (3,740,449) 38,897 750,034
============= ============= =============
</TABLE>
40 See Notes to Financial Statements.
<PAGE>
Portfolio Partners, Inc.
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Scudder
MFS Value International
Equity Portfolio Growth Portfolio
Year Ended Year Ended
December 31, 1998 December 31, 1999
------------------- -------------------
<S> <C> <C>
From Operations:
Net investment income ........................ $ 284,725 $ 3,497,587
Net realized gain on investments, futures,
foreign currency and forward foreign
currency exchange contracts ................. 7,051,170 56,433,246
Net change in unrealized gain on
investments, futures, foreign currency,
and forward foreign currency exchange
contracts ................................... 30,600,702 201,414,207
------------- ---------------
Net increase in net assets resulting from
operations .................................. 37,936,597 261,345,040
------------- ---------------
Distributions to Shareholders From:
Net investment income ....................... (227,718) (613,395)
Net realized gain on sale of investments -- (20,847,850)
------------- ---------------
Total distributions ......................... (227,718) (21,461,245)
------------- ---------------
Fund Share Transactions:
Proceeds from shares sold ................... 43,067,470 613,938,289
Payments for shares redeemed ................ (20,585,921) (602,935,931)
Net Asset Value of shares issued in
reinvestment of dividends and
distributions ............................. 227,718 21,461,245
------------- ---------------
Net increase (decrease) in net
assets from fund share
transactions ............................. 22,709,267 32,463,603
------------- ---------------
Change in net assets ........................ 60,418,146 272,347,398
Net Assets:
Beginning of year ........................... 134,508,161 432,651,436
------------- ---------------
End of year ................................. $ 194,926,307 $ 704,998,834
============= ===============
End of period net assets includes
undistributed net investment income $ 279,417 $ 3,156,561
============= ===============
Share Transactions:
Number of shares sold ....................... 1,270,214 31,850,222
Number of shares issued through
reinvestment of dividends and
distributions .............................. 7,706 1,072,527
Number of redeemed .......................... (627,340) (31,077,566)
------------- ---------------
Net increase (decrease) .................... 650,580 1,845,183
============= ===============
<CAPTION>
Scudder T. Rowe Price T. Rowe Price
International Growth Equity Growth Equity
Growth Portfolio Portfolio Portfolio
Year Ended Year Ended Year Ended
December 31, 1998 December 31, 1999 December 31, 1998
------------------- ------------------- ------------------
<S> <C> <C> <C>
From Operations:
Net investment income ........................ $ 3,443,559 $ 1,892,328 $ 2,862,092
Net realized gain on investments, futures,
foreign currency and forward foreign
currency exchange contracts ................. 20,717,196 58,937,789 10,771,577
Net change in unrealized gain on
investments, futures, foreign currency,
and forward foreign currency exchange
contracts ................................... 48,292,548 71,672,237 94,370,040
--------------- ------------- -------------
Net increase in net assets resulting from
operations .................................. 72,453,303 132,502,354 108,003,709
--------------- ------------- -------------
Distributions to Shareholders From:
Net investment income ....................... (766,921) (2,833,451) (1,582,874)
Net realized gain on sale of investments -- (12,820,097) (884,317)
--------------- ------------- -------------
Total distributions ......................... (766,921) (15,653,548) (2,467,191)
--------------- ------------- -------------
Fund Share Transactions:
Proceeds from shares sold ................... 414,815,500 144,856,110 66,543,519
Payments for shares redeemed ................ (432,817,544) (95,388,470) (24,257,325)
Net Asset Value of shares issued in
reinvestment of dividends and
distributions ............................. 766,921 15,653,548 2,467,191
--------------- ------------- -------------
Net increase (decrease) in net
assets from fund share
transactions ............................. (17,235,123) 65,121,188 44,753,385
--------------- ------------- -------------
Change in net assets ........................ 54,451,259 181,969,994 150,289,903
Net Assets:
Beginning of year ........................... 378,200,177 521,483,513 371,193,610
--------------- ------------- -------------
End of year ................................. $ 432,651,436 $ 703,453,507 $ 521,483,513
=============== ============= =============
End of period net assets includes
undistributed net investment income $ 2,628,450 $ 1,822,326 $ 1,804,047
=============== ============= =============
Share Transactions:
Number of shares sold ....................... 26,173,168 2,595,078 1,372,441
Number of shares issued through
reinvestment of dividends and
distributions .............................. 50,488 271,386 56,598
Number of redeemed .......................... (27,235,224) (1,636,888) (513,020)
--------------- ------------- -------------
Net increase (decrease) .................... (1,011,568) 1,229,576 916,019
=============== ============= =============
</TABLE>
See Notes to Financial Statements. 41
<PAGE>
Portfolio Partners, Inc.
Notes to Financial Statements
December 31, 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. Actual results could differ from these estimates.
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.
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 may not invest more than 5%
of their total assets in premiums for these options). MFS Emerging Equities,
MFS Value Equity and Scudder International Growth may write or sell calls on
securities only if the calls are covered.
42
<PAGE>
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (continued)
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 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.
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.
43
<PAGE>
Portfolio Partners, Inc.
Notes to Financial Statements
December 31, 1999 (continued)
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (continued)
Each Portfolio may also purchase restricted securities, securities not
registered 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 for the
year ended December 31, 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>
Under the terms of separate Subadvisory Agreements between the Investment
Advisor and each subadvisor, each subadvisor is responsible for the investment
and reinvestment of cash and securities for each Portfolio in exchange for fees
payable by the Investment Advisor, which are expressed as a percentage of the
average daily net assets of each Portfolio. For the year ended ended December
31, 1999, the Investment Advisor paid MFS $6,282,714 for MFS Emerging Equities,
MFS Research Growth, and MFS Value Equity, paid Scudder Kemper Investments
$1,978,275 for Scudder International Growth, and paid T. Rowe $2,508,647 for T.
Rowe Price Growth Equity in accordance with the terms of each agreement.
44
<PAGE>
- --------------------------------------------------------------------------------
3. Investment Advisory and Administrative Service Agreements (continued)
Under an Administrative Services Agreement between the Company and Aetna, Aetna
provides all administrative services necessary for the Company's operations and
is responsible for the supervision of the Company's other service providers.
Aetna also assumes all ordinary recurring direct costs of the Company, such as
custodian fees, director's fees, transfer agency fees and accounting fees. As
compensation for these services, Aetna receives a monthly fee from each
Portfolio at an annual rate based on the average daily net assets of each
Portfolio as follows:
<TABLE>
<CAPTION>
Portfolio Rate
- -------------------------------------------- ----------
<S> <C>
MFS Emerging Equities ................ 0.13%
MFS Research Growth .................. 0.15%
MFS Value Equity ..................... 0.25%
Scudder International Growth ......... 0.20%
T. Rowe Price Growth Equity .......... 0.15%
</TABLE>
Each Portfolio's aggregate expenses are limited to the advisory and
administrative service fees disclosed above. Aetna has agreed to reimburse the
Portfolios for expenses and/or waive its fees, so that, through at least April
30, 2000, the aggregate of each Portfolio's expenses will not exceed the
combined investment advisory and administrative service fee rates shown above.
4. Purchases and Sales of Investment Securities
Purchases and sales of investment securities, excluding short-term investments,
for the year ended December 31, 1999 were:
<TABLE>
<CAPTION>
Cost of Purchases Proceeds from Sales
------------------- --------------------
<S> <C> <C>
MFS Emerging Equities $114,361,456 $140,771,828
MFS Research Growth 425,029,065 481,068,961
MFS Value Equity 428,979,340 399,395,500
Scudder International Growth 424,377,654 410,173,629
T. Rowe Price Growth Equity 445,171,171 382,096,315
</TABLE>
5. Capital Loss Carryforwards
At December 31, 1997, for federal income tax purposes, the Portfolios had the
following capital loss carryforwards:
<TABLE>
<CAPTION>
Capital Loss Year of
Portfolio Carryforward Expiration
- --------------------------- -------------- -----------
<S> <C> <C>
MFS Research Growth $4,589,027 2005
MFS Research Growth 8,906,249 2006
</TABLE>
- --------------------------------------------------------------------------------
The Board of Directors will not distribute any realized capital gains until the
above capital loss carryforwards have been used to offset future capital gains
or until they expire.
45
<PAGE>
Portfolio Partners, Inc.
Notes to Financial Statements
December 31, 1999 (continued)
- --------------------------------------------------------------------------------
6. Forward Foreign Currency Exchange Contracts
At December 31, 1999, MFS Value Equity had open forward foreign currency
exchange contracts that obligate MFS Value Equity to deliver or receive
currencies at specified future dates. The net unrealized gain of $2,993 on
these contracts are included in the accompanying financial statements. The
terms of the open contracts are as follows:
MFS Value Equity
<TABLE>
<CAPTION>
Foreign Currency U.S. Dollar U.S. Dollar Value Gross Unrealized
Currency and Exchange Date Units Purchased/Sold Proceeds/Costs at December 31, 1999 Gain (Loss)
- ---------------------------- ---------------------- ---------------- ---------------------- -----------------
<S> <C> <C> <C> <C>
Purchase Contracts
Euro, 1/3/00 119,026 $ 119,829 $ 119,809 $ (20)
Euro, 1/4/00 302,925 304,221 304,941 720
Euro, 1/5/00 1,448 1,458 1,458 0
Sale Contracts
Euro, 1/3/00 185,667 186,921 186,889 32
Euro, 1/31/00 1,072,993 1,084,622 1,082,361 2,261
</TABLE>
7. Authorized Capital Shares
The Company is authorized to issue a total of 1.0 billion shares of common
stock with a par value of $0.001 per share. The shares may be issued in series
(i.e. portfolios) having separate assets and liabilities and separate
investment objectives and policies. Upon liquidation of a Portfolio, its
shareholders are entitled to share pro rata in the net assets of that portfolio
available for distribution to shareholders. Aetna utilizes the Portfolios as
funding options for certain of their variable annuities and variable life
separate accounts. At December 31, 1999, Aetna owned all shares of beneficial
interest of the Portfolios.
8. Certain Reclassifications
In accordance with generally accepted accounting principles, the following
reclassifications were made in order to present the Portfolios' capital
accounts on a tax basis. These reclassifications have no impact on the net
asset value of the Portfolios.
<TABLE>
<CAPTION>
Accumulated
Net Realized
Undistributed Net Gain/(Loss)
Paid-in Capital Investment Income on Investments
Increase/(Decrease) Increase/(Decrease) Increase/(Decrease)
--------------------- --------------------- --------------------
<S> <C> <C> <C>
MFS Emerging Equities (1,343,067) 7,958,381 (6,615,314)
MFS Research Growth (264,353) 135,460 128,893
MFS Value Equity -- 454,463 (454,463)
Scudder International Growth -- (2,356,081) 2,356,081
T. Rowe Price Growth Equity -- 959,402 (959,402)
</TABLE>
46
<PAGE>
Independent Auditors' Report
To the Board of Directors and Shareholders
Portfolio Partners, Inc.:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments of MFS Emerging Equities Portfolio, MFS
Research Growth Portfolio, MFS Value Equity Portfolio, Scudder International
Growth Portfolio, and T. Rowe Price Growth Equity Portfolio, series of
Portfolio Partners, Inc. (the Portfolios), as of December 31, 1999, and the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the years in the two-year period then ended,
and financial highlights for each of the years in the two-year period then
ended and the period from November 28, 1997 (commencement of operations) to
December 31, 1997. These financial statements and financial highlights are the
responsibility of the Portfolios' management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Portfolios as of December 31, 1999, the results of their operations for the
year then ended, the changes in their net assets for each of the years in the
two-year period then ended and financial highlights for each of the years in
the two-year period then ended and the period from November 28, 1997
(commencement of operations) to December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ KPMG LLP>
Boston, Massachusetts
February 4, 2000
47
