[AETNA LOGO
FINANCIAL SERVICES] Laurie M. LeBlanc, CFP
President
Portfolio Partners, Inc.
To Board of Directors & Shareholders
Date June 30, 2000
Subject PPI Semi-Annual Report for Period Ending 6/30/00
The Federal Reserve Board's decision to leave interest rates alone at its June
meeting was met with delight in the market, as the first half of 2000 ended with
record trading volume. June 30, 2000 became the New York Stock Exchange's third
heaviest trading day in history, and followed six months of roller coaster-like
returns for equity investors. At the end of the day, the Dow Jones Industrial
Average (DJIA) ended down 9.1% through the first half of the year, followed by
the NASDAQ which was down 2.5% and the Standard and Poors 500 Index(1) (S&P
500), down a slim 0.42%.
However, there were welcome signs of market broadening by both industry and
capitalization category, as small capitalization stocks returned nearly twice as
much as their large capitalization counterparts. The Russell 2000 Index(2) (an
unmanaged benchmark measure of small cap stock performance), was up 2.5% over
the same period, despite some volatility in the second quarter. Technology and
many high growth, high valuation stocks suffered, but this served to bring
valuations down to more appropriate levels; while more traditional value
oriented sectors like financial services and pharmaceuticals gained ground.
International equity markets were disappointing, particularly the popular high
growth sectors of telecommunications, media and technology (TMT). Some of these
high growth companies in Europe and Japan reacted negatively in line with the
NASDAQ corrections in the United States.
Looking ahead, economic forecasters are generally expecting that a downshift in
U.S. demand will keep inflationary pressures from intensifying. This economic
"soft landing" will hopefully reduce the odds of aggressive action by the
Federal Reserve Board to hike interest rates. Slower profit growth as a result
of slower economic growth should prevent a sharp correction in the stock market,
yet most experts feel that "trading range" volatility may be around for some
time. Structurally, the global economy is still achieving productivity growth
and restructuring efficiencies that should bode positively for equity markets
for the long term.
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(1) The Standard & Poor's (S&P) 500 Index is considered to be representative of
the stock market in general. The S&P 500 returns assume reinvestment of all
dividends. Please note that indexes are unmanaged and do not take into account
any fees and expenses of the individual securities that they track. Individuals
cannot invest directly in any index.
(2) The Russell 2000 Index (a small cap index) consists of the smallest 2,000
companies in the Russell 3000 Index and represents approximately 10% of the
Russell 3000 total market capitalization. The Russell 2000 returns assume
reinvestment of all dividends.
<PAGE>
The Portfolio Partners, Inc. Portfolios ended the first six months of 2000 with
generally very good short-term performance results despite the market's ups and
downs. More importantly, their longer term risk and return characteristics are
very competitive. Only the PPI Scudder International Growth Portfolio, down
8.79%, underperformed its Benchmark index, the Morgan Stanley Capital
International Europe, Australia, Far East Index(3) (EAFE) which was down 4.06%
for the six-month period. This Portfolio still remains significantly ahead of
both its Index and competitive universe for the one-year period ending June 30,
2000.
Foreign stock market declines reflected a sharp shift from higher growth sectors
to more traditional value-oriented sectors. The PPI Scudder Portfolio reduced
its exposure to some of these areas, and began the second half of the year as a
blend of growth and value stocks. This Portfolio has proven to outperform over
the longer term; guided by its experienced management team.
All three PPI MFS managed Portfolios and the PPI T. Rowe Price managed Portfolio
exceeded the unmanaged S&P 500 Index benchmark for the first half of the year,
with PPI MFS Emerging Equities, PPI MFS Research Growth, PPI MFS Capital
Opportunities and PPI T.Rowe Price Growth posting solid gains of 1.03%, 6.23%,
7.92% and 7.95% respectively. PPI MFS Emerging Equities was hurt by the
aggressive corrections that occurred in a number of its highly valued,
aggressive earnings growth holdings such as Microsoft, Cisco and internet plays.
PPI MFS Research Growth, PPI MFS Capital Opportunities and PPI T. Rowe Price
Growth all benefited from market broadening; beating their peer groups, the
Morningstar large growth (3.03%) and large blend (0.51%) universes by wide
margins year-to-date. The PPI T. Rowe Price Growth Portfolio accomplished this
while still maintaining nearly 17% of its assets in underperforming foreign
equities.
Your Portfolios have weathered the market's volatility of the first half of the
year very well. At Aetna Financial Services, we believe they remain well-managed
investment options for the achievement of your financial lifegoals.
We are pleased to share the news that Aetna Inc. ("Aetna") has entered into an
agreement to sell certain of its businesses, including PPI's investment adviser
and principal underwriter, Aetna Life Insurance and Annuity Company ("ALIAC"),
to ING Groep N.V. ("ING"). ING is an integrated financial services provider
doing business in over sixty countries worldwide.
Consummation of the transaction is subject to a number of contingencies,
including receipt of required shareholder, regulatory and other consents and
approvals, and other closing conditions. Under the Investment Company Act of
1940, the transaction would result in a change of control of ALIAC and,
therefore, an assignment and termination of PPI's investment advisory and
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(3) Morgan Stanley Capital International Europe, Australia, Far East index is a
market value-weighted average of the performance of more than 900 securities
listed on the stock exchanges of countries in Europe, Australia, and the Far
East.
<PAGE>
underwriting agreements with ALIAC. Consequently, it is anticipated that ALIAC
will seek approval of new investment advisory and underwriting agreements from
the PPI Board of Directors and, if necessary, the shareholders of each Portfolio
prior to the closing of the transaction. Aetna has said that its goal is to
close the transaction by the end of 2000.
We will keep you informed of future developments, and thank you for your
confidence and trust.
Respectfully,
/s/ Laurie M. LeBlanc
Laurie M. LeBlanc
Total return figures 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.
<PAGE>
Portfolio Partners MFS Emerging Equities Portfolio
June 30, 2000 Commentary
--------------------------------------------------------------------------------
For the six months ended June 30, 2000, the Portfolio provided a total return of
1.03% (including the reinvestment of any distributions). This compares to a
-0.42% return over the same period for the Standard & Poor's 500 Index(1) (S&P
500), and a 3.04% return for the Russell 2000 Total Return Index(2).
Late in the first quarter, there was a global correction in the high-growth
segments of the market in which we invest. Fueled by investor concerns over
further Federal Reserve Board (the Fed) interest rate increases, this correction
in the valuations of technology, media, telecommunications, and biotechnology
stocks continued into the first two months of the second quarter. Though the
correction hampered the Portfolio's short-term performance earlier in the year,
portfolio performance over the preceding 12 months has been very strong.
In early June, we began to see some signs that the Fed's six interest rate
increases since last summer may have begun to slow the economy. Some key
economic indicators including a modest rise in unemployment, a slowing in
housing starts, and lower-than-expected wage gains, gave us hope that there will
be fewer or no rate increases going forward. We have also seen more attractive
valuations in the high-growth areas of the market, and we may have seen the lows
in the NASDAQ Index(3) following a correction earlier this year. While we
anticipate further market volatility as investors adjust to the latest news on
the economy and interest rates, we view this as a period of opportunity. In our
opinion, the recent correction was good for the markets in general because it
returned stocks to valuations that made sense.
But in some cases the markets brought down what we believed were both healthy
and unhealthy companies simultaneously, and that offered us the chance to buy
healthy companies at what we felt were more reasonable prices.
In addition, we increased the aggressiveness of the portfolio by taking more
positions in companies that were somewhat highly valued, even after the
correction, but which our research indicated were strong prospects for high
earnings growth. We believe this increased aggressiveness may help position us
to outperform when the markets become more favorable.
This approach has consistently been part of our strategy for managing the fund
in periods of volatility. In general, when we think the market is overly
exuberant, we have tended to decrease our risk, and when we think aggressive
growth stocks are depressed, we tend to increase the risk. Our experience has
been that this has helped moderate the downside risk during a drop in the market
and increased our upside potential coming out of a down turn.
------------------
(1) The Standard & Poor's (S&P) 500 Index is considered to be representative of
the stock market in general. The S&P 500 returns assume reinvestment of all
dividends. Please note that indexes are unmanaged and do not take into account
any fees and expenses of the individual securities that they track. Individuals
cannot invest directly in any index.
(2) The Russell 2000 Index (a small cap index) consists of the smallest 2,000
companies in the Russell 3000 Index and represents approximately 10% of the
Russell 3000 total market capitalization. The Russell 2000 returns assume
reinvestment of all dividends.
(3) The NASDAQ Index is an unmanaged, market-weighted index of all
over-the-counter common stocks traded on the National Association of Securities
Dealers Automated Quotation System.
<PAGE>
Portfolio Partners MFS Emerging Equities Portfolio
June 30, 2000 Commentary, cont'd
--------------------------------------------------------------------------------
We have positioned the Portfolio to capitalize on four major ideas. First, we
foresaw the markets broadening, both by industry and by market capitalization.
The fact that the Russell 2000 returned nearly twice the performance of the S&P
500 over the period offers some evidence of that. Whereas technology seemed to
be the only sector doing well over much of the past year, we believe good
performance recently broadened to include a larger number of sectors. Holdings
in the Portfolio that have benefited from this trend include Republic Services
Group, a waste-management company, and Applebee's, a restaurant chain.
Second, we think our software holdings such as BMC Software and Compuware may be
strong performers later this year. This is an area within technology that did
not do well recently because Year 2000 (Y2K) concerns, which caused companies to
delay new software installations through the first half of 2000. We expect this
area to come back as expanding Internet initiatives and other new technologies
force companies to upgrade their software in order to remain competitive.
Third, we believe that companies building the Internet's infrastructure, such as
Network Solutions, Oracle, and Cisco, will continue to prosper from Internet
growth. We expect that one of the biggest drivers of this growth will be
businesses seizing upon Internet applications to reduce costs and increase
productivity.
A fourth theme in the portfolio is business services companies such as First
Data and Affiliated Computer Services. We view these companies as playing a key
role in the current economic boom by providing services that make it possible
for larger firms to accomplish the outsourcing, downsizing, and restructuring
that are allowing them to increase their productivity and earnings.
Our two largest holdings in the Portfolio are Oracle and Cisco. We view Oracle
and Cisco as the software and communications leaders of the Internet, and the
Internet as the biggest emerging growth area in the economy. So, in spite of
their size and maturity, we feel these are still very much emerging growth
companies. Although it is not readily apparent from looking at the Portfolio's
top 10 holdings, there are over 400 other company stocks that are owned; many of
which we believe could be major contributors to the Portfolio in the future. A
very important part of our investment process is finding these new holdings that
could potentially move up to top 10 positions. That said, this is the first year
we've sold off a portion of our Oracle and Cisco holdings because rising share
prices over an extended period increased our initial purchases to very large
positions in the portfolio. These sales were purely for reasons of
diversification, and shareholders should not interpret them as diminished
enthusiasm for either company on our part.
Respectfully,
John W. Ballen
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and are
current only through the end of the period of the report as stated on the cover.
The managers' views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed. The portfolio is actively
managed, and current holdings may be different.
Total return figures 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.
<PAGE>
Portfolio Partners MFS Research Growth Portfolio
June 30, 2000 Commentary
--------------------------------------------------------------------------------
For the six months ended June 30, 2000, the Portfolio provided a total return of
6.23% (including the reinvestment of any distributions). This compares to a
-0.42% return for the Standard & Poor's 500 Index(1) (S&P 500) for the same
period.
Historically, investment trends and styles have gone in and out of favor with
investors. Consequently, we don't spend too much time trying to determine when
value or growth, small-cap or large-cap stocks will move in and out of the
spotlight. Instead, we focus on finding dominant business franchises with
outstanding management driving accelerating earnings growth. It's a bottom-up
approach that's based on intensive hands-on research and the best ideas of our
analysts. This approach has led us to some very rewarding growth opportunities,
and the Portfolio has held on to its favorable returns during the six-month
period despite the weakness we've seen in the market over the past few months.
Beyond performance, however, we believe there are other factors that distinguish
this portfolio from its competitors. First and foremost, we believe the depth
and talent of our equity analysts are big advantages. We have more than 35
equity research analysts at MFS, all contributing their best ideas to the
portfolio. As a result, there is a great deal of information sharing, starting
with our in-depth balance sheet and earnings analysis. At the same time, we all
spend a great deal of time on the road meeting with management of companies, as
well as with employees, competitors, and suppliers. We also have a lot of
flexibility with the portfolio. We can look at any market capitalization,
location, or industry. Overall, we lean toward the more dynamic areas of the
economy, focusing on companies that we believe are at the forefront of
innovation and are benefiting from their competitive advantages.
We're finding opportunities in a wide range of areas, but some industries that
have recently performed well for the portfolio are energy, insurance, and
pharmaceuticals. In the energy sector, exploration and production companies such
as Global Marine and Transocean have rallied significantly due to the rebound in
oil and natural gas prices. Higher prices have spurred demand for drilling
services, resulting in strong revenue and earnings growth at many energy
services companies. Despite a fairly long stretch of weak performance from
insurance stocks such as Hartford Financial and ReliaStar, we held on to these
companies because we believed in their long-term prospects and the possibility
of consolidation in the industry. Recently, we've seen an increase in merger and
acquisition activity in this group, which has boosted the performance of these
holdings. In the first quarter of 2000, we took advantage of weakness in
pharmaceuticalstocks to increase our holdings in what we believe are top-notch
companies with strong track records, such as Warner Lambert, Pharmacia, American
Home Products, and Bristol-Myers Squibb. Some of these stocks have come back
strong in the second quarter, and we believe they still offer attractive growth
prospects.
------------------
(1) The Standard & Poor's (S&P) 500 Index is considered to be representative of
the stock market in general. The S&P 500 returns assume reinvestment of all
dividends. Please note that indexes are unmanaged and do not take into account
any fees and expenses of the individual securities that they track. Individuals
cannot invest directly in any index.
<PAGE>
Portfolio Partners MFS Research Growth Portfolio
June 30, 2000 Commentary, cont'd
--------------------------------------------------------------------------------
We've also increased the portfolio's exposure to wireless communications stocks
because we see tremendous growth opportunities for these companies. A few years
ago, roughly 3% of worldwide communications were handled over wireless networks.
Now that percentage has mushroomed to double digits, and we believe similar
growth lies ahead. We expect revenue growth for many wireless companies to rise
25% to 50% per year, and international revenues could be even higher. Given our
outlook for dramatic growth in this industry, we like the risk/reward profile of
these stocks.
Despite what we think may be a somewhat less robust environment for consumer
spending, we also like companies such as CVS and Safeway because they're
noncyclical. People have to buy prescriptions, household products, and
groceries, regardless of the economic environment. We also happen to think these
are two of the best-run companies in their respective industries. Additionally,
we've increased our positions in Intel and EMC Corp. because we see demand for
their products and services accelerating, their fundamental business prospects
are strong, and we ultimately believe they can maintain their leadership
positions in their markets.
Respectfully,
Alec C. Murray
Associate Director of Equity Research
The committee of MFS research analysts is responsible for the day-to-day
management of the Portfolio under the general supervision of Mr. Murray.
The opinions expressed in this report are those of the Associate Director of
Equity Research and are only through the end of the period of the report as
stated on the cover. His views are subject to change at any time based on market
and other conditions, and no forecasts can be guaranteed.
The portfolio is actively managed, and current holdings may be different.
Total return figures 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.
<PAGE>
MFS Capital Opportunities Portfolio
June 30, 2000 Commentary
--------------------------------------------------------------------------------
For the six months ended June 30, 2000, the Portfolio provided a total return of
7.92% (including the reinvestment of any distributions). This compares to a
1.20% return for the average capital appreciation portfolio tracked by Lipper
Inc.(1), an independent firm that reports performance and to a -0.42% return for
the Portfolio's benchmark, the Standard & Poor's 500 Index(2) (S&P 500).
The market has been extremely volatile over the period, driven mainly by
interest-rate concerns. Technology and telecommunications stocks led the market
between November and March, as interest rates climbed and investors abandoned
stocks in more economically sensitive sectors. Valuations in the technology and
telecommunications sectors reached what seemed like ridiculously high levels,
especially given that many companies showed no sign of being profitable anytime
soon. Investors finally got nervous and started selling technology and telecom
names, leading to volatility in the S&P 500 through much of the spring. This
shift caused some liquidity problems in the market - especially among small- and
mid-cap names. As technology stocks slid, safe-haven sectors like drugs,
utilities, and food benefited. In May, we finally started seeing data that
suggested the economy was slowing. This led to speculation that the Federal
Reserve Board (the Fed) might be nearly done raising interest rates, and
investors began moving back into technology stocks.
We stuck to our disciplined investment strategy, buying stocks with strong
earnings growth that were selling at reasonable prices and selling them when we
felt they were fully valued. We tried not to get caught up in the herd instinct
known as momentum buying. Instead, we took advantage of stock price weakness to
buy names that we liked. A good example is Corning, a position we started adding
to back in January. We believe this is a company that is mostly known for its
plasticware, when in fact it's the leading manufacturer worldwide of the fiber
used in the fiber-optic networks being built for high-speed data and Internet
transmission. Its stock price bounced around a lot during the technology
debacle. But earnings accelerated during the spring and more investors began to
understand the importance of Corning's fiber business. By the end of May, the
stock had more than doubled from its November 30 price. Several other large
investments also did quite well, including Mannesmann, a German wireless and
wireline company that was bought out at a nice premium by Vodafone, AirTouch
PLC, a leading international mobile telecom provider.
During the recent volatility, we maintained a sizable stake in the
telecommunications and technology sectors but used the volatility to change our
holdings. We sold positions whose quality we were concerned about and trimmed
stocks that had held up well, including well-known names such as Oracle and
Cisco. We used the proceeds to buy stocks like Vodafone that we liked but hadn't
had big positions in because they had been too expensive. We also bought some
lesser-known names at what we thought were attractive prices. Among them were
ADC Telecom, a networking stock; Telesystem International
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(1) Lipper Analytical Services capital appreciation fund average represents an
average return for the universe of capital appreciation funds. Please note that
averages are unmanaged and so not take into account any fees and expenses of the
individual funds that they track. Individuals cannot invest directly in any
average.
(2) The Standard & Poor's (S&P) 500 Index is considered to be representative of
the stock market in general. The S&P 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>
MFS Capital Opportunities Portfolio
June 30, 2000 Commentary, cont'd
--------------------------------------------------------------------------------
Wireless, a small cellular company with investments in Eastern Europe, Brazil,
and Asia; and Cabletron Systems, a mid-size company involved in both networking
and high-end consulting. We kept stocks like Nortel Networks - a Canadian leader
in the optical business - that we thought had strong earnings growth prospects
not fully reflected in their stock prices.
Our energy investments contributed well to our strong performance during the
period. We had more than doubled our energy stake late last year on the
expectation that oil prices were bottoming. Our biggest increase was in the oil
services area in companies that supply services and equipment for drilling rigs
and oil wells. One of our largest investments was Baker-Hughes, which was the
cheapest stock in its group last fall primarily due to management problems. The
stock has since rebounded nicely, thanks to both restructuring and the rally in
oil prices this past winter. We also added to exploration and production stocks
like Noble Drilling, as well as to natural gas pipeline stocks like Enron,
Coastal, and Dynergy - all of which did quite well during the period.
We continued to find some good buying opportunities overseas, including Samsung
Electronics, a South Korean supplier of cellular handsets and memory chips, and
NTL, which is involved in acquiring cable firms. We also bought some
telecommunications stocks - including Nextlink and Allegiance Telecom - when
their stock prices took a nosedive this spring. Earlier this winter, when drug
stocks tumbled on worries about changes in Medicare reimbursement policies, we
added shares of Pharmacia, Warner-Lambert, and Bristol-Myers Squibb. Another
area in which we did some selective buying was financial services, where we
added to existing holdings like AXA Financial. We also increased our stake in
AES, a leading worldwide independent power producer that's benefiting from the
deregulation of electric power generation. Many of these stocks have appreciated
significantly since we purchased them.
It's impossible to forecast the direction of interest rates or the market. We
could well be near the end of the Fed's increases -- which would bode well for
the market -- or we could continue to see volatility. Under either scenario,
we'll maintain our disciplined investment strategy, looking for earnings growth
at a reasonable price wherever we can find it. Our approach is to be patient and
not panic even when the market seems like a roller coaster.
Respectfully,
Maura A. Shaughnessy
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and are
current only through the end of the period of the report as stated on the cover.
The manager's views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
The portfolio is actively managed, and current holdings may be different.
Total return figures 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.
<PAGE>
PPI Scudder International Growth Portfolio
June 30, 2000 Commentary
--------------------------------------------------------------------------------
For the first six months of the year, the Portfolio has returned -8.79%,
undperforming its benchmark, the MSCI EAFE(1) return of -4.06%. The peer group
average as measured by Morningstar Foreign Stock,(2) returned an average of
-3.99%.
Our under-performance relative to the benchmark reflects the sharp switch in
investor sentiment away from the higher growth, higher valuation TMT
(Telecommunication, Media & Technology) sectors in favor of more traditional,
value-oriented sectors. The TMT sectors dominated the top-performing list for
the first quarter, despite significant profit taking in March. Exceptionally
strong growth prospects, technological innovation and industry consolidation
remains the driver of those sectors. The rapid development of new technologies
to access the Internet, such as televisions, palm held devices and mobile phones
are creating large scale convergence between the TMT sectors. Companies active
in these fields are fast seeking to position themselves in the regional or
increasingly global market place, often through consolidation. Companies
pursuing important deals in this field include Vodafone Airtouch, the
international cellular operator, Vivendi, the French medial and telecom
conglomerate and Seat, the Italian business publisher and Internet portal.
During the second quarter, the unexpectedly high price paid in the United
Kingdom for next generation telecommunications spectrum had a significant
negative impact on most European telecom operators, including Portfolio
holdings: Vodafone Airtouch (UK), KPN (Netherlands) and Deutsche Telecom
(Germany). The portfolio was also hurt by declines in electronic component
suppliers such as Murata (Japan) and Epocs (Germany), which fell victim to
profit-taking following strong earlier gains.
Worries about interest rate hikes in the United States, Europe and even Japan
combined with uncertain growth prospects in these markets, lead to a more
cautious overall investment environment. This generally benefited the
performance of a number of traditionally defensive sectors such as
pharmaceuticals, food producers and utilities.
In Japan, the outlook for the market has become a bit cloudier. The reforms
undertaken last year to salvage the banking industry are still being pursued.
Much of the easy progress has been made and the market has rewarded bank stocks
strongly. However, the country still suffers from a lack of consumer confidence.
Unemployment and high profile industry employment cutbacks are negatively
affecting consumption levels in Japan. A recovery in domestic demand remains
imperative for the Japanese economy to regain its health.
We continued the process of reducing exposure to areas where valuations had
become less fundamentally grounded, which was particularly true of the TMT
field. While we have continued to commit funds to this area, we are placing
greater emphasis on blue chip companies with strong market positions and
sustainable cashflows and where growth prospects are still undervalued. Nortel
Networks and Alcatel, both providers of infrastructure to the telecommunication
industry, are examples of this strategy.
------------------
(1) Morgan Stanley Capital International Europe, Australia, Far East index is a
market value-weighted average of the performance of more than 900 securities
listed on the stock exchanges of countries in Europe, Australia, and the Far
East. Please note that indexes are unmanaged and do not take into account any
fees and expenses of the individual securities they track. Individuals cannot
invest directly in any index.
(2) The Morningstar Foreign Stock Fund Average is a composite of the annual
returns of mutual funds that have investment characteristics similar to that of
the Portfolio. Individuals cannot invest directly in any average.
<PAGE>
PPI Scudder International Growth Portfolio
June 30, 2000 Commentary, cont'd
--------------------------------------------------------------------------------
We also reduced exposure to the more economically sensitive areas of the
Portfolio, as it became clearer that the central banks in the United States, and
to a lesser extent Europe, are committed to slowing economic growth. This
changed the risk reward profile of some of the more cyclical holdings, leading
us to exit names like Usinor and Thyssen, the French and German integrated steel
producers and Lafarge in the construction industry.
In addition, we continue to hold large positions in companies that are
undergoing important fundamental changes. The Portfolio holds a number of
companies that are in the process of restructuring in order to take advantage of
the potential gains in their earnings growth. An important benefit of investing
in companies such as these is that their relative performance tends to be strong
in both up and down markets due to improving fundamentals. Siemens, the largest
German industrial company, provides an excellent illustration of this trend.
During the last 24 months, the company has successfully restructured its
business portfolio, reduced its operating costs, and drastically cut its product
portfolio. Help by an improving economic environment, this process has led to a
sharp improvement in the company's earnings per share and stock price
performance.
We have increased our exposure to the financial sector in Europe, in both
insurance and banking. Financials, in particular the banks, have declined
significantly over the past couple years as further consolidation hopes had died
down, the internet threatened the demise of traditional banking models, and
interest rates were on the uptick. Our decision to re-emphasize this sector was
triggered by expectations that the bad news was now fully discounted. In
addition, there was growing evidence that the restructuring and consolidation of
this industry was accelerating, while quality management has been able to define
promising strategies to use the Internet to their advantage.
As we enter into the second half of the year, the Portfolio remains a blend of
growth and value stocks. We focus on beneficiaries of the new economy growth
sectors, as well as those we expect to survive as winners in the restructuring
and adaptation of the old economy. While the progress of restructuring is more
advanced in Europe, it is relentless as well in Japan. We do expect U.S.
economic growth to slow - resulting in a global "soft-landing" - in the wake of
recent interest rate increases. Continental European economic growth will remain
strong relative to Japan and the United Kingdom.
Respectfully,
Irene Cheng
Lead Portfolio Manager
The views expressed are those of the portfolio manager as of June 30, 2000, and
are subject to change based on market and other conditions. Information about a
fund's portfolio, asset allocation, or country diversification is historical and
is no indication of future portfolio composition, which will vary. Past
performance is no guarantee of future results.
Total return figures 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.
<PAGE>
Portfolio Partners T. Rowe Price Growth Equity Portfolio
June 30, 2000 Commentary
--------------------------------------------------------------------------------
Some people say the only thing constant is change, and we are inclined to agree
after observing the shifting landscape in the stock market during the past six
months. Last year ended on a note of Internet euphoria, but it faded in the New
Year with rigorous evaluation of a company's prospects and a subsequent
reevaluation of stock prices. In addition, several quarters of strong economic
growth have fueled concerns about higher inflation and interest rates. In short,
a welcome realism has returned to the stock market, although we are happy to
report that your fund bucked the trend and posted solid returns for the first
half of 2000.
The first half of the year was particularly volatile, highlighted by a steep
correction in April following a strong rally in the first quarter of the year.
However, in the face of the severe sell-off, which damaged many equity sectors,
your fund provided a solid return for the six-month period, well ahead of the
unmanaged Standard & Poor's 500 Stock Index(1) and the Morningstar Large Cap
Growth Average(2) universes. Our strong return for the half-year was driven by
our investment in wireless communication, semiconductor, and pharmaceutical
companies.
TOTAL RETURNS FOR PERIODS ENDED
6/30/00
--------------------------------
6 MONTHS 1 YEAR
--------------------------------------------------------------------------------
Portfolio Partners T. Rowe Price Growth
Equity Portfolio* 7.95% 21.43%
--------------------------------------------------------------------------------
Morningstar Large Growth Category Average 3.03% 27.14%
--------------------------------------------------------------------------------
S&P 500 Stock Index -0.43% 7.24%
--------------------------------------------------------------------------------
*Source: Investors Bank & Trust. Total return includes change 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, the performance would be
lower.
Two trends emerged in the last six months that should reward your portfolio over
time. The first was a return to saner measures of valuation. The second was a
slight deceleration in economic growth.
Benjamin Graham, one of the most influential investment philosophers of the
twentieth century, once said that in the short term the market is a voting
machine, and in the long term it is a weighing machine. He meant that short-term
swings reflect the passing whims of investors, while value finds its true level
over time. Since we are long-term investors who buy stocks of companies we would
like to own, we attempt to "weigh" the value of companies by using the best
measure we know of: current and future cash generation. There are times when the
short-term voting machine puts its faith in a different set of investment
characteristics, and last year was one of those times. During such periods,
long-term investors who understand the benefit of sound financial underpinnings
for a company can only scratch their heads and try to position themselves for
the eventual emergence of true value. Fortunately, during the past six months,
the market has begun to swing toward our view of market valuations, and your
Portfolio has been rewarded. While only time will tell whether this trend will
continue, we are confident that Ben Graham's famous dictum is as valid today as
it was in the early 1900s.
------------------
(1) The Standard & Poor's (S&P) 500 Index is considered to be representative of
the stock market in general. The S&P 500 returns assume reinvestment of all
dividends. Please note that indexes are unmanaged and do not take into account
any fees and expenses of the individual securities that they track. Individuals
cannot invest directly in any index.
(2) The Morningstar Large Cap Growth Fund Average is a composite of the annual
returns of mutual funds that have investment characteristics similar to that of
the Portfolio. Individuals cannot invest directly in any average.
<PAGE>
Portfolio Partners T. Rowe Price Growth Equity Portfolio
June 30, 2000 Commentary, cont'd
--------------------------------------------------------------------------------
The economy appears to be cooling somewhat, and cost inflation seems to be
rising while market prices remain stable, except for oil and some petroleum
derivatives. When the waters get choppy and the sky grows dark, the premium
increases for a good captain with sound navigation skills to weather the passing
storm. We will not always get it right, but we are confident that the companies
in your portfolio are run exceedingly well and should continue to shine in the
coming months.
Outside of the United States, economic growth appears to be increasing, while
political deregulation of the economy should keep inflation in check. We view
this as a positive sign for large-cap growth companies, since they tend to be
more global in nature than their smaller-cap brethren.
Last year ended with extremely narrow stock leadership, but performance
broadened considerably in the first six months of 2000. In the growth universe,
pharmaceuticals, and HMO's reversed their early 1999 declines with strong
results. Optical infrastructure and semiconductors drove the powerful move in
the technology sector. Biotechnology and associated equipment providers also
posted strong returns.
The key to your fund's sound performance over the past six months was our focus
on several macroeconomic trends that we saw developing, and our avoidance of
problems specific to individual companies.
During the period, we built positions in Gillette and Philips Electronics and
created positions in Providian Financial and SDL. We attempted to take advantage
of the market's fickleness by buying and selling America Online and purchasing
newer growth companies like Ariba when the market corrected in early spring.
While we still struggle with the valuations and future prospects of many New
Economy companies, we do feel that change is constant and shifting market
currents need to be recognized. Accordingly, we will consider owning more of
these companies when their future appears clearer to us, and their stock
valuations have more solid financial underpinnings to support them.
As we enter the last six months of 2000, it seems to us that the long series of
rate hikes by the Federal Reserve is succeeding in slowing the economy from its
robust pace without tipping it into recession. Over the near-term, with
uncertainty about the future of interest rates still in the air, stocks may
experience a bit of pressure. Longer term, however, a smooth transition to
slower growth should be beneficial. Risk was a word that was not considered much
in 1999, but investors have rediscovered its meaning as we progress through the
year 2000.
We believe the U.S. economy will continue on its healthy path and that
inflation, while rising in recent months, should remain contained at an
acceptable level. We will continue to monitor the health of your holdings and we
remain optimistic about their growth prospects.
Respectfully submitted,
Robert W. Smith
Portfolio Manager
The views expressed are those of the portfolio manager as of June 30, 2000, and
are subject to change based on market and other conditions. Information about a
fund's portfolio, asset allocation, or country diversification is historical and
is no indication of future portfolio composition, which will vary. Past
performance is no guarantee of future results.
Total return figures 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.
<PAGE>
Portfolio Partners, Inc.
Financial Highlights
--------------------------------------------------------------------------------
Selected data for a share outstanding for each period:
<TABLE>
<CAPTION>
MFS Emerging
Equities Portfolio
For the Six Months
Ended June 30, 2000
(unaudited)
---------------------
<S> <C>
Net asset value, beginning of period ......... $ 82.83
----------
Income from investment operations:
Net investment income (loss) ................ (0.28)
Net realized and change in unrealized
gain (loss) on investments, futures,
foreign currency and forward
foreign currency exchange
contracts .................................. 1.14
----------
Total income from investment
operations .............................. 0.86
----------
Less Distributions:
Net investment income ....................... --
Net realized gain on sale
of investments ............................. --
----------
Total distributions ...................... --
----------
Net asset value, end of period ............... $ 83.69
==========
Total return ................................. 1.03%
Net assets, end of period (000's) ............ $1,604,939
Ratio of total expenses to average net
assets ...................................... 0.80%
Ratio of net investment income to
average net assets .......................... (0.69)%
Portfolio turnover rate ...................... 5.02%
<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 and forward
foreign currency exchange
contracts .................................. 28.46 12.88 (0.57)
---------- ---------- --------
Total income 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 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.
* Rounds to less than $0.01.*
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
For the Six Months
Ended June 30, 2000
(unaudited)
--------------------
<S> <C>
Net asset value, beginning of period ......... $ 14.78
--------
Income from investment operations:
Net investment income (loss) ................ (0.01)
Net realized and change in unrealized
gain (loss) on investments, futures,
foreign currency and forward
foreign currency exchange
contracts .................................. 0.93
--------
Total income from investment
operations .............................. 0.92
--------
Less Distributions:
Net investment income ....................... --
Net realized gain on sale of
investments ................................ --
--------
Total distributions ...................... --
--------
Net asset value, end of period ............... $ 15.70
========
Total return ................................. 6.23%
Net assets, end of period (000's) ............ $579,471
Ratio of total expenses to average net
assets ...................................... 0.84%
Ratio of net investment income to
average net assets .......................... (0.12)%
Portfolio turnover rate ...................... 54.68%
<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 from investment
operations .............................. 2.88 2.22 (0.18)
-------- -------- --------
Less Distributions:
Net investment income ....................... (0.03) -- --
Net realized gain on sale of
investments ................................ -- -- --
-------- -------- --------
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 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 Capital
Opportunities Portfolio
For the Six Months
Ended June 30, 2000
(unaudited)
-----------------------
<S> <C>
Net asset value, beginning of period ......... $ 54.77
--------
Income from investment operations:
Net investment income (loss) ................ (0.08)
Net realized and change in unrealized
gain (loss) on investments, futures,
foreign currency and forward
foreign currency exchange
contracts .................................. 4.43
--------
Total income from investment
operations .............................. 4.35
--------
Less Distributions:
Net investment income ....................... --
Net realized gain on sale of
investments ................................ --
--------
Total distributions ...................... --
--------
Net asset value, end of period ............... $ 59.12
========
Total return ................................. 7.92%
Net assets, end of period (000's) ............ $432,353
Ratio of total expenses to average net
assets ...................................... 0.90%
Ratio of net investment income to
average net assets .......................... (0.31)%
Portfolio turnover rate ...................... 66.72%
<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 (loss) 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 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.
* Rounds to less than $0.01.
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
For the Six Months
Ended June 30, 2000
(unaudited)
---------------------
<S> <C>
Net asset value, beginning of period ......... $ 25.49
--------
Income from investment operations:
Net investment income (loss) ................ 0.08
Net realized and change in unrealized
gain (loss) on investments, futures,
foreign currency and forward
foreign currency exchange
contracts .................................. (2.32)
--------
Total income from investment
operations .............................. (2.24)
--------
Less Distributions:
Net investment income ....................... --
Net realized gain on sale of
investments ................................ --
--------
Total distributions ...................... --
--------
Net asset value, end of period ............... $ 23.25
========
Total return ................................. (8.79)%
Net assets, end of period (000's) ............ $676,050
Ratio of total expenses to average net
assets ...................................... 1.00%
Ratio of net investment income to
average net assets .......................... 0.69%
Portfolio turnover rate ...................... 46.20%
<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 (loss) ................ 0.12 0.13 --
Net realized and change in unrealized
gain (loss) 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.
* Rounds to less than $0.01.
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
For the Six Months
Ended June 30, 2000
(unaudited)
--------------------
<S> <C>
Net asset value, beginning of period ......... $ 66.00
--------
Income from investment operations:
Net investment income (loss) ................ 0.12
Net realized and change in unrealized
gain (loss) on investments, futures,
foreign currency and forward
foreign currency exchange
contracts .................................. 5.13
--------
Total income from investment
operations .............................. 5.25
--------
Less Distributions:
Net investment income ....................... --
Net realized gain on sale of
investments ................................ --
--------
Total distributions ...................... --
--------
Net asset value, end of period ............... $ 71.25
========
Total return ................................. 7.95%
Net assets, end of period (000's) ............ $724,850
Ratio of total expenses to average net
assets ...................................... 0.75%
Ratio of net investment income to
average net assets .......................... 0.08%
Portfolio turnover rate ...................... 35.49%
<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 (loss) ................ 0.15 0.30 0.06
Net realized and change in unrealized
gain (loss) 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.
* Rounds to less than $0.01.
20 See Notes to Financial Statements.
<PAGE>
MFS Emerging Equities Portfolio
Schedule of Investments
June 30, 2000 (unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
COMMON STOCKS (98.1%)
Advertising (0.2%)
Mail-Well, Inc.* ....................................... 130,000 $ 1,121,250
Young & Rubicam, Inc. .................................. 45,000 2,573,438
--------------
3,694,688
--------------
Airlines (0.0%)
Carey International, Inc.* ............................. 3,700 51,338
--------------
Automotive (0.0%)
National Equipment Services, Inc.* ..................... 11,300 67,800
--------------
Banks and Credit Companies (0.0%)
Nextcard, Inc.* ........................................ 43,100 366,350
--------------
Biotechnology (0.0%)
Guidant Corp.* ......................................... 6,500 321,750
--------------
Business Machines (0.2%)
Dell Computer Corp.* ................................... 15,600 769,275
Motorola, Inc. ......................................... 58,450 1,698,703
--------------
2,467,978
--------------
Business Machines--Peripherals (0.3%)
Seagate Technology, Inc.* .............................. 83,100 4,570,500
--------------
Business Services (6.2%)
Affiliated Computer Services, Inc., Class A* ........... 7,600 251,275
Avenue A, Inc.* ........................................ 1,600 14,100
BISYS Group, Inc.* ..................................... 22,100 1,359,150
Cambridge Technology Partners, Inc.* ................... 107,400 936,399
Ceridian Corp.* ........................................ 174,900 4,208,531
Complete Business Solutions, Inc.* ..................... 29,100 511,069
Computer Sciences Corp.* ............................... 72,900 5,444,719
Concord EFS, Inc.* ..................................... 67,250 1,748,500
Cotelligent Group, Inc.* ............................... 27,200 154,700
Cysive, Inc.* .......................................... 10,900 260,238
Danka Business Systems PLC ADR
(Great Britain)* ..................................... 334,100 1,294,639
Digimarc Corp.* ........................................ 1,370 52,745
Digital Impact, Inc.* .................................. 1,460 20,623
DST Systems, Inc.* ..................................... 20,900 1,591,013
eLoyalty Corp.* ........................................ 20,100 256,275
Encompass Service Corp.* ............................... 121,596 699,177
First Data Corp. ....................................... 481,600 23,899,399
Fiserv, Inc.* .......................................... 4,400 190,300
F.Y.I., Inc.* .......................................... 72,000 2,425,500
Galileo International, Inc. ............................ 7,000 146,125
Gartner Group, Inc., Class A* .......................... 5,900 70,800
ICT Group, Inc.* ....................................... 500 4,781
Ikon Office Solutions, Inc. ............................ 208,100 806,389
IMR Global Corp.* ...................................... 65,300 852,981
Interim Services, Inc.* ................................ 65,000 1,153,750
ITXC Corp.* ............................................ 7,675 271,743
Keynote Systems, Inc.* ................................. 1,475 104,080
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Business Services (continued)
kforce.com, Inc.* ...................................... 48,300 $ 335,081
Lante Corp.* ........................................... 2,090 42,714
Learning Tree International, Inc.* ..................... 14,200 869,750
Liberate Technologies, Inc.* ........................... 15,700 460,206
Luminant Worldwide Corp.* .............................. 4,325 38,655
Management Network Group, Inc.* ........................ 930 32,550
Modis Professional Services, Inc.* ..................... 987,600 8,764,949
Neoforma.com, Inc.* .................................... 3,590 25,242
Netsolve, Inc.* ........................................ 950 24,700
NOVA Corp.* ............................................ 33,150 926,128
Organic, Inc.* ......................................... 590 5,753
Personnel Group of America, Inc.* ...................... 32,100 94,294
Predictive Systems, Inc.* .............................. 400 14,375
Proxicom, Inc.* ........................................ 44,300 2,120,863
PRT Group, Inc.* ....................................... 145,700 163,913
RCM Technologies, Inc.* ................................ 42,400 312,700
Renaissance Worldwide, Inc.* ........................... 148,800 232,500
Silverstream Software, Inc.* ........................... 4,500 259,875
SmartForce PLC ADR (Ireland)* .......................... 70,400 3,379,200
Snyder Communications, Inc.* ........................... 21,600 513,000
Stewart Enterprises, Inc. .............................. 22,000 77,689
Sungard Data Systems, Inc.* ............................ 23,100 716,100
Syntel, Inc.* .......................................... 15,000 150,000
Tanning Technology Corp.* .............................. 3,000 57,750
Technology Solutions Co.* .............................. 20,100 124,369
Tickets.com, Inc.* ..................................... 650 2,214
Tier Technologies, Inc.* ............................... 2,500 13,125
Transaction Systems Architects, Inc., Class A* ......... 500 8,563
Trintech Group PLC ADR (Ireland)* ...................... 29,250 576,316
Universal Access, Inc.* ................................ 1,360 33,320
Ventro Corp.* .......................................... 4,225 79,747
VeriSign, Inc.* ........................................ 146,997 25,944,970
Vestcom International, Inc.* ........................... 10,000 35,625
Visx, Inc.* ............................................ 143,600 4,029,775
Wireless Facilities, Inc.* ............................. 1,000 50,938
--------------
99,245,950
--------------
Cellular Phones (0.4%)
Sprint Corp. (PCS Group)* .............................. 92,500 5,503,750
Tritel, Inc.* .......................................... 1,750 51,953
Triton PCS Holdings, Inc., Class A* .................... 4,450 256,988
--------------
5,812,691
--------------
Computer Software (23.7%)
Agile Software Corp.* .................................. 5,150 364,041
Akamai Technologies, Inc.* ............................. 2,125 252,311
Apropos Technology, Inc.* .............................. 710 14,111
Art Technology Group, Inc.* ............................ 1,800 181,688
Backweb Technologies Ltd.* ............................. 1,500 34,313
Blaze Software, Inc.* .................................. 370 5,041
Broadbase Software, Inc.* .............................. 4,400 134,750
</TABLE>
See Notes to Schedule of Investments. 21
<PAGE>
MFS Emerging Equities Portfolio
Scheduled of Investments
June 30, 2000 (unaudited) (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Computer Software (continued)
BSquare Corp.* .................................. 800 $ 17,950
CacheFlow, Inc.* ................................ 1,780 109,581
Caminus Corp.* .................................. 2,100 51,450
C-Bridge Internet Solutions, Inc.* .............. 870 15,116
Centra Software, Inc.* .......................... 1,050 9,975
Chordiant Software, Inc.* ....................... 1,300 21,613
Data Return Corp.* .............................. 2,600 75,400
Delano Technology Corp.* ........................ 700 8,488
Digital Insight Corp.* .......................... 2,150 73,100
DigitalThink, Inc.* ............................. 1,380 49,508
eBenx, Inc.* .................................... 610 12,924
Engage Technologies, Inc.* ...................... 2,400 31,050
eSPEED, Inc., Class A* .......................... 2,600 112,938
E.Piphany, Inc.* ................................ 1,075 115,227
FreeMarkets, Inc.* .............................. 530 25,142
GetThere.com, Inc.* ............................. 860 9,084
Gric Communications, Inc.* ...................... 560 10,045
iManage, Inc.* .................................. 260 2,584
Inforte Corp.* .................................. 470 16,920
Internap Network Services* ...................... 9,100 377,792
Interrust Technologies Corp.* ................... 3,050 62,716
Interwoven, Inc.* ............................... 1,325 145,729
Kana Communications, Inc.* ...................... 2,300 142,313
Lightspan, Inc. * ............................... 2,290 12,595
Mediaplex, Inc.* ................................ 1,220 23,561
MedicaLogic, Inc.* .............................. 1,700 15,725
Metasolv Software, Inc.* ........................ 1,210 53,240
Navisite, Inc.* ................................. 1,100 45,994
net.Genesis Corp.* .............................. 370 6,683
Niku Corp.* ..................................... 2,380 80,325
OnDisplay, Inc.* ................................ 330 26,874
OpenTV Corp.* ................................... 660 29,618
Oracle Systems Corp.* ........................... 4,420,900 371,631,904
OTG Software, Inc.* ............................. 590 16,852
Quintus Corp.* .................................. 1,720 34,158
Radware Ltd.* ................................... 1,550 41,075
RSA Security, Inc.* ............................. 18,500 1,281,125
Saba Software, Inc.* ............................ 1,350 28,350
SAP AG (Germany) ................................ 30,000 4,415,928
SciQuest.com* ................................... 1,220 13,954
Skillsoft Corp.* ................................ 3,420 48,308
SonicWall, Inc.* ................................ 880 77,495
Ulticom, Inc.* .................................. 580 13,929
VA Linux Systems, Inc.* ......................... 1,300 55,900
Via Net.Works, Inc.* ............................ 240 3,705
Vicinity Corp.* ................................. 5,200 102,050
Vitria Technology, Inc.* ........................ 6,800 415,650
Websense, Inc.* ................................. 900 22,613
Witness Systems, Inc.* .......................... 800 19,500
--------------
381,000,011
--------------
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Computer Software--PC (5.9%)
Autodesk, Inc. .................................. 27,600 $ 957,375
Bluestone Software* ............................. 1,400 35,963
Microsoft Corp.* ................................ 1,166,800 93,343,998
Networks Associates, Inc.* ...................... 6,200 126,325
--------------
94,463,661
--------------
Computer Software--Systems (8.7%)
Active Software, Inc.* .......................... 8,125 631,211
Agency.com, Inc.* ............................... 700 12,469
Ariba, Inc.* .................................... 7,400 725,547
Aspen Technologies, Inc.* ....................... 3,900 150,150
Bea Systems, Inc.* .............................. 1,400 69,213
BMC Software, Inc.* ............................. 962,652 35,121,780
Cadence Design Systems, Inc.* ................... 1,179,500 24,032,312
Calico Commerce, Inc.* .......................... 875 14,219
Caliper Technologies Corp.* ..................... 930 42,780
Circle.com* ..................................... 5,400 19,913
Citrix Systems, Inc.* ........................... 5,400 102,263
Commerce One, Inc.* ............................. 5,700 258,726
Computer Associates International, Inc. ......... 892,600 45,689,961
Compuware Corp.* ................................ 1,684,100 17,472,537
EMC Corp.* ...................................... 2,800 215,425
Firepond, Inc.* ................................. 860 30,960
Interliant, Inc.* ............................... 600 13,988
PeopleSoft, Inc.* ............................... 19,300 323,275
Quest Software, Inc.* ........................... 21,520 1,191,670
Rational Software Corp.* ........................ 18,000 1,672,875
Siebel Systems, Inc.* ........................... 4,700 768,744
Synopsys, Inc.* ................................. 245,700 8,492,006
Tibco Software, Inc.* ........................... 9,600 1,029,450
Vignette Corp.* ................................. 13,900 723,017
--------------
138,804,491
--------------
Computer Software & Processing (0.0%)
Precise Software Solutions Ltd. ................. 460 10,293
StorageNetworks, Inc. ........................... 2,010 177,634
Webmethods, Inc.* ............................... 890 139,897
--------------
327,824
--------------
Conglomerates (5.1%)
Tyco International Ltd. ......................... 1,721,200 81,541,848
--------------
Consumer Goods and Services (2.7%)
Cendant Corp.* .................................. 2,943,629 41,210,804
Netiq Corp.* .................................... 1,650 98,381
Priceline.com, Inc.* ............................ 46,300 1,758,678
Switchboard, Inc.* .............................. 3,740 37,400
U.S. Internetworking, Inc.* ..................... 5,175 105,764
--------------
43,211,027
--------------
Electrical Equipment (0.1%)
Cable Design Technologies* ...................... 34,200 1,145,700
Capstone Turbine Corp.* ......................... 1,730 77,958
</TABLE>
22 See Notes to Schedule of Investments.
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Electrical Equipment (continued)
Jabil Circuit, Inc.* .............................. 10,000 $ 496,250
Telaxis Communications Corp.* ..................... 1,570 49,063
--------------
1,768,971
--------------
Electronics (7.7%)
Agilent Technologies, Inc.* ....................... 11,930 879,838
Altera Corp.* ..................................... 743,800 75,821,111
Analog Devices, Inc.* ............................. 137,000 10,411,999
ASM International N.V. (Netherlands)* ............. 8,770 232,405
Atmel Corp.* ...................................... 1,500 55,313
Burr--Brown Corp.* ................................ 900 78,019
Conexant Systems, Inc.* ........................... 1,500 72,938
Infineon Technologies AG* ......................... 5,840 459,603
Insilicon Corp.* .................................. 310 4,844
Intel Corp. ....................................... 125,700 16,804,518
Intersil Holding Corp.* ........................... 3,040 164,350
JDS Uniphase Corp.* ............................... 21,800 2,613,275
Manufacturers' Services Ltd.* ..................... 5,980 122,964
Marvell Technology Group Ltd.* .................... 1,400 79,800
Mattson Technology, Inc.* ......................... 1,500 48,750
Metalink* ......................................... 1,310 38,809
Quantum Effect Devices, Inc.* ..................... 1,810 103,170
Rudolph Technologies, Inc.* ....................... 560 21,700
Sage, Inc.* ....................................... 570 7,374
SCG Holding Corp.* ................................ 52,100 1,139,688
Silicon Image, Inc.* .............................. 975 48,628
Silicon Laboratories, Inc.* ....................... 450 23,906
Solectron Corp.* .................................. 5,300 221,938
St Microelectronics N.V. (Netherlands) ............ 8,700 547,415
Teradyne, Inc.* ................................... 56,400 4,145,400
Thomson Multimedia (France)*. ..................... 700 45,246
Viasystems Group, Inc.* ........................... 26,040 421,523
Virata Corp.* ..................................... 1,800 107,325
Vitesse Semiconductor Corp.* ...................... 13,100 963,669
Xilinx, Inc.* ..................................... 104,400 8,619,524
--------------
124,305,042
--------------
Entertainment (6.8%)
AMFM, Inc.* ....................................... 27,200 1,876,800
Citadel Communications Corp.* ..................... 21,800 761,638
Clear Channel Communications, Inc.* ............... 355,292 26,646,899
Cox Radio, Inc., Class A* ......................... 60,000 1,680,000
Emmis Broadcasting Corp., Class A* ................ 11,600 479,950
Entercom Communications Corp.* .................... 20,200 984,750
GameTech International, Inc.* ..................... 50,000 231,250
Hearst-Argyle Television, Inc.* ................... 4,600 89,700
Hispanic Broadcasting Corp.* ...................... 14,000 463,750
Infinity Broadcasting Corp.* ...................... 63,875 2,327,445
Insight Communications, Inc.* ..................... 13,300 207,813
Premier Parks, Inc.* .............................. 114,800 2,611,700
Radio One, Inc.* .................................. 6,500 192,156
Radio Unica Communications Corp.* ................. 2,550 17,850
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Entertainment (continued)
Regent Communications, Inc.* ...................... 6,050 $ 51,992
Spanish Broadcasting System, Inc.* ................ 5,075 104,355
Time Warner, Inc. ................................. 357,000 27,131,999
UnitedGlobalCom, Inc., Class A* ................... 21,800 1,019,150
Univision Communications, Inc., Class A* .......... 361,300 37,394,549
Viacom, Inc., Class B* ............................ 73,997 5,045,670
YouthStream Media Networks, Inc.* ................. 800 4,500
--------------
109,323,916
--------------
Financial Institutions (0.4%)
Associates First Capital Corp. .................... 130,000 2,900,625
Charles Schwab & Co., Inc. ........................ 2,570 86,416
CIT Group, Inc., Class A .......................... 8,600 139,750
Federated Investors, Inc., Class B ................ 14,600 511,913
Franklin Resources, Inc. .......................... 64,700 1,965,263
Goldman Sachs Group, Inc. ......................... 3,000 284,625
Heller Financial, Inc. ............................ 10,860 222,630
Morgan Stanley Dean Witter Discover & Co. ......... 2,600 216,450
--------------
6,327,672
--------------
Health Care Providers (0.0%)
Hooper Homes, Inc. ................................ 400 3,425
--------------
Insurance (0.2%)
Ace, Ltd. (Bermuda) ............................... 63,500 1,778,000
Conseco, Inc. ..................................... 60,030 585,293
--------------
2,363,293
--------------
Internet (0.0%)
Caldera Systems, Inc.* ............................ 460 6,009
Click Commerce, Inc.* ............................. 7,610 172,176
Digitas, Inc.* .................................... 1,690 27,568
Eprise Corp.* ..................................... 600 9,863
Fairmarket, Inc.* ................................. 580 4,096
Firstworld Communications, Inc., Class B* ......... 1,100 11,550
Integrated Information Systems, Inc.* ............. 410 3,357
Loudeye Technologies, Inc.* ....................... 440 7,673
MatrixOne, Inc.* .................................. 1,630 66,219
Onvia.com, Inc.* .................................. 840 7,245
Selectica, Inc.* .................................. 840 58,853
Versata, Inc.* .................................... 1,090 43,941
--------------
418,550
--------------
Media--Cable (0.0%)
Leapnet, Inc.* .................................... 8,246 25,769
Lifeminders, Inc.* ................................ 1,000 29,563
Radio One, Inc.* .................................. 13,000 286,813
--------------
342,145
--------------
Medical and Health Products (0.5%)
Aspect Medical Systems, Inc.* ..................... 2,050 55,350
Boston Scientific Corp.* .......................... 221,500 4,859,157
Coast Dental Services, Inc.* ...................... 1,000 1,750
Genentech, Inc.* .................................. 16,200 2,786,400
--------------
7,702,657
--------------
</TABLE>
See Notes to Schedule of Investments. 23
<PAGE>
MFS Emerging Equities Portfolio
Schedule of Investments
June 30, 2000 (unaudited) (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Medical and Health Technology Services (4.7%)
Foundation Health Systems* ........................ 100,100 $ 1,301,300
Healthsouth Corp.* ................................ 359,600 2,584,626
McKesson HBOC, Inc. ............................... 90,352 1,891,745
Medtronic, Inc. ................................... 9,514 473,916
Mid Atlantic Medical Services, Inc.* .............. 3,400 45,900
Orthodontic Centers of America, Inc.* ............. 214,300 4,848,538
Oxford Health Plans, Inc.* ........................ 39,100 931,069
PacifiCare Health Systems, Inc., Class A* ......... 13,700 824,569
PSS World Medical, Inc.* .......................... 55,500 372,893
Sequenom, Inc.* ................................... 3,690 167,434
Total Renal Care Holdings, Inc.* .................. 20,706 124,236
UnitedHealth Group, Inc. .......................... 680,600 58,361,448
Wellpoint Health Networks, Inc.* .................. 43,200 3,129,300
--------------
75,056,974
--------------
Pollution Control (0.5%)
Allied Waste Industries, Inc.* .................... 33,170 331,700
Republic Services, Inc., Class A* ................. 426,300 6,820,800
Waste Management, Inc. ............................ 67,112 1,275,128
--------------
8,427,628
--------------
Printing and Publishing (0.1%)
Aether Systems, Inc.* ............................. 2,725 558,625
Applied Graphics Technologies, Inc.* .............. 700 2,975
Ventiv Health, Inc.* .............................. 7,200 80,100
Workflow Management, Inc.* ........................ 14,952 177,555
--------------
819,255
--------------
Railroad (0.5%)
Kansas City Southern Industries ................... 94,100 8,345,493
--------------
Restaurants and Lodging (0.8%)
Applebee's International, Inc. .................... 236,000 7,153,749
Buffetts, Inc.* ................................... 96,800 1,228,150
CEC Entertainment, Inc.* .......................... 44,900 1,150,563
Extended Stay America, Inc.* ...................... 800 7,400
Four Seasons Hotels, Inc. (Canada) ................ 5,800 360,688
Friendly Ice Cream Corp.* ......................... 40,000 202,500
Hilton Hotels Corp. ............................... 129,643 1,215,403
MeriStar Hotels & Resorts, Inc.* .................. 50,000 143,750
Papa John's International, Inc.* .................. 10,800 264,600
Schlotzsky's, Inc.* ............................... 131,500 747,906
U.S. Franchise Systems, Inc., Class A* ............ 29,700 142,931
--------------
12,617,640
--------------
Special Products and Services (0.1%)
Avanex Corp.* ..................................... 2,300 219,650
Aztec Technology Partners, Inc.* .................. 100,178 219,140
Central Parking Corp. ............................. 9,700 229,769
Completel Europe N.V. (Netherlands)* .............. 1,850 22,928
Staff Mark, Inc.* ................................. 65,900 440,706.
Therma-Wave, Inc.* ................................ 3,440 76,755
U.S. Office Products Co.* ......................... 67,848 25,443
--------------
1,234,391
--------------
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Stores (1.4%)
Autonation, Inc.* ................................. 1,714,400 $ 12,107,949
Consolidated Stores Corp.* ........................ 115,100 1,381,200
CVS Corp. ......................................... 23,600 944,000
Home Depot, Inc. .................................. 24,600 1,228,463
Office Depot, Inc.* ............................... 1,144,650 7,154,063
--------------
22,815,675
--------------
Supermarkets (0.5%)
Kroger Co.* ....................................... 176,200 3,887,413
Rite Aid Corp. .................................... 635,300 4,169,157
--------------
8,056,570
--------------
Telecommunications (16.0%)
13 Mobile, Inc.* .................................. 1,470 27,011
Accelerated Networks, Inc.* ....................... 2,250 94,922
Adelphia Business Solutions, Inc.* ................ 5,300 122,894
Airgate PCS, Inc.* ................................ 2,925 153,745
Airnet Communications Corp.* ...................... 2,420 63,223
Alamosa PCS Holdings, Inc.* ....................... 3,830 79,951
Alteon Websystems, Inc.* .......................... 1,150 115,072
Amdocs Ltd.* ...................................... 3,231 247,979
American Tower Systems Corp., Class A* ............ 300 12,506
AT&T Wireless Group* .............................. 245,150 6,833,555
BreezeCom Ltd.* ................................... 580 25,230
Cabletron Systems, Inc.* .......................... 1,400 35,350
Cisco Systems, Inc.* .............................. 3,385,334 215,180,289
Cobalt Networks, Inc.* ............................ 940 54,403
Corning, Inc. ..................................... 9,600 2,590,800
Crossroads Systems, Inc.* ......................... 2,700 68,175
Crown Castle International Corp.* ................. 1,400 51,100
Deltathree.com, Inc., Class A* .................... 1,090 15,873
Digex, Inc.* ...................................... 5,925 402,530
Echostar Communications Corp.* .................... 34,200 1,132,341
Efficient Networks, Inc.* ......................... 600 44,138
Eloquent, Inc.* ................................... 920 8,280
eOn Communications Corp.* ......................... 3,660 16,928
Finisar Corp.* .................................... 10,400 272,350
Flag Telecom Holdings Ltd.* ....................... 390 5,801
Foundry Networks, Inc.* ........................... 3,150 348,075
Gadzoox Networks, Inc.* ........................... 1,400 19,163
Global Crossing Ltd.* ............................. 598,470 15,747,241
Ibasis, Inc.* ..................................... 12,780 550,339
interWAVE Communications International,* .......... 3,930 55,020
JNI Corp.* ........................................ 1,375 43,484
Lucent Technologies, Inc. ......................... 101,954 6,040,774
MGC Communications, Inc.* ......................... 22,900 1,372,569
Next Level Communications, Inc.* .................. 1,190 102,043
Nextel Partners, Inc.,Class A* .................... 5,700 185,606
ONI Systems Corp.* ................................ 1,690 198,073
Packeteer, Inc.* .................................. 1,325 38,591
PC-Tel, Inc.* ..................................... 1,800 68,400
Psinet, Inc.* ..................................... 40,320 1,013,040
</TABLE>
24 See Notes to Schedule of Investments.
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Telecommunications (continued)
Redback Networks, Inc.* ............................ 2,400 $ 427,200
SCC Communications Corp.* .......................... 12,700 85,725
Sonus Networks, Inc.* .............................. 950 149,981
Spectrasite Holdings, Inc.* ........................ 81,800 2,321,075
Stratos Lightwave, Inc.* ........................... 1,660 46,273
Sycamore Networks, Inc.* ........................... 5,625 620,859
Telecorp PCS, Inc.* ................................ 2,510 101,184
Turnstone Systems, Inc.* ........................... 800 132,538
UTStarcom, Inc.* ................................... 3,040 92,340
Vixel Corp.* ....................................... 675 5,569
Vyyo, Inc.* ........................................ 2,200 59,400
--------------
257,479,008
--------------
Trucking (0.0%)
United Parcel Service, Class B ..................... 7,230 426,570
--------------
Utilities-Electric (0.0%)
Calpine Corp.* ..................................... 8,200 539,150
--------------
Utilities-Telephone (4.4%)
Bell Atlantic Corp. ................................ 800 40,650
Global TeleSystems Group, Inc.* .................... 68,400 825,075
GT Group Telecom, Inc., Class B* ................... 2,400 37,950
Illuminet Holdings, Inc.* .......................... 2,275 115,741
Intermedia Communications, Inc.* ................... 17,700 526,575
KPNQwest N.V.* ..................................... 1,080 42,420
Level 3 Communications, Inc.* ...................... 11,100 976,800
Metromedia Fiber Network, Inc.* .................... 26,860 1,066,006
Net2000 Communications, Inc.* ...................... 1,780 29,148
Nextel Communications, Inc., Class A* .............. 28,000 1,713,250
NEXTLINK Communications, Inc., Class A* ............ 700 26,556
Nippon Telegraph & Telephone Corp. (Japan) ......... 6 79,898
Qwest Communications International, Inc.* .......... 8,200 407,438
Sprint Corp. ....................................... 8,200 418,200
Talk.com, Inc.* .................................... 578,750 3,363,985
Tele1 Europe Holding AB* ........................... 1,370 16,833
Time Warner Telecom, Inc.* ......................... 10,800 695,250
Vodafone Group PLC ................................. 690,700 2,798,164
Williams Communications Group, Inc.* ............... 27,875 925,102
Wink Communications, Inc.* ......................... 875 26,688
Winstar Communications, Inc.* ...................... 3,200 108,400
WorldCom, Inc.* .................................... 1,226,160 56,250,088
--------------
70,490,217
--------------
Total Common Stocks (Cost $873,001,175) $1,574,812,149
--------------
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
PREFERRED STOCKS (0.1%)
Computer Software (0.1%)
SAP AG-Vorzug (Germany) ............................ 8,700 $ 1,606,580
--------------
Total Preferred Stocks (Cost $882,995) 1,606,580
--------------
TOTAL INVESTMENTS At Market Value (98.2%)
(Cost $873,884,170) 1,576,418,729
Other assets in excess of liabilities (1.8%) 28,520,742
--------------
Net Assets (100.0%) $1,604,939,471
==============
</TABLE>
Notes to Schedule of Investments
Unrealized gains and losses, based on identified
tax cost at June 30, 2000 are as follows:
<TABLE>
<S> <C>
Unrealized gains ................................... $ 890,548,174
Unrealized losses .................................. (188,013,615)
--------------
Net unrealized gain ............................... $ 702,534,559
==============
</TABLE>
* Non-income producing security.
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
June 30, 2000 (unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- ------------
<S> <C> <C>
COMMON STOCKS (99.4%)
Aerospace (2.4%)
Boeing Co. ....................................... 121,500 $ 5,080,219
British Aerospace PLC (Great Britain) ............ 568,500 3,553,807
General Dynamics Corp. ........................... 31,400 1,640,650
United Technologies .............................. 61,500 3,620,813
------------
13,895,489
------------
Apparel & Textiles (0.3%)
Fast Retailing, Inc. ............................. 4,100 1,719,224
------------
Banks and Credit Companies (2.2%)
Capital One Financial Corp. ...................... 56,900 2,539,163
Chase Manhattan Bank ............................. 80,850 3,724,153
Lloyds TSB Group PLC ADR (Great Britain) ......... 581 5,501
PNC Bank Corp. ................................... 45,900 2,151,563
Providian Financial Corp. ........................ 32,600 2,934,000
U.S. Bancorp ..................................... 79,000 1,520,750
------------
12,875,130
------------
Biotechnology (2.6%)
Pharmacia Corp. .................................. 242,659 12,542,438
Zeneca Group PLC ADR (Great Britain) ............. 53,400 2,499,569
------------
15,042,007
------------
Business Machines (6.2%)
Compaq Computer Corp. ............................ 79,700 2,037,331
Dell Computer Corp.* ............................. 47,500 2,342,344
Hewlett-Packard Co. .............................. 48,900 6,106,388
International Business Machines Corp. ............ 42,000 4,601,625
Motorola, Inc. ................................... 188,040 5,464,914
Sun Microsystems, Inc.* .......................... 167,400 15,222,938
------------
35,775,540
------------
Business Machines--Peripherals (0.6%)
Seagate Technology, Inc.* ........................ 66,800 3,674,000
------------
Business Services (3.5%)
Automatic Data Processing, Inc. .................. 105,300 5,640,130
Computer Sciences Corp.* ......................... 87,000 6,497,813
Digimarc Corp.* .................................. 3,230 124,355
Fiserv, Inc.* .................................... 39,700 1,717,025
Liberate Technologies, Inc.* ..................... 22,600 662,463
Trintech Group PLC ADR (Ireland)* ................ 35,850 706,356
VeriSign, Inc.* .................................. 28,600 5,047,900
------------
20,396,042
------------
Cellular Phones (1.3%)
Sprint Corp. (PCS Group)* ........................ 125,700 7,479,150
------------
Chemicals (0.3%)
Rohm & Haas Co. .................................. 55,000 1,897,500
------------
Computer Software (2.5%)
America Online, Inc.* ............................ 95,600 5,042,898
Business Objects SA ADR (France)* ................ 4,600 405,375
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- ------------
<S> <C> <C>
Computer Software (continued)
E.Piphany, Inc.* ................................. 8,100 $ 868,219
Interworld Corp.* ................................ 5,300 108,650
Oracle Systems Corp.* ............................ 96,500 8,112,031
------------
14,537,173
------------
Computer Software--PC (3.0%)
Macromedia, Inc.* ................................ 23,400 2,262,488
Microsoft Corp.* ................................. 190,900 15,272,001
------------
17,534,489
------------
Computer Software--Systems (4.7%)
Bea Systems, Inc.* ............................... 18,000 889,875
BMC Software, Inc.* .............................. 57,500 2,097,852
Computer Associates International, Inc. .......... 37,250 1,906,734
EMC Corp.* ....................................... 183,000 14,079,564
I2 Technologies, Inc.* ........................... 16,100 1,678,676
Rational Software Corp.* ......................... 14,000 1,301,125
Siebel Systems, Inc.* ............................ 7,900 1,292,144
Veritas Software Corp.* .......................... 34,325 3,879,260
------------
27,125,230
------------
Conglomerates (2.6%)
Tyco International Ltd. .......................... 318,000 15,065,251
------------
Consumer Goods and Services (1.4%)
Clorox Co. ....................................... 82,400 3,692,550
Colgate-Palmolive Co. ............................ 77,700 4,652,288
------------
8,344,838
------------
Containers (0.1%)
Owens-Illinois, Inc.* ............................ 71,000 829,813
------------
Electrical Equipment (2.6%)
General Electric Co. ............................. 285,900 15,152,701
------------
Electronics (9.9%)
Analog Devices, Inc.* ............................ 41,500 3,153,998
Atmel Corp.* ..................................... 62,300 2,297,311
Fairchild Semiconductor Corp.* ................... 32,000 1,296,000
Flextronics International Ltd.* .................. 66,532 4,569,917
Hitachi Ltd. ADR (Japan). ........................ 107,000 1,546,107
Intel Corp. ...................................... 179,300 23,970,170
Lam Research Corp.* .............................. 77,400 2,902,500
LSI Logic Corp.* ................................. 44,600 2,413,975
Micron Technology, Inc.* ......................... 94,600 8,330,713
SCI Systems, Inc.* ............................... 18,300 717,131
Solectron Corp.* ................................. 70,000 2,931,250
Teradyne, Inc.* .................................. 40,900 3,006,150
------------
57,135,222
------------
Entertainment (3.2%)
Comcast Corp.* ................................... 78,900 3,195,450
Infinity Broadasting Corp.* ...................... 126,400 4,605,700
Time Warner, Inc. ................................ 61,400 4,666,400
Viacom, Inc., Class B* ........................... 86,617 5,906,197
------------
18,373,747
------------
</TABLE>
26 See Notes to Schedule of Investments.
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Financial Institutions (4.4%)
Associates First Capital Corp. ....................... 198,504 $ 4,429,119
Citigroup, Inc. ...................................... 120,550 7,263,138
Federal Home Loan Mortgage Corp. ..................... 113,100 4,580,550
Lehman Brothers Holdings ............................. 15,100 1,427,894
Marsh & McLennan Co., Inc. ........................... 22,500 2,349,844
Merrill Lynch & Co. .................................. 29,100 3,346,500
Morgan Stanley Dean Witter Discover & Co. ............ 23,200 1,931,400
State Street Corp. ................................... 2,000 212,125
--------------
25,540,570
--------------
Food and Beverage Products (1.3%)
Anheuser Busch Co., Inc. ............................. 58,500 4,369,217
Quaker Oats Co. ...................................... 42,900 3,222,863
--------------
7,592,080
--------------
Forest Products & Paper (0.3%)
Bowater, Inc. ........................................ 34,500 1,522,313
--------------
Insurance (2.9%)
Aflac, Inc. .......................................... 24,300 1,116,279
American International Group, Inc. ................... 51,175 6,013,061
Axa Financial, Inc. .................................. 92,200 3,134,798
Hartford Financial Services Group .................... 65,400 3,658,313
Metlife, Inc.* ....................................... 99,810 2,102,248
St. Paul Companies, Inc. ............................. 26,300 897,488
--------------
16,922,187
--------------
Internet (0.1%)
Selectica, Inc.* ..................................... 5,000 350,313
--------------
Machinery (1.4%)
Deere & Co. .......................................... 90,600 3,352,200
Ingersoll Rand Co. ................................... 67,600 2,720,900
SPX Corp.* ........................................... 17,000 2,055,938
--------------
8,129,038
--------------
Medical and Health Products (4.2%)
American Home Products Corp. ......................... 73,600 4,323,998
Bausch & Lomb, Inc. .................................. 40,900 3,164,638
Bristol-Myers Squibb Co. ............................. 169,500 9,873,376
Pfizer, Inc. ......................................... 146,025 7,009,200
--------------
24,371,212
--------------
Medical and Health Technology Services (0.8%)
Medtronic, Inc. ...................................... 93,200 4,642,525
--------------
Metals and Minerals (0.2%)
Alcoa, Inc. .......................................... 42,400 1,229,598
--------------
Oil Services (3.7%)
Baker Hughes, Inc. ................................... 62,600 2,003,200
Cooper Cameron Corp.* ................................ 12,200 805,200
Global Marine, Inc.* ................................. 175,700 4,952,544
Noble Drilling Corp.* ................................ 77,900 3,208,506
Santa Fe International Corp. ......................... 59,200 2,068,300
Total SA--Series B (France) .......................... 8,300 1,270,800
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Oil Services (continued)
Transocean Sedco Forex, Inc. ......................... 82,000 $ 4,381,875
Weatherford International * .......................... 61,000 2,428,563
--------------
21,118,988
--------------
Oils (5.8%)
BP Amoco PLC ......................................... 143,692 8,127,578
Conoco, Inc., Class B ................................ 260,000 6,386,251
Devon Energy Corp. ................................... 23,100 1,297,931
EOG Resources, Inc. .................................. 81,700 2,736,950
Exxon Mobil Corp. .................................... 121,996 9,576,687
Royal Dutch Petroleum Co. N.V. (Netherlands) ......... 89,600 5,560,863
--------------
33,686,260
--------------
Printing and Publishing (0.4%)
Tribune Co. .......................................... 72,700 2,544,500
--------------
Stores (3.7%)
CVS Corp. ............................................ 252,300 10,092,001
Office Depot, Inc.* .................................. 257,700 1,610,625
Radioshack Corp. ..................................... 106,100 5,026,488
Wal-Mart Stores, Inc. ................................ 78,600 4,529,325
--------------
21,258,439
--------------
Supermarkets (1.6%)
Safeway, Inc.* ....................................... 201,200 9,079,151
--------------
Telecommunications (11.3%)
Allegiance Telecom, Inc.* ............................ 6,800 435,198
Ancor Communications, Inc.* .......................... 16,250 581,189
Cabletron Systems, Inc.* ............................. 67,000 1,691,750
CIENA Corp.* ......................................... 44,200 7,367,588
Cisco Systems, Inc.* ................................. 307,400 19,539,114
Comverse Technology, Inc.* ........................... 51,900 4,826,700
Corning, Inc. ........................................ 38,017 10,259,838
Flag Telecom Holdings Ltd.* .......................... 88,730 1,319,859
Global Crossing Ltd.* ................................ 215,400 5,667,714
Nortel Networks Corp. (Canada). ...................... 174,600 11,916,450
Tellabs, Inc.* ....................................... 26,000 1,779,375
--------------
65,384,775
--------------
Utilities--Electric (0.7%)
AES Corp.* ........................................... 92,600 4,224,873
--------------
Utilities--Gas (0.4%)
Williams Companies, Inc. ............................. 54,000 2,251,125
--------------
Utilities--Telephone (6.8%)
Bell Atlantic Corp. .................................. 52,700 2,677,819
HSBC Holdings PLC (Great Britain) .................... 147,400 1,689,661
Intermedia Communications, Inc.* ..................... 11,600 345,100
KPN N.V. (Netherlands) ............................... 77,800 3,474,906
Level 3 Communications, Inc.* ........................ 17,400 1,531,200
Metromedia Fiber Network, Inc.* ...................... 171,200 6,794,500
Nippon Telegraph & Telephone Corp. (Japan) ........... 280 3,728,573
Qwest Communications International, Inc.* ............ 62,800 3,120,375
</TABLE>
See Notes to Schedule of Investments. 27
<PAGE>
MFS Research Growth Portfolio
Schedule of Investments
June 30, 2000 (unaudited) (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Utilities--Telephone (continued)
Sprint Corp. ......................................... 112,500 $ 5,737,500
Time Warner Telecom, Inc.* ........................... 10,500 675,938
Vodafone Group PLC ................................... 556,977 2,256,425
Winstar Communications, Inc.* ........................ 10,350 350,606
WorldCom, Inc.* ...................................... 149,183 6,843,770
--------------
39,226,373
--------------
Total Common Stocks (Cost $461,328,372) 575,926,866
--------------
TOTAL INVESTMENTS At Market Value (99.4%)
(Cost $461,328,372) 575,926,866
Other assets in excess of liablilities (0.6%) 3,543,980
--------------
Net Assets (100.0%) $ 579,470,846
==============
Notes to Schedule of Investments
Unrealized gains and losses, based on identified tax cost at
June 30, 2000 are as follows:
Unrealized gains ............................................... $ 137,594,827
Unrealized losses .............................................. (22,996,334)
--------------
Net unrealized gain ........................................... $ 114,598,493
==============
</TABLE>
* Non-income producing security.
ADR American Depository Receipt.
Category percentages are based on net assets.
28 See Notes to Financial Statements.
<PAGE>
MFS Capital Opportunities Portfolio
Schedule of Investments
June 30, 2000 (unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
COMMON STOCKS (95.7%)
Aerospace (0.9%)
Boeing Co. ...................................... 69,900 $ 2,922,694
United Technologies ............................. 18,200 1,071,525
--------------
3,994,219
--------------
Banks and Credit Companies (1.2%)
Chase Manhattan Bank ............................ 84,050 3,871,553
Providian Financial Corp. ....................... 14,700 1,323,000
--------------
5,194,553
--------------
Biotechnology (1.4%)
Pharmacia Corp. ................................. 114,638 5,925,353
--------------
Business Machines (2.9%)
Compaq Computer Corp. ........................... 38,400 981,600
Dell Computer Corp.* ............................ 68,400 3,372,975
Hewlett-Packard Co. ............................. 16,100 2,010,488
International Business Machines Corp. ........... 7,900 865,544
Motorola, Inc. .................................. 174,500 5,071,407
--------------
12,302,014
--------------
Business Machines--Peripherals (0.7%)
Seagate Technology, Inc.* ....................... 54,900 3,019,500
--------------
Business Services (2.4%)
Computer Sciences Corp.* ........................ 41,900 3,129,406
Integra SA* ..................................... 55,700 494,906
Unisys Corp.* ................................... 57,000 830,063
VeriSign, Inc.* ................................. 32,780 5,785,671
--------------
10,240,046
--------------
Cellular Phones (3.3%)
China Telecom Hong Kong Ltd.* ................... 188,000 1,657,991
Grupo Iusacell SA de C.V. ADR (Mexico)* ......... 45,360 708,750
Libertel N.V. (Netherlands)* .................... 118,000 1,794,308
NTT Mobile Communications Network, Inc. ......... 88 2,385,229
Sonera Oyj (Finland) ............................ 41,600 1,893,740
Sprint Corp. (PCS Group)* ....................... 56,300 3,349,850
Telesystem International Wireless, Inc. ......... 125,300 2,318,050
--------------
14,107,918
--------------
Computer Software (0.4%)
Oracle Systems Corp.* ........................... 15,500 1,302,969
Via Net.Works, Inc.* ............................ 25,420 392,421
--------------
1,695,390
--------------
Computer Software--PC (0.8%)
Microsoft Corp.* ................................ 43,600 3,488,000
--------------
Computer Software--Systems (3.0%)
Bea Systems, Inc.* .............................. 17,000 840,438
BMC Software, Inc.* ............................. 53,900 1,966,509
Commerce One, Inc.* ............................. 7,100 322,273
Computer Associates International, Inc. ......... 35,700 1,827,394
EMC Corp.* ...................................... 33,000 2,538,938
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Computer Software--Systems (continued)
I2 Technologies, Inc.* .......................... 9,185 $ 957,680
Mercury Interactive Corp.* ...................... 4,800 464,400
Siebel Systems, Inc.* ........................... 9,300 1,521,131
Veritas Software Corp.* ......................... 17,850 2,017,328
Vignette Corp.* ................................. 5,700 296,489
--------------
12,752,580
--------------
Computer Software & Processing (0.0%)
StorageNetworks, Inc. ........................... 730 64,514
--------------
Conglomerates (2.8%)
Tyco International Ltd. ......................... 258,088 12,226,920
--------------
Construction Services (0.4%)
Vivendi (France) ................................ 21,000 1,850,885
--------------
Electrical Equipment (0.3%)
Capstone Turbine Corp.* ......................... 30 1,352
Honeywell International, Inc. ................... 43,962 1,480,970
--------------
1,482,322
--------------
Electronics (9.4%)
Analog Devices, Inc.* ........................... 44,800 3,404,798
Applied Materials, Inc.* ........................ 21,571 1,954,870
Atmel Corp.* .................................... 43,300 1,596,688
Fairchild Semiconductor Corp.* .................. 81,000 3,280,500
Flextronics International Ltd.* ................. 13,800 947,888
Intel Corp. ..................................... 22,500 3,007,969
Lam Research Corp.* ............................. 27,900 1,046,250
LSI Logic Corp.* ................................ 61,000 3,301,625
Micron Technology, Inc.* ........................ 54,600 4,808,213
Novellus Systems, Inc.* ......................... 32,200 1,821,313
Samsung Electronics ............................. 23,990 7,939,115
Sanmina Corp.* .................................. 21,920 1,874,160
Solectron Corp.* ................................ 90,900 3,806,438
Teradyne, Inc.* ................................. 23,000 1,690,500
--------------
40,480,327
--------------
Entertainment (4.5%)
Cablevision Systems Corp.* ...................... 28,900 1,961,588
Comcast Corp.* .................................. 90,900 3,681,450
Harrah's Entertainment, Inc.* ................... 76,400 1,599,625
Hearst-Argyle Television, Inc.* ................. 38,200 744,900
Infinity Broadcasting Corp.* .................... 172,725 6,293,668
UnitedGlobalCom, Inc., Class A* ................. 88,100 4,118,675
Viacom, Inc., Class B* .......................... 16,200 1,104,638
--------------
19,504,544
--------------
Financial Institutions (2.3%)
Associates First Capital Corp. .................. 119,900 2,675,268
Citigroup, Inc. ................................. 38,100 2,295,525
Federal Home Loan Mortgage Corp. ................ 94,100 3,811,050
Federal National Mortgage Association ........... 26,300 1,372,531
--------------
10,154,374
--------------
</TABLE>
See Notes to Schedule of Investments. 29
<PAGE>
MFS Capital Opportunities Portfolio
Schedule of Investments
June 30, 2000 (unaudited) (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Insurance (3.4%)
American International Group, Inc. ............ 16,500 $ 1,938,748
Axa Financial, Inc. ........................... 141,500 4,810,998
Hartford Financial Services Group ............. 85,400 4,777,063
Lincoln National Corp. ........................ 91,700 3,312,663
--------------
14,839,472
--------------
Machinery (1.1%)
Deere & Co. ................................... 53,600 1,983,200
Ingersoll Rand Co. ............................ 69,600 2,801,400
--------------
4,784,600
--------------
Media--Cable (0.8%)
United Pan-Europe Communications N.V
(Netherlands)* .............................. 139,600 3,645,277
--------------
Medical and Health Products (3.7%)
American Home Products Corp. .................. 33,200 1,950,498
Bausch & Lomb, Inc. ........................... 37,000 2,862,875
Bristol-Myers Squibb Co. ...................... 80,800 4,706,600
PE Corp.-PE Biosystems Group .................. 36,300 2,391,263
Pfizer, Inc. .................................. 81,675 3,920,400
--------------
15,831,636
--------------
Metals and Minerals (0.3%)
Phelps Dodge Corp. ............................ 39,100 1,454,031
--------------
Natural Gas--Pipeline (1.1%)
Coastal Corp. ................................. 75,200 4,577,800
--------------
Oil Services (7.4%)
Baker Hughes, Inc. ............................ 253,200 8,102,401
BJ Services Co.* .............................. 22,300 1,393,750
Conoco, Inc., Class A ......................... 81,500 1,793,000
Cooper Cameron Corp.* ......................... 34,800 2,296,800
Global Marine, Inc.* .......................... 38,300 1,079,581
Grant Prideco, Inc.* .......................... 87,600 2,190,000
Halliburton Co. ............................... 77,200 3,642,875
Noble Drilling Corp.* ......................... 76,400 3,146,725
Transocean Sedco Forex, Inc. .................. 67,661 3,615,635
Valero Energy Corp. ........................... 32,400 1,028,700
Weatherford International * ................... 91,800 3,654,788
--------------
31,944,255
--------------
Oils (2.5%)
Conoco, Inc., Class B ......................... 152,800 3,753,150
EOG Resources, Inc. ........................... 98,200 3,289,700
Ultramar Diamond Shamrock Corp. ............... 68,300 1,694,694
Unocal Corp. .................................. 62,800 2,080,250
--------------
10,817,794
--------------
Printing and Publishing (0.5%)
Tribune Co. ................................... 61,800 2,163,000
--------------
Special Products and Services (0.3%)
Completel Europe N.V. (Netherlands)* .......... 119,900 1,485,993
--------------
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Stores (1.9%)
CVS Corp. ..................................... 53,100 $ 2,124,000
Radioshack Corp. .............................. 129,500 6,135,064
--------------
8,259,064
--------------
Supermarkets (1.3%)
Kroger Co.* ................................... 164,300 3,624,869
Safeway, Inc.* ................................ 47,700 2,152,463
--------------
5,777,332
--------------
Telecommunications (21.0%)
ADC Telecommunications, Inc.* ................. 58,300 4,889,911
Adelphia Business Solutions, Inc.* ............ 44,000 1,020,248
Allegiance Telecom, Inc.* ..................... 75,750 4,847,998
Amdocs Ltd.* .................................. 32,100 2,463,675
AT&T Canada, Inc.* ............................ 38,700 1,284,354
AT&T Wireless Group* .......................... 99,730 2,779,972
Brocade Communications Systems, Inc.* ......... 4,000 733,938
Cable & Wireless Optus Ltd.* .................. 775,500 2,307,345
Cabletron Systems, Inc.* ...................... 119,100 3,007,275
CIENA Corp.* .................................. 6,800 1,133,475
Cisco Systems, Inc.* .......................... 75,300 4,786,256
Corning, Inc. ................................. 49,400 13,331,826
Crown Castle International Corp.* ............. 9,400 343,100
Digex, Inc.* .................................. 32,400 2,201,175
Ericsson AB--B Shares ......................... 158,000 3,136,727
Extreme Networks, Inc.* ....................... 8,100 854,550
Finisar Corp.* ................................ 66,300 1,736,231
Flag Telecom Holdings Ltd.* ................... 27,730 412,484
Global Crossing Ltd.* ......................... 267,900 7,049,120
Impsat Fiber Networks, Inc.* .................. 30,900 517,575
Lucent Technologies, Inc. ..................... 45,900 2,719,575
MGC Communications, Inc.* ..................... 45,100 2,703,181
Nokia Oyj ADR (Finland) ....................... 72,300 3,610,481
Nortel Networks Corp. (Canada). ............... 147,400 10,060,051
NTL, Inc.* .................................... 88,082 5,273,919
ONI Systems Corp.* ............................ 620 72,666
Redback Networks, Inc.* ....................... 4,900 872,200
Tekelec* ...................................... 70,800 3,411,675
Tele1 Europe Holding AB ADR (Sweden)* ......... 6,200 74,788
Tellabs, Inc.* ................................ 17,800 1,218,188
Versatel Telecom International N.V. ADR
(Netherlands)* .............................. 48,840 2,048,716
--------------
90,902,675
--------------
Utilities--Electric (3.1%)
AES Corp.* .................................... 191,200 8,723,498
Calpine Corp.* ................................ 21,100 1,387,325
CMS Energy Corp. .............................. 31,700 701,363
NRG Energy, Inc.* ............................. 129,180 2,357,535
--------------
13,169,721
--------------
</TABLE>
30 See Notes to Schedule of Investments.
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Utilities--Gas (1.4%)
Dynegy, Inc. ........................................... 22,500 $ 1,537,031
Enron Corp. ............................................ 30,200 1,947,900
Williams Companies, Inc. ............................... 63,800 2,659,663
--------------
6,144,594
--------------
Utilities--Telephone (9.2%)
ALLTEL Corp. ........................................... 39,800 2,465,111
Broadwing, Inc.* ....................................... 59,105 1,533,036
Cable & Wireless PLC (Great Britain) ................... 124,333 2,110,988
Energis PLC* ........................................... 67,610 2,542,028
Focal Communications Corp.* ............................ 10,700 382,525
GTE Corp. .............................................. 27,900 1,736,775
Intermedia Communications, Inc.* ....................... 500 14,875
KPNQwest N.V. (Netherlands)* ........................... 22,900 899,468
Metromedia Fiber Network, Inc.* ........................ 74,960 2,974,975
NDS Group PLC ADR (Great Britain)* ..................... 8,800 536,800
NEXTLINK Communications, Inc., Class A* ................ 60,600 2,299,013
Partner Communications Co., Ltd. ADR (Isreal)* ......... 217,075 2,062,213
Pegasus Communications Corp.* .......................... 9,200 451,375
Qwest Communications International, Inc.* .............. 7,800 387,563
Sprint Corp. ........................................... 7,600 387,600
Tele1 Europe Holding AB* ............................... 125,850 1,546,319
Time Warner Telecom, Inc.* ............................. 30,400 1,957,000
Vodafone Group PLC (Great Britain) ..................... 1,438,497 5,827,640
VoiceStream Wireless Corp.* ............................ 27,200 3,163,276
Williams Communications Group, Inc.* ................... 110,600 3,670,538
Winstar Communications, Inc.* .......................... 78,450 2,657,494
--------------
39,606,612
--------------
Total Common Stocks (Cost $368,525,381) 413,887,315
--------------
WARRANTS (0.0%)
Forest Products & Paper (0.0%)
Asia Pulp & Paper Co., Ltd. (Singapore)* ............... 9,460 164
--------------
Total Warrants (Cost $0) 164
--------------
TOTAL INVESTMENTS At Market Value (95.7)%
(Cost $368,525,381) 413,887,479
Other assets in excess of liabilities (4.3)% 18,465,434
--------------
Net Assets (100.0)% $ 432,352,913
==============
</TABLE>
Notes to Schedule of Investments
Unrealized gains and losses, based on identified tax cost at June 30, 2000 are
as follows:
<TABLE>
<S> <C>
Unrealized gains ..................................... $75,916,272
Unrealized losses .................................... (30,554,174)
-----------
Net unrealized gain .................................. $45,362,098
===========
</TABLE>
* Non-income producing security.
ADR American Depository Receipt
Category percentages are based on net assets.
See Notes to Schedule of Investments. 31
<PAGE>
Scudder International Growth Portfolio
Schedule of Investments
June 30, 2000 (unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
COMMON STOCKS (95.0%)
Australia (1.5%)
Broken Hill Proprietary Co. (Mining) ................ 411,200 $ 4,851,996
Western Mining Corp. Holding Ltd. (Mining) .......... 772,100 3,447,195
Woodside Petroleum Ltd. (Oil & Gas) ................. 256,600 1,992,986
--------------
10,292,177
--------------
Canada (1.7%)
Canadian National Railway Co. (Transportation) ...... 210,000 6,129,373
Nortel Networks Corp. (Communications) .............. 80,300 5,661,727
--------------
11,791,100
--------------
Finland (1.5%)
Nokia Oyj (Communications) .......................... 200,300 10,206,627
--------------
France (16.5%)
Alcatel (Communications) ............................ 156,460 10,247,395
Axa UAP (Insurance) ................................. 37,673 5,926,083
Banque National de Paris (Banking) .................. 81,322 7,814,873
Bic SA (Office Equipment & Supplies) ................ 101,033 4,941,221
Bouygues SA (Heavy Construction)* ................... 7,254 4,840,933
Christian Dior SA (Diversified) ..................... 27,846 6,304,925
Credit Lyonnais SA (Financial Services) ............. 126,828 6,021,413
Dassault Systemes SA (Computer Software &
Processing) ....................................... 27,041 2,518,666
Etablissements Economiques du Casino SA
(Food Retailers) .................................. 60,850 3,733,038
Eurotunnel SA (Financial Services)* ................. 3,470,436 3,143,174
Lagardere S.C.A. (Financial Services) ............... 37,426 2,854,414
Pinault-Printemps-Redoute SA (Retailers) ............ 31,194 6,920,236
Rhodia SA (Chemicals) ............................... 301,554 5,059,775
Rhone-Polenc, Class A (Chemicals) ................... 177,259 12,919,310
Schneider SA (Industrial) ........................... 48,485 3,374,299
Suez Lyonnaise des Eaux (Diversified) ............... 50,320 8,802,991
Total SA--Series B (Oil & Gas) ...................... 102,597 15,708,464
--------------
111,131,210
--------------
Germany (10.4%)
Allianz AG (Insurance) .............................. 20,392 7,237,796
Bayer AG (Chemicals) ................................ 147,492 5,748,206
Bayerische Vereinsbank AG (Banking) ................. 105,413 6,799,539
Celanese AG (Chemicals) ............................. 13,360 257,283
Commerzbank AG (Banking) ............................ 72,500 2,594,695
Deutsche Telekom AG (Communications) ................ 48,228 2,749,502
Dresdner Bank AG (Banking) .......................... 83,581 3,434,301
Epcos AG (Electronics)* ............................. 66,786 6,652,941
Ergo Versicherungs Gruppe AG* (Insurance) ........... 25,392 2,880,694
Heidelberger Druckmaschinen AG
(Heavy Machinery) ................................. 16,988 1,023,235
Muenchener Rueckversicherungs-Gesellschaft
AG (Insurance) .................................... 22,564 7,055,754
Siemans AG (Electronics) ............................ 69,179 10,420,412
Veba AG (Electric Utilities) ........................ 284,496 13,940,938
--------------
70,795,296
--------------
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Hong Kong (1.4%)
China Telecom Hong Kong Ltd.
(Communications)* ................................. 462,000 $ 4,074,424
Hutchison Whampoa Ltd. (Diversified) ................ 240,900 3,028,402
Legend Holdings Ltd. (Computers &
Information) ...................................... 1,344,000 1,301,664
Li & Fung Ltd. (Financial Services) ................. 178,000 890,498
--------------
9,294,988
--------------
Italy (5.9%)
Alleanza Assicurazioni SpA (Insurance) .............. 189,800 2,524,207
Assicurazione Generali SpA (Insurance) .............. 212,200 7,262,630
Banca Intesa SpA (Commercial Services) .............. 1,304,585 5,833,060
Gruppo Editoriale L'Espresso SpA (Media--
Broadcasting & Publishing) ........................ 1 13
Holding di Partecipazioni Industriali SpA
(Financial Services) .............................. 1,266,500 1,690,398
Mediobanca SpA (Banking) ............................ 709,000 7,300,006
RAS SpA (Insurance) ................................. 250,550 2,746,930
San Paolo--IMI SpA (Banking) ........................ 312,800 5,543,692
Seat Pagine Gialle SpA (Media--
Broadcasting & Publishing) ........................ 2,000,700 6,904,617
--------------
39,805,553
--------------
Japan (24.3%)
Advantest Corp. (Electronics) ....................... 16,200 3,618,359
Benesse Corp. (Commercial Services) ................. 22,000 1,527,128
Chugai Pharmaceutical Co., Ltd.
(Pharmaceuticals) ................................. 330,000 6,248,748
Daiwa Securities Co., Ltd. (Financial Services) ..... 327,000 4,323,561
DDI Corp. (Communications) .......................... 269 2,591,302
East Japan Railway Co. (Transportation) ............. 1,113 6,475,025
Fuji Bank (Banking) ................................. 730,000 5,556,760
Fujisawa Pharmaceutical (Pharmaceuticals) ........... 45,000 1,823,207
Fujitsu Ltd. (Computers & Information) .............. 272,000 9,427,574
Kyocera Corp. (Electronics) ......................... 42,000 7,135,855
Matsushita Electric Industrial Co., Ltd.
(Electronics) ..................................... 287,000 7,453,849
Mitsubishi Estate Co., Ltd. (Real Estate) ........... 340,000 4,007,376
Mitsui Fudosan Co., Ltd. (Real Estate) .............. 395,000 4,290,016
Murata Manufacturing Co., Ltd. (Electronics) ........ 47,000 6,755,822
NEC Corp. (Computers & Information) ................. 300,000 9,434,760
Nikko Securities Co., Ltd. (Financial Services) ..... 413,000 4,095,473
Nintendo Corp. Ltd. (Entertainment & Leisure) ....... 32,300 5,649,486
Nippon Telegraph & Telephone Corp.
(Communications) .................................. 359 4,780,564
Nissan Motor Co., Ltd. (Transportation)* ............ 647,000 3,818,982
Nomura Securities Co., Ltd. (Financial Services) 324,000 7,940,495
NTT Mobile Communcations Network, Inc.
(Communications) .................................. 263 7,128,583
Ricoh Co., Ltd. (Office Equipment & Supplies) ....... 191,000 4,049,620
Sakura Bank Ltd. (Banking) .......................... 897,000 6,209,572
Sankyo Co., Ltd. (Pharmaceuticals) .................. 255,000 5,767,820
Sanyo Electric Co., Ltd (Electronics) ............... 386,000 3,477,783
</TABLE>
32 See Notes to Schedule of Investments.
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Japan (continued)
Softbank Corp. (Banking) ............................ 10,800 $ 1,468,763
Sony Corp. ADR (Electronics) ........................ 20,000 1,886,249
Sony Corp. (Electronics) ............................ 55,000 5,142,374
Sumitomo Electric Industries (Electronics) .......... 267,000 4,584,283
Tokyo Electron Ltd. (Electronics) ................... 23,000 3,153,988
Toshiba Corp. (Electronics) ......................... 708,000 8,003,728
Yamanouchi Pharmaceutical Co., Ltd.
(Pharmaceuticals) ................................. 121,000 6,616,522
--------------
164,443,627
--------------
Netherlands (6.1%)
ABN Amro Holdings N.V. (Financial Services) ......... 276,710 6,769,157
Akzo Nobel N.V. (Chemicals) ......................... 71,490 3,032,906
ASM Lithography Holding N.V. (Electronics)* ......... 95,310 4,090,696
Gucci Group N.V. (Textiles, Clothing & Fabrics) ..... 55,690 5,276,626
KPN N.V. (Communications) ........................... 129,600 5,788,532
Laurus N.V. (Food Retailers) ........................ 117,980 1,411,584
St Microelectronics N.V. (Electronics) .............. 185,370 11,663,721
VNU N.V. (Media--Broadcasting & Publishing) ......... 61,200 3,156,476
--------------
41,189,698
--------------
Singapore (0.4%)
Chartered Semiconductor Manufacturing ADR
(Electronics)* .................................... 29,700 2,672,999
--------------
South Korea (3.1%)
Samsung Electronics (Electronics) ................... 31,616 10,462,819
SK Telecom Co., Ltd. (Telecommunications) ........... 32,300 10,573,305
--------------
21,036,124
--------------
Spain (0.8%)
Telefonica SA (Communications)* ..................... 266,674 5,720,264
--------------
Sweden (1.3%)
Ericsson AB--B Shares (Commercial Services) ......... 442,400 8,782,834
--------------
Switzerland (3.1%)
Nestle SA (Beverages, Food & Tobacco) ............... 4,040 8,076,537
Roche Holding AG (Pharmaceuticals) .................. 425 4,132,378
Swiss Re (Insurance) ................................ 1,594 3,245,194
UBS AG (Banking) .................................... 36,160 5,291,600
--------------
20,745,709
--------------
Taiwan (2.2%)
Far East Textile (Textiles, Clothing & Fabrics) ..... 1,512,660 1,880,690
Gigamedia Ltd (Computers & Information)* ............ 53,100 643,838
Hon Hai Precision Industry (Industrial)* ............ 282,800 2,558,774
Taiwan Semiconductor (Electronics)* ................. 875,610 4,160,722
United Microelectronics Corp. Ltd.
(Electronics)* .................................... 1,906,800 5,306,243
--------------
14,550,267
--------------
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
United Kingdom (14.8%)
ARM Holdings PLC (Electronics)* ..................... 169,020 $ 1,815,680
Billiton PLC (Mining) ............................... 582,930 2,379,228
BOC Group PLC (Chemicals) ........................... 286,346 4,127,477
BP Amoco PLC (Oil & Gas) ............................ 1,022,317 9,834,281
British Aerospace PLC (Aerospace & Defense).......... 860,675 5,380,252
British Airways PLC (Airlines) ...................... 557,541 3,214,614
Cable & Wireless PLC (Communications) ............... 322,515 5,475,821
Glaxo Wellcome PLC (Pharmaceuticals) ................ 105,255 3,077,467
Prudential Corp. PLC (Insurance) .................... 385,400 5,660,524
Reed International PLC (Media--Broadcasting
& Publishing) ..................................... 881,958 7,694,554
Rentokil Initial PLC (Environmental Controls) ....... 702,643 1,599,145
Reuters Group PLC (Financial Services) .............. 501,157 8,569,735
Rio Tinto PLC (Mining) .............................. 525,548 8,611,997
Shell Transport & Trading Co. PLC (Oil & Gas) ....... 1,133,931 9,488,621
SmithKline Beecham PLC (Pharmaceuticals) ............ 236,902 3,109,244
Standard Chartered PLC (Banking) .................... 348,837 4,356,032
Vodafone Group PLC (Communications) ................. 3,876,006 15,702,477
--------------
100,097,149
--------------
Total Common Stocks (Cost $549,055,344) 642,555,622
--------------
CORPORATE DEBT (0.3%)
France (0.3%)
Eurotunnel Finance Ltd. (Financial Services) ........ 1,100,000 1,331,830
Eurotunnel Finance Ltd. (Financial Services) ........ 300,000 363,226
--------------
1,695,056
--------------
United Kingdom (0.0%)
British Aerospace PLC (Aerospace & Defense) ......... 73,479 109,594
--------------
Total Corporate Debt (Cost $1,869,730) 1,804,650
--------------
PREFERRED STOCKS (0.5%)
Germany (0.5%)
SAP AG-Vorzug (Germany) (Computer Software
& Processing) ..................................... 17,007 3,140,588
--------------
Total Preferred Stocks (Cost $2,404,811) 3,140,588
--------------
TOTAL INVESTMENTS At Market Value (95.8)%
(Cost $553,329,885) 647,500,860
Other assets in excess of liabilities (4.2)% 28,548,959
--------------
Net Assets (100.0)% $ 676,049,819
==============
</TABLE>
See Notes to Schedule of Investments. 33
<PAGE>
Scudder International Growth Portfolio
Schedule of Investments
June 30, 2000 (unaudited) (continued)
--------------------------------------------------------------------------------
Notes to Schedule of Investments
Unrealized gains and losses, based on identified tax cost at June 30, 2000 are
as follows:
<TABLE>
<S> <C>
Unrealized gains .................................. $134,151,101
Unrealized losses ................................. (39,980,126)
------------
Net unrealized gain ............................... $94,170,975
============
</TABLE>
* Non-income producing security.
ADR American Depository
Receipt Category percentages are based on net assets.
34 See Notes to Schedule of Investments.
<PAGE>
T. Rowe Price Growth Equity Portfolio
Schedule of Investments
June 30, 2000 (unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------- --------------
<S> <C> <C>
COMMON STOCKS (97.0%)
Advertising (0.6%)
Omnicom Group, Inc. ............................. 52,300 $ 4,657,969
--------------
Aerospace & Defense (0.6%)
Teleflex, Inc. .................................. 43,500 1,612,219
United Technologies ............................. 41,200 2,425,650
--------------
4,037,869
--------------
Banking (2.8%)
Bank of New York Co., Inc. ...................... 127,000 5,905,500
Chase Manhattan Bank ............................ 31,650 1,457,878
Firstar Corp. ................................... 262,800 5,535,225
Softbank Corp. .................................. 7,800 1,060,773
State Street Corp. .............................. 31,200 3,309,150
Wells Fargo & Co. ............................... 71,700 2,778,375
--------------
20,046,901
--------------
Beverages, Food & Tobacco (2.0%)
Coca-Cola Co. ................................... 65,900 3,785,131
Pepsico, Inc. ................................... 145,400 6,461,213
Philip Morris Co., Inc. ......................... 138,000 3,665,625
--------------
13,911,969
--------------
Building Materials (0.4%)
Lowe's Companies, Inc. .......................... 74,800 3,071,475
--------------
Chemicals (0.9%)
Pharmacia Corp. ................................. 122,074 6,309,700
--------------
Commercial Services (1.2%)
Ericsson AB--B Shares ........................... 188,600 3,744,219
Randstad Holdings N.V. (Netherlands). ........... 126,050 4,656,590
--------------
8,400,809
--------------
Communications (10.4%)
China Telecom Hong Kong Ltd.* ................... 180,000 1,587,438
China Unicom Ltd. ADR (China)* .................. 106,300 2,258,875
Corning, Inc. ................................... 44,400 11,982,450
Crown Castle International Corp.* ............... 17,800 649,700
Nextel Communications, Inc., Class A* ........... 148,500 9,086,344
NEXTLINK Communications, Inc., Class A* ......... 102,600 3,892,388
Nokia Oyj ADR (Finland) ......................... 129,400 6,461,913
Nortel Networks Corp. ........................... 122,200 8,340,150
Sprint Corp. (PCS Group)* ....................... 83,900 4,992,050
Telesp Cellular Partcipa (Spain) ................ 60,000 2,692,500
Vodafone Group PLC (Great Britain) .............. 2,210,614 8,955,640
Vodafone Group PLC ADR (Great Britain) .......... 59,150 2,451,028
WorldCom, Inc.* ................................. 262,174 12,027,233
--------------
75,377,709
--------------
Computer Software & Processing (12.9%)
America Online, Inc.* ........................... 140,300 7,400,823
Ariba, Inc.* .................................... 60,200 5,902,421
Automatic Data Processing, Inc. ................. 114,600 6,138,263
BMC Software, Inc.* ............................. 131,600 4,801,347
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
----------- --------------
<S> <C> <C>
Computer Software & Processing (continued)
Ceridian Corp.* ................................. 103,100 $ 2,480,844
Computer Associates International, Inc. ......... 41,900 2,144,756
Electronic Arts, Inc.* .......................... 43,300 3,158,194
First Data Corp. ................................ 137,500 6,823,438
Macromedia, Inc.* ............................... 12,000 1,160,250
Microsoft Corp.* ................................ 224,200 17,936,001
Oracle Systems Corp.* ........................... 138,700 11,659,469
Peregrine Systems, Inc.* ........................ 34,800 1,207,125
Siebel Systems, Inc.* ........................... 38,400 6,280,800
Sun Microsystems, Inc.* ......................... 46,200 4,201,313
Veritas Software Corp.* ......................... 56,375 6,371,254
Vitria Technology, Inc.* ........................ 42,200 2,579,475
Yahoo! Inc.* .................................... 27,600 3,418,950
--------------
93,664,723
--------------
Computers & Information (5.6%)
Cisco Systems, Inc.* ............................ 305,700 19,431,056
Dell Computer Corp.* ............................ 245,800 12,121,014
Hewlett-Packard Co. ............................. 36,000 4,495,500
Lexmark International Group, Inc.* .............. 15,300 1,028,925
Sandisk Corp.* .................................. 60,000 3,671,250
--------------
40,747,745
--------------
Cosmetics & Personal Care (0.2%)
Gillette Co. .................................... 51,000 1,781,813
--------------
Diversified (3.0%)
Hutchison Whampoa Ltd. (Hong Kong) .............. 527,670 6,633,445
Tomkins PLC (Great Britain) ..................... 517,660 1,686,743
Tyco International Ltd. ......................... 286,800 13,587,151
--------------
21,907,339
--------------
Electric Utilities (1.8%)
General Electric Co. ............................ 249,000 13,197,000
--------------
Electronics (14.1%)
Altera Corp.* ................................... 68,900 7,023,493
Analog Devices, Inc.* ........................... 27,000 2,051,998
Applied Materials, Inc.* ........................ 87,400 7,920,623
Applied Micro Circuits Corp.* ................... 30,000 2,962,498
Atmel Corp.* .................................... 53,900 1,987,561
Flextronics International Ltd.* ................. 137,600 9,451,400
Intel Corp. ..................................... 94,200 12,593,363
JDS Uniphase Corp.* ............................. 73,100 8,762,863
Koninklijke Philips Electronics N.V. ADR
(Netherlands) ................................. 174,800 8,232,311
Kyocera Corp. ................................... 19,300 3,279,095
Maxim Intergrated Products, Inc.* ............... 105,800 7,187,788
Motorola, Inc. .................................. 54,000 1,569,375
PMC-Sierra, Inc.* ............................... 19,200 3,411,600
Samsung Electronics ............................. 15,200 5,030,201
SDL, Inc.* ...................................... 11,600 3,308,175
Solectron Corp.* ................................ 175,600 7,353,250
Sony Corp. ADR (Japan) .......................... 38,400 3,590,312
</TABLE>
See Notes to Schedule of Investments. 35
<PAGE>
T. Rowe Price Growth Equity Portfolio
Schedule of Investments
June 30, 2000 (unaudited) (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
---------- --------------
<S> <C> <C>
Electronics (continued)
Texas Instruments, Inc. .......................... 98,800 $ 6,786,325
--------------
102,502,231
--------------
Entertainment (0.7%)
MGM Grand, Inc.** ................................ 156,000 4,816,500
--------------
Entertainment & Leisure (0.4%)
Time Warner, Inc. ................................ 38,500 2,926,000
--------------
Financial Services (5.5%)
Ambac Financial Group, Inc. ...................... 25,100 1,375,792
Associates First Capital Corp. ................... 144,500 3,224,154
Capital One Financial Corp. ...................... 120,600 5,381,775
Citigroup, Inc. .................................. 220,450 13,282,114
Concord EFS, Inc.* ............................... 114,400 2,974,400
Mellon Financial Corp. ........................... 115,400 4,204,888
Morgan Stanley Dean Witter Discover & Co. ........ 62,600 5,211,450
Mutual Risk Management Ltd. ...................... 80,200 1,388,463
Providian Financial Corp. ........................ 33,000 2,970,000
--------------
40,013,036
--------------
Food Retailers (1.3%)
Safeway, Inc.* ................................... 207,100 9,345,389
--------------
Forest Products & Paper (0.3%)
Kimberly-Clark Corp. ............................. 37,500 2,151,563
--------------
Insurance (4.1%)
Ace, Ltd. (Bermuda) .............................. 293,900 8,229,201
Fairfax Financial Holdings Ltd.* ................. 3,685 403,167
Fairfax Financial Holdings Ltd. .................. 5,100 557,979
Hartford Financial Services Group ................ 72,000 4,027,500
Marsh & McLennan Co., Inc. ....................... 12,000 1,253,250
Partner Re Ltd. (Bermuda) ........................ 31,500 1,116,281
UnitedHealth Group, Inc. ......................... 84,400 7,237,300
Wellpoint Health Networks, Inc.* ................. 93,400 6,765,663
--------------
29,590,341
--------------
Media--Broadcasting & Publishing (4.4%)
AT&T Corp.--Liberty Media Group* ................. 217,000 5,262,249
Clear Channel Communications, Inc.* .............. 61,500 4,612,500
Comcast Corp.* ................................... 179,300 7,261,650
Infinity Broadasting Corp.* ...................... 126,600 4,612,988
Viacom, Inc., Class B* ........................... 123,364 8,411,883
VNU N.V. (Netherlands) ........................... 39,600 2,042,425
--------------
32,203,695
--------------
Medical Supplies (1.4%)
Baxter International, Inc. ....................... 119,500 8,402,344
PE Corp.-PE Biosystems Group ..................... 29,300 1,930,138
--------------
10,332,482
--------------
Metals (0.6%)
Danaher Corp. .................................... 61,200 3,025,575
Masco Corp. ...................................... 86,900 1,569,631
--------------
4,595,206
--------------
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
---------- --------------
<S> <C> <C>
Oil & Gas (3.8%)
Baker Hughes, Inc. ............................... 191,700 $ 6,134,400
Chevron Corp. .................................... 71,900 6,098,019
Exxon Mobil Corp. ................................ 89,219 7,003,692
Royal Dutch Petroleum Co. N.V. (Netherlands) ..... 133,600 8,224,750
--------------
27,460,861
--------------
Pharmaceuticals (9.2%)
American Home Products Corp. ..................... 93,500 5,493,123
Amgen, Inc.* ..................................... 30,100 2,114,523
Bristol-Myers Squibb Co. ......................... 52,000 3,029,000
Eli Lilly and Co. ................................ 87,300 8,719,088
Genentech, Inc.* ................................. 35,300 6,071,600
MedImmune, Inc.* ................................. 63,000 4,662,000
Merck & Co., Inc. ................................ 34,900 2,674,213
Pfizer, Inc. ..................................... 501,725 24,082,801
Schering-Plough Corp. ............................ 80,200 4,050,100
Waters Corp.* .................................... 43,000 5,366,938
--------------
66,263,386
--------------
Real Estate (0.3%)
Starwood Hotels & Resorts Worldwide, Inc. ........ 77,100 2,491,294
--------------
Restaurants (0.5%)
Compass Group PLC ADR (Great Britain) ............ 179,400 2,369,515
McDonald's Corp. ................................. 30,200 994,713
--------------
3,364,228
--------------
Retailers (4.9%)
Circuit City Stores--Circuit City Group .......... 72,000 2,389,500
CVS Corp. ........................................ 154,000 6,160,000
Home Depot, Inc. ................................. 125,200 6,252,175
Kroger Co.* ...................................... 197,500 4,357,344
Priceline.com, Inc.* ............................. 48,000 1,823,251
Target Corp. ..................................... 51,000 2,958,000
Wal-Mart de Mexico SA ADR (Mexico)* .............. 120,200 2,820,854
Wal-Mart Stores, Inc. ............................ 145,300 8,372,913
--------------
35,134,037
--------------
Transportation (0.6%)
Kansas City Southern Industries .................. 49,400 4,381,163
--------------
U.S. Government (2.5%)
Federal Home Loan Mortgage Corp. ................. 309,800 12,546,901
Federal National Mortgage Association ............ 110,000 5,740,625
--------------
18,287,526
--------------
Total Common Stocks (Cost $539,539,401) 702,971,959
--------------
TOTAL INVESTMENTS At Market Value (97.0%)
(Cost $539,539,401) 702,971,959
Other assets in excess of liabilities (3.0%) 21,877,941
--------------
Net Assets (100.0)% $ 724,849,900
==============
</TABLE>
36 See Notes to Schedule of Investments.
<PAGE>
--------------------------------------------------------------------------------
Notes to Schedule of Investments
Unrealized gains and losses, based on identified tax cost at June 30, 2000 are
as follows:
<TABLE>
<S> <C>
Unrealized gains ............................... $190,334,733
Unrealized losses .............................. (26,902,175)
------------
Net unrealized gain ............................ $163,432,558
============
</TABLE>
* Non-income producing security.
** Security exempt from registration under Rule 144A of the Security Act of
1933 These securities may be resold in transactions exempt from
registration, normally to qualify institutional buyers. At June 30, 2000
the market value of these securities amounted to $4,816,500 or .66% of net
assets.
ADR American Depository Receipt.
Category percentages are based on net assets.
See Notes to Schedule of Investments. 37
<PAGE>
Portfolio Partners, Inc.
Statements of Assets and Liabilities
June 30, 2000 (unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MFS Emerging MFS Research
Equities Portfolio Growth Portfolio
------------------ ----------------
<S> <C> <C>
Assets:
Investments, at market value ............... $1,576,418,729 $575,926,866
Cash ....................................... 30,099,436 417,497
Cash denominated in foreign currencies ..... 120 246,451
Receivable for:
Dividends and interest .................... 202,188 222,048
Investments sold .......................... 1,322,286 7,139,924
Fund shares sold .......................... 256,968 28,970
Recoverable foreign taxes ................. 3,197 40,705
Gross unrealized gain on forward foreign
currency exchange contracts ............... -- --
-------------- ------------
1,608,302,924 584,022,461
-------------- ------------
Liabilities:
Payable for:
Investments purchased ..................... 289,453 3,273,980
Fund shares redeemed ...................... 2,034,699 836,197
Due to custodian ........................... -- --
Administrative services fees payable ....... 169,801 71,214
Advisory fees payable ...................... 869,500 329,085
Gross unrealized loss on forward foreign
currency exchange contracts ............... -- 41,139
-------------- ------------
Total Liabilities ....................... 3,363,453 4,551,615
-------------- ------------
NET ASSETS ................................. $1,604,939,471 $579,470,846
============== ============
Net assets represented by:
Paid-in Capital ............................ $ 856,803,878 $352,158,242
Net unrealized gain on investments and
foreign currency related translations ..... 702,534,738 114,593,541
Undistributed net investment income ........ (5,287,465) (336,173)
Accumulated net realized gain on
investments ............................... 50,888,320 113,055,236
-------------- ------------
NET ASSETS ................................. $1,604,939,471 $579,470,846
============== ============
Capital Shares, $.001 par value:
Outstanding ............................... 19,177,500 36,906,645
Net Assets ................................ $1,604,939,471 $579,470,846
Net Asset Value, offering and
redemption price per share (net assets
divided by shares outstanding) ............ $ 83.69 $ 15.70
Cost of investments ........................ $ 873,884,170 $461,328,372
<CAPTION>
MFS Capital Scudder International T. Rowe Price Growth
Opportunities Portfolio Growth Portfolio Equity Portfolio
----------------------- --------------------- --------------------
<S> <C> <C> <C>
Assets:
Investments, at market value ............... $413,887,479 $ 647,500,860 $ 702,971,959
Cash ....................................... 15,308,629 15,513,413 23,952,974
Cash denominated in foreign currencies ..... -- -- --
Receivable for:
Dividends and interest .................... 210,026 586,874 412,895
Investments sold .......................... 8,548,723 16,856,168 7,011,974
Fund shares sold .......................... 93,430 13,432,482 --
Recoverable foreign taxes ................. 11,718 746,481 21,308
Gross unrealized gain on forward foreign
currency exchange contracts ............... 732 6,838 --
------------ ------------- -------------
438,060,737 694,643,116 734,371,110
------------ ------------- -------------
Liabilities:
Payable for:
Investments purchased ..................... 3,238,608 14,834,115 8,357,066
Fund shares redeemed ...................... 733 77 139,207
Due to custodian ........................... 2,149,851 3,209,665 584,335
Administrative services fees payable ....... 88,509 109,888 87,966
Advisory fees payable ...................... 230,123 439,552 351,865
Gross unrealized loss on forward foreign
currency exchange contracts ............... -- -- 771
------------ ------------- -------------
Total Liabilities ....................... 5,707,824 18,593,297 9,521,210
------------ ------------- -------------
NET ASSETS ................................. $432,352,913 $ 676,049,819 $ 724,849,900
============ ============= =============
Net assets represented by:
Paid-in Capital ............................ $270,982,175 $ 416,335,299 $ 441,977,577
Net unrealized gain on investments and
foreign currency related translations ..... 45,361,189 94,165,792 163,429,536
Undistributed net investment income ........ (602,601) 5,549,756 2,105,577
Accumulated net realized gain on
investments ............................... 116,612,150 159,998,972 117,337,210
------------ ------------- -------------
NET ASSETS ................................. $432,352,913 $ 676,049,819 $ 724,849,900
============ ============= =============
Capital Shares, $.001 par value:
Outstanding ............................... 7,312,787 29,081,336 10,172,709
Net Assets ................................ $432,352,913 $ 676,049,819 $ 724,849,900
Net Asset Value, offering and
redemption price per share (net assets
divided by shares outstanding) ............ $ 59.12 $ 23.25 $ 71.25
Cost of investments ........................ $368,525,381 $ 553,329,885 $ 539,539,401
</TABLE>
38 See Notes to Financial Statements.
<PAGE>
Portfolio Partners, Inc.
Statements of Operations
For the Six Months Ended June 30, 2000 (unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MFS Emerging MFS Research
Equities Portfolio Growth Portfolio
------------------ ----------------
<S> <C> <C>
Investment Income:
Dividends .................................... $ 309,197 $ 1,894,667
Interest ..................................... 549,410 143,490
------------ ------------
858,607 2,038,157
Foreign taxes withheld on dividends ........... (2,553) (20,090)
------------ ------------
Total investment income .................... 856,054 2,018,067
------------ ------------
Investment Expenses:
Investment advisory fee ....................... (5,140,328) (1,936,140)
Administrative services fees .................. (1,003,191) (418,100)
------------ ------------
Total expenses ............................. (6,143,519) (2,354,240)
------------ ------------
Net investment income (loss) .................. (5,287,465) (336,173)
------------ ------------
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on:
Sales of investments ......................... 35,514,096 71,040,189
------------ ------------
Futures, foreign currency and forward
foreign currency exchange contracts ......... (3,989) 49
------------ ------------
Net realized gains (loss) on investments,
futures, foreign currency and forward
foreign currency exchange contracts ......... 35,510,107 71,040,238
------------ ------------
Net change in unrealized gain or (loss) on:
Investments .................................. (13,968,391) (36,572,163)
Futures, foreign currency and forward
foreign currency exchange contracts ......... 228 (2,945)
------------ ------------
Net change in unrealized gain or (loss)
on investments, futures, foreign
currency and forward foreign
currency exchange contracts ................ (13,968,163) (36,575,108)
------------ ------------
Net realized and change in unrealized gain
(loss) on investments, futures, foreign
currency and forward foreign currency
exchange contracts ........................... 21,541,944 34,465,130
------------ ------------
Net increase (decrease) in net assets
resulting from operations .................... $ 16,254,479 $ 34,128,957
============ ============
<CAPTION>
MFS Capital Scudder International T. Rowe Price Growth
Opportunities Portfolio Growth Portfolio Equity Portfolio
----------------------- --------------------- --------------------
<S> <C> <C> <C>
Investment Income:
Dividends .................................... $ 1,036,586 $ 6,169,559 $ 2,462,479
Interest ..................................... 140,042 560,591 461,758
------------ ------------- ------------
1,176,628 6,730,150 2,924,237
Foreign taxes withheld on dividends ........... (25,971) (887,841) (58,875)
------------ ------------- ------------
Total investment income .................... 1,150,657 5,842,309 2,865,362
------------ ------------- ------------
Investment Expenses:
Investment advisory fee ....................... (1,264,081) (2,759,291) (2,065,689)
Administrative services fees .................. (486,185) (689,823) (516,422)
------------ ------------- ------------
Total expenses ............................. (1,750,266) (3,449,114) (2,582,111)
------------ ------------- ------------
Net investment income (loss) .................. (599,609) 2,393,195 283,251
------------ ------------- ------------
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on:
Sales of investments ......................... 55,732,598 101,067,836 60,645,782
------------ ------------- ------------
Futures, foreign currency and forward
foreign currency exchange contracts ......... (41,086) 141,813 (159,110)
------------ ------------- ------------
Net realized gains (loss) on investments,
futures, foreign currency and forward
foreign currency exchange contracts ......... 55,691,512 101,209,649 60,486,672
------------ ------------- ------------
Net change in unrealized gain or (loss) on:
Investments .................................. (28,165,607) (161,408,394) (7,678,058)
Futures, foreign currency and forward
foreign currency exchange contracts ......... (2,185) 11,709 (1,855)
------------ ------------- ------------
Net change in unrealized gain or (loss)
on investments, futures, foreign
currency and forward foreign
currency exchange contracts ................ (28,167,792) (161,396,685) (7,679,913)
------------ ------------- ------------
Net realized and change in unrealized gain
(loss) on investments, futures, foreign
currency and forward foreign currency
exchange contracts ........................... 27,523,720 (60,187,036) 52,806,759
------------ ------------- ------------
Net increase (decrease) in net assets
resulting from operations .................... $ 26,924,111 $ (57,793,841) $ 53,090,010
============ ============= ============
</TABLE>
See Notes to Schedule of Investments. 39
<PAGE>
Portfolio Partners, Inc.
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MFS Emerging
Equities Portfolio MFS Emerging
For the Six Months Equities Portfolio
Ended June 30, 2000 Year Ended
(unaudited) December 31, 1999
------------------- ------------------
<S> <C> <C>
From Operations:
Net investment income (loss) ................. $ (5,287,465) $ (7,958,381)
Net realized gain on investments,
futures, foreign currency and forward
foreign currency exchange contracts ......... 35,510,107 22,008,452
Net change unrealized gain (loss) on
investments, futures, foreign currency,
and forward foreign currency exchange
contracts ................................... (13,968,163) 503,775,451
-------------- --------------
Net increase (decrease) in net assets
resulting from operations ................... 16,254,479 517,825,522
-------------- --------------
Distributions to Shareholders From:
Net investment income ....................... -- --
Net realized gain on sale of investments -- (11,777,873)
-------------- --------------
Total distributions ......................... -- (11,777,873)
-------------- --------------
Fund Share Transactions:
Proceeds from shares sold ................... 132,903,154 214,534,039
Payments for shares redeemed ................ (76,220,079) (269,397,945)
Net Asset Value of shares issued in
reinvestment of dividends and
distributions ............................. -- 11,777,873
-------------- --------------
Net increase (decrease) in net
assets from fund share
transactions ............................. 56,683,075 (43,086,033)
-------------- --------------
Change in net assets ........................ 72,937,554 462,961,616
Net Assets:
Beginning of period ......................... 1,532,001,917 1,069,040,301
-------------- --------------
End of period ............................... $1,604,939,471 $1,532,001,917
============== ==============
End of period net assets includes
undistributed net investment
income ..................................... $ (5,287,465) $ (7,958,381)
============== ==============
Share Transactions:
Number of shares sold ....................... 1,619,948 3,549,758
Number of shares issued through
reinvestment of dividends and
distributions .............................. -- 182,151
Number of redeemed .......................... (937,724) (4,518,790)
-------------- --------------
Net increase (decrease) .................... 682,224 (786,881)
============== ==============
<CAPTION>
MFS Research MFS Capital
Growth Portfolio MFS Research Opportunities Portfolio
For the Six Months Growth Portfolio For the Six Months
Ended June 30, 2000 Year Ended Ended June 30, 2000
(unaudited) December 31, 1999 (unaudited)
------------------- ----------------- ----------------------
<S> <C> <C> <C>
From Operations:
Net investment income (loss) ................. $ (336,173) $ (129,018) $ (599,609)
Net realized gain on investments,
futures, foreign currency and forward
foreign currency exchange contracts ......... 71,040,238 56,628,197 55,691,512
Net change unrealized gain (loss) on
investments, futures, foreign currency,
and forward foreign currency exchange
contracts ................................... (36,575,108) 54,020,010 (28,167,792)
------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations ................... 34,128,957 110,519,189 26,924,111
------------- ------------- -------------
Distributions to Shareholders From:
Net investment income ....................... -- (989,272) --
Net realized gain on sale of investments -- -- --
------------- ------------- -------------
Total distributions ......................... -- (989,272) --
------------- ------------- -------------
Fund Share Transactions:
Proceeds from shares sold ................... 23,388,564 30,056,736 86,984,438
Payments for shares redeemed ................ (31,461,007) (78,698,870) (4,614,993)
Net Asset Value of shares issued in
reinvestment of dividends and
distributions ............................. -- 989,272 --
------------- ------------- -------------
Net increase (decrease) in net
assets from fund share
transactions ............................. (8,072,443) (47,652,862) 82,369,445
------------- ------------- -------------
Change in net assets ........................ 26,056,514 61,877,055 109,293,556
Net Assets:
Beginning of period ......................... 553,414,332 491,537,277 323,059,357
------------- ------------- -------------
End of period ............................... $ 579,470,846 $ 553,414,332 $ 432,352,913
============= ============= =============
End of period net assets includes
undistributed net investment
income ..................................... $ (336,173) $ (135,460) $ (602,601)
============= ============= =============
Share Transactions:
Number of shares sold ....................... 1,560,559 2,414,242 1,492,240
Number of shares issued through
reinvestment of dividends and
distributions .............................. -- 78,020 --
Number of redeemed .......................... (2,098,052) (6,232,711) (77,656)
------------- ------------- -------------
Net increase (decrease) .................... (537,493) (3,740,449) 1,414,584
============= ============= =============
</TABLE>
40 See Notes to Schedule of Investments.
<PAGE>
Portfolio Partners, Inc.
Statements of Changes in Net Assets (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Scudder
International
MFS Value Growth Portfolio
Equity Portfolio For Six Months
Year Ended Ended June 30, 2000
December 31, 1999 (unaudited)
----------------- -------------------
<S> <C> <C>
From Operations:
Net investment income (loss) ................. $ (457,777) $ 2,393,195
Net realized gain on investments, futures,
foreign currency and forward foreign
currency exchange contracts ................. 61,048,043 101,209,649
Net change unrealized gain (loss) on
investments, futures, foreign currency,
and forward foreign currency currency
exchange contracts .......................... 41,061,588 (161,396,685)
------------- -------------
Net increase (decrease) in net assets
resulting from operations ................... 101,651,854 (57,793,841)
------------- -------------
Distributions to Shareholders From:
Net investment income ....................... (279,096) --
Net realized gain on sale of investments (6,519,684) --
------------- -------------
Total distributions ......................... (6,798,780) --
------------- -------------
Fund Share Transactions:
Proceeds from shares sold ................... 45,080,345 580,437,388
Payments for shares redeemed ................ (18,599,149) (551,592,562)
Net Asset Value of shares issued in
reinvestment of dividends and
distributions ............................. 6,798,780 --
------------- -------------
Net increase (decrease) in net
assets from fund share
transactions ............................. 33,279,976 28,844,826
------------- -------------
Change in net assets ........................ 128,133,050 (28,949,015)
Net Assets:
Beginning of period ......................... 194,926,307 704,998,834
------------- -------------
End of period ............................... $ 323,059,357 $ 676,049,819
============= =============
End of period net assets includes
undistributed net investment income ........ $ (457,456) $ 5,549,756
============= =============
Share Transactions:
Number of shares sold ....................... 1,023,579 24,351,541
Number of shares issued through
reinvestment of dividends and
distributions .............................. 155,757 --
Number of redeemed .......................... (429,302) (22,932,086)
------------- ---------------
Net increase (decrease) .................... 750,034 1,419,455
============= ===============
<CAPTION>
T. Rowe Price
Scudder Growth Equity T. Rowe Price
International Portfolio Growth Equity
Growth Portfolio For the Six Months Portfolio
Year Ended Ended June 30, 2000 Year Ended
December 31, 1999 (unaudited) December 31, 1999
----------------- ------------------- -----------------
<S> <C> <C> <C>
From Operations:
Net investment income (loss) ................. $ 3,497,587 $ 283,251 $ 1,892,328
Net realized gain on investments, futures,
foreign currency and forward foreign
currency exchange contracts ................. 56,433,246 60,486,672 58,937,789
Net change unrealized gain (loss) on
investments, futures, foreign currency,
and forward foreign currency currency
exchange contracts .......................... 201,414,207 (7,679,913) 71,672,237
-------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations ................... 261,345,040 53,090,010 132,502,354
-------------- ------------- -------------
Distributions to Shareholders From:
Net investment income ....................... (613,395) -- (2,833,451)
Net realized gain on sale of investments (20,847,850) -- (12,820,097)
-------------- ------------- -------------
Total distributions ......................... (21,461,245) -- (15,653,548)
-------------- ------------- -------------
Fund Share Transactions:
Proceeds from shares sold ................... 613,938,289 7,835,601 144,856,110
Payments for shares redeemed ................ (602,935,931) (39,529,218) (95,388,470)
Net Asset Value of shares issued in
reinvestment of dividends and
distributions ............................. 21,461,245 -- 15,653,548
-------------- ------------- -------------
Net increase (decrease) in net
assets from fund share
transactions ............................. 32,463,603 (31,693,617) 65,121,188
-------------- ------------- -------------
Change in net assets ........................ 272,347,398 21,396,393 181,969,994
Net Assets:
Beginning of period ......................... 432,651,436 703,453,507 521,483,513
-------------- ------------- -------------
End of period ............................... $ 704,998,834 $ 724,849,900 $ 703,453,507
============== ============= =============
End of period net assets includes
undistributed net investment income ........ $ 5,512,642 $ 2,105,577 $ 862,924
============== ============= =============
Share Transactions:
Number of shares sold ....................... 31,850,222 113,981 2,595,078
Number of shares issued through
reinvestment of dividends and
distributions .............................. 1,072,527 -- 271,386
Number of redeemed .......................... (31,077,566) (598,937) (1,636,888)
-------------- ------------- -------------
Net increase (decrease) .................... 1,845,183 (484,956) 1,229,576
============== ============= =============
</TABLE>
See Notes to Schedule of Investments. 41
<PAGE>
Portfolio Partners, Inc.
Notes to Financial Statements
June 30, 2000 (unaudited)
--------------------------------------------------------------------------------
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 Capital Opportunities Portfolio ("MFS Capital
Opportunities"), 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 Capital
Opportunities Portfolio. 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 Capital Opportunities 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 Capital Opportunities, Scudder International Growth,
and T. Rowe Price Growth Equity may invest in put and call options (MFS
Emerging Equities, MFS Capital Opportunities and T. Rowe Price Growth may not
invest more than 5% of their total assets in premiums for these options). MFS
Emerging Equities, MFS Capital Opportunities 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
Capital Opportunities 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
June 30, 2000 (unaudited) (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 as of
June 30, 2000:
<TABLE>
<CAPTION>
Fee Range Effective Rate
--------- --------------
<S> <C> <C>
MFS Emerging Equities .70%-.65% .67%
MFS Research Growth .70%-.65% .69%
MFS Capital Opportunities .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 six months ended June 30,
2000, the Investment Advisor paid MFS $3,895,794 for MFS Emerging Equities, MFS
Research Growth and MFS Capital Opportunities, paid Scudder Kemper Investments
$1,269,803 for Scudder International Growth, and paid T. Rowe $1,353,242 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 Capital Opportunities ............ 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, 2001, the aggregate of each Portfolio's expenses will not exceed the
combined investment advisory and administrative service fee rates shown above.
4. Purchases and Sales of Investment Securities
Purchases and sales of investment securities, excluding short-term investments,
for the six months ended June 30, 2000 were:
<TABLE>
<CAPTION>
Cost of Purchases Proceeds from Sales
----------------- -------------------
<S> <C> <C>
MFS Emerging Equities $102,259,376 $ 77,048,643
MFS Research Growth 304,172,443 308,577,936
MFS Capital Opportunities 323,625,116 256,281,688
Scudder International Growth 327,692,290 308,960,820
T. Rowe Price Growth Equity 240,914,064 274,623,885
</TABLE>
5. Forward Foreign Currency Exchange Contracts
At June 30, 2000 MFS Research Growth, MFS Capital Opportunities, Scudder
International Growth and T. Rowe Price Growth Equity had open forward foreign
currency exchange contracts that obligate each Portfolio to deliver or receive
currencies at specified future dates. The net unrealized gain (loss) of
$(41,139), $732, $6,838 and $(771) respectively, on these contracts are
included in the accompanying financial statements. The terms of the open
contracts are as follows:
MFS Research Growth
<TABLE>
<CAPTION>
Foreign Currency U.S. Dollar U.S. Dollar Value Gross Unrealized
Currency and Exchange Date Units Purchased/Sold Proceeds/Costs at June 30, 2000 (Loss)
-------------------------- -------------------- -------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Purchase Contracts
Japanese Yen, 7/3/00 8,740,112 $ 82,798 $ 82,592 $ (206)
Sale Contracts
Euro, 7/31/00 3,014,544 2,839,002 2,879,935 (40,933)
</TABLE>
MFS Capital Opportunities
<TABLE>
<CAPTION>
Foreign Currency U.S. Dollar U.S. Dollar Value Gross Unrealized
Currency and Exchange Date Units Purchased/Sold Costs at June 30, 2000 Gain
-------------------------- -------------------- ----------- ----------------- ----------------
<S> <C> <C> <C> <C>
Purchase Contracts
Great British Pound, 7/3/00 40,933 $61,379 $62,111 $732
</TABLE>
45
<PAGE>
Portfolio Partners, Inc.
Notes to Financial Statements
June 30, 2000 (unaudited) (continued)
--------------------------------------------------------------------------------
5. Forward Foreign Currency Exchange Contracts (continued)
Scudder International Growth
<TABLE>
<CAPTION>
Foreign Currency U.S. Dollar U.S. Dollar Value Gross Unrealized
Currency and Exchange Date Units Purchased/Sold Proceeds/Costs at June 30, 2000 Gain (Loss)
----------------------------- ---------------------- ---------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Purchase Contracts
Euro, 7/3/00 1,527,317 $1,446,128 $1,456,363 $ 10,235
Euro, 7/5/00 4,680,208 4,418,350 4,463,389 45,039
Euro, 7/31/00 1,978,558 1,887,329 1,890,209 2880
Hong Kong Dollar, 7/3/00 14,619,716 1,875,597 1,875,476 (121)
Sale Contracts
Euro, 7/3/00 45,386 $ 42,759 $ 43,278 $ (519)
Euro, 7/31/00 3,292,542 3,115,232 3,145,519 (30,287)
Great British Pound, 7/3/00 583,785 873,892 885,832 (11,940)
Great British Pound, 7/5/00 689,352 1,037,626 1,046,060 (8,434)
Great British Pound, 7/6/00 57,938 87,897 87,920 (23)
Japanese Yen, 7/3/00 143,225 1,362 1,354 8
</TABLE>
T. Rowe Price Growth Equity
<TABLE>
<CAPTION>
Foreign Currency U.S. Dollar U.S. Dollar Value Gross Unrealized
Currency and Exchange Date Units Purchased/Sold Proceeds/Costs at June 30, 2000 Gain (Loss)
-------------------------- -------------------- -------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Purchase Contracts
Swedish Krona, 7/3/00 3,910,504 $445,185 $445,003 $ (182)
Sale Contracts
Euro, 7/3/00 691,735 656,041 659,600 (3,559)
Japanese Yen, 7/3/00 56,797,680 539,697 536,727 2,970
</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 June 30, 2000 Aetna owned all shares of beneficial
interest of the Portfolios.
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