Filed with the Securities and Exchange Commission on April 11, 1995.
File No. 2-96461
File No. 811-4257
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 16
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 20
Scudder Variable Life Investment Fund
-------------------------------------
(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, MA 02110-4103
----------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2567
Thomas F. McDonough
Scudder, Stevens & Clark, Inc.
Two International Place, Boston, MA 02110-4103
----------------------------------------------
(Name Address of Agent for Service)
It is proposed that this filing will become effective
____ immediately upon filing pursuant to paragraph (b)
X on May 1, 1995 pursuant to paragraph (b)
____ 60 days after filing pursuant to paragraph (a)(i)
____ on _______________ pursuant to paragraph (a)(i)
____ 75 days after filing pursuant to paragraph (a)(ii)
____ on _______________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
____ This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
The Registrant has filed a declaration registering an indefinite amount of
securities pursuant to Rule 24f-2 under the Investment Company Act of 1940, as
amended. The Registrant filed the notice required by Rule 24f-2 for its most
recent fiscal year on February 28, 1995.
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
CROSS-REFERENCE SHEET
Items Required By Form N-1A
<TABLE>
<CAPTION>
PART A
Item No. Item Caption Prospectus Caption
<S> <C> <C>
1. Cover Page COVER PAGE
2. Synopsis NOT APPLICABLE
3. Condensed Financial FINANCIAL HIGHLIGHTS
Information
4. General Description of INVESTMENT CONCEPT OF THE FUND;
Registrant INVESTMENT OBJECTIVES AND POLICIES OF THE
PORTFOLIOS; POLICIES AND
TECHNIQUES APPLICABLE TO THE PORTFOLIOS;
INVESTMENT RESTRICTIONS
5. Management of the Fund INVESTMENT ADVISER; PORTFOLIO MANAGEMENT;
ADDITIONAL INFORMATION
5A. Management's Discussion of NOT APPLICABLE
Fund Performance
6. Capital Stock and Other TAX STATUS, DIVIDENDS AND DISTRIBUTIONS;
Securities SHAREHOLDER COMMUNICATIONS
7. Purchase of Securities DISTRIBUTOR; PURCHASES AND REDEMPTIONS;
Being Offered NET ASSET VALUE
8. Redemption or Repurchase PURCHASES AND REDEMPTIONS;
NET ASSET VALUE
9. Pending Legal Proceedings NOT APPLICABLE
</TABLE>
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
CROSS-REFERENCE SHEET
Items Required By Form N-1A
<TABLE>
<CAPTION>
PART B
Caption in Statement of
Item No. Item Caption Additional Information
<S> <C> <C>
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information and History ORGANIZATION AND CAPITALIZATION
13. Investment Objectives and INVESTMENT OBJECTIVE AND POLICIES;
Policies POLICIES AND TECHNIQUES APPLICABLE
TO THE PORTFOLIOS;
INVESTMENT RESTRICTIONS
14. Management of the Fund MANAGEMENT--Trustees and Officers;
Remuneration
15. Control Persons and Principal TRUSTEES AND OFFICERS
Holders of Securities Investment Adviser; EXPERTS
16. Investment Advisory and Other INVESTMENT ADVISER AND DISTRIBUTOR--
Services
17. Brokerage Allocation ALLOCATION OF PORTFOLIO BROKERAGE
18. Capital Stock and Other ORGANIZATION AND CAPITALIZATION;
Securities ADDITIONAL INFORMATION
19. Purchase, Redemption and PURCHASES AND REDEMPTIONS;
Pricing of Securities Being NET ASSET VALUE;
Offered DIVIDENDS AND DISTRIBUTIONS
20. Tax Status TAX STATUS; DIVIDENDS AND DISTRIBUTIONS
21. Underwriters INVESTMENT ADVISER AND DISTRIBUTOR--
Distributor
22. Calculations of PERFORMANCE INFORMATION
Yield Quotations
of Money Market Funds
23. Financial Statements FINANCIAL STATEMENTS
</TABLE>
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
Two International Place
Boston, Massachusetts 02110-4103
(A Mutual Fund)
Scudder Variable Life Investment Fund (the "Fund") is an open-end management
investment company which offers shares of beneficial interest of six diversified
Portfolios. The Money Market Portfolio seeks stability and current income from a
portfolio of money market instruments. The Money Market Portfolio will maintain
a dollar-weighted average maturity of 90 days or less in an effort to maintain a
constant net asset value of $1.00 per share. An investment in the Money Market
Portfolio is neither insured nor guaranteed by the United States Government and
there can be no assurance that the Portfolio will be able to maintain a stable
net asset value of $1.00 per share. The Bond Portfolio seeks high income from a
high quality portfolio of bonds. The Balanced Portfolio seeks a balance of
growth and income, as well as long-term preservation of capital, from a
diversified portfolio of equity and fixed income securities. The Growth and
Income Portfolio seeks long-term growth of capital, current income and growth of
income from a portfolio consisting primarily of common stocks and securities
convertible into common stocks. The Capital Growth Portfolio seeks to maximize
long-term capital growth from a portfolio consisting primarily of equity
securities. The International Portfolio seeks long-term growth of capital
principally from a diversified portfolio of foreign equity securities.
This prospectus sets forth concisely the information about the Fund that a
prospective investor should know before applying for certain variable annuity
contracts and variable life insurance policies offered in the separate accounts
of certain insurance companies ("Participating Insurance Companies"). Please
read it carefully and retain it for future reference. If you require more
detailed information, a Statement of Additional Information dated May 1, 1995,
as supplemented from time to time, is available upon request without charge and
may be obtained by calling a Participating Insurance Company or by writing to
broker/dealers offering the above mentioned variable annuity contracts and
variable life insurance policies, or Scudder Investor Services, Inc., Two
International Place, Boston, Massachusetts 02110-4103. The Statement of
Additional Information, which is incorporated by reference into this prospectus,
has been filed with the Securities and Exchange Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SHARES OF THE FUND ARE AVAILABLE AND ARE BEING MARKETED EXCLUSIVELY AS A POOLED
FUNDING VEHICLE FOR LIFE INSURANCE COMPANIES WRITING ALL TYPES OF VARIABLE LIFE
INSURANCE POLICIES AND VARIABLE ANNUITY CONTRACTS.
PROSPECTUS
May 1, 1995
<PAGE>
SCUDDER
TABLE OF CONTENTS
Page
INVESTMENT CONCEPT OF THE FUND ............................................ 1
FINANCIAL HIGHLIGHTS ...................................................... 2
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS ...................... 8
Money Market Portfolio ............................................... 8
Bond Portfolio ....................................................... 8
Balanced Portfolio ................................................... 9
Growth and Income Portfolio .......................................... 11
Capital Growth Portfolio ............................................. 11
International Portfolio .............................................. 12
POLICIES AND TECHNIQUES APPLICABLE TO THE PORTFOLIOS ...................... 13
Repurchase Agreements ................................................ 13
Convertible Securities ............................................... 13
Mortgage and Other Asset-Backed Securities ........................... 13
Foreign Securities ................................................... 14
When-Issued Securities ............................................... 14
Indexed Securities ................................................... 15
Loans of Portfolio Securities ........................................ 15
Derivatives .......................................................... 15
Options .............................................................. 15
Options on Securities Indexes ........................................ 15
Futures Contracts .................................................... 16
Forward Foreign Currency Exchange Contracts and
Foreign Currency Futures Contracts ................................... 16
INVESTMENT RESTRICTIONS ................................................... 16
INVESTMENT ADVISER ........................................................ 17
Portfolio Management ................................................. 19
Money Market Portfolio ............................................... 19
Bond Portfolio ....................................................... 19
Balanced Portfolio ................................................... 19
Growth and Income Portfolio .......................................... 19
Capital Growth Portfolio ............................................. 19
International Portfolio .............................................. 20
DISTRIBUTOR ............................................................... 20
PURCHASES AND REDEMPTIONS ................................................. 21
NET ASSET VALUE ........................................................... 21
PERFORMANCE INFORMATION ................................................... 21
Money Market Portfolio ............................................... 21
Bond Portfolio ....................................................... 22
All Portfolios ....................................................... 22
VALUATION OF PORTFOLIO SECURITIES ......................................... 22
Money Market Portfolio ............................................... 22
Other Portfolios ..................................................... 22
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS ................................... 23
SHAREHOLDER COMMUNICATIONS ................................................ 23
ADDITIONAL INFORMATION .................................................... 24
Fund Organization and Shareholder Indemnification .................... 24
Other Information .................................................... 24
TRUSTEES AND OFFICERS ..................................................... 25
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT CONCEPT OF THE FUND
- --------------------------------------------------------------------------------
Scudder Variable Life Investment Fund (the "Fund") is an open-end, registered
management investment company comprised of the following diversified series: the
Money Market Portfolio, Bond Portfolio, Balanced Portfolio, Growth and Income
Portfolio, Capital Growth Portfolio, and International Portfolio (individually
or collectively hereinafter referred to as a "Portfolio" or the "Portfolios").
Additional Portfolios may be created from time to time. The Fund is intended to
be the funding vehicle for variable annuity contracts ("VA contracts") and
variable life insurance policies ("VLI policies") to be offered by the separate
accounts of certain life insurance companies ("Participating Insurance
Companies"). The Fund currently does not foresee any disadvantages to the
holders of VA contracts and VLI policies arising from the fact that the
interests of the holders of such contracts and policies may differ.
Nevertheless, the Fund's Trustees intend to monitor events in order to identify
any material irreconcilable conflicts which may possibly arise and to determine
what action, if any, should be taken in response thereto. The VA contracts and
the VLI policies are described in the separate prospectuses issued by the
Participating Insurance Companies. The Fund assumes no responsibility for such
prospectuses.
Individual VA contract holders and VLI policyholders are not the "shareholders"
of the Fund. Rather, the Participating Insurance Companies and their separate
accounts are the shareholders or investors (the "Shareholders"), although such
companies may pass through voting rights to their VA contract and VLI
policyholders.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Money Market Portfolio
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the audited financial
statements.
If you would like more detailed information concerning the Portfolio's
performance, a complete portfolio listing and audited financial statements are
available in the Fund's Annual Report dated December 31, 199 4 and may be
obtained without charge by calling a Participating Insurance Company or by
writing to broker/dealers offering the previously mentioned variable annuity
contracts and variable life insurance policies, or Scudder Investor Services,
Inc.
<TABLE>
<CAPTION>
Six For the Period
Months July 16, 1985
Ended (commencement
Years Ended December 31, December of operations)
---------------------------------------------------------------------- 31, to June 30,
1994 1993 1992 1991 1990 1989 1988 1987 1986(e) 1986
---------------------------------------------------------------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period .. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000(b)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from investment
operations:
Net investment
income (a) .......... .037 .025 .033 .057 .076 .088 .068 .060 .026 .064
Less distributions from
net investment income (.037) (.025) (.033) (.057) (.076) (.088) (.068) (.060) (.026) (.064)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period ........ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total Return (%) ....... 3.72 2.54 3.33 5.81 7.83 8.84 7.08 5.95 2.59(d) 6.59(d)
Ratios and
Supplemental Data
Net assets, end of
period ($ millions) .. 90 49 34 28 32 15 11 8 3 --
Ratio of operating
expenses, net to
average daily net
assets (%) (a) ....... .56 .66 .64 .67 .69 .72 .75 .75 .75(c) .60(c)
Ratio of net investment
income to average
daily net assets (%) . 3.80 2.55 3.26 5.67 7.57 8.53 6.99 6.06 5.10(c) 6.75(c)
(a) Portion of expenses
reimbursed ........ $ -- $ -- $ -- $ -- $ -- $ .001 $ .003 $ .006 $ .022 $ .133
(b) Original capital
(c) Annualized
(d) Not annualized
(e) On August 22, 1986, the Trustees voted to change the year end of the Fund from June 30 to December 31.
</TABLE>
2
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Bond Portfolio
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the audited financial
statements.
If you would like more detailed information concerning the Portfolio's
performance, a complete portfolio listing and audited financial statements are
available in the Fund's Annual Report dated December 31, 199 4 and may be
obtained without charge by calling a Participating Insurance Company or by
writing to broker/dealers offering the previously mentioned variable annuity
contracts and variable life insurance policies, or Scudder Investor Services,
Inc.
<TABLE>
<CAPTION>
Six For the Period
Months July 16, 1985
Ended (commencement
Years Ended December 31, (e) December of operations)
-------------------------------------------------------------------------- 31, to June 30,
1994 1993 1992 1991 1990 1989 1988 1987 1986(e)(f) 1986
-------------------------------------------------------------------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period . $ 7.42 $ 7.19 $ 7.37 $ 6.73 $ 6.72 $ 6.39 $ 6.47 $ 6.67 $ 6.56 $ 6.00(b)
------- -------- ------- -------- ------- -------- -------- -------- ------- -------
Income from investment
operations:
Net investment
income (a) ........ .43 .48 .49 .52 .53 .54 .54 .49 .23 .45
Net realized and
unrealized gain
(loss) on
investment
transactions ...... (.77) .38 (.02) .61 (.02) .18 (.19) (.40) .08 .44
---- --- ---- --- ---- --- ---- ---- --- ---
Total from investment
operations ........... (.34) .86 .47 1.13 .51 .72 .35 .09 .31 .89
---- --- --- ---- --- --- --- --- --- ---
Less distributions from:
Net investment income (.43) (.48) (.46) (.47) (.50) (.39) (.43) (.29) (.17) (.33)
Net realized gains on
on investment
transactions ........ (.17) (.15) (.19) (.02) -- -- -- -- (.03) --
---- ---- ---- ---- ----
Total distributions .... (.60) (.63) (.65) (.49) (.50) (.39) (.43) (.29) (.20) (.33)
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value,
end of period ........ $ 6.48 $ 7.42 $ 7.19 $ 7.37 $ 6.73 $ 6.72 $ 6.39 $ 6.47 $ 6.67 $ 6.56
======= ======== ======= ======== ======= ======== ======== ======== ======= =======
Total Return (%) ....... (4.79) 12.38 7.01 17.61 8.06 11.65 5.46 1.22 4.90(d) 15.11(d)
Ratios and
Supplemental Data
Net assets, end of
period ($ millions) .. 142 129 113 74 42 22 3 3 1 --
Ratio of operating
expenses, net to
average net
assets (%) (a) ....... .58 .61 .63 .69 .73 .75 .75 .75 .75(c) .60(c)
Ratio of net investment
income to average
net assets (%) ....... 6.43 6.59 6.89 7.51 8.05 8.04 7.86 7.53 6.88(c) 7.48(c)
Portfolio turnover
rate (%) ............. 96.55 125.15 87.00 115.86 71.02 103.41 245.23 186.05 23.82(c) 6.27(c)
(a) Portion of expenses
reimbursed .......... $ -- $ -- $ -- $ -- $ -- $ .01 $ .04 $ .08 $ .21 $ .80
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts, for each of the periods identified, have been calculated
using the monthly average shares outstanding during the period method.
(f) On August 22, 1986, the Trustees voted to change the year end of the Fund
from June 30 to December 31.
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Balanced Portfolio
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the audited financial
statements.
If you would like more detailed information concerning the Portfolio's
performance, a complete portfolio listing and audited financial statements are
available in the Fund's Annual Report dated December 31, 199 4 and may be
obtained without charge by calling a Participating Insurance Company or by
writing to broker/dealers offering the previously mentioned variable annuity
contracts and variable life insurance policies, or Scudder Investor Services,
Inc.
<TABLE>
<CAPTION>
Six For the Period
Months July 16, 1985
Ended (commencement
Years Ended December 31,(e) December of operations)
-------------------------------------------------------------------------- 31, to June 30,
1994 1993 1992 1991 1990 1989 1988 1987 1986(e)(f) 1986
-------------------------------------------------------------------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ..... $ 10.23 $ 10.02 $ 9.85 $ 8.10 $ 8.75 $ 7.62 $ 6.88 $ 7.35 $ 7.58 $ 6.00(b)
-------- -------- ------- ------- ------- ------- -------- -------- ------- -------
Income from investment
operations:
Net investment
income (a) ........... .29 .30 .29 .35 .42 .40 .33 .34 .15 .31
Net realized and
unrealized gain (loss)
on investment
transactions ......... (.48) .42 .36 1.77 (.59) 1.06 .64 (.45) (.11) 1.50
---- --- --- ---- ---- ---- --- ---- ---- ----
Total from investment
operations ............ (.19) .72 .65 2.12 (.17) 1.46 .97 (.11) .04 1.81
---- --- --- ---- ---- ---- --- ---- --- ----
Less distributions from:
Net investment
income ............... (.30) (.28) (.29) (.37) (.43) (.33) (.23) (.23) (.18) (.23)
Net realized gains
on investment
transactions ......... (.77) (.23) (.19) -- (.05) -- -- (.13) (.09) --
---- ---- ---- ---- ---- ----
Total distributions ..... (1.07) (.51) (.48) (.37) (.48) (.33) (.23) (.36) (.27) (.23)
----- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value,
end of period ......... $ 8.97 $ 10.23 $ 10.02 $ 9.85 $ 8.10 $ 8.75 $ 7.62 $ 6.88 $ 7.35 $ 7.58
======== ======== ======= ======= ======= ======= ======== ======== ======= =======
Total Return (%) ........ (2.05) 7.45 6.96 26.93 (1.91) 19.50 14.21 (1.68) .46(d) 30.60(d)
Ratios and
Supplemental Data
Net assets, end of
period ($ millions) ... 46 45 37 25 16 18 11 12 1 --
Ratio of operating
expenses, net to
average net
assets (%) (a) ........ .75 .75 .75 .75 .75 .75 .75 .75 .75(c) .60(c)
Ratio of net investment
income to average
net assets (%) ........ 3.19 3.01 3.01 4.00 5.15 4.74 4.48 4.42 4.20(c) 4.87(c)
Portfolio turnover
rate (%) .............. 101.64 133.95* 51.66 62.03 49.03 77.98 109.95 111.00 28.86(c) 64.12(c)
(a) Portion of expenses
reimbursed ........... $ -- $ -- $ -- $ .01 -- $ .01 $ .03 $ .03 $ .17 $ .80
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts, for each of the periods identified, have been calculated
using the monthly average shares outstanding during the period method.
(f) On August 22, 1986, the Trustees voted to change the year end of the Fund
from June 30 to December 31.
* On May 1, 1993, the Portfolio adopted its present name and investment
objective which is a balance of growth and income from a diversified
portfolio of equity and fixed income securities. Prior to that date, the
Portfolio was known as the Managed Diversified Portfolio and its investment
objective was to realize a high level of long-term total rate of return
consistent with prudent investment risk. The portfolio turnover rate
increased due to implementing the present investment objective. Financial
highlights for the nine periods ended December 31, 1993 should not be
considered representative of the present Portfolio.
</TABLE>
4
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Growth and Income Portfolio
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the audited financial
statements.
If you would like more detailed information concerning the Portfolio's
performance, a complete portfolio listing and audited financial statements are
available in the Fund's Annual Report dated December 31, 199 4 and may be
obtained without charge by calling a Participating Insurance Company or by
writing to broker/dealers offering the previously mentioned variable annuity
contracts and variable life insurance policies, or Scudder Investor Services,
Inc.
<TABLE>
<CAPTION>
For the Period
May 2, 1994
(commencement
of operations)
to December 31,
1994
------------
<S> <C>
Net asset value, beginning of period ............................... $ 6.00(b)
-------
Income from investment operations:
Net investment income (a) ........................................ .13
Net realized and unrealized gain (loss) on investment transactions .17(f)
---
Total from investment operations ................................... .30
---
Less distributions from net investment income ...................... (.04)
----
Net asset value, end of period ..................................... $ 6.26
=======
Total Return (%) ................................................... 4.91(d)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............................ 20
Ratio of operating expenses, net to average net assets (%)(a) ..... .75(c)
Ratio of net investment income to average net assets (%) .......... 3.63(c)
Portfolio turnover rate (%) ....................................... 28.41(c)
(a) Portion of expenseswaived ...................................... $ .03
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts have been calculated using the monthly average shares
outstanding during the period method.
(f) The amount shown for a share outstanding throughout the period does not
accord with the change in the aggregate gains and losses in the portfolio
securities during the period because of the timing of sales and purchases
of Portfolio shares in relation to fluctuating market values during the
period.
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Capital Growth Portfolio
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the audited financial
statements.
If you would like more detailed information concerning the Portfolio's
performance, a complete portfolio listing and audited financial statements are
available in the Fund's Annual Report dated December 31, 199 4 and may be
obtained without charge by calling a Participating Insurance Company or by
writing to broker/dealers offering the previously mentioned variable annuity
contracts and variable life insurance policies, or Scudder Investor Services,
Inc.
<TABLE>
<CAPTION>
Six For the Period
Months July 16, 1985
Ended (commencement
Years Ended December 31,(e) December of operations)
-------------------------------------------------------------------------- 31, to June 30,
1994 1993 1992 1991 1990 1989 1988 1987 1986(e)(f) 1986
-------------------------------------------------------------------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period .. $ 14.95 $ 12.71 $ 12.28 $ 8.99 $ 10.21 $ 8.53 $ 7.06 $ 7.67 $ 7.93 $ 6.00(b)
------- ------- ------- ------- ------- ------- -------- -------- ------- -------
Income from investment
operations:
Net investment
income (a) .......... .06 .06 .11 .16 .25 .35 .16 .15 .09 .19
Net realized and
unrealized gain
(loss) on investment
transactions ........ (1.42) 2.52 .66 3.35 (1.00) 1.58 1.40 (.28) (.07) 1.87
----- ---- --- ---- ----- ---- ---- ---- ---- ----
Total from investment
operations ........... (1.36) 2.58 .77 3.51 (.75) 1.93 1.56 (.13) .02 2.06
----- ---- --- ---- ---- ---- ---- ---- --- ----
Less distributions from:
Net investment
income .............. (.05) (.07) (.11) (.22) (.24) (.25) (.09) (.09) (.07) (.13)
Net realized gains
on investment
transactions ........ (1.31) (.27) (.23) -- (.23) -- -- (.39) (.21) --
----- ---- ---- ---- ---- ----
Total distributions .... (1.36) (.34) (.34) (.22) (.47) (.25) (.09) (.48) (.28) (.13)
----- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value,
end of period ........ $ 12.23 $ 14.95 $ 12.71 $ 12.28 $ 8.99 $ 10.21 $ 8.53 $ 7.06 $ 7.67 $ 7.93
======= ======= ======= ======= ======= ======= ======== ======== ======= =======
Total Return (%) ....... (9.67) 20.88 6.42 39.56 (7.45) 22.75 22.07 (1.88) .26(d) 34.66(d)
Ratios and
Supplemental Data
Net assets, end of
period ($ millions) .. 257 257 167 108 45 45 17 10 1 --
Ratio of operating
expenses, net to
average net
assets (%) (a) ....... .58 .60 .63 .71 .72 .75 .75 .75 .75(c) .60(c)
Ratio of net investment
income to average
net assets (%) ....... .47 .46 .95 1.49 2.71 3.51 2.17 1.68 2.21(c) 2.95(c)
Portfolio turnover
rate (%) ............. 66.44 95.31 56.29 58.88 61.39 63.96 129.75 113.34 38.78(c) 86.22(c)
(a) Portion of expenses
reimbursed .......... $ -- $ -- $ -- $ -- $ -- $ .01 $ .01 $ .04 $ .20 $ .81
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts, for each of the periods identified, have been calculated
using the monthly average shares outstanding during the period method.
(f) On August 22, 1986, the Trustees voted to change the year end of the Fund
from June 30 to December 31.
</TABLE>
6
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
International Portfolio
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the audited financial
statements.
If you would like more detailed information concerning the Portfolio's
performance, a complete portfolio listing and audited financial statements are
available in the Fund's Annual Report dated December 31, 199 4 and may be
obtained without charge by calling a Participating Insurance Company or by
writing to broker/dealers offering the previously mentioned variable annuity
contracts and variable life insurance policies, or Scudder Investor Services,
Inc.
<TABLE>
<CAPTION>
For the Period
May 1, 1987
(commencement
Years Ended December 31, of operations)
---------------------------------------------------------------------------- December 31,
1994(e) 1993(e) 1992(e) 1991(e) 1990(e) 1989(e) 1988 1987
---------------------------------------------------------------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ................ $ 10.85 $ 8.12 $ 8.47 $ 7.78 $ 8.46 $ 6.14 $ 5.26 $ 6.00(b)
------- ------- ------- ------- ------- ------- -------- --------
Income from investment
operations:
Net investment income (a) .......... .06 .09 .10 .12 .25 .10 .09 --
Net realized and unrealized
gain (loss) on investment
transactions ...................... (.15) 2.90 (.36) .77 (.89) 2.22(f) .79 (.64)
---- ---- ---- --- ---- ---- --- ----
Total from investment
operations ......................... (.09) 2.99 (.26) .89 (.64) 2.32 .88 (.64)
---- ---- ---- --- ---- ---- --- ----
Less distributions:
From net investment income ......... (.07) (.14) (.09) (.20) (.04) -- -- --
In excess of net investment income . -- (.12) -- -- -- -- -- --
From net realized gains on
investment transactions ........... -- -- -- -- -- -- -- (.10)
---- ---- ---- --- ---- ---- --- ----
Total distributions .................. (.07) (.26) (.09) (.20) (.04) -- -- (.10)
---- ---- ---- ---- ---- ----
Net asset value, end of period ....... $ 10.69 $ 10.85 $ 8.12 $ 8.47 $ 7.78 $ 8.46 $ 6.14 $ 5.26
======= ======= ======= ======= ======= ======= ======== ========
Total Return (%) ..................... (.85) 37.82 (3.08) 11.45 (7.65) 37.79 16.73 (10.64)(d)
Ratios and Supplemental Data
Net assets, end of period ($ millions) 472 238 65 41 35 17 3 3
Ratio of operating expenses,
net to average net assets (%) (a) .. 1.08 1.20 1.31 1.39 1.38 1.50 1.50 1.50(c)
Ratio of net investment income
to average net assets (%) .......... .57 .91 1.23 1.43 2.89 1.30 1.59 .02(c)
Portfolio turnover rate (%) .......... 33.52 20.36 34.42 45.01 26.67 57.69 110.42 146.08(c)
(a) Portion of expenses reimbursed .. $ -- $ -- $ -- $ -- $ -- $ .02 $ .14 $ .07
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts, for each of the periods identified, have been calculated
using the monthly average shares outstanding during the period method.
(f) Includes provision for federal income tax of $.03 per share.
</TABLE>
7
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INVESTMENT OBJECTIVES AND
POLICIES OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
Each type of Portfolio has a different investment objective which it pursues
through separate investment policies, as described below. The differences in
objectives and policies among the Portfolios can be expected to affect the
degree of market and financial risk to which each Portfolio is subject and the
return of each Portfolio. The investment objectives and policies of each
Portfolio may, unless otherwise specifically stated, be changed by the Trustees
of the Fund without a vote of the Shareholders. There is no assurance that the
objectives of any Portfolio will be achieved.
MONEY MARKET PORTFOLIO
The Money Market Portfolio seeks to maintain the stability of capital and,
consistent therewith, to maintain the liquidity of capital and to provide
current income. The Portfolio seeks to maintain a constant net asset value of
$1.00 per share, although there can be no assurance that this will be achieved.
The Portfolio uses the amortized cost method of securities valuation.
The Money Market Portfolio purchases money market securities such as U.S.
Treasury, agency and instrumentality obligations, finance company and corporate
commercial paper, bankers' acceptances and certificates of deposit of domestic
and foreign banks (i.e., banks which at the time of their most recent annual
financial statements show total assets in excess of $1 billion), including
foreign branches of domestic banks, which involve different risks than those
associated with investments in certificates of deposit of domestic banks, and
corporate obligations. The Money Market Portfolio may also enter into repurchase
agreements. The Money Market Portfolio may also invest in certificates of
deposit issued by banks and savings and loan institutions which had at the time
of their most recent annual financial statements total assets of less than $1
billion, provided that (i) the principal amounts of such certificates of deposit
are insured by an agency of the U.S. Government, (ii) at no time will the
Portfolio hold more than $100,000 principal amount of certificates of deposit of
any one such bank, and (iii) at the time of acquisition, no more than 10% of the
Portfolio's assets (taken at current value) are invested in certificates of
deposit of such banks having total assets not in excess of $1 billion.
Investments are limited to those that are dollar-denominated and at the time of
purchase are rated, or judged by the Fund's investment adviser, Scudder, Stevens
& Clark, Inc. (the "Adviser"), subject to the supervision of the Trustees, to be
equivalent to those rated high quality (i.e., rated in the two highest
categories) by any two nationally - recognized rating services such as
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's
("S&P"). In addition, the Adviser seeks through its own credit analysis
to limit investments to high quality instruments presenting minimal credit
risks. The portfolio is subject to certain additional quality and
diversification restrictions which are set forth in the Fund's Statement
of Additional Information .
The remaining maturity of each investment in the Money Market Portfolio is
397 calendar days or less. The dollar-weighted average maturity of the
Portfolio's investments varies with money market conditions, but is always 90
days or less. As a money market fund with a short-term maturity, the Portfolio's
income fluctuates with changes in interest rates, but its price to the public or
"offering price," is expected to remain fixed at $1.00 per share.
BOND PORTFOLIO
The Bond Portfolio pursues a policy of investing for a high level of income
consistent with a high quality portfolio of debt securities. Under normal
circumstances, the Portfolio invests at least 65% of its assets in bonds,
including those of the U.S. Government and its agencies, and those of
corporations and other notes and bonds paying high current income. It will
attempt to moderate the effect of market price fluctuation relative to that of a
long-term bond by investing in securities with varying maturities and by
entering into futures contracts on debt securities and related options for
hedging purposes.
The Portfolio is actively managed. The Portfolio may invest in a broad range of
short-, intermediate-, and long-term securities. Proportions among maturities
and types of securities may vary depending upon the prospects for income
relative to the outlook for the economy and the securities markets, the quality
of available investments, the level of interest rates, and other factors. The
Portfolio may also invest in preferred stocks consistent with the Portfolio's
objectives.
8
<PAGE>
The Bond Portfolio may purchase corporate notes and bonds including issues
convertible into common stock and obligations of municipalities. It may purchase
U.S. Government securities and obligations of federal agencies that are not
backed by the full faith and credit of the U.S. Government, such as obligations
of Federal Home Loan Banks, Farm Credit Banks and the Federal Home Loan Mortgage
Corporation. In addition, it may purchase obligations of international agencies
such as the International Bank for Reconstruction and Development, and the
Inter-American Development Bank. Other eligible investments include foreign
securities, such as non-U.S. dollar-denominated foreign debt securities and U.S.
dollar-denominated foreign debt securities (such as those issued by the Dominion
of Canada and its provinces) including, without limitation, Eurodollar Bonds and
Yankee Bonds, mortgage and other asset-backed securities, and money market
instruments such as commercial paper, and bankers' acceptances and certificates
of deposit issued by domestic and foreign branches of U.S. banks. The Portfolio
may also enter into repurchase agreements and may invest in zero coupon
securities. Zero coupon securities are subject to greater market value
fluctuations from changing interest rates than debt obligations of comparable
maturities that make current cash distributions of interest.
The Bond Portfolio is of high quality. No purchase will be made if, as a result
thereof, less than 50% of the Portfolio's net assets would be invested in debt
obligations, including money market instruments, that (a) are issued or
guaranteed by the U.S. Government, (b) are rated at the time of purchase within
the two highest ratings categories by any of the nationally-recognized
rating services or (c) if not rated, are judged at the time of purchase, by the
Adviser to be of a quality comparable to obligations rated as described in (b)
above. Not less than 80% of the debt obligations in which the Portfolio invests
will, at the time of purchase, be rated within the three highest ratings
categories of any such service or, if not rated, will be judged to be of
comparable quality by the Adviser. The Fund may invest up to 20% of its assets
in bonds rated below A but no lower than B by Moody's or S&P, or unrated
securities judged by the Adviser to be of comparable quality. Debt securities
which are rated below investment-grade (that is, rated below Baa by Moody's or
below BBB by S&P and commonly referred to as "junk bonds") and unrated
securities of comparable quality, which usually entail greater risk (including
the possibility of default or bankruptcy of the issuers of such securities),
generally involve greater volatility of price and risk of loss of principal and
income, and may be less liquid than securities in the higher rating categories.
Securities rated B involve a high degree of speculation with respect to the
payment of principal and interest. Should the rating of any security held by the
Portfolio be downgraded after the time of purchase, the Adviser will determine
whether it is in the best interest of the Portfolio to retain or dispose of the
security. During the year ended December 31, 1994, the average monthly
dollar-weighted market value of the bonds held by the Portfolio, by ratings
categories , was as follows: 72.0 % in AAA/Aaa securities, 1.0 %
in AA/Aa securities, 19.0 % in A securities, 4.0 % in BBB/Baa
securities, 2.0 % in BB/Ba securities and 2.0 % in unrated
securities, respectively. Future asset composition may vary.
The Portfolio may, for hedging purposes, purchase forward foreign currency
exchange contracts and foreign currencies in the form of bank deposits. The
Portfolio may also purchase other foreign money market instruments, including,
but not limited to, bankers' acceptances, certificates of deposit, commercial
paper, short-term government obligations and repurchase agreements.
Except for limitations imposed by the Bond Portfolio's investment restrictions
(see "INVESTMENT RESTRICTIONS"), there is no limit as to the proportions of the
Portfolio which may be invested in any of the eligible investments; however, it
is a policy of the Portfolio that its non-governmental investments will be
spread among a variety of companies and will not be concentrated in any
industry.
The Bond Portfolio cannot guarantee a gain or eliminate the risk of loss. The
net asset value of the Portfolio's shares will fluctuate with changes in the
market price of the Portfolio's investments, which tend to vary inversely with
changes in prevailing interest rates and, to a lesser extent, changes in foreign
currency exchange rates. As interest rates fall , the prices of debt
securities tend to rise and vice versa.
BALANCED PORTFOLIO
The Balanced Portfolio seeks a balance of growth and income from a diversified
portfolio of equity and fixed income securities. The Portfolio also seeks
long-term preservation of capital through a quality-oriented investment approach
that is designed to reduce risk.
In seeking its objectives of a balance of growth and income, as well as
long-term preservation of capital, the Portfolio invests in a diversified
portfolio of equity and fixed income securities. The Portfolio invests, under
normal circumstances, at least 50%, but no more than 75%, of its net assets in
common stocks and other equity investments. The Portfolio's equity investments
consist of common stocks, preferred stocks, warrants and securities convertible
9
<PAGE>
into common stocks, of companies that, in the Adviser's judgment, are of
above-average financial quality and offer the prospect for above-average growth
in earnings, cash flow, or assets relative to the overall market as defined by
the Standard and Poor's 500 Composite Stock Price Index ("S&P 500"). The
Portfolio will invest primarily in securities issued by medium- to large-sized
domestic companies with annual revenues or market capitalization of at least
$600 million, and which, in the opinion of the Adviser, offer above-average
potential for price appreciation. The Portfolio seeks to invest in companies
that have relatively consistent and above-average rates of growth; companies
that are in a strong financial position with high credit standings and
profitability; firms with important business franchises, leading products, or
dominant marketing and distribution systems; companies guided by experienced and
motivated managements; and companies selling at attractive market valuations.
The Adviser believes that companies with these characteristics will be rewarded
by the market with higher stock prices over time and provide investment returns,
on average, in excess of the S&P 500.
At least 65% of the value of the Portfolio's common stocks will be of issuers
which qualify, at the time of purchase, for one of the three highest equity
earnings and dividends ranking categories (A+, A, or A-) of S&P, or if not
ranked by S&P, are judged to be of comparable quality by the Adviser. S&P
assigns earnings and dividends rankings to corporations based on a number of
factors, including stability and growth of earnings and dividends. Rankings by
S&P are not an appraisal of a company's creditworthiness, as is true for S&P's
debt security ratings, nor are these rankings intended as a forecast of future
stock market performance. In addition to using S&P rankings of earnings and
dividends of common stocks, the Adviser conducts its own analysis of a company's
history, current financial position, and earnings prospects.
To enhance income and stability, the Portfolio's remaining assets are allocated
to bonds and other fixed income securities, including cash reserves. The
Portfolio will normally invest 25% to 50% of its net assets in fixed income
securities. However, at least 25% of the Portfolio's net assets will always be
invested in fixed income securities. The Portfolio can invest in a broad range
of corporate bonds and notes, convertible bonds, and preferred and convertible
preferred securities. It may also purchase U.S. Government securities and
obligations of federal agencies and instrumentalities that are not backed by the
full faith and credit of the U.S. Government, such as obligations of the Federal
Home Loan Banks, Farm Credit Banks, and the Federal Home Loan Mortgage
Corporation. The Portfolio may also invest in obligations of international
agencies, foreign debt securities (both U.S. and non-U.S. dollar-denominated),
mortgage-backed and other asset-backed securities, municipal obligations,
restricted securities issued in private placements and zero coupon securities.
Zero coupon securities are subject to greater market value fluctuations from
changing interest rates than debt obligations of comparable maturities that make
current cash distributions of interest.
For liquidity and defensive purposes, the Portfolio may invest without limit in
cash and in money market securities such as commercial paper, bankers'
acceptances, and certificates of deposit issued by domestic and foreign branches
of U.S. banks. The Portfolio may also enter into repurchase agreements with
respect to U.S. Government securities.
Not less than 50% of the Portfolio's debt securities will be invested in debt
obligations, including money market instruments, that (a) are issued or
guaranteed by the U.S. Government, (b) are rated at the time of purchase within
the two highest ratings categories by any nationally-recognized rating service
or (c) if not rated, are judged by the Adviser to be of a quality
comparable to obligations rated as described in (b) above. Not less than 80% of
the debt obligations in which the Portfolio invests will, at the time of
purchase, be rated within the three highest ratings categories of any such
service or, if not rated, will be judged to be of comparable quality by the
Adviser. Up to 20% of the Portfolio's debt securities may be invested in bonds
rated below A but no lower than B by Moody's or S&P, or unrated securities
judged by the Adviser to be of comparable quality. Debt securities which are
rated below investment-grade (that is, rated below Baa by Moody's or below BBB
by S&P and commonly referred to as "junk bonds") and unrated securities of
comparable quality, which usually entail greater risk (including the possibility
of default or bankruptcy of the issuers of such securities), generally involve
greater volatility of price and risk of principal and income, and may be less
liquid than securities in the higher rating categories. Securities rated B
involve a high degree of speculation with respect to the payment of principal
and interest. Should the rating of any security held by the Portfolio be
downgraded after the time of purchase, the Adviser will determine whether it is
in the best interest of the Portfolio to retain or dispose of the security.
The Portfolio will, on occasion, adjust its mix of investments among equity
securities, bonds, and cash reserves. In reallocating investments, the Adviser
weighs the relative values of different asset classes and expectations for
future returns. In doing so, the Adviser analyzes, on a global basis, the level
and direction of interest rates, capital flows, inflation expectations,
anticipated growth of corporate profits, monetary and fiscal policies around the
10
<PAGE>
world, and other related factors. The Portfolio does not take extreme investment
positions as part of an effort to "time the market." Shifts between stocks and
fixed income investments are expected to occur in generally small increments
within the guidelines adopted in this prospectus. The Portfolio is designed as a
conservative long-term investment program.
While the Portfolio emphasizes U.S. equity and debt securities, it may invest a
portion of its assets in foreign securities, including depositary receipts. The
Portfolio's foreign holdings will meet the criteria applicable to its domestic
investments. The international component of the Portfolio's investment program
is intended to increase diversification, thus reducing risk, while providing the
opportunity for higher returns.
In addition, the Portfolio may invest in securities on a when-issued or forward
delivery basis. The Portfolio may, for hedging purposes, purchase forward
foreign currency exchange contracts and foreign currencies in the form of bank
deposits. The Portfolio may also purchase other foreign money market
instruments, including, but not limited to, bankers' acceptances, certificates
of deposit, commercial paper, short-term government obligations and repurchase
agreements.
The Balanced Portfolio cannot guarantee a gain or eliminate the risk of loss.
The net asset value of the shares of the Portfolio will increase or decrease
with changes in the market price of the Portfolio's investments and, to a lesser
extent, changes in foreign currency exchange rates.
GROWTH AND INCOME PORTFOLIO
The Growth and Income Portfolio seeks long-term growth of capital, current
income and growth of income. In pursuing these three objectives, the Portfolio
invests primarily in common stocks, preferred stocks, and securities convertible
into common stocks of companies which offer the prospect for growth of earnings
while paying higher than average current dividends. Over time, continued growth
of earnings tends to lead to higher dividends and enhancement of capital value.
The Portfolio allocates its investments among different industries and
companies, and changes its portfolio securities for investment considerations
and not for trading purposes.
The Portfolio attempts to achieve its investment objectives by investing
primarily in dividend paying common stocks, preferred stocks and securities
convertible into common stocks. The Portfolio may also purchase such securities
which do not pay current dividends but which offer prospects for growth of
capital and future income. Convertible securities (which may be current coupon
or zero coupon securities) are bonds, notes, debentures, preferred stocks and
other securities which may be converted or exchanged at a stated or determinable
exchange ratio into underlying shares of common stock. The Portfolio may also
invest in nonconvertible preferred stocks consistent with the Portfolio's
objectives. From time to time, for temporary defensive purposes, when the
Adviser feels such a position is advisable in light of economic or market
conditions, the Portfolio may invest a portion of its assets in cash and cash
equivalents. The Portfolio may invest in foreign securities and in repurchase
agreements.
The Portfolio may, for hedging purposes, purchase forward foreign currency
exchange contracts and foreign currencies in the form of bank deposits. The
Portfolio may also purchase other foreign money market instruments, including,
but not limited to, bankers' acceptances, certificates of deposit, commercial
paper, short-term government obligations and repurchase agreements.
The Growth and Income Portfolio cannot guarantee a gain or eliminate the risk of
loss. The net asset value of the Portfolio's shares will increase or decrease
with changes in the market prices of the Portfolio's investments and, to a
lesser extent, changes in foreign currency exchange rates.
CAPITAL GROWTH PORTFOLIO
The Capital Growth Portfolio seeks to maximize long-term capital growth through
a broad and flexible investment program. The Portfolio invests in marketable
securities, principally common stocks and, consistent with its objective of
long-term capital growth, preferred stocks. However, in order to reduce risk, as
market or economic conditions periodically warrant, the Portfolio may also
invest up to 25% of its assets in short-term debt instruments.
In its examination of potential investments, the Adviser considers, among other
things, the issuer's financial strength, management reputation, absolute size
and overall industry position.
Equity investments can have diverse financial characteristics, and the Trustees
believe that the opportunity for capital growth may be found in many different
sectors of the market at any particular time. In contrast to the specialized
11
<PAGE>
investment policies of some capital appreciation funds, the Portfolio is
therefore free to invest in a wide range of marketable securities offering the
potential for growth. This enables the Portfolio to pursue investment values in
various sectors of the stock market including:
1. Companies that generate or apply new technologies, new and improved
distribution techniques, or new services, such as those in the
business equipment, electronics, specialty merchandising, and health
service industries.
2. Companies that own or develop natural resources, such as energy
exploration or precious metals companies.
3. Companies that may benefit from changing consumer demands and
lifestyles, such as financial service organizations and
telecommunications companies.
4. Foreign companies.
While emphasizing investments in companies with above-average growth prospects,
the Portfolio may also purchase and hold equity securities of companies that may
have only average growth prospects, but seem undervalued due to factors thought
to be of a temporary nature which may cause their securities to be out of favor
and to trade at a price below their potential value.
The Portfolio, as a matter of nonfundamental policy, may invest up to 20% of its
net assets in intermediate to longer term debt securities when management
anticipates that the total return on debt securities is likely to equal or
exceed the total return on common stocks over a selected period of time. The
Portfolio may purchase investment-grade debt securities, which are those rated
Aaa, Aa, A or Baa by Moody's, or AAA, AA, A or BBB by S&P, or, if unrated, of
equivalent quality as determined by the Adviser. Bonds that are rated Baa by
Moody's or BBB by S&P have some speculative characteristics. The Portfolio's
intermediate to longer term debt securities may also include those which are
rated below investment grade, as long as no more than 5% of its net assets are
invested in such securities. As interest rates fall the prices of debt
securities tend to rise and vice versa. Should the rating of any security
held by the Portfolio be downgraded after the time of purchase, the Adviser will
determine whether it is in the best interest of the Portfolio to retain or
dispose of the security.
The Portfolio may, for hedging purposes, purchase forward foreign currency
exchange contracts and foreign currencies in the form of bank deposits. The
Portfolio may also purchase other foreign money market instruments, including,
but not limited to, bankers' acceptances, certificates of deposit, commercial
paper, short-term government obligations and repurchase agreements.
The Capital Growth Portfolio cannot guarantee a gain or eliminate the risk of
loss. The net asset value of the shares of the Portfolio will increase or
decrease with changes in the market price of the Portfolio's investments and, to
a lesser extent, changes in foreign currency exchange rates.
INTERNATIONAL PORTFOLIO
The International Portfolio seeks long-term growth of capital primarily through
diversified holdings of marketable foreign equity investments. The Portfolio
invests in companies, wherever organized, which do business primarily outside
the United States. The Portfolio intends to diversify investments among several
countries and to have represented in its holdings business activities in not
less than three different countries. The Portfolio does not intend to
concentrate investments in any particular industry.
The Portfolio invests primarily in equity securities of established companies,
listed on foreign exchanges, which the Adviser believes have favorable
characteristics. It may also invest in fixed income securities of foreign
governments and companies. However, management intends to maintain a portfolio
consisting primarily of equity securities. Investing in foreign securities may
involve a greater degree of risk than investing in domestic securities due to
the possibility of exchange rate fluctuations and exchange controls, less
publicly available information, more volatile markets, less securities
regulation, less favorable tax provisions, war and expropriation (see "POLICIES
AND TECHNIQUES APPLICABLE TO THE PORTFOLIOS--Foreign Securities").
The Portfolio has no present intention of altering its general policy of being
primarily invested under normal conditions in foreign securities. However, in
the event of exceptional conditions abroad, the Portfolio may temporarily invest
all or a portion of its assets in Canadian or U.S. Government obligations or
currencies, or securities of companies incorporated in and having their
principal activities in Canada or the United States.
The Portfolio may, for hedging purposes, purchase forward foreign currency
exchange contracts, foreign currency options and futures contracts and foreign
currencies in the form of bank deposits. The Portfolio may also purchase other
12
<PAGE>
foreign money market instruments, including, but not limited to, bankers'
acceptances, certificates of deposit, commercial paper, short-term government
and corporate obligations and repurchase agreements.
The International Portfolio cannot guarantee a gain or eliminate the risk of
loss. The net asset value of the shares of the Portfolio will increase or
decrease with changes in the market price of the Portfolio's investments and
changes in foreign currency exchange rates.
- --------------------------------------------------------------------------------
POLICIES AND TECHNIQUES
APPLICABLE TO THE PORTFOLIOS
- --------------------------------------------------------------------------------
Except as otherwise noted below, the following description of additional
investment policies and techniques is applicable to all of the Portfolios.
REPURCHASE AGREEMENTS
As a means of earning income for periods as short as overnight, the Fund, on
behalf of a Portfolio, may enter into repurchase agreements with U.S. and
foreign banks, and any broker-dealer which is recognized as a reporting
government securities dealer, if the creditworthiness of the bank or
broker-dealer has been determined by the Adviser to be of a sufficiently high
quality. Under a repurchase agreement, a Portfolio acquires securities, subject
to the seller's agreement to repurchase those securities at a specified time and
price. Securities subject to a repurchase agreement are held in a segregated
account and the seller agrees to maintain the market value of such securities at
least equal to 100.5% of the repurchase price on a daily basis. If the seller
under a repurchase agreement becomes insolvent and the Fund has failed to
perfect its interest in the underlying securities, the Fund might be deemed an
unsecured creditor of the seller and may encounter delay and incur costs before
being able to sell the security. Also, if a seller defaults, the value of such
securities might decline before the Fund is able to dispose of them. The
Trustees have set standards of counterparty creditworthiness and monitor
compliance with such standards.
CONVERTIBLE SECURITIES
The Bond, Balanced, Growth and Income and Capital Growth Portfolios may
each invest in convertible securities (bonds, notes, debentures,
preferred stocks and other securities convertible into common stocks) which may
offer higher income than the common stocks into which they are convertible. The
convertible securities in which each Portfolio may invest include fixed income
or zero coupon debt securities, which may be converted or exchanged at a stated
or determinable exchange ratio into underlying shares of common stock. Prior to
their conversion, convertible securities may have characteristics similar to
non-convertible securities.
While convertible securities generally offer lower yields than non-convertible
debt securities of similar quality, their prices may reflect changes in the
value of the underlying common stock. Although to a lesser extent than with debt
securities generally, the market value of convertible securities tends to
decline as interest rates increase and, conversely, tends to increase as
interest rates decline. Convertible securities entail less credit risk than the
issuer's common stock. The ratings of the convertible securities in which the
Portfolios invest will be comparable to the ratings of the Portfolios' fixed
income securities.
MORTGAGE AND OTHER ASSET-BACKED SECURITIES
The Bond Portfolio and the Balanced Portfolio may each invest in
mortgage-backed securities, which are securities representing interests in pools
of mortgage loans. These securities provide shareholders with payments
consisting of both interest and principal as the mortgages in the underlying
mortgage pools are paid off.
The timely payment of principal and interest on mortgage-backed securities
issued or guaranteed by the Government National Mortgage Association ("GNMA") is
backed by GNMA and the full faith and credit of the U.S. Government. These
guarantees, however, do not apply to the market value or yield of
mortgage-backed securities or to the value of Portfolio shares. Also, GNMA and
other mortgage-backed securities may be purchased at a premium over the maturity
value of the underlying mortgages. This premium is not guaranteed and will be
lost if prepayment occurs. In addition, either Portfolio may invest in
mortgage-backed securities issued by other issuers, such as the Federal National
Mortgage Association, ( " FNMA " ), which are not guaranteed by the
U.S. Government. Moreover, the Portfolios may invest in debt securities which
are secured with collateral consisting of mortgage-backed securities, and in
other types of mortgage-related securities.
13
<PAGE>
Unscheduled or early payments on the underlying mortgages may shorten the
securities' effective maturities and lessen their growth potential. Either
Portfolio may agree to purchase or sell these securities with payment and
delivery taking place at a future date. A decline in interest rates may lead to
a faster rate of repayment of the underlying mortgages, and expose the Portfolio
to a lower rate of return upon reinvestment. To the extent that such
mortgage-backed securities are held by the Portfolio, the prepayment right
of mortgagors may limit the increase in net asset value of the Portfolio
because the value of the mortgage-backed securities held by the Portfolio may
not appreciate as rapidly as the price of non-callable debt securities.
The Portfolios may also invest in securities representing interests in pools of
certain other consumer loans, such as automobile loans or credit card
receivables. In some cases, principal and interest payments are partially
guaranteed by a letter of credit from a financial institution. Asset-backed
securities are subject to the risk of prepayment and the risk that the
underlying loans will not be repaid.
FOREIGN SECURITIES
The Bond, Balanced, Growth and Income, Capital Growth and International
Portfolios may each invest without limit, except as may be applicable to debt
securities generally, in U.S. dollar-denominated foreign debt securities
(including those issued by the Dominion of Canada and its provinces and other
debt securities which meet the criteria applicable to a Portfolio's domestic
investments), and in certificates of deposit issued by foreign banks and foreign
branches of United States banks, to any extent deemed appropriate by the
Adviser. The Bond Portfolio may invest up to 20% of its assets in non-U.S.
dollar-denominated foreign debt securities. The Balanced Portfolio may invest up
to 20% of its debt securities in non-U.S. dollar-denominated foreign debt
securities, and may invest up to 25% of its equity securities in non-U.S.
dollar-denominated foreign equity securities. The Growth and Income Portfolio
may invest up to 25% of its assets in non-U.S. dollar-denominated securities of
foreign issuers. The Capital Growth Portfolio may invest up to 25% of its
assets, and the International Portfolio may invest without limit, in non-U.S.
dollar-denominated equity securities of foreign issuers. Global investing
involves considerations not typically found in investing in U.S. markets. These
considerations, which may favorably or unfavorably affect a Portfolio's
performance, include changes in exchange rates and exchange rate controls (which
may include suspension of the ability to transfer currency from a given
country), costs incurred in conversions between currencies, devaluations in
the currencies in which a Portfolio's securities are denominated,
non-negotiable brokerage commissions, less publicly available information,
different accounting standards, lower trading volume and greater market
volatility, the difficulty of enforcing obligations in other countries, less
securities regulation, different tax provisions (including withholding on
dividends paid to the Fund), war, expropriation, political and social
instability and diplomatic developments. Further, the settlement period of
securities transactions in foreign markets may be longer than in domestic
markets and payment for securities may be required before delivery. These
considerations generally are more of a concern in developing countries. For
example, the possibility of revolution and the dependence on foreign economic
assistance may be greater in these countries than in developed countries. The
Adviser seeks to mitigate the risks associated with these considerations
through diversification and active professional management.
WHEN-ISSUED SECURITIES
A Portfolio may from time to time purchase securities on a "when-issued" or
"forward delivery" basis. Debt securities are often issued on this basis. The
price of such securities, which may be expressed in yield terms, is fixed at the
time a commitment to purchase is made, but delivery and payment for such
securities take place at a later date. During the period between purchase and
settlement, no payment is made by a Portfolio and no interest accrues to the
Portfolio. To the extent that assets of a Portfolio are held in cash pending the
settlement of a purchase of securities, that Portfolio would earn no income;
however, it is the Fund's intention that each Portfolio will be fully invested
to the extent practicable and subject to the policies stated above. While
when-issued or forward delivery securities may be sold prior to the settlement
date, the Portfolio intends to purchase such securities with the purpose of
actually acquiring them unless a sale appears desirable for investment reasons.
At the time a Portfolio makes the commitment to purchase a security on a
when-issued or forward delivery basis, it will record the transaction and
reflect the amount due and the value of the security in determining the net
asset value of a Portfolio. The market value of the when-issued or forward
delivery securities may be more or less than the purchase price payable at the
settlement date. The Fund does not believe that a Portfolio's net asset value or
income will be adversely affected by the purchase of securities on a when-issued
or forward delivery basis. Each Portfolio will establish a segregated account
with its custodian in which it will maintain cash, U.S. Government securities
and other high-grade debt obligations at least equal in value to commitments for
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<PAGE>
when-issued or forward delivery securities. Such segregated securities either
will mature or, if necessary, be sold on or before the settlement date.
INDEXED SECURITIES
The Bond Portfolio and Balanced Portfolio may each invest
in indexed securities, the value of which is linked to currencies, interest
rates, commodities, indices or other financial indicators ("reference
instruments"). The interest rate or (unlike most fixed-income securities) the
principal amount payable at maturity of an indexed security may be increased or
decreased, depending on changes in the value of the reference instrument.
Indexed securities may be positively or negatively indexed, so that
appreciation of the reference instrument may produce an increase or a decrease
in the interest rate or value at maturity of the security. In addition, the
change in the interest rate or value at maturity of the security may be some
multiple of the change in the value of the reference instrument. Thus, in
addition to the credit risk of the security's issuer, the Fund will bear the
market risk of the reference instrument.
LOANS OF PORTFOLIO SECURITIES
The Fund may lend the portfolio securities of any Portfolio (other than the
Money Market Portfolio) provided: (1) the loan is secured continuously by
collateral consisting of U.S. Government securities, or cash or cash equivalents
adjusted daily to have a market value at least equal to the current market value
of the securities loaned; (2) the Fund may at any time call the loan and regain
the securities loaned; (3) the Portfolio will receive any interest or dividends
paid on the loaned securities; and (4) the aggregate market value of securities
loaned will not at any time exceed one-third of the total assets of the
Portfolio. In addition, it is anticipated that the Portfolio may share with the
borrower some of the income received on the collateral for the loan or that it
will be paid a premium for the loan. Before a Portfolio enters into a loan, the
Adviser considers all relevant facts and circumstances including the
creditworthiness of the borrower.
DERIVATIVES
The following descriptions of Options, Options on Securities Indexes, Futures
Contracts, and Forward Foreign Currency Exchange Contracts and Foreign Currency
Futures Contracts discuss types of derivatives in which certain of the
Portfolios may invest.
OPTIONS
The Fund may write covered call options on securities of any Portfolio (other
than the Money Market Portfolio) in an attempt to earn income. The International
Portfolio may also write put options to a limited extent on its portfolio
securities in an attempt to earn additional income on its portfolio, consistent
with its objective of capital growth, and it may purchase call and put options
for hedging purposes. Risks associated with writing put options include the
possible inability to effect closing transactions at favorable prices. In
addition, the Fund may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. Over-the-counter options
purchased by the Fund and portfolio securities "covering" the Fund's obligation
pursuant to an over-the-counter option may be deemed to be illiquid and may not
be readily marketable. The Adviser will monitor the creditworthiness of dealers
with whom the Fund enters into such options transactions under the general
supervision of the Fund's Trustees. The Fund may forego the benefit of
appreciation in its Portfolios on securities sold pursuant to call options.
OPTIONS ON SECURITIES INDEXES
The Balanced, Growth and Income, Capital Growth and International Portfolios may
each purchase put and call options on securities indexes to hedge against
the risk of unfavorable price movements adversely affecting the value of a
Portfolio's securities. Options on securities indexes are similar to options on
securities except that settlement is made in cash.
Unlike a securities option, which gives the holder the right to purchase or sell
a specified security at a specified price, an option on a securities index gives
the holder the right to receive a cash "exercise settlement amount" equal to (i)
the difference between the exercise price of the option and the value of the
underlying stock index on the exercise date, multiplied by (ii) a fixed "index
multiplier." In exchange for undertaking the obligation to make such cash
payment, the writer of the securities index option receives a premium.
Gains or losses on a Portfolio's transactions in securities index options depend
on price movements in the stock market generally (or, for narrow market indexes,
in a particular industry or segment of the market) rather than the price
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<PAGE>
movements of individual securities held by a Portfolio of the Fund. In this
respect, purchasing a stock index put option is analogous to the purchase of a
put on a securities index futures contract.
A Portfolio may sell securities index options prior to expiration in order to
close out its positions in securities index options which it has purchased. A
Portfolio may also allow options to expire unexercised.
FUTURES CONTRACTS
To protect against the effects of adverse changes in interest rates (sometimes
known as "hedging"), the Bond, Balanced, and International
Portfolio s may each , to a limited extent, enter into futures
contracts on debt securities. Such futures contracts obligate the Fund, at
maturity, to purchase or sell certain debt securities. The Bond,
Balanced, Growth and Income, Capital Growth and
International Portfolio s may each enter into securities index futures
contracts to protect against changes in securities market prices. Each of these
five Portfolios may purchase and write put and call options on futures contracts
of the type which such Portfolio is authorized to enter into and may engage in
related closing transactions. This type of option must be traded on a U.S. or
foreign exchange or board of trade.
When interest rates are rising or stock or security prices are falling, futures
contracts can offset a decline in the value of a Portfolio's current portfolio
securities. When rates are falling or stock or security prices are rising, these
contracts can secure better rates or prices for a Portfolio than might later be
available in the market when it makes anticipated purchases.
The Fund will engage in transactions in futures contracts and options thereon
only in an effort to protect a Portfolio against a decline in the value of the
Portfolio's securities or an increase in the price of securities that the
Portfolio intends to acquire. Also, the initial margin deposits for futures
contracts and premiums paid for related options may not be more than 5% of a
Portfolio's total assets. These transactions involve brokerage costs and require
the Fund to segregate assets, such as cash, U.S. Government securities and
high-grade debt obligations, of a Portfolio to cover contracts which would
require it to purchase securities. A Portfolio may lose the expected benefit of
the transactions if interest rates or stock prices move in an unanticipated
manner. Such unanticipated changes in interest rates or stock prices may also
result in poorer overall performance in a Portfolio than if the Fund had not
entered into any futures transactions for that Portfolio. A Portfolio would be
required to make and maintain "margin" deposits in connection with transactions
in futures contracts.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
AND FOREIGN CURRENCY FUTURES CONTRACTS
The Bond, Balanced, Growth and Income, Capital Growth and International
Portfolios may each enter into forward foreign currency exchange contracts
("forward contracts") to the extent of 15% of the value of their respective
total assets, for hedging purposes. A forward contract is a contract
individually negotiated and privately traded by currency traders and their
customers. A forward contract involves an obligation to purchase or sell a
specific currency for an agreed price at a future date, which may be any fixed
number of days from the date of the contract. The agreed price may be fixed or
with a specified range of prices.
The International Portfolio may enter into foreign currency futures contracts to
the extent of 15% of the value of its total assets, for hedging purposes.
Foreign currency futures contracts are standardized contracts traded on
commodities exchanges which involve an obligation to purchase or sell a
predetermined amount of currency at a predetermined date at a specified price.
The purpose of entering into these contracts is to minimize the risk to the
Portfolio from adverse changes in the relationship between the U.S. dollar and
foreign currencies. At the same time, such contracts may limit potential gain
from a positive change in the relationship between the U.S. dollar and foreign
currencies. Unanticipated changes in currency prices may result in poorer
overall performance for the Portfolio than if it had not engaged in forward
contracts and foreign currency futures contracts.
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INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
Unless specified to the contrary, the following restrictions may not be changed
with respect to any Portfolio without the approval of the majority of
outstanding voting securities of that Portfolio (which, under the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules
thereunder and as used in this prospectus, means the lesser of (1) 67% of the
shares of that Portfolio present at a meeting if the holders of more than 50% of
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<PAGE>
the outstanding shares of that Portfolio are present in person or by proxy, or
(2) more than 50% of the outstanding shares of that Portfolio). Any investment
restrictions which involve a maximum percentage of securities or assets shall
not be considered to be violated unless an excess over the percentage occurs
immediately after, and is caused by, an acquisition or encumbrance of securities
or assets of, or borrowings by or on behalf of, a Portfolio.
The Fund may not, on behalf of any Portfolio:
(1) with respect to 75% of the value of the total assets of a Portfolio,
invest more than 5% of the value of the Portfolio's total assets in
the securities of any one issuer, except U.S. Government securities
and, with respect to 100% of the value of the total assets of a
Portfolio, the Fund may not invest more than 25% of the value of the
Portfolio's total assets in the securities of any one issuer, except
U.S. Government securities;
(2) pledge, mortgage or hypothecate its assets, except that, to secure
borrowings permitted by the investment restriction (8) below, it may
pledge securities having a market value at the time of pledge not
exceeding 15% of the value of a Portfolio's total assets and except in
connection with the writing of covered call options and the purchase
and sale of futures contracts and options on futures contracts;
(3) make loans to other persons, except loans of portfolio securities and
except to the extent that the purchase of debt obligations in
accordance with its investment objectives and policies and the entry
into repurchase agreements may be deemed to be loans;
(4) enter into repurchase agreements or purchase any securities if, as a
result thereof, more than 10% of the total assets of a Portfolio
(taken at market value) would be, in the aggregate, subject to
repurchase agreements maturing in more than seven days and invested in
restricted securities or securities which are not readily marketable;
(5) purchase the securities of any issuer if such purchase would cause
more than 10% of the voting securities of such issuer to be held by a
Portfolio;
(6) purchase securities if such purchase would cause more than 25% in the
aggregate of the market value of the total assets of a Portfolio at
the time of such purchase to be invested in the securities of one or
more issuers having their principal business activities in the same
industry, provided that there is no limitation in respect to
investments in obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities (for the purposes of this
restriction, telephone companies are considered to be a separate
industry from gas and electric public utilities, and wholly-owned
finance companies are considered to be in the industry of their
parents if their activities are primarily related to financing the
activities of the parents).
(7) purchase or sell any put or call options or any combination thereof,
except that the Fund may purchase and sell options on futures
contracts on debt securities, options on securities indexes and
securities index futures contracts and write covered call option
contracts on securities owned by a Portfolio, and may also purchase
call options for the purpose of terminating its outstanding
obligations with respect to securities upon which covered call option
contracts have been written (i.e., "closing purchase transactions"),
and except that the International Portfolio may also purchase and sell
options on foreign currency and on foreign currency futures contracts.
(8) borrow money except from banks as a temporary measure for
extraordinary or emergency purposes (each Portfolio is required to
maintain asset coverage (including borrowings) of 300% for all
borrowings) and no purchases of securities for a Portfolio will be
made while borrowings of that Portfolio exceed 5% of the Portfolio's
assets (the payment of interest on borrowings by a Portfolio will
reduce that Portfolio's income). In addition, the Board of Trustees
has adopted a policy whereby each Portfolio of the Fund may borrow up
to 10 % of its total assets; provided, however, that each
Portfolio may borrow up to 25 % of its total assets for
extraordinary or emergency purposes, including the facilitation of
redemptions.
"Value" for the purposes of all investment restrictions shall mean the value
used in determining a Portfolio's net asset value (see "NET ASSET VALUE").
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INVESTMENT ADVISER
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The Fund retains the investment advisory firm of Scudder, Stevens & Clark, Inc.,
a Delaware corporation, Two International Place, Boston, Massachusetts
02110-4103, to manage each Portfolio's daily investment and business affairs
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<PAGE>
subject to the policies established by the Trustees. The Trustees have overall
responsibility for the management of the Fund under Massachusetts law. The
Adviser is one of the most experienced investment counsel firms in the United
States. It was established in 1919 and pioneered the practice of providing
investment counsel to individual clients on a fee basis. The principal source of
the Adviser's income is professional fees received from providing continuing
investment advice, and the firm derives no income from brokerage, insurance or
underwriting of securities. Today, it provides investment counsel for many
individuals and institutions, including insurance companies, colleges,
industrial corporations, and financial and banking organizations. Directly or
through affiliates, the Adviser provides investment advice to over 50 mutual
fund portfolios.
For its advisory services to the Portfolios, the Adviser receives compensation
monthly at the following annual rates for each Portfolio:
Percent of the average
daily net asset values
Portfolio of each Portfolio
- --------- -----------------
Money Market Portfolio .370%
Bond Portfolio .475%
Balanced Portfolio .475%
Growth and Income Portfolio .475%
Capital Growth Portfolio .475%
International Portfolio .875%
The investment advisory fee for the International Portfolio is higher than those
charged many funds which invest primarily in U.S. securities, but is not
necessarily higher than those charged to funds with investment objectives
similar to the investment objectives of this Portfolio.
Under the investment advisory agreements between the Fund, on behalf of
each Portfolio , and the Adviser, the Fund is responsible for all
its other expenses, including clerical salaries; fees and expenses incurred in
connection with membership in investment company organizations; brokers'
commissions; legal, auditing and accounting expenses; taxes and governmental
fees; the charges of custodians, transfer agents and other agents; any other
expenses, including clerical expenses, of issue, sale, underwriting,
distribution, redemption or repurchase of shares; the expenses of and fees for
registering or qualifying securities for sale; the fees and expenses of the
Trustees of the Fund who are not affiliated with the Adviser; the cost of
preparing and distributing reports and notices to shareholders. The Fund is also
responsible for its expenses incurred in connection with litigation, proceedings
and claims and the legal obligation it may have to indemnify its officers and
Trustees with respect thereto. The Adviser, through Scudder Investor Services,
Inc., a wholly-owned subsidiary of the Adviser, places portfolio transactions on
behalf of the Fund's Portfolios. In so doing, the Adviser seeks to obtain the
most favorable net results. Subject to the foregoing, the Adviser may consider
sales of variable life insurance policies and variable annuity contracts for
which the Fund is an investment option, as a factor in the selection of firms to
execute portfolio transactions.
In addition to payments for investment advisory services provided by the
Adviser, the Trustees, consistent with the Fund's investment advisory
agreement s and underwriting agreement, have approved payments to the
Adviser, Scudder Investor Services, Inc. and Scudder Fund Accounting
Corporation for clerical, accounting and certain other services they may
provide the Fund.
For a period of five years from the date of execution of a Participation
Agreement with the Fund, and from year to year thereafter as agreed by the Fund
and the Participating Insurance Company, each of the Participating Insurance
Companies have agreed to contribute to the capital of the Fund to the extent
that the annual operating expenses of any Portfolio (except the International
Portfolio) of the Fund exceed 3/4 of 1% of the average daily net assets of that
Portfolio for any year of the Fund. The Participating Insurance Companies have
agreed to contribute to the capital of the Fund to the extent that such expenses
of the International Portfolio exceed 1.5% of the average daily net assets of
the Portfolio for any year of the Fund. The different capital contribution
requirement for the International Portfolio reflects the higher operating costs
(such as custodian and investment advisory fees) of operating a portfolio
investing primarily in foreign securities. Other Participating Insurance
Companies will be required to enter into similar arrangements with the Fund. The
obligation of each Participating Insurance Company in relation to the total
capital contribution due to a Portfolio will be the proportion that the average
value of the shares of such Portfolio held during the year by a separate account
or separate accounts of such company (or $1 million, if greater) bears to such
average daily net assets. To date, Charter National Life Insurance Company,
Mutual of America Life Insurance Company and Banner Life Insurance
Company have
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<PAGE>
been Participating Insurance Companies for the past eight, six and five
years, respectively, and have made arrangements with the Adviser to continue
their participation.
In addition to the contributions to capital by Participating Insurance Companies
noted above, until April 30, 1996, the Adviser has agreed to waive part or all
of its fees for the Growth and Income Portfolio to the extent that the
Portfolio's expenses will be maintained at 0.75%.
PORTFOLIO MANAGEMENT
Each Portfolio is managed by a team of Scudder investment
professionals who each play an important role in the Portfolio's management
process. Team members work together to develop investment strategies and
select securities for the Portfolios. They are supported by Scudder's large
staff of economists, research analysts, traders, and other investment
specialists who work in Scudder's offices across the United States and abroad.
Scudder believes its team approach benefits Fund investors by bringing
together many disciplines and leveraging Scudder's extensive resources.
MONEY MARKET PORTFOLIO
Lead Portfolio Manager Robert T. Neff has led Money Market Portfolio's
day-to-day management since 1985. Mr. Neff joined Scudder in 1972 and has more
than 20 years of experience managing short-term fixed-income assets.
Nicca Alcantara, Portfolio Manager, has responsibility for the
Portfolio's day-to-day investments. Ms. Alcantara, who came to Scudder in 1984,
has worked as a portfolio manager since 1989 and joined the team in 1990. Prior
to becoming a portfolio manager, Ms. Alcantara worked as an account assistant in
Scudder's Reserve Asset Management Group. Stephen L. Akers, Portfolio
Manager, joined the team in 1995 and has managed several fixed-income portfolios
since joining Scudder in 1984.
BOND PORTFOLIO
Lead Portfolio Manager Ruth Heisler has had responsibility for overseeing the
Portfolio's day-to-day operations and has guided the Portfolio's investment
strategy since 1988. Ms. Heisler, who has over 40 years of fixed-income
investing experience, joined the team in 1986. William M. Hutchinson, Portfolio
Manager, helps set Scudder's overall fixed-income investment strategy. Mr.
Hutchinson, who has 21 years of investment experience, came to Scudder in
1986 as a portfolio manager and joined the team in 1987. Renee L. Ross,
Portfolio Manager, has been a member of the team since 1988. Ms. Ross, who
joined Scudder in 1981, has nine years of experience as a portfolio
manager and focuses on fixed-income analysis and investing.
BALANCED PORTFOLIO
Lead Portfolio Manager Bruce F. Beaty has responsibility for the day-to-day
operations of the Portfolio. Prior to joining Scudder as a portfolio manager in
1991, Mr. Beaty spent 11 years in the securities brokerage business. Ruth
Heisler, Portfolio Manager, has had responsibility for the Portfolio's
fixed-income investments since she joined the team in 1986. Ms. Heisler has been
involved with bond research and investing at Scudder since 1953. Ren ee L.
Ross, Portfolio Manager, assists Ms. Heisler with the bond portion of the
Portfolio. Ms. Ross, who has nine years of experience as a portfolio manager,
has worked on the team since 1988 and at Scudder since 1981. William F.
Gadsden, Portfolio Manager, joined the team in 1995. Mr. Gadsden joined Scudder
in 1983 and has 13 years of investment experience.
GROWTH AND INCOME PORTFOLIO
Lead Portfolio Manager Robert T. Hoffman has responsibility for setting Growth
and Income Portfolio's stock investing strategy and oversees the
Portfolio's day-to-day operations. Mr. Hoffman, who joined Scudder in
1990 as a portfolio manager, has 11 years of experience in the investment
industry, including several years of pension fund management experience.
Kathleen T. Millard, Portfolio Manager, has worked in the investment industry
since 1983 and as a portfolio manager since 1986. Ms. Millard, who joined
Scudder in 1991, also focuses on stock investing strategy and stock selection.
Benjamin W. Thorndike, Portfolio Manager, is the Portfolio's chief analyst and
strategist for convertible securities. Mr. Thorndike, who has 16 years of
investment experience, joined Scudder in 1983 as a portfolio manager.
CAPITAL GROWTH PORTFOLIO
Lead Portfolio Manager Steven P. Aronoff assumed responsibility for setting
Capital Growth Portfolio's stock investing strategy and overseeing the
Portfolio's day-to-day operations in 1995. Mr. Aronoff, who joined Scudder in
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<PAGE>
1969 and the team in 1989, has 27 years of experience in stock research and
investing, including six years of experience as a full-time portfolio manager.
William F. Gadsden, Portfolio Manager, joined the team in 1989 and Scudder in
1983. Mr. Gadsden has 13 years of investment experience. Julia D. Cox,
Portfolio Manager, a member of the team since 1985, has been involved in the
investment industry since 1969 and at Scudder since 1980. Ms. Cox, who has 15
years' experience as a portfolio manager, offers expertise on financial and
technology stocks.
INTERNATIONAL PORTFOLIO
Lead Portfolio Manager Carol L. Franklin sets International Portfolio's
investment strategy and has responsibility for the Portfolio's daily operation.
Ms. Franklin, who joined the team in 1989, has worked on equity investing
at Scudder as a portfolio manager since 1981. Nicholas Bratt, Portfolio Manager,
has been a member of the Portfolio team since 1987 and has 21 years of
experience in worldwide investing, including 19 years of experience as a
portfolio manager. Mr. Bratt, who has worked at Scudder since 1976, is the head
of Scudder's Global Equity Department. Joan Gregory, Portfolio Manager,
focuses on stock selection, a role she has played since joining Scudder in 1992.
Ms. Gregory has been involved with investment in global and international stocks
as an assistant portfolio manager since 1989.
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DISTRIBUTOR
- --------------------------------------------------------------------------------
The Fund has an underwriting agreement with Scudder Investor Services, Inc. (the
"Distributor"), a wholly-owned subsidiary of Scudder, Stevens & Clark, Inc.
Located at Two International Place, Boston, Massachusetts 02110-4103, the
Distributor is a Massachusetts corporation formed in 1947. Under the principal
underwriting agreement between the Fund and the Distributor, the Fund is
responsible for the payment of all fees and expenses in connection with the
preparation and filing of any registration statement and prospectus covering the
issue and sale of shares, and the registration and qualification of shares for
sale with the Securities and Exchange Commission and in the various states,
including registering the Fund as a broker or dealer. The Fund will also pay the
fees and expenses of preparing, printing and mailing prospectuses annually to
existing shareholders and any notice, proxy statement, report, prospectus or
other communication to shareholders of the Fund, printing and mailing
confirmations of purchases of shares, any issue taxes or any initial transfer
taxes, a portion of toll-free telephone service for shareholders, wiring funds
for share purchases and redemptions (unless paid by the shareholder who
initiates the transaction), printing and postage of business reply envelopes and
a portion of the computer terminals used by both the Fund and the Distributor.
The Distributor will pay for printing and distributing prospectuses or reports
prepared for its use in connection with the offering of the shares, and
preparing, printing and mailing any other literature or advertising in
connection with the offering of the shares to the Participating Insurance
Companies. The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under Federal and state
laws, a portion of the toll-free telephone service and of computer terminals,
and of any activity which is primarily intended to result in the sale of shares
issued by the Fund, unless a Plan pursuant to Rule 12b-1 under the 1940 Act, as
amended, is in effect which provides that the Fund shall bear some or all of
such expenses.
As agent, the Distributor currently offers shares of each Portfolio of the Fund
continuously to the separate accounts of Participating Insurance Companies in
all states in which it is registered or where permitted by applicable law. The
underwriting agreement provides that the Distributor accepts orders for shares
at net asset value, as no sales commission or load is charged. The Distributor
has made no firm commitment to acquire shares of the Fund.
NOTE:
Although the Fund does not currently have a 12b-1 Plan and shareholder approval
would be required in order to adopt one, the underwriting agreement provides
that the Fund will also pay those fees and expenses permitted to be paid or
assumed by the Fund pursuant to a 12b-1 Plan, if adopted by the Fund,
notwithstanding any other provision to the contrary in the underwriting
agreement, and the Fund or a third party will pay those fees and expenses not
specifically allocated to the Distributor in the underwriting agreement.
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<PAGE>
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PURCHASES AND REDEMPTIONS
- --------------------------------------------------------------------------------
The separate accounts of the Participating Insurance Companies place orders to
purchase and redeem shares of each Portfolio based on, among other things, the
amount of premium payments to be invested and surrender and transfer requests to
be effected on that day pursuant to VA contracts and VLI policies. Orders
received by the Fund or its agent are effected on days on which the New York
Stock Exchange (the "Exchange") is open for trading. For orders received before
the close of regular trading on the Exchange (normally 4 p.m., eastern time),
such purchases and redemptions of the shares of each Portfolio are effected at
the respective net asset values per share determined as of the close of regular
trading on the Exchange on that same day except that, in the case of the Money
Market Portfolio, purchases will not be effected until the next determination of
net asset value after federal funds have been made available to the Fund (see
"NET ASSET VALUE"). Payment for redemptions will be made by State Street Bank
and Trust Company on behalf of the Fund and the relevant Portfolios within seven
days thereafter. No fee is charged the shareholders when they redeem Portfolio
shares.
The Fund may suspend the right of redemption of shares of any Portfolio and may
postpone payment for any period: (i) during which the Exchange is closed, other
than customary weekend and holiday closings or during which trading on the
Exchange is restricted; (ii) when the Securities and Exchange Commission
determines that a state of emergency exists which may make payment or transfer
not reasonably practicable; (iii) as the Securities and Exchange Commission may
by order permit for the protection of the security holders of the Fund; or (iv)
at any time when the Fund may, under applicable laws and regulations, suspend
payment on the redemption of its shares.
Should any conflict between VA contract and VLI policy holders arise which would
require that a substantial amount of net assets be withdrawn from the Fund,
orderly portfolio management could be disrupted to the potential detriment of
such contract and policy holders.
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NET ASSET VALUE
- --------------------------------------------------------------------------------
Scudder Fund Accounting Corporation, a wholly-owned subsidiary of the
Adviser, determines net asset value per share as of the close of regular
trading on the Exchange, normally 4 p.m., eastern time, on each day the Exchange
is open for trading. Net asset value per share is calculated for purchases and
redemptions for each Portfolio by dividing the current market value (amortized
cost value in the case of the Money Market Portfolio) of total Portfolio assets,
plus other assets, less all liabilities, by the total number of shares
outstanding.
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PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
From time to time, quotations of the Money Market Portfolio's "yield" and
"effective yield" may be included in advertisements, sales literature or reports
to shareholders or prospective investors. Both yield figures are based on the
historical performance of the Portfolio and show the performance of a
hypothetical investment and are not intended to indicate future performance. The
yield of the Money Market Portfolio refers to the net investment income
generated by the Portfolio over a specified seven-day period (the ending date of
which will be stated). Included in "net investment income" is the amortization
of market premium or accretion of market and original issue discount. This
income is then "annualized." That is, the amount of income generated by the
Portfolio during that week is assumed to be generated during each week over a
52-week period and is shown as a percentage. The effective yield is expressed
similarly but, when annualized, the income earned by an investment in the
Portfolio is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment. Yield and effective yield for the Portfolio will vary based on,
among other things, changes in market conditions, the level of interest rates
and the level of the Portfolio's expenses.
21
<PAGE>
BOND PORTFOLIO
From time to time, quotations of the Bond Portfolio's yield may be included in
advertisements, sales literature or reports to shareholders or prospective
investors. Yield figures are based on historical performance of the Bond
Portfolio and show the performance of a hypothetical investment and are not
intended to indicate future performance. The yield of the Bond Portfolio refers
to net investment income generated by the Bond Portfolio over a specified
thirty-day (or one month) period. This income is then "annualized." That is, the
amount of income generated by the Bond Portfolio during that thirty-day (or one
month) period is assumed to be generated over a 12-month period and is shown as
a percentage of net asset value.
ALL PORTFOLIOS
From time to time, quotations of a Portfolio's total return may be included in
advertisements, sales literature or reports to shareholders or prospective
investors. Total return figures are based on historical performance of the
Portfolio and show the performance of a hypothetical investment and are not
intended to indicate future performance. The total return of a Portfolio refers
to return assuming an investment has been held in the Portfolio for one year,
five years and for the life of the Portfolio (the ending date of which will be
stated). The total return quotations may be expressed in terms of average annual
or cumulative rates of return for all periods quoted. Average annual total
return refers to the average annual compound rate of return of an investment in
a Portfolio. Cumulative total return represents the cumulative change in value
of an investment in a Portfolio. Both will assume that all dividends and capital
gains distributions were reinvested.
Yield and total return for a Portfolio will vary based on, among other things,
changes in market conditions and the level of the Portfolio's expenses.
- --------------------------------------------------------------------------------
VALUATION OF PORTFOLIO SECURITIES
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
Pursuant to a Rule of the Securities and Exchange Commission, the Money Market
Portfolio will be valued at amortized cost. Under the amortized cost method of
valuation, securities are valued at cost plus constant accretion/amortization to
maturity of any discount/premium every day.
By using amortized cost valuation, the Fund seeks to maintain a constant net
asset value of $1.00 per share for the Money Market Portfolio, despite minor
shifts in the market value of its portfolio securities. The yield on a
shareholder's investment may be more or less than that which would be recognized
if the net asset value per share of the Money Market Portfolio were not constant
and were permitted to fluctuate with the market value of the portfolio
securities of the Money Market Portfolio. However, as a result of certain
procedures adopted by the Fund, the Adviser believes any difference will
normally be minimal.
OTHER PORTFOLIOS
An exchange-traded equity security (not subject to resale restrictions) is
valued at its most recent sale price as of the close of regular trading on the
Exchange on each day the Exchange is open for trading. Lacking any sales, the
security is valued at the calculated mean between the most recent bid quotation
and the most recent asked quotation. An unlisted equity security which is traded
on the NASDAQ system is valued at the most recent sale price or, if there are no
such sales, the security is valued at the high or "inside" bid quotation
supplied through such system. Debt securities, other than short-term securities,
are valued at prices supplied by the Fund's pricing agent. Short-term securities
with remaining maturities of sixty days or less are valued by the amortized cost
method, which the Trustees believe approximates market value. Foreign currency
forward contracts are valued at the value of the underlying currency at the
prevailing currency exchange rate. Securities for which current market
quotations are not readily available are valued at fair value as determined in
good faith by the Trustees, although the actual calculations may be made by
persons acting pursuant to the direction of the Trustees. Please refer to the
section entitled "NET ASSET VALUE" in the Fund's Statement of Additional
Information for more information concerning valuation of portfolio securities.
22
<PAGE>
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TAX STATUS, DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Internal Revenue Code of 1986 (the "Code") provides that each portfolio of a
series fund is to be treated as a separate taxpayer. Accordingly, each Portfolio
of the Fund intends to qualify as a separate regulated investment company under
Subchapter M of the Code.
Each Portfolio of the Fund intends to comply with the diversification
requirements of Code Section 817(h). By meeting this and other requirements, the
Participating Insurance Companies, rather than the holders of VA contracts and
VLI policies, should be subject to tax on distributions received with respect to
Portfolio shares. For further information concerning federal income tax
consequences for the holders of the VA contracts and VLI policies, such holders
should consult the prospectus used in connection with the issuance of their
particular contracts or policies.
As a regulated investment company, each Portfolio generally will not be subject
to tax on its ordinary income and net realized capital gains to the extent such
income and gains are distributed in conformity with applicable distribution
requirements under the Code to the separate accounts of the Participating
Insurance Companies which hold its shares. Distributions of income and the
excess of net short-term capital gain over net long-term capital loss will be
treated as ordinary income and distributions of the excess of net long-term
capital gain over net short-term capital loss will be treated as long-term
capital gain by the Participating Insurance Companies. Participating Insurance
Companies should consult their own tax advisers as to whether such distributions
are subject to federal income tax if they are retained as part of policy
reserves.
The Money Market Portfolio will declare a dividend of its net investment income
daily and distribute such dividend monthly. Distributions will be made shortly
after the first business day of each month following declaration of the
dividend, and the distribution made in January will be treated as if received by
the shareholder on December 31 of the preceding calendar year for federal income
tax purposes. The Bond, Balanced, Growth and Income and Capital Growth
Portfolios will declare and distribute dividends from their ordinary income, if
any, quarterly, in January, April, July and October. The International Portfolio
intends to distribute its ordinary income annually within three months of
December 31, its year-end. Each of these Portfolios will distribute its capital
gain, if any, within three months of the end of each year. All distributions
will be reinvested in shares of such Portfolios unless an election is made on
behalf of a separate account to receive distributions in cash. Dividends
declared in October, November or December with a record date in such a month
will be deemed to have been received by shareholders on December 31 if paid
during January of the following year. Participating Insurance Companies will be
informed about the amount and character of distributions from the relevant
Portfolio for federal income tax purposes.
For the fiscal year ended December 31, 199 4 , the average annual portfolio
turnover rate for the Balanced Portfolio was 101.64 % . A
higher rate involves greater brokerage and transaction expenses to the
Portfolios and may result in the realization of net capital gains, which would
be taxable to shareholders when distributed.
- --------------------------------------------------------------------------------
SHAREHOLDER COMMUNICATIONS
- --------------------------------------------------------------------------------
Owners of policies and contracts issued by Participating Insurance Companies for
which shares of one or more Portfolios are the investment vehicle will receive
from the Participating Insurance Companies unaudited semi-annual financial
statements and audited year-end financial statements certified by the Fund's
independent public accountants. Each report will show the investments
owned by the Fund and the market values thereof as determined by the Trustees
and will provide other information about the Fund and its operations.
Participating Insurance Companies with inquiries regarding the Fund may call the
Fund's underwriter, Scudder Investor Services, Inc. at 1-617-295-1000 or write
Scudder Investor Services, Inc., Two International Place, Boston, Massachusetts
02110-4103.
23
<PAGE>
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
FUND ORGANIZATION AND SHAREHOLDER INDEMNIFICATION
The Fund was organized in the Commonwealth of Massachusetts as a "Massachusetts
business trust" on March 15, 1985. The Fund's shares of beneficial interest are
presently divided into six separate series. Additional series may be created
from time to time.
Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. The Declaration of Trust contains an express disclaimer of shareholder
liability in connection with the Fund property or the acts, obligations or
affairs of the Fund. The Declaration of Trust also provides for indemnification
out of the Fund property of any shareholder held personally liable for the
claims and liabilities to which a shareholder may become subject by reason of
being or having been a shareholder. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Fund itself would be unable to meet its obligations. The Trustees
believe that, in view of the above, the risk of personal liability of
shareholders is remote.
OTHER INFORMATION
The activities of the Fund are supervised by the Trustees.
Although the Fund does not intend to hold annual meetings, shareholders of the
Fund have certain rights, as set forth in the Declaration of Trust of the Fund,
including the right to call a meeting of shareholders for the purpose of voting
on the removal of one or more Trustees. Shareholders have one vote for each
share held. Fractional shares have fractional votes.
As of December 31, 199 4 , Aetna Life Insurance and Annuity Company owned
9.58 %, American Skandia Life Assurance Corporation owned 4.53%, AUSA
Life Insurance Company owned 0.08% , Banner Life Insurance Company owned
0.53 %, Charter National Life Insurance Company owned 45.29%, Fortis
Benefits Life Insurance Company owned 0.05% , Intramerica Life Insurance
Company owned 3.59%, Lincoln Benefit Life Insurance Company owned
0.04% , Mutual of America Life Insurance Company owned 19.96%, Paragon
Life Insurance Company owned 0.03% , Providentmutual Life and Annuity Company
of America owned 0.18 %, Safeco Life Insurance Companies owned
0.55 %, The Union Central Life Insurance Company owned 15.52 % and
United of Omaha owned 0.07% of the Fund's outstanding shares.
Each Portfolio of the Fund has a December 31 fiscal year end.
Portfolio securities of the Fund are held separately, pursuant to a custodian
agreement, by State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as custodian.
Scudder Service Corporation , P.O. Box 2291, Boston, Massachusetts
02107-2291, is the transfer and dividend paying agent for the Fund.
The firm of Dechert Price & Rhoads, Boston, Massachusetts, is counsel for the
Fund.
The Fund's Statement of Additional Information and this prospectus omit certain
information contained in the Registration Statement which the Fund has filed
with the Securities and Exchange Commission under the Securities Act of 1933,
and reference is hereby made to the Registration Statement and its amendments,
for further information with respect to the Fund and the securities offered
hereby. The Registration Statement and its amendments, are available for
inspection by the public at the Securities and Exchange Commission in
Washington, D.C.
24
<PAGE>
- --------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
David B. Watts*
President and Trustee
Dr. Kenneth Black, Jr.
Trustee; Regents' Professor Emeritus
of Insurance, Georgia State University
Peter B. Freeman
Trustee; Corporate Director and Trustee
Dr. J. D. Hammond
Trustee; Dean, Smeal College of Business
Administration, Pennsylvania State University
Daniel Pierce*
Vice President and Trustee
Pamela A. McGrath*
Vice President and Treasurer
Thomas S. Crain*
Vice President
Jerard K. Hartman*
Vice President
Richard A. Holt*
Vice President
Thomas W. Joseph*
Vice President
David S. Lee*
Vice President
Steven M. Meltzer*
Vice President
Edward J. O'Connell*
Vice President and Assistant Treasurer
Randall K. Zeller*
Vice President
Thomas F. McDonough*
Secretary
Kathryn L. Quirk*
Vice President and Assistant Secretary
Coleen Downs Dinneen*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
Two International Place
Boston, Massachusetts 02110-4103
An open-end management investment company which currently offers shares of
beneficial interest of six diversified Portfolios which seek, respectively, (i)
stability and current income from a portfolio of money market instruments, (ii)
high income from a high quality portfolio of bonds, (iii) a balance of growth
and income, as well as long-term preservation of capital, from a diversified
portfolio of equity and fixed income securities, (iv) long-term growth of
capital, current income and growth of income from a portfolio consisting
primarily of common stocks and securities convertible into common stocks ,
(v) long-term capital growth from a a portfolio consisting primarily of equity
securities, and (vi) long-term growth of capital principally from a diversified
portfolio of foreign equity securities
(A Mutual Fund)
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1995
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectus of Scudder Variable Life Investment
Fund dated May 1, 1995 , as may be amended from time to time, a copy of
which may be obtained without charge by calling a Participating Insurance
Company or by writing to broker/dealers offering certain variable annuity
contracts and variable life insurance policies, or Scudder Investor Services,
Inc., Two International Place, Boston, Massachusetts 02110-4103.
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVES AND POLICIES............................................1
Money Market Portfolio...............................................1
Bond Portfolio.......................................................2
Balanced Portfolio...................................................3
Growth and Income Portfolio..........................................5
Capital Growth Portfolio.............................................6
International Portfolio..............................................6
POLICIES AND TECHNIQUES APPLICABLE TO THE PORTFOLIOS..........................8
Repurchase Agreements................................................8
Zero Coupon Securities...............................................8
Mortgage-Backed Securities and Mortgage Pass-Through Securities......9
Collateralized Mortgage Obligations ("CMOs")........................10
FHLMC Collateralized Mortgage Obligations...........................11
Other Mortgage-Backed Securities....................................11
Other Asset-Backed Securities.......................................11
Municipal Obligations...............................................12
Convertible Securities..............................................13
Depositary Receipts.................................................13
Foreign Securities..................................................14
Limitations on Holdings of Foreign Securities.......................15
Indexed Securities..................................................15
When-Issued Securities..............................................16
Loans of Portfolio Securities.......................................16
Borrowing...........................................................16
Options.............................................................16
Securities Index Options............................................18
Futures Contracts...................................................19
Futures on Debt Securities..........................................19
Limitations on the Use of Futures Contracts and Options on Futures..21
Foreign Currency Transactions.......................................22
High Yield, High Risk Securities....................................24
Combined Transactions...............................................24
Risks of Specialized Investment Techniques Abroad...................24
INVESTMENT RESTRICTIONS......................................................25
PURCHASES AND REDEMPTIONS....................................................26
INVESTMENT ADVISER AND DISTRIBUTOR...........................................26
Investment Adviser..................................................26
Personal Investments by Employees of the Adviser....................29
Distributor.........................................................30
MANAGEMENT OF THE FUND.......................................................31
Trustees and Officers...............................................31
Remuneration........................................................32
NET ASSET VALUE..............................................................33
TAX STATUS...................................................................34
i
<PAGE>
DIVIDENDS AND DISTRIBUTIONS..................................................38
Money Market Portfolio..............................................38
International Portfolio.............................................39
Other Portfolios....................................................39
PERFORMANCE INFORMATION......................................................39
Money Market Portfolio..............................................39
Bond Portfolio......................................................40
All Portfolios......................................................40
Comparison of Portfolio Performance.................................42
SHAREHOLDER COMMUNICATIONS...................................................45
ORGANIZATION AND CAPITALIZATION..............................................45
General.............................................................45
Shareholder and Trustee Liability...................................47
ALLOCATION OF PORTFOLIO BROKERAGE............................................47
PORTFOLIO TURNOVER...........................................................48
EXPERTS......................................................................49
COUNSEL......................................................................49
ADDITIONAL INFORMATION.......................................................49
FINANCIAL STATEMENTS.........................................................50
APPENDIX
Description of Bond Ratings
Description of Commercial Paper Ratings
ii
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
(See "INVESTMENT CONCEPT OF THE FUND" and
"INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS"
in the Fund's prospectus.)
Scudder Variable Life Investment Fund (the "Fund") is an open-end,
diversified registered management investment company established as a
Massachusetts business trust. The Fund is a series fund consisting of the Money
Market Portfolio, Bond Portfolio, Balanced Portfolio, Growth and Income
Portfolio, Capital Growth Portfolio, and International Portfolio (individually
or collectively hereinafter referred to as a "Portfolio" or the "Portfolios").
Additional portfolios may be created from time to time. The Fund is intended to
be the funding vehicle for variable annuity contracts ("VA contracts") and
variable life insurance policies ("VLI policies") to be offered to the separate
accounts of certain life insurance companies ("Participating Insurance
Companies").
Each Portfolio has a different investment objective which it pursues
through separate investment policies, as described below. The differences in
objectives and policies among the Portfolios can be expected to affect the
degree of market and financial risk to which each Portfolio is subject and the
return of each Portfolio. The investment objectives and policies of each
Portfolio may, unless otherwise specifically stated, be changed by the Trustees
of the Fund without a vote of the shareholders. There is no assurance that the
objectives of any Portfolio will be achieved.
Money Market Portfolio
The Money Market Portfolio seeks to maintain the stability of capital
and, consistent therewith, to maintain the liquidity of capital and to provide
current income. The Portfolio seeks to maintain a constant net asset value of
$1.00 per share, although there can be no assurance that this will be achieved.
The Portfolio will use the amortized cost method of securities valuation.
The Money Market Portfolio purchases U.S. Treasury bills, notes and
bonds; obligations of agencies and instrumentalities of the U.S. Government;
domestic and foreign bank certificates of deposit; bankers' acceptances; finance
company and corporate commercial paper; and repurchase agreements and corporate
obligations. Investments are limited to those that are dollar-denominated and at
the time of purchase are rated, or judged by the Fund's investment adviser,
Scudder, Stevens & Clark, Inc. (the "Adviser"), subject to the supervision of
the Trustees, to be equivalent to those rated high quality (i.e., rated in the
two highest categories) by any two nationally - recognized rating services
such as Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's
("S&P"). In addition, the Adviser seeks through its own credit analysis
to limit investments to high quality instruments presenting minimal credit
risks. Securities eligible for investment by the Money Market Portfolio which
are rated in the highest category by at least two rating services (or by one
rating service, if no other rating service has issued a rating with respect to
that security) are known as "first tier securities." Securities rated in the top
two categories which are not first tier securities are known as "second tier
securities." Investments in commercial paper and finance company paper will
be limited to securities which, at the time of purchase, will be rated A-1 or
A-2 by S&P or Prime 1 or Prime 2 by Moody's or the equivalent by any
nationally-recognized rating service or judged to be equivalent by the Adviser.
Obligations which are subject to repurchase agreements will be limited to those
of the type and quality described above. The Money Market Portfolio may also
hold cash. Shares of the Portfolio are not insured by an agency of the U.S.
Government. Securities and instruments in which the Portfolio may invest may be
issued by the U.S. Government, its agencies and instrumentalities, corporations,
trusts, banks, finance companies and other business entities.
The Money Market Portfolio may invest in certificates of deposit and
bankers' acceptances of large domestic banks (i.e., banks which at the time of
their most recent annual financial statements show total assets in excess of $1
billion) including foreign branches of such domestic banks, which involve
different risks than those associated with investments in certificates of
deposit of domestic banks, and of smaller banks as described below. The
Portfolio will invest in U.S. dollar-denominated certificates of deposit and
bankers' acceptances of foreign banks if such banks meet the stated
qualifications. Although the Portfolio recognizes that the size of a bank is
important, this fact alone is not necessarily indicative of its
creditworthiness. Investment in certificates of deposit and bankers' acceptances
issued by foreign banks and foreign branches of domestic banks involves
investment risks that are different in some respects from those associated with
<PAGE>
investments in certificates of deposit and bankers' acceptances issued by
domestic banks. (See "Foreign Securities" in this Statement of Additional
Information for further risks of foreign investment.)
The Money Market Portfolio may also invest in certificates of deposit
issued by banks and savings and loan institutions which had at the time of their
most recent annual financial statements total assets of less than $1 billion,
provided that (i) the principal amounts of such certificates of deposit are
insured by an agency of the U.S. Government, (ii) at no time will the Portfolio
hold more than $100,000 principal amount of certificates of deposit of any one
such bank, and (iii) at the time of acquisition, no more than 10% of the
Portfolio's assets (taken at current value) are invested in certificates of
deposit of such banks having total assets not in excess of $1 billion.
The assets of the Money Market Portfolio consist entirely of cash items
and investments having a remaining maturity date of 397 calendar days or
less from date of purchase. The Portfolio will be managed so that the average
maturity of all instruments in the portfolio (on a dollar-weighted basis) will
be 90 days or less. The average maturity of the Portfolio's investments varies
according to the Adviser's appraisal of money market conditions.
To ensure diversity of the Portfolio's investments, as a matter
of non-fundamental policy the Portfolio will not invest more than 5% of its
total assets in the securities of a single issuer, other than the U.S.
Government. The Portfolio may, however, invest more than 5% of its total assets
in the first tier securities of a single issuer for a period of up to three
business days after purchase, although the Portfolio may not make more than one
such investment at any time. The Portfolio may not invest more than 5% of its
total assets in securities which were second tier securities when acquired by
the Portfolio. Further, the Portfolio may not invest more than the greater of
(1) 1% of its total assets, or (2) one million dollars, in the securities of a
single issuer which were second tier securities when acquired by the Portfolio.
The net investment income of the Portfolio is declared as a dividend to
shareholders daily and distributed monthly in cash or reinvested in additional
shares.
Bond Portfolio
The Bond Portfolio pursues a policy of investing for a high level of
income consistent with a high quality portfolio of debt securities. Under normal
circumstances the Portfolio invests at least 65% of its assets in bonds
including those of the U.S. Government and its agencies and those of
corporations and other notes and bonds paying high current income. The Portfolio
may also invest in preferred stocks consistent with the Portfolio's objectives.
It will attempt to moderate the effect of market price fluctuation relative to
that of a long-term bond by investing in securities with varying maturities and
making use of futures contracts on debt securities and related options for
hedging purposes.
The Bond Portfolio may purchase corporate notes and bonds including
issues convertible into common stock and obligations of municipalities. It may
purchase U.S. Government securities and obligations of federal agencies that are
not backed by the full faith and credit of the U.S. Government, such as
obligations of Federal Home Loan Banks, Farm Credit Banks and the Federal Home
Loan Mortgage Corporation. The Portfolio may also purchase obligations of
international agencies such as the International Bank for Reconstruction and
Development and the Inter-American Development Bank. Other eligible investments
include foreign securities, including non-U.S. dollar-denominated foreign debt
securities and U.S. dollar-denominated foreign debt securities (such as those
issued by the Dominion of Canada and its provinces), including without
limitation, Eurodollar Bonds and Yankee Bonds, mortgage and other asset-backed
securities and money market instruments such as commercial paper and bankers'
acceptances and certificates of deposit issued by domestic and foreign branches
of U.S. banks. The Portfolio may also enter into repurchase agreements and may
invest in zero coupon securities. The Portfolio invests in a broad range of
short-, intermediate-, and long-term securities. Proportions among maturities
and types of securities may vary depending upon the prospects for income
relative to the outlook for the economy and the securities markets, the quality
of available investments, the level of interest rates, and other factors.
The Bond Portfolio is of high quality. No purchase will be made if as a
result thereof less than 50% of the Portfolio's net assets would be invested in
debt obligations, including money market instruments, that (a) are issued or
guaranteed by the U.S. Government, (b) are rated at the time of purchase within
the two highest ratings categories by any of the nationally-recognized
rating services or (c) if not rated, are judged at the time of purchase by the
Adviser to be of a quality comparable to obligations rated as described in (b)
above. Not less than 80% of the debt obligations in which the Portfolio invests
2
<PAGE>
will, at the time of purchase, be rated within the three highest ratings
categories of any such service or, if not rated, will be judged to be of
comparable quality by the Adviser. The Fund may invest up to 20% of its assets
in bonds rated below A but no lower than B by Moody's or S&P or in unrated
securities judged by the Adviser to be of comparable quality. Debt securities
which are rated below investment-grade (that is, rated below Baa by Moody's or
below BBB by S&P) and unrated securities of comparable quality, which usually
entail greater risk (including the possibility of default or bankruptcy of the
issuers of such securities), generally involve greater volatility of price and
risk of loss of principal and income, and may be less liquid than securities in
the higher rating categories. Securities rated B involve a high degree of
speculation with respect to the payment of principal and interest. Should the
rating of any security held by the Portfolio be down-graded after the time of
purchase, the Adviser will determine whether it is in the best interest of the
Portfolio to retain or dispose of the security. During the year ended December
31, 1994, the average monthly dollar-weighted market value of the bonds held by
the Portfolio , by ratings categories, was as follows: 72.0% in AAA/Aaa
securities, 1.0 % in AA/Aa securities, 19.0 % in A securities,
4.0 % in BBB/Baa securities, 2.0 % in BB/Ba securities and
2.0 % in unrated securities, respectively. (See "High Yield, High Risk
Securities.") Future asset composition may vary.
See the Appendix to this Statement of Additional Information for a more
complete description of the ratings assigned by ratings organizations and their
respective characteristics.
Except for limitations imposed by the Bond Portfolio's investment
restrictions, there is no limit as to the proportions of the Portfolio which may
be invested in any of the eligible investments; however, it is a policy of the
Portfolio that its non-governmental investments will be spread among a variety
of companies and will not be concentrated in any industry.
The Bond Portfolio may invest in securities of the Government National
Mortgage Agency, a Government corporation within the U.S. Department of Housing
and Urban Development ("GNMAs"). GNMAs are mortgaged-backed securities
representing part ownership of a pool of mortgage loans. These loans, which are
issued by lenders such as mortgage bankers, commercial banks and savings and
loan associations, are either insured by the Federal Housing Administration
(FHA) or guaranteed by the Veterans Administration (VA). Once approved by GNMA,
the timely payment of interest and principal is guaranteed by the full faith and
credit of the U.S. Government.
The Bond Portfolio cannot guarantee a gain or eliminate the risk of
loss. The net asset value of the Portfolio's shares will fluctuate with changes
in the market prices of the Portfolio's investments, which tend to vary
inversely with changes in prevailing interest rates and, to a lesser extent,
changes in foreign currency exchange rates. As interest rates fall, the prices
of debt securities tend to rise and vice versa.
Balanced Portfolio
The Balanced Portfolio seeks a balance of growth and income from a
diversified portfolio of equity and fixed income securities. The Portfolio also
seeks long-term preservation of capital through a quality-oriented investment
approach that is designed to reduce risk.
In seeking its objectives of a balance of growth and income, as well as
long-term preservation of capital, the Portfolio invests in a diversified
portfolio of equity and fixed income securities. The Portfolio invests, under
normal circumstances, at least 50%, but no more than 75%, of its net assets in
common stocks and other equity investments. The Portfolio's equity investments
consist of common stocks, preferred stocks, warrants and securities convertible
into common stocks, of companies that, in the Adviser's judgment, are of
above-average financial quality and offer the prospect for above-average growth
in earnings, cash flow, or assets relative to the overall market as defined by
the Standard and Poor's 500 Composite Stock Price Index ("S&P 500"). The
Portfolio will invest primarily in securities issued by medium-to-large sized
domestic companies with annual revenues or market capitalization of at least
$600 million, and which, in the opinion of the Adviser, offer above-average
potential for price appreciation. The Portfolio seeks to invest in companies
that have relatively consistent and above-average rates of growth; companies
that are in a strong financial position with high credit standings and
profitability; firms with important business franchises, leading products, or
dominant marketing and distribution systems; companies guided by experienced and
motivated managements; and companies selling at attractive market valuations.
3
<PAGE>
The Adviser believes that companies with these characteristics will be rewarded
by the market with higher stock prices over time and provide investment returns,
on average, in excess of the S&P 500.
At least 65% of the value of the Portfolio's common stocks will be of
issuers which qualify, at the time of purchase, for one of the three highest
equity earnings and dividends ranking categories (A+, A, or A-) of S&P, or if
not ranked by S&P, are judged to be of comparable quality by the Adviser. S&P
assigns earnings and dividends rankings to corporations based on a number of
factors, including stability and growth of earnings and dividends. Rankings by
S&P are not an appraisal of a company's creditworthiness, as is true for S&P's
debt security ratings, nor are these rankings intended as a forecast of future
stock market performance. In addition to using S&P rankings of earnings and
dividends of common stocks, the Adviser conducts its own analysis of a company's
history, current financial position, and earnings prospects.
To enhance income and stability, the Portfolio's remaining assets are
allocated to bonds and other fixed income securities, including cash reserves.
The Portfolio will normally invest 25% to 50% of its net assets in fixed income
securities. However, at least 25% of the Portfolio's net assets will always be
invested in fixed income securities. The Portfolio can invest in a broad range
of corporate bonds and notes, convertible bonds, and preferred and convertible
preferred securities. It may also purchase U.S. Government securities and
obligations of federal agencies and instrumentalities that are not backed by the
full faith and credit of the U.S. Government, such as obligations of the Federal
Home Loan Banks, Farm Credit Banks, and the Federal Home Loan Mortgage
Corporation. The Portfolio may also invest in obligations of international
agencies, foreign debt securities (both U.S. and non-U.S. dollar-denominated),
mortgage-backed and other asset-backed securities, municipal obligations,
restricted securities issued in private placements and zero coupon securities.
Zero coupon securities are subject to greater market value fluctuations from
changing interest rates than debt obligations of comparable maturities that make
current cash distributions of interest.
For liquidity and defensive purposes, the Portfolio may invest without
limit in cash and in money market securities such as commercial paper, bankers'
acceptances, and certificates of deposit issued by domestic and foreign branches
of U.S. banks. The Portfolio may also enter into repurchase agreements with
respect to U.S. Government securities.
Not less than 50% of the Portfolio's debt securities will be invested
in debt obligations, including money market instruments, that (a) are issued or
guaranteed by the U.S. Government, (b) are rated at the time of purchase within
the two highest ratings categories by any nationally-recognized rating
service or (c) if not rated, are judged at the time of purchase, by the Adviser
to be of a quality comparable to obligations rated as described in (b) above.
Not less than 80% of the debt obligations in which the Portfolio invests will,
at the time of purchase, be rated within the three highest ratings
categories of any such service or, if not rated, will be judged to be of
comparable quality by the Adviser. Up to 20% of the Portfolio's debt securities
may be invested in bonds rated below A but no lower than B by Moody's or S&P, or
unrated securities judged by the Adviser to be of comparable quality. Debt
securities which are rated below investment-grade (that is, rated below Baa by
Moody's or below BBB by S&P and commonly referred to as "junk bonds") and
unrated securities of comparable quality, which usually entail greater risk
(including the possibility of default or bankruptcy of the issuers of such
securities), generally involve greater volatility of price and risk of principal
and income, and may be less liquid than securities in the higher rating
categories. Securities rated B involve a high degree of speculation with respect
to the payment of principal and interest. Should the rating of any security held
by the Portfolio be downgraded after the time of purchase, the Adviser will
determine whether it is in the best interest of the Portfolio to retain or
dispose of the security.
See the Appendix to this Statement of Additional Information for a more
complete description of the ratings assigned by ratings organizations and their
respective characteristics.
The Portfolio will, on occasion, adjust its mix of investments among
equity securities, bonds, and cash reserves. In reallocating investments, the
Adviser weighs the relative values of different asset classes and expectations
for future returns. In doing so, the Adviser analyzes, on a global basis, the
level and direction of interest rates, capital flows, inflation expectations,
anticipated growth of corporate profits, monetary and fiscal policies around the
world, and other related factors. The Portfolio does not take extreme investment
positions as part of an effort to "time the market." Shifts between stocks and
fixed income investments are expected to occur in generally small increments
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within the guidelines adopted in this Statement of Additional Information. The
Portfolio is designed as a conservative long-term investment program.
While the Portfolio emphasizes U.S. equity and debt securities, it may
invest a portion of its assets in foreign securities, including depositary
receipts. The Portfolio's foreign holdings will meet the criteria applicable to
its domestic investments. The international component of the Portfolio's
investment program is intended to increase diversification, thus reducing risk,
while providing the opportunity for higher returns.
In addition, the Portfolio may invest in securities on a when-issued or
forward delivery basis. The Portfolio may, for hedging purposes, purchase
forward foreign currency exchange contracts and foreign currencies in the form
of bank deposits. The Portfolio may also purchase other foreign money market
instruments including, but not limited to, bankers' acceptances, certificates of
deposit, commercial paper, short-term government obligations and repurchase
agreements.
The Balanced Portfolio cannot guarantee a gain or eliminate the risk of
loss. The net asset value of the shares of the Portfolio will increase or
decrease with changes in the market price of the Portfolio's investments and, to
a lesser extent, changes in foreign currency exchange rates.
Growth and Income Portfolio
The Growth and Income Portfolio seeks long-term growth of capital,
current income and growth of income. In pursuing these three objectives, the
Portfolio invests primarily in common stocks, preferred stocks, and securities
convertible into common stocks of companies which offer the prospect for growth
of earnings while paying higher than average current dividends. Over time,
continued growth of earnings tends to lead to higher dividends and enhancement
of capital value. The Portfolio allocates its investments among different
industries and companies, and changes its portfolio securities for investment
considerations and not for trading purposes. The Adviser believes that a
portfolio investing in these kinds of securities can perform well whether a
growth or value investment style is in favor and that the Portfolio's dividend
strategy can improve its performance in down markets. The Adviser believes these
characteristics can help a shareholder feel comfortable holding onto the
Portfolio for the long run, despite short-term changes in the investment
climate.
The Portfolio attempts to achieve its investment objectives by
investing primarily in dividend paying common stocks, preferred stocks and
securities convertible into common stocks. The Portfolio may also purchase such
securities which do not pay current dividends but which offer prospects for
growth of capital and future income. Convertible securities (which may be
current coupon or zero coupon securities) are bonds, notes, debentures,
preferred stocks and other securities which may be converted or exchanged at a
stated or determinable exchange ratio into underlying shares of common stock.
The Portfolio may also invest in nonconvertible preferred stocks consistent with
the Portfolio's objectives. From time to time, for temporary defensive purposes,
when the Adviser feels such a position is advisable in light of economic or
market conditions, the Portfolio may invest a portion of its assets in cash and
cash equivalents. The Portfolio may invest in foreign securities and in
repurchase agreements.
When evaluating a security for purchase or sale, the Adviser may
consider a security's dividend yield relative to the average dividend yield of
the S&P 500.
The Portfolio may, for hedging purposes, purchase forward foreign
currency exchange contracts and foreign currencies in the form of bank deposits.
The Portfolio may also purchase other foreign money market instruments,
including, but not limited to, bankers' acceptances, certificates of deposit,
commercial paper, short-term government obligations and repurchase agreements.
The Growth and Income Portfolio cannot guarantee a gain or eliminate
the risk of loss. The net asset value of the Portfolio's shares will increase or
decrease with changes in the market prices of the Portfolio's investments and,
to a lesser extent, changes in foreign currency exchange rates.
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Capital Growth Portfolio
The Capital Growth Portfolio seeks to maximize long-term capital growth
through a broad and flexible investment program. The Portfolio invests in
marketable securities, principally common stocks and, consistent with its
objective of long-term capital growth, preferred stocks. However, in order to
reduce risk, as market or economic conditions periodically warrant, the
Portfolio may also invest up to 25% of its assets in short-term debt
instruments.
Important considerations to the Adviser in its examination of potential
investments include certain qualitative considerations such as a company's
financial strength, management reputation, absolute size and overall industry
position.
Equity investments can have diverse financial characteristics, and the
Trustees believe that the opportunity for capital growth may be found in many
different sectors of the market at any particular time. In contrast to the
specialized investment policies of some capital appreciation funds, the
Portfolio is therefore free to invest in a wide range of marketable securities
offering the potential for growth. This enables the Portfolio to pursue
investment values in various sectors of the stock market, including:
1. Companies that generate or apply new technologies, new and
improved distribution techniques, or new services, such as
those in the business equipment, electronics, specialty
merchandising, and health service industries.
2. Companies that own or develop natural resources, such as
energy exploration or precious metals companies.
3. Companies that may benefit from changing consumer demands and
lifestyles, such as financial service organizations and
telecommunications companies.
4. Foreign companies.
While emphasizing investments in companies with above-average growth
prospects, the Portfolio may also purchase and hold equity securities of
companies that may have only average growth prospects, but seem undervalued due
to factors thought to be of a temporary nature which may cause their securities
to be out of favor and to trade at a price below their potential value.
The Portfolio, as a matter of nonfundamental policy, may invest up to
20% of its net assets in intermediate to longer term debt securities when
management anticipates that the total return on debt securities is likely to
equal or exceed the total return on common stocks over a selected period of
time. The Portfolio may purchase investment-grade debt securities, which are
those rated Aaa, Aa, A or Baa by Moody's, or AAA, AA, A or BBB by S&P, or, if
unrated, of equivalent quality as determined by the Adviser. Bonds that are
rated Baa by Moody's or BBB by S&P have some speculative characteristics. The
Portfolio's intermediate to longer term debt securities may also include those
which are rated below investment grade as long as no more than 5% of its net
assets are invested in such securities. As interest rates fall the prices of
debt securities tend to rise and vice versa. Should the rating of any security
held by the Portfolio be downgraded after the time of purchase, the Adviser will
determine whether it is in the best interest of the Portfolio to retain or
dispose of the security. (See "High Yield, High Risk Securities.")
The Capital Growth Portfolio cannot guarantee a gain or eliminate the
risk of loss. The net asset value of the shares of the Portfolio will increase
or decrease with changes in the market price of the Portfolio's investments and,
to a lesser extent, changes in foreign currency exchange rates.
International Portfolio
The International Portfolio seeks long-term growth of capital primarily
through diversified holdings of marketable foreign equity investments. The
Portfolio invests in companies, wherever organized, which do business primarily
outside the United States. The Fund, on behalf of the Portfolio, intends to
diversify investments among several countries and to have represented in the
program business activities in not less than three different countries. The
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management considers it consistent with this policy for the Portfolio to acquire
securities of companies incorporated in the United States and having their
principal activities and interests outside of the United States, and such
investments may be included in the program.
It is not the policy of the Portfolio to concentrate its investments in
any particular industry, and the Portfolio's management does not intend to make
acquisitions in particular industries which would increase the percentage of the
market value of the Portfolio's assets above 25% for any one industry. The
Portfolio does not invest for the purpose of controlling or managing other
companies.
The major portion of the Portfolio's assets consists of equity
securities of established companies listed on recognized exchanges; the Adviser
expects this condition to continue, although the Portfolio may invest in other
securities. Investments may also be made in fixed income securities of foreign
governments and companies with a view toward total investment return. In
determining the location of the principal activities and interests of a company,
the Adviser takes into account such factors as the location of the company's
assets, personnel, sales and earnings. In selecting securities for the
Portfolio, the Adviser seeks to identify companies whose securities prices do
not adequately reflect their established positions in their fields. In analyzing
companies for investment, the Adviser ordinarily looks for one or more of the
following characteristics: above-average earnings growth per share, high return
on invested capital, healthy balance sheets and overall financial strength,
strong competitive advantages, strength of management and general operating
characteristics which will enable the companies to compete successfully in their
marketplace. Investment decisions are made without regard to arbitrary criteria
such as minimum asset size, debt-equity ratios or dividend history of Portfolio
companies.
The Portfolio may invest in any type of security including, but not
limited to shares, preferred or common, bonds and other evidences of
indebtedness, and other securities of issuers wherever organized, and not
excluding evidences of indebtedness of governments and their political
subdivisions. Although no particular proportion of stocks, bonds or other
securities is required to be maintained, the Fund, on behalf of the Portfolio,
in view of the Portfolio's investment objective, intends under normal conditions
to maintain holdings consisting primarily of a diversified list of equity
securities.
Under exceptional economic or market conditions abroad, the Portfolio
may temporarily, until normal conditions return, invest all or a major portion
of its assets in Canadian or U.S. Government obligations or currencies, or
securities of companies incorporated in and having their principal activities in
Canada or the United States.
Foreign securities such as those purchased by the Portfolio may be
subject to foreign government taxes which could reduce the yield on such
securities, although a shareholder of the Portfolio may, subject to certain
limitations, be entitled to claim a credit or deduction for U.S. federal income
tax purposes for his or her proportionate share of such foreign taxes paid by
the Portfolio. (See "TAXES.")
The Portfolio is intended to provide investors with an opportunity to
invest a portion of their assets in a diversified group of securities of foreign
companies and governments. Management of the Portfolio believes that
diversification of assets on an international basis decreases the degree to
which events in any one country, including the United States, will affect an
investor's entire investment holdings. In the period since World War II, many
leading foreign economies and foreign stock market indexes have grown more
rapidly than the United States economy and leading U.S. stock market indexes,
although there can be no assurance that this will be true in the future. Because
of the Portfolio's investment policy, the Portfolio is not intended to provide a
complete investment program for an investor.
Because the Portfolio normally will be invested in foreign securities
markets, changes in the Portfolio's share price may have a low correlation with
movements in the U.S. markets. The Portfolio's share price will reflect the
movements of both the different stock and bond markets in which it is invested
and of the currencies in which the investments are denominated; the strength or
weakness of the U.S. dollar against foreign currencies may account for part of
the Portfolio's investment performance. U.S. and foreign securities markets do
not always move in step with each other, and the total returns from different
markets may vary significantly. The Portfolio invests in many foreign securities
markets in an attempt to take advantage of opportunities wherever they may
arise.
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POLICIES AND TECHNIQUES APPLICABLE TO THE PORTFOLIOS
(See "POLICIES AND TECHNIQUES
APPLICABLE TO THE PORTFOLIOS" in
the Fund's prospectus.)
Except as otherwise noted below, the following description of
additional investment policies and techniques is applicable to all of the
Portfolios.
Repurchase Agreements
On behalf of a Portfolio, the Fund may enter into repurchase agreements
with member banks of the Federal Reserve System, any foreign bank and any
broker-dealer which is recognized as a reporting government securities dealer if
the creditworthiness of the bank or broker-dealer has been determined by the
Adviser to be at least equal to that of issuers of commercial paper rated within
the two highest categories assigned by Moody's or S&P. A repurchase agreement
with a member bank of the Federal Reserve System, which provides a means for the
Portfolio to earn income on funds for periods as short as overnight, is an
arrangement through which the Portfolio acquires a U.S. Government or other high
quality short-term debt obligation (the "Obligation") and the seller agrees, at
the time of sale, to repurchase the Obligation at a specified time and price. A
repurchase agreement with foreign banks may be available with respect to
government securities of the particular foreign jurisdiction. The repurchase
price may be higher than the purchase price, the difference being income to the
Portfolio, or the purchase and repurchase prices may be the same, with interest
at a stated rate due to the Portfolio together with the repurchase price on
repurchase. In either case, the income to the Portfolio is unrelated to the
interest rate on the Obligation subject to the repurchase agreement. For
purposes of the Investment Company Act of 1940, as amended (the "1940
Act") , a repurchase agreement is deemed to be a loan from the Portfolio to
the seller of the Obligation subject to the repurchase agreement and is
therefore subject to the Portfolio's investment restriction applicable to loans.
It is not clear whether a court would consider the Obligation purchased by the
Portfolio subject to a repurchase agreement as being owned by the Portfolio or
as being collateral for a loan by the Portfolio to the seller. In the event of
the commencement of bankruptcy or insolvency proceedings of the seller of the
Obligation before repurchase of the Obligation under a repurchase agreement, the
Portfolio may encounter delay and incur costs before being able to sell the
security. Delays may involve loss of interest or decline in price of the
Obligation. If the court characterizes the transaction as a loan and the
Portfolio has not perfected a security interest in the Obligation, the Portfolio
may be required to return the Obligation to the seller's estate and be treated
as an unsecured creditor of the seller. As an unsecured creditor, the Portfolio
would be at the risk of losing some or all of the principal and income involved
in the transaction. As with any unsecured debt instrument purchased for the
Portfolio, the Fund seeks to minimize the risk of loss through repurchase
agreements by analyzing the creditworthiness of the obligor, in this case the
seller of the Obligation. Apart from the risk of bankruptcy or insolvency
proceedings, there is also the risk that the seller may fail to repurchase the
security. However, if the market value of the Obligation subject to the
repurchase agreement becomes less than the repurchase price (including
interest), the Portfolio will direct the seller of the Obligation to deliver
additional securities so that the market value of all securities subject to the
repurchase agreement will equal or exceed the repurchase price. It is possible
that the Portfolio will be unsuccessful in seeking to impose on the seller a
contractual obligation to deliver additional securities.
Zero Coupon Securities
The Bond Portfolio and the Balanced Portfolio may each invest in
zero coupon securities which pay no cash income and are sold at substantial
discounts from their value at maturity. When held to maturity, their entire
income, which consists of accretion of discount, comes from the difference
between the issue price and their value at maturity. Zero coupon securities are
subject to greater market value fluctuations from changing interest rates than
debt obligations of comparable maturities which make current distributions of
interest (cash). Zero coupon convertible securities offer the opportunity for
capital appreciation (or depreciation) as increases (or decreases) in market
value of such securities closely follow the movements in the market value of the
underlying common stock. Zero coupon convertible securities generally are
expected to be less volatile than the underlying common stocks because zero
coupon convertible securities are usually issued with shorter maturities (15
years or less) and with options and/or redemption features exercisable by the
holder of the obligation entitling the holder to redeem the obligation and
receive a defined cash payment.
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Zero coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying principal
(the "corpus") of the U.S. Treasury security. A number of securities firms and
banks have stripped the interest coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" ("TIGRS") and Certificate of Accrual on Treasuries
("CATS"). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities has stated that for federal tax and securities purposes, in
their opinion purchasers of such certificates, such as the Portfolios, most
likely will be deemed the beneficial holders of the underlying U.S. government
securities.
The Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupons and corpus payments on Treasury securities through the Federal
Reserve book-entry record-keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Portfolio will be able to have its beneficial ownership of zero coupon
securities recorded directly in the book-entry record-keeping system in lieu of
having to hold certificates or other evidences of ownership of the underlying
U.S. Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold in such bundled form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself.
Mortgage-Backed Securities and Mortgage Pass-Through Securities
The Bond Portfolio and the Balanced Portfolio may
also invest in mortgage-backed securities, which are interests in pools of
mortgage loans, including mortgage loans made by savings and loan institutions,
mortgage bankers, commercial banks, and others. Pools of mortgage loans are
assembled as securities for sale to investors by various governmental,
government-related, and private organizations as further described below. The
Portfolios may also invest in debt securities which are secured with collateral
consisting of mortgage-backed securities (see "Collateralized Mortgage
Obligations"), and in other types of mortgage-related securities.
A decline in interest rates may lead to a faster rate of repayment of
the underlying mortgages, and expose the Portfolios to a lower rate of return
upon reinvestment. To the extent that such mortgage-backed securities are held
by the Portfolios, the prepayment right will tend to limit to some degree the
increase in net asset value of the Portfolios because the value of the
mortgage-backed securities held by the Portfolios may not appreciate as rapidly
as the price of non-callable debt securities.
Interests in pools of mortgage-backed securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities. Additional payments are caused by repayments of principal resulting
from the sale of the underlying property, refinancing, or foreclosure, net of
fees or costs which may be incurred. Some mortgage-related securities such as
securities issued by the Government National Mortgage Association ("GNMA") are
described as "modified pass-through." These securities entitle the holder to
receive all interest and principal payments owed on the mortgage pool, net of
certain fees, at the scheduled payment dates regardless of whether or not the
mortgagor actually makes the payment.
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The principal governmental guarantor of mortgage-related securities is
GNMA. GNMA is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. Government, the timely payment of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks, and mortgage bankers) and backed by
pools of FHA-insured or VA-guaranteed mortgages. These guarantees, however, do
not apply to the market value or yield of mortgage-backed securities or to the
value of Portfolio shares. Also, GNMA securities often are purchased at a
premium over the maturity value of the underlying mortgages. This premium is not
guaranteed and will be lost if prepayment occurs.
Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. Government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional (i.e., not insured or guaranteed by any government
agency) mortgages from a list of approved seller/servicers which include state
and federally-chartered savings and loan associations, mutual savings banks,
commercial banks, credit unions, and mortgage bankers. Pass-through securities
issued by FNMA are guaranteed as to timely payment of principal and interest by
FNMA but are not backed by the full faith and credit of the U.S. Government.
FHLMC is a corporate instrumentality of the U.S. Government and was
created by Congress in 1970 for the purpose of increasing the availability of
mortgage credit for residential housing. Its stock is owned by the twelve
Federal Home Loan Banks. FHLMC issues Participation Certificates ("PCs") which
represent interests in conventional mortgages from FHLMC's national portfolio.
FHLMC guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
Government.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers, and other secondary market issuers also
create pass-through pools of conventional mortgage loans. Such issuers may, in
addition, be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments. However, timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance, and
letters of credit. The insurance and guarantees are issued by governmental
entities, private insurers, and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers thereof will be considered in
determining whether a mortgage-related security meets the Portfolios' investment
quality standards. There can be no assurance that the private insurers or
guarantors can meet their obligations under the insurance policies or guarantee
arrangements. The Portfolios may buy mortgage-related securities without
insurance or guarantees, if through an examination of the loan experience and
practices of the originators/servicers and poolers, the Adviser determines that
the securities meet the Portfolios' quality standards. Although the market for
such securities is becoming increasingly liquid, securities issued by certain
private organizations may not be readily marketable.
Collateralized Mortgage Obligations ("CMOs")
A CMO is a hybrid between a mortgage-backed bond and a mortgage
pass-through security. Similar to a bond, interest and prepaid principal are
paid, in most cases, semiannually. CMOs may be collateralized by whole mortgage
loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC, or FNMA, and their income
streams.
CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMOs provide for a modified form of
call protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
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In a typical CMO transaction, a corporation issues multiple series,
(e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are
used to purchase mortgages or mortgage pass-through certificates ("Collateral").
The Collateral is pledged to a third party trustee as security for the Bonds.
Principal and interest payments from the Collateral are used to pay principal on
the Bonds in the order A, B, C, Z. The Series A, B, and C bonds all bear current
interest. Interest on the Series Z Bond is accrued and added to principal and a
like amount is paid as principal on the Series A, B, or C Bond currently being
paid off. When the Series A, B, and C Bonds are paid in full, interest and
principal on the Series Z Bond begins to be paid currently. With some CMOs, the
issuer serves as a conduit to allow loan originators (primarily builders or
savings and loan associations) to borrow against their loan portfolios.
FHLMC Collateralized Mortgage Obligations
FHLMC CMOs are debt obligations of FHLMC issued in multiple classes
having different maturity dates which are secured by the pledge of a pool of
conventional mortgage loans purchased by FHLMC. Unlike FHLMC PCs, payments of
principal and interest on the CMOs are made semiannually, as opposed to monthly.
The amount of principal payable on each semiannual payment date is determined in
accordance with FHLMC's mandatory sinking fund schedule, which, in turn, is
equal to approximately 100% of FHA prepayment experience applied to the mortgage
collateral pool. All sinking fund payments in the CMOs are allocated to the
retirement of the individual classes of bonds in the order of their stated
maturities. Payment of principal on the mortgage loans in the collateral pool in
excess of the amount of FHLMC's minimum sinking fund obligation for any payment
date are paid to the holders of the CMOs as additional sinking fund payments.
Because of the "pass-through" nature of all principal payments received on the
collateral pool in excess of FHLMC's minimum sinking fund requirement, the rate
at which principal of the CMOs is actually repaid is likely to be such that each
class of bonds will be retired in advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage
loans during any semiannual payment period is not sufficient to meet FHLMC's
minimum sinking fund obligation on the next sinking fund payment date, FHLMC
agrees to make up the deficiency from its general funds.
Criteria for the mortgage loans in the pool backing the CMOs are
identical to those of FHLMC PCs. FHLMC has the right to substitute collateral in
the event of delinquencies and/or defaults.
Other Mortgage-Backed Securities
The Adviser expects that governmental, government-related, or private
entities may create mortgage loan pools and other mortgage-related securities
offering mortgage pass-through and mortgage-collateralized investments in
addition to those described above. The mortgages underlying these securities may
include alternative mortgage instruments, that is, mortgage instruments whose
principal or interest payments may vary or whose terms to maturity may differ
from customary long-term fixed rate mortgages. The Bond Portfolio and
the Balanced Portfolio will not purchase mortgage-backed
securities or any other assets which, in the opinion of the Adviser, are
illiquid if, as a result, more than 10% of the value of the Portfolio's total
assets will be illiquid. As new types of mortgage-related securities are
developed and offered to investors, the Adviser will, consistent with the
Portfolio's investment objective s, policies, and quality standards,
consider making investments in such new types of mortgage-related securities.
Other Asset-Backed Securities
The securitization techniques used to develop mortgaged-backed
securities are now being applied to a broad range of assets. Through the use of
trusts and special purpose corporations, various types of assets, including
automobile loans, computer leases and credit card receivables, are being
securitized in pass-through structures similar to the mortgage pass-through
structures described above or in a structure similar to the CMO structure.
Consistent with the Bond Portfolio's and the Balanced Portfolio's investment
objectives and policies, the Portfolios may invest in these and other types of
asset-backed securities that may be developed in the future. In general, the
collateral supporting these securities is of shorter maturity than mortgage
loans and is less likely to experience substantial prepayments with interest
rate fluctuations.
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Several types of asset-backed securities have already been offered to
investors, including Certificates for Automobile ReceivablesSM ("CARSSM").
CARSSM represent undivided fractional interests in a trust ("Trust") whose
assets consist of a pool of motor vehicle retail installment sales contracts and
security interests in the vehicles securing the contracts. Payments of principal
and interest on CARSSM are passed through monthly to certificate holders, and
are guaranteed up to certain amounts and for a certain time period by a letter
of credit issued by a financial institution unaffiliated with the trustee or
originator of the Trust. An investor's return on CARSSM may be affected by early
prepayment of principal on the underlying vehicle sales contracts. If the letter
of credit is exhausted, the Trust may be prevented from realizing the full
amount due on a sales contract because of state law requirements and
restrictions relating to foreclosure sales of vehicles and the obtaining of
deficiency judgments following such sales or because of depreciation, damage to
or loss of a vehicle, the application of federal and state bankruptcy and
insolvency laws, or other factors. As a result, certificate holders may
experience delays in payments or losses if the letter of credit is exhausted.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the benefit
of any security interest in the related assets. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. There is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.
Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection, and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
results from payment of the insurance obligations on at least a portion of the
assets in the pool. This protection may be provided through guarantees, policies
or letters of credit obtained by the issuer or sponsor from third parties,
through various means of structuring the transaction or through a combination of
such approaches. The Bond Portfolio and the Balanced
Portfolio will not pay any additional or separate fees for credit
support. The degree of credit support provided for each issue is generally based
on historical information respecting the level of credit risk associated with
the underlying assets. Delinquency or loss in excess of that anticipated, or
failure of the credit support could adversely affect the return on an investment
in such a security.
The Bond Portfolio and the Balanced Portfolio may also invest in
residual interests in asset-backed securities. In the case of asset-backed
securities issued in a pass-through structure, the cash flow generated by the
underlying assets is applied to make required payments on the securities and to
pay related administrative expenses. The residual in an asset-backed security
pass-through structure represents the interest in any excess cash flow remaining
after making the foregoing payments. The amount of residual cash flow resulting
from a particular issue of asset-backed securities will depend on, among other
things, the characteristics of the underlying assets, the coupon rates on the
securities, prevailing interest rates, the amount of administrative expenses and
the actual prepayment experience on the underlying assets. Asset-backed security
residuals not registered under the Securities Act of 1933 may be subject to
certain restrictions on transferability. In addition, there may be no liquid
market for such securities.
The availability of asset-backed securities may be affected by
legislative or regulatory developments. It is possible that such developments
may require the Bond Portfolio and the Balanced Portfolio to dispose of any then
existing holdings of such securities.
Municipal Obligations
The Bond Portfolio and the Balanced Portfolio may each invest in
municipal obligations, which are issued by or on behalf of states, territories,
and possessions of the U.S., and their political subdivisions, agencies, and
instrumentalities, and the District of Columbia to obtain funds for various
public purposes. The interest on these obligations is generally exempt from
federal income tax in the hands of most investors. The two principal
classifications of municipal obligations are "notes" and "bonds." The return on
municipal obligations is ordinarily lower than that of taxable obligations. The
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Bond Portfolio and the Balanced Portfolio may each acquire municipal
obligations when, due to disparities in the debt securities markets, the
anticipated total return on such obligations is higher than that on taxable
obligations. The Bond Portfolio and the Balanced Portfolio have no current
intention of purchasing tax-exempt municipal obligations that would amount to
greater than 5% of the Portfolio's total assets.
Convertible Securities
The Bond, Balanced, Growth and Income and Capital Growth Portfolios may
each invest in convertible securities; that is, bonds, notes, debentures,
preferred stocks and other securities which are convertible into common stock.
Investments in convertible securities can provide an opportunity for capital
appreciation and/or income through interest and dividend payments by virtue of
their conversion or exchange features.
The convertible securities in which the Bond, Balanced, Growth and
Income and Capital Growth Portfolios may invest include fixed-income or zero
coupon debt securities which may be converted or exchanged at a stated or
determinable exchange ratio into underlying shares of common stock. The exchange
ratio for any particular convertible security may be adjusted from time to time
due to stock splits, dividends, spin-offs, other corporate distributions or
scheduled changes in the exchange ratio. Convertible securities and convertible
preferred stocks, until converted, have general characteristics similar to both
debt and equity securities. Although to a lesser extent than with debt
securities generally, the market value of convertible securities tends to
decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion or exchange
feature, the market value of convertible securities typically changes as the
market value of the underlying common stocks changes, and, therefore, also tends
to follow movements in the general market for equity securities. A unique
feature of convertible securities is that as the market price of the underlying
common stock declines, convertible securities tend to trade increasingly on a
yield basis, and so may not experience market value declines to the same extent
as the underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock, although typically not
as much as the underlying common stock. While no securities investments are
without risk, investments in convertible securities generally entail less risk
than investments in common stock of the same issuer.
As fixed income securities, convertible securities are investments
which provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all fixed income securities, there can be no assurance of income or
principal payments because the issuers of the convertible securities may default
on their obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion or
exchange features.
Convertible securities are generally subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities.
Convertible securities may be issued as fixed income obligations that
pay current income or as zero coupon notes and bonds, including Liquid Yield
Option Notes ("LYONs"). Zero coupon securities pay no cash income and are sold
at substantial discounts from their value at maturity. When held to maturity,
their entire income, which consists of accretion of discount, comes from the
difference between the purchase price and their value at maturity. Zero coupon
convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follows the
movements in the market value of the underlying common stock. Zero coupon
convertible securities are generally expected to be less volatile than the
underlying common stocks as they are usually issued with short to medium length
maturities (15 years or less) and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.
Depositary Receipts
The Balanced, Growth and Income, Capital Growth and International
Portfolios may each invest indirectly in securities of foreign issuers
through sponsored or unsponsored American Depositary Receipts ("ADRs"), Global
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Depositary Receipts ("GDRs"), International Depositary Receipts ("IDRs") and
other types of Depositary Receipts (which, together with ADRs, GDRs and IDRs are
hereinafter referred to as "Depositary Receipts"). Depositary Receipts may not
necessarily be denominated in the same currency as the underlying securities
into which they may be converted. In addition, the issuers of the stock of
unsponsored Depositary Receipts are not obligated to disclose material
information in the United States and, therefore, there may not be a correlation
between such information and the market value of the Depositary Receipts. ADRs
are typically issued by a United States bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. GDRs are
typically issued by foreign banks or trust companies, although they also may be
issued by United States banks or trust companies, and evidence ownership of
underlying securities issued by either a foreign or a United States corporation.
Generally, Depositary Receipts in registered form are designed for use in the
United States securities markets and Depositary Receipts in bearer form are
designed for use in securities markets outside the United States. For purposes
of the Balanced, Growth and Income, Capital Growth and International Portfolios'
investment policies, the Portfolios' investments in ADRs, GDRs and other types
of Depositary Receipts will be deemed to be investments in the underlying
securities. Depositary Receipts other than those denominated in U.S. dollars
will be subject to foreign currency exchange rate risk. Certain Depositary
Receipts may not be listed on an exchange and therefore may be illiquid
securities.
Foreign Securities
The Bond, Balanced, Growth and Income, Capital Growth and International
Portfolios (collectively, the "Non-Money Market Portfolios") may each
invest, without limit, except as applicable to debt securities generally, in
U.S. dollar-denominated foreign debt securities (including those issued by the
Dominion of Canada and its provinces and other debt securities which meet the
criteria applicable to the Portfolio's domestic investments), and in
certificates of deposit issued by foreign banks and foreign branches of United
States banks, to any extent deemed appropriate by the Adviser. The Bond
Portfolio may invest up to 20% of its assets in non-U.S. dollar-denominated
foreign debt securities. The Balanced Portfolio may invest up to 20% of its debt
securities in non-U.S. dollar-denominated foreign debt securities, and may
invest up to 25% of its equity securities in non-U.S. dollar-denominated foreign
equity securities. The Growth and Income Portfolio may invest up to 25% of its
assets in non-U.S. dollar denominated equity securities of foreign issuers. The
Capital Growth Portfolio may invest up to 25% of its assets, and the
International Portfolio may invest without limit, in non-U.S. dollar-denominated
equity securities of foreign issuers.
Investors should recognize that investing in foreign securities
involves certain special considerations, including those set forth below, which
are not typically associated with investing in U.S. securities and which may
favorably or unfavorably affect the Non-Money Market Portfolios' performance. As
foreign companies are not generally subject to uniform accounting and auditing
and financial reporting standards, practices and requirements comparable to
those applicable to domestic companies, there may be less publicly available
information about a foreign company than about a domestic company. Many foreign
stock markets, while growing in volume of trading activity, have substantially
less volume than the New York Stock Exchange (the "Exchange"), and securities of
some foreign companies are less liquid and more volatile than securities of
domestic companies. Similarly, volume and liquidity in most foreign bond markets
are less than the volume and liquidity in the U.S. and at times, volatility of
price can be greater than in the U.S. Further, foreign markets have different
clearance and settlement procedures and in certain markets there have been times
when settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Portfolios are
uninvested and no return is earned thereon. The inability of the Portfolios to
make intended security purchases due to settlement problems could cause the
Portfolios to miss attractive investment opportunities. Inability to dispose of
portfolio securities due to settlement problems either could result in losses to
the Portfolios due to subsequent declines in value of the portfolio security or,
if the Portfolios have entered into a contract to sell the security, could
result in possible liability to the purchaser. Fixed commissions on some foreign
stock exchanges are generally higher than negotiated commissions on U.S.
exchanges, although the Portfolios will endeavor to achieve the most favorable
net results on its portfolio transactions. Further, the Portfolios may encounter
difficulties or be unable to pursue legal remedies and obtain judgments in
foreign courts. There is generally less government supervision and regulation of
business and industry practices, stock exchanges, brokers and listed companies
than in the U.S. It may be more difficult for the Portfolios' agents to keep
currently informed about corporate actions such as stock dividends or other
matters which may affect the prices of portfolio securities. Communications
between the U.S. and foreign countries may be less reliable than within the
U.S., thus increasing the risk of delayed settlements of portfolio transactions
or loss of certificates for portfolio securities. In addition, with respect to
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certain foreign countries, there is the possibility of nationalization,
expropriation, the imposition of withholding or confiscatory taxes, political,
social, or economic instability, devaluations in the currencies in which a
Portfolio's securities are denominated, or diplomatic developments which
could affect U.S. investments in those countries. Investments in foreign
securities may also entail certain risks, such as possible currency blockages or
transfer restrictions, and the difficulty of enforcing rights in other
countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.
These considerations generally are more of a concern in developing
countries. For example, the possibility of revolution and the dependence on
foreign economic assistance generally is greater in these countries than in
developed countries. The management of the Non-Money Market Portfolios seeks to
mitigate the risks associated with these considerations through diversification
and active professional management. Although investments in companies domiciled
in developing countries may be subject to potentially greater risks than
investments in developed countries, the Portfolios will not invest in any
securities of issuers located in developing countries if the securities, in the
judgment of the Adviser, are speculative.
To the extent that the Non-Money Market Portfolios invest in foreign
securities, the Portfolios' share price could reflect the movements of both the
different stock and bond markets in which it is invested and the currencies in
which the investments are denominated; the strength or weakness of the U.S.
dollar against foreign currencies could account for part of the Portfolios'
investment performance.
Limitations on Holdings of Foreign Securities
Each Portfolio that invests in foreign securities shall invest in no
less than five foreign countries; provided that, (i) if foreign securities
comprise less than 80% of the value of the Portfolio's net assets, the Portfolio
shall invest in no less than four foreign countries; (ii) if foreign securities
comprise less than 60% of the value of the Portfolio's net assets, the Portfolio
shall invest in no less than three foreign countries; (iii) if foreign
securities comprise less than 40% of the value of the Portfolio's net assets,
the Portfolio shall invest in no less than two foreign countries; and (iv) if
foreign securities comprise less than 20% of the value of the Portfolio's net
assets the Portfolio may invest in a single foreign country.
Each Portfolio shall invest no more than 20% of the value of its net
assets in securities of issuers located in any one country; provided that an
additional 15% of the value of each Portfolio's net assets may be invested in
securities of issuers located in any one of the following countries: Australia,
Canada, France, Japan, the United Kingdom and Germany; and provided further that
100% of a Portfolio's assets may be invested in securities of issuers located in
the United States.
Indexed Securities
The Bond Portfolio and the Balanced Portfolio may
each invest in indexed securities, the value of which is linked to
currencies, interest rates, commodities, indices or other financial indicators
("reference instruments"). Most indexed securities have maturities of three
years or less.
Indexed securities differ from other types of debt securities in which
the Fund may invest in several respects. First, the interest rate or, unlike
other debt securities, the principal amount payable at maturity of an indexed
security may vary based on changes in one or more specified reference
instruments, such as an interest rate compared with a fixed interest rate or the
currency exchange rates between two currencies (neither of which need be the
currency in which the instrument is denominated). The reference instrument need
not be related to the terms of the indexed security. For example, the principal
amount of a U.S. dollar denominated indexed security may vary based on the
exchange rate of two foreign currencies. An indexed security may be positively
or negatively indexed; that is, its value may increase or decrease if the value
of the reference instrument increases. Further, the change in the principal
amount payable or the interest rate of an indexed security may be a multiple of
the percentage change (positive or negative) in the value of the underlying
reference instrument(s).
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Investment in indexed securities involves certain risks. In addition to
the credit risk of the security's issuer and the normal risks of price changes
in response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying indexed securities.
When-Issued Securities
A Portfolio may from time to time purchase securities on a
"when-issued" or "forward delivery" basis. Debt securities are often issued on
this basis. The price of such securities, which may be expressed in yield terms,
is fixed at the time a commitment to purchase is made, but delivery and payment
for the when-issued or forward delivery securities take place at a later date.
During the period between purchase and settlement, no payment is made by the
Portfolio and no interest accrues to the Portfolio. To the extent that assets of
a Portfolio are held in cash pending the settlement of a purchase of securities,
that Portfolio would earn no income; however, it is the Fund's intention that
each Portfolio will be fully invested to the extent practicable and subject to
the policies stated above. While when-issued or forward delivery securities may
be sold prior to the settlement date, the Portfolio intends to purchase such
securities with the purpose of actually acquiring them unless a sale appears
desirable for investment reasons. At the time the Fund makes the commitment on
behalf of a Portfolio to purchase a security on a when-issued or forward
delivery basis, it will record the transaction and reflect the amount due and
the value of the security in determining the Portfolio's net asset value. The
market value of the when-issued or forward delivery securities may be more or
less than the purchase price payable at settlement date. The Fund does not
believe that a Portfolio's net asset value or income will be adversely affected
by the purchase of securities on a when-issued or forward delivery basis. Each
Portfolio will establish a segregated account in which it will maintain cash,
U.S. Government securities and other high-grade debt obligations at least equal
in value to commitments for when-issued or forward delivery securities. Such
segregated securities either will mature or, if necessary, be sold on or before
the settlement date.
Loans of Portfolio Securities
The Fund may lend the portfolio securities of any Portfolio (other than
the Money Market Portfolio) provided: (1) the loan is secured continuously by
collateral consisting of U.S. Government securities, cash or cash equivalents
adjusted daily to have market value at least equal to the current market value
of the securities loaned; (2) the Fund may at any time call the loan and regain
the securities loaned; (3) the Portfolio will receive any interest or dividends
paid on the loaned securities; and (4) the aggregate market value of securities
loaned will not at any time exceed one-third of the total assets of the
Portfolio. In addition, it is anticipated that the Portfolio may share with the
borrower some of the income received on the collateral for the loan or that it
will be paid a premium for the loan. Before the Portfolio enters into a loan,
the Adviser considers all relevant facts and circumstances including the
creditworthiness of the borrower.
Borrowing
The Board of Trustees has adopted a policy whereby each Portfolio of
the Fund may borrow up to 10 % of its total assets; provided, however,
that each Portfolio may borrow up to 25 % of its total assets for
extraordinary or emergency purposes, including the facilitation of redemptions.
A Portfolio may only borrow money from banks as a temporary measure for
extraordinary or emergency purposes (each Portfolio is required to maintain
asset coverage (including borrowings) of 300% for all borrowings) and no
purchases of securities for a Portfolio will be made while borrowings of that
Portfolio exceed 5% of the Portfolio's assets. Borrowings by the Fund increase
exposure to capital risk. In addition, borrowed funds are subject to interest
costs that may offset or exceed the return earned on investment of such funds.
Options
The Fund may, on behalf of any Portfolio (excluding the Money Market
Portfolio), write covered call options on the portfolio securities of such
Portfolio in an attempt to enhance investment performance. A call option is a
contract generally having a duration of nine months or less which gives the
purchaser of the option, in return for a premium paid, the right to buy, and the
writer the obligation to sell, the underlying security at the exercise price at
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any time upon the assignment of an exercise notice prior to the expiration of
the option, regardless of the market price of the security during the option
period. A covered call option is an option written on a security which is owned
by the writer throughout the option period.
The Fund will write, on behalf of a Portfolio, covered call options
both to reduce the risks associated with certain of its investments and to
increase total investment return. In return for the premium income, the
Portfolio will give up the opportunity to profit from an increase in the market
price of the underlying security above the exercise price so long as its
obligations under the contract continue, except insofar as the premium
represents a profit. Moreover, in writing the option, the Portfolio will retain
the risk of loss should the price of the security decline, which loss the
premium is intended to offset in whole or in part. Unlike the situation in which
the Fund owns securities not subject to a call option, the Fund, in writing call
options, must assume that the call may be exercised at any time prior to the
expiration of its obligations as a writer, and that in such circumstances the
net proceeds realized from the sale of the underlying securities pursuant to the
call may be substantially below the prevailing market price. The Fund may forego
the benefit of appreciation in its Portfolios on securities sold pursuant to
call options.
When the Portfolio writes a covered call option, it gives the purchaser
of the option the right to buy the underlying security at the price specified in
the option (the "exercise price") by exercising the option at any time during
the option period, generally ranging up to nine months. Some of the options
which the Fund writes may be of the European type which means they may be
exercised only at a specified time. If the option expires unexercised, the
Portfolio will realize income in an amount equal to the premium received for the
written option. If the option is exercised, a decision over which the Portfolio
has no control, the Portfolio must sell the underlying security to the option
holder at the exercise price. By writing a covered call option, the Portfolio
forgoes, in exchange for the premium less the commission ("net premium"), the
opportunity to profit during the option period from an increase in the market
value of the underlying security above the exercise price.
The International Portfolio may write covered call and put options to a
limited extent on its portfolio securities in an attempt to earn additional
income on its portfolio, consistent with its objective of capital growth.
However, the Portfolio may forego the benefits of appreciation on securities
sold or depreciation on securities acquired pursuant to call and put options
written by the Portfolio. The Portfolio has no current intention of writing
options on more than 5% of its net assets.
When the Fund, on behalf of the International Portfolio, writes a put
option, it gives the purchaser of the option the right to sell the underlying
security to the Portfolio at the specified exercise price at any time during the
option period. Some of the European type options which the Fund writes may be
exercised only at a specified time. If the option expires unexercised, the
Portfolio will realize income in the amount of the premium received for writing
the option. If the put option is exercised, a decision over which the Portfolio
has no control, the Portfolio must purchase the underlying security from the
option holder at the exercise price. By writing a put option, the Portfolio, in
exchange for the net premium received, accepts the risk of a decline in the
market value of the underlying security below the exercise price. With respect
to each put option it writes, the Portfolio will have deposited in a separate
account with its custodian U.S. Treasury obligations, high-grade debt securities
or cash equal in value to the exercise price of the put option, will have
purchased a put option with a higher exercise price that will expire no earlier
than the put option written or will have used some combination of these two
methods. The Fund on behalf of the Portfolio, will only write put options
involving securities for which a determination is made that it wishes to acquire
the securities at the exercise price at the time the option is written.
A Portfolio may terminate its obligation as a writer of a call or put
option by purchasing an option with the same exercise price and expiration date
as the option previously written. This transaction is called a "closing purchase
transaction."
When a Portfolio writes an option, an amount equal to the net premium
received by the Portfolio is included in the liability section of the Portfolio
Statement of Assets and Liabilities as a deferred credit. The amount of the
deferred credit will be subsequently marked to market to reflect the current
market value of the option written. The current market value of a traded option
is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Portfolio enters into a closing purchase transaction, the
Portfolio will realize a gain (or loss if the cost of a closing purchase
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transaction exceeds the premium received when the option was sold), and the
deferred credit related to such option will be eliminated. If a call option is
exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written. Securities against which call options are written will be segregated on
the books of the custodian for the Portfolio.
The Portfolio may purchase call options on any securities in which it
may invest in anticipation of an increase in the market value of such
securities. The purchase of a call option would entitle the Portfolio, in
exchange for the premium paid, to purchase a security at a specified price
during the option period. The Portfolio would ordinarily have a gain if the
value of the securities increased above the exercise price sufficiently to cover
the premium and would have a loss if the value of the securities remained at or
below the exercise price during the option period.
The International Portfolio will normally purchase put options
in anticipation of a decline in the market value of securities in its portfolio
("protective puts") or securities of the type in which it is permitted to
invest. The purchase of a put option would entitle the Portfolio, in exchange
for the premium paid, to sell a security, which may or may not be held by the
Portfolio, at a specified price during the option period. The purchase of
protective puts is designed merely to offset or hedge against a decline in the
market value of the Portfolio's portfolio securities. Put options may also be
purchased by the Portfolio for the purpose of affirmatively benefiting from a
decline in the price of securities which the Portfolio does not own. The
Portfolio would ordinarily recognize a gain if the value of the securities
decreased below the exercise price sufficiently to cover the premium and would
recognize a loss if the value of the securities remained at or above the
exercise price. Gains and losses on the purchase of protective put options would
tend to be offset by countervailing changes in the value of underlying portfolio
securities.
The hours of trading for options on securities may not conform to the
hours during which the underlying securities are traded. To the extent that the
option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying securities
markets that cannot be reflected in the option markets. Exchange markets in
securities options are a relatively new and untested concept. It is impossible
to predict the volume of trading that may exist in such options, and there can
be no assurance that viable exchange markets will develop or continue.
The Fund may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present, approximately
thirty broker-dealers make these markets and the Adviser will consider risk
factors such as their creditworthiness when determining a broker-dealer with
which to engage in options transactions. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers participating in
such transactions will not fulfill their obligations. Written over-the-counter
options purchased by the Fund and portfolio securities "covering" the Fund's
obligation pursuant to an over-the-counter option may be deemed to be illiquid
and may not be readily marketable. The Adviser will monitor the creditworthiness
of dealers with whom the Fund enters into such options transactions under the
general supervision of the Fund's Trustees.
Securities Index Options
The Balanced, Growth and Income, Capital Growth and International
Portfolios may each purchase call and put options on securities indexes
for the purpose of hedging against the risk of unfavorable price movements
adversely affecting the value of a Portfolio's securities. Options on securities
indexes are similar to options on stock except that the settlement is made in
cash.
Unlike a securities option, which gives the holder the right to
purchase or sell a specified security at a specified price, an option on a
securities index gives the holder the right to receive a cash "exercise
settlement amount" equal to (i) the difference between the exercise price of the
option and the value of the underlying securities index on the exercise date,
multiplied by (ii) a fixed "index multiplier." In exchange for undertaking the
obligation to make such cash payment, the writer of the securities index option
receives a premium.
A securities index fluctuates with changes in the market values of the
securities so included. Some securities index options are based on a broad
market index such as the S&P 500 or the N Y S E
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Composite Index, or a narrower market index such as the S&P 100. Indices are
also based on an industry or market segment such as the AMEX Oil and Gas Index
or the Computer and Business Equipment Index. Options on securities indexes are
currently traded on exchanges including the Chicago Board Options Exchange,
Philadelphia Exchange, New York Stock Exchange, and American Stock Exchange.
The effectiveness of hedging through the purchase of securities index
options will depend upon the extent to which price movements in the portion of
the securities portfolio being hedged correlate with price movements in the
selected securities index. Perfect correlation is not possible because the
securities holdings of a Portfolio will not exactly match the composition of the
securities indexes on which options are written. In addition, the purchase of
securities index options involves essentially the same risks as the purchase of
options on futures contracts. The principal risk is that the premium and
transactions costs paid by a Portfolio in purchasing an option will be lost as a
result of unanticipated movements in prices of the securities comprising the
securities index on which the option is written. Options on securities indexes
also entail the risk that a liquid secondary market to close out the option will
not exist, although a Portfolio will generally only purchase or write such an
option if the Adviser believes the option can be closed out.
Futures Contracts
The Fund may, on behalf of the Bond, Balanced and
International Portfolio s , purchase and sell futures contracts on
debt securities to hedge against anticipated changes in interest rates that
might otherwise have an adverse effect upon the value of the Portfolio's debt
securities. In addition, the Fund may, on behalf of the Non-Money Market
Portfolios, purchase and sell securities index futures to hedge the equity
securities of a Portfolio with regard to market (systematic) risk as
distinguished from stock-specific risk. Each of these five Portfolios may also
purchase and write put and call options on futures contracts of the type which
such Portfolio is authorized to enter into and may engage in related closing
transactions. All of such futures on debt securities, stock index futures and
related options will be traded on exchanges that are licensed and regulated by
the Commodity Futures Trading Commission ("CFTC") or on appropriate foreign
exchanges, to the extent permitted by law. Even though at the present time no
contracts based on global indices which meet the International Portfolio's
investment criteria are available, there are U.S. stock indices which may be
used to hedge U.S. securities held in that Portfolio.
Futures on Debt Securities
A futures contract on a debt security is a binding contractual
commitment which, if held to maturity, will result in an obligation to make or
accept delivery, during a particular future month, of securities having a
standardized face value and rate of return. By purchasing futures on debt
securities--assuming a "long" position--the Fund, on behalf of a Portfolio, will
legally obligate itself to accept the future delivery of the underlying security
and pay the agreed price. By selling futures on debt securities--assuming a
"short" position--it will legally obligate itself to make the future delivery of
the security against payment of the agreed price. Open futures positions on debt
securities will be valued at the most recent settlement price, unless such price
does not appear to the Trustees to reflect the fair value of the contract, in
which case the positions will be valued by or under the direction of the
Trustees.
Positions taken in the futures markets are normally not held to
maturity, but are instead liquidated through offsetting transactions which may
result in a profit or a loss. While futures positions taken by the Fund on
behalf of a Portfolio will usually be liquidated in this manner, the Fund may
instead make or take delivery of the underlying securities whenever it appears
economically advantageous to the Portfolio to do so. A clearing corporation
associated with the exchange on which futures are traded assumes responsibility
for closing-out and guarantees that the sale and purchase obligations will be
performed with regard to all positions that remain open at the termination of
the contract.
Hedging by use of futures on debt securities seeks to establish more
certainly than would otherwise be possible the effective rate of return on
portfolio securities. A Portfolio may, for example, take a "short" position in
the futures market by selling contracts for the future delivery of debt
securities held by the Portfolio (or securities having characteristics similar
to those held by the Portfolio) in order to hedge against an anticipated rise in
interest rates that would adversely affect the value of the Portfolio's
portfolio securities. When hedging of this character is successful, any
depreciation in the value of portfolio securities will be substantially offset
by appreciation in the value of the futures position.
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On other occasions, the Portfolio may take a "long" position by
purchasing futures on debt securities. This would be done, for example, when the
Fund intends to purchase for the Portfolio particular securities when it has the
necessary cash, but expects the rate of return available in the securities
markets at that time to be less favorable than rates currently available in the
futures markets. If the anticipated rise in the price of the securities should
occur (with its concomitant reduction in yield), the increased cost to the
Portfolio of purchasing the securities will be offset, at least to some extent,
by the rise in the value of the futures position taken in anticipation of the
subsequent securities purchase.
Stock Index Futures. A stock index futures contract does not require the
physical delivery of securities, but merely provides for profits and losses
resulting from changes in the market value of the contract to be credited or
debited at the close of each trading day to the respective accounts of the
parties to the contract. On the contract's expiration date a final cash
settlement occurs and the futures positions are simply closed out. Changes in
the market value of a particular stock index futures contract reflect changes in
the specified index of equity securities on which the future is based. That
index is designed to reflect overall price trends in the market for equity
securities.
Stock index futures may be used to hedge the equity securities of
each of the Balanced, Growth and Income, Capital
Growth or International Portfolio s with regard to market
(systematic) risk (involving the market's assessment of over-all economic
prospects), as distinguished from stock-specific risk (involving the market's
evaluation of the merits of the issuer of a particular security). By
establishing an appropriate "short" position in stock index futures, the Fund
may seek to protect the value of the equity of a Portfolio's securities against
an overall decline in the market for equity securities. Alternatively, in
anticipation of a generally rising market, the Fund can seek on behalf of a
Portfolio to avoid losing the benefit of apparently low current prices by
establishing a "long" position in stock index futures and later liquidating that
position as particular equity securities are in fact acquired. To the extent
that these hedging strategies are successful, the Portfolio will be affected to
a lesser degree by adverse overall market price movements, unrelated to the
merits of specific portfolio equity securities, than would otherwise be the
case.
Options on Futures. For bona fide hedging purposes, the Fund may also purchase
and write, on behalf of each of the Bond, Balanced, Growth
and Income, Capital Growth and International Portfolio s ,
call and put options on futures contracts, which are traded on exchanges that
are licensed and regulated by the CFTC or on any foreign exchange for the
purpose of options trading, to the extent permitted by law. A "call" option on a
futures contract gives the purchaser the right, in return for the premium paid,
to purchase a futures contract (assume a "long" position) at a specified
exercise price at any time before the option expires. A "put" option gives the
purchaser the right, in return for the premium paid, to sell a futures contract
(assume a "short" position), for a specified exercise price, at any time before
the option expires.
Upon the exercise of a "call," the writer of the option is obligated to
sell the futures contract (to deliver a "long" position to the option holder) at
the option exercise price, which will presumably be lower than the current
market price of the contract in the futures market. Upon exercise of a "put,"
the writer of the option is obligated to purchase the futures contract (deliver
a "short" position to the option holder) at the option exercise price, which
will presumably be higher than the current market price of the contract in the
futures market. When a person exercises an option and assumes a long futures
position, in the case of a "call," or a short futures position, in the case of a
"put," his gain will be credited to his futures margin account, while the loss
suffered by the writer of the option will be debited to his account. However, as
with the trading of futures, most participants in the options markets do not
seek to realize their gains or losses by exercise of their option rights.
Instead, the holder of an option will usually realize a gain or loss by buying
or selling an offsetting option at a market price that will reflect an increase
or a decrease from the premium originally paid.
Options on futures can be used by a Portfolio to hedge substantially
the same risks as might be addressed by the direct purchase or sale of the
underlying futures contracts. If the Portfolio purchases an option on a futures
contract, it may obtain benefits similar to those that would result if it held
the futures position itself. But in contrast to a futures transaction, in which
only transaction costs are involved, benefits received in an option transaction
will be reduced by the amount of the premium paid as well as by transaction
costs. In the event of an adverse market movement, however, the Portfolio will
not be subject to a risk of loss on the option transaction beyond the price of
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the premium it paid plus its transaction costs, and may consequently benefit
from a favorable movement in the value of its portfolio securities that would
have been more completely offset if the hedge had been effected through the use
of futures.
If a Portfolio writes options on futures contracts, the Portfolio will
receive a premium but will assume a risk of adverse movement in the price of the
underlying futures contract comparable to that involved in holding a futures
position. If the option is not exercised, the Portfolio will gain the amount of
the premium, which may partially offset unfavorable changes in the value of
securities held in or to be acquired for the Portfolio. If the option is
exercised, the Portfolio will incur a loss in the option transaction, which will
be reduced by the amount of the premium it has received, but which may partially
offset favorable changes in the value of its portfolio securities.
While the holder or writer of an option on a futures contract may
normally terminate its position by selling or purchasing an offsetting option of
the same series, the Portfolio's ability to establish and close out options
positions at fairly established prices will be subject to the maintenance of a
liquid market. A Portfolio will not purchase or write options on futures
contracts unless, in the Adviser's opinion, the market for such options has
sufficient liquidity that the risks associated with such options transactions
are not at unacceptable levels.
Limitations on the Use of Futures Contracts and Options on Futures
All of the futures contracts and options on futures transactions into
which the Fund will enter will be for bona fide hedging or other appropriate
risk management purposes as permitted by CFTC regulations and to the extent
consistent with requirements of the Securities and Exchange Commission (the
"SEC").
To ensure that its futures and options transactions meet this standard,
the Fund will enter into them only for the purposes or with the intent specified
in CFTC regulations, subject to the requirements of the SEC. The Fund will
further seek to assure that fluctuations in the price of the futures contracts
and options on futures that it uses for hedging purposes will be substantially
correlated to fluctuations in the price of the securities held by a Portfolio or
which it expects to purchase, though there can be no assurance that this result
will be achieved. The Fund will sell futures contracts or acquire puts to
protect against a decline in the price of securities that a Portfolio owns. The
Fund will purchase futures contracts or calls on futures contracts to protect a
Portfolio against an increase in the price of securities the Fund intends later
to purchase for the Portfolio before it is in a position to do so.
As evidence of this hedging intent, the Fund expects that on 75% or
more of the occasions on which it purchases a long futures contract or call
option on futures for a Portfolio the Fund will effect the purchase of
securities in the cash market or take delivery as it closes out a Portfolio's
futures position. In particular cases, however, when it is economically
advantageous to the Portfolio, a long futures position may be terminated (or an
option may expire) without the corresponding purchase of securities.
As an alternative to literal compliance with the bona fide hedging
definition, a CFTC definition now permits the Fund to elect to comply with a
different test, under which its long futures positions will not exceed the sum
of (a) cash or cash equivalents segregated for this purpose, (b) cash proceeds
on existing investments due within thirty days and (c) accrued profits on the
particular futures or options positions. However, the Fund will not utilize this
alternative unless it is advised by counsel that to do so is consistent with the
requirements of the SEC.
Futures on debt securities and stock index futures are at present
actively traded on exchanges that are licensed and registered by the CFTC, or
consistent with the CFTC regulations on foreign exchanges. Portfolios will incur
brokerage fees in connection with their futures and options transactions, and
will be required to deposit and maintain funds with brokers as margin to
guarantee performance of futures obligations. In addition, while futures
contracts and options on futures will be purchased and sold to reduce certain
risks, those transactions themselves entail certain other risks. Thus, while a
Portfolio may benefit from the use of futures and options on futures,
unanticipated changes in interest rates or stock price movements may result in a
poorer overall performance for the Portfolio than if it had not entered into any
futures contracts or options transactions. Moreover, in the event of an
imperfect correlation between the futures position and the portfolio position
which is intended to be protected, the desired protection may not be obtained
and the Portfolio may be exposed to risk of loss.
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Each Portfolio, in dealing in futures contracts and options on futures,
is subject to the 300% asset coverage requirement for borrowings set forth under
"Investment Restrictions" in the Fund's prospectus. The Trustees have also
adopted a policy (which is not fundamental and may be modified by the Trustees
without a shareholder vote) that, immediately after the purchase or sale of a
futures contract or option thereon, the value of the aggregate initial margin
with respect to all futures contracts and premiums on options on futures
contracts entered into by a Portfolio will not exceed 5% of the fair market
value of the Portfolio's total assets. Additionally, the value of the aggregate
premiums paid for all put and call options held by the Portfolio will not exceed
2% of its net assets. A futures contract for the receipt of a debt security and
long index futures will be offset by assets of the Portfolio held in a
segregated account in an amount equal to the total market value of the futures
contracts less the amount of the initial margin for the contracts.
Foreign Currency Transactions
The Non-Money Market Portfolios may enter into forward foreign currency
exchange contracts ("forward contracts") for hedging purposes. These Portfolios
may also, for hedging purposes, purchase foreign currencies in the form of bank
deposits as well as other foreign money market instruments, including but not
limited to, bankers' acceptances, certificates of deposit, commercial paper,
short-term government and corporate obligations and repurchase agreements. The
International Portfolio may also enter into foreign currency futures contracts.
Because investments in foreign companies usually will involve
currencies of foreign countries, and because the Non-Money Market Portfolios
temporarily may hold funds in bank deposits in foreign currencies during the
completion of investment programs, the value of their assets as measured in U.S.
dollars may be affected favorably or unfavorably by changes in foreign currency
exchange rates and exchange control regulations, and they may incur costs in
connection with conversions between various currencies. Although the Non-Money
Market Portfolios value their assets daily in terms of U.S. dollars, they do not
intend to convert their holdings of foreign currencies into U.S. dollars on a
daily basis. They will do so from time to time, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Non-Money
Market Portfolios at one rate, while offering a lesser rate of exchange should
the Non-Money Market Portfolios desire to resell that currency to the dealer.
The Non-Money Market Portfolios will conduct their foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through entering into forward or, in
the case of the International Portfolio, futures contracts to purchase or sell
foreign currencies.
A forward contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades.
A foreign currency futures contract is a standardized contract for the
future delivery of a specified amount of a foreign currency at a future date at
a price set at the time of the contract. The agreed price may be fixed or within
a specified range of prices. Foreign currency futures contracts traded in the
United States are designed by and traded on exchanges regulated by the CFTC,
such as the Chicago Mercantile Exchange. Futures contracts involve brokerage
costs, which may vary from less than 1% to 2.5% of the contract price, and
require parties to the contract to make "margin" deposits to secure performance
of the contract. The International Portfolio would also be required to segregate
assets to cover contracts that would require it to purchase foreign currencies.
The International Portfolio would enter into futures contracts solely for
hedging or other appropriate risk management purposes as defined in CFTC
regulations.
Forward contracts differ from foreign currency futures contracts in
certain respects. For example, the maturity date of a forward contract may be
any fixed number of days from the date of the contract agreed upon by the
parties, rather than a predetermined date in a given month, and they may be in
any amounts agreed upon by the parties rather than predetermined amounts. Also,
forward contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires no margin or
other deposit.
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Upon the maturity of a forward or foreign currency futures contract a
Portfolio may either accept or make delivery of the currency specified in the
contract or, at or prior to maturity, enter into a closing purchase transaction
involving the purchase or sale of an offsetting contract. Closing purchase
transactions with respect to forward contracts are usually effected with the
currency trader who is a party to the original forward contract. Closing
purchase transactions with respect to futures contracts are effected on a
commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
A Portfolio may enter into forward contracts and foreign currency
futures contracts under certain circumstances. When a Portfolio enters into a
contract for the purchase or sale of a security denominated in a foreign
currency, or when a Portfolio anticipates the receipt in a foreign currency of
dividends or interest payments on such a security which it holds, the Portfolio
may desire to "lock in" the U.S. dollar price of the security or the U.S. dollar
equivalent of such dividend or interest payment, as the case may be. By entering
into a forward or futures contract for the purchase or sale, for a fixed amount
of dollars, of the amount of foreign currency involved in the underlying
transactions, the Portfolio will attempt to protect itself against a possible
loss resulting from an adverse change in the relationship between the U.S.
dollar and the foreign currency during the period between the date on which the
security is purchased or sold, or on which the dividend or interest payment is
declared, and the date on which such payments are made or received.
Additionally, when management of a Portfolio believes that the currency
of a particular foreign country may suffer a substantial decline against the
U.S. dollar, it may enter into a forward or futures contract to sell, for a
fixed amount of dollars, the amount of foreign currency approximating the value
of some or all of the Portfolio's securities denominated in such foreign
currency. The precise matching of the forward or futures contract amounts and
the value of the securities involved will not generally be possible because the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date on which the contract is entered into and the date it matures. The precise
projection of short-term currency market movements is not possible, and
short-term hedging provides a means of fixing the dollar value of a portion of
the Portfolio's foreign assets.
The Non-Money Market Portfolios do not intend to enter into such
forward or futures contracts to protect the value of their portfolio
securities on a regular continuous basis, and will not do so if, as a result, a
Portfolio will have more than 15% of the value of its total assets
committed to the consummation of such contracts. A Portfolio also will not enter
into such forward or foreign currency futures contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate the Portfolio to deliver an amount of foreign currency in excess of the
value of the Portfolio's securities or other assets denominated in that
currency. Under normal circumstances, consideration of the prospect for currency
parities will be incorporated into the long-term investment decisions made with
regard to overall diversification strategies. However, the Non-Money Market
Portfolios believe that it is important to have the flexibility to enter into
such forward or foreign currency futures contracts when each determines that the
best interests of the Portfolio will be served.
Except when a Portfolio enters into a forward contract for the purpose
of the purchase or sale of a security denominated in a foreign currency, State
Street Bank and Trust Company (the "Custodian"), will place cash or liquid
securities into a segregated account of the Portfolio in an amount equal to the
value of the Portfolio's total assets committed to the consummation of forward
contracts (or the Portfolio's forward contracts will be otherwise covered
consistent with applicable regulatory policies) and foreign currency futures
contracts that require the Portfolio to purchase foreign currencies. If the
value of the securities placed in the segregated account declines, additional
cash or securities will be placed in the account on a daily basis so that the
value of the account will equal the amount of the Portfolio's commitments with
respect to such contracts.
The Non-Money Market Portfolios generally will not enter into a forward
or foreign currency futures contract with a term of greater than one year. It
also should be realized that this method of protecting the value of a
Portfolio's securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange which the Portfolio can achieve at some future
point in time.
While the Non-Money Market Portfolios will enter into forward and, in
the case of the International Portfolio, foreign currency futures contracts to
reduce currency exchange rate risks, transactions in such contracts involve
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certain other risks. Thus, while a Portfolio may benefit from such transactions,
unanticipated changes in currency prices may result in a poorer overall
performance for the Portfolio than if it had not engaged in any such
transaction. Moreover, there may be imperfect correlation between the value of
the Portfolio's holdings of securities denominated in a particular currency and
forward or futures contracts entered into by the Portfolio. Such imperfect
correlation may prevent the Portfolio from achieving a complete hedge or expose
the Portfolio to risk of foreign exchange loss.
High Yield, High Risk Securities
The Bond, Balanced and Capital Growth
Portfolio s may each invest in below investment grade securities
(rated Ba and lower by Moody's and BB and lower by S&P) or unrated securities.
Such securities carry a high degree of risk and are considered speculative. The
lower the ratings of such debt securities, the greater their risks render them
like equity securities. See the Appendix to this Statement of Additional
Information for a more complete description of the ratings assigned by ratings
organizations and their respective characteristics.
As economic downturn may disrupt the high yield market and impair the
ability of issuers to repay principal and interest. Also, an increase in
interest rates could adversely affect the value of such obligations held by a
Portfolio. Prices and yields of high yield securities will fluctuate over time
and may affect a Portfolio's net asset value. In addition, investments in high
yield zero coupon or pay-in-kind bonds, rather than income-bearing high yield
securities, may be more speculative and may be subject to greater fluctuations
in value due to changes in interest rates.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of the
Trustees to value high yield securities accurately in a Portfolio and to dispose
of those securities. Adverse publicity and investor perceptions may decrease the
values and liquidity of high yield securities. These securities may also involve
special registration responsibilities, liabilities and costs.
Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently-issued credit ratings may not fully reflect
the actual risks posed by a particular high yield security. For these reasons,
it is the policy of the Adviser not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of the
Portfolios' investment objectives may be more dependent on the Adviser's credit
analysis than is the case for higher quality bonds. Should the rating of a
portfolio security be downgraded the Adviser will determine whether it is in the
best interest of that Portfolio to retain or dispose of the security.
Prices for below investment grade securities may be affected by
legislative and regulatory developments. For example, federal rules
require savings and loan institutions gradually to reduce their holdings of this
type of security. Also, Congress has from time to time considered legislation
which would restrict or eliminate the corporate tax deduction for interest
payments in these securities and regulate corporate restructurings. Such
legislation may significantly depress the prices of outstanding securities of
this type.
Combined Transactions
Each Portfolio may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple foreign currency
transactions (including forward contracts) and any combination of futures,
options and foreign currency transactions ("component" transactions), instead of
a single transaction, as part of a single hedging strategy when, in the opinion
of the Adviser, it is in the best interest of a Portfolio to do so. A combined
transaction, while part of a single hedging strategy, may not offset fully the
risks of each component transaction and, therefore, may contain elements of risk
that are present in each of its component transactions. (See above for the risk
characteristics of certain transactions.)
Risks of Specialized Investment Techniques Abroad
The above described specialized investment techniques when conducted
abroad may not be regulated as effectively as in the United States; may not
involve a clearing mechanism and related guarantees, and are subject to the risk
of governmental actions affecting trading in, or the prices of, foreign
securities. The value of such positions also could be adversely affected by: (i)
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other complex foreign political, legal and economic factors; (ii) lesser
availability than in the United States of data on which to make trading
decisions; (iii) delays in the Fund's ability to act upon economic events
occurring in foreign markets during on-business hours in the United States; (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the United States; and (v) lesser trading volume.
INVESTMENT RESTRICTIONS
(See "INVESTMENT RESTRICTIONS" in the Fund's
prospectus.)
Unless specified to the contrary, the following restrictions may not be
changed with respect to any Portfolio without the approval of the majority of
outstanding voting securities of that Portfolio (which, under the 1940
Act and the rules thereunder and as used in this Statement of Additional
Information, means the lesser of (1) 67% of the shares of that Portfolio present
at a meeting if the holders of more than 50% of the outstanding shares of that
Portfolio are present in person or by proxy, or (2) more than 50% of the
outstanding shares of that Portfolio). Any investment restrictions which involve
a maximum percentage of securities or assets shall not be considered to be
violated unless an excess over the percentage occurs immediately after, and is
caused by, an acquisition or encumbrance of securities or assets of, or
borrowings by or on behalf of, a Portfolio.
In addition to the investment restrictions set forth in the Fund's
prospectus, the Fund may not, on behalf of any Portfolio:
(1) purchase and sell real estate (though it may invest in
securities of companies which deal in real estate and in other
permitted investments secured by real estate) or commodities
or commodities contracts, except (a) debt securities futures
contracts and securities index futures contracts and options
thereon, and (b) in the case of the International Portfolio,
foreign currency futures contracts;
(2) participate on a joint or a joint and several basis in any
trading account in securities, but may for the purpose of
possibly achieving better net results on portfolio
transactions or lower brokerage commission rates join with
other investment company and client accounts managed by
Scudder, Stevens & Clark or its affiliates in the purchase or
sale of portfolio securities;
(3) purchase or retain securities of an issuer any of whose
officers, directors, trustees or security holders is an
officer or Trustee of the Fund or a member, officer, director
or trustee of the investment adviser of the Fund if one or
more of such individuals owns beneficially more than one-half
of one percent (1/2 of 1%) of the shares or securities or both
(taken at market value) of such issuer and such individuals
owning more than one-half of one percent (1/2 of 1%) of such
shares or securities together own beneficially more than 5% of
such shares or securities or both;
(4) purchase securities on margin or make short sales unless, by
virtue of its ownership of other securities, it has the right
to obtain securities equivalent in kind and amount to the
securities sold and, if the right is conditional, the sale is
made upon the same conditions;
(5) issue senior securities, except as appropriate to evidence
indebtedness which a Portfolio is permitted to incur pursuant
to the Investment Restrictions set forth in the Fund's
prospectus and except for shares of various additional series
which may be established by the Trustees; or
(6) act as underwriter of the securities issued by others, except
to the extent that the purchase of securities in accordance
with its investment objective and policies directly from the
issuer thereof and the later disposition thereof may be deemed
to be underwriting.
"Value" for the purposes of all investment restrictions shall mean the
value used in determining a Portfolio's net asset value. (See "NET ASSET
VALUE.")
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PURCHASES AND REDEMPTIONS
(See "PURCHASES AND REDEMPTIONS" in the Fund's
prospectus.)
The separate accounts of the Participating Insurance Companies purchase
and redeem shares of each Portfolio based on, among other things, the amount of
premium payments to be invested and surrender and transfer requests to be
effected on that day pursuant to variable annuity contracts and variable life
insurance policies but only on days on which the Exchange is open for trading.
Such purchases and redemptions of the shares of each Portfolio are effected at
their respective net asset values per share determined as of the close of
regular trading on the Exchange (normally 4 p.m. eastern time) on that same day
except that, in the case of the Money Market Portfolio, purchases will not be
effected until the next determination of net asset value after federal funds
have been made available to the Fund. (See "NET ASSET VALUE.") Payment for
redemptions will be made by State Street Bank and Trust Company on behalf of the
Fund and the applicable Portfolios within seven days thereafter. No fee is
charged the separate accounts of the Participating Insurance Companies when they
redeem Fund shares.
The Fund may suspend the right of redemption of shares of any Portfolio
and may postpone payment for any period: (i) during which the Exchange is closed
other than customary weekend and holiday closings or during which trading on the
Exchange is restricted; (ii) when the SEC determines that a state of emergency
exists which may make payment or transfer not reasonably practicable, (iii) as
the SEC may by order permit for the protection of the security holders of the
Fund or (iv) at any other time when the Fund may, under applicable laws and
regulations, suspend payment on the redemption of its shares.
Should any conflict between VA contract and VLI policy holders arise
which would require that a substantial amount of net assets be withdrawn from
the Fund, orderly portfolio management could be disrupted to the potential
detriment of such contract and policy holders.
INVESTMENT ADVISER AND DISTRIBUTOR
(See "INVESTMENT ADVISER" and "DISTRIBUTOR" in the
Fund's prospectus.)
Investment Adviser
The Fund has three investment advisory agreements, one for the Money
Market Portfolio, Bond Portfolio, Balanced Portfolio and Capital Growth
Portfolio, one for the International Portfolio and one for the Growth and Income
Portfolio (the "Agreements"). These Agreements are with the investment counsel
firm of Scudder, Stevens & Clark, Inc., a Delaware corporation, doing business
under the name Scudder, Stevens & Clark. This organization is one of the most
experienced investment counsel firms in the United States. It currently manages
in excess of $90 billion in assets for its clients, including: more than $50
billion in U.S. and foreign bonds, and over $9 billion in balanced portfolios
for over 3,000 institutional and private accounts. In addition, the assets of
Scudder's international investment company clients exceed $6 billion. Scudder,
Stevens & Clark, Inc. was established in 1919 and pioneered the practice of
providing investment counsel to individual clients on a fee basis. In 1928, it
introduced the first no-load mutual fund to the public. The Adviser has been
a leader in international investment management and trading for over 40
years.
The principal source of the Adviser's income is professional fees
received from providing continuous investment advice, and the firm derives no
income from brokerage or underwriting of securities. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations. In addition, it manages Montgomery Street Income Securities,
Inc., Scudder California Tax Free Trust, Scudder Cash Investment Trust, Scudder
Development Fund, Scudder Equity Trust, Scudder Fund, Inc., Scudder Funds Trust,
Scudder Global Fund, Inc., Scudder GNMA Fund, Scudder Portfolio Trust, Scudder
Institutional Fund, Inc., Scudder International Fund, Inc., Scudder Investment
Trust, Scudder Municipal Trust, Scudder Mutual Funds, Inc., Scudder New Asia
Fund, Inc., Scudder New Europe Fund, Inc., Scudder State Tax Free Trust, Scudder
Tax Free Money Fund, Scudder Tax Free Trust, Scudder U.S. Treasury Money Fund,
Scudder Variable Life Investment Fund, Scudder World Income Opportunities Fund,
Inc., The Argentina Fund, Inc., The Brazil Fund, Inc., The First Iberian Fund,
Inc., The Korea Fund, Inc., The Japan Fund, Inc. and The Latin America Dollar
Income Fund, Inc. Some of the foregoing companies or trusts have two or more
series.
26
<PAGE>
The Adviser also provides investment advisory services to the mutual
funds which comprise the AARP Investment Program from Scudder. The AARP
Investment Program from Scudder has assets over $11 billion and includes the
AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust and AARP Cash
Investment Funds.
Certain investments may be appropriate for the Fund and for other
clients advised by the Adviser. Investment decisions for the Fund and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by the Fund. Purchase and sale orders for the Fund may be combined with
those of other clients of the Adviser in the interest of the most favorable net
results to the Fund.
The Adviser maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. The Adviser receives published
reports and statistical compilations from issuers and other sources, as well as
analyses from brokers and dealers who may execute portfolio transactions for the
Adviser's clients. However, the Adviser regards this information and material as
an adjunct to its own research activities. Scudder's international investment
management team travels the world, researching hundreds of companies. In
selecting the securities in which the Fund may invest, the conclusions and
investment decisions of the Adviser with respect to the Fund are based primarily
on the analyses of its own research department.
Under the Agreements, the Adviser regularly provides the Fund with
investment research, advice and supervision and furnishes continuously an
investment program consistent with the investment objectives and policies of
each Portfolio, and determines, for each Portfolio, what securities shall be
purchased, what securities shall be held or sold, and what portion of a
Portfolio's assets shall be held uninvested, subject always to the provisions of
the Fund's Declaration of Trust and By-Laws, and of the 1940 Act and to a
Portfolio's investment objectives, policies and restrictions, and subject
further to such policies and instructions as the Trustees may from time to time
establish. The Adviser also advises and assists the officers of the Fund in
taking such steps as are necessary or appropriate to carry out the decisions of
its Trustees and the appropriate committees of the Trustees regarding the
conduct of the business of the Fund.
The Adviser pays the compensation and expenses of all affiliated
Trustees and executive employees of the Fund and makes available, without
expense to the Fund, the services of such affiliated persons as may duly be
elected Trustees of the Fund, subject to their individual consent to serve and
to any limitations imposed by law, and pays the Fund's office rent and provides
investment advisory, research and statistical facilities and all clerical
services relating to research, statistical and investment work. For its advisory
services the Adviser receives compensation monthly at the following annual rates
for each Portfolio:
<TABLE>
<CAPTION>
% of the average
daily net asset
values of each Dollar Amount
Portfolio Portfolio 1992 1993 1994
<S> <C> <C> <C> <C>
Money Market Portfolio .370% $134,330 $130,455 $269,963
Bond Portfolio .475% 438,085 550,565 650,361
Balanced Portfolio .475% 143,020 198,056 218,621
Growth and Income Portfolio .475% -- -- 0
Capital Growth Portfolio .475% 617,103 955,017 1,199,585
International Portfolio .875% 471,470 1,049,464 3,363,597
</TABLE>
27
<PAGE>
Under the Agreements, the Fund is responsible for all its other
expenses, including clerical salaries; fees and expenses incurred in connection
with membership in investment company organizations; brokers' commissions;
legal, auditing and accounting expenses; taxes and governmental fees; the
charges of custodians, transfer agents and other agents; any other expenses,
including clerical expenses, of issue, sale, underwriting, distribution,
redemption or repurchase of shares; the expenses of and fees for registering or
qualifying securities for sale; the fees and expenses of the Trustees of the
Fund who are not affiliated with the Adviser; and the cost of preparing and
distributing reports and notices to shareholders. The Fund may arrange to have
third parties assume all or part of the expense of sale, underwriting and
distribution of its shares. (See "Distributor" for expenses paid by Scudder
Investor Services, Inc.) The Fund is also responsible for its expenses incurred
in connection with litigation, proceedings and claims and the legal obligation
it may have to indemnify its officers and Trustees with respect thereto.
In addition to payments for investment advisory services provided by
the Adviser, the Trustees, consistent with the Fund's investment advisory
agreements and underwriting agreement, have approved payments to the Adviser and
Scudder Investor Services, Inc. for clerical, accounting and certain other
services they may provide the Fund. Effective October 1, 1994, the Trustees
authorized the elimination of these administrative expenses. Under a new
agreement, effective October 1, 1994, the Trustees authorized the Fund, on
behalf of each Portfolio, to pay Scudder Fund Accounting Corporation, a
wholly-owned subsidiary of the Adviser, for determining the daily net asset
value per share and maintaining the portfolio and general accounting records of
the Fund.
For the year ended December 31, 1992, such compensation amounted to
$38,079 for the Money Market Portfolio, $39,565 for the Bond Portfolio, $11,572
for the Balanced Portfolio, $40,654 for the Capital Growth Portfolio, $42,406
for the International Portfolio; administrative expenses not imposed
aggregated $26,630 for the Balanced Portfolio.
For the year ended December 31, 1993, such compensation amounted to
$48,886 for the Money Market Portfolio, $54,341 for the Bond Portfolio, $28,718
for the Balanced Portfolio, $59,589 for the Capital Growth Portfolio, $59,969
for the International Portfolio; administrative expenses not imposed
aggregated $30,801 for the Balanced Portfolio.
For the year ended December 31, 1994, such compensation amounted to
$40,297 for the Money Market Portfolio, $40,238 for the Bond Portfolio, $38,204
for the Balanced Portfolio, $25,179 for the Growth and Income Portfolio, $45,253
for the Capital Growth Portfolio, $45,272 for the International Portfolio;
administrative expenses not imposed aggregated $7,119 for the Balanced
Portfolio.
The Agreements dated November 14, 1986 (for the Money Market Portfolio,
Bond Portfolio, Balanced Portfolio and Capital Growth Portfolio), April
30, 1987 (for the International Portfolio) and May 1, 1994 (for the Growth
and Income Portfolio) will remain in effect until September 30, 1995 .
The Agreements will continue in effect from year to year thereafter only if
their continuance is approved annually by the vote of a majority of those
Trustees who are not parties to such Agreements or "interested persons" of the
Adviser or the Fund cast in person at a meeting called for the purpose of voting
on such approval and either by vote of a majority of the Trustees or a majority
of the outstanding securities of such Portfolio. The Agreement for the Money
Market Portfolio, Bond Portfolio, Balanced Portfolio and Capital Growth
Portfolio and the Agreement for the International Portfolio were last approved
by such Trustees (including a majority of the Trustees who are not such
"interested persons") on August 12, 1994 . The Agreement for the Growth
and Income Portfolio was last approved by the Trustees (including a majority of
the Trustees who are not such "interested persons") on February 11, 1994. Each
Agreement may be terminated at any time without payment of penalty by either
party on sixty days' written notice, and automatically terminates in the event
of its assignment.
Each Agreement also provides that the Fund may use any name derived
from the name "Scudder, Stevens & Clark" only as long as such Agreement remains
in effect.
In reviewing the terms of the Agreements and in discussions with the
Adviser concerning the Agreements, Trustees who are not "interested persons" of
the Fund are represented by independent counsel at the Fund's expense.
28
<PAGE>
The Agreements provide that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which the Agreements relate, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreements.
Each Participating Insurance Company has agreed with the Adviser to
reimburse the Adviser for a period of five years to the extent that the
aggregate annual advisory fee paid on behalf of all Portfolios with respect to
the average daily net asset value of the shares of all Portfolios held in that
Participating Insurance Company's general or separate account (or those of
affiliates) is less than $25,000 in any year. It is expected that insurance
companies which become Participating Insurance Companies in the future will be
required to enter into similar arrangements.
For a period of five years from the date of execution of a
Participation Agreement with the Fund, the Participating Insurance Companies
have agreed to contribute to the capital of the Fund to the extent that the
annual operating expenses of any Portfolio of the Fund (except the International
Portfolio) exceed 0.75 of 1% of that Portfolio's average daily net assets for
any year of the Fund. Such companies have agreed to contribute to the capital of
the Fund to the extent that such expenses of the International Portfolio exceed
1.5% of the average daily net assets of the Portfolio for any year of the Fund.
The obligation of each Participating Insurance Company in relation to the total
capital contribution due to a Portfolio is the proportion that the average value
of the shares of such Portfolio held during the year by a separate account or
separate accounts of such Company (or $1,000,000, if greater) bears to such
average daily net assets. The Adviser may advance some or all of such capital
contribution to the Fund prior to receiving payment therefor from a
Participating Insurance Company, but it is under no obligation to do so; if the
Adviser does advance such capital contribution to the Fund and does not receive
payment therefor, it will be entitled to be repaid such amounts by the Fund. It
is expected that insurance companies which become Participating Insurance
Companies in the future will be required to enter into similar arrangements.
These arrangements may be modified or terminated in the future. To date, Charter
National Life Insurance Company, Mutual of America Life Insurance Company
and Banner Life Insurance Company have been Participating Insurance
Companies for the past eight, six and five years, respectively, and have
made arrangements with the Adviser to continue their participation.
In addition to the contributions to capital by Participating Insurance
Companies noted above, until April 30, 1996, the Adviser has agreed to waive
part or all of both the management and administrative fees for the Growth and
Income Portfolio to the extent that the Portfolio's expenses will be maintained
at 0.75%.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions were not
influenced by existing or potential custodial or other Fund relationships.
None of the Trustees or officers of the Fund may have dealings with the
Fund as principals in the purchase or sale of securities.
Personal Investments by Employees of the Adviser
Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Portfolios. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
29
<PAGE>
Distributor
The Fund has an underwriting agreement with Scudder Investor Services,
Inc. (the "Distributor"), a wholly-owned subsidiary of the Adviser, Two
International Place, Boston, Massachusetts 02110-4103. The Fund's underwriting
agreement dated July 12, 1985, will remain in effect until September 30,
1995 , and from year to year thereafter only if its continuance is
approved annually by a majority of the Trustees who are not parties to such
agreement or "interested persons" of any such party and either by vote of a
majority of the Trustees or a majority of the outstanding voting securities of
the Fund.
Under the principal underwriting agreement between the Fund and the
Distributor, the Fund is responsible for the payment of all fees and expenses in
connection with the preparation and filing of any registration statement and
prospectus covering the issue and sale of shares, and the registration and
qualification of shares for sale with the SEC in the various states, including
registering the Fund as a broker or dealer. The Fund will also pay the fees and
expenses of preparing, printing and mailing prospectuses annually to existing
shareholders and any notice, proxy statement, report, prospectus or other
communication to shareholders of the Fund, printing and mailing confirmations of
purchases of shares, any issue taxes or any initial transfer taxes, a portion of
toll-free telephone service for shareholders, wiring funds for share purchases
and redemptions (unless paid by the shareholder who initiates the transaction),
printing and postage of business reply envelopes and a portion of the computer
terminals used by both the Fund and the Distributor.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the shares to
the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of the shares to the public. The
Distributor will pay all fees and expenses in connection with its qualification
and registration as a broker or dealer under Federal and state laws, a portion
of the toll-free telephone service and of computer terminals, and of any
activity which is primarily intended to result in the sale of shares issued by
the Fund, unless a 12b-l Plan is in effect which provides that the Fund shall
bear some or all of such expenses. The Distributor has entered into agreements
with broker-dealers authorized to offer and sell VA contracts and VLI policies
on behalf of the Participating Insurance Companies under which agreements the
broker-dealers have agreed to be responsible for the fees and expenses of any
prospectus, statement of additional information and printed information
supplemental thereto of the Fund distributed in connection with their offer of
VA contracts and VLI policies.
As agent, the Distributor currently offers shares of each Portfolio on
a continuous basis to the separate accounts of Participating Insurance Companies
in all states in which the Portfolio or the Fund may from time to time be
registered or where permitted by applicable law. The underwriting agreement
provides that the Distributor accepts orders for shares at net asset value
without sales commission or load being charged. The Distributor
has made no firm commitment to acquire shares of any Portfolio.
Note: Although the Fund does not currently have a 12b-1 Plan and shareholder
approval would be required in order to adopt one, the underwriting
agreement provides that the Fund will also pay those fees and expenses
permitted to be paid or assumed by the Fund pursuant to a 12b-1 Plan,
if any, adopted by the Fund, notwithstanding any other provision to the
contrary in the underwriting agreement, and the Fund or a third party
will pay those fees and expenses not specifically allocated to the
Distributor in the underwriting agreement.
30
<PAGE>
MANAGEMENT OF THE FUND
<TABLE>
<CAPTION>
Trustees and Officers
Position with
Underwriter, Scudder
Investor Services,
Name and Address Position with Fund Principal Occupation** Inc.
- ---------------- ------------------ -------------------- ---------
<S> <C> <C> <C>
David B. Watts*@+ President and Trustee Managing Director of Scudder, Assistant Treasurer
Stevens & Clark, Inc.
Dr. Kenneth Black, Jr. Trustee Regents' Professor Emeritus of ----
Educational Foundation, Inc. Insurance, Georgia State
35 Broad Street University
11th Floor, Room 1144
Atlanta, GA 30303
Peter B. Freeman@ Trustee Corporate Director and Trustee ----
100 Alumni Avenue
Providence, RI 02906
Dr. J. D. Hammond Trustee Dean, Smeal College of Business ----
801 Business Administration, Pennsylvania
Administration Bldg. State University
Pennsylvania State University
University Park, PA 16802
Daniel Pierce*@+ Vice President and Chairman of the Board and Vice President,
Trustee Managing Director of Scudder, Director and Assistant
Stevens & Clark, Inc. Treasurer
Pamela A. McGrath+ Vice President and Principal of Scudder, Stevens & ----
Treasurer Clark, Inc.
Thomas S. Crain++ Vice President Managing Director of Scudder, ----
Stevens & Clark, Inc.
Jerard K. Hartman# Vice President Managing Director of Scudder, ----
Stevens & Clark, Inc.
Richard A. Holt*** Vice President Managing Director of Scudder, ----
Stevens & Clark, Inc.
Thomas W. Joseph+ Vice President Principal of Scudder, Stevens & Vice President,
Clark, Inc. Director, Treasurer
and Assistant Clerk
David S. Lee+ Vice President Managing Director of Scudder, President, Assistant
Stevens & Clark, Inc. Treasurer and Director
Steven M. Meltzer+ Vice President Principal of Scudder, Stevens & ----
Clark, Inc.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Position with
Underwriter, Scudder
Investor Services,
Name and Address Position with Fund Principal Occupation** Inc.
- ---------------- ------------------ -------------------- ---------
<S> <C> <C> <C>
Edward J. O'Connell# Vice President and Principal of Scudder, Stevens & Assistant Treasurer
Assistant Treasurer Clark, Inc.
Randall K. Zeller# Vice President Managing Director of Scudder, ----
Stevens & Clark, Inc.
Thomas F. McDonough+ Secretary Principal of Scudder, Stevens & Clerk
Clark, Inc.
Kathryn L. Quirk# Vice President and Managing Director of Scudder, Vice President
Assistant Secretary Stevens & Clark, Inc.
Coleen Downs Dinneen+ Assistant Secretary Vice President of Scudder, Assistant Clerk
Stevens & Clark, Inc.
* Messrs. Watts and Pierce are considered by the Fund and its counsel to be Trustees who are
"interested persons" of the Adviser or of the Fund (within the meaning of the 1940 Act).
** Unless otherwise stated, all the officers and Trustees have
been associated with their respective companies for more
than five years, but not necessarily in the same capacity.
@ Peter B. Freeman, Daniel Pierce and David B. Watts are members of the Executive Committee, which
has the power to declare dividends from ordinary income and distributions of realized capital
gains to the same extent as the Board is so empowered.
+ Address: Two International Place, Boston, Massachusetts 02110-4103
# Address: 345 Park Avenue, New York, New York 10154
++ Address: 600 Vine Street - Suite 2000, Cincinnati, Ohio 45202
*** Address: 111 E. Wacker Drive - Suite 2200, Chicago, Illinois 60601
</TABLE>
Certain of the Trustees and officers of the Fund also serve in similar
capacities with other Scudder Funds.
Remuneration
Several of the officers and Trustees of the Fund may also be officers
of the Adviser, the Distributor, Scudder Service Corporation, Scudder
Trust Company or Scudder Fund Accounting Corporation which receive fees
paid by the Fund. The Fund pays no direct remuneration to any officer of the
Fund. However, each of the Trustees who is not affiliated with the Adviser will
be paid by the Fund. Of these unaffiliated Trustees, Drs. Black and Hammond each
receive an annual Trustee's fee of $2,000 per Portfolio and a fee of
$200 per Portfolio for each Trustees' meeting attended or for each
meeting held for the purpose of considering arrangements between the Fund and
the Adviser, while Mr. Freeman receives fees of $1,250 per Portfolio and
$125 per Portfolio, respectively. Drs. Black and Hammond also receive
$100 per Portfolio per committee meeting attended (other than audit
committee, for which each receives a fee of $200 per Portfolio ), while
Mr. Freeman receives fees of $75 per Portfolio and $125 per
Portfolio, respectively. A total of $58,473 was paid for Trustees'
fees and expenses, including legal counsel to the Trustees, in the year
ended December 31, 1994.
The following Compensation Table, provides in tabular form, the
following data.
Column (1) All Trustees who receive compensation from the Fund.
Column (2) Aggregate compensation received by a Trustee from all series of the
Fund, which is comprised of Money Market Portfolio, Bond Portfolio, Balanced
Portfolio, Growth and Income Portfolio, Capital Growth Portfolio and
International Portfolio. Columns (3) and (4) Pension or retirement benefits
32
<PAGE>
accrued or proposed to be paid by the Fund. The Fund does not pay its Trustees
such benefits. Column (5) Total compensation received by a Trustee from Money
Market Portfolio, Bond Portfolio, Balanced Portfolio, Growth and Income
Portfolio, Capital Growth Portfolio and International Portfolio, plus
compensation received from all funds managed by the Adviser for which a Trustee
serves. The total number of funds from which a Trustee receives such
compensation is also provided in column (5).
<TABLE>
<CAPTION>
Compensation Table
for the year ended December 31, 1994
=========================== ============================= =================== ================= ====================
(1) (2) (3) (4) (5)
Pension or Total Compensation
Retirement From the Fund and
Benefits Accrued Estimated Fund Complex Paid
Aggregate Compensation from As Part of Fund Annual Benefits to Trustee
Name of Person, the Scudder Variable Life Expenses Upon Retirement
Position Investment Fund*
=========================== ============================= =================== ================= ====================
<S> <C> <C> <C> <C>
Dr. Kenneth Black, Jr., $ 14,400 N/A N/A $ 14,400
Trustee (6 funds)
Peter B. Freeman, Trustee $ 9,600 N/A N/A $ 141,843.83
(31 funds)
Dr. J.D. Hammond, $ 14,400 N/A N/A $ 14,400
Trustee (6 funds)
* Scudder Variable Life Investment Fund consists of six Portfolios: Money Market Portfolio, Bond Portfolio,
Balanced Portfolio, Growth and Income Portfolio, Capital Growth Portfolio and International Portfolio.
</TABLE>
NET ASSET VALUE
(See "NET ASSET VALUE" and "VALUATION OF PORTFOLIO SECURITIES"
in the Fund's prospectus)
The net asset value of shares of each Portfolio of the Fund is computed
as of the close of regular trading on the Exchange on each day the
Exchange is open for trading (the "Value Time"). The Exchange is scheduled to be
closed on the following holidays: New Year's Day, Presidents Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. Net asset
value per share is determined by dividing the value of the total assets of a
Fund, less all liabilities, by the total number of shares outstanding.
The valuation of the Money Market Portfolio securities is based upon
their amortized cost, which does not take into account unrealized securities
gains or losses. This method involves initially valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any discount
or premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Money Market Portfolio would receive if it
sold the instrument. During periods of declining interest rates, the quoted
yield on shares of the Money Market Portfolio may tend to be higher than a like
computation made by a fund with identical investments utilizing a method of
valuation based upon market prices and estimates of market prices for all of its
portfolio instruments. Thus, if the use of amortized cost by the Portfolio
resulted in a lower aggregate portfolio value on a particular day, a prospective
investor in the Money Market Portfolio would be able to obtain a somewhat higher
yield if he purchased shares of the Money Market Portfolio on that day, than
would result/from investment in a fund utilizing solely market values, and
existing investors in the Money Market Portfolio would receive less investment
income. The converse would apply in a period of rising interest rates.
33
<PAGE>
An exchange-traded equity security (not subject to resale restrictions)
is valued at its most recent sale price as of the Value Time. Lacking any sales,
the security is valued at the calculated mean between the most recent bid
quotation and the most recent asked quotation (the "Calculated Mean"). If there
are no bid and asked quotations, the security is valued at the most recent bid
quotation. An unlisted equity security which is traded on the National
Association of Securities Dealers Automated Quotation ("NASDAQ") system is
valued at the most recent sale price. If there are no such sales, the security
is valued at the high or "inside" bid quotation. The value of an equity security
not quoted on the NASDAQ System, but traded in another over-the-counter market,
is the most recent sale price. If there are no such sales, the security is
valued at the Calculated Mean. If there is no Calculated Mean, the security is
valued at the most recent bid quotation.
Debt securities, other than short-term securities, are valued at prices
supplied by the Fund's pricing agent which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities with
remaining maturities of sixty days or less are valued by the amortized cost
method, which the Board believes approximates market value. If it is not
possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If no such bid quotation is available, the Adviser may
calculate the price of that debt security, subject to limitations established by
the Board.
Option contracts on securities, currencies, futures and other financial
instruments traded on an exchange are valued at their most recent sale price on
the exchange. If no sales are reported, the value is the Calculated Mean, or if
the Calculated Mean is not available, the most recent bid quotation in the case
of purchased options, or the most recent asked quotation in the case of written
options. Option contracts traded over-the-counter are valued at the most recent
bid quotation in the case of purchased options and at the most recent asked
quotation in the case of written options. Futures contracts are valued at the
most recent settlement price. Foreign currency forward contracts are valued at
the value of the underlying currency at the prevailing currency exchange rate.
If a security is traded on more than one exchange, or on one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Fund's Valuation Committee, the value of an
asset as determined in accordance with these procedures does not represent the
fair market value of the asset, the value of the asset is taken to be an amount
which, in the opinion of the Valuation Committee, represents fair market value
on the basis of all available information. The value of other portfolio holdings
owned by the Fund is determined in a manner which, in the discretion of the
Valuation Committee most fairly reflects fair market value of the property on
the valuation date.
Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these assets in terms of U.S. dollars is calculated by
converting the Local Currency into U.S. dollars at the prevailing currency
exchange rates on the valuation date.
TAX STATUS
(See "TAX STATUS, DIVIDENDS AND DISTRIBUTIONS" in the
Fund's prospectus.)
Each Portfolio of the Fund has elected to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). Such qualification does not involve governmental
supervision or management of investment practices or policy.
Each Portfolio intends to comply with the provisions of Section 817(h)
of the Code relating to diversification requirements for variable annuity,
endowment and life insurance contracts. Specifically, each Portfolio intends to
comply with either (i) the requirement of Section 817(h)(1) of the Code that its
assets be adequately diversified, or (ii) the "Safe Harbor for Diversification"
specified in Section 817(h)(2) of the Code, or (iii) the diversification
requirement of Section 817(h)(1) of the Code by having all or part of its assets
invested in U.S. Treasury securities which qualify for the "Special Rule for
Investments in United States Obligations" specified in Section 817(h)(3) of the
Code.
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<PAGE>
A regulated investment company qualifying under Subchapter M of the
Code is required to distribute to its shareholders at least 90 percent of its
investment company taxable income and generally is not subject to federal income
tax to the extent that it distributes annually its investment company taxable
income and net realized capital gains in the manner required under the Code.
Investment company taxable income of a Portfolio generally is made up
of dividends, interest, certain currency gains and losses and net-short-term
capital gains in excess of net long-term capital losses, less expenses. Net
realized capital gains of a Portfolio for a fiscal year are computed by taking
into account any capital loss carryforward of the Portfolio.
At December 31, 1994 the Bond Portfolio had a net tax basis capital
loss carryforward of approximately $4,153,327 which may be applied against any
realized net taxable capital gains of each succeeding year until fully utilized
or until December 31, 2002, whichever occurs first.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by a Portfolio for reinvestment,
requiring federal income taxes to be paid thereon by the Portfolio, such
Portfolio intends to elect to treat such capital gains as having been
distributed to shareholders. As a result, each shareholder will report such
capital gains as long-term capital gains, will be able to claim its share of
federal income taxes paid by the Portfolio on such gains as a credit against its
own federal income tax liability, and will be entitled to increase the adjusted
tax basis of its shares of the Portfolio by the difference between its pro rata
share of such gains and its tax credit. If the Fund makes such an election, it
may not be treated as having met the excise tax distribution requirement.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Distributions of the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders as long-term capital gain,
regardless of the length of time the shares of the relevant Portfolio have been
held by such shareholders. Any loss realized upon the redemption of shares held
at the time of redemption for six months or less will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain during such six-month period.
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether reinvested in
additional shares or in cash. Shareholders electing to receive distributions in
the form of additional shares will have a cost basis for federal income tax
purposes in each share so received equal to the net asset value of a share on
the reinvestment date.
All distributions of investment company taxable income and net realized
capital gain, whether reinvested in additional shares or in cash, must be
reported by each shareholder on its federal income tax return. Dividends
declared in October, November or December with a record date in such a month
will be deemed to have been received by shareholders on December 31 if paid
during January of the following year. Redemptions of shares may result in tax
consequences (gain or loss) to the shareholder and are also subject to these
reporting requirements.
Distributions by a Portfolio (except the Money Market Portfolio) result
in a reduction in the net asset value of the Portfolio's shares. Should a
distribution reduce the net asset value below a shareholder's cost basis, such
distribution would nevertheless be taxable to the shareholder as ordinary income
or capital gain as described above, even though, from an investment standpoint,
it may constitute a partial return of capital. In particular, investors should
consider the tax implications of buying shares just prior to a distribution. The
price of shares purchased at that time includes the amount of the forthcoming
distribution. Those purchasing just prior to a distribution will then receive a
partial return of capital upon the distribution, which will nevertheless be
taxable to them.
If the Balanced, Growth and Income, Capital Growth or International
Portfolios invest in stock of certain foreign investment companies, the
Portfolios may be subject to U.S. federal income taxation on a portion of any
"excess distribution" with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating such distribution or gain
ratably to each day of a Portfolio's holding period for the stock. The
distribution or gain so allocated to any taxable year of a Portfolio, other than
the taxable year of the excess distribution or disposition, would be taxed to a
Portfolio at the highest ordinary income rate in effect for such year, and the
tax would be further increased by an interest charge to reflect the value of the
35
<PAGE>
tax deferral deemed to have resulted from the ownership of the foreign company's
stock. Any amount of distribution or gain allocated to the taxable year of the
distribution or disposition would be included in a Portfolio's investment
company taxable income and, accordingly, would not be taxable to a Portfolio to
the extent distributed by a Portfolio as a dividend to its shareholders.
Proposed regulations have been issued which may allow the Balanced,
Growth and Income, Capital Growth and International Portfolios to make an
election to mark to market their shares of these foreign investment companies in
lieu of being subject to U.S. federal income taxation. At the end of each
taxable year to which the election applies, the Balanced, Capital Growth,
International and Growth and Income Portfolios would report as ordinary income
the amount by which the fair market value of the foreign company's stock exceeds
the Balanced, Capital Growth, International and Growth and Income Portfolios'
adjusted basis in these shares. No mark to market losses would be recognized.
The effect of the election would be to treat excess distributions and gain on
dispositions as ordinary income which is not subject to a fund level tax when
distributed to shareholders as a dividend. Alternatively, the Portfolios may
elect to include as income and gain their share of the ordinary earnings and net
capital gain of certain foreign investment companies in lieu of being taxed in
the manner described above.
Equity options (including options on stock and options on narrow-based
stock indexes) and over-the-counter options on debt securities written or
purchased by a Portfolio will be subject to tax under Section 1234 of the Code.
In general, no loss is recognized by a Portfolio upon payment of a premium in
connection with the purchase of a put or call option. The character of any gain
or loss recognized (i.e., long-term or short-term) will generally depend in the
case of a lapse or sale of the option on the Portfolio's holding period for the
option and in the case of an exercise of a put option on the Portfolio's holding
period for the underlying security. The purchase of a put option may constitute
a short sale for federal income tax purposes, causing an adjustment in the
holding period of the underlying security or a substantially identical security
of the Portfolio. If the Portfolio writes a put or call option, no gain is
recognized upon its receipt of a premium. If the option lapses or is closed out,
any gain or loss is treated as a short-term capital gain or loss. If a call
option written by a Portfolio is exercised, the character of the gain or loss
depends on the holding period of the underlying security. The exercise of a put
option written by a Portfolio is not a taxable transaction for the Portfolio.
Many futures contracts, certain foreign currency forward contracts
entered into by a Portfolio and all listed nonequity options written or
purchased by the Portfolio (including options on debt securities, options on
futures contracts, options on securities indexes and options on broad-based
stock indexes) will be governed by Section 1256 of the Code. Absent a tax
election to the contrary, gain or loss attributable to the lapse, exercise or
closing out of any such position generally will be treated as 60% long-term and
40% short-term capital gain or loss, and on the last trading day of the fiscal
year, all outstanding Section 1256 positions will be marked to market (i.e.
treated as if such positions were closed out at their closing price on such
day), with any resulting gain or loss recognized as 60% long-term and 40%
short-term capital gain or loss. Under Section 988 of the Code, discussed below,
foreign currency gain or loss from foreign currency-related forward contracts,
certain futures and options and similar financial instruments entered into or
acquired by a Portfolio will be treated as ordinary income. Under certain
circumstances, entry into a futures contract to sell a security may constitute a
short sale for federal income tax purposes, causing an adjustment in the holding
period of the underlying security or a substantially identical security owned by
the Portfolio.
Subchapter M of the Code requires that each Portfolio realize
less than 30% of its annual gross income from the sale or other disposition of
stock, securities and certain options, futures and forward contracts held for
less than three months. Certain options, futures and forward activities of a
Portfolio may increase the amount of gains realized by a Portfolio that are
subject to the 30% limitation. Accordingly, the amount of such transactions that
a Portfolio may undertake may be limited.
Positions of a Portfolio which consist of at least one stock and at
least one stock option or other position with respect to a related security
which substantially diminishes the Portfolio's risk of loss with respect to such
stock could be treated as a "straddle" which is governed by Section 1092 of the
Code, the operation of which may cause deferral of losses, adjustments in the
holding periods of stock or securities and conversion of short-term capital
losses into long-term capital losses. An exception to these straddle rules
exists for any "qualified covered call options" on stock written by a Portfolio.
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<PAGE>
Positions of a Portfolio which consist of at least one position not
governed by Section 1256 and at least one futures contract, foreign currency
forward contract or nonequity option governed by Section 1256 which
substantially diminishes the Portfolio's risk of loss with respect to such other
position will be treated as a "mixed straddle." Although mixed straddles are
subject to the straddle rules of Section 1092 of the Code, certain tax elections
exist for them which reduce or eliminate the operation of these rules. Each
Portfolio will monitor its transactions in options and futures and may make
certain tax elections in connection with these investments.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time a Portfolio accrues receivables or
liabilities denominated in a foreign currency and the time the Portfolio
actually collects such receivables or pays such liabilities generally are
treated as ordinary income or ordinary loss. Similarly, on disposition of debt
securities denominated in a foreign currency and on disposition of certain
futures contracts, forward contracts and options, gains or losses attributable
to fluctuations in the value of foreign currency between the date of acquisition
of the security or contract and the date of disposition are also treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"Section 988" gains or losses, may increase or decrease the amount of a
Portfolio's investment company taxable income to be distributed to its
shareholders as ordinary income.
A portion of the difference between the issue price of zero coupon
securities and their face value ("original issue discount") is considered to be
income to a Portfolio each year, even though the Portfolio will not receive cash
interest payments from these securities. This original issue discount (imputed
income) will comprise a part of the investment company taxable income of the
Portfolio which must be distributed to shareholders in order to maintain the
qualification of the Portfolio as a regulated investment company and to avoid
federal income tax at the level of the Portfolio. Shareholders will be subject
to income tax on such original issue discount, whether or not they elect to
receive their distributions in cash.
Dividend and interest income received by the Portfolios from sources
outside the U.S. may be subject to withholding and other taxes imposed by such
foreign jurisdictions. Tax conventions between certain countries and the U.S.
may reduce or eliminate these foreign taxes, however, and foreign countries
generally do not impose taxes on capital gains respecting investments by foreign
investors.
Each Portfolio will be required to report to the Internal Revenue
Service all distributions of investment company taxable income and capital gains
as well as gross proceeds from the redemption or exchange of shares, except in
the case of certain exempt shareholders, which include most corporations. Under
the backup withholding provisions of Section 3406 of the Code, distributions of
taxable income and capital gains and proceeds from the redemption or exchange of
the shares of a regulated investment company may be subject to withholding of
federal income tax at the rate of 31% in the case of non-exempt shareholders who
fail to furnish the investment company with their taxpayer identification
numbers and with required certifications regarding their status under the
federal income tax law. Withholding may also be required if a Portfolio is
notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. Participating Insurance Companies
that are corporations should furnish their taxpayer identification numbers and
certify their status as corporations in order to avoid possible erroneous
application of backup withholding.
Shareholders of the Portfolios may be subject to state and local taxes
on distributions received from such Portfolios and on redemptions of their
shares.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution.
The Fund is organized as a Massachusetts business trust, and neither
the Fund nor the Portfolios are liable for any income or franchise tax in the
Commonwealth of Massachusetts providing each Portfolio continues to qualify as a
regulated investment company under Subchapter M of the Code.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons. Each shareholder which is not a
U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Portfolio, including the possibility that such a shareholder
may be subject to a U.S. withholding tax at a rate of 30% (or at a lower rate
under an applicable income tax treaty) on amounts constituting ordinary income
received by it, where such amounts are treated as income from U.S. sources under
the Code.
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<PAGE>
For further information concerning federal income tax consequences for
the holders of the VA contracts and VLI policies, shareholders should consult
the prospectus used in connection with the issuance of their particular
contracts or policies. Shareholders should consult their tax advisers about the
application of the provisions of tax law described in this statement of
additional information in light of their particular tax situations.
DIVIDENDS AND DISTRIBUTIONS
(See "TAX STATUS, DIVIDENDS AND DISTRIBUTIONS" in the
Fund's prospectus.)
Money Market Portfolio
The net investment income of the Money Market Portfolio is determined
as of the close of regular trading on the Exchange (normally 4 p.m. eastern
time) on each day on which the Exchange is open for business. All of the net
income so determined normally will be declared as a dividend to shareholders of
record as of the close of regular trading on such Exchange after the purchase
and redemption of shares. Unless the business day before a weekend or holiday is
the last day of an accounting period, the dividend declared on that day will
include an amount in respect of the Portfolio's income for the subsequent
non-business day or days. No daily dividend will include any amount of net
income in respect of a subsequent semi-annual accounting period. Dividends
commence on the next business day after the date of purchase. Dividends will be
invested in additional shares of the Portfolio at the net asset value per share,
normally $1.00, determined as of the first business day of each month unless
payment of the dividend in cash has been requested.
Net investment income of the Money Market Portfolio consists of all
interest income accrued on portfolio assets less all expenses of the Portfolio
and amortized market premium. Accredited market discount is included in interest
income. The Portfolio does not anticipate that it will normally realize any
long-term capital gains with respect to its portfolio.
Normally the Money Market Portfolio will have a positive net income at
the time of each determination thereof. Net income may be negative if an
unexpected liability must be accrued or a loss realized. If the net income of
the Portfolio determined at any time is a negative amount, the net asset value
per share will be reduced below $1.00 unless one or more of the following steps
are taken: the Trustees have the authority (1) to reduce the number of shares in
each shareholder's account, (2) to offset each shareholder's pro rata portion of
negative net income from the shareholder's accrued dividend account or from
future dividends, or (3) to combine these methods in order to seek to maintain
the net asset value per share at $1.00. The Fund may endeavor to restore the
Portfolio's net asset value per share to $1.00 by not declaring dividends from
net income on subsequent days until restoration, with the result that the net
asset value per share will increase to the extent of positive net income which
is not declared as a dividend.
Should the Money Market Portfolio incur or anticipate, with respect to
its portfolio, any unusual or unexpected significant expense or loss which would
affect disproportionately the Portfolio's income for a particular period, the
Trustees would at that time consider whether to adhere to the dividend policy
described above or to revise it in light of the then prevailing circumstances in
order to ameliorate to the extent possible the disproportionate effect of such
expense or loss on then existing shareholders. Such expenses or losses may
nevertheless result in a shareholder's receiving no dividends for the period
during which the shares are held and in receiving upon redemption a price per
share lower than that which was paid. Similarly, should the Money Market
Portfolio incur or anticipate any unusual or unexpected significant income,
appreciation or gain which would affect disproportionately the fund's income for
a particular period, the Trustees or the Executive Committee of the Trustees may
consider whether to adhere to the dividend policy described above or to revise
it in light of the then prevailing circumstances in order to ameliorate to the
extent possible the disproportionate effect of such income, appreciation or gain
on the dividend received by existing shareholders. Such actions may reduce the
amount of the daily dividend received by existing shareholders.
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<PAGE>
International Portfolio
The International Portfolio will follow the practice of distributing
substantially all of its investment company taxable income. The Portfolio
intends to distribute the excess of net realized long-term capital gains over
net realized short-term capital losses.
Distributions of investment company taxable income and any net capital
gain will be made within three months of the end of each taxable year. Both
distributions will be reinvested in additional shares of the Portfolio unless a
shareholder has elected to receive cash.
Other Portfolios
Each of the Bond, Capital Growth, Balanced and Growth and Income
Portfolios has followed the practice of declaring and distributing a dividend of
investment company taxable income, if any, quarterly, in January, April, July
and October. Each Portfolio has distributed its net capital gain within three
months of the end of each fiscal year. Both dividends and capital gain
distributions will be made in shares of such a Portfolio unless an election is
made on behalf of a separate account to receive dividends and capital gain
distributions in cash.
PERFORMANCE INFORMATION
(See "Performance Information" in the Fund's prospectus)
From time to time, quotations of a Portfolio's performance may be
included in advertisements, sales literature or reports to shareholders or
prospective investors. These performance figures may be calculated in the
following manner:
Money Market Portfolio
A. Yield is the net annualized yield based on a specified
seven calendar days calculated at simple interest
rates. Yield is calculated by determining the net change,
exclusive of capital changes, in the value of a hypothetical
pre-existing account having a balance of one share at the
beginning of the period subtracting a hypothetical charge
reflecting deductions from shareholder accounts and dividing
the difference by the value of the account at the beginning of
the base period to obtain the base period return. The yield is
annualized by multiplying the base period return by 365/7. The
yield figure is stated to the nearest hundredth of one
percent. The yield of the Money Market Portfolio for the
seven-day period ended December 31, 1994 , was
5.20 %.
B. Effective yield is the net annualized yield for a specified
seven calendar days assuming a reinvestment of the
income or compounding. Effective yield is calculated by the
same method as yield except the yield figure is compounded by
adding 1, raising the sum to a power equal to 365 divided by
7, and subtracting one from the result, according to the
following formula:
Effective Yield = [(Base Period Return + 1)^(365/7)] - 1.
The effective yield of the Portfolio for the seven-day period
ended December 31, 1994 , was 5.23 %.
As described above, yield and effective yield are based on historical
earnings and show the performance of a hypothetical investment and are not
intended to indicate future performance. Yield and effective yield will vary
based on changes in market conditions and the level of expenses.
In connection with communicating its yield or effective yield to
current or prospective shareholders, the Money Market Portfolio also may compare
these figures to the performance of other mutual funds tracked by mutual fund
rating services or to other unmanaged indexes which may assume reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs.
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<PAGE>
From time to time, in marketing pieces and other fund literature, the
Fund's yield and performance over time may be compared to the performance of
broad groups of comparable mutual funds, bank money market deposit accounts and
fixed-rate insured certificates of deposit (CDs), or unmanaged indexes of
securities that are comparable to money market funds in their terms and intent,
such as Treasury bills, bankers' acceptances, negotiable order of withdrawal
accounts, and money market certificates. Most bank CDs differ from money market
funds in several ways: the interest rate is fixed for the term of the CD, there
are interest penalties for early withdrawal of the deposit, and the deposit
principal is insured by the FDIC.
Bond Portfolio
Yield is the net annualized yield based on a specified 30-day (or one
month) period assuming a semiannual compounding of income. Yield is
calculated by dividing the net investment income per share earned
during the period by the maximum offering price per share on the last
day of the period, according to the following formula:
YIELD = 2[((a-b)/cd + 1)^6 - 1]
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
Yield for the 30-day period ended December 31, 1994
Bond Portfolio 7.51 %
All Portfolios
A. Average Annual Total Return is the average annual compound
rate of return for the periods of one year and five years (or
such shorter periods as may be applicable dating from the
commencement of the Portfolio's operations) all ended on the
date of a recent calendar quarter.
Average annual total return quotations reflect changes in the
price of a Portfolio's shares and assume that all dividends
and capital gains distributions during the respective periods
were reinvested in Portfolio shares. Average annual total
return is calculated by finding the average annual compound
rates of return of a hypothetical investment over such
periods, according to the following formula (average annual
total return is then expressed as a percentage):
T = (ERV/P)^(1/n) - 1
Where:
P = a hypothetical initial investment of $1,000
T = Average Annual Total Return
n = number of years
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at
the beginning of the applicable period.
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<PAGE>
Average Annual Total Return for periods ended December 31, 1994
One Year Five Years Life of Fund
-------- ---------- ------------
Money Market Portfolio 3.72% 4.63% 5.72%(1)
Bond Portfolio -4.79 7.79 8.12(1)
Balanced Portfolio* -2.05 6.99 10.02(1)
Growth and Income Portfolio -- -- 4.91(3)
Capital Growth Portfolio -9.67 8.46 12.22(1)
International Portfolio -0.85 6.39 9.18(2)
(1) For the period beginning July 16, 1985 (commencement of operations)
(2) For the period beginning May 1, 1987 (commencement of operations)
(3) For the period beginning May 2, 1994 (commencement of operations)
B. Cumulative Total Return is the cumulative rate of return on a
hypothetical initial investment of $1,000 for a specified
period. Cumulative total return quotations reflect changes in
the price of a Fund's shares and assume that all dividends and
capital gains distributions during the period were reinvested
in Fund shares. Cumulative total return is calculated by
finding the cumulative rates of return of a hypothetical
investment over such periods, according to the following
formula (cumulative total return is then expressed as a
percentage):
C = (ERV/P) - 1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at
the beginning of the applicable period.
Cumulative Total Return for periods ended December 31, 1994
One Year Five Years Life of Fund
-------- ---------- ------------
Money Market Portfolio 3.72% 25.39% 69.31%
Bond Portfolio -4.79 45.52 109.40
Balanced Portfolio* -2.05 40.16 146.77
Growth and Income Portfolio -- -- 4.91
Capital Growth Portfolio -9.67 50.08 197.83
International Portfolio -0.85 36.33 95.95
(1) For the period beginning July 16, 1985 (commencement of operations)
(2) For the period beginning May 1, 1987 (commencement of operations)
(3) For the period beginning May 2, 1994 (commencement of operations)
* On May 1, 1993, the Portfolio adopted its present name and investment
objective which is a balance of growth and income from a diversified
portfolio of equity and fixed income securities. Prior to that date,
the Portfolio was known as the Managed Diversified Portfolio and its
investment objective was to realize a high level of long-term total
rate of return consistent with prudent investment risk. Performance
information for the five years and life of Fund periods should
not be considered representative of the present Portfolio.
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As described above, average annual total return, cumulative total
return and yield are based on historical earnings and are not intended to
indicate future performance. Average annual total return, cumulative total
return and yield for a Portfolio will vary based on changes in market conditions
and the level of the Portfolio's expenses.
In connection with communicating its total return or yield to current
or prospective shareholders, the Fund also may compare these figures for a
Portfolio to the performance of other mutual funds tracked by mutual fund rating
services or to other unmanaged indexes which may assume reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs.
Quoted yields on shares of the Fund's Portfolios will be of limited
usefulness to policy and contract holders for comparable purposes because such
quoted yields will be more than yields on participating contracts and policies
due to charges imposed at the separate account level.
Comparison of Portfolio Performance
From time to time, in marketing and other fund literature, the
performance of the Fund's Portfolios may be compared to the performance of broad
groups of mutual funds which are used in conjunction with variable annuities and
have with similar investment goals, as tracked by independent organizations.
Among these organizations, Lipper Analytical Services, Inc., Morningstar,
Inc. and the Variable Annuity Research and Data Service (V.A.R.D.S.R) may be
cited. When independent tracking results are used, a Portfolio will be compared
to Lipper's appropriate fund category, that is, by investment objective and
portfolio holdings. For instance, growth portfolios will be compared to funds
within Lipper's growth fund category; income portfolios will be compared to
funds within Lipper's income fund category; and so on. Rankings may be listed
among one or more of the asset-size classes as determined by Lipper.
Lipper, Morningstar and V.A.R.D.S.R track and rank the
performance of variable annuities in each of the major investment categories.
Performance comparisons and rankings by Lipper, Morningstar and
V.A.R.D.S.R are based on total return and assume reinvestment of income and
capital gains, but do not take into account sales charges, redemption fees or
certain other expenses charged at the separate account level.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Comparison of the quoted non-standardized performance of various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effect of the methods used to calculate performance when comparing
performance of the Portfolios with performance quoted with respect to other
investment companies or types of investments.
From time to time, in marketing and other Fund literature, each
Portfolio's performance may be compared to the performance of broad groups of
comparable mutual funds or unmanaged indexes of comparable securities.
Evaluations of performance made by independent sources may also be used in
advertisements concerning each Portfolio, including reprints of, or selections
from, editorials or articles about these Portfolios.
The Bond, Balanced, Growth and Income, Capital Growth and International
Portfolios may invest in foreign securities. The following graph illustrates the
historical risks and returns of selected indices which track the performance of
various combinations of United States and international securities for the ten
year period ended December 31, 1994; results for other periods may vary. The
graph uses ten year annualized international returns represented by the Morgan
Stanley Capital International Europe, Australia and Far East (EAFE) Index and
ten year annualized United States returns represented by the S&P 500 Index. Risk
is measured by the standard deviation in overall portfolio performance within
each index. Performance of an index is historical, and does not represent the
performance of a Fund, and is not a guarantee of future results.
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LINE CHART - EFFICIENT FRONTIER
MSCI EAFE vs. S&P 500 (12/31/84-12/31/94)
CHART DATA:
Total Standard
Return Deviation
------ ---------
17.95 18.46 100% Int'l MSCI EAFE
17.14 18.05 10 US/90 Int'l
16.41 17.64 20/80
15.8 17.23 30 U.S./70 Int'l
15.3 16.82 40/60
14.93 16.41 50 U.S./50Int'l
14.7 16 60/40
14.62 15.59 70 U.S./30 Int'l
14.69 15.18 80/20
14.91 14.77 90 U.S./10 Int'l
15.27 14.36 100% U.S. S&P 500
MSCI EAFE vs. S&P 500 (12/31/84 - 12/31/94)
18.46 17.95
18.05 17.14
17.64 16.41
17.23 15.8
16.82 15.3
16.41 14.93
16 14.7
15.59 14.62
15.18 14.69
14.77 14.91
14.36 15.27
Source: Lipper Analytical Services, Inc. (Data as of 12/31/94)
Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Fund, including reprints of, or selections from, editorials or
articles about this Fund. Sources for Fund performance information and articles
about the Fund may include the following:
American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.
Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.
Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by Masterfund, Inc. of
Wilmington, Delaware.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.
CDA Investment Technologies, Inc., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.
Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.
Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.
43
<PAGE>
Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
IBC/Donoghue's Money Fund Report, a weekly publication of the Donoghue
Organization, Inc., of Holliston, Massachusetts, reporting on the performance of
the nation's money market funds, summarizing money market fund activity and
including certain averages as performance benchmarks, specifically "Donoghue's
Money Fund Average," and "Donoghue's Government Money Fund Average."
Ibbotson Associates, Inc., a company specializing in investment research and
data.
Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.
Investor's Daily, a daily newspaper that features financial, economic, and
business news.
Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.
Morningstar, Inc., a company that, among other activities, analyzes, ranks, and
rates mutual funds and variable annuities.
Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.
Mutual Funds, a monthly magazine devoted to mutual fund investing.
The New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter, published by Sheldon Jacobs,
that includes mutual fund performance data and recommendations for the mutual
fund investor.
No-Load Fund*X, a monthly newsletter, published by DAL Investment Company, Inc.,
that reports on mutual fund performance, rates funds and discusses investment
strategies for the mutual fund investor.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
44
<PAGE>
Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
Smart Money, a national personal finance magazine published monthly by Dow Jones
and Company, Inc. and The Hearst Corporation. Focus is placed on ideas for
investing, spending and saving.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
United Mutual Fund Selector, a semi-monthly investment newsletter, published by
Babson United Investment Advisors, that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.
USA Today, a leading national daily newspaper.
U.S. News and World Report, a national business weekly that periodically reports
mutual fund performance data.
Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
Wiesenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records and price ranges.
Working Woman, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
Worth, a national publication put out 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.
Your Money, a bimonthly magazine featuring articles about personal investing and
money management.
SHAREHOLDER COMMUNICATIONS
Owners of policies and contracts issued by Participating Insurance
Companies for which shares of one or more Portfolios are the investment vehicle
will receive from the Participating Insurance Companies unaudited semi-annual
financial statements and audited year-end financial statements certified by the
Fund's independent public accountants. Each report will show the investments
owned by the Fund and the market values thereof as determined by the Trustees
and will provide other information about the Fund and its operations.
Participating Insurance Companies with inquiries regarding the Fund may
call the Fund's underwriter, Scudder Investor Services, Inc., at 617-295-1000 or
write Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103.
ORGANIZATION AND CAPITALIZATION
(See "ADDITIONAL INFORMATION - Shareholder
Indemnification" in the Fund's prospectus.)
General
The Fund is an open-end investment company established under the laws
of The Commonwealth of Massachusetts by Declaration of Trust dated March 15,
1985.
As of December 31, 1994 , AEtna Life Insurance and Annuity
Company (151 Farmington Avenue PPH3, Hartford, CT 06156), owned of record and
beneficially 40.36 % of the International Portfolio; they owned of record
and beneficially 9.58 % of the Fund's total outstanding shares; and
American Skandia Life Assurance Corporation (1 Corporation Drive, Shelton, CT
45
<PAGE>
06484), owned of record and beneficially 37.69 % of the Bond Portfolio,
0.05% of the Capital Growth Portfolio, 0.14% of the Balanced Portfolio and 0.28%
of the International Portfolio; they owned of record and beneficially
4.53 % of the Fund's total outstanding shares ; and AUSA Life Insurance
Company (4 Manhattanville Road, Purchase, NY 10577) owned of record and
beneficially 0.33% of the International Portfolio; they owned of record and
beneficially 0.08% of the Fund's total outstanding shares ; and Banner Life
Insurance Company of Rockville, MD (1701 Research Blvd., Rockville, MD 20850)
owned of record and beneficially 0.16 % of the Money Market Portfolio,
0.35 % of the Bond Portfolio, 6.84 % of the Balanced Portfolio,
0.44 % of the International Portfolio, 0.01% of the Growth and Income
Portfolio and 1.09% of the Capital Growth Portfolio ; they owned of record
and beneficially 0.53% of the Fund's total outstanding shares; and
Charter National Life Insurance Company (8301 Maryland Avenue, St. Louis, MO
63105, a Missouri corporation) and its subsidiary, Intramerica Life Insurance
Company (1 Blue Hills Plaza, Pearl River, NY 10965), owned of record and
beneficially 71.43 % of the Money Market Portfolio, 12.96 % of the
Bond Portfolio, 86.16 % of the Balanced Portfolio, 29.73 % of the
Capital Growth Portfolio, 99.97% of the Growth and Income Portfolio and
21.59 % of the International Portfolio; they owned of record and beneficially
48.88% of the Fund's total outstanding shares. In 1991, Charter National
Life Insurance Company purchased the Colonial Penn Group, Inc., which indirectly
owns Intramerica, a New York domestic life insurer. On November 1, 1992, First
Charter Life Insurance Company ("First Charter"), a subsidiary of Charter
National Life Insurance Company, was merged with and into Intramerica. As the
company surviving the merger, Intramerica acquired legal ownership of all of
First Charter's assets, including the Variable Account, and became responsible
for all of First Charter's liabilities and obligations. As a result of the
merger, all Contracts issued by First Charter before the merger became Contracts
issued by Intramerica after the merger. Fortis Benefits Insurance Company
(Norwest Bank, Sixth and Marquette-MS0063, Minneapolis, MN 55479) owned of
record and beneficially 0.21% of the International Portfolio; they owned of
record and beneficially 0.05% of the Fund's total outstanding shares; and
Lincoln Benefit Life Insurance Company (134 South 13th Street, Lincoln, NE
68508) owned of record and beneficially 0.06% of the Bond Portfolio and 1.16% of
the Balanced Portfolio; they owned of record and beneficially 0.04% of the
Fund's total outstanding shares; and Mutual of America Life Insurance
Company of New York (666 5th Avenue, New York, NY 10103, a New York corporation)
and its subsidiary, American Life Insurance Company (666 5th Avenue, New
York, NY 10103) , owned of record and beneficially 47.43 % of the Bond
Portfolio, 65.04 % of the Capital Growth Portfolio and 29.55 % of
the International Portfolio; they owned of record and beneficially 19.96 %
of the Fund's total outstanding shares; and Paragon Life Insurance Company
(100 South Brentwood, St. Louis, MO 63105) owned of record and beneficially
0.01% of the Money Market Portfolio, 0.02% of the Bond Portfolio, 0.07% of the
Capital Growth Portfolio, 0.21% of the Balanced Portfolio, 0.03% of the
International Portfolio and 0.02% of the Growth and Income Portfolio; they owned
of record and beneficially 0.03% of the Fund's total outstanding shares; and
Providentmutual Life and Annuity Company of America, (300 Continental Drive,
Newark, DE 19713) owned of record and beneficially 1.49 % of the Bond
Portfolio; they owned of record and beneficially 0.18% of the Fund's total
outstanding shares; and Safeco Life Insurance Companies (15411 N.E. 51st Street,
Redmond, WA 98052), owned of record and beneficially 5.49 % of the
Balanced Portfolio and 1.69 % of the International Portfolio; they owned
of record and beneficially 0.55 % of the Fund's total outstanding shares;
and The Union Central Life Insurance Company (1876 Waycross Road, Cincinnati, OH
45240) owned of record and beneficially 28.25% of the Money Market
Portfolio, 4.02 % of the Capital Growth Portfolio and 5.52% of the
International Portfolio; they owned of record and beneficially 15.52 % of
the Fund's total outstanding shares; and United of Omaha Life Insurance
Company (Mutual of Omaha Plaza, Law Division, 3301 Dodge Street, Omaha, NE
68131) owned of record and beneficially 0.15% of the Money Market Portfolio;
they owned of record and beneficially 0.07% of the Fund's total outstanding
shares.
Shares entitle their holders to one vote per share; however, separate
votes will be taken by each Portfolio on matters affecting an individual
Portfolio. For example, a change in investment policy for the Money Market
Portfolio would be voted upon only by shareholders of the Money Market
Portfolio. Additionally, approval of the investment advisory agreement covering
a Portfolio is a matter to be determined separately by each Portfolio. Approval
by the shareholders of one Portfolio is effective as to that Portfolio. Shares
have noncumulative voting rights, which means that holders of more than 50% of
the shares voting for the election of Trustees can elect all Trustees and, in
such event, the holders of the remaining shares voting for the election of
Trustees will not be able to elect any person or persons as Trustees. Shares
have no preemptive or subscription rights, and are transferable.
Shareholders have certain rights, as set forth in the Declaration of
Trust of the Fund, including the right to call a meeting of shareholders for the
purpose of voting on the removal of one or more Trustees. Such removal can be
effected upon the action of two-thirds of the outstanding shares of beneficial
interest of the Fund.
46
<PAGE>
Shareholder and Trustee Liability
The Fund is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for the
obligations of the trust. The Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Fund. Notice
of such disclaimer will normally be given in each agreement, obligation, or
instrument entered into or executed by the Fund or the Trustees. The Declaration
of Trust provides for indemnification out of the Fund property of any
shareholder held personally liable for the obligations of the Fund. The
Declaration of Trust also provides that the Fund shall, upon request, assume the
defense of any claim made against any shareholder for any act or obligation of
the Fund and satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its obligations.
The Trustees believe that, in view of the above, the risk of personal liability
of shareholders is remote.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
ALLOCATION OF PORTFOLIO BROKERAGE
To the maximum extent feasible, the Adviser places orders for portfolio
transactions through its affiliate, the Distributor, which in turn places orders
on behalf of the Fund with the issuer, underwriters or other brokers and
dealers. The Distributor will receive no commissions, fees or other remuneration
for this service. Allocation of brokerage is supervised by the Adviser.
The Fund's purchases and sales of portfolio securities of the Money
Market Portfolio and the Bond Portfolio and of debt securities acquired for the
other Portfolios, are generally placed by the Adviser with primary market makers
for these securities on a net basis, without any brokerage commission being paid
by the Fund. Trading does, however, involve transaction costs. Transactions with
dealers serving as primary market makers reflect the spread between the bid and
asked prices. Purchases of underwritten issues may be made which will include an
underwriting fee paid to the underwriter. Transactions in equity securities
generally involve the payment of a brokerage commission.
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for any Portfolio is to obtain the most favorable net
results taking into account such factors as price, commission (negotiable in the
case of U.S. stock exchange transactions but which is generally fixed in the
case of foreign exchange transactions), if any, size of order, difficulty of
execution and skill required of the executing broker/dealer. Subject to the
foregoing, the Adviser may consider sales of variable life insurance policies
and variable annuity contracts for which the Fund is an investment option as a
factor in the selection of firms to execute portfolio transactions. The Adviser
seeks to evaluate the overall reasonableness of brokerage commissions paid
through the familiarity of the Distributor with commissions charged on
comparable transactions, as well as by comparing commissions paid by the Fund to
reported commissions paid by others. The Adviser reviews on a routine basis
commission rates, execution and settlement services performed, making internal
and external comparisons.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
brokers and dealers who supply market quotations to the custodian of the Fund
for valuation purposes, or who supply research, market and statistical
information to the Adviser. The term "research, market and statistical
information" includes advice as to the value of securities, the advisability of
investing in, purchasing or selling securities; and the availability of
securities or purchasers or sellers of securities; and furnishing analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts. The Adviser is not
authorized when placing portfolio transactions for the Fund to pay a brokerage
commission (to the extent applicable) in excess of that which another broker
might have charged for effecting the same transaction solely on account of the
receipt of research, market or statistical information. Subject to the
foregoing, the Adviser may consider sales of variable life insurance policies
and variable annuity contracts for which the Fund is an investment option, as a
factor in the selection of firms to execute portfolio transactions. Except for
47
<PAGE>
implementing the policy stated above, there is no intention to place portfolio
transactions with any particular brokers or dealers or groups thereof. In
effecting transactions in over-the-counter securities, orders are placed with
the principal market-makers for the securities being traded unless, in the
opinion of the Adviser, after exercising care, it appears that more favorable
results are available otherwise.
Subject also to obtaining the most favorable net results, the Adviser
may place brokerage transactions with Bear, Stearns & Co. A credit against the
custodian fee due to State Street Bank and Trust Company equal to one-half of
the commission on any such transaction will be given with respect to the
applicable Portfolio on any such transaction. During the fiscal year ended
December 31, 1994 , no such credit was applied against the custodian fee.
Although certain research, market and statistical information from
brokers and dealers is useful to the Fund and the Adviser, it is the opinion of
the Adviser that such information is only supplementary to the Adviser's own
research effort, since the information must still be analyzed, weighed, and
reviewed by the Adviser's staff. Such information may be useful to the Adviser
in providing services to clients other than the Fund and not all such
information is used by the Adviser in connection with the Fund. Conversely, such
information provided to the Adviser by brokers and dealers through whom other
clients of the Adviser effect securities transactions may be useful to the
Adviser in providing services to the Fund.
In the years ended December 31, 1992, 1993 and 1994, the Fund
paid brokerage commissions of $468,796, $1,084,463 and $_______,
respectively. In the years ended December 31, 1993 and 1994, the International
Portfolio paid brokerage commissions of $524,970 and $______,
respectively, the Capital Growth Portfolio paid brokerage commissions of
$467,826 and $________, respectively and the Balanced Portfolio
paid brokerage commissions of $91,667 and $________, respectively.
In the year ended December 31, 1994, the Growth and Income Portfolio paid
brokerage commissions of $______. In the year ended December 31, 1994, $_______
(____%) of the total brokerage commissions paid by the International Portfolio,
$_____ (_____%) of the total brokerage commissions paid by the Capital
Growth Portfolio, $_____ (_____%) of the total brokerage commissions paid
by the Growth and Income Portfolio and $_____ (_____%) of the total
brokerage commissions paid by the Balanced Portfolio resulted from orders
placed, consistent with the policy of obtaining the most favorable net results,
with brokers and dealers who provided supplementary research information to the
Portfolios or the Adviser. The amount of such transactions aggregated $_____ for
the International Portfolio (_____% of all brokerage transactions),
$_____ for the Capital Growth Portfolio (_____% of all brokerage
transactions) and $_____ (_____% of all brokerage transactions) for the
Balanced Portfolio. The balance of such brokerage was not allocated to any
particular broker or dealer with regard to the above-mentioned or other special
factors.
The Trustees will periodically review whether the recapture for the
benefit of the Fund of some portion of the brokerage commissions or similar fees
paid by the Fund on portfolio transactions is legally permissible and advisable.
No recapture arrangements are currently in effect.
PORTFOLIO TURNOVER
The average annual portfolio turnover rate for each Portfolio, i.e. the
ratio of the lesser of annual sales or purchases to the monthly average value of
the portfolio (excluding from both the numerator and the denominator securities
with maturities at the time of acquisition of one year or less), for the years
ended December 31, 1993 and 1994 , respectively, was:
December 31,
1993 1994
---- ----
Bond Portfolio 125.15% 96.55%
Balanced Portfolio 133.95 101.64
Growth and Income Portfolio -- 28.41
Capital Growth Portfolio 95.31 66.44
International Portfolio 20.36 33.52
48
<PAGE>
In the case of the Balanced Portfolio, the portfolio turnover rate
increased in 1993 due to implementing the Portfolio's present investment
objective which was adopted on May 1, 1993. A higher rate involves greater
brokerage and transaction expenses to the Portfolios and may result in the
realization of net capital gains, which would be taxable to shareholders when
distributed. Under the above definition, the Money Market Portfolio will have no
portfolio turnover. Purchases and sales, for these Portfolios, are made for the
Portfolio whenever necessary, in management's opinion, to meet the Portfolio's
objective.
EXPERTS
The Financial Highlights of the Fund included in the prospectus and the
Financial Statements incorporated by reference in this Statement of Additional
Information have been audited by Coopers & Lybrand L.L.P. , One Post
Office Square, Boston, Massachusetts 02109, independent accountants, and have
been so included or incorporated by reference in reliance upon the accompanying
report of said firm, which report is given upon their authority as experts in
accounting and auditing.
COUNSEL
The firm of Dechert Price & Rhoads, Ten Post Office Square, Suite 1230,
Boston, Massachusetts 02109, is counsel for the Fund.
ADDITIONAL INFORMATION
The activities of the Fund are supervised by its Trustees, who are
elected by shareholders. Shareholders have one vote for each share held.
Fractional shares have fractional votes.
Portfolio securities of the Fund are held separately, pursuant to a
custodian agreement, by State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110, as custodian.
Scudder Fund Accounting Corporation ("SFAC"), Two International Place,
Boston, Massachusetts 02110-4103, a wholly-owned subsidiary of the Adviser,
computes net asset value for the Portfolios. Money Market Portfolio pays SFAC an
annual fee equal to 0.020% of the first $150 million of average daily net
assets, 0.0060% of such assets in excess of $150 million and 0.0035% of such
assets in excess of $1 billion, plus holding and transaction charges for this
service. Bond Portfolio, Balanced Portfolio, Growth and Income Portfolio and
Capital Growth Portfolio each pay SFAC an annual fee equal to 0.025% of the
first $150 million of average daily net assets, 0.0075% of such assets in excess
of $150 million and 0.0045% of such assets in excess of $1 billion, plus holding
and transaction charges for this service. International Portfolio pays SFAC an
annual fee equal to 0.065% of the first $150 million of average daily net
assets, 0.040% of such assets in excess of $150 million and 0.020% of such
assets in excess of $1 billion, plus holding and transaction charges for this
service.
Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts,
02107-2291 , is the transfer and dividend paying agent for the Fund.
The Fund has a December 31 fiscal year end.
The name "Scudder Variable Life Investment Fund" is the designation of
the Trustees for the time being under a Declaration of Trust dated March 15,
1985, as amended from time to time, and all persons dealing with the Fund must
look solely to the property of the Fund for the enforcement of any claims
against the Fund as neither the Trustees, officers, agents or shareholders
assume any personal liability for obligations entered into on behalf of the
Fund. Upon the initial purchase of shares, the shareholder agrees to be bound by
the Fund's Declaration of Trust, as amended from time to time. The Declaration
of Trust is on file at the Massachusetts Secretary of State's Office in Boston,
Massachusetts.
The Fund's prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Fund has
filed with the SEC under the Securities Act of 1933 and reference is hereby made
to the Registration Statement, and its amendments, for further information with
49
<PAGE>
respect to the Fund and the securities offered hereby. The Registration
Statement, and its amendments, are available for inspection by the public at the
SEC in Washington, D.C.
FINANCIAL STATEMENTS
The financial statements of Scudder Variable Life Investment Fund are
comprised of the following:
Money Market Portfolio
Balanced Portfolio
Bond Portfolio
Growth and Income Portfolio
Capital Growth Portfolio
International Portfolio
The financial statements, including the investment portfolio s of
Scudder Variable Life Investment Fund, together with the Report of Independent
Accountants, Financial Highlights and notes to financial statements are
incorporated by reference and attached hereto, in the Annual Report to
the Shareholders of the Fund dated December 31, 1994 , and are hereby
deemed to be part of this Statement of Additional Information.
50
<PAGE>
APPENDIX
Description of Bond Ratings
Moody's Investors Service, Inc.
Aaa: Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds that are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.
Baa: Bonds that are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Standard & Poor's
AAA: Bonds rated AAA are highest grade debt obligations. This rating
indicates an extremely strong capacity to pay principal and interest.
AA: Bonds rated AA also qualify as high-quality obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A: Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Bonds rated BB and B are regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation. While such debt will likely have some
<PAGE>
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB: Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.
B: Bonds rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB-rating.
Description of Commercial Paper Ratings
Moody's Investors Service, Inc.
P-1: Moody's Commercial Paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations which
have an original maturity not exceeding one year. The
designation "Prime-1" or "P-1" indicates the highest quality
repayment capacity of the rated issue.
Standard & Poor's
A-1: Standard & Poor's Commercial Paper ratings are current
assessments of the likelihood of timely payment of debt
considered short-term in the relevant market. The A-1
designation indicates the degree of safety regarding timely
payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a
plus (+) sign designation.
<PAGE>
Scudder Variable Life Investment Fund
Annual Report
December 31, 1994
An open-end management investment company that offers shares of beneficial
interest in six types of diversified portfolios.
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Letter from the Fund's President 2
Money Market Portfolio Management Discussion 3
Bond Portfolio Management Discussion 4
Bond Portfolio Summary 5
Balanced Portfolio Management Discussion 6
Balanced Portfolio Summary 7
Growth and Income Portfolio Management Discussion 8
Growth and Income Portfolio Summary 9
Capital Growth Portfolio Management Discussion 10
Capital Growth Portfolio Summary 11
International Portfolio Management Discussion 12
International Portfolio Summary 13
Investment Portfolios, Financial Statements, and Financial
Highlights
Money Market Portfolio 14
Bond Portfolio 20
Balanced Portfolio 27
Growth and Income Portfolio 37
Capital Growth Portfolio 45
International Portfolio 55
Notes to Financial Statements 66
Report of Independent Accountants 69
Tax Information 69
</TABLE>
LETTER FROM THE FUND'S PRESIDENT
Dear Shareholders,
The world's financial markets were shaken repeatedly in 1994 by a
variety of events. Rising global interest rates, losses for investors in
highly leveraged derivatives, and some unsettling economic and political
developments -- including mounting U.S./Chinese tensions and the Mexican
currency crisis -- created a challenging environment for global stock and
bond investors.
We face 1995 with more optimism. In the coming year, we expect a
combination of factors, including the U.S. Federal Reserve's tightening
efforts, to keep the economy and inflation on a moderate course, not only
in the United States but globally as well. Meanwhile, corporate profits
around the world continue to grow, and business investment is at an
all-time high, which should translate into greater economic capacity down
the road. We believe these developments ultimately will be viewed as
positive by the financial markets.
For bond investors, the rise in interest rates in the past year has
meant generally falling prices but also higher income from these
investments at a time when inflation has remained relatively stable.
Although we believe the bulk of interest-rate increases is now behind us,
interest rates and investment income could rise somewhat further in 1995,
as central banks continue in their efforts to stem inflation and as
countries around the world compete for much-needed global investment
capital.
Additional increases in interest rates may spark episodes of difficult
adjustment for financial markets. We encourage you to examine your
portfolio periodically to ensure that your asset allocation and fund
choices remain appropriate for your investment time frame and financial
goals. The past year demonstrated that virtually all investments, whether
conservative or aggressive, can perform poorly, prompting many investors to
move to the sidelines. Conservative investments such as money market
instruments naturally have a place in any well-balanced portfolio.
Experience has shown us that investors who have participated in the stock
and bond markets historically have accumulated far more wealth over time
than those who chose to protect their savings above all else.
Thank you for choosing Scudder Variable Life Investment Fund to help
meet your investment needs. We hope we can continue to merit your
confidence in the year ahead.
Sincerely,
/s/David B. Watts
David B. Watts
President,
Scudder Variable Life Investment Fund
<PAGE>
MONEY MARKET PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Interest rates rose steadily throughout the past year, increasing
borrowing costs for mortgages and credit cards and depressing bond prices,
which move in the opposite direction of interest rates. Despite a shaky
environment for bond and stock investors, the Money Market Portfolio
benefited from rising investment income, while its share price remained
constant at $1.00. Of course, past performance is no guarantee of future
results and the Portfolio's yield may fluctuate.
On December 31, 1994, the Portfolio's 7-day net annualized yield was
5.20%. Factoring in the effect of compounding, the 7-day effective yield
was 5.23%, up sharply from 2.72% a year ago. The Portfolio provided a 3.72%
total return for the year ended December 31, 1994, reflecting reinvested
distributions of $0.037 per share.
(CALLOUT NEXT TO CHART) - The continued rise in short-term interest rates
during 1994 pushed up your Portfolio's yield from 2.72% to 5.23%.
(CHART DATA)
<TABLE>
<CAPTION>
Interest Rates
Commercial Federal 3-Month
Paper Funds Treasury
Bill
<S> <C> <C> <C>
12/93 3.36 2.96 3.08
3/94 3.86 3.34 3.52
6/94 4.57 4.25 4.18
9/94 5.02 4.73 4.64
12/94 6.26 5.45 5.69
</TABLE>
Portfolio Strategy Took Advantage of Rising Interest Rates
We emphasized shorter average maturities throughout the year,
anticipating continued upward pressure on interest rates. By year's end,
the average maturity of the Portfolio was 35 days, down from its 44-day
average a year ago. By holding shorter-maturity money market securities as
rates rise, we can quickly deploy proceeds from maturing investments to
higher-yielding instruments.
Corporate commercial paper remained a significant component of the
Portfolio, and, as always, we continued our high standards of security
selection.
Looking ahead, we believe the Federal Reserve may push short-term
interest rates up a bit further if economic growth remains strong. As a
result, we intend to maintain our current strategy of favoring relatively
shorter-term money market securities. While it's impossible to predict when
interest rates will actually peak, any evidence suggesting that rates could
be ready to decline will prompt us to begin lengthening maturities in order
to achieve a high relative yield.
Thank you for your interest in the Money Market Portfolio.
Sincerely,
Your Portfolio Management Team
/s/Robert T. Neff /s/Nicca B. Alcantara
Robert T. Neff Nicca B. Alcantara
Lead Portfolio Manager
<PAGE>
BOND PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
The Bond Portfolio's performance in 1994 reflected a year in which
interest rates rose persistently across the maturity spectrum. When
interest rates rise, bond prices decline, since existing bonds are deemed
less attractive than newly issued, higher-yielding securities. Rising
interest rates also resulted in a higher income stream for the Portfolio,
but it was not sufficient to offset the drop in share price experienced
during the year. Net asset value per share declined $0.94, from $7.42 at
the beginning of 1994 to $6.48 on December 31, 1994. The Portfolio also
distributed to shareholders income dividends totaling $0.425 per share and
a capital gain distribution of $0.172 per share. Combined, price changes
plus the distributions provided a -4.79% total return for the year ended
December 31, compared with -4.54% for the 24 corporate bond funds tracked
by Lipper Analytical Services, Inc., an independent firm that tracks
performance of variable annuity investment options.
In the first half of the year, the portion of the Portfolio's holdings
in U.S. government obligations was increased from one third to over half
the portfolio in the face of rising interest rates. Later in the year,
however, this portion was decreased in favor of higher-yielding
mortgage-backed securities. Higher interest rates slowed the pace of
mortgage refinancings, which helped increase and stabilize the income
stream from these securities, making them more attractive holdings. We also
continued to focus on short- and long-term bonds. Quickly maturing
short-term bonds allow us to replace them with new higher-yielding debt
obligations, while providing some price stability. Longer-maturity holdings
generally provide higher relative income.
(CALLOUT NEXT TO THE PREVIOUS PARAGRAPH) - We increased our holdings of
mortgage-backed securities in the latter part of the year, while
maintaining our focus on both short- and long-term maturities.
Looking ahead, we believe the Federal Reserve may continue to push
interest rates higher, although the Fed's six rate hikes in 1994 should
represent the bulk of the monetary tightening efforts. Moreover, the
economy is growing at a moderate pace (we believe a slowdown in growth is
possible in the latter half of 1995), and inflation appears under control--a
scenario that should keep interest rates from rising much beyond current
levels. As a result, we believe the Portfolio's mix of short- and long-term
income holdings positions us well for the year ahead.
Sincerely,
Your Portfolio Management Team
/s/Ruth Heisler /s/Renee L. Ross
Ruth Heisler Renee L. Ross
Lead Portfolio Manager
/s/William M. Hutchinson
William M. Hutchinson
<PAGE>
Bond Portfolio
Portfolio Summary as of December 31, 1994
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- -----------------------------------------------------------------
Bond Portfolio
- ----------------------------------------
Total Return
Period Growth -------------
Ended of Average
12/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $ 9,521 -4.79% -4.79%
5 Year $14,552 45.52% 7.79%
Life of
Fund* $20,940 109.40% 8.12%
LB Aggregate Bond Index
- --------------------------------------
Total Return
Period Growth -------------
Ended of Average
12/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $ 9,708 -2.92% -2.92%
5 Year $14,464 44.64% 7.66%
Life of
Fund* $23,376 133.76% 9.43%
*The Fund commenced operations on July 16, 1985.
Index comparisons begin July 31, 1985.
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Yearly periods ended December 31
Bond Portfolio
Year Amount
- ---------------------
7/31/85* 10000
85 10737
86 12054
87 12201
88 12867
89 14366
90 15524
91 18258
92 19537
93 21956
94 20905
LB Aggregate Bond Index
Year Amount
- ----------------------
7/31/85* 10000
85 11043
86 12729
87 13080
88 14111
89 16161
90 17610
91 20428
92 21940
93 24079
94 23376
The Lehman Brothers (LB) Aggregate Bond Index is an unmanaged market
value-weighted measure of treasury issues, agency issues, corporate
bond issues and mortgage securities. Index returns assume reinvestment
of dividends and, unlike Fund returns, do not reflect any fees or
expenses.
All performance is historical, assumes reinvestment of all dividends
and capital gains, and is not indicative of future results. Investment
return and principal value will fluctuate, so an investor's shares,
when redeemed, may be worth more or less than when purchased. Total
returns in some periods were higher due to maintenance of the Fund's
expenses. See Financial Highlights for the Bond Portfolio.
- -------------------------------------------------------------------
ASSET QUALITY
- -------------------------------------------------------------------
By Quality
- -------------------
AAA 72%
AA 1%
A 19% As rising interest rates slowed
BBB 4% home-mortgage refinancings,
BB 2% mortgage-backed securities provided
NR 2% more dependable income and thus were
---- more attractive.
100%
====
- -------------------
Average Quality: AAA
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- -------------------------------------------------------------------
MATURITY
- -------------------------------------------------------------------
Less than 1 year 13%
1 < 3 years 31%
3 < 5 years 8%
5 < 10 years 15%
10 years or greater 33%
----
100%
====
Weighted average effective maturity: 8 years
- -------------------------------------------------------------------
DIVERSIFICATION
- -------------------------------------------------------------------
U.S. Treasury Obligations 49%
Corporate Bonds 17%
Asset-Backed Securities 13%
U.S. Government Guaranteed
Mortgages 8%
Foreign Bonds 8%
U.S. Government Agency
Pass-Thrus 3%
Collateralized Mortgage
Obligations 2%
----
100%
====
<PAGE>
BALANCED PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
The Balanced Portfolio posted a total return of -2.05% for the year
ended December 31, 1994, compared with a 2.19% return on average for the 18
balanced funds tracked by Lipper Analytical Services, Inc. Lipper is an
independent firm that tracks performance of variable annuity investment
options. The Portfolio's loss reflected a period in which bond prices
declined across all maturities. Stock prices also experienced volatility
through much of the year. Stocks, as measured by the unmanaged S&P 500
Index, returned just 1.32% in 1994, while the unmanaged Lehman Brothers
Aggregate Bond Index declined 2.92%.
(CALLOUT NEXT TO THE PREVIOUS PARAGRAPH) - The Portfolio benefited from
healthcare-related stock holdings and increased exposure to mortgage-backed
securities in the latter part of 1994.
One of the most significant factors affecting the investment markets
in 1994 was the Federal Reserve's repeated increases in the federal funds
rate. These actions accelerated a trend of higher interest rates that had
begun in October 1993, when signs of stronger economic growth began to fuel
fears of rising inflation. Rising interest rates took their toll on bond
prices as inflation-wary investors demanded higher yields from long-term
debt instruments. Stock prices suffered because of the potentially negative
earnings impact of higher corporate borrowing costs and a slower economy.
The Balanced Portfolio seeks to provide a balance of growth and income
by investing in both quality stocks and fixed-income securities. As of
December 31, 62% of the portfolio was invested in stocks, 31% in
fixed-income securities, and the remainder in cash.
Recently, the Portfolio benefited from its healthcare-related stock
holdings, including Schering-Plough, United Healthcare, and Eli Lilly. Many
healthcare companies have improved their competitive positions through
alliances, acquisitions, and restructurings. These actions, plus the fact
that no federal healthcare bill was passed in 1994, helped boost prices of
well-positioned healthcare companies. Meanwhile, as the near-term outlook
for some emerging economies became less certain, we completely sold our
holdings in Compania de Telefonos de Chile, Telefonos de Mexico, and Hong
Kong Telecommunications at a profit.
Bond holdings were adjusted in the latter months of 1994 by increasing
the Portfolio's percentage of mortgage-backed securities. Rising interest
rates slowed home refinancings, which made income from these securities
more stable.
While some slowing in economic growth is likely later in the year, low
inflation and the longer-term expansion of the global economy should
continue to benefit both stocks and bonds.
Importantly, as of January 1995, the Portfolio's management team
consists of Lead Portfolio Manager Bruce F. Beaty along with William F.
Gadsden, Renee L. Ross, and Ruth Heisler. Howard Ward, who had served as
Lead Portfolio Manager, has left Scudder. We thank him for his
contributions and wish him well in the future.
Sincerely,
Your Portfolio Management Team
/s/Bruce F. Beaty /s/Ruth Heisler
Bruce F. Beaty Ruth Heisler
Lead Portfolio Manager
/s/Renee L. Ross /s/William F. Gadsden
Renee L. Ross William F. Gadsden
<PAGE>
Balanced Portfolio
Portfolio Summary as of December 31, 1994
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- -----------------------------------------------------------------
Balanced Portfolio
- ----------------------------------------
Total Return
Period Growth -------------
Ended of Average
12/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $ 9,795 -2.05% -2.05%
5 Year $14,016 40.16% 6.99%
Life of
Fund* $24,677 146.77% 10.02%
S&P 500 Index (60%) and LBAB Index (40%)
- --------------------------------------
Total Return
Period Growth -------------
Ended of Average
12/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $ 9,997 -0.03% -0.03%
5 Year $14,946 49.46% 8.36%
Life of
Fund* $29,132 191.32% 12.02%
*The Fund commenced operations on July 16, 1985.
Index comparisons begin July 31, 1985.
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Yearly periods ended December 31
Balanced Portfolio
Year Amount
- ---------------------
7/31/85* 10000
85 11318
86 13209
87 12988
88 14833
89 17725
90 17385
91 22067
92 23604
93 25363
94 24843
S&P 500 Index
Year Amount
- ----------------------
7/31/85* 10000
85 11257
86 13358
87 14059
88 16394
89 21589
90 20919
91 27292
92 29371
93 32331
94 32758
LBAB Index
Year Amount
- ----------------------
7/31/85* 10000
85 11043
86 12729
87 13080
88 14111
89 16161
90 17610
91 20428
92 21940
93 24079
94 23376
The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-
weighted measure of 500 widely held common stocks listed on the New
York Stock Exchange, American Stock Exchange, and Over-The-Counter
market and The Lehman Brothers Aggregate Bond (LBAB) Index is an
unmanaged market value-weighted measure of treasury issues, agency
issues, corporate bond issues and mortgage securities. Index returns
assume reinvestment of dividends and, unlike Fund returns, do not
reflect any fees or expenses.
All performance is historical, assumes reinvestment of all dividends
and capital gains, and is not indicative of future results. Investment
return and principal value will fluctuate, so an investor's shares,
when redeemed, may be worth more or less than when purchased. Total
returns in some periods were higher due to maintenance of the Fund's
expenses. See Financial Highlights for the Balanced Portfolio. The
Balanced Portfolio, with its current name and investment objective,
commenced operations on May 1, 1993. Performance figures include the
performance of its predecessor, the Managed Diversified Portfolio.
Since adopting its current objectives, the cumulative and average
annual returns are 4.96% and 2.94%, respectively.
- -------------------------------------------------------------------
EQUITY HOLDINGS
- -------------------------------------------------------------------
Sector breakdown of the Five Largest Equity Holdings
Portfolio's equity holdings -----------------------------------
1. General Electric Co.
Consumer Staples 16% Leading producer of electrical
Financial 12% equipment
Health 11% 2. American Telephone & Telegraph Co.
Technology 10% Telecommunication services and
Durables 9% business systems
Media 9% 3. Mellon Bank Corp.
Manufacturing 9% Commercial banking and
Energy 8% financial services
Consumer Discretionary 7% 4. PepsiCo Inc.
Other 9% Soft drinks, snack foods and
---- food services
100% 5. Motorola Inc.
==== Manufacturer of semiconductors
and communication products
- -------------------------------------------------------------------
FIXED INCOME HOLDINGS
- -------------------------------------------------------------------
By Asset Type
- --------------------------------------------
U.S. Treasury Obligations 31%
Corporate Bonds 22%
Cash Equivalents 19%
Asset-Backed Securities 11%
U.S. Gov't Guaranteed Mortgages 6%
U.S. Government Agency Pass-Thrus 5%
Foreign Bonds 4%
Collateralized Mortgage Obligations 2%
----
100%
====
By Quality
- --------------------------------------------
AAA 69%
AA 3%
A 13%
BBB 12%
BB 2%
NR 1%
----
100%
====
<PAGE>
GROWTH AND INCOME PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Growth and Income Portfolio commenced operations on May 2, 1994. In
the eight months through December 31, 1994, the Portfolio's total return
was 4.91%, outpacing the 3.98% return of the unmanaged Standard & Poor's
500 Index for the same period.
The Portfolio seeks long-term growth of capital, current income, and
growth of income by investing primarily in common stocks, preferred stocks,
and securities convertible into common stocks. Our disciplined investment
approach focuses on stocks that pay higher-than-average dividends (at least
20% above the market average) and have good prospects for earnings and
dividend growth.
(CALLOUT NEXT TO THE PREVIOUS PARAGRAPH) - During the period, Growth and
Income Portfolio took gains in some economically sensitive stocks and
invested the proceeds in select growth stocks such as consumer-staple
companies.
The S&P 500's flat return masked no less than six rallies and
corrections. Much of the volatility reflected investors' alternating views
that the economic expansion would be choked off by persistently rising
interest rates, or, conversely, that higher rates reflected a stronger,
more inflation-prone economy.
The positive return of the Portfolio in this environment resulted from
some gratifying successes. Still, some of the strategies that initially
worked to our advantage began to work against us later in the year. Most
significant was the overweighted position in manufacturing stocks (16% of
the equity portfolio versus 13% of the S&P 500). This group generally
outperformed the market during the first part of the year. However, by the
fourth quarter, manufacturing stocks became the biggest detractors of
portfolio performance, as investor's fears of an imminent economic slowdown
came to the fore.
We expect investment challenges to continue in the new year. However,
we believe well-positioned manufacturing companies will prosper in the
current global growth environment despite their recent underperformance,
while financial stocks are in a position to benefit from eventual stability
or even declines in interest rates. We are also investing in
consumer-staple companies that have embarked upon new strategies to succeed
in an era of intense competition, price cutting, inventory reductions, and
the growth of private labels. Recent additions include Philip Morris,
Heinz, and Tambrands.
Our aim in managing the Portfolio is to participate during periods of
rising equity prices while shielding the Portfolio from turbulent markets.
We believe the Portfolio remains positioned to provide exposure to the
long-term benefits of the equity market, while our emphasis on
high-yielding stocks should help provide a measure of price stability.
Sincerely,
Your Portfolio Management Team
/s/Robert T. Hoffman /s/Kathleen T. Millard
Robert T. Hoffman Kathleen T. Millard
Lead Portfolio Manager
/s/Benjamin W. Thorndike
Benjamin W. Thorndike
<PAGE>
Growth and Income Portfolio
Portfolio Summary as of December 31, 1994
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- -----------------------------------------------------------------
Growth and Income Portfolio
- ----------------------------------------
Total Return
Period Growth -------------
Ended of Average
12/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
Life of
Fund* $10,491 4.91% --%
S&P 500 Index
- --------------------------------------
Total Return
Period Growth -------------
Ended of Average
12/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
Life of
Fund* $10,398 3.98% --%
*The Fund commenced operations on May 2, 1994.
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Growth and Income Portfolio
Year Amount
- ---------------------
5/2/94* 10000
5/94 10250
6/94 10100
7/94 10317
8/94 10883
9/94 10750
10/94 10776
11/94 10340
12/94 10491
S&P 500 Index
Year Amount
- ----------------------
5/2/94* 10000
5/94 10164
6/94 9915
7/94 10241
8/94 10660
9/94 10400
10/94 10633
11/94 10246
12/94 10398
The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-
weighted measure of 500 widely held common stocks listed on the New
York Stock Exchange, American Stock Exchange, and Over-The-Counter
market. Index returns assume reinvestment of dividends and, unlike
Fund returns, do not reflect any fees or expenses.
All performance is historical, assumes reinvestment of all dividends
and capital gains, and is not indicative of future results. Investment
return and principal value will fluctuate, so an investor's shares,
when redeemed, may be worth more or less than when purchased. Total
returns were higher due to maintenance of the Fund's expenses. See
Financial Highlights for the Growth and Income Portfolio.
- -------------------------------------------------------------------
DIVERSIFICATION
- -------------------------------------------------------------------
Equity Securities 90%
Cash Equivalents 10%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
Sector breakdown of the Portfolio's equity holdings
Manufacturing 16%
Financial 14%
Health 13% Growth and Income Portfolio has
Energy 11% increased its focus on consumer-
Consumer Staples 9% staples companies that stand to
Durables 9% benefit despite the industry's
Communications 5% intense competition, price-
Consumer Discretionary 4% cutting, and the growth of private
Utilities 3% labels.
Other 6%
----
90%
====
- --------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
- --------------------------------------------------------------------------
1. United Technologies Corp.
Aerospace, climate control systems and elevators
2. Eli Lilly Co.
Leading pharmaceutical company
3. Baxter International Inc.
Manufacturer and distributor of hospital and laboratory
products and services
4. Alltel Corp.
Telecommunications and data processing services
5. Warner-Lambert Co.
Drugs, toiletries and food products
6. First Bank System Inc.
Commercial banking in Minnesota and the northcentral U.S.
7. Xerox Corp.
Leading manufacturer of copiers and duplicators
8. Boise Cascade Corp.
Manufacturer of forest products
9. Meditrust SBI (REIT)
Owner of health care facilities
10. Murphy Oil Corp.
International integrated oil company
<PAGE>
CAPITAL GROWTH PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Two major trends influenced the stock market during much of 1994:
strong economic activity and persistently rising interest rates, due in
part to monetary tightening by the Federal Reserve. The struggle between
these opposing forces caused considerable unease among investors, and stock
prices were volatile throughout the year. In this environment, Capital
Growth Portfolio's net asset value per share declined to $12.23 on December
31, 1994, from $14.95 on December 31, 1993. However, the price change was
offset somewhat by $0.05 per share in income dividends and $1.31 per share
in capital gains distributions. The Portfolio recorded a -9.67% total
return for the year, compared with 1.32% for the unmanaged Standard &
Poor's 500 Index, and a -1.00% return for the 70 growth funds tracked by
Lipper Analytical Services, Inc. Lipper is an independent firm that tracks
performance of variable annuity investment options.
(CALLOUT NEXT TO THE PREVIOUS PARAGRAPH) - Capital Growth Portfolio is
positioned for 1995 with holdings that include cable, retail,
telecommunications, entertainment, healthcare, and financial stocks.
The Portfolio's performance trailed the Index in part because of its
holdings in the cable and retail industries. Cable stocks dropped due to
renewed FCC regulation of basic cable rates and the collapse of some
high-profile mergers. In addition, some retail holdings suffered in
anticipation of disappointing Christmas sales. Looking forward, the cable
industry should benefit from an improved regulatory environment, new
opportunities from substantially increased channel capacity, and
prospective joint ventures and mergers.
Several major developments influenced the domestic portion of the
Portfolio during the year. ITT proposed the acquisition of Caesar's World,
which we later sold at a substantial profit. We purchased United
Healthcare, U.S. HealthCare, and Baxter International in light of the
improved outlook for the healthcare industry and these companies in
particular. And the Portfolio's financial holdings were increased through
the purchase of AMBAC and MBIA, two municipal-bond insurers.
The Portfolio's investment in foreign stocks increased during the year
in part through the purchase of ENDESA, a leading Spanish utility company.
We also added to our holdings in Nokia, a rapidly growing Finnish
manufacturer of cellular telephones. In late December, all Latin American
stock markets declined sharply following the devaluation of the Mexican
peso. We used this opportunity to purchase two of the largest telephone
companies in Argentina--Telefonica de Argentina and Telecom Argentina--as
well as Telespe, a Brazilian telephone company.
Looking forward, we believe the market's overall valuation remains
reasonable, given 1994's rise in corporate earnings and our expectation for
further earnings gains in 1995. We are also encouraged by the moderate
outlook for U.S. inflation and economic activity in the new year. In view
of these prospects, we believe the Portfolio is well positioned to benefit
shareholders over time.
Sincerely,
Your Portfolio Management Team
/s/William F. Gadsden /s/Steven P. Aronoff
William F. Gadsden Steven P. Aronoff
Lead Portfolio Manager
/s/Julia D. Cox
Julia D. Cox
<PAGE>
Capital Growth Portfolio
Portfolio Summary as of December 31, 1994
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- -----------------------------------------------------------------
Capital Growth Portfolio
- ----------------------------------------
Total Return
Period Growth -------------
Ended of Average
12/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $ 9,033 -9.67% -9.67%
5 Year $15,008 50.08% 8.46%
Life of
Fund* $29,783 197.83% 12.22%
S&P 500 Index
- --------------------------------------
Total Return
Period Growth -------------
Ended of Average
12/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $10,132 1.32% 1.32%
5 Year $15,174 51.74% 8.69%
Life of
Fund* $32,758 227.58% 13.43%
*The Fund commenced operations on July 16, 1985.
Index comparisons begin July 31, 1985.
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Yearly Periods Ended December 31
Capital Growth Portfolio
Year Amount
- ---------------------
7/31/85* 10000
85 11245
86 13752
87 13492
88 16469
89 20215
90 18708
91 26108
92 27785
93 33587
94 30339
S&P 500 Index
Year Amount
- ---------------------
7/31/85* 10000
85 11257
86 13358
87 14059
88 16394
89 21589
90 20919
91 27292
92 29371
93 32331
94 32758
The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-
weighted measure of 500 widely held common stocks listed on the New
York Stock Exchange, American Stock Exchange, and Over-The-Counter
market. Index returns assume reinvestment of dividends and, unlike
Fund returns, do not reflect any fees or expenses.
All performance is historical, assumes reinvestment of all dividends
and capital gains, and is not indicative of future results. Investment
return and principal value will fluctuate, so an investor's shares,
when redeemed, may be worth more or less than when purchased. Total
returns in some periods were higher due to maintenance of the Fund's
expenses. See Financial Highlights for the Capital Growth Portfolio.
- -------------------------------------------------------------------
DIVERSIFICATION
- -------------------------------------------------------------------
Equity Securities 95%
Cash Equivalents 5%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
Sector breakdown of the Portfolio's equity holdings
Media 18%
Consumer Discretionary 15% A proposed acquisition in the
Communications 12% gaming industry and a major
Technology 10% telecommunications merger benefited
Financial 10% Capital Growth Portfolio.
Health 7%
Durables 7%
Utilities 4%
Energy 4%
Other 8%
----
95%
====
- --------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
- --------------------------------------------------------------------------
1. Time Warner Inc.
Publishing, broadcasting, and video entertainment company
2. Tele-Communications Inc.
Cable TV systems and microwave services
3. Comcast Corp.
Cable TV, sound and telecommunication systems
4. Rogers Communications Inc.
Cable TV and cellular telephones in Canada
5. Intel Corp.
Semiconductor memory circuits
6. Chrysler Corp.
Leading automobile manufacturer
7. American Telephone & Telegraph Co.
Telecommunication services and business systems
8. Century Telephone Enterprises
Telecommunication services
9. Astra AB
Pharmaceutical company
10. Microsoft Corp.
Computer operating systems software
<PAGE>
INTERNATIONAL PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
We are pleased to report relatively strong performance during a
troublesome year for the world's financial markets. For the 12 months ended
December 31, 1994, International Portfolio returned -0.85%. By comparison,
the unmanaged Morgan Stanley Capital International's Europe, Australia, the
Far East and Canada Index returned 7.36%, owing to its large exposure to
Japan compared with that of the Fund. During the year, the Japanese yen
surged against the U.S. dollar, while Japanese stocks also rallied. The
combination produced a U.S. dollar return of 20.7% for Japan, though other
Asian markets fell 16.1% on average. In Mexico, the December devaluation of
the peso caused market declines throughout Latin America, although the
effect on the Portfolio was limited. European and American markets ended
the year little changed.
(CALLOUT NEXT TO THE PREVIOUS PARAGRAPH) - During the year, we invested in
companies benefiting from the global economic expansion, including those
involved in the production and exploration of oil and natural gas.
During the year, we sought and invested in companies benefiting from
heightened economic activity worldwide. In Germany, for example, the
industrial sector has made significant gains in competitiveness and
profitability and now appears to be leading the European economic recovery.
Germany's economic activity thus far has been driven by exports, and recent
additions to the portfolio include such exporters as Henkel, a household
detergent and adhesives producer; BASF, a diversified chemicals
manufacturer; and Volkswagen.
We also maintained our focus on energy-related companies benefiting
from a jump in worldwide demand for oil and other raw materials. In view of
this trend, we added to our positions in oil and gas exploration and
production companies, including Ampol Exploration Ltd. in Australia and
Total SA in France.
Also, we further reduced our holdings of Japanese retailers,
completely eliminating our position in Autobacs Seven Co., Ltd., once one
of our largest holdings. Concerns about sluggish consumer spending and
increased competition have dimmed our enthusiasm for Japanese retail
stocks. Our Japanese holdings now largely represent major exporting firms
like Canon and Hitachi, as well as capital goods companies that we believe
are positioned for global expansion and likely to benefit from a declining
yen.
Given ongoing political and economic uncertainties in many parts of
the world, we will seek to use additional market volatility to our
advantage by purchasing fundamentally strong companies at discounted
prices.
Sincerely,
Your Portfolio Management Team
/s/Carol L. Franklin /s/Nicholas Bratt
Carol L. Franklin Nicholas Bratt
Lead Portfolio Manager
<PAGE>
International Portfolio
Portfolio Summary as of December 31, 1994
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- -----------------------------------------------------------------
International Portfolio
- ----------------------------------------
Total Return
Period Growth -------------
Ended of Average
12/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $ 9,915 -.85% -.85%
5 Year $13,633 36.33% 6.39%
Life of
Fund* $19,595 95.95% 9.18%
MSCI EAFE & Canada Index
- --------------------------------------
Total Return
Period Growth -------------
Ended of Average
12/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $10,736 7.36% 7.36%
5 Year $10,730 7.30% 1.42%
Life of
Fund* $13,915 39.15% 4.45%
*The Fund commenced operations on May 1, 1987.
Index comparisons begin May 31, 1987.
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Yearly Periods Ended December 31
International Portfolio
Year Amount
- ---------------------
5/31/87* 10000
87 8997
88 10502
89 14470
90 13363
91 14893
92 14433
93 19896
94 19727
MSCI EAFE & Canada Index
Year Amount
- ---------------------
5/31/87* 10000
87 9138
88 11682
89 12968
90 9980
91 11186
92 9824
93 12961
94 13915
The Morgan Stanley Capital International (MSCI) Europe, Australia,
the Far East (EAFE) & Canada Index is an unmanaged capitalization-
weighted measure of stock markets in Europe, Australia, the Far East
and Canada. Index returns assume dividends reinvested net of
withholding tax and, unlike Fund returns, do not reflect any fees or
expenses.
All performance is historical, assumes reinvestment of all dividends
and capital gains, and is not indicative of future results. Investment
return and principal value will fluctuate, so an investor's shares,
when redeemed, may be worth more or less than when purchased. Total
returns in some periods were higher due to maintenance of the Fund's
expenses. See Financial Highlights for the International Portfolio.
- -------------------------------------------------------------------
DIVERSIFICATION
- -------------------------------------------------------------------
By Region (Excluding Cash Equivalents)
- --------------------------------------
Europe 50%
Japan 28%
Pacific Basin 14%
Latin America 5%
Canada 3%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
By Asset Type
- --------------------------------------
Equity Holdings 90%
Cash Equivalents 10%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
- --------------------------------------------------------------------------
1. Autoliv AB
Swedish manufacturer of safety airbags for automobiles
2. SAP AG
German computer software manufacturer
3. Canon Inc.
Leading Japanese producer of visual image and information
equipment
4. NGK Spark Plug Co., Ltd.
Leading Japanese manufacturer of automotive spark plugs
5. Kyocera Corp.
Leading Japanese ceramic packaging manufacturer
6. Sony Corp.
Japanese consumer electronic products manufacturer
7. Hitachi Ltd.
Japanese general electronics manufacturer
8. Hitachi Metals, Ltd.
Major Japanese producer of high-quality specialty steels
9. Outokumpu Oy
Metals and minerals in Finland
10. Schering AG
German pharmaceutical and chemical producer
<PAGE>
<TABLE>
MONEY MARKET PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Value ($)
Portfolio Amount ($) (Note A)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------
4.5% REPURCHASE AGREEMENT
------------------------------------------------------------------------------------
4,030,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 12/30/94 at 5.875%, to be repurchased at
$4,032,631 on 1/3/95, collateralized by a $4,074,000
U.S. Treasury Note, 6.25%, 8/31/96 (Cost $4,030,000). . 4,030,000
------------
------------------------------------------------------------------------------------
48.1% COMMERCIAL PAPER
------------------------------------------------------------------------------------
CONSUMER STAPLES 3.3%
Food & Beverage 3,000,000 H.J. Heinz Co., 5.95%, 1/27/95 . . . . . . . . . . . . 2,987,108
------------
COMMUNICATIONS 3.3%
Telephone/
Communications 3,000,000 AT&T Corp., 6.02%, 2/8/95 . . . . . . . . . . . . . . 2,980,937
------------
FINANCIAL 34.7%
Banks 6.7% 3,000,000 Bankers Trust New York Corp., 5.08%, 1/13/95 . . . . . 2,994,920
3,000,000 J.P. Morgan & Co., Inc., 6.05%, 3/1/95 . . . . . . . . 2,970,254
------------
5,965,174
------------
Business Finance 3.3% 3,000,000 Receivables Capital Corp., 5.95%, 1/24/95 . . . . . . 2,988,596
------------
Consumer Finance 7.9% 3,000,000 American Express Credit Corp., 5.88%, 2/2/95 . . . . . 3,000,000
4,000,000 General Electric Capital Corp., 5.78%, 1/31/95 . . . . 4,000,000
------------
7,000,000
------------
Other Financial
Companies 16.8% 3,000,000 American General Finance Corp., 5.81%, 1/27/95 . . . . 3,000,000
3,000,000 Associates Corp. of North America, 5.68%, 1/18/95 . . 3,000,000
3,000,000 Corporate Asset Funding Co., 6.05%, 2/10/95 . . . . . 2,979,833
3,000,000 New Center Asset Trust, 5.65%, 1/13/95 . . . . . . . . 2,994,350
3,000,000 Rincon Securities Inc., 5.75%, 1/17/95 . . . . . . . . 2,992,333
------------
14,966,516
------------
DURABLES 3.4%
Construction/
Agricultural Equipment 3,000,000 John Deere Capital Corp., 5.78%, 1/24/95 . . . . . . . 3,000,000
------------
MANUFACTURING 3.4%
Chemicals 3,000,000 E.I. du Pont de Nemours & Co., 5.9%, 1/24/95 . . . . . 2,988,692
------------
TOTAL COMMERCIAL PAPER (Cost $42,877,023) . . . . . . 42,877,023
------------
------------------------------------------------------------------------------------
11.0% U.S. TREASURY OBLIGATIONS
------------------------------------------------------------------------------------
5,000,000 U.S. Treasury Bill, 4.71%, 1/5/95 . . . . . . . . . . 4,997,383
2,000,000 U.S. Treasury Bill, 3.41%, 1/12/95 . . . . . . . . . . 1,997,916
3,000,000 U.S. Treasury Bill, 6.75%, 12/14/95 . . . . . . . . . 2,804,957
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $9,800,256). . . . . . . . . . . . . . . . . . 9,800,256
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
INVESTMENT PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Value ($)
Portfolio Amount ($) (Note A)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------
36.4% U.S. GOVERNMENT AGENCY OBLIGATIONS
---------------------------------------------------------------------------------------
5,000,000 Federal Farm Credit Bank, Discount Note, 5.6%, 1/4/95 . . . 4,997,667
3,000,000 Federal Home Loan Bank, Discount Note, 4.93%, 1/13/95 . . . 2,995,070
5,000,000 Federal Home Loan Mortgage Corp., Discount Note,
5.9%, 1/3/95 . . . . . . . . . . . . . . . . . . . . . . 4,998,361
5,000,000 Federal Home Loan Mortgage Corp., Discount Note,
5.78%, 1/17/95 . . . . . . . . . . . . . . . . . . . . . 4,987,155
5,000,000 Federal Home Loan Mortgage Corp., Discount Note,
5.62%, 1/23/95 . . . . . . . . . . . . . . . . . . . . . 4,982,828
4,500,000 Federal Home Loan Mortgage Corp., Discount Note,
6.17%, 4/4/95 . . . . . . . . . . . . . . . . . . . . . . 4,428,274
5,000,000 Federal National Mortgage Association Discount Note,
5.8%, 1/9/95 . . . . . . . . . . . . . . . . . . . . . . 4,993,556
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $32,382,911) . . . . . . . . . . . . . . . . . . . 32,382,911
-----------
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO - 100% (Cost $89,090,190)(a) . . . . . . . . . 89,090,190
===========
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Cost for federal income tax purposes is $89,090,190.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
MONEY MARKET PORTFOLIO
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
<S> <C> <C>
DECEMBER 31, 1994
- ------------------------------------------------------------------------------------------------
ASSETS
Investments, at value (amortized cost $89,090,190) (Note A) . . . . . $ 89,090,190
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 890
Receivables:
Portfolio shares sold . . . . . . . . . . . . . . . . . . . . . . 1,382,184
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,037
------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . 90,534,301
LIABILITIES
Payables:
Due to Adviser (Note B) . . . . . . . . . . . . . . . . . . . . . $ 30,056
Accrued expenses (Note B) . . . . . . . . . . . . . . . . . . . . 6,333
---------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 36,389
------------
Net assets, at value . . . . . . . . . . . . . . . . . . . . . . . . $ 90,497,912
============
NET ASSETS
Net assets consist of:
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 90,497,912
------------
Net assets, at value . . . . . . . . . . . . . . . . . . . . . . . . $ 90,497,912
============
NET ASSET VALUE, offering and redemption price per share
($90,497,912 -:- 90,497,912 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) . . $1.00
=====
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1994
- ------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,175,974
Expenses (Note A):
Management fee (Note B) . . . . . . . . . . . . . . . . . . $269,963
Administrative fees (Note B) . . . . . . . . . . . . . . . 40,297
Accounting fees (Note B) . . . . . . . . . . . . . . . . . 17,630
Trustees' fees (Note B) . . . . . . . . . . . . . . . . . . 9,886
Custodian fees . . . . . . . . . . . . . . . . . . . . . . 21,111
Federal registration . . . . . . . . . . . . . . . . . . . 18,186
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,785
Auditing . . . . . . . . . . . . . . . . . . . . . . . . . 9,984
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,641 407,483
-------- -----------
Net investment income . . . . . . . . . . . . . . . . . . . . 2,768,491
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . $ 2,768,491
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
INCREASE (DECREASE) IN NET ASSETS 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income and net increase in net assets
resulting from operations . . . . . . . . . . . . . . . . . $ 2,768,491 $ 899,874
------------- -------------
Distributions to shareholders from net investment income
($.037 and $.025 per share, respectively . . . . . . . . . . . (2,768,491) (899,874)
------------- -------------
Portfolio share transactions at net asset value of $1.00 per share:
Proceeds from shares sold . . . . . . . . . . . . . . . . . . 186,827,297 98,111,621
Net asset value of shares issued to shareholders in
reinvestment of distributions from net investment income . 2,768,491 899,874
Cost of shares redeemed . . . . . . . . . . . . . . . . . . . (147,877,533) (83,950,201)
------------- -------------
Net increase in net assets from Portfolio share transactions . 41,718,255 15,061,294
------------- -------------
INCREASE IN NET ASSETS . . . . . . . . . . . . . . . . . . . . . 41,718,255 15,061,294
Net assets at beginning of period . . . . . . . . . . . . . . . . 48,779,657 33,718,363
------------- -------------
NET ASSETS AT END OF PERIOD . . . . . . . . . . . . . . . . . . . $ 90,497,912 $ 48,779,657
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.
<CAPTION>
SIX FOR THE PERIOD
MONTHS JULY 16, 1985
ENDED (COMMENCEMENT)
YEARS ENDED DECEMBER 31, DECEMBER OF OPERATIONS)
------------------------------------------------------------- 31, TO JUNE 30,
1994 1993 1992 1991 1990 1989 1988 1987 1986(e) 1986
------------------------------------------------------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period. . . . $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000(b)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income (a) . . . . . . . .037 .025 .033 .057 .076 .088 .068 .060 .026 .064
Less distributions from
net investment income . . (.037) (.025) (.033) (.057) (.076) (.088) (.068) (.060) (.026) (.064)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period . . . . . . $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%) . . . . . 3.72 2.54 3.33 5.81 7.83 8.84 7.08 5.95 2.59(d) 6.59(d)
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period ($ millions). . . . 90 49 34 28 32 15 11 8 3 --
Ratio of operating
expenses, net to
average daily net
assets (%) (a) . . . . . .56 .66 .64 .67 .69 .72 .75 .75 .75(c) .60(c)
Ratio of net investment
income to average
daily net assets (%) . . . 3.80 2.55 3.26 5.67 7.57 8.53 6.99 6.06 5.10(c) 6.75(c)
(a) Portion of expenses
reimbursed
(Note B) . . . . . . . $ -- $ -- $ -- $ -- $ -- $ .001 $ .003 $ .006 $ .022 $ .133
<FN>
(b) Original capital
(c) Annualized
(d) Not annualized
(e) On August 22, 1986, the Trustees voted to change the year end of the Fund from June 30 to December 31.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
BOND PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1994
- ----------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
48.7% U.S. TREASURY OBLIGATIONS
------------------------------------------------------------------------------------
3,230,000 U.S. Treasury Bill, 5.78%, 5/18/95 . . . . . . . . . 3,156,582
4,200,000 U.S. Treasury Bond, 7.25%, 5/15/16 . . . . . . . . . 3,883,698
4,520,000 U.S. Treasury Bond, 7.875%, 2/15/21 . . . . . . . . 4,463,500
4,360,000 U.S. Treasury Note, 3.875%, 10/31/95 . . . . . . . . 4,245,550
13,555,000 U.S. Treasury Note, 4%, 1/31/96 . . . . . . . . . . 13,086,946
9,110,000 U.S. Treasury Note, 5.125%, 3/31/96 . . . . . . . . 8,855,193
8,510,000 U.S. Treasury Note, 6%, 6/30/96 . . . . . . . . . . 8,326,524
6,905,000 U.S. Treasury Note, 6.875%, 7/31/99 . . . . . . . . 6,646,063
3,200,000 U.S. Treasury Note, 7.25%, 5/15/04 . . . . . . . . . 3,072,992
8,100,000 U.S. Treasury Separate Trading Registered Interest
and Principal Securities, 11/15/09 (8.04**) . . . . 2,507,841
12,700,000 U.S. Treasury Separate Trading Registered Interest
and Principal Securities, 11/15/10 (8.05**) . . . . 3,628,263
18,740,000 U.S. Treasury Separate Trading Registered Interest
and Principal Securities, 2/15/12 (8.07**) . . . . . 4,837,918
8,050,000 U.S. Treasury Separate Trading Registered Interest
and Principal Securities, 5/15/15 (8.09**) . . . . . 1,600,984
-----------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $70,751,577) . 68,312,054
-----------
------------------------------------------------------------------------------------
8.3% U.S. GOV'T GUARANTEED MORTGAGES
------------------------------------------------------------------------------------
9,077,233 Government National Mortgage Association, 8%, 7/15/24* . . 8,677,199
3,266,168 Government National Mortgage Association, 6.5%, 8/15/08* . 2,984,461
-----------
TOTAL U.S. GOV'T GUARANTEED MORTGAGES
(Cost $12,203,049) . . . . . . . . . . . . . . . . . . 11,661,660
-----------
------------------------------------------------------------------------------------
3.3% U.S. GOVERNMENT AGENCY PASS-THRUS
------------------------------------------------------------------------------------
4,976,332 Federal National Mortgage Association, 7.5%, 10/1/24*
(Cost $4,731,404) . . . . . . . . . . . . . . . . . . . 4,646,651
----------
------------------------------------------------------------------------------------
1.7% COLLATERALIZED MORTGAGE OBLIGATIONS
------------------------------------------------------------------------------------
2,000,000 Federal Home Loan Mortgage Corp., REMIC, 7%, 7/15/06 . . . 1,835,620
272,776 Federal National Mortgage Association, REMIC,
8.5%, 4/25/18 . . . . . . . . . . . . . . . . . . . . . 273,883
220,406 Resolution Trust Corp., Series 1992-7, Class A-2B,
8.35%, 6/25/29 . . . . . . . . . . . . . . . . . . . . . 219,821
----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $2,321,803) . . . . . . . . . . . . . . . . . . . . . 2,329,324
----------
-----------------------------------------------------------------------------------
8.2% FOREIGN BONDS - U.S. $ DENOMINATED
-----------------------------------------------------------------------------------
1,000,000 ABN-AMRO Bank NV, 7.75%, 5/15/23 . . . . . . . . . . . . . 891,990
1,500,000 Banco Nacional de Comercio Exterior SNC, 9.875%, 6/24/96 . 1,462,500
750,000 Fomento Economico Mexicano S.A., 9.5%, 7/22/97 . . . . . . 671,250
1,000,000 Government of Malaysia, 9.875%, 9/27/00 . . . . . . . . . 1,058,350
1,000,000 Gruma SA de C.V., 9.75%, 3/9/98 . . . . . . . . . . . . . 915,000
2,000,000 Kingdom of Thailand, 8.25%, 3/15/02 . . . . . . . . . . . 1,963,240
2,000,000 Korea Development Bank, 9.6%, 12/1/00 . . . . . . . . . 2,070,620
450,000 Nacional Financiera SNC, 6%, 12/19/96 . . . . . . . . . . 409,500
400,000 Nacional Financiera SNC, 9.375%, 7/15/02 . . . . . . . . . 338,000
1,000,000 Nippon Telegraph & Telephone Corp., 9.5%, 7/27/98 . . . . 1,038,660
750,000 Petroleos Mexicanos, 8.25%, 2/4/98 . . . . . . . . . . . . 680,625
----------
TOTAL FOREIGN BONDS - U.S. $ DENOMINATED
(Cost $11,930,619) . . . . . . . . . . . . . . . . . . . 11,499,735
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------
13.0% ASSET-BACKED SECURITIES
---------------------------------------------------------------------------------
<S> <C> <C> <C>
AUTOMOBILE RECEIVABLES 0.7% 1,000,000 Premier Auto Trust, Series 1994-3, 6.8%, 12/2/99 . . . 972,500
----------
CREDIT CARD RECEIVABLES 9.2% 1,500,000 Chase Manhattan Credit Card Trust, 1991 "A", 7.65%,
11/15/98 . . . . . . . . . . . . . . . . . . . . . . . 1,497,645
3,000,000 Discover Credit Card Trust, Series 1992-A, 5.5%,
5/16/98 . . . . . . . . . . . . . . . . . . . . . . . 2,941,860
1,000,000 First Chicago Master Trust, Series 1991-D, 8.4%, 6/15/98 1,003,120
3,500,000 First USA Credit Corp., Series 1992-A, 5.2%, 6/15/98 . . 3,387,335
2,500,000 Standard Credit Card Trust, Series 1990-3B, 9.85%,
7/10/97 . . . . .. . . . . . . . . . . . . . . . . . . 2,575,000
1,500,000 Standard Credit Card Trust, Series 1990-6B, 9.625%,
9/10/97 . . . . . . . . . . . . . . . . . . . . . . . 1,540,770
----------
12,945,730
----------
HOME EQUITY LOANS 1.9% 2,000,000 Contimortgage Home Equity Loan Trust, Series 1994-5 A1,
9.07%, 5/15/06 . . . . . . . . . . . . . . . . . . . . 2,011,250
668,573 United Companies Financial Corp., Home Loan Trust,
Series 1993 B1, 6.075%, 7/25/14* . . . . . . . . . . 617,803
----------
2,629,053
----------
MANUFACTURED HOUSING
RECEIVABLES 1.2% 1,757,845 Green Tree Financial Corp., Securitized Series 1994B,
7.85%, 7/15/04* . . . . . . . . . . . . . . . . . . 1,713,899
----------
TOTAL ASSET-BACKED SECURITIES (Cost $18,967,489) . . . 18,261,182
----------
---------------------------------------------------------------------------------
16.8% CORPORATE BONDS
---------------------------------------------------------------------------------
CONSUMER DISCRETIONARY 1.4% 2,000,000 Dayton Hudson Corp., 8.6%, 1/15/12 . . . . . . . . . . 1,979,160
----------
CONSUMER STAPLES 0.7% 1,000,000 Seagram & Sons Inc., 9%, 8/15/21 . . . . . . . . . . . 1,020,450
----------
FINANCIAL 3.5% 1,000,000 Banc One Corp., 8.74%, 9/15/03 . . . . . . . . . . . . 1,012,830
1,000,000 BankAmerica Corp., 7.75%, 7/15/02 . . . . . . . . . . 949,950
1,000,000 Golden West Financial Corp., 6%, 10/1/03 . . . . . . . 843,890
1,000,000 Grand Metropolitan Investment Corp., 8.625%, 8/15/01 . . 1,006,640
1,000,000 Household Finance Corp., 9.25%, 2/15/95 . . . . . . . 1,003,080
----------
4,816,390
----------
MEDIA 1.3% 2,000,000 Time Warner Inc., 9.125%, 1/15/13 . . . . . . . . . . . 1,801,880
----------
DURABLES 2.1% 750,000 Caterpillar Inc., 9.75%, 6/1/19 . . . . . . . . . . . . 792,105
5,000,000 General Motors Acceptance Corp., Zero Coupon, 12/1/12. . 1,095,450
1,000,000 Lockheed Corp., 9%, 1/15/22 . . . . . . . . . . . . . . 1,023,790
----------
2,911,345
----------
MANUFACTURING 2.2% 1,000,000 ARCO Chemical Co., 9.375%, 12/15/05 . . . . . . . . . . 1,045,140
1,000,000 Dow Chemical Co., 9%, 5/15/10 . . . . . . . . . . . . 1,014,920
1,000,000 Monsanto Co., 8.7%, 10/15/21 . . . . . . . . . . . . . . 1,006,170
----------
3,066,230
----------
TECHNOLOGY 1.3% 2,000,000 Loral Corp., 8.375%, 6/15/24 . . . . . . . . . . . . . 1,848,560
----------
ENERGY 3.6% 2,000,000 Atlantic Richfield Co., 8.25%, 2/1/22 . . . . . . . . . 1,925,000
2,000,000 Atlantic Richfield Co., 9.125%, 8/1/31 . . . . . . . . 2,070,860
1,000,000 Enron Corp., 10%, 6/1/98 . . . . . . . . . . . . . . . 1,037,900
----------
5,033,760
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
BOND PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
METALS AND MINERALS 0.7% 1,000,000 Alcan Aluminum Ltd., 9.4%, 6/1/95 . . . . . . 1,009,380
-----------
TOTAL CORPORATE BONDS (Cost $24,059,681) . . . 23,487,155
-----------
- ----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $144,965,622)(a) . . . . . . . . . . . 140,197,761
===========
- ----------------------------------------------------------------------------------------------------------------
<FN>
* Effective maturities will be shorter due to amortization and prepayments.
** Yield; bond equivalent yield to maturity; not a coupon rate (unaudited).
(a) At December 31, 1994, the net unrealized depreciation on investments based on cost for federal
income tax purposes of $145,233,462 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an excess
of market value over tax cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 311,092
Aggregate gross unrealized depreciation for all investments in which there is an excess
of tax cost over market value . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,346,793)
------------
Net unrealized depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5,035,701)
============
- -------------------------------------------------------------------------------------------------------------
At December 31, 1994, the Bond Portfolio had a net tax basis capital loss carryforward of approximately
$4,153,327, which may be applied against any realized net taxable capital gains of each succeeding year
until fully utilized or until December 31, 2002, whichever occurs first.
- -------------------------------------------------------------------------------------------------------------
From November 1, 1994 through December 31, 1994, the Bond Portfolio incurred approximately $934,894 of
net realized capital losses which the Portfolio intends to elect to defer and treat as arising in the
fiscal year ended December 31, 1995.
- -------------------------------------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term investments and U.S. Government
securities), for the year ended December 31, 1994, aggregated $26,330,691 and $28,463,557,
respectively. Purchases and sales of U.S. Government securities for the year ended December 31, 1994,
aggregated $127,013,697 and $98,526,029, respectively.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------------------
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
- ------------------------------------------------------------------------------------------------
DECEMBER 31, 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $144,965,622) (Note A) . . $140,197,761
Receivables:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,288,634
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . 716,464
Portfolio shares sold . . . . . . . . . . . . . . . . . . . . . 49,355
------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . 143,252,214
LIABILITIES
Payables:
Due to custodian bank . . . . . . . . . . . . . . . . . . . . . $ 2,424
Investments purchased . . . . . . . . . . . . . . . . . . . . . 736,188
Portfolio shares redeemed . . . . . . . . . . . . . . . . . . . 29,285
Due to Adviser (Note B) . . . . . . . . . . . . . . . . . . . . 60,086
Accrued expenses (Note B) . . . . . . . . . . . . . . . . . . . 19,619
--------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . 847,602
------------
Net assets, at market value . . . . . . . . . . . . . . . . . . . . $142,404,612
============
NET ASSETS
Net assets consist of:
Undistributed net investment income . . . . . . . . . . . . . . $ 2,188,157
Net unrealized depreciation on investments . . . . . . . . . . . (4,767,861)
Accumulated net realized loss . . . . . . . . . . . . . . . . . (5,356,061)
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 150,340,377
------------
Net assets, at market value . . . . . . . . . . . . . . . . . . . . $142,404,612
============
NET ASSET VALUE, offering and redemption price per share
($142,404,612 -:- 21,973,579 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) . $6.48
=====
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
BOND PORTFOLIO
- ---------------------------------------------------------------------------------------------------
<CAPTION>
STATEMENT OF OPERATIONS
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1994
- ---------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,603,254
Expenses (Note A):
Management fee (Note B) . . . . . . . . . . . . . . . . . . $ 650,361
Administrative fees (Note B) . . . . . . . . . . . . . . . 40,238
Accounting fees (Note B) . . . . . . . . . . . . . . . . . 22,187
Trustees' fees (Note B) . . . . . . . . . . . . . . . . . . 10,111
Custodian fees . . . . . . . . . . . . . . . . . . . . . . 32,442
Auditing . . . . . . . . . . . . . . . . . . . . . . . . . 14,153
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,717
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,757 796,966
---------- ------------
Net investment income . . . . . . . . . . . . . . . . . . . . 8,806,288
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized loss from:
Investments . . . . . . . . . . . . . . . . . . . . . . . . (5,510,934)
Foreign currency related transactions . . . . . . . . . . . (96,214) (5,607,148)
----------
Net unrealized appreciation (depreciation) during the period on:
Investments . . . . . . . . . . . . . . . . . . . . . . . . (9,676,517)
Foreign currency related transactions . . . . . . . . . . . 3,936 (9,672,581)
---------- ------------
Net loss on investment transactions . . . . . . . . . . . . . (15,279,729)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . $ (6,473,441)
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
----------------------------------
INCREASE (DECREASE) IN NET ASSETS 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,806,288 $ 7,642,963
Net realized gain (loss) from investment transactions . . . . . . . . . . (5,607,148) 3,118,124
Net unrealized appreciation (depreciation) on investment
transactions during the period . . . . . . . . . . . . . . . . . . . . (9,672,581) 2,512,942
------------- -------------
Net increase (decrease) in net assets resulting from operations . . . . . . . (6,473,441) 13,274,029
------------- -------------
Distributions to shareholders from:
Net investment income ($.43 and $.48 per share, respectively) . . . . . . (8,525,294) (7,359,412)
------------- -------------
Net realized gain from investment transactions
($.17 and $.15 per share, respectively) . . . . . . . . . . . . . . . . (3,161,229) (2,268,442)
------------- -------------
Portfolio share transactions:
Proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . . . . 86,578,280 60,028,541
Net asset value of shares issued to shareholders in
reinvestment of distributions . . . . . . . . . . . . . . . . . . . . . 11,686,523 9,627,854
Cost of shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . (66,398,542) (57,355,192)
------------- -------------
Net increase in net assets from Portfolio share transactions . . . . . . . . 31,866,261 12,301,203
------------- -------------
INCREASE IN NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,706,297 15,947,378
Net assets at beginning of period . . . . . . . . . . . . . . . . . . . . . . 128,698,315 112,750,937
------------- -------------
NET ASSETS AT END OF PERIOD (including undistributed net investment
income of $2,188,157 and $2,203,911, respectively) . . . . . . . . . . . . $ 142,404,612 $ 128,698,315
============= =============
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period . . . . . . . . . . . . . . . . . 17,350,092 15,685,339
------------- -------------
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,843,292 8,119,378
Shares issued to shareholders in reinvestment of distributions . . . . . . 1,713,654 1,324,202
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,933,459) (7,778,827)
------------- -------------
Net increase in Portfolio shares . . . . . . . . . . . . . . . . . . . . . 4,623,487 1,664,753
------------- -------------
Shares outstanding at end of period . . . . . . . . . . . . . . . . . . . . . 21,973,579 17,350,092
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER
PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.
SIX FOR THE PERIOD
MONTHS JULY 16, 1985
ENDED (COMMENCEMENT
YEARS ENDED DECEMBER 31, (E) DECEMBER OF OPERATIONS
----------------------------------------------------------------------- 31, TO JUNE 30,
1994 1993 1992 1991 1990 1989 1988 1987 1986(e)(f) 1986
--------------------------------------------------------------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period . . . $ 7.42 $ 7.19 $ 7.37 $ 6.73 $ 6.72 $ 6.39 $ 6.47 $ 6.67 $ 6.56 $ 6.00(b)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income (a) . . . . . . .43 .48 .49 .52 .53 .54 .54 .49 .23 .45
Net realized and
unrealized gain
(loss) on
investment
transactions . . . . . . (.77) .38 (.02) .61 (.02) .18 (.19) (.40) .08 .44
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations . . . . . . . . (.34) .86 .47 1.13 .51 .72 .35 .09 .31 .89
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions from:
Net investment income . . . (.43) (.48) (.46) (.47) (.50) (.39) (.43) (.29) (.17) (.33)
Net realized gains on
on investment
transactions . . . . . . (.17) (.15) (.19) (.02) -- -- -- -- (.03) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions . . . . (.60) (.63) (.65) (.49) (.50) (.39) (.43) (.29) (.20) (.33)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period . . . . . . $ 6.48 $ 7.42 $ 7.19 $ 7.37 $ 6.73 $ 6.72 $ 6.39 $ 6.47 $ 6.67 $ 6.56
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%) . . . . . . (4.79) 12.38 7.01 17.61 8.06 11.65 5.46 1.22 4.90(d) 15.11(d)
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period ($ millions) . . . . 142 129 113 74 42 22 3 3 1 --
Ratio of operating
expenses, net to
average net
assets (%) (a) . . . . . . .58 .61 .63 .69 .73 .75 .75 .75 .75(c) .60(c)
Ratio of net investment
income to average
net assets (%) . . . . . . 6.43 6.59 6.89 7.51 8.05 8.04 7.86 7.53 6.88(c) 7.48(c)
Portfolio turnover
rate (%) . . . . . . . . . 96.55 125.15 87.00 115.86 71.02 103.41 245.23 186.05 23.82(c) 6.27(c)
<FN>
(a) Portion of expenses
reimbursed (Note B) . . . $ -- $ -- $ -- $ -- $ -- $ .01 $ .04 $ .08 $ .21 $ .80
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts, for each of the periods identified, have been calculated using the monthly average shares outstanding
during the period method.
(f) On August 22, 1986, the Trustees voted to change the year end of the Fund from June 30 to December 31.
</FN>
</TABLE>
<PAGE>
<TABLE>
BALANCED PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1994
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
3.9% REPURCHASE AGREEMENT
---------------------------------------------------------------------------------------
1,810,000 Repurchase Agreement with Donaldson, Lufkin &
Jenrette dated 12/30/94 at 5.875%, to be repurchased
at $1,811,182 on 1/3/95, collateralized by a $1,871,000
U.S. Treasury Note, 4.25%, 11/30/95 (Cost $1,810,000) . . . . 1,810,000
----------
---------------------------------------------------------------------------------------
3.3% COMMERCIAL PAPER
---------------------------------------------------------------------------------------
1,500,000 American Express Credit Corp., 5.755%, 1/3/95
(Cost $1,500,000) . . . . . . . . . . . . . . . . . . . . . 1,500,000
----------
---------------------------------------------------------------------------------------
11.7% U.S. TREASURY OBLIGATIONS
---------------------------------------------------------------------------------------
700,000 U.S. Treasury Bill, 5.78%, 5/18/95 . . . . . . . . . . . . 684,089
340,000 U.S. Treasury Bond, 7.875%, 2/15/21 . . . . . . . . . . . . 335,750
300,000 U.S. Treasury Bond, 8.125%, 5/15/21 . . . . . . . . . . . . 304,782
300,000 U.S. Treasury Note, 4.125%, 6/30/95 . . . . . . . . . . . . 296,484
550,000 U.S. Treasury Note, 5.125%, 3/31/96 . . . . . . . . . . . . 534,616
300,000 U.S. Treasury Note, 6%, 6/30/96 . . . . . . . . . . . . . . 293,532
900,000 U.S. Treasury Note, 5.25%, 7/31/98 . . . . . . . . . . . . . 828,000
600,000 U.S. Treasury Note, 5.875%, 3/31/99 . . . . . . . . . . . . 557,436
500,000 U.S. Treasury Note, 7.25%, 5/15/04 . . . . . . . . . . . . . 480,155
940,000 U.S. Treasury Separate Trading Registered Interest and
Principal Securities, 11/15/09 (8.04**) . . . . . . . . . . 291,033
1,300,000 U.S. Treasury Separate Trading Registered Interest and
Principal Securities, 11/15/10 (8.05**) . . . . . . . . . . 371,397
1,460,000 U.S. Treasury Separate Trading Registered Interest and
Principal Securities, 2/15/12 (8.07**) . . . . . . . . . . 376,914
----------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $5,549,036) . . . . . 5,354,188
----------
---------------------------------------------------------------------------------------
2.2% U.S. GOV'T GUARANTEED MORTGAGES
---------------------------------------------------------------------------------------
504,253 Government National Mortgage Association, 8%, 10/15/24(a) . . 482,030
535,899 Government National Mortgage Association, 8.75%,
12/15/24(a) . . . . . . . . . . . . . . . . . . . . . . . . 523,841
----------
TOTAL U.S. GOV'T GUARANTEED MORTGAGES (Cost $999,135) . . . 1,005,871
----------
---------------------------------------------------------------------------------------
2.1% U.S. GOVERNMENT AGENCY PASS-THRUS
---------------------------------------------------------------------------------------
497,633 Federal National Mortgage Association, 7.5%, 10/1/24(a) . . . 464,665
494,944 Federal National Mortgage Association, 9%, 10/1/24(a) . . . . 497,419
----------
TOTAL U.S. GOVERNMENT AGENCY PASS-THRUS
(Cost $976,204) . . . . . . . . . . . . . . . . . . . . . . 962,084
----------
---------------------------------------------------------------------------------------
0.7% COLLATERALIZED MORTGAGE OBLIGATIONS
---------------------------------------------------------------------------------------
272,776 Federal National Mortgage Association, REMIC,
8.5%, 4/25/18 . . . . . . . . . . . . . . . . . . . . . . . 273,883
55,101 Resolution Trust Corp., Series 1992-7, Class A-2B,
8.35%, 6/25/29 . . . . . . . . . . . . . . . . . . . . . . 54,955
----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $319,229) . . 328,838
----------
---------------------------------------------------------------------------------------
1.5% FOREIGN BONDS - U.S. $ DENOMINATED
---------------------------------------------------------------------------------------
250,000 ABN-AMRO Bank NV, 7.75%, 5/15/23 . . . . . . . . . . . . . . 222,997
250,000 Fomento Economico Mexicano S.A., 9.5%, 7/22/97 . . . . . . . 223,750
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
BALANCED PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
265,000 Petroleos Mexicanos, 8.25%, 2/4/98 . . . . . . . . . . . . . . 240,487
----------
TOTAL FOREIGN BONDS - U.S. $ DENOMINATED
(Cost $750,280) . . . . . . . . . . . . . . . . . . . . . . . 687,234
----------
---------------------------------------------------------------------------------------
4.1% ASSET-BACKED SECURITIES
---------------------------------------------------------------------------------------
AUTOMOBILE RECEIVABLES 0.5%
250,000 Premier Auto Trust, Series 1994-3, 6.8%, 12/2/99 . . . . . . . 243,125
----------
CREDIT CARD RECEIVABLES 2.7%
250,000 Chase Manhattan Credit Card Trust, 1991 "A",
7.65%, 11/15/98 . . . . . . . . . . . . . . . . . . . . . . . 249,607
250,000 Discover Credit Card Trust, Series 1992-A, 5.5%, 5/16/98 . . . 245,155
250,000 First Chicago Master Trust, Series 1991-D, 8.4%, 6/15/98 . . . 250,780
250,000 First USA Credit Corp., Series 1992-A, 5.2%, 6/15/98 . . . . . 241,952
250,000 Standard Credit Card Trust, Series 1990-6B, 9.625%, 9/10/97 . . 256,795
----------
1,244,289
----------
HOME EQUITY LOANS 0.9%
250,000 Contimortgage Home Equity Loan Trust, Series 1994-5 A1,
9.07%, 5/15/06 . . . . . . . . . . . . . . . . . . . . . . . 251,406
167,143 United Companies Financial Corp., Home Loan Trust,
Series 1993 B1, 6.075%, 7/25/14(a) . . . . . . . . . . . . . 154,451
----------
405,857
----------
TOTAL ASSET-BACKED SECURITIES (Cost $1,946,600) . . . . . . . . 1,893,271
----------
---------------------------------------------------------------------------------------
8.3% CORPORATE BONDS
---------------------------------------------------------------------------------------
CONSUMER STAPLES 0.4%
250,000 Seagram Ltd., 6.875%, 9/1/23 . . . . . . . . . . . . . . . . . 200,600
----------
MEDIA 2.0%
500,000 News America Holdings Inc., 9.25%, 2/1/13 . . . . . . . . . . 486,385
500,000 Time Warner Inc., 9.125%, 1/15/13 . . . . . . . . . . . . . . 450,470
----------
936,855
----------
DURABLES 1.6%
500,000 Caterpillar Inc., 8%, 2/15/23 . . . . . . . . . . . . . . . . 465,920
250,000 Lockheed Corp., 9%, 1/15/22 . . . . . . . . . . . . . . . . . 255,947
----------
721,867
----------
MANUFACTURING 0.6%
250,000 Corning Inc., 8.75%, 7/15/99 . . . . . . . . . . . . . . . . . 250,892
----------
TECHNOLOGY 1.0%
500,000 Loral Corp., 8.375%, 6/15/24 . . . . . . . . . . . . . . . . . 462,140
----------
ENERGY 1.6%
500,000 Atlantic Richfield Co., 8.25%, 2/1/22 . . . . . . . . . . . . 481,250
250,000 Enron Corp., 10%, 6/1/98 . . . . . . . . . . . . . . . . . . . 259,475
----------
740,725
----------
METALS AND MINERALS 0.6%
250,000 Alcan Aluminum Ltd., 9.4%, 6/1/95 . . . . . . . . . . . . . . 252,345
----------
UTILITIES 0.5%
250,000 Commonwealth Edison Co., 9.05%, 10/15/99 . . . . . . . . . . . 244,942
----------
TOTAL CORPORATE BONDS (Cost $4,011,595) . . . . . . . . . . . 3,810,366
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
62.2% COMMON STOCKS
- -----------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY 4.1%
Department &
Chain Stores 2.9% 12,466 Home Depot, Inc. . . . . . . . . . . . . . . . 573,436
3,300 J.C. Penney Inc. . . . . . . . . . . . . . . . 147,263
16,000 Wal-Mart Stores Inc. . . . . . . . . . . . . . 340,000
6,500 Walgreen Co. . . . . . . . . . . . . . . . . . 284,375
----------
1,345,074
----------
Restaurants 0.8% 13,000 McDonald's Corp. . . . . . . . . . . . . . . . 380,250
----------
Specialty Retail 0.4% 5,900 Toys "R" Us Inc.* . . . . . . . . . . . . . . . 179,950
----------
CONSUMER STAPLES 9.8%
Consumer Electronic &
Photographic Products 0.8% 4,200 Duracell International Inc. . . . . . . . . . 182,175
4,100 Whirlpool Corp. . . . . . . . . . . . . . . . 206,025
----------
388,200
----------
Food & Beverage 6.6% 8,800 Albertson's Inc. . . . . . . . . . . . . . . . 255,200
8,500 CPC International Inc. . . . . . . . . . . . . 452,625
11,000 ConAgra Inc. . . . . . . . . . . . . . . . . . 343,750
9,100 General Mills, Inc. . . . . . . . . . . . . . 518,700
5,000 Kellogg Co. . . . . . . . . . . . . . . . . . 290,625
19,500 PepsiCo Inc. . . . . . . . . . . . . . . . . . 706,875
17,600 Sara Lee Corp. . . . . . . . . . . . . . . . . 444,400
----------
3,012,175
----------
Package Goods/
Cosmetics 2.4% 5,000 Colgate-Palmolive Co. . . . . . . . . . . . . 316,875
3,000 Gillette Co. . . . . . . . . . . . . . . . . 224,250
9,100 Procter & Gamble Co. . . . . . . . . . . . . 564,200
----------
1,105,325
----------
HEALTH 7.0%
Health Industry Services 0.7% 3,000 U.S. HealthCare, Inc. . . . . . . . . . . . . 123,750
3,700 United Healthcare Corp. . . . . . . . . . . . 166,963
----------
290,713
----------
Hospital Management 1.1% 14,000 Columbia/HCA Healthcare Corp. . . . . . . . . . 511,000
----------
Pharmaceuticals 5.2% 6,600 Abbott Laboratories . . . . . . . . . . . . . . 215,325
9,500 Baxter International Inc. . . . . . . . . . . . 268,375
9,200 Eli Lilly Co. . . . . . . . . . . . . . . . . . 603,750
2,900 Johnson & Johnson . . . . . . . . . . . . . . . 158,775
8,000 Schering-Plough Corp. . . . . . . . . . . . . . 592,000
7,200 Warner-Lambert Co. . . . . . . . . . . . . . 554,400
----------
2,392,625
----------
COMMUNICATIONS 2.0%
Cellular Telephone 0.3% 4,300 AirTouch Communications, Inc.* . . . . . . . . 125,237
----------
Telephone/
Communications 1.7% 15,500 American Telephone & Telegraph Co. . . . . . . 778,875
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
BALANCED PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL 7.4%
Banks 3.9% 8,830 Banc One Corp. . . . . . . . . . . . . . . . . 224,061
24,450 Mellon Bank Corp. . . . . . . . . . . . . . . 748,781
17,300 Norwest Corp. . . . . . . . . . . . . . . . . 404,388
15,100 State Street Boston Corp. . . . . . . . . . . 432,238
----------
1,809,468
----------
Insurance 2.4% 5,500 American International Group, Inc. . . . . . . 539,000
6,000 EXEL, Ltd. . . . . . . . . . . . . . . . . . . 237,000
5,700 MBIA Inc. . . . . . . . . . . . . . . . . . . 319,913
----------
1,095,913
----------
Other Financial
Companies 1.1% 7,000 Federal National Mortgage Association . . . . . 510,125
----------
MEDIA 5.6%
Advertising 0.7% 9,500 Interpublic Group of Companies Inc. . . . . . 305,188
----------
Broadcasting &
Entertainment 3.8% 5,300 CBS Inc. . . . . . . . . . . . . . . . . . . . 293,487
3,600 Capital Cities/ABC Inc. . . . . . . . . . . . 306,900
9,000 Time Warner Inc. . . . . . . . . . . . . . . . 316,125
8,400 Turner Broadcasting System Inc. "B" . . . . . 137,550
7,000 Viacom Inc. "B"* . . . . . . . . . . . . . . . 284,375
9,100 Walt Disney Co. . . . . . . . . . . . . . . . 419,737
----------
1,758,174
----------
Cable Television 0.8% 7,000 Comcast Corp. "A" . . . . . . . . . . . . . . . 109,812
12,000 Tele-Communications Inc. "A"* . . . . . . . . 261,000
----------
370,812
----------
Print Media 0.3% 2,800 News Corp. Ltd. (ADR) . . . . . . . . . . . . . 38,850
5,600 News Corp. Ltd. (ADR) (New(b)) . . . . . . . . 87,500
----------
126,350
----------
SERVICE INDUSTRIES 2.1%
EDP Services 1.5% 6,000 Automatic Data Processing, Inc. . . . . . . . 351,000
3,500 First Data Corp. . . . . . . . . . . . . . . . 165,813
4,400 General Motors Corp. "E" . . . . . . . . . . . 169,400
----------
686,213
----------
Miscellaneous
Commercial Services 0.4% 6,800 Sysco Corp. . . . . . . . . . . . . . . . . . . 175,100
----------
Printing/Publishing 0.2% 2,300 Reuters Holdings PLC "B" (ADR) . . . . . . . . 100,913
----------
DURABLES 5.6%
Aerospace 0.6% 5,500 Boeing Co. . . . . . . . . . . . . . . . . . . 257,125
----------
Automobiles 1.8% 7,000 Chrysler Corp. . . . . . . . . . . . . . . . . 343,000
10,400 Ford Motor Co. . . . . . . . . . . . . . . . . 291,200
5,400 Magna International, Inc. "A" . . . . . . . . 207,225
----------
841,425
----------
Construction/
Agricultural Equipment 1.3% 6,200 Caterpillar Inc. . . . . . . . . . . . . . . . 341,775
4,000 Deere & Co. . . . . . . . . . . . . . . . . . 265,000
----------
606,775
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Telecommunications
Equipment 1.5% 5,700 L.M. Ericsson Telephone Co. "B" (ADR) . . . . . 314,213
5,300 Nokia AB Oy (ADR) . . . . . . . . . . . . . . 397,500
----------
711,713
----------
Tires 0.4% 7,300 Cooper Tire & Rubber Co. . . . . . . . . . . . 172,462
----------
MANUFACTURING 5.6%
Diversified
Manufacturing 3.7% 4,300 Dover Corp. . . . . . . . . . . . . . . . . 221,988
17,200 General Electric Co. . . . . . . . . . . . . . 877,200
8,500 Minnesota Mining & Manufacturing Co. . . . . . 453,688
2,000 TRW Inc. . . . . . . . . . . . . . . . . . . . 132,000
----------
1,684,876
----------
Electrical Products 1.2% 4,200 ASEA AB (ADR) . . . . . . . . . . . . . . . . . 302,925
4,000 Emerson Electric Co. . . . . . . . . . . . . . 250,000
----------
552,925
----------
Machinery/Components/
Controls 0.7% 7,000 Parker-Hannifin Group . . . . . . . . . . . . . 318,500
----------
TECHNOLOGY 6.3%
Computer Software 0.9% 3,600 Microsoft Corp.* . . . . . . . . . . . . . . . 220,050
2,300 Oracle Systems Corp.* . . . . . . . . . . . . 101,488
2,200 Sybase Inc.* . . . . . . . . . . . . . . . . . 114,400
----------
435,938
----------
Diverse Electronic
Products 2.4% 13,200 General Motors Corp. "H" . . . . . . . . . . . 460,350
11,500 Motorola Inc. . . . . . . . . . . . . . . . . 665,563
----------
1,125,913
----------
Electronic Components/
Distributors 0.2% 2,500 Molex Inc. Class A . . . . . . . . . . . . . . 77,500
----------
Electronic Data
Processing 1.4% 6,000 Compaq Computers Corp.* . . . . . . . . . . . . 237,000
3,900 Hewlett-Packard Co. . . . . . . . . . . . . . 389,513
----------
626,513
----------
Office/Plant
Automation 0.3% 3,600 Cisco Systems, Inc.* . . . . . . . . . . . . . 126,450
----------
Semiconductors 1.1% 3,100 Intel Corp. . . . . . . . . . . . . . . . . . 198,013
3,800 Texas Instruments Inc. . . . . . . . . . . . . 284,525
----------
482,538
----------
ENERGY 5.1%
Engineering 1.4% 8,800 Fluor Corp. . . . . . . . . . . . . . . . . . 379,500
9,500 Foster Wheeler Corp. . . . . . . . . . . . . . 282,625
----------
662,125
----------
Oil Companies 2.5% 4,300 Chevron Corp. . . . . . . . . . . . . . . . . 191,887
2,700 Exxon Corp. . . . . . . . . . . . . . . . . . 164,025
4,000 Mobil Corp. . . . . . . . . . . . . . . . . . 337,000
2,200 Royal Dutch Petroleum Co. (New York shares) . . 236,500
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
BALANCED PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
7,500 Unocal Corp. . . . . . . . . . . . . . . . . . . 204,375
----------
1,133,787
----------
Oil/Gas Transmission 1.2% 17,900 Enron Corp. . . . . . . . . . . . . . . . . . . 545,950
----------
METALS AND MINERALS 1.1%
Steel & Metals 8,000 Allegheny Ludlum Corp. . . . . . . . . . . . . . 150,000
6,500 Nucor Corp. . . . . . . . . . . . . . . . . . . 360,750
----------
510,750
----------
CONSTRUCTION 0.5%
Forest Products 8,500 Louisiana-Pacific Corp. . . . . . . . . . . . . 231,625
----------
TOTAL COMMON STOCKS (Cost $28,280,262) . . . . . 28,552,570
----------
- ----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $46,142,341)(c) . . . . . . . . . . . . 45,904,422
==========
- ----------------------------------------------------------------------------------------------------------------
<FN>
* Non-income producing security.
** Yield; bond equivalent yield to maturity; not a coupon rate (unaudited).
(a) Effective maturities will be shorter due to amortization and prepayments.
(b) New shares issued in 1994, eligible for a pro rata share of 1994 dividends.
(c) At December 31, 1994, the net unrealized depreciation on investments based on cost for
federal income tax purposes of $46,262,282 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an
excess of market value over tax cost . . . . . . . . . . . . . . . . . . . . . . . $ 1,587,277
Aggregate gross unrealized depreciation for all investments in which there is an
excess of tax cost over market value . . . . . . . . . . . . . . . . . . . . . . . (1,945,137)
-----------
Net unrealized depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (357,860)
===========
- ------------------------------------------------------------------------------------------------------------------
From November 1, 1994 through December 31, 1994, the Balanced Portfolio incurred approximately $275,417
of net realized capital losses which the Portfolio intends to elect to defer and treat as arising in the
fiscal year ended December 31, 1995.
- ------------------------------------------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term investments and U.S. Government
securities), for the year ended December 31, 1994, aggregated $39,687,868 and $39,382,956, respectively.
Purchases and sales of U.S. Government securities for the year ended December 31, 1994, aggregated
$6,419,661 and $5,027,416, respectively.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------------------
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $46,142,341) (Note A) . . . . $ 45,904,422
Receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . 301,078
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . 238,822
Portfolio shares sold . . . . . . . . . . . . . . . . . . . . . . 15,771
------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . 46,460,093
LIABILITIES
Payables:
Due to custodian bank . . . . . . . . . . . . . . . . . . . . . . $ 4,397
Investments purchased . . . . . . . . . . . . . . . . . . . . . . 332,064
Portfolio shares redeemed . . . . . . . . . . . . . . . . . . . . 536,788
Due to Adviser (Note B) . . . . . . . . . . . . . . . . . . . . . 49,281
Accrued expenses (Note B) . . . . . . . . . . . . . . . . . . . . 12,988
-----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 935,518
------------
Net assets, at market value . . . . . . . . . . . . . . . . . . . . . $ 45,524,575
============
NET ASSETS
Net assets consist of:
Undistributed net investment income . . . . . . . . . . . . . , . $ 392,285
Unrealized depreciation on investments . . . . . . . . . . . . . . (237,919)
Accumulated net realized loss . . . . . . . . . . . . . . . . . . (103,434)
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 45,473,643
------------
Net assets, at market value . . . . . . . . . . . . . . . . . . . . . $ 45,524,575
============
NET ASSET VALUE, offering and redemption price per share
($45,524,575 -:- 5,076,236 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) . . $8.97
=====
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
BALANCED PORTFOLIO
- ------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,163,654
Dividends (net of foreign taxes withheld of $4,976) . . . . 646,047
-----------
1,809,701
Expenses (Note A):
Management fee (Note B) . . . . . . . . . . . . . . . . . . $ 218,621
Administrative fees (net of $7,119 not imposed) (Note B) . 38,204
Accounting fees (Note B) . . . . . . . . . . . . . . . . . 20,005
Trustees' fees (Note B) . . . . . . . . . . . . . . . . . . 9,645
Custodian fees . . . . . . . . . . . . . . . . . . . . . . 36,314
Auditing . . . . . . . . . . . . . . . . . . . . . . . . . 8,241
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,419
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,928 345,377
----------- -----------
Net investment income . . . . . . . . . . . . . . . . . . . . 1,464,324
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized loss from:
Investments . . . . . . . . . . . . . . . . . . . . . . . . (56,422)
Foreign currency related transactions . . . . . . . . . . . (14,258) (70,680)
-----------
Net unrealized appreciation (depreciation) during the period on:
Investments . . . . . . . . . . . . . . . . . . . . . . . . (2,374,851)
Foreign currency related transactions . . . . . . . . . . . 741 (2,374,110)
----------- -----------
Net loss on investment transactions . . . . . . . . . . . . . (2,444,790)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . $ (980,466)
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
INCREASE (DECREASE) IN NET ASSETS 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income . . . . . . . . . . . . . . . . . . . . . . $ 1,464,324 $ 1,256,776
Net realized gain (loss) from investment transactions . . . . . . (70,680) 3,496,626
Net unrealized depreciation on investment transactions
during the period . . . . . . . . . . . . . . . . . . . . . . . (2,374,110) (1,774,580)
------------ ------------
Net increase (decrease) in net assets resulting from operations . . . (980,466) 2,978,822
------------ ------------
Distributions to shareholders from:
Net investment income ($.30 and $.28 per share, respectively) . . (1,442,472) (1,153,730)
------------ ------------
Net realized gains from investment transactions
($.77 and $.23 per share, respectively) . . . . . . . . . . . . (3,525,834) (897,228)
------------ ------------
Portfolio share transactions:
Proceeds from shares sold . . . . . . . . . . . . . . . . . . . . 14,384,876 12,283,985
Net asset value of shares issued to shareholders in
reinvestment of distributions . . . . . . . . . . . . . . . . . 4,968,306 2,050,958
Cost of shares redeemed . . . . . . . . . . . . . . . . . . . . . (12,950,121) (7,234,223)
------------ ------------
Net increase in net assets from Portfolio share transactions . . . . 6,403,061 7,100,720
------------ ------------
INCREASE IN NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . 454,289 8,028,584
Net assets at beginning of period . . . . . . . . . . . . . . . . . . 45,070,286 37,041,702
------------ ------------
NET ASSETS AT END OF PERIOD (including undistributed net
investment income of $392,285 and $366,737, respectively) . . . . $ 45,524,575 $ 45,070,286
============ ============
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period . . . . . . . . . . . . . . 4,407,727 3,695,913
------------ ------------
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,539,383 1,226,706
Shares issued to shareholders in reinvestment of distributions . . 532,133 207,183
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . (1,403,007) (722,075)
------------ ------------
Net increase in Portfolio shares . . . . . . . . . . . . . . . . . 668,509 711,814
------------ ------------
Shares outstanding at end of period . . . . . . . . . . . . . . . . . 5,076,236 4,407,727
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
BALANCED PORTFOLIO
FINANCIAL HIGHLIGHTS
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER
PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.
<CAPTION>
SIX FOR THE PERIOD
MONTHS JULY 16, 1985
ENDED (COMMENCEMENT
YEARS ENDED DECEMBER 31, (e) DECEMBER OF OPERATIONS
---------------------------------------------------------------------- 31, TO JUNE 30,
1994 1993 1992 1991 1990 1989 1988 1987 1986(e)(f) 1986
--------------------------------------------------------------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period. . . $10.23 $10.02 $ 9.85 $ 8.10 $ 8.75 $ 7.62 $ 6.88 $ 7.35 $ 7.58 $ 6.00(b)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income (a) . . . . . . .29 .30 .29 .35 .42 .40 .33 .34 .15 .31
Net realized and
unrealized gain (loss)
on investment
transactions . . . . . (.48) .42 .36 1.77 (.59) 1.06 .64 (.45) (.11) 1.50
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations . . . . . . (.19) .72 .65 2.12 (.17) 1.46 .97 (.11) .04 1.81
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions from:
Net investment
income . . . . . . . . (.30) (.28) (.29) (.37) (.43) (.33) (.23) (.23) (.18) (.23)
Net realized gains
on investment
transactions . . . . . (.77) (.23) (.19) -- (.05) -- -- (.13) (.09) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions . . . (1.07) (.51) (.48) (.37) (.48) (.33) (.23) (.36) (.27) (.23)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period . . . . . $ 8.97 $10.23 $10.02 $ 9.85 $ 8.10 $ 8.75 $ 7.62 $ 6.88 $ 7.35 $ 7.58
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%) . . . . (2.05) 7.45 6.96 26.93 (1.91) 19.50 14.21 (1.68) .46(d) 30.60(d)
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period ($ millions). . . 46 45 37 25 16 18 11 12 1 --
Ratio of operating
expenses, net to
average net
assets (%) (a) . . . . .75 .75 .75 .75 .75 .75 .75 .75 .75(c) .60(c)
Ratio of net investment
income to average
net assets (%) . . . . 3.19 3.01 3.01 4.00 5.15 4.74 4.48 4.42 4.20(c) 4.87(c)
Portfolio turnover
rate (%) . . . . . . . 101.64 133.95* 51.66 62.03 49.03 77.98 109.95 111.00 28.86(c) 64.12(c)
<FN>
(a) Portion of expenses
reimbursed (Note B) $ -- $ -- $ -- $ .01 $ -- $ .01 $ .03 $ .03 $ .17 $ .80
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts, for each of the periods identified, have been calculated using the monthly average shares outstanding
during the period method.
(f) On August 22, 1986, the Trustees voted to change the year end of the Fund from June 30 to December 31.
* On May 1, 1993, the Portfolio adopted its present name and investment objective which is a balance of growth and income
from a diversified portfolio of equity and fixed income securities. Prior to that date, the Portfolio was known as the
Managed Diversified Portfolio and its investment objective was to realize a high level of long-term total rate of
return consistent with prudent investment risk. The portfolio turnover rate increased due to implementing the present
investment objective. Financial highlights for the nine periods ended December 31, 1993 should not be considered
representative of the present Portfolio.
</TABLE>
<PAGE>
<TABLE>
GROWTH AND INCOME PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1994
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2.9% REPURCHASE AGREEMENT
-----------------------------------------------------------------------------
598,000 Repurchase Agreement with Donaldson, Lufkin &
Jenrette dated 12/30/94 at 5.875%, to be
repurchased at $598,390 on 1/3/95, collateralized
by a $557,000 U.S. Treasury Bond, 9.125%, 5/15/09
(Cost $598,000) . .. . . . . . . . . . . . . . . . . 598,000
---------
-----------------------------------------------------------------------------
7.3% COMMERCIAL PAPER
-----------------------------------------------------------------------------
1,000,000 American Express Credit Corp., 5.755%, 1/3/95 . . . 1,000,000
500,000 General Electric Capital Corp., 5.005%, 1/6/95 . . 500,000
---------
TOTAL COMMERCIAL PAPER (Cost $1,500,000) . . . . . 1,500,000
---------
-----------------------------------------------------------------------------
0.5% CONVERTIBLE BONDS
-----------------------------------------------------------------------------
FINANCIAL
Banks 0.2% 25,000 Credit Suisse, 4.875%, 11/19/02 . . . . . . . . . . 33,125
---------
Other Financial
Companies 0.3% 40,000 First Financial Management, 5%, 12/15/99 . . . . . 42,200
21,000 Jardine Strategic Holdings, 7.5%, 5/7/49 . . . . . 23,940
---------
66,140
---------
TOTAL CONVERTIBLE BONDS (Cost $96,350) . . . . . . 99,265
---------
-----------------------------------------------------------------------------
4.3% CONVERTIBLE PREFERRED STOCKS
-----------------------------------------------------------------------------
Shares
-----------------------------------------------------------------------------
HEALTH 1.3%
Health Industry Services 11,300 FHP International Corp., Series A, 5% . . . . . . . 276,850
---------
SERVICE INDUSTRIES 1.3%
EDP Services 4,700 General Motors Corp., Series C, Cum. $3.25
(convertible into GM "E") . . . . . . . . . . . . . 269,662
---------
DURABLES 0.9%
Automobiles 2,100 Ford Motor Co., Series A, Cum. $4.20 . . . . . . . 193,200
---------
MANUFACTURING 0.8%
Containers & Paper 0.7% 5,000 Boise Cascade Corp. "E", Cum. $1.79 . . . . . . . . 133,125
---------
Industrial Specialty 0.1% 500 Corning Inc., 6% . . . . . . . . . . . . . . . . . 23,375
---------
TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $920,649) . 896,212
---------
-----------------------------------------------------------------------------
85.0% COMMON STOCKS
-----------------------------------------------------------------------------
CONSUMER DISCRETIONARY 3.6%
Department &
Chain Stores 6,800 Edison Brothers Stores, Inc. . . . . . . . . . . . 125,800
3,800 J.C. Penney Inc. . . . . . . . . . . . . . . . . . 169,575
10,300 Rite Aid Corp. . . . . . . . . . . . . . . . . . . 240,763
4,500 Sears, Roebuck & Co. . . . . . . . . . . . . . . . . 207,000
---------
743,138
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
GROWTH AND INCOME PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSUMER STAPLES 9.3%
Alcohol & Tobacco 2.8% 3,500 American Brands Inc. . . . . . . . . . . . . 131,250
4,500 Anheuser Busch Companies, Inc. . . . . . . . . 228,937
3,800 Philip Morris Companies Inc. . . . . . . . . . 218,500
----------
578,687
----------
Food & Beverage 3.6% 4,800 General Mills, Inc. . . . . . . . . . . . . . 273,600
7,900 H.J. Heinz Co. . . . . . . . . . . . . . . . . 290,325
6,000 Quaker Oats Co. . . . . . . . . . . . . . . . 184,500
----------
748,425
----------
Package Goods/
Cosmetics 2.9% 4,600 Avon Products . . . . . . . . . . . . . . . . 274,850
1,400 Clorox Co. . . . . . . . . . . . . . . . . . . 82,425
6,400 Tambrands Inc. . . . . . . . . . . . . . . . . 247,200
----------
604,475
----------
HEALTH 11.5%
Health Industry
Services 0.5% 3,000 McKesson Corp. . . . . . . . . . . . . . . . 97,875
----------
Pharmaceuticals 11.0% 4,000 American Home Products Corp. . . . . . . . . 251,000
14,700 Baxter International Inc. . . . . . . . . . . 415,275
3,600 Bristol-Myers Squibb Co. . . . . . . . . . . . 208,350
4,700 Carter-Wallace Inc. . . . . . . . . . . . . . 61,100
7,500 Eli Lilly Co. . . . . . . . . . . . . . . . . 492,188
4,000 Schering-Plough Corp. . . . . . . . . . . . . 296,000
3,400 Smithkline-Beecham PLC (ADR) . . . . . . . . . 116,450
4,700 Warner-Lambert Co. . . . . . . . . . . . . . . 361,900
5,600 Zeneca Group PLC . . . . . . . . . . . . . . . 76,989
----------
2,279,252
----------
COMMUNICATIONS 4.7%
Telephone/ 12,900 Alltel Corp. . . . . . . . . . . . . . . . . 388,612
Communications 3,600 Compania Telefonica Nacional de Espana SA (ADR) 126,450
2,300 Compania de Telefonos de Chile, SA (ADR) . . . 181,125
9,300 Hong Kong Telecommunications Ltd. (ADR) . . . 177,862
800 Telecom Argentina S.A. "B" (ADR) . . . . . . . 41,400
900 Telefonica de Argentina (ADR) . . . . . . . . 47,700
----------
963,149
----------
FINANCIAL 13.9%
Banks 5.5% 6,400 Chemical Banking Corp. . . . . . . . . . . . 229,600
11,400 CoreStates Financial Corp. . . . . . . . . . . 296,400
10,800 First Bank System Inc. . . . . . . . . . . . . 359,100
4,400 J.P. Morgan & Co., Inc. . . . . . . . . . . . 246,400
----------
1,131,500
----------
Insurance 2.0% 5,200 EXEL, Ltd. . . . . . . . . . . . . . . . . . 205,400
6,200 Lincoln National Corp. . . . . . . . . . . . . 217,000
----------
422,400
----------
Other Financial
Companies 1.9% 13,100 Great Western Financial Corp. . . . . . . . . 209,600
5,500 Student Loan Marketing Association . . . . . . 178,750
----------
388,350
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real Estate 4.5% 9,100 Health Care Property Investment Inc. (REIT) . 274,137
6,800 McArthur/Glen Realty Corp. (REIT) . . . . . . 112,200
9,900 Meditrust SBI (REIT) . . . . . . . . . . . . . 299,475
7,000 Nationwide Health Properties Inc. (REIT) . . . 250,250
---------
936,062
---------
SERVICE INDUSTRIES 1.4%
Miscellaneous
Commercial Services 0.5% 4,200 Fleming Companies Inc. . . . . . . . . . . . 97,650
---------
Miscellaneous
Consumer Services 0.4% 2,600 H & R Block Inc. . . . . . . . . . . . . . . 96,525
---------
Printing/Publishing 0.5% 3,900 Deluxe Corp. . . . . . . . . . . . . . . . . 103,350
---------
DURABLES 7.7%
Aerospace 6.4% 2,600 AAR Corp. . . . . . . . . . . . . . . . . . . 34,775
3,400 Lockheed Corp. . . . . . . . . . . . . . . . . 246,925
7,000 Rockwell International Corp. . . . . . . . . . 250,250
10,000 Thiokol Corp. . . . . . . . . . . . . . . . . 278,750
8,100 United Technologies Corp. . . . . . . . . . . 509,288
---------
1,319,988
---------
Automobiles 1.3% 7,200 Dana Corp. . . . . . . . . . . . . . . . . . 168,300
1,900 Eaton Corp. . . . . . . . . . . . . . . . . . 94,050
---------
262,350
---------
MANUFACTURING 15.3%
Chemicals 3.5% 2,700 Dow Chemical Co. . . . . . . . . . . . . . . 181,575
5,200 E.I. du Pont de Nemours & Co. . . . . . . . . 292,500
10,000 Lyondell Petrochemical Co. . . . . . . . . . . 258,750
---------
732,825
---------
Containers & Paper 3.4% 7,400 Boise Cascade Corp. . . . . . . . . . . . . . 197,950
7,000 Federal Paper Board Co., Inc. . . . . . . . . 203,000
3,000 Kimberly Clark de Mexico S.A. "A" (ADR) . . . 69,750
4,800 Kimberly-Clark Corp. . . . . . . . . . . . . . 242,400
---------
713,100
Diversified ---------
Manufacturing 1.9% 5,100 Dresser Industries Inc. . . . . . . . . . . . 96,262
4,400 TRW Inc. . . . . . . . . . . . . . . . . . . . 290,400
---------
386,662
---------
Electrical Products 0.8% 2,500 Thomas & Betts Corp. . . . . . . . . . . . . 167,813
---------
Machinery/
Components/Controls 1.9% 4,300 Parker-Hannifin Group . . . . . . . . . . . . 195,650
5,700 Timken Co. . . . . . . . . . . . . . . . . . . 200,925
---------
396,575
---------
Office Equipment/
Supplies 1.7% 3,500 Xerox Corp. . . . . . . . . . . . . . . . . . 346,500
---------
Specialty Chemicals 2.1% 6,200 Betz Laboratories Inc. . . . . . . . . . . . 274,350
6,200 Witco Corp. . . . . . . . . . . . . . . . . . 152,675
---------
427,025
---------
TECHNOLOGY 0.4%
Military Electronics 2,100 E-Systems, Inc. . . . . . . . . . . . . . . . 87,412
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
GROWTH AND INCOME PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ENERGY 11.4%
Engineering 1.4% 11,300 McDermott International Inc. . . . . . . . . 279,675
----------
Oil & Gas Production 0.6% 3,400 Louisiana Land & Exploration Co. . . . . . . . 123,675
----------
Oil Companies 7.9% 200 Amoco Corp. . . . . . . . . . . . . . . . . . 11,825
3,600 Exxon Corp. . . . . . . . . . . . . . . . . . 218,700
7,000 Murphy Oil Corp. . . . . . . . . . . . . . . . 297,500
4,700 Pennzoil Co. . . . . . . . . . . . . . . . . . 207,388
3,200 Repsol SA (ADR) . . . . . . . . . . . . . . . 87,200
2,100 Royal Dutch Petroleum Co. (New York shares). . 225,750
5,548 Societe Nationale Elf Aquitaine (ADR) . . . . 195,567
7,100 Total SA (ADR) . . . . . . . . . . . . . . . . 209,450
8,600 YPF SA "D" (ADR) . . . . . . . . . . . . . . . 183,825
----------
1,637,205
----------
Oil/Gas Transmission 0.4% 2,900 El Paso Natural Gas Co. . . . . . . . . . . . 88,450
----------
Oilfield Services/
Equipment 1.1% 6,700 Halliburton Co. . . . . . . . . . . . . . . . 221,937
----------
METALS AND MINERALS 2.3%
Steel & Metals 12,000 Freeport McMoRan Copper & Gold, Inc. "A" . . . 255,000
13,500 Oregon Steel Mills Inc. . . . . . . . . . . . 210,938
----------
465,938
----------
TRANSPORTATION 0.4%
Marine Transportation 3,300 Alexander & Baldwin Inc. . . . . . . . . . . 73,425
----------
UTILITIES 3.1%
Electric Utilities 6,000 CINergy Corp. . . . . . . . . . . . . . . . . 140,250
2,000 CMS Energy Corp. . . . . . . . . . . . . . . . 45,750
8,200 Centerior Energy Corp. . . . . . . . . . . . . 72,775
2,100 Empresa Nacional de Electricidad SA (ADR) . . 85,050
900 PacifiCorp. . . . . . . . . . . . . . . . . . 16,313
3,900 Pacific Gas & Electric Co. . . . . . . . . . . 95,063
100 Southern Company . . . . . . . . . . . . . . . 2,000
7,900 Unicom Corp. . . . . . . . . . . . . . . . . . 189,600
----------
646,801
----------
TOTAL COMMON STOCKS (Cost $17,874,439) . . . 17,568,194
----------
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $20,989,438)(a) . . . . . . . . . . . . 20,661,671
==========
- -------------------------------------------------------------------------------------------------------------------
<FN>
(a) At December 31, 1994, the net unrealized depreciation on investments based on cost
for federal income tax purposes of $21,010,030 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an
excess of market value over tax cost . . . . . . . . . . . . . . . . . . . . . . . . $ 365,754
Aggregate gross unrealized depreciation for all investments in which there is an
excess of tax cost over market value . . . . . . . . . . . . . . . . . . . . . . . . (714,113)
----------
Net unrealized depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (348,359)
==========
- -------------------------------------------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term investments), for the
period May 2, 1994 (commencement of operations) to December 31, 1994, aggregated
$20,678,084 and $1,912,191, respectively.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $20,989,438) (Note A) . . $20,661,671
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609
Receivables:
Investments sold . . . . . . . . . . . . . . . . . . . . . . . 126,754
Dividends and interest . . . . . . . . . . . . . . . . . . . . 66,596
Portfolio shares sold . . . . . . . . . . . . . . . . . . . . 38,675
-----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . 20,894,305
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . . . . . $793,868
Due to Adviser (Note B) . . . . . . . . . . . . . . . . . . . 12,027
Accrued expenses (Note B) . . . . . . . . . . . . . . . . . . 13,568
--------
Total liabilities . . . . . . . . . . . . . . . . . . . . . 819,463
-----------
Net assets, at market value . . . . . . . . . . . . . . . . . . . $20,074,842
===========
NET ASSETS
Net assets consist of:
Undistributed net investment income . . . . . . . . . . . . . $ 164,132
Unrealized depreciation on investments . . . . . . . . . . . . (327,767)
Accumulated net realized gain . . . . . . . . . . . . . . . . 125,538
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 20,112,939
-----------
Net assets, at market value . . . . . . . . . . . . . . . . . . . $20,074,842
===========
NET ASSET VALUE, offering and redemption price per share
($20,074,842 -:- 3,204,882 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) $6.26
=====
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
GROWTH AND INCOME PORTFOLIO
- -------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------------------------
FOR THE PERIOD MAY 2, 1994
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $3,279) . . . . $ 242,508
Interest . . . . . . . . . . . . . . . . . . . . . . . . . 60,432
------------
302,940
Expenses (Note A):
Management fee (Note B) . . . . . . . . . . . . . . . . . . $ 32,724
Administrative fees (Note B) . . . . . . . . . . . . . . . 25,179
Accounting fees (Note B) . . . . . . . . . . . . . . . . . 14,437
Trustees' fees (Note B) . . . . . . . . . . . . . . . . . . 4,498
Custodian fees . . . . . . . . . . . . . . . . . . . . . . 19,912
Auditing . . . . . . . . . . . . . . . . . . . . . . . . . 3,918
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
Federal registration . . . . . . . . . . . . . . . . . . . 6,976
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,429
-----------
Total expenses before waivers . . . . . . . . . . . . . . . 112,235
Waived expenses by the Adviser (Note B) . . . . . . . . . . (60,313)
-----------
Expenses, net . . . . . . . . . . . . . . . . . . . . . . . 51,922
------------
Net investment income . . . . . . . . . . . . . . . . . . . . 251,018
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . . . . . . . . . . . . 125,538
Foreign currency related transactions . . . . . . . . . . . (773) 124,765
-----------
Net unrealized depreciation on investments during the period . (327,767)
------------
Net loss on investment transactions . . . . . . . . . . . . . (203,002)
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . $ 48,016
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD
MAY 2, 1994
(COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Operations:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 251,018
Net realized gain from investment transactions . . . . . . . . . . . . . . . . . . . . . . 124,765
Net unrealized depreciation on investment transactions during the period . . . . . . . . . (327,767)
-------------
Net increase in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . 48,016
-------------
Distributions to shareholders from net investment income ($0.04 per share) . . . . . . . . . (86,114)
-------------
Portfolio share transactions:
Proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,441,709
Net asset value of shares issued to shareholders in reinvestment of distributions . . . . 86,114
Cost of shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,415,483)
-------------
Net increase in net assets from Portfolio share transactions . . . . . . . . . . . . . . . . 20,112,340
-------------
INCREASE IN NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,074,242
Net assets at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600
-------------
NET ASSETS AT END OF PERIOD (including undistributed net investment income of $164,132) . . . $ 20,074,842
=============
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . 100
-------------
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,576,097
Shares issued to shareholders in reinvestment of distributions . . . . . . . . . . . . . . 13,561
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (384,876)
-------------
Net increase in Portfolio shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,204,782
-------------
Shares outstanding at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,204,882
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
GROWTH AND INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD (E) AND OTHER PERFORMANCE
INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.
<CAPTION>
For the Period
May 2, 1994
(commencement
of operations)
to December 31,
1994
---------------
<S> <C>
Net asset value, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6.00(b)
------
Income from investment operations:
Net investment income (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Net realized and unrealized gain (loss) on investment transactions . . . . . . . . . . . . .17(f)
------
Total from investment operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
------
Less distributions from net investment income . . . . . . . . . . . . . . . . . . . . . . . . (.04)
------
Net asset value, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6.26
======
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.91(d)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Ratio of operating expenses, net to average net assets (%) (a) . . . . . . . . . . . . . . . .75(c)
Ratio of net investment income to average net assets (%) . . . . . . . . . . . . . . . . . . 3.63(c)
Portfolio turnover rate (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.41(c)
<FN>
(a) Portion of expenses waived (Note B) . . . . . . . . . . . . . . . . . . . . . . . . . . $ .03
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts have been calculated using the monthly average shares outstanding during the period method.
(f) The amount shown for a share outstanding throughout the period does not accord with the change in the aggregate gains and
losses in the portfolio securities during the period because of the timing of sales and purchases of Portfolio shares in
relation to fluctuating market values during the period.
</TABLE>
<PAGE>
<TABLE>
CAPITAL GROWTH PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1994
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
------------------------------------------------------------------------------------
4.8% REPURCHASE AGREEMENT
------------------------------------------------------------------------------------
12,504,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 12/30/94 at 5.875%, to be repurchased at
$12,512,162 on 1/3/95, collateralized by a $12,740,000
U.S. Treasury Note, 6.875%, 7/31/99 (Cost $12,504,000) 12,504,000
----------
------------------------------------------------------------------------------------
0.3% CONVERTIBLE BONDS
------------------------------------------------------------------------------------
FINANCIAL
Banks 1,000,000 Banco Nacional de Mexico, 7%, 12/15/99
(Cost $1,226,250) . . . . . . . . . . . . . . . . . . . 795,000
----------
------------------------------------------------------------------------------------
2.2% CONVERTIBLE PREFERRED STOCKS
------------------------------------------------------------------------------------
Shares
------------------------------------------------------------------------------------
DURABLES
Automobiles 43,000 Chrysler Corp., $4.625 (Cost $5,490,623) . . . . . . . . 5,901,750
-----------
------------------------------------------------------------------------------------
0.3% PREFERRED STOCKS
------------------------------------------------------------------------------------
FINANCIAL
Banks 8,000 First Nationwide Bank, non-cum. 11.5% (Cost $808,000). . . 783,000
-----------
------------------------------------------------------------------------------------
90.9% COMMON STOCKS
------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY 14.6%
Apparel & Shoes 0.6% 46,200 Jones Apparel Group, Inc.* . . . . . . . . . . . . . . . 1,189,650
15,600 Luxottica Group SpA (ADR) . . . . . . . . . . . . . . . . 532,350
----------
1,722,000
----------
Department &
Chain Stores 2.8% 241,500 Charming Shoppes Inc. . . . . . . . . . . . . . . . . . . 1,599,937
55,200 Consolidated Stores Corp.* . . . . . . . . . . . . . . . . 1,028,100
144,000 Filene's Basement Corp.* . . . . . . . . . . . . . . . . . 666,000
55,600 Fred Meyer Inc.* . . . . . . . . . . . . . . . . . . . . . 1,709,700
40,000 Limited Inc. . . . . . . . . . . . . . . . . . . . . . . . 725,000
71,700 Wal-Mart Stores Inc. . . . . . . . . . . . . . . . . . . . 1,523,625
----------
7,252,362
----------
Hotels & Casinos 5.3% 108,000 Carnival Corp., Class A . . . . . . . . . . . . . . . . . 2,295,000
122,100 Circus Circus Enterprises Inc.* . . . . . . . . . . . . . 2,838,825
5,000 Club Mediterranee* . . . . . . . . . . . . . . . . . . . . 418,461
146,750 Mirage Resorts Inc.* . . . . . . . . . . . . . . . . . . . 3,008,375
58,500 President Riverboat Casinos* . . . . . . . . . . . . . . . 519,188
55,200 Promus Companies Inc.* . . . . . . . . . . . . . . . . . . 1,711,200
88,200 Royal Caribbean Cruises Ltd. . . . . . . . . . . . . . . . 2,513,700
40,400 Station Casinos Inc.* . . . . . . . . . . . . . . . . . . 525,200
----------
13,829,949
----------
Recreational Products 2.8% 112,000 Acclaim Entertainment Inc.* . . . . . . . . . . . . . . . 1,610,000
38,200 Bally Gaming International Inc.* . . . . . . . . . . . . 405,875
111,800 Electronic Arts Inc.* . . . . . . . . . . . . . . . . . . 2,152,150
202,800 International Game Technology Inc. . . . . . . . . . . . . 3,143,400
----------
7,311,425
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
CAPITAL GROWTH PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Specialty Retail 3.1% 196,800 Fingerhut Companies, Inc. . . . . . . . . . . 3,050,400
95,000 Home Shopping Network Inc.* . . . . . . . . . 950,000
104,300 Intelligent Electronics, Inc. . . . . . . . . 834,400
40,000 Spiegel Inc. "A" . . . . . . . . . . . . . . . 405,000
96,000 Toys "R" Us Inc.* . . . . . . . . . . . . . . 2,928,000
----------
8,167,800
----------
CONSUMER STAPLES 1.2%
Food & Beverage 0.9% 72,000 Panamerican Beverages Inc. "A" . . . . . . . . 2,277,000
----------
Package Goods/
Cosmetics 0.3% 56,600 American Safety Razor Co.* . . . . . . . . . . 778,250
----------
HEALTH 7.3%
Biotechnology 0.7% 44,000 Biogen Inc.* . . . . . . . . . . . . . . . . 1,837,000
----------
Health Industry
Services 1.6% 52,000 Beverly Enterprises Inc.* . . . . . . . . . . 747,500
40,000 U.S. HealthCare, Inc. . . . . . . . . . . . . 1,650,000
40,000 United Healthcare Corp. . . . . . . . . . . . 1,805,000
----------
4,202,500
----------
Hospital Management 0.6% 40,000 Columbia/HCA Healthcare Corp. . . . . . . . . 1,460,000
----------
Medical Supply &
Specialty 0.0% 3,500 Sunrise Medical, Inc.* . . . . . . . . . . . . 96,688
----------
Pharmaceuticals 4.4% 7,500 Astra AB "A" (Free) . . . . . . . . . . . . . 193,795
171,050 Astra AB "B" (Free) . . . . . . . . . . . . . 4,362,258
55,000 Baxter International Inc. . . . . . . . . . . 1,553,750
80,000 Carter-Wallace Inc. . . . . . . . . . . . . . 1,040,000
1,300 Schering AG . . . . . . . . . . . . . . . . . 853,215
27,000 Schering-Plough Corp. . . . . . . . . . . . . 1,998,000
20,000 Warner-Lambert Co. . . . . . . . . . . . . . . 1,540,000
----------
11,541,018
----------
COMMUNICATIONS 12.5%
Cellular Telephone 2.3% 63,000 AirTouch Communications, Inc.* . . . . . . . 1,834,875
52,175 Associated Group, Inc. "A"* . . . . . . . . . 1,226,112
52,175 Associated Group, Inc. "B"* . . . . . . . . . 1,226,112
27,500 Grupo Iusacell S.A. de CV "L" (ADR)* . . . . . 512,187
84,000 NEXTEL Communications Inc. "A"* . . . . . . . 1,207,500
----------
6,006,786
----------
Telephone/
Communications 10.2% 110,800 American Telephone & Telegraph Co. . . . . . 5,567,700
186,900 Century Telephone Enterprises . . . . . . . . 5,513,550
7,900 Indonesia Satellite Corp. (ADR)* . . . . . . . 282,425
60,000 Mobile Telecommunications Technology Corp.* . 1,170,000
305 Nippon Telegraph & Telephone Corp. . . . . . . 2,697,029
75,132 Southwestern Bell Corp. . . . . . . . . . . . 3,033,455
31,800 Telecom Argentina S.A. "B" (ADR) . . . . . . . 1,645,650
3,402,000 Telecomunicacoes de Sao Paulo S.A. (pfd.) . . 483,992
36,000 Telefonica de Argentina (ADR) . . . . . . . . 1,908,000
96,000 Telephone & Data Systems, Inc. . . . . . . . . 4,428,000
----------
26,729,801
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCIAL 9.6%
Banks 2.8% 40,000 Chemical Banking Corp. . . . . . . . . . . . . 1,435,000
40,000 Citicorp . . . . . . . . . . . . . . . . . . . 1,655,000
16,875 First Commerce Corp. . . . . . . . . . . . . . 371,250
2,000 First Empire State Corp. . . . . . . . . . . . 272,000
40,000 GP Financial Corp. . . . . . . . . . . . . . . 825,000
103,000 MBNA Corp. . . . . . . . . . . . . . . . . . . 2,407,625
9,000 Mercantile Bancorporation Inc. . . . . . . . . 281,250
-----------
7,247,125
-----------
Insurance 4.8% 36,000 AMBAC Inc. . . . . . . . . . . . . . . . . . . 1,341,000
60,000 EXEL, Ltd. . . . . . . . . . . . . . . . . . . 2,370,000
31,300 General Re Corp. . . . . . . . . . . . . . . . 3,873,375
37,800 Liberty Corp. . . . . . . . . . . . . . . . . 959,175
20,000 MBIA Inc. . . . . . . . . . . . . . . . . . . 1,122,500
52,500 Mid Ocean Limited* . . . . . . . . . . . . . . 1,430,625
125,000 Western National Corp. . . . . . . . . . . . . 1,609,375
-----------
12,706,050
-----------
Other Financial
Companies 1.4% 44,000 Federal National Mortgage Association . . . . 3,206,500
9,000 Nichiei Co., Ltd. . . . . . . . . . . . . . . 578,139
-----------
3,784,639
-----------
Real Estate 0.6% 115,000 Price Enterprises, Inc.* . . . . . . . . . . . 1,480,625
-----------
MEDIA 17.7%
Broadcasting &
Entertainment 6.6% 52,000 BET Holdings Inc. "A"* . . . . . . . . . . . . 786,500
32,800 Jacor Communications, Inc. "A"* . . . . . . . 434,600
23,500 Savoy Pictures Entertainment Inc.* . . . . . . 152,750
368,700 Time Warner Inc. . . . . . . . . . . . . . . . 12,950,588
4,000 Viacom Inc. "A"* . . . . . . . . . . . . . . . 166,500
69,207 Viacom Inc. "B"* . . . . . . . . . . . . . . . 2,811,534
50,000 Viacom Inc. Rights* . . . . . . . . . . . . . 56,250
-----------
17,358,722
-----------
Cable Television 10.8% 622,850 Comcast Corp. (Special) "A" . . . . . . . . . 9,770,959
535,000 Rogers Communications Inc. "B"* . . . . . . . 7,151,132
518,307 Tele-Communications Inc. "A"* . . . . . . . . 11,273,177
-----------
28,195,268
-----------
Print Media 0.3% 14,300 Scholastic Corp.* . . . . . . . . . . . . . . . 729,300
-----------
SERVICE INDUSTRIES 0.6%
Investment 42,000 Franklin Resources Inc. . . . . . . . . . . . 1,496,250
-----------
DURABLES 4.5%
Automobiles 2.4% 44,000 Autoliv AB (Free)* . . . . . . . . . . . . . 1,693,549
60,000 Collins & Aikman Corp.* . . . . . . . . . . . 510,000
151,200 Ford Motor Co. . . . . . . . . . . . . . . . . 4,233,600
-----------
6,437,149
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
CAPITAL GROWTH PORTFOLIO
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Telecommunications
Equipment 1.9% 40,000 DSC Communications Corp.* . . . . . . . . . . 1,435,000
22,000 Nokia AB Oy (ADR) . . . . . . . . . . . . . . 1,650,000
12,600 Nokia AB Oy (Preference)* . . . . . . . . . . 1,856,696
---------
4,941,696
---------
Tires 0.2% 20,000 Cooper Tire & Rubber Co. . . . . . . . . . . 472,500
---------
MANUFACTURING 2.3%
Containers & Paper 0.6% 92,000 Stone Container Corp.* . . . . . . . . . . . 1,587,000
---------
Diversified
Manufacturing 0.4% 60,000 Canadian Pacific Ltd. . . . . . . . . . . . . 900,000
---------
Electrical Products 1.1% 100,000 Philips NV (New York shares) . . . . . . . . 2,937,500
---------
Machinery/
Components/Controls 0.2% 35,000 Daewoo Heavy Industries Ltd.* . . . . . . . . 545,213
700 Daewoo Heavy Industries Ltd. (New(b))* . . . . 10,993
---------
556,206
---------
TECHNOLOGY 9.1%
Computer Software 2.7% 52,600 Informix Corp.* . . . . . . . . . . . . . . . 1,689,775
74,150 Microsoft Corp.* . . . . . . . . . . . . . . . 4,532,419
1,400 SAP AG . . . . . . . . . . . . . . . . . . . . 926,075
---------
7,148,269
---------
Diverse Electronic
Products 1.0% 46,000 Motorola Inc. . . . . . . . . . . . . . . . . 2,662,250
---------
EDP Peripherals 0.6% 60,000 Adaptec Inc.* . . . . . . . . . . . . . . . . 1,417,500
---------
Electronic Components/
Distributors 1.5% 41,000 Kyocera Corp. . . . . . . . . . . . . . . . . 3,041,152
2,000 Kyocera Corp. (ADR) . . . . . . . . . . . . . 298,000
371 Samsung Electronics Co., Ltd. (GDS) . . . . . 22,770
4,202 Samsung Electronics Co., Ltd.(a) . . . . . . . 620,668
174 Samsung Electronics Co., Ltd. (New(b))(a) . . 25,347
---------
4,007,937
---------
Electronic Data
Processing 0.6% 20,000 International Business Machines Corp. . . . . 1,470,000
---------
Office/Plant
Automation 1.1% 80,000 Cisco Systems, Inc.* . . . . . . . . . . . . 2,810,000
---------
Semiconductors 1.6% 40,000 Advanced Micro Devices Inc.* . . . . . . . . 995,000
50,000 Intel Corp. . . . . . . . . . . . . . . . . . 3,193,750
---------
4,188,750
---------
ENERGY 4.3%
Oil & Gas Production 2.0% 20,000 Anadarko Petroleum Corp. . . . . . . . . . . 770,000
40,000 Apache Corp. . . . . . . . . . . . . . . . . . 1,000,000
82,500 Perez Companc S.A. "B" . . . . . . . . . . . . 339,883
59,000 Perez Companc S.A. "B" (ADR) . . . . . . . . . 486,750
78,800 Triton Energy Corp.* . . . . . . . . . . . . . 2,679,200
---------
5,275,833
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------------------------------------
% of Market
Portfolio Shares Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Oil Companies 2.0% 40,000 Chevron Corp . . . . . . . . . . . . . . . . 1,785,000
160,000 YPF SA "D" (ADR) . . . . . . . . . . . . . . 3,420,000
-----------
5,205,000
-----------
Oilfield Services/
Equipment 0.3% 168,800 Global Marine Inc.* . . . . . . . . . . . . 611,900
-----------
METALS AND MINERALS 1.4%
Steel & Metals 43,200 Allegheny Ludlum Corp. . . . . . . . . . . . 810,000
7,400 Oregon Steel Mills Inc. . . . . . . . . . . 115,625
25,000 Pohang Iron & Steel Co., Ltd. . . . . . . . . 731,250
148,000 Usinas Siderurgicas de Minas Gerais
S/A (pfd.) (ADR) . . . . . . . . . . . . . 1,961,000
-----------
3,617,875
-----------
CONSTRUCTION 1.6%
Building Materials 0.7% 6,400 Mannesmann AG (Bearer) . . . . . . . . . . . 1,742,958
-----------
Building Products 0.3% 40,000 USG Corp.* . . . . . . . . . . . . . . . . . 780,000
-----------
Homebuilding 0.6% 99,000 Hovnanian Enterprises Inc. "A"* . . . . . . . 532,125
69,900 Kaufman & Broad Home Corp. . . . . . . . . . . 899,963
20,000 Toll Brothers Inc.* . . . . . . . . . . . . . 197,500
-----------
1,629,588
-----------
UTILITIES 4.2%
Electric Utilities 20,000 CMS Energy Corp. . . . . . . . . . . . . . . 457,500
30,000 Centerior Energy Corp. . . . . . . . . . . . . 266,250
10,000 Central Costanera SA (ADR) . . . . . . . . . . 265,000
7,156,000 Companhia Energetica de Minas Gerais (pfd.) . 650,545
69,900 Destec Energy Inc.* . . . . . . . . . . . . . 742,687
50,000 Empresa Nacional de Electricidad SA (ADR) . . 2,025,000
30,000 Illinova Corp. . . . . . . . . . . . . . . . . 652,500
25,000 Korea Electric Power Co. . . . . . . . . . . . 861,196
58,000 Midlands Electricity PLC . . . . . . . . . . . 739,750
50,000 National Power PLC . . . . . . . . . . . . . . 383,412
99,000 Public Service Co. of New Mexico* . . . . . . 1,287,000
25,000 Shandong Huaneng Power Co. (ADR)* . . . . . . 240,625
50,000 Southern Electric PLC . . . . . . . . . . . . 630,477
30,000 TNP Enterprises Inc. . . . . . . . . . . . . . 446,250
60,000 Unicom Corp. . . . . . . . . . . . . . . . . . 1,440,000
-----------
11,088,192
-----------
TOTAL COMMON STOCKS (Cost $240,313,574) . . . 237,698,661
-----------
------------------------------------------------------------------------
1.5% WARRANTS
------------------------------------------------------------------------
TECHNOLOGY
Semiconductors 284,600 Intel Corp. Warrants (expire 3/14/98)*
(Cost $3,317,369) . . . . . . . . . . . . 3,948,825
-----------
- --------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $263,659,816)(c) . . . . . . . . . . 261,631,236
===========
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) Security valued in good faith by the Valuation Committee of the Trustees.
The cost and market value of this security at December 31, 1994
aggregated $260,462 and $646,015 (.25% of net assets), respectively.
(b) New shares issued during 1994, eligible for a pro rata share of 1994
dividends.
(c) At December 31, 1994, the net unrealized depreciation on investments based
on cost for federal income tax purposes of $263,612,803 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of market value
over tax cost . . . . . . . . . . . . . . . . . . . . . . . $ 18,361,493
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost
over market value . . . . . . . . . . . . . . . . . . . . . (20,343,060)
-------------
Net unrealized depreciation. . . . . . . . . . . . . . . . . $ (1,981,567)
=============
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments), for the year ended December 31, 1994, aggregated
$190,827,357 and $162,561,433, respectively.
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $263,659,816) (Note A) . . . $261,631,236
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,276
Receivables:
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . 2,981,543
Portfolio shares sold . . . . . . . . . . . . . . . . . . . . . . 561,600
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . 282,241
------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . 265,506,896
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . . . . . . . $8,801,508
Portfolio shares redeemed . . . . . . . . . . . . . . . . . . . . 25,873
Due to Adviser (Note B) . . . . . . . . . . . . . . . . . . . . . 104,624
Accrued expenses (Note B) . . . . . . . . . . . . . . . . . . . . 44,136
----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 8,976,141
------------
Net assets, at market value . . . . . . . . . . . . . . . . . . . . . $256,530,755
============
NET ASSETS
Net assets consist of:
Undistributed net investment income . . . . . . . . . . . . . . . $ 507,243
Unrealized depreciation on:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . (2,028,580)
Foreign currency related transactions . . . . . . . . . . . . . (4,400)
Accumulated net realized gain . . . . . . . . . . . . . . . . . . 8,707,226
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 249,349,266
------------
Net assets, at market value . . . . . . . . . . . . . . . . . . . . . $256,530,755
============
NET ASSET VALUE, offering and redemption price per share
($256,530,755 -:- 20,979,934 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) . . $12.23
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
CAPITAL GROWTH PORTFOLIO
- ------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $37,041) . . . $ 2,191,376
Interest . . . . . . . . . . . . . . . . . . . . . . . . . 460,519
------------
2,651,895
Expenses (Note A):
Management fee (Note B) . . . . . . . . . . . . . . . . . . $ 1,199,585
Administrative fees (Note B) . . . . . . . . . . . . . . . 45,253
Accounting fees (Note B) . . . . . . . . . . . . . . . . . 31,685
Trustees' fees (Note B) . . . . . . . . . . . . . . . . . . 11,212
Custodian fees . . . . . . . . . . . . . . . . . . . . . . 98,462
Auditing . . . . . . . . . . . . . . . . . . . . . . . . . 25,795
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,798
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,731 1,456,521
------------ ------------
Net investment income . . . . . . . . . . . . . . . . . . . . 1,195,374
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . . . . . . . . . . . . 8,768,082
Foreign currency related transactions . . . . . . . . . . . (26,177) 8,741,905
------------
Net unrealized depreciation during the period on:
Investments . . . . . . . . . . . . . . . . . . . . . . . . (35,951,742)
Foreign currency related transactions . . . . . . . . . . . (46) (35,951,788)
------------ ------------
Net loss on investment transactions . . . . . . . . . . . . . (27,209,883)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . (26,014,509)
============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
INCREASE (DECREASE) IN NET ASSETS 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . $ 1,195,374 $ 933,809
Net realized gain from investment transactions . . . . . . . . . . . 8,741,905 23,896,099
Net unrealized appreciation (depreciation) on investment
transactions during the period . . . . . . . . . . . . . . . . . (35,951,788) 13,526,410
------------- ------------
Net increase (decrease) in net assets resulting from operations (26,014,509) 38,356,318
------------- ------------
Distributions to shareholders from:
Net investment income ($0.05 and $0.07 per share, respectively). . . (889,382) (1,052,879)
------------- ------------
Net realized gain from investment transactions
($1.31 and $0.27 per share, respectively) . . . . . . . . . . . . (23,981,060) (3,623,212)
------------- ------------
Portfolio share transactions:
Proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . 157,574,508 137,863,548
Net asset value of shares issued to shareholders in
reinvestment of distributions . . . . . . . . . . . . . . . . . . 24,870,442 4,676,091
Cost of shares redeemed . . . . . . . . . . . . . . . . . . . . . . (131,982,527) (86,357,046)
------------- ------------
Net increase in net assets from Portfolio share transactions . . . . . 50,462,423 56,182,593
------------- ------------
INCREASE (DECREASE) IN NET ASSETS . . . . . . . . . . . . . . . . . . . (422,528) 89,862,820
Net assets at beginning of period . . . . . . . . . . . . . . . . . . . 256,953,283 167,090,463
============= ============
NET ASSETS AT END OF PERIOD (including undistributed net
investment income of $507,243 and $238,541, respectively). . . . . . $256,530,755 $256,953,283
------------- ------------
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period . . . . . . . . . . . . . . . 17,184,932 13,146,981
------------- ------------
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,319,350 10,095,666
Shares issued to shareholders in reinvestment of distributions . . . 1,905,054 375,250
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . (10,429,402) (6,432,965)
------------- ------------
Net increase in Portfolio shares . . . . . . . . . . . . . . . . . . 3,795,002 4,037,951
------------- ------------
Shares outstanding at end of period . . . . . . . . . . . . . . . . . . 20,979,934 17,184,932
============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
CAPITAL GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER
PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.
<CAPTION>
Six For the Period
Months July 16, 1985
Ended (commencement
Years Ended December 31, (e) December of operations)
---------------------------------------------------------------- 31, to June 30,
1994 1993 1992 1991 1990 1989 1988 1987 1986(e)(f) 1986
---------------------------------------------------------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.95 $12.71 $12.28 $8.99 $10.21 $8.53 $ 7.06 $ 7.67 $ 7.93 $ 6.00(b)
------ ------ ------ ----- ------ ----- ------ ------- ------ -------
Income from investment
operations:
Net investment
income (a) . . . . .06 .06 .11 .16 .25 .35 .16 .15 .09 .19
Net realized and
unrealized gain
(loss) on investment
transactions . . . (1.42) 2.52 .66 3.35 (1.00) 1.58 1.40 (.28) (.07) 1.87
------ ------ ------ ----- ------ ----- ------ ------- ------ -------
Total from investment
operations . . . . (1.36) 2.58 .77 3.51 (.75) 1.93 1.56 (.13) .02 2.06
------ ------ ------ ----- ------ ----- ------ ------- ------ -------
Less distributions from:
Net investment
income . . . . . . (.05) (.07) (.11) (.22) (.24) (.25) (.09) (.09) (.07) (.13)
Net realized gains
on investment
transactions . . . (1.31) (.27) (.23) -- (.23) -- -- (.39) (.21) --
------ ------ ------ ----- ------ ----- ------ ------- ------ -------
Total distributions . (1.36) (.34) (.34) (.22) (.47) (.25) (.09) (.48) (.28) (.13)
------ ------ ------ ----- ------ ----- ------ ------- ------ -------
Net asset value,
end of period . . . $12.23 $14.95 $12.71 $12.28 $ 8.99 $10.21 $ 8.53 $ 7.06 $ 7.67 $ 7.93
====== ====== ====== ===== ===== ===== ====== ===== ===== =====
TOTAL RETURN (%) . . (9.67) 20.88 6.42 39.56 (7.45) 22.75 22.07 (1.88) .26(d) 34.66(d)
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period ($ millions) 257 257 167 108 45 45 17 10 1 --
Ratio of operating
expenses, net to
average net
assets (%) (a) . . .58 .60 .63 .71 .72 .75 .75 .75 .75(c) .60(c)
Ratio of net investment
income to average
net assets (%) . . .47 .46 .95 1.49 2.71 3.51 2.17 1.68 2.21(c) 2.95(c)
Portfolio turnover
rate (%) . . . . . 66.44 95.31 56.29 58.88 61.39 63.96 129.75 113.34 38.78(c) 86.22(c)
<FN>
(a) Portion of expenses
reimbursed (Note B) $ -- $ -- $ -- $ -- $ -- $ .01 $ .01 $ .04 $ .20 $ .81
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts, for each of the periods identified, have been calculated
using the monthly average shares outstanding during the
period method.
(f) On August 22, 1986, the Trustees voted to change the year end of the Fund
from June 30 to December 31.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
INTERNATIONAL PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount Value ($)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3.9% REPURCHASE AGREEMENT
------------------------------------------------------------------------------------------
U.S.$ 18,230,000 Repurchase Agreement with Donaldson, Lufkin &
Jenrette, dated 12/30/94 at 5.875%, to be
repurchased at $18,241,900 on 1/3/95,
collateralized by a $17,463,000
U.S. Treasury Note, 8.5%, 7/15/97 (Cost $18,230,000) . . 18,230,000
-----------
1.9% COMMERCIAL PAPER
------------------------------------------------------------------------------------------
U.S.$ 5,000,000 General Electric Capital Corp., 5.78%, 1/31/95 . . . . . . 5,000,000
U.S.$ 1,110,000 J.P. Morgan & Co., Inc., 6.05%, 3/1/95 . . . . . . . . . 1,098,994
U.S.$ 3,000,000 Rincon Securities Inc., 6.08%, 1/9/95 . . . . . . . . . . 2,995,947
-----------
TOTAL COMMERCIAL PAPER (Cost $9,094,941) . . . . . . . . . 9,094,941
-----------
3.9% SHORT-TERM NOTES
------------------------------------------------------------------------------------------
U.S.$ 6,390,000 Federal Home Loan Mortgage Corp., Discount Note,
5.76%, 1/24/95 . . . . . . . . . . . . . . . . . . . . . 6,366,485
U.S.$ 12,000,000 Federal National Mortgage Association, Discount Note,
5.8%, 1/9/95 . . . . . . . . . . . . . . . . . . . . . . 11,984,533
-----------
TOTAL SHORT-TERM NOTES (Cost $18,351,018) . . . . . . . . 18,351,018
-----------
0.1% BONDS
------------------------------------------------------------------------------------------
DM 350,000 Deutsche Bank AG, 8%, 4/11/00 . . . . . . . . . . . . . . 230,389
DM 23,000 Deutsche Bank AG (PC), 9%, 12/31/02 . . . . . . . . . . . . 16,105
DM 33,000 Deutsche Bank AG (PC), 8.75%, 12/31/03 . . . . . . . . . . 22,777
-----------
TOTAL BONDS (Cost $220,601) . . . . . . . . . . . . . . . . 269,271
-----------
0.6% CONVERTIBLE BONDS
------------------------------------------------------------------------------------------
U.S.$ 1,900,000 Henderson Land Development Co., Ltd., 4%, 10/27/96
(Property developer) . . . . . . . . . . . . . . . . . . . 1,805,000
U.S.$ 1,050,000 Ssangyong Oil Refining Co., Ltd., 3.75%, 12/31/08
(Major oil refiner) . . . . . . . . . . . . . . . . . . . 1,115,625
-----------
TOTAL CONVERTIBLE BONDS (Cost $2,955,694) . . . . . . . . 2,920,625
-----------
2.1% PREFERRED STOCKS
------------------------------------------------------------------------------------------
Shares
GERMANY 1.8%
8,000 Henkel KGAA (Household detergent and adhesives producer). . 2,922,139
10,000 SAP AG (Computer software manufacturer) . . . . . . . . . . 5,666,161
-----------
8,588,300
-----------
ITALY 0.3%
700,000 Fiat SpA (Multi-industry, automobiles)* . . . . . . . . . 1,609,741
-----------
TOTAL PREFERRED STOCKS (Cost $6,985,179) . . . . . . . . . 10,198,041
-----------
87.5% COMMON STOCKS
------------------------------------------------------------------------------------------
ARGENTINA 1.1%
200,000 Perez Companc S.A. "B" (ADR) (Industrial conglomerate). . . 1,650,000
170,000 YPF SA "D" (ADR) (Petroleum company) . . . . . . . . . . . 3,633,750
-----------
5,283,750
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
INTERNATIONAL PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AUSTRALIA 3.8%
1,556,504 Ampol Exploration Ltd. (Oil and gas
exploration company) . . . . . . . . . . . . . . . . 4,199,267
290,319 Broken Hill Proprietary Co. Ltd. (Petroleum,
minerals and steel) . . . . . . . . . . . . . . . . 4,411,390
240,000 CRA Ltd. (Mining, manufacturing and development) . . . 3,311,885
383,759 Coca Cola Amatil Ltd. (Soft drink bottler
and distributor) . . . . . . . . . . . . . . . . . 2,439,587
2,090,535 M.I.M. Holdings Ltd. (Nonferrous metals and coal) . . 3,484,495
------------
17,846,624
------------
BELGIUM 0.3%
3,200 Solvay & Cie. SA (Chemical producer) . . . . . . . . . 1,524,049
------------
BRAZIL 3.0%
5,178,870 Centrais Eletricas Brasileiras S/A "B"
(pfd.) (Electric utility) . . . . . . . . . . . . . 1,797,624
3,077,425 Companhia Cervejaria Brahma (pfd.) (Leading beer
producer and distributor) . . . . . . . . . . . 1,013,152
19,421,000 Companhia Vale do Rio Doce (pfd.) (Diverse mining and
industrial complex) . . . . . . . . . . . . . . . 3,691,595
26,360,657 Lojas Americanas S.A. (pfd.) (Discount department
store chain) . . . . . . . . . . . . . . . . . . . 778,060
12,000,000 Petroleo Brasileiro S/A (pfd.) (Petroleum company) . . 1,515,797
40,040,000 Telecomunicacoes Brasileiras S.A. (pfd.)
(Telecommunication services) . . . . . . . . 1,791,636
2,600,000,000 Usinas Siderurgicas de Minas Gerais S/A (pfd.)
(Non-coated flat products and electrolytic
galvanized products) . . . . . . . . . . . . . . . . 3,530,106
------------
14,117,970
------------
CANADA 2.4%
200,445 Canadian Pacific Ltd. (Transportation and natural
resource conglomerate) . . . . . . . . . . . . . . . 2,982,919
100,000 Imperial Oil Ltd.(Producer and refiner of natural gas
and petroleum products in Canada) . . . . . . . . . 3,297,095
71,800 Magna International, Inc. "A" (Manufacturer of
automotive parts) . . . . . . . . . . . . . . . . . 2,755,325
159,000 Rogers Communications Inc. "B" (Cable TV and
cellular telephones in Canada)* . . . . . . . . . . 2,125,290
------------
11,160,629
------------
DENMARK 0.3%
35,000 Unidanmark A/S "A" (Bank holding company)*. . . . . . 1,346,309
------------
FINLAND 2.6%
78,000 Metsa-Serla Oy "B" (Tissue paper producer) . . . . . 3,425,097
29,000 Nokia AB Oy (Preference) (Leading manufacturer of
cellular telephones) . . . . . . . . . . . . . . 4,273,349
247,000 Outokumpu Oy "A" (Metals and minerals)* . . . . . . 4,536,607
94,000 Outokumpu Oy Warrants (expire 6/28/96)* . . . . . . 83,347
------------
12,318,400
------------
FRANCE 5.9%
9,300 Carrefour (Hypermarket and food retailing) . . . . . 3,851,638
14,138 Castorama-Dubois Investissements (Retailer,
wholesaler and distributor) . . . . . . . . . . . 1,765,596
10,736 Cetelem (Consumer finance company) . . . . . . . . 1,919,655
10,000 Continentale d'Equipement Electrique (Protection
equipment for electrical networks) . . . . . . . 820,071
19,300 ECIA - Equipements et Composants pour l'Industrie
Automobile (Manufacturer of automobile parts and
accessories) . . . . . . . . . . . . . . . . . . . 2,507,807
88,000 Michelin "B" (Leading tire manufacturer)* . . . . . 3,201,348
12,226 S.A.G.A. (Major freight forwarding, logistics
and cargo handling operator) . . . . . . . . . . 1,052,979
2,980 Salomon S.A. (Manufacturer of sports equipment) 1,191,219
34,952 Elf Aquitaine (Petroleum company) . . . . . . . . 2,459,924
15,420 Elf Aquitaine (ADR) . . . . . . . . . . . . . . . 543,555
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
20,000 Television Francaise (Television broadcasting).......... 1,813,144
70,473 Total SA "B" (International oil and gas exploration,
development and production) .......................... 4,093,002
54,687 Valeo SA (Automobile and truck components) ............. 2,722,575
----------
27,942,513
----------
GERMANY 6.8%
20,000 BASF AG (Diversified manufacturer of chemicals for
industrial use) ..................................... 4,123,778
6,000 Daimler-Benz AG (Automobile and truck manufacturer) .... 2,950,534
8,698 Deutsche Bank AG (Bank) ............................... 4,041,535
46 Deutsche Bank AG Warrants (expire 6/30/95)* ............ 4,987
330 Deutsche Bank AG Warrants (expire 6/30/97)* ............ 8,455
18,500 Hoechst AG (Chemical producer) ......................... 4,023,426
14,860 Mannesmann AG (Bearer) (Diversified construction
and technology company) .............................. 4,046,930
6,900 Schering AG (Pharmaceutical and chemical producer) ..... 4,528,605
3,027 Siemens AG (Bearer) (Manufacturer of electrical and
electronic equipment) ................................ 1,267,802
12,720 VEBA AG (Electric utility, distributor of oil and
chemicals) ......................................... 4,432,771
10,000 Volkswagen AG (Leading automobile manufacturer) ........ 2,749,185
----------
32,178,008
----------
HONG KONG 2.4%
266,000 Cheung Kong Holdings Ltd. (Real estate company) ........ 1,082,908
288,000 China Light & Power Co., Ltd. (Electric utility) ....... 1,232,026
209,787 HSBC Holdings Ltd. (Bank) ............................. 2,263,937
288,000 Hong Kong & China Gas Co., Ltd. (Gas utility) .......... 465,267
24,000 Hong Kong & China Gas Co., Ltd. Warrants
(expire 12/31/95)* .................................. 4,560
330,000 Hong Kong Electric Holdings, Ltd.
(Electric utility and real estate) ................... 902,036
732,000 Hutchison Whampoa, Ltd. (Container terminal and real
estate company) ...................................... 2,989,493
435,000 Hysan Development Co. (Real estate developer)........... 862,973
620,000 Johnson Electric Holdings Ltd. (Designer and
manufacturer of micrometers for domestic and
commercial uses) .................................... 1,422,294
----------
11,225,494
----------
INDONESIA 0.8%
200,000 Indocement Tunggal (Foreign registered)
(Cement producer) .................................... 575,523
50,400 Indonesia Satellite Corp. (ADR) (International
telecommunication services)* ......................... 1,801,800
402,000 Kalbe Farma (Foreign registered) (Pharmaceutical
producer and distributor) ............................ 1,655,186
----------
4,032,509
----------
ITALY 3.6%
71,170 Assicurazioni Generali SpA (Life and property
insurance company) .................................. 1,673,943
350,000 Istituto Mobiliare Italiano SpA (Banking and financial
services) ............................................ 2,151,356
2,500,000 Istituto Nazionale delle Assicurazione (Insurance
company)* ............................................ 3,321,517
670,000 La Rinascente SpA di Risparmio (Department store chain) 1,891,862
134,000 La Rinascente SpA di Risparmio Warrants
(expire 12/31/99)* .................................. 41,307
134,000 La Rinascente SpA Warrants (expire 12/31/99)* .......... 105,746
65,000 Luxottica Group SpA (ADR) (Manufacturer and marketer
of eyeglasses) ....................................... 2,218,125
964,000 Societa Finanziaria Telefonica Torino SpA (Telephone
utility and telecommunication equipment manufacturer) 2,840,888
1,130,000 Telecom Italia SpA (Telecommunication services) ........ 2,939,951
----------
17,184,695
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
INTERNATIONAL PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
JAPAN 25.8%
1,000 Amano Corp. (Time-management systems) . . . . . . . . . 14,855
125,000 Bridgestone Corp. (Leading automobile tire
manufacturer) . . . . . . . . . . . . . . . . . . . . 1,957,242
318,000 Canon Inc. (Leading producer of visual image and
information equipment) . . . . . . . . . . . . . . . 5,394,158
65,000 Cox Co., Ltd. (Men's and ladies' wear chain
store operator) . . . . . . . . . . . . . . . . . . 1,285,255
490 DDI Corp. (Long distance telephone and
cellular operator). . . . . . . . . . . . . . . . . . 4,229,650
400,000 Fujitsu Ltd. (Leading manufacturer of computers) . . . 4,055,003
190,000 Hitachi Construction Machinery Co., Ltd. (Leading
maker of hydraulic shovels) . . . . . . . . . . . . . 2,498,243
477,000 Hitachi Ltd. (General electronics manufacturer) . . . . 4,735,050
380,000 Hitachi Metals, Ltd. (Major producer of high-quality
specialty steels) . . . . . . . . . . . . . . . . . . 4,653,217
88,000 Horipro Inc. (Growing entertainment production company) 2,172,840
74,000 Ito-Yokado Co., Ltd. (Leading supermarket operator) . . 3,958,848
465,000 Itochu Corp. (Leading general trading company). . . . . 3,313,761
20,000 Japan Associated Finance Co. (Venture capital company). 3,111,513
87,000 Japan Radio Co., Ltd. (Manufacturer of wireless
telecommunication equipment) . . . . . . . . . . . . 1,292,382
550,000 Kawasaki Steel Corp. (Major integrated steelmaker)* . 2,302,017
29,000 Keyence Corp. (Specialized manufacturer of sensors) . 3,289,170
68,000 Kyocera Corp. (Leading ceramic packaging manufacturer). 5,043,862
45,000 Mabuchi Motor Co., Ltd. (Manufacturer of DC motors) . . 3,387,534
210,000 Matsushita Electrical Industrial Co., Ltd. (Consumer
electronic products manufacturer) . . . . . . . . . . 3,456,790
395,000 NGK Spark Plug Co., Ltd. (Leading manufacturer of
automotive spark plugs) . . . . . . . . . . . . . . . 5,193,717
540,000 NSK Ltd. (Leading manufacturer of bearings and other
machinery parts) . . . . . . . . . . . . . . . . . . 4,281,843
49,000 Nichiei Co., Ltd. (Finance company for small and
medium size firms) . . . . . . . . . . . . . . . . . 3,147,646
210,000 Nippon Shokubai Corp., Ltd. (Specialty chemical
producer) . . . . . . . . . . . . . . . . . . . . . . 2,044,565
600,000 Nisshin Steel Co., Ltd. (Blast furnace steelmaker) . . 3,023,186
90,000 Pioneer Electronics Corp. (Leading manufacturer of
audio equipment) . . . . . . . . . . . . . . . . . . 2,168,022
50,000 SMC Corp. (Leading maker of pneumatic equipment) . . . 2,845,528
56,000 Secom Co., Ltd. (Electronic security system operator) . 3,484,894
40,000 Seven-Eleven Japan Co., Ltd. (Leading convenience
store operator) . . . . . . . . . . . . . . . . . . . 3,215,899
250,000 ShinMaywa Industries, Ltd. (Leading maker of dump
trucks and other specialty vehicles) . . . . . . . . 2,559,470
84,000 Sony Corp. (Consumer electronic products manufacturer). 4,763,625
400,000 Sumitomo Corp. (Leading general trading company, with
offices, subsidiaries and affiliates throughout
the world) . . . . . . . . . . . . . . . . . . . . . 4,095,152
21,000 Sumitomo Electric Industries, Ltd. (ADR) (Leading
maker of electric wires and cables) . . . . . . . . . 2,992,500
197,000 Sumitomo Forestry Co., Ltd. (Forestry and house building) 3,163,706
850,000 Sumitomo Metal Industries, Ltd. (Leading integrated
crude steel producer)* . . . . . . . . . . . . . . . 2,755,696
315,000 Suzuki Motor Corp. (Leading minicar and motorcycle
producer) . . . . . . . . . . . . . . . . . . . . . . 3,699,187
94,000 Takuma Co., Ltd. (Leading maker of boilers, garbage
incinerators and water treatment plants) . . . . . . 1,698,284
555,000 Toshiba Corp. (General electronics manufacturer) . . . 4,027,552
32,000 Tsutsumi Jewelry Co., Ltd. (Manufacturer, wholesaler
and retailer of jewelry) . . . . . . . . . . . . . . 2,922,814
-----------
122,234,676
-----------
KOREA 0.6%
2,000 Korea International Trust IDR (Investment company)(a)* 117,000
22,000 Samsung Electronics Co., Ltd. (GDS) (Major electronics
manufacturer) . . . . . . . . . . . . . . . . . . . . 1,072,500
33,000 Samsung Electronics Co., Ltd. (GDS) (New(b)) . . . . . 1,485,000
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2,278 Samsung Electronics Co., Ltd. (GDS) (New(b)) . . . . . . . . . 139,812
----------
2,814,312
----------
MALAYSIA 2.0%
294,000 Aokam Perdana Bhd. (Forest products company) . . . . . . . . . 1,819,150
315,000 Malayan Banking Bhd. (Leading banking and financial
services group) . . . . . . . . . . . . . . . . . . . . . . . 1,899,745
870,000 Technology Resources Industries (Mobile telephone
operator)* . . . . . . . . . . . . . . . . . . . . . . . . . 2,776,777
194,000 Telekom Malaysia Bhd. (Telecommunication services) . . . . . . 1,314,353
250,000 Westmont Bhd. (Investment holding company) . . . . . . . . . . 1,556,687
----------
9,366,712
----------
MEXICO 0.5%
100,000 Grupo Carso, S.A. de CV (ADR) (Diversified industrial
group)* . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500,000
32,000 Panamerican Beverages Inc. "A" (Soft drink bottler) . . . . . 1,012,000
----------
2,512,000
----------
NETHERLANDS 4.1%
30,000 AEGON Insurance Group NV (Insurance company) . . . . . . . . . 1,918,313
24,000 Akzo-Nobel NV (Chemical producer) . . . . . . . . . . . . . . 2,770,666
204,870 Elsevier NV (International publisher of scientific,
professional, business, and consumer information books) . . . 2,136,152
69,106 Getronics NV (Computer and software distributor) . . . . . . . 2,519,966
16,000 Heineken Holdings NV "A" (Brewery) . . . . . . . . . . . . . . 2,163,258
50,448 Internationale-Nederlanden Groep CVA (Banking
and insurance holding company) . . . . . . . . . . . . . . . 2,383,050
122,000 Philips N.V. (Leading manufacturer of electrical equipment). . 3,612,420
26,935 Wolters Kluwer CVA (Publisher) . . . . . . . . . . . . . . . . 1,992,312
----------
19,496,137
----------
NORWAY 0.6%
271,889 Saga Petroleum "A" (Free) (Oil and gas producer) . . . . . . . 2,955,097
----------
PHILIPPINES 0.8%
10,115 Philippine Long Distance Telephone Co.
(Telecommunication services) . . . . . . . . . . . . . . . . 557,589
600,000 San Miguel Corp. "B" (Brewery) . . . . . . . . . . . . . . . . 3,124,491
----------
3,682,080
----------
PORTUGAL 0.3%
30,192 Jeronimo Martins (Food producer and retailer) . . . . . . . . 1,293,590
----------
SINGAPORE 0.3%
195,000 Sembawang Corp. (Ship repair and maritime
services group) . . . . . . . . . . . . . . . . . . . . . . . 1,458,319
----------
SPAIN 2.2%
37,400 Acerinox, S.A. (Stainless steel producer). . . . . . . . . . . 3,906,933
21,800 Banco Santander, S.A. (Leading regional bank). . . . . . . . . 834,735
7,266 Banco Santander, S.A. (New(b)) . . . . . . . . . . . . . . . . 269,387
160,000 Compania Telefonica Nacional de Espana S.A.
(Telecommunication services) . . . . . . . . . . . . . . . . 1,890,218
133,000 Repsol SA (Integrated oil company) . . . . . . . . . . . . . . 3,607,293
----------
10,508,566
----------
SWEDEN 4.0%
99,000 Astra AB "A" (Free) (Pharmaceutical company) . . . . . . . . . 2,558,088
600 Astra AB "B" (Free) . . . . . . . . . . . . . . . . . . . . . 15,302
155,000 Autoliv AB (Free) (Manufacturer of safety airbags for
automobiles)* . . . . . . . . . . . . . . . . . . . . . . . 5,965,911
35,000 L.M. Ericsson Telephone Co. "B" (ADR) (Leading
manufacturer of cellular telephone equipment) . . . . . . . . 1,929,375
65,000 Mo och Domsjo AB "B" (Free) (Manufacturer of newsprint,
paperboard, and various sawn timber products)* . . . . . . . 3,026,694
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
INTERNATIONAL PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
144,000 S.K.F. AB "B" (Free) (Manufacturer of
roller bearings)* . . . . . . . . . . . . . . . 2,373,983
175,000 Volvo AB "B" (Free) (Automobile manufacturer). . . 3,297,199
------------
19,166,552
------------
SWITZERLAND 4.4%
7,000 Alusuisse-Lonza Holdings AG (Registered)
(Manufacturer of aluminum, chemicals, and paper
packaging products) . . . . . . . . . . . . . . 3,501,737
5,180 Brown, Boveri & Cie. AG (Bearer) (Manufacturer of
electrical equipment) . . . . . . . . . . . . . 4,458,594
5 Brown, Boveri & Cie. AG (Registered) . . . . . . 825
3,335 CS Holdings (Bearer) (Bank) . . . . . . . . . . . 1,426,357
5 CS Holdings (Bearer) Warrants (expire 12/16/94)* . 35
3,623 Holderbank Financiere Glaris AG (Bearer)
(Cement company) . . . . . . . . . . . . . . . 2,742,119
2,514 Nestle SA (Registered) (Food manufacturer) . . . 2,394,286
1,710 SGS Holdings SA (Bearer) (Trade inspection
company) . . . . . . . . . . . . . . . . . . 2,363,845
4,000 Sulzer Brothers Ltd. (Registered) (Multi-industry
company) . . . . . . . . . . . . . . . . . . . 2,767,786
5,038 Swiss Bank Corp. (Bearer) (Switzerland's second
largest universal bank) . . . . . . . . . . . . 1,392,871
65 Swiss Bank Corp. Warrants (expire 6/30/95)* . . . 782
143 Swiss Bank Corp. Warrants (expire 6/30/98)* . . . 1,693
100 Swiss Reinsurance (Registered) (Life,
accident and health insurance company) . . . . 60,259
-----------
21,111,189
-----------
THAILAND 1.1%
15,500 American Standard Sanitaryware (Foreign
registered)(Manufacturer of bathroom fixtures). 209,918
716,000 Sinpinyo Fund #4 (Foreign registered)
(Investment company)* . . . . . . . . . . . . . 855,606
525,220 Thai Farmers Bank (Foreign registered)
(Commercial bank) . . . . . . . . . . . . . . . 4,267,870
-----------
5,333,394
-----------
TURKEY 0.3%
670,000 Migros Turkey (Retailer) . . . . . . . . . . . . 1,281,137
-----------
UNITED KINGDOM 7.5%
192,000 BAA PLC (Owner and operator of U.S. and
U.K. airports) . . . . . . . . . . . . . . . . 1,421,221
600,000 British Gas PLC (Integrated gas utility) . . . . 2,938,967
300,000 British Petroleum PLC (Major integrated world
oil company) . . . . . . . . . . . . . . . . . 1,997,653
278,310 Cable and Wireless PLC (International
telecommunication services in the United
Kingdom and Hong Kong) . . . . . . . . . . . . 1,641,985
110,175 Cadbury Schweppes PLC (Candy, soft drinks and
other food products) . . . . . . . . . . . . . 744,845
236,000 Carlton Communications PLC (Television post
production products and services) . . . . . . . 3,312,864
310,400 Cookson Group PLC (Industrial materials
manufacturer) . . . . . . . . . . . . . . . . 1,117,246
710,218 Hanson PLC (Industrial management company) . . . 2,567,455
1,320,427 Lasmo PLC (Oil production and exploration)* . . 3,058,266
170,000 Midlands Electricity PLC (Electric companies) . . 2,168,307
255,000 PowerGen PLC (Electric utility) . . . . . . . . 2,138,967
304,628 RTZ Corp. PLC (Mining and finance company) . . . 3,947,292
439,200 Reuters Holdings PLC (International
news agency) . . . . . . . . . . . . . . . . . 3,216,676
449,140 SmithKline Beecham "A" (Manufacturer of ethical
drugs and healthcare products) . . . . . . . . 3,187,559
389,000 Waste Management International PLC (Waste
collection and disposal services)* . . . . . . 2,179,374
-----------
35,638,677
-----------
TOTAL COMMON STOCKS (Cost $393,294,522) . . . . 415,013,388
-----------
- -------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $449,131,955)(c) . . . . . . . . . . . . 474,077,284
===========
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
<S> <C>
* Non-income producing security.
(a) 1000 shares = 1 IDR unit for Korea International Trust.
(b) New shares issued during 1994, eligible for a pro rata share of 1994 dividends.
(c) At December 31, 1994, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $450,408,637 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is
an excess of market value over tax cost .................................. $ 44,572,806
Aggregate gross unrealized depreciation for all investments in which there is
an excess of tax cost over market value .................................. (20,904,159)
------------
Net unrealized appreciation .................................................. $ 23,668,647
============
<FN>
- ------------------------------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term investments), for the year
ended December 31, 1994, aggregated $339,886,045 and $119,463,911, respectively.
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------------
At December 31, 1994, sector diversification of the International Portfolio's
equity holdings was as follows:
<CAPTION>
SECTOR DIVERSIFICATION EQUITY HOLDINGS MARKET VALUE
---------------------- --------------- ------------
<S> <C> <C>
Manufacturing 20% $ 85,601,911
Metals and Minerals 11 47,139,503
Durables 11 45,968,873
Financial 10 43,726,124
Energy 8 34,126,324
Service Industries 6 27,823,821
Consumer Discretionary 6 24,507,581
Consumer Staples 6 24,038,995
Communications 5 21,784,847
Technology 5 19,982,304
Other 12 53,431,771
----- ------------
TOTAL EQUITY HOLDINGS 100% $428,132,054
===== ============
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
COMMITMENTS:
As of December 31, 1994, the International Portfolio entered into the following
forward foreign currency exchange contracts resulting in net unrealized depreciation of $1,493,469.
<CAPTION>
NET UNREALIZED
APPRECIATION/
SETTLETLEMENT DEPRECIATION
CONTRACTS TO DELIVER IN EXCHANGE FOR DATE (U.S.$)
---------------------------- ----------------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
U.S. Dollars 859,643 Swiss Francs 1,141,175 1/4/95 11,916
U.S. Dollars 2,026,217 British Pound 1,310,874 1/12/95 25,228
Japanese Yen 34,195,236 U.S. Dollars 340,639 1/4/95 (2,583)
Japanese Yen 30,231,846 U.S. Dollars 303,171 1/5/95 (270)
Swiss Francs 1,513,105 U.S. Dollars 1,140,245 1/5/95 (15,370)
Japanese Yen 25,040,429 U.S. Dollars 251,194 1/6/95 (141)
British Pounds 234,529 U.S. Dollars 361,644 1/12/95 (5,381)
Japanese Yen 768,110,000 U.S. Dollars 7,000,000 1/24/95 (731,369)
Japanese Yen 757,890,000 U.S. Dollars 7,000,000 1/25/95 (629,394)
Japanese Yen 2 208,822,000 U.S. Dollars 22,000,000 4/28/95 (490,002)
Japanese Yen 1, 911,000,000 U.S. Dollars 20,000,000 7/10/95 343,897
---------
(1,493,469)
=========
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Transactions in written put option contracts during the year ended December 31, 1994 were:
<CAPTION>
PREMIUMS
NUMBER OF CONTRACTS RECEIVED ($)
---------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1993........................... -- --
Contracts written .................................... 920 79,336
Contracts expired .................................... (920) (79,336)
---------------------------------------------
Outstanding at December 31, 1994 .......................... -- --
====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
INTERNATIONAL PORTFOLIO
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $449,131,955) (Note A) . . . $474,077,284
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,912
Forward foreign currency exchange contracts to buy, at market
(contract cost $2,885,860) (Note A) . . . . . . . . . . . . . . . 2,923,004
Receivable on forward foreign currency exchange contracts to sell
(Note A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,396,893
Other receivables:
Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . 2,420,638
Portfolio shares sold . . . . . . . . . . . . . . . . . . . . . . 1,413,511
Foreign taxes recoverable . . . . . . . . . . . . . . . . . . . . 416,034
Dividends and interest . . . . . . . . . . . . . . . . . . . . . . 205,882
------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . 539,979,158
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . . . . . . . $ 4,596,407
Portfolio shares redeemed . . . . . . . . . . . . . . . . . . . . 52,950
Due to Adviser (Note B) . . . . . . . . . . . . . . . . . . . . . 357,742
Accrued expenses (Note B) . . . . . . . . . . . . . . . . . . . . 122,094
Forward foreign currency exchange contracts to buy
(Note A) . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,885,860
Forward foreign currency exchange contracts to sell,
at market (contract cost $58,396,893) (Note A) . . . . . . . . 59,927,506
-----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 67,942,559
------------
Net assets, at market value . . . . . . . . . . . . . . . . . . . . . $472,036,599
============
NET ASSETS
Net assets consist of:
Undistributed net investment income . . . . . . . . . . . . . . . $ 722,015
Unrealized appreciation (depreciation) on:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . 24,945,329
Foreign currency related transactions . . . . . . . . . . . . . (1,505,831)
Accumulated net realized gain . . . . . . . . . . . . . . . . . . 1,548,747
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 446,326,339
------------
Net assets, at market value . . . . . . . . . . . . . . . . . . . . . $472,036,599
============
NET ASSET VALUE, offering and redemption price per share
($472,036,599 -:- 44,139,826 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) . . $10.69
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $909,141) . . . $ 4,589,934
Interest (net of foreign taxes withheld of $52,996) . . . . 1,791,616
-----------
6,381,550
Expenses (Note A):
Management fee (Note B) . . . . . . . . . . . . . . . . . . $ 3,363,597
Administrative fees (Note B) . . . . . . . . . . . . . . . 45,272
Accounting fees (Note B) . . . . . . . . . . . . . . . . . 96,548
Trustees' fees (Note B) . . . . . . . . . . . . . . . . . . 13,121
Custodian fees . . . . . . . . . . . . . . . . . . . . . . 469,330
Auditing . . . . . . . . . . . . . . . . . . . . . . . . . 50,810
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,064
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,281 4,171,023
----------- -----------
Net investment income . . . . . . . . . . . . . . . . . . . . 2,210,527
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . . . . . . . . . . . . 4,033,919
Options . . . . . . . . . . . . . . . . . . . . . . . . . . 28,258
Foreign currency related transactions . . . . . . . . . . . (391,175) 3,671,002
-----------
Net unrealized depreciation during the period on:
Investments . . . . . . . . . . . . . . . . . . . . . . . . (13,368,706)
Foreign currency related transactions . . . . . . . . . . . (1,498,201) (14,866,907)
----------- -----------
Net loss on investment transactions . . . . . . . . . . . . . (11,195,905)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . $(8,985,378)
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
INTERNATIONAL PORTFOLIO
- ---------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
Increase (Decrease) in Net Assets 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . $ 2,210,527 $ 1,092,953
Net realized gain from investment transactions . . . . . . . . . . . 3,671,002 823,463
Net unrealized appreciation (depreciation) on investment
transactions during the period . . . . . . . . . . . . . . . . . (14,866,907) 37,190,760
------------- -------------
Net increase (decrease) in net assets resulting from operations . . . . (8,985,378) 39,107,176
------------- -------------
Distributions to shareholders:
From net investment income ($.07 and $.14 per share, respectively) . (1,958,854) (1,135,018)
------------- -------------
In excess of net investment income ($.12 per share) . . . . . . . . -- (914,392)
------------- -------------
Portfolio share transactions:
Proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . 313,276,872 150,601,515
Net asset value of shares issued to shareholders in
reinvestment of distributions . . . . . . . . . . . . . . . . . . 1,958,854 2,049,410
Cost of shares redeemed . . . . . . . . . . . . . . . . . . . . . . (70,378,561) (16,376,694)
------------- -------------
Net increase in net assets from Portfolio share transactions . . . . . 244,857,165 136,274,231
------------- -------------
INCREASE IN NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . 233,912,933 173,331,997
Net assets at beginning of period . . . . . . . . . . . . . . . . . . . 238,123,666 64,791,669
------------- -------------
NET ASSETS AT END OF PERIOD (including undistributed net investment
income of $722,015 and $1,007,330, respectively) . . . . . . . . . . $472,036,599 $238,123,666
============= =============
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period . . . . . . . . . . . . . . . 21,943,195 7,975,250
------------- -------------
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,463,330 15,488,679
Shares issued to shareholders in reinvestment of distributions . . . 177,916 252,390
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . (6,444,615) (1,773,124)
------------- -------------
Net increase in Portfolio shares . . . . . . . . . . . . . . . . . . 22,196,631 13,967,945
------------- -------------
Shares outstanding at end of period . . . . . . . . . . . . . . . . . . 44,139,826 21,943,195
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.
<CAPTION>
FOR THE PERIOD
MAY 1, 1987
(COMMENCEMENT
Years Ended December 31, OF OPERATIONS) TO
------------------------------------------------------------ DECEMBER 31,
1994(e) 1993(e) 1992(e) 1991(e) 1990(e) 1989(e) 1988 1987
------------------------------------------------------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period . . . . . . . $10.85 $ 8.12 $ 8.47 $ 7.78 $ 8.46 $ 6.14 $ 5.26 $ 6.00(b)
------ ------ ------ ------ ------ ------ ------ -------
Income from investment
operations:
Net investment income (a) . . . . .06 .09 .10 .12 .25 .10 .09 --
Net realized and unrealized
gain (loss) on investment
transactions . . . . . . . . . . (.15) 2.90 (.36) .77 (.89) 2.22(f) .79 (.64)
------ ----- ----- ----- ----- ----- ----- -----
Total from investment
operations . . . . . . . . . . . (.09) 2.99 (.26) .89 (.64) 2.32 .88 (.64)
------ ----- ----- ----- ----- ----- ----- -----
Less distributions:
From net investment income . . . (.07) (.14) (.09) (.20) (.04) -- -- --
In excess of net investment income -- (.12) -- -- -- -- -- --
From net realized gains on
investment transactions . . . . -- -- -- -- -- -- -- (.10)
------ ----- ----- ----- ----- ----- ----- -----
Total distributions . . . . . . . . (.07) (.26) (.09) (.20) (.04) -- -- (.10)
------ ----- ----- ----- ----- ----- ----- -----
Net asset value, end of period . . $10.69 $10.85 $ 8.12 $ 8.47 $ 7.78 $ 8.46 $ 6.14 $5.26
====== ====== ====== ====== ====== ====== ====== =====
TOTAL RETURN (%) . . . . . . . . . (.85) 37.82 (3.08) 11.45 (7.65) 37.79 16.73 (10.64)(d)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
($ millions) . . . . . . . . . . . 472 238 65 41 35 17 3 2
Ratio of operating expenses,
net to average net assets (%) (a) 1.08 1.20 1.31 1.39 1.38 1.50 1.50 1.50(c)
Ratio of net investment income
to average net assets (%) . . . . .57 .91 1.23 1.43 2.89 1.30 1.59 .02(c)
Portfolio turnover rate (%) . . . . 33.52 20.36 34.42 45.01 26.67 57.69 110.42 146.08(c)
(a) Portion of expenses
reimbursed (Note B) . . . . . . $ -- $ -- $ -- $ -- $ -- $ .02 $ .14 $ .07
<FN>
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts, for each of the periods identified, have been calculated
using the monthly average shares outstanding during the
period method.
(f) Includes provision for federal income tax of $.03 per share.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------
A. SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------------------------------
Scudder Variable Life Investment Fund (the "Fund") is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end, diversified management investment company.
Its shares of beneficial interest are divided into six separate diversified
series, called "Portfolios." The Portfolios are comprised of the Money Market
Portfolio, Bond Portfolio, Balanced Portfolio, Growth and Income Portfolio
(which commenced operations on May 2, 1994), Capital Growth Portfolio, and
International Portfolio.
The Fund is intended to be the funding vehicle for variable annuity contracts
and variable life insurance policies to be offered by the separate accounts of
certain life insurance companies ("Participating Insurance Companies"). As of
December 31, 1994, ownership breakdown of the Portfolios by each Participating
Insurance Company is as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
GROWTH
PARTICIPATING MONEY AND CAPITAL INTERNA-
INSURANCE COMPANIES MARKET BOND BALANCED INCOME GROWTH TIONAL
- ------------------------------------ -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Life Insurance & Annuity Co. ..... --% --% --% --% --% 40.4%
American Skandia Life Assurance Co...... -- 37.7 0.1 -- 0.1 0.3
AUSA Life Insurance Co. ................ -- -- -- -- -- 0.3
Banner Life Insurance Co................ 0.2 0.3 6.8 -- 1.1 0.4
Charter National Life Insurance Co...... 66.5 11.7 80.5 87.9 27.3 19.8
Fortis Benefits Insurance Co............ -- -- -- -- -- 0.2
Intramerica Life Insurance Co........... 4.9 1.3 5.7 12.1 2.4 1.8
Lincoln Benefit Life Co................. -- 0.1 1.2 -- -- --
Mutual of America Life Insurance Co..... -- 47.4 -- -- 65.0 29.6
Paragon Life Insurance Co............... -- -- 0.2 -- 0.1 --
Providentmutual Life and Annuity Co
of America.............................. -- 1.5 -- -- -- --
Safeco Life Insurance Co................ -- -- 5.5 -- -- 1.7
Union Central Life Insurance Co. ....... 28.3 -- -- -- 4.0 5.5
United of Omaha Life Insurance Co. ..... 0.1 -- -- -- -- --
-------------------------------------------------------------------
100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ======= ======= ======= =======
</TABLE>
The policies described below are followed consistently by the Fund in the
preparation of the financial statements for its Portfolios in conformity with
generally accepted accounting principles.
SECURITY VALUATION. The Money Market Portfolio values all securities utilizing
the amortized cost method permitted in accordance with Rule 2a-7 under the
Investment Company Act of 1940, as amended, and pursuant to which the Portfolio
must adhere to certain conditions. Under this method, which does not take into
account unrealized gains or losses on securities, an instrument is initially
valued at its cost and thereafter assumes a constant accretion/amortization to
maturity of any discount/premium.
Securities in each of the remaining Portfolios are valued in the following
manner:
Portfolio securities which are traded on U.S. or foreign stock exchanges are
valued at the most recent sale price reported on the exchange on which the
security is traded most extensively. If no sale occurred, the security is then
valued at the calculated mean between the most recent bid and asked quotations.
If there are no such bid and asked quotations, the most recent bid quotation is
used. Securities quoted on the National Association of Securities Dealers
Automatic Quotation ("NASDAQ") System, for which there have been sales, are
valued at the most recent sale price reported on such system. If there are no
such sales, the value is the high or "inside" bid quotation. Securities which
are not quoted on the NASDAQ System but are traded in another over-the-counter
market are valued at the most recent sale price on such market. If no sale
occurred, the security is then valued at the calculated mean between the most
recent bid and asked quotations. If there are no such bid and asked quotations,
the most recent bid quotation shall be used.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Portfolio debt securities with remaining maturities greater than sixty days are
valued by pricing agents approved by the officers of the Fund, which quotations
reflect broker/dealer-supplied valuations and electronic data processing
techniques. If the pricing agents are unable to provide such quotations, the
most recent bid quotation supplied by a bona fide market maker shall be used.
Short-term investments having a maturity of sixty days or less are valued at
amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Trustees.
OPTIONS. The International Portfolio may purchase and write (sell)
exchange-listed and over-the-counter call and put options on securities and
other financial instruments. Exchange traded options are valued at the last
sale price or, in the absence of a sale, the mean between the closing bid and
asked quotations or at the most recent asked quotation (if written) or the most
recent bid quotation (if purchased) if no bid and asked quotations are
available. Over-the-counter options are valued at the most recent asked
quotation (if written) or the most recent bid quotation (if purchased).
FOREIGN CURRENCY TRANSLATIONS. The books and records of the Portfolios are
maintained in U.S. dollars. Foreign currency transactions are translated into
U.S. dollars on the following basis:
(i) market value of investment securities, other assets and liabilities
at the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and interest
income and certain expenses at the rates of exchange prevailing on
the respective dates of such transactions.
The Portfolios do not isolate that portion of gains and losses on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included
with the net realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. In connection with portfolio
purchases and sales of securities denominated in a foreign currency, the
non-money market Portfolios may enter into forward foreign currency exchange
contracts ("contracts"). During the period, to hedge a portion of the
International Portfolio's Japanese Yen currency exposure, the International
Portfolio entered into Japanese Yen forward exchange contracts. Contracts are
recorded at market value. Certain risks may arise upon entering into these
contracts from the potential inability of counterparties to meet the terms of
their contracts. Realized and unrealized gains and losses arising from such
transactions are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
REPURCHASE AGREEMENTS. The Fund on behalf of each Portfolio may enter into
repurchase agreements with U.S. and foreign banks and broker/dealers whereby
the Fund, through its custodian, receives delivery of the underlying
securities, the amount of which at the time of purchase and each subsequent
business day is required to be maintained at such a level that the market
value, depending on the maturity of the repurchase agreement and the underlying
collateral, is equal to at least 100.5% of the resale price.
FEDERAL INCOME TAXES. Each Portfolio is treated as a single corporate taxpayer
as provided for in the Internal Revenue Code of 1986, as amended. It is each
Portfolio's policy to comply with the requirements of the Internal Revenue Code
which are applicable to regulated investment companies and to distribute all of
its investment company taxable income to the separate accounts of the
Participating Insurance Companies which hold its shares. Accordingly, the
Portfolios paid no federal income taxes and no provision for federal income
taxes was required.
DISTRIBUTION OF INCOME AND GAINS. All of the net investment income of the Money
Market Portfolio is declared as a dividend to shareholders of record as of the
close of business each day and is paid to shareholders monthly. Dividends from
the Bond Portfolio, Balanced Portfolio, Growth and Income Portfolio, and the
Capital Growth Portfolio are declared and paid quarterly in April, July,
October and January. All of the net investment income of the International
Portfolio normally will be declared and distributed as a dividend annually.
During any particular year, net realized gains from investment
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
- --------------------------------------------------------------------------------
transactions for each Portfolio, in excess of available capital loss
carryforwards, would be taxable to the Portfolio if not distributed and,
therefore, will be distributed to the Participating Insurance Companies.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax
regulations which may differ from generally accepted accounting principles. The
differences primarily relate to investments in forward contracts, passive
foreign investment companies, post October loss deferral, non-taxable
distributions, and certain securities sold at a loss. As a result, net
investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from distributions
during such period. Accordingly, the Portfolios may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of each Portfolio. The Portfolios use the specific
identification method for determining realized gain or loss on investments for
both financial and federal income tax reporting purposes.
EXPENSES. Each Portfolio is charged for those expenses which are directly
attributable to it, such as management fees and custodian fees, while other
expenses (reports to shareholders, legal and audit fees) are allocated based on
relative net asset value among the Portfolios.
OTHER. Investment security transactions are accounted for on a trade date
basis. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. All
original issue discounts are accreted for both tax and financial reporting
purposes.
B. RELATED PARTIES
- --------------------------------------------------------------------------------
Under the Fund's Investment Advisory Agreement (the "Agreement") with Scudder,
Stevens and Clark, Inc. (the "Adviser"), the Fund agrees to pay the Adviser a
fee, based on average daily net assets, equal to an annual rate of 0.37% for
the Money Market Portfolio, 0.475% for the Bond Portfolio, 0.475% for the
Balanced Portfolio, 0.475% for the Growth and Income Portfolio, 0.475% for the
Capital Growth Portfolio, and 0.875% for the International Portfolio.
The Trustees authorized the Fund to pay the Adviser and Scudder Investor
Services, Inc. ("Investor Services"), a wholly-owned subsidiary of the Adviser,
for certain administrative expenses of the Fund in accordance with the
Agreement. Effective October 1, 1994, the Trustees authorized the elimination
of these administrative expenses.
The Trustees authorized the Fund on behalf of each Portfolio to pay Investor
Services for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. Effective October 1,
1994, under a new agreement, the Trustees authorized the Fund to pay Scudder
Fund Accounting Corp., a wholly-owned subsidiary of the Adviser, for such
services.
Related fees for such services are detailed in each Portfolio's statement of
operations.
For a period of five years from the date of execution of a Participation
Agreement with the Fund, and from year to year thereafter as agreed by the Fund
and the Participating Insurance Companies, each of the Participating Insurance
Companies has agreed to reimburse the Fund to the extent that the annual
operating expenses of any Portfolio of the Fund, other than the International
Portfolio, exceed three-quarters of one percent (0.75 of 1%) of that
Portfolio's average annual net assets. The Participating Insurance Companies
have agreed to reimburse the Fund to the extent that such expenses of the
International Portfolio exceed one and one-half percent (1.50 of 1%) of the
Portfolio's average annual net assets. The Adviser may advance some or all of
such reimbursement to the Fund prior to receiving payment therefore from a
Participating Insurance Company, but it is under no obligation to do so. If the
Adviser does advance such reimbursement to the Fund and does not receive
payment therefore, it will be entitled to be repaid such amounts by the Fund.
The amount due to the Adviser represents unpaid management fee, administrative
fees and accounting fees. In addition to the reimbursement by Participating
Insurance Companies noted above, until April 30, 1996, the Adviser has agreed
to waive part or all of its fees for the Growth and Income Portfolio to the
extent that the Portfolio's expenses will be maintained at 0.75%.
The Fund pays each Trustee not affiliated with the Adviser and not a Trustee of
other Scudder affiliated funds $7,500 annually plus specified amounts for
attended board and committee meetings. The Fund pays each Trustee not
affiliated with the Adviser and who is a Trustee of other Scudder affiliated
funds $5,000 annually plus specified amounts for attended board and committee
meetings. Allocated Trustees' fees for each Portfolio for the year ended
December 31, 1994 are detailed in each Portfolio's statement of operations.
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE TRUSTEES AND SHAREHOLDERS OF SCUDDER VARIABLE LIFE INVESTMENT FUND:
We have audited the accompanying statements of assets and liabilities of
Scudder Variable Life Investment Fund (comprised of the six Portfolios
identified in Note A), including the investment portfolios, as of December 31,
1994, and the related statements of operations, the statements of changes in
net assets, and the financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder Variable Life Investment Fund (comprised of the six Portfolios
identified in Note A) as of December 31, 1994, the results of their operations,
the changes in their net assets, and their financial highlights for each of the
periods indicated therein in conformity with generally accepted accounting
principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
February 3, 1995
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
TAX INFORMATION
- --------------------------------------------------------------------------------
Pursuant to section 852 of the Internal Revenue Code, the Balanced Portfolio,
Capital Growth Portfolio, and International Portfolio designate $292,083,
$5,511,650, and $1,548,747, respectively, as capital gain dividends for the
year ended December 31, 1994.
<PAGE>
Celebrating 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder, Stevens & Clark was the first independent investment
counsel firm in the United States. Since its birth, Scudder's pioneering
spirit and commitment to professional long-term investment management have
helped shape the investment industry. In 1928, we introduced the nation's
first no-load mutual fund. Today we offer 36 pure no load(tm) funds,
including the first international mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication
to research and fundamental investment disciplines have helped Scudder
become one of the largest and most respected investment managers in the
world. Though times have changed since our beginnings, we remain committed
to our long-standing principles: managing money with integrity and
distinction; keeping the interests of our clients first; providing access
to investments and markets that may not be easily available to individuals;
and making investing as simple and convenient as possible through friendly,
comprehensive service.
An investment in the Money Market Portfolio is neither insured nor
guaranteed by the United States Government and there can be no assurance
that the Portfolio will be able to maintain a stable net asset value of
$1.00 per share.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements
Included in Part A of this Registration Statement:
Financial Highlights for: the period July 16,
1985 (commencement of operations) to June 30,
1986, the six months ended December 31, 1986,
the eight years ended December 31, 1994 for
the Money Market Portfolio, the Bond
Portfolio, the Capital Growth Portfolio and
the Balanced Portfolio; the period May 2,
1994 (commencement of operations) to December
31, 1994 for Growth and Income Portfolio; the
period May 1, 1987 (commencement of
operations) to December 31, 1987, and the
seven years ended December 31, 1994 for the
International Portfolio. Included in Part B
of this Registration Statement:
Investment Portfolios as of December 31, 1994
Statements of Assets and Liabilities as of
December 31, 1994 Statements of Operations
for the year ended December 31, 1994
Statements of Changes in Net Assets for the
two years ended December 31, 1994 Financial
Highlights for: the period July 16, 1985
(commencement of operations) to June 30,
1986, the six months ended December 31, 1986
and the eight years ended December 31, 1994
for the Money Market Portfolio, the Bond
Portfolio, the Capital Growth Portfolio and
the Balanced Portfolio; the period May 2,
1994 (commencement of operations) to December
31, 1994 for Growth and Income Portfolio; the
period May 1, 1987 (commencement of
operations) to December 31, 1987, and the
seven years ended December 31, 1994 for the
International Portfolio. Notes to Financial
Statements Report of Independent Accountants
Statements, schedules and historical information
other than those listed above have been omitted since
they are either not applicable or are not required.
<TABLE>
<CAPTION>
b. Exhibits:
<S> <C> <C>
1. (a) Declaration of Trust of the Registrant dated March 15, 1985.
(Previously filed as Exhibit (a) to Pre-Effective Amendment No. 4 to
this Registration Statement.)
(b) Amendment to the Declaration of Trust dated March 10, 1988.
(Previously filed as Exhibit 1(b) to Post-Effective Amendment No. 9 to
this Registration Statement.)
(c) Establishment and Designation of Series of Shares of Beneficial
Interest, without Par Value.
(Previously filed as Exhibit 1(b) to Pre-Effective Amendment No. 4 to
this Registration Statement.)
(d) Establishment and Designation of Series of Shares of Beneficial
Interest, without Par Value.
(Previously filed as Exhibit 1(c) to Post-Effective Amendment No. 2 to
this Registration Statement.)
1
<PAGE>
(e) Establishment and Designation of Series of Shares of Beneficial
Interest, without Par Value, with respect to the Managed International
Portfolio.
(Previously filed as Exhibit 1(d) to Post-Effective Amendment No. 7 to
this Registration Statement.)
(f) Amended Establishment and Designation of Series of Shares of
Beneficial Interest, without Par Value dated April 15, 1988.
(Previously filed as Exhibit 1(f) to Post-Effective Amendment No. 9 to
this Registration Statement.)
(g) Amended Establishment and Designation of Series of Shares of
Beneficial Interest, without Par Value dated April 30, 1993.
(Previously filed as Exhibit 1(g) to Post-Effective Amendment No. 13
to this Registration Statement.)
(h) Abolition of Series.
(Previously filed as Exhibit 1(h) to Post-Effective Amendment No. 13
to this Registration Statement.)
(i) Amended Establishment and Designation of Series of Shares of
Beneficial Interest, without Par Value, with respect to the Growth and
Income Portfolio dated February 11, 1994.
(Previously filed as Exhibit 1(i) to Post-Effective Amendment No. 14
to this Registration Statement.)
2. (a) By-Laws of the Registrant dated March 15, 1985.
(Previously filed as Exhibit 2 to Pre-Effective Amendment No. 4 to
this Registration Statement.)
(b) Amendment to the By-Laws of the Registrant dated November 13, 1991.
(Previously filed as Exhibit 2(b) to Post-Effective Amendment No. 12
to this Registration Statement.)
3. Inapplicable.
4. Inapplicable.
5. (a) Investment Advisory Agreement between the Registrant and Scudder,
Stevens & Clark Ltd. dated November 14, 1986.
(Previously filed as Exhibit 5(a) to Post-Effective Amendment No. 5 to
this Registration Statement.)
(b) Investment Advisory Agreement between the Registrant and Scudder,
Stevens & Clark, Inc. with respect to the Managed International
Portfolio.
(Previously filed as Exhibit 5(b) to Post-Effective Amendment No. 8 to
this Registration Statement.)
2
<PAGE>
(c) Investment Advisory Agreement between the Registrant and Scudder,
Stevens & Clark, Inc. with respect to the Growth and Income Portfolio
dated May 1, 1994.
(Previously filed as Exhibit 5(c) to Post-Effective Amendment No. 15
to this Registration Statement.)
6. (a) Underwriting Agreement between the Registrant and Scudder Investor
Services, Inc., dated July 12, 1985.
(Previously filed as Exhibit 6(a) to Post-Effective Amendment No. 1 to
this Registration Statement.)
(b) Participating Contract and Policy Agreement between Scudder Investor
Services, Inc. and Participating Insurance Companies.
(Previously filed as Exhibit 6(b) to Post-Effective Amendment No. 1 to
this Registration Statement).
(c) Participating Contract and Policy Agreement between Scudder Investor
Services, Inc. and Carillon Investments, Inc. dated February 18, 1992.
(Previously filed as Exhibit 6(c) to Post-Effective Amendment No. 13
to this Registration Statement.)
(d) Participating Contract and Policy Agreement between Scudder Investor
Services, Inc. and AEtna Life Insurance and Annuity Company dated
April 27, 1992.
(Previously filed as Exhibit 6(d) to Post-Effective Amendment No. 13
to this Registration Statement.)
(e) Participating Contract and Policy Agreement between Scudder Investor
Services, Inc. and PNMR Securities, Inc. dated December 1, 1992.
(Previously filed as Exhibit 6(e) to Post-Effective Amendment No. 13
to this Registration Statement.)
(f) Prototype Participating Contract and Policy Agreement.
(Previously filed as Exhibit 6(f) to Post-Effective Amendment No. 14
to this Registration Statement.)
7. Inapplicable.
8. (a) Custodian Contract between the Registrant and State Street Bank and
Trust Company dated August 22, 1985.
(Previously filed as Exhibit 8(a) to Post-Effective Amendment No. 1 to
this Registration Statement.)
(b) Fee schedule for Exhibit 8(a).
(Previously filed as Exhibit 8(b) to Post-Effective Amendment No. 9 to
this Registration Statement.)
(c) Amendment to the Custodian Contract dated February 17, 1987
(Previously filed as Exhibit 8(c) to Post-Effective Amendment No. 9 to
this Registration Statement.)
(d) Amendment to the Custodian Contract dated February 17, 1987.
(Previously filed as Exhibit 8(d) to Post-Effective Amendment No. 9 to
this Registration Statement.)
(e) Amendment to the Custodian Contract dated August 13, 1987.
(Previously filed as Exhibit 8(e) to Post-Effective Amendment No. 9 to
this Registration Statement.)
3
<PAGE>
(f) Amendment to the Custodian Contract dated August 12, 1988.
(Previously filed as Exhibit 8(f) to Post-Effective Amendment No. 9 to
this Registration Statement.)
(g) Amendment to the Custodian Contract dated August 9, 1991.
(Previously filed as Exhibit 8(g) to Post-Effective Amendment No. 12
to this Registration Statement.)
(h) Fee Schedule for Exhibit 8(a).
(Previously filed as Exhibit 8(h) to Post-Effective Amendment No. 15
to this Registration Statement.)
9. (a)(1) Transfer, Dividend Disbursing and Plan Agency Agreement between the
Registrant and State Street Bank and Trust Company dated July 12, 1985.
(Previously filed as Exhibit 9(a)(1) to Post-Effective Amendment No. 1
to this Registration Statement.)
(a)(2) Fee schedule for Exhibit 9(a)(1).
(Previously filed as Exhibit 9(a)(2) to Post-Effective Amendment No. 1
to this Registration Statement.)
(a)(3) Transfer Agency and Service Agreement between the Registrant and
Scudder Service Corporation dated April 6, 1992.
(Previously filed as Exhibit 9(a)(3) to Post-Effective Amendment No.
13 to this Registration Statement.)
(b)(1) Participation Agreement between the Registrant and Security Equity
Life Insurance Company dated September 10, 1985.
(Previously filed as Exhibit 9(b) to Post-Effective Amendment No. 1 to
this Registration Statement.)
(b)(2) Amendment to Participation Agreement between the Registrant and
Security Equity Life Insurance Company dated July 21, 1987.
(Previously filed as Exhibit 9(b)(2) to Post-Effective Amendment No. 8
to this Registration Statement.)
(c)(1) Participation Agreement between the Registrant and Charter National
Life Insurance Company dated June 9, 1986.
(Previously filed as Exhibit 9(c)(1) to Post- Effective Amendment No.
8 to this Registration Statement.)
(c)(2) Amendment to Participation Agreement between the Registrant and
Charter National Life Insurance Company dated July 20, 1987.
(Previously filed as Exhibit 9(c)(2) to Post- Effective Amendment No.
8 to this Registration Statement.)
(c)(3) Amendment to Participation Agreement between the Registrant and
Charter National Life Insurance Company dated May 2, 1988.
(Previously filed as Exhibit 9(c)(3) to Post-Effective Amendment No. 9
to this Registration Statement.)
4
<PAGE>
(c)(4) Amendment to Participation Agreement between the Registrant and
Charter National Life Insurance Company dated June 30, 1991.
(Previously filed as Exhibit 9(c)(4) to Post-Effective Amendment No.
12 to this Registration Statement.)
(c)(5) Participation Agreement between the Registrant and The Union Central
Life Insurance Company dated February 18, 1992.
(Previously filed as Exhibit 9(c)(5) to Post-Effective Amendment No.
13 to this Registration Statement.)
(c)(6) Participation Agreement between the Registrant and AEtna Life
Insurance and Annuity Company dated April 27, 1992.
(Previously filed as Exhibit 9(c)(6) to Post-Effective Amendment No.
13 to this Registration Statement.)
(c)(7) Participation Agreement between the Registrant and Safeco Life
Insurance Companies dated December 31, 1992.
(Previously filed as Exhibit 9(c)(7) to Post-Effective Amendment No.
13 to this Registration Statement.)
(c)(8) Prototype Participation Agreement - Form A.
(Previously filed as Exhibit 9(c)(8) to Post-Effective Amendment No.
14 to this Registration Statement.)
(c)(9) Prototype Participation Agreement - Form B.
(Previously filed as Exhibit 9(c)(9) to Post-Effective Amendment No.
14 to this Registration Statement.)
(c)(10) First Amendment to the Fund Participation Agreement between
AEtna Life Insurance and Annuity Company and the Fund dated
February 19, 1993. (Previously filed as Exhibit 9(c)(10) to
Post-Effective Amendment No. 14 to this Registration Statement.)
(c)(11) Second Amendment to the Fund Participation Agreement between
AEtna Life Insurance and Annuity Company and the Fund dated
August 13, 1993. (Previously filed as Exhibit 9(c)(11) to Post-Effective
Amendment No. 14 to this Registration Statement.)
(c)(12) First Amendment to the Participation Agreement between Mutual of
America Life Insurance Company, The American Life Insurance Company
of New York and the Fund dated August 13, 1993. (Previously filed as
Exhibit 9(c)(12) to Post-Effective Amendment No.14 to this Registration Statement.)
(c)(13) First Amendment to the Participation Agreement between The Union
Central Life Insurance Company and the Fund dated September 30, 1993.
(Previously filed as Exhibit 9(c)(13) to Post-Effective Amendment No.
14 to this Registration Statement.)
(c)(14) Participation Agreement between the Registrant and American Life
Assurance Corporation dated May 3, 1993.
(c)(15) Participation Agreement between the Registrant and AUSA Life Insurance
Company, Inc. dated October 21, 1993.
5
<PAGE>
(c)(16) Participation Agreement between the Registrant and Banner Life
Insurance Company dated January 18, 1990.
(c)(17) Participation Agreement between the Registrant and Banner Life
Insurance Company dated January 18, 1995.
(c)(18) Participation Agreement between the Registrant and Fortis Benefits
Insurance Company dated June 1, 1994.
(c)(19) Participation Agreement between the Registrant and Lincoln Benefit
Life Company dated December 30, 1993.
(c)(20) Participation Agreement between the Registrant and Charter National
Life Insurance Company dated September 3, 1993.
(c)(21) Participation Agreement between the Registrant and Mutual of America
Life Insurance Company dated December 30, 1988.
(c)(22) First Amendment to Participation Agreement between the Registrant and
Mutual of America Life Insurance Company dated August 13, 1993.
(c)(23) Participation Agreement between the Registrant and Mutual of America
Life Insurance Company dated December 30, 1988.
(c)(24) First Amendment to Participation Agreement between the Registrant and
Mutual of America Life Insurance Company dated August 13, 1993.
(c)(25) Participation Agreement between the Registrant and Mutual of America
Life Insurance Company dated December 30, 1993.
(c)(26) Participation Agreement between the Registrant and Paragon Life
Insurance Company dated April 30, 1993.
(c)(27) Participation Agreement between the Registrant and Provident Mutual
Life Insurance Company of Philadelphia dated July 21, 1993.
(c)(28) Participation Agreement between the Registrant and United of Omaha
Life Insurance Company dated May 15, 1994.
(c)(29) First Amendment to the Participation Agreement between the Registrant
and United of Omaha Life Insurance Company dated January 23, 1995.
(c)(30) Participation Agreement between the Registrant and USAA Life
Insurance Company dated February 3, 1995.
(c)(31) Amendment to the Participation Agreement, the Reimbursement Agreement
and the Participating Contract and Policy Agreement dated February 3,
1995.
(d) Accounting Services Agreement between the Registrant and Scudder
Investor Services, Inc. dated August 1, 1989.
(Previously filed as Exhibit 9(d) to Post-Effective Amendment No. 15
to this Registration Statement.)
6
<PAGE>
(e)(1) Fund Accounting Services Agreement between the Registrant, on behalf
of the Money Market Portfolio, and Scudder Fund Accounting Corporation
dated October 1, 1994.
(Previously filed as Exhibit 9(e)(1) to Post-Effective Amendment No.
15 to this Registration Statement.)
(e)(2) Fund Accounting Services Agreement between the Registrant, on behalf
of the Bond Portfolio, and Scudder Fund Accounting Corporation dated
October 1, 1994.
(Previously filed as Exhibit 9(e)(2) to Post-Effective Amendment No.
15 to this Registration Statement.)
(e)(3) Fund Accounting Services Agreement between the Registrant, on behalf
of the Balanced Portfolio, and Scudder Fund Accounting Corporation
dated October 1, 1994.
(Previously filed as Exhibit 9(e)(3) to Post-Effective Amendment No.
15 to this Registration Statement.)
(e)(4) Fund Accounting Services Agreement between the Registrant, on behalf
of the Growth and Income Portfolio, and Scudder Fund Accounting
Corporation dated October 1, 1994.
(Previously filed as Exhibit 9(e)(4) to Post-Effective Amendment No.
15 to this Registration Statement.)
(e)(5) Fund Accounting Services Agreement between the Registrant, on behalf
of the Capital Growth Portfolio, and Scudder Fund Accounting
Corporation dated October 1, 1994.
(Previously filed as Exhibit 9(e)(5) to Post-Effective Amendment No.
15 to this Registration Statement.)
(e)(6) Fund Accounting Services Agreement between the Registrant, on behalf
of the International Portfolio, and Scudder Fund Accounting
Corporation dated October 1, 1994.
(Previously filed as Exhibit 9(e)(6) to Post-Effective Amendment No.
15 to this Registration Statement.)
10. Inapplicable.
11. Consent of Independent Accountants is filed herein.
12. Article 6 Financial Data Schedules are filed herein.
13. Inapplicable.
14. Inapplicable.
15. Inapplicable.
16. Schedule of Computation of Performance Calculation.
(Previously filed as Exhibit 16 to Post-Effective Amendment No. 9 to Registration
Statement.)
</TABLE>
7
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant
As of December 31, 1994, 9.58% of the outstanding shares of
beneficial interest of the Registrant are owned by AEtna Life
Insurance and Annuity Company ("AEtna"). AEtna is a
Connecticut corporation.
As of December 31, 1994, 4.53% of the outstanding shares of
beneficial interest of the Registrant are owned by American
Skandia Life Assurance Corporation ("Skandia"). Skandia is a
Connecticut corporation.
As of December 31, 1994, 0.08% of the outstanding shares of
beneficial interest of the Registrant are owned by AUSA Life
Insurance Company of New York ("AUSA"). AUSA is a New York
Corporation.
As of December 31, 1994, 0.53% of the outstanding shares of
beneficial interest of the Registrant are owned by Banner Life
Insurance Company of Maryland ("Banner"). Banner is a Maryland
corporation.
As of December 31, 1994, 45.29% of the outstanding shares of
beneficial interest of the Registrant are owned by Charter
National Life Insurance Company of Missouri ("CNL"). CNL is a
wholly-owned subsidiary of Leucadia National Corporation.
Leucadia National Corporation is a New York corporation.
As of December 31, 1994, 3.59% of the outstanding shares of
beneficial interest of the Registrant are owned by Intramerica
(formerly First Charter Life Insurance Company) of New York
("FCL"). FCL is a subsidiary of CNL and is a New York
corporation.
As of December 31, 1994, 0.05% of the outstanding shares of
beneficial interest of the Registrant are owned by Fortis
Benefits Insurance Company ("Fortis"). Fortis is a Minnesota
corporation.
As of December 31, 1994, 0.04% of the outstanding shares of
beneficial interest of the Registrant are owned by Lincoln
Benefit Life Company ("Lincoln"). Lincoln is a Nebraska
corporation.
As of December 31, 1994, 19.96% of the outstanding shares of
beneficial interest of the Registrant are owned by Mutual of
America Life Insurance Company ("MOA") and its subsidiary,
American Life Insurance Company. MOA is a New York
corporation.
As of December 31, 1994, 0.03% of the outstanding shares of
beneficial interest of the Registrant are owned by Paragon
Life Insurance Company ("Paragon"). Paragon is a Missouri
corporation.
As of December 31, 1994, 0.18% of the outstanding shares of
beneficial interest of the Registrant are owned by
Providentmutual Life and Annuity Company of America
("Providentmutual"). Providentmutual is a Delaware
corporation.
As of December 31, 1994, 0.55% of the outstanding shares of
beneficial interest of the Registrant are owned by Safeco Life
Insurance Companies ("Safeco"). Safeco is a Washington
corporation.
As of December 31, 1994, 15.52% of the outstanding shares of
beneficial interest of the Registrant are owned by The Union
Central Life Insurance Company ("UCL"). UCL is an Ohio
corporation.
As of December 31, 1994, 0.07% of the outstanding shares of
beneficial interest of the Registrant are owned by United of
Omaha Life Insurance Company ("United of Omaha"). United of
Omaha is a Nebraska corporation.
8
<PAGE>
Item 26. Number of Holders of Securities (as of March 31, 1995)
- -------- ------------------------------------------------------
<TABLE>
<CAPTION>
(1) (2)
Title of Class Number of Shareholders
<S> <C>
Shares of beneficial interest,
of no par value
Money Market Portfolio (6)
Shares of beneficial interest,
of no par value
Bond Portfolio (8)
Shares of beneficial interest,
of no par value
Capital Growth Portfolio (7)
Shares of beneficial interest,
of no par value
Balanced Portfolio (7)
Shares of beneficial interest,
of no par value
International Portfolio (11)
Shares of beneficial interest,
of no par value
Growth and Income Portfolio (4)
</TABLE>
Item 27. Indemnification.
A policy of insurance covering Scudder, Stevens & Clark,
Inc., its subsidiaries including Scudder Investor
Services, Inc., and all of the registered investment
companies advised by Scudder, Stevens & Clark, Inc.
insures the Registrant's Trustees and officers and others
against liability arising by reason of an alleged breach
of duty caused by any negligent act, error or accidental
omission in the scope of their duties.
Article IV, Sections 4.1 - 4.3 of Registrant's
Declaration of Trust provide as follows:
Section 4.1. No Personal Liability of Shareholders,
Trustees, etc. No Shareholder shall be subject to any
personal liability whatsoever to any Person in
connection with Fund Property or the acts,
obligations or affairs of the Fund. No Trustee,
officer, employee or agent of the Fund shall be
subject to any personal liability whatsoever to any
Person, other than to the Fund or its Shareholders,
in connection with Fund Property or the affairs of
the Fund, save only that arising from bad faith,
willful misfeasance, gross negligence or reckless
disregard of his duties with respect to such Person;
and all such Persons shall look solely to the Fund
Property for satisfaction of claims of any nature
arising in connection with the affairs of the Fund.
If any Shareholder, Trustee, officer, employee, or
agent, as such, of the Fund, is made a party to any
suit or proceeding to enforce any such liability of
the Fund, he shall not, on account thereof, be held
to any personal liability. The Fund shall indemnify
and hold each Shareholder harmless from and against
all claims and liabilities, to which such Shareholder
may become subject by reason of his being or having
been a Shareholder, and shall reimburse such
Shareholder for all legal and other expenses
reasonably incurred by him in connection with any
such claim or liability. The rights accruing to a
Shareholder under this Section 4.l shall not exclude
any other right to which such Shareholder may be
lawfully entitled, nor shall anything herein
contained restrict the right of the Fund to indemnify
9
<PAGE>
or reimburse a Shareholder in any appropriate
situation even though not specifically provided
herein.
Section 4.2. Non-Liability of Trustees, etc. No
Trustee, officer, employee or agent of the Fund shall
be liable to the Fund, its Shareholders, or to any
Shareholder, Trustee, officer, employee, or agent
thereof for any action or failure to act (including
without limitation the failure to compel in any way
any former or acting Trustee to redress any breach of
trust) except for his own bad faith, willful
misfeasance, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
Section 4.3 Mandatory Indemnification. (a) Subject to
the exceptions and limitations contained in paragraph
(b) below:
(i) every person who is, or has been, a
Trustee or officer of the Fund shall
be indemnified by the Fund to the
fullest extent permitted by law
against all liability and against
all expenses reasonably incurred or
paid by him in connection with any
claim, action, suit or proceeding in
which he becomes involved as a party
or otherwise by virtue of his being
or having been a Trustee or officer
and against amounts paid or incurred
by him in the settlement thereof;
(ii) the words "claim," "action," "suit,"
or "proceeding" shall apply to all
claims, actions, suits or
proceedings (civil, criminal, or
other, including appeals), actual or
threatened; and the words
"liability" and "expenses" shall
include, without limitation,
attorneys' fees, costs, judgments,
amounts paid in settlement, fines,
penalties and other liabilities.
(b) No indemnification shall be provided
hereunder to a Trustee or officer:
(i) against any liability to the Fund
or the Shareholders by reason of
willful misfeasance, bad faith,
gross negligence or reckless
disregard of the duties involved in
the conduct of his office;
(ii) with respect to any matter as to
which he shall have been finally
adjudicated not to have acted in
good faith in the reasonable belief
that his action was in the best
interest of the Fund;
(iii) in the event of a settlement or
other disposition not involving a
final adjudication as provided in
paragraph (b)(i) resulting in a
payment by a Trustee or officer,
unless there has been a
determination that such Trustee or
officer did not engage in willful
misfeasance, bad faith, gross
negligence or reckless disregard of
the duties involved in the conduct
of his office;
(A) by the court or other body
approving the settlement
or other disposition; or
(B) based upon a review of
readily available facts (as
opposed to a full
trial-type inquiry) by (x)
vote of a majority of the
Disinterested Trustees
acting on the matter
(provided that a majority
of the Disinterested
Trustees then in office act
on the matter) or (y)
written opinion of
independent legal counsel.
(c) The rights of indemnification herein
provided may be insured against by policies
maintained by the Fund, shall be severable,
shall not affect any other rights to which
any Trustee or officer may now or hereafter
be entitled, shall continue as to a person
who has ceased to be such Trustee or officer
and shall inure to the benefit of the heirs,
executors, administrators and assigns of
such a person. Nothing contained herein
10
<PAGE>
shall affect any rights to indemnification
to which personnel of the Fund other than
Trustees and officers may be entitled by
contract or otherwise under law.
(d) Expenses of preparation and presentation of
a defense to any claim, action, suit, or
proceeding of the character described in
paragraph (a) of this Section 4.3 shall be
advanced by the Fund prior to final
disposition thereof upon receipt of an
undertaking by or on behalf of the
recipient, to repay such amount if it is
ultimately determined that he is not
entitled to indemnification under this
Section 4.3, provided that either:
(i) such undertaking is secured by a
surety bond or some other
appropriate security provided by the
recipient, or the Fund shall be
insured against losses arising out
of any such advances; or
(ii) a majority of the Disinterested
Trustees acting on the matter
(provided that a majority of the
Disinterested Trustees act on the
matter) or an independent legal
counsel in a written opinion shall
determine, based upon a review of
readily available facts (as opposed
to a full trial-type inquiry), that
there is reason to believe that the
recipient ultimately will be found
entitled to indemnification.
As used in this Section 4.3, a "Disinterested
Trustee" is one who is not (i) an "Interested Person"
of the Trust (including anyone who has been exempted
from being an "Interested Person" by any rule,
regulation or order of the Commission), or (ii)
involved in the claim, action, suit or proceeding.
Item 28. Business or Other Connections of Investment Adviser
The Adviser has stockholders and employees who are denominated
officers but do not as such have corporation-wide
responsibilities. Such persons are not considered officers for
the purpose of this Item 28.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
<S> <C>
Stephen R. Beckwith Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Lynn S. Birdsong Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Supervisory Director, The Latin America Income and Appreciation Fund N.V.
(investment company) +
Supervisory Director, The Venezuela High Income Fund N.V. (investment company) xx
Supervisory Director, Scudder Mortgage Fund (investment company) +
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities I & II
(investment company) +
Director, Scudder, Stevens & Clark (Luxembourg) S.A. (investment manager) #
Trustee, Scudder Funds Trust (investment company)*
President & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
President & Director, Scudder World Income Opportunities Fund, Inc. (investment company)**
Director, Inverlatin Dollar Income Fund, Inc. (investment company) Georgetown, Grand Cayman,
Cayman Islands
Director, ProMexico Fixed Income Dollar Fund, Inc. (investment company) Georgetown, Grand
Cayman, Cayman Islands
Director, Canadian High Income Fund (investment company)#
Director, Hot Growth Companies Fund (investment company)#
Partner, George Birdsong Co., Rye, NY
11
<PAGE>
Nicholas Bratt Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President & Director, Scudder New Europe Fund, Inc. (investment company)**
President & Director, The Brazil Fund, Inc. (investment company)**
President & Director, The First Iberian Fund, Inc. (investment company)**
President & Director, Scudder International Fund, Inc. (investment company)**
President & Director, Scudder Global Fund, Inc. (Director only on Scudder Global Fund, a
series of Scudder Global Fund, Inc.) (investment company)**
President & Director, The Korea Fund, Inc. (investment company)**
President & Director, Scudder New Asia Fund, Inc. (investment company)**
President, The Argentina Fund, Inc. (investment company)**
Vice President, Scudder, Stevens & Clark Corporation (Delaware) (investment adviser)**
Vice President, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Vice President, Scudder, Stevens & Clark of Canada Ltd. (Canadian investment adviser) Toronto,
Ontario, Canada
Vice President, Scudder, Stevens & Clark Overseas Corporationoo
Linda C. Coughlin Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Director, Scudder Investor Services, Inc. (broker/dealer)**
President & Trustee, AARP Cash Investment Funds (investment company)**
President & Trustee, AARP Growth Trust (investment company)**
President & Trustee, AARP Income Trust (investment company)**
President & Trustee, AARP Tax Free Income Trust (investment company)**
Director, SFA, Inc. (advertising agency)*
Margaret D. Hadzima Director, Scudder, Stevens & Clark, Inc. (investment adviser)*
Jerard K. Hartman Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder California Tax Free Trust (investment company)*
Vice President, Scudder Equity Trust (investment company)*
Vice President, Scudder Cash Investment Trust (investment company)*
Vice President, Scudder Development Fund (investment company)*
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, Scudder GNMA Fund (investment company)*
Vice President, Scudder Portfolio Trust (investment company)*
Vice President, Scudder International Fund, Inc. (investment company)**
Vice President, Scudder Investment Trust (investment company)*
Vice President, Scudder Municipal Trust (investment company)*
Vice President, Scudder Mutual Funds, Inc. (investment company)**
Vice President, Scudder New Asia Fund, Inc. (investment company)**
Vice President, Scudder New Europe Fund, Inc. (investment company)**
Vice President, Scudder State Tax Free Trust (investment company)*
Vice President, Scudder Funds Trust (investment company)*
Vice President, Scudder Tax Free Money Fund (investment company)*
Vice President, Scudder Tax Free Trust (investment company)*
Vice President, Scudder U.S. Treasury Money Fund (investment company)*
Vice President, Scudder Variable Life Investment Fund (investment company)*
Vice President, The Brazil Fund, Inc. (investment company)**
Vice President, The Korea Fund, Inc. (investment company)**
Vice President, The Argentina Fund, Inc. (investment company)**
Vice President & Director, Scudder, Stevens & Clark of Canada, Ltd. (Canadian investment
adviser) Toronto, Ontario, Canada
Vice President, The First Iberian Fund, Inc. (investment company)**
Vice President, The Latin America Dollar Income Fund, Inc. (investment company)**
Vice President, Scudder World Income Opportunities Fund, Inc. (investment company)**
12
<PAGE>
Richard A. Holt Director, Scudder, Stevens & Clark, Inc. (investment adviser)++
Vice President, Scudder Variable Life Investment Fund (investment company)*
Dudley H. Ladd Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Senior Vice President & Director, Scudder Investor Services, Inc. (broker/dealer)*
Vice President & Trustee, Scudder Cash Investment Trust (investment company)*
Trustee, Scudder Investment Trust (investment company)*
Trustee, Scudder Portfolio Trust (investment company)*
Trustee, Scudder Municipal Trust (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President, Scudder U.S. Treasury Money Fund (investment company)*
Vice President & Treasurer, SFA, Inc. (advertising agency)*
Douglas M. Loudon Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President & Trustee, Scudder Development Fund (investment company)*
Vice President & Trustee, Scudder Equity Trust (investment company)*
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, Scudder Investment Trust (investment company)*
Vice President & Director, Scudder Mutual Funds, Inc. (investment company)**
Vice President, AARP Cash Investment Funds (investment company)**
Vice President, AARP Growth Trust (investment company)**
Vice President, AARP Income Trust (investment company)**
Vice President, AARP Tax Free Income Trust (investment company)**
Vice President, Scudder, Stevens & Clark Corporation (Delaware) (investment adviser)**
Senior Vice President, Scudder Investor Services, Inc. (broker/dealer)*
Vice President, Scudder, Stevens & Clark of Canada Ltd. (Canadian investment adviser) Toronto,
Ontario, Canada
Chairman, World Capital Fund (investment company) Luxembourg ##
Managing Director, Kankaku - Scudder Capital Asset Management Corporation (investment
adviser)**
Chairman & Director, Scudder, Stevens & Clark Japan, Inc. (investment adviser)### President,
The Japan Fund, Inc. (investment company)** Trustee, Scudder, Stevens & Clark Supplemental
Retirement Income Plan Trustee, Scudder, Stevens & Clark Profit Sharing Plan ** Chairman &
Director, The World Capital Fund (investment company) Luxembourg Chairman & Director,
Scudder, Stevens & Clark (Luxembourg), S.A., Luxembourg# Chairman, Canadian High Income Fund
(investment company) # Chairman, Hot Growth Companies Fund (investment company) # Vice
President & Director, Scudder Precious Metals, Inc. xxx Director, Berkshire Farm & Services
for Youth Board of Governors & President, Investment Counsel Association of America John T.
Packard Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President, Montgomery Street Income Securities, Inc. (investment company) o
Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Juris Padegs Secretary & Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Chairman & Director, The Brazil Fund, Inc. (investment company)**
Trustee, Scudder Development Fund (investment company)*
Vice President & Trustee, Scudder Equity Trust (investment company)*
Chairman & Director, The First Iberian Fund, Inc. (investment company)**
Trustee, Scudder Funds Trust (investment company)*
Vice President & Assistant Secretary, Scudder Global Fund, Inc. (investment company)**
Trustee, Scudder Investment Trust (investment company)*
Vice President, Assistant Secretary & Director, Scudder International Fund, Inc. (investment
company)**
Vice President, The Latin America Dollar Income Fund, Inc. (investment company)**
13
<PAGE>
Trustee, Scudder Municipal Trust (investment company)*
Vice President & Assistant Secretary, Scudder Mutual Funds, Inc. (investment company)**
Vice President & Director, Scudder New Europe Fund, Inc. (investment company)**
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President, Assistant Secretary & Director, Scudder New Asia Fund, Inc. (investment
company)**
Vice President & Trustee, Scudder Tax Free Money Fund (investment company)*
Trustee, Scudder Tax Free Trust (investment company)*
Chairman & Director, The Korea Fund, Inc. (investment company)**
Vice President & Director, The Argentina Fund, Inc. (investment company)**
Secretary, Scudder, Stevens & Clark of Canada Ltd. (Canadian investment adviser), Toronto,
Ontario, Canada
Vice President & Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Assistant Secretary, SFA, Inc. (advertising agency)*
Vice President & Director, Scudder Investor Services, Inc. (broker/dealer)**
Assistant Treasurer & Director, Kankaku - Scudder Capital Asset Management (investment
adviser)**
Chairman & Director, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Chairman & Director, Scudder, Stevens & Clark Corporation (Delaware) (investment adviser)**
Chairman & Supervisory Director, Sovereign High Yield Investment Company N.V. (investment
company) +
Director, President Investment Trust Corporation (Joint Venture)***
Vice President, Scudder World Income Opportunities Fund, Inc. (investment company)**
Director, Vice President & Assistant Secretary, Scudder Precious Metals, Inc. xxx
Vice President & Director, Scudder Service Corporation (in-house transfer agent)*
Chairman, Scudder, Stevens & Clark Overseas Corporationoo
Director, Scudder Trust (Cayman) Ltd. (trust services company)xxx
Director, ICI Mutual Insurance Company, Inc., Washington, D.C.
Director, Baltic International USA
Director, Baltic International Airlines (a limited liability company) Riga, Latvia
Daniel Pierce Chairman & Director, Scudder New Europe Fund, Inc. (investment company)**
Trustee, California Tax Free Trust (investment company)*
President & Trustee, Scudder Development Fund (investment company)**
President & Trustee, Scudder Equity Trust (investment company)**
Director, The First Iberian Fund, Inc. (investment company)**
President & Trustee, Scudder GNMA Fund (investment company)*
President & Trustee, Scudder Portfolio Trust (investment company)*
President & Trustee, Scudder Funds Trust (investment company)*
President & Director, Scudder Institutional Fund, Inc. (investment company)**
President & Director, Scudder Fund, Inc. (investment company)**
Director, Scudder International Fund, Inc. (investment company)**
President & Trustee, Scudder Investment Trust (investment company)*
Vice President & Trustee, Scudder Municipal Trust (investment company)*
President & Director, Scudder Mutual Funds, Inc. (investment company)**
Director, Scudder New Asia Fund, Inc. (investment company)**
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President & Trustee, Scudder Variable Life Investment Fund (investment company)*
Director, The Brazil Fund, Inc. (until 7/94) (investment company)**
Vice President & Assistant Treasurer, Montgomery Street Income Securities, Inc. (investment
company)o
Vice President & Director, Scudder Global Fund, Inc. (investment company)**
Vice President, Director & Assistant Treasurer, Scudder Investor Services, Inc.
(broker/dealer)*
President & Director, Scudder Service Corporation (in-house transfer agent)*
Chairman & President, Scudder, Stevens & Clark of Canada, Ltd. (Canadian investment adviser),
Toronto, Ontario, Canada
14
<PAGE>
Chairman, Assistant Treasurer & Director, Scudder, Stevens & Clark, Inc. (investment
adviser)** President & Director, Scudder Precious Metals, Inc. xxx Chairman & Director,
Scudder Global Opportunities Funds (investment company) Luxembourg Chairman, Scudder, Stevens
& Clark, Ltd. (investment adviser) London, England Director, Scudder Fund Accounting
Corporation (in-house fund accounting agent)* Director, Scudder Realty Holdings Corporation
(a real estate holding company)* Director, Scudder Latin America Investment Trust PLC
(investment company)@ Incorporator, Scudder Trust Company (a trust company)+++ Director,
Fiduciary Trust Company (banking & trust company) Boston, MA Director, Fiduciary Company
Incorporated (banking & trust company) Boston, MA Trustee, New England Aquarium, Boston, MA
Cornelia M. Small Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, AARP Cash Investment Funds (investment company)*
Vice President, AARP Growth Trust (investment company)*
Vice President, AARP Income Trust (investment company)*
Vice President, AARP Tax Free Income Trust (investment company)*
Edmond D. Villani President & Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Trustee, Scudder Development Fund (investment company)*
Chairman & Director, Scudder Global Fund, Inc. (investment company)**
Chairman & Director, Scudder International Fund, Inc. (investment company)**
Chairman & Director, Scudder New Asia Fund, Inc. (investment company)**
Chairman & Director, The Argentina Fund, Inc. (investment company)**
Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Supervisory Director, Scudder Mortgage Fund (investment company) +
Chairman & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
Director, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Chairman & Director, Scudder World Income Opportunities Fund, Inc. (investment company)**
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities I & II
(investment company)+
Director, The Brazil Fund, Inc. (investment company)** Director, Indosuez High Yield Bond
Fund (investment company) Luxembourg President & Director, Scudder, Stevens & Clark Overseas
Corporationoo President & Director, Scudder, Stevens & Clark Corporation (Delaware)
(investment adviser)** Director, IBJ Global Investment Manager S.A., (Luxembourg investment
management company) Luxembourg, Grand-Duchy of Luxembourg
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
++ Two Prudential Plaza, 180 N. Stetson Avenue, Chicago, IL
+++ 5 Industrial Way, Salem, NH
o 101 California Street, San Francisco, CA
# 11, rue Aldringen, L-1118 Luxembourg, Grand-Duchy of Luxembourg
+ John B. Gorsiraweg 6, Willemstad Curacao, Netherlands Antilles
xx De Ruyterkade 62, P.O. Box 812, Willemstad Curacao, Netherlands Antilles
## 2 Boulevard Royal, Luxembourg
*** B1 2F3F 248 Section 3, Nan King East Road, Taipei, Taiwan
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
@ c/o Sinclair Hendersen Limited, 23 Cathedral Yard, Exeter, Devon
</TABLE>
15
<PAGE>
Item 29. Principal Underwriters.
(a) Scudder California Tax Free Trust
Scudder Cash Investment Trust
Scudder Development Fund
Scudder Equity Trust
Scudder Fund, Inc.
Scudder Funds Trust
Scudder Global Fund, Inc.
Scudder GNMA Fund
Scudder Institutional Fund, Inc.
Scudder International Fund, Inc.
Scudder Investment Trust
Scudder Municipal Trust
Scudder Mutual Funds, Inc.
Scudder Portfolio Trust
Scudder State Tax Free Trust
Scudder Tax Free Money Fund
Scudder Tax Free Trust
Scudder U.S. Treasury Money Fund
Scudder Variable Life Investment Fund
AARP Cash Investment Funds
AARP Growth Trust
AARP Income Trust
AARP Tax Free Income Trust
The Japan Fund, Inc.
(b)
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
<S> <C>
Charles S. Boit Assistant Treasurer None
Two International Place
Boston, MA 02110
E. Michael Brown Assistant Treasurer None
Two International Place
Boston, MA 02110
Linda Coughlin Director None
345 Park Avenue
New York, NY 10154
Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154
Coleen Downs Dinneen Assistant Clerk Assistant Secretary
Two International Place
Boston, MA 02110
Paul J. Elmlinger Vice President None
345 Park Avenue
New York, NY 10154
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
<S> <C>
Cuyler W. Findlay Senior Vice President and None
345 Park Avenue Director
New York, NY 10154
Thomas W. Joseph Vice President, Director, Vice President
Two International Place Treasurer and Assistant Clerk
Boston, MA 02110
Dudley H. Ladd Senior Vice President and None
Two International Place Director
Boston, MA 02110
David S. Lee President, Assistant Vice President
Two International Place Treasurer and Director
Boston, MA 02110
Douglas M. Loudon Senior Vice President None
345 Park Avenue
New York, NY 10154
Thomas F. McDonough Clerk Secretary
Two International Place
Boston, MA 02110
Thomas H. O'Brien Assistant Treasurer None
345 Park Avenue
New York, NY 10154
Edward J. O'Connell Assistant Treasurer Vice President and
345 Park Avenue Assistant Secretary
New York, NY 10154
Juris Padegs Vice President and Director None
345 Park Avenue
New York, NY 10154
Daniel Pierce Vice President, Director Vice President and
Two International Place and Assistant Treasurer Trustee
Boston, MA 02110
Robert E. Pruyne Assistant Treasurer None
Two International Place
Boston, MA 02110
Kathryn L. Quirk Vice President Vice President and
345 Park Avenue Assisstant Secretary
New York, NY 10154
David B. Watts Assistant Treasurer President and
Two International Place Trustee
Boston, MA 02110
</TABLE>
The Underwriter has employees who are denominated officers of an
operational area. Such persons do not have corporation-wide
responsibilities and are not considered officers for the purpose of
this Item 29.
17
<PAGE>
(c)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage
Underwriter Commissions and Repurchases Commissions Other Compensation
----------- ----------- --------------- ----------- ------------------
<S> <C> <C> <C> <C>
Scudder Investor None None None None
Services, Inc.
</TABLE>
Item 30. Location of Accounts and Records.
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder are maintained by Scudder, Stevens &
Clark, Inc., Two International Place, Boston, MA 02110-4103.
Records relating to the duties of the Registrant's custodian
are maintained by State Street Bank and Trust Company,
Heritage Drive, North Quincy, Massachusetts. Records relating
to the duties of the Registrant's transfer agent are
maintained by Scudder Service Corporation, 175 Federal Street,
Boston, Massachusetts.
Item 31. Management Services.
Inapplicable.
Item 32. Undertakings.
Inapplicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Boston
and the Commonwealth of Massachusetts on the 6th day of April, 1995.
SCUDDER VARIABLE LIFE INVESTMENT FUND
By /s/Thomas F. McDonough
Thomas F. McDonough, Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/David B. Watts
David B. Watts* President (Principal Executive April 6, 1995
Officer) and Trustee
/s/Daniel Pierce
Daniel Pierce* Vice President and Trustee April 6, 1995
/s/Dr. Kenneth Black, Jr.
Dr. Kenneth Black, Jr.* Trustee April 6, 1995
/s/Peter B. Freeman
Peter B. Freeman* Trustee April 6, 1995
/s/Dr. J. D. Hammond
Dr. J. D. Hammond* Trustee April 6, 1995
/s/Pamela A. McGrath
Pamela A. McGrath Treasurer (Principal Financial April 6, 1995
and Accounting Officer) and
Vice President
*By: /s/Thomas F. McDonough
Thomas F. McDonough**
** Attorney-in-fact pursuant to a power of attorney contained in the
signature page of Post-Effective Amendment No. 9 to the Registration
Statement filed March 3, 1989.
<PAGE>
File No. 2-96461
File No. 811-4257
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 16
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 20
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
SCUDDER VARIABLE LIFE INVESTMENT FUND
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
EXHIBIT INDEX
Exhibit 9(c)(14)
Exhibit 9(c)(15)
Exhibit 9(c)(16)
Exhibit 9(c)(17)
Exhibit 9(c)(18)
Exhibit 9(c)(19)
Exhibit 9(c)(20)
Exhibit 9(c)(21)
Exhibit 9(c)(22)
Exhibit 9(c)(23)
Exhibit 9(c)(24)
Exhibit 9(c)(25)
Exhibit 9(c)(26)
Exhibit 9(c)(27)
Exhibit 9(c)(28)
Exhibit 9(c)(29)
Exhibit 9(c)(30)
Exhibit 9(c)(31)
Exhibit 11
Exhibit 12
Exhibit 9(c)(14)
PARTICIPATION AGREEMENT
PARTICIPATION AGREEMENT (the "Agreement") made by and between SCUDDER
VARIABLE LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust
created under a Declaration of Trust dated March 15, 1985, as amended, with
a principal place of business in Boston, Massachusetts and American Skandia
Life Assurance Corporation, a Connecticut corporation (the "Company"), with
a principal place of business in Shelton, Connecticut, on behalf of the
American Skandia Variable Account B, a separate account of the Company, and
any other separate account of the Company as designated by the Company from
time to time, upon written notice to the Fund in accordance with Section 10
herein (the "Account").
WHEREAS, the Fund acts as the investment vehicle for the separate
accounts established for variable life insurance policies and variable
annuity contracts (collectively referred to herein as "Variable Insurance
Products") to be offered by insurance companies which have entered into
participation agreements substantially identical to this Agreement
("Participating Insurance Companies") and their affiliated insurance
companies; and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares of beneficial interest ("Shares"), and additional series
of Shares may be established, each designated a "Portfolio" and
representing the interest in a particular managed portfolio of securities;
and
WHEREAS, it is in the best interest of Participating Insurance
Companies that the annual expenses of each Portfolio of the Fund in which a
Participating Insurance Company is a shareholder will not exceed a fixed
percentage of the Portfolio's average annual net assets; and
WHEREAS, the Parties desire to evidence their agreement as to certain
other matters,
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:
1. Additional Definitions.
For the purposes of this Agreement, the following definitions shall
apply:
(a) The "expenses of a Portfolio" for any fiscal year shall mean
the expenses for such fiscal year as shown in the Statement of Operations
(or similar report) certified by the Fund's independent public accountants;
(b) A "Portfolio's average daily net assets" for each fiscal
year shall mean the sum of the net asset values determined throughout the
year for the purpose of determining net asset value per Share, divided by
the number of such determinations during such year;
(c) The Company's "Required Contribution" on behalf of the
Account in respect of a Portfolio for any fiscal year shall mean an amount
equal to the expenses of that Portfolio for such year minus the below-
indicated percentage of that Portfolio's average daily net assets for the
year:
Managed International Portfolio . . . . . . 1.5 %
Each other Portfolio. . . . . . . . . . . . 0.75%
multiplied by a fraction the denominator of which is the average daily net
assets of that Portfolio and the numerator of which is the average daily
net asset value of the Shares of that Portfolio owned by the Account
(referred to herein as a "Participating Shareholder"). The Company's
Required Contribution in respect of a Portfolio shall be pro-rated based on
the number of business days on which this Agreement is in effect for
periods of less than a fiscal year.
(d) The "average daily net asset value of the Shares of the
Portfolio" owned by the Account for any fiscal year of the Fund shall mean
the greater of (i) $500,000 or (ii) the sum of the aggregate net asset
values of the Shares so owned determined during the fiscal year, as of each
determination of the net asset value per Share, divided by the total number
of determinations of net asset value during such year.
(e) "Shares" means shares of beneficial interest, without par
value, of any Portfolio, now or hereafter created, of the Fund.
2. Capital Contribution.
The Company on behalf of the Account shall, within sixty days after
the end of each fiscal year of the Fund, make a capital contribution to the
Fund in respect of each Portfolio equal to the Required Contribution for
that Portfolio for such year; provided, however, that in the event that
both clauses (i) and (ii) of paragraph (d) of Section 1 of this Agreement
or similar agreements are applicable to different Participating Insurance
Companies during the same fiscal year, there shall be a proportionate
reduction of the Required Contribution of each Participating Insurance
Company to which said clause (ii) is applicable so that the total of all
required capital contributions to the Fund on behalf of any Portfolio is
not greater than the excess of the expenses of that Portfolio for that
fiscal year less the percentage of that Portfolio's total expenses set
forth in paragraph (c) of Section 1 of this Agreement for such fiscal year.
3. Duty of Fund to Sell.
The Fund shall make its Shares available for purchase at the
applicable net asset value per Share by Participating Insurance Companies
and their affiliates and separate accounts on those days on which the Fund
calculates its net asset value pursuant to rules of the Securities and
Exchange Commission; provided, however, that the Trustees of the Fund may
refuse to sell Shares of any Portfolio to any person, or suspend or
terminate the offering of Shares of any Portfolio, if such action is
required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Trustees, necessary in the best interest of the
shareholders of any Portfolio.
4. Requirement to Execute Participation Agreement; Requests.
Each Participating Insurance Company shall, prior to purchasing Shares
in the Fund, execute and deliver a participation agreement in a form
substantially identical to this Agreement.
The Fund shall make available, upon written request from the
Participating Insurance Company given in accordance with Paragraph 10, to
each Participating Insurance Company which has executed an Agreement and
which Agreement has not been terminated pursuant to Paragraph 8 (i) a list
of all other Participating Insurance Companies, and (ii) a copy of the
Agreement as executed by any other Participating Insurance Company.
The Fund shall also make available upon request to each Participating
Insurance Company which has executed an Agreement and which Agreement has
not been terminated pursuant to Paragraph 8, the net asset value of any
Portfolio of the Fund as of any date upon which the Fund calculates the net
asset value of its Portfolios for the purpose of purchase and redemption of
Shares.
5. Indemnification.
The Company agrees to indemnify and hold harmless the Fund and each of
its Trustees and officers and each person, if any, who controls the Fund
within the meaning of Section 15 of the Securities Act of 1933 (the "Act")
against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses), arising out of the acquisition of any
Shares by any person, to which the Fund or such Trustees, officers or
controlling person may become subject under the Act, under any other
statute, at common law or otherwise, which (i) may be based upon any
wrongful act by the Company, any of its employees or representatives, any
affiliate of or any person acting on behalf of the Company or a principal
underwriter of its insurance products, or (ii) may be based upon any untrue
statement or alleged untrue statement of a material fact contained in a
registration statement or prospectus covering Shares or any amendment
thereof or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement or omission was
made in reliance upon information furnished to the Fund by the Company, or
(iii) may be based on any untrue statement or alleged untrue statement of a
material fact contained in a registration statement or prospectus covering
insurance products sold by the Company or any insurance company which is an
affiliate thereof, or any amendments or supplement thereto, or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statement or statements therein not
misleading, unless such statement or omission was made in reliance upon
information furnished to the Company or such affiliate by or on behalf of
the Fund; provided, however, that in no case (i) is the Company's indemnity
in favor of a Trustee or officer or any other person deemed to protect such
Trustee or officer or other person against any liability to which any such
person would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of his duties or by reason of
his reckless disregard of obligations and duties under this Agreement or
(ii) is the Company to be liable under its indemnity agreement contained in
this Paragraph 5 with respect to any claim made against the Fund or any
person indemnified unless the Fund or such person, as the case may be,
shall have notified the Company in writing pursuant to Paragraph 10 within
a reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon the
Fund or upon such person (or after the Fund or such person shall have
received notice of such service on any designated agent), but failure to
notify the Company of any such claim shall not relieve the Company from any
liability which it has to the Fund or any person against whom such action
is brought otherwise than on account of its indemnity agreement contained
in this Paragraph 5. The Company shall be entitled to participate, at its
own expense, in the defense, or, if it so elects, to assume the defense of
any suit brought to enforce any such liability, but, if it elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Fund, to its officers and Trustees, or to any
controlling person or persons, defendant or defendants in the suit. In the
event that the Company elects to assume the defense of any such suit and
retain such counsel, the Fund, such officers and Trustees or controlling
person or persons, defendant or defendants in the suit, shall bear the fees
and expenses of any additional counsel retained by them, but, in case the
Company does not elect to assume the defense of any such suit, the Company
will reimburse the Fund, such officers and Trustees or controlling person
or persons, defendant or defendants in such suit, for the reasonable fees
and expenses of any counsel retained by them. The Company agrees promptly
to notify the Fund pursuant to Paragraph 10 of the commencement of any
litigation or proceedings against it in connection with the issue and sale
of any Shares.
The Fund agrees to indemnify and hold harmless the Company and each of
its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the Act against any and all
losses, claims, damages, liabilities or litigation (including legal and
other expenses) to which it or such directors, officers or controlling
person may become subject under the Act, under any other statute, at common
law or otherwise, arising out of the acquisition of any Shares by any
person which (i) may be based upon any wrongful act by the Fund, any of its
employees or representatives or a principal underwriter of the Fund, or
(ii) may be based upon any untrue statement or alleged untrue statement of
a material fact contained in a registration statement or prospectus
covering Shares or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading unless such statement or omission was made in reliance upon
information furnished to the Fund by the Company or (iii) may be based on
any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering insurance
products sold by the Company, or any amendment or supplement thereto, or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance
upon information furnished to the Company by or on behalf of the Fund;
provided, however, that in no case (i) is the Fund's indemnity in favor of
a director or officer or any other person deemed to protect such director
or officer or other person against any liability to which any such person
would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of his duties or by reason of his
reckless disregard of obligations and duties under this Agreement or (ii)
is the Fund to be liable under its indemnity agreement contained in this
Paragraph 5 with respect to any claims made against the Company or any such
director, officer or controlling person unless it or such director, officer
or controlling person, as the case may be, shall have notified the Fund in
writing pursuant to Paragraph 10 within a reasonable time after the summons
or other first legal process giving information of the nature of the claim
shall have been served upon it or upon such director, officer or
controlling person (or after the Company or such director, officer or
controlling person shall have received notice of such service on any
designated agent), but failure to notify the Fund of any claim shall not
relieve it from any liability which it may have to the person against whom
such action is brought otherwise than on account of its indemnity agreement
contained in this Paragraph. The Fund will be entitled to participate at
its own expense in the defense, or, if it so elects, to assume the defense
of any suit brought to enforce any such liability, but if the Fund elects
to assume the defense, such defense shall be conducted by counsel chosen by
it and satisfactory to the Company, its directors, officers or controlling
person or persons, defendant or defendants, in the suit. In the event the
Fund elects to assume the defense of any such suit and retain such counsel,
the Company, its directors, officers or controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of
any additional counsel retained by them, but, in case the Fund does not
elect to assume the defense of any such suit, it will reimburse the Company
or such directors, officers or controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Fund agrees promptly to notify the Company pursuant
to Paragraph 10 of the commencement of any litigation or proceedings
against it or any of its officers or Trustees in connection with the
issuance or sale of any Shares.
6. Procedure for Resolving Irreconcilable Conflicts.
(a) The Trustees of the Fund will monitor the operations of the
Fund for the existence of any material irreconcilable conflict among the
interests of all the contractholders and policyowners of Variable Insurance
Products (the "Participants") of all separate accounts investing in the
Fund. An irreconcilable material conflict may arise, among other things,
from: (a) an action by any state insurance regulatory authority; (b) a
change in applicable insurance laws or regulations; (c) a tax ruling or
provision of the Internal Revenue Code or the regulations thereunder; (d)
any other development relating to the tax treatment of insurers,
contractholders or policyowners or beneficiaries of Variable Insurance
Products; (e) the manner in which the investments of any Portfolio are
being managed; (f) a difference in voting instructions given by variable
annuity contractholders, on the one hand, and variable life insurance
policyowners, on the other hand, or by the contractholders or policyowners
of different participating insurance companies; or (g) a decision by an
insurer to override the voting instructions of Participants.
(b) The Company will be responsible for reporting any potential
or existing conflicts to the Trustees of the Fund. The Company will be
responsible for assisting the Trustees in carrying out their
responsibilities under this Paragraph 6(b) and Paragraph 6(a), by providing
the Trustees with all information reasonably necessary for the Trustees to
consider the issues raised. The Fund will also request its investment
adviser to report to the Trustees any such conflict which comes to the
attention of the adviser.
(c) If it is determined by a majority of the Trustees of the
Fund, or a majority of its disinterested Trustees, that a material
irreconcilable conflict exists involving the Company, the Company shall, at
its expense, and to the extent reasonably practicable (as determined by a
majority of the disinterested Trustees), take whatever steps are necessary
to eliminate the irreconcilable material conflict, including withdrawing
the assets allocable to some or all of the separate accounts from the Fund
or any Portfolio and reinvesting such assets in a different investment
medium, including another Portfolio of the Fund, offering to the affected
Participants the option of making such a change or establishing a new
funding medium including a registered investment company.
For purposes of this Paragraph 6(c), the Trustees, or the
disinterested Trustees, shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict. In the event of
a determination of the existence of an irreconcilable material conflict,
the Trustees shall cause the Fund to take such action, such as the
establishment of one or more additional Portfolios, as they in their sole
discretion determine to be in the interest of all shareholders and
Participants in view of all applicable factors, such as cost, feasibility,
tax, regulatory and other considerations. In no event will the Fund be
required by this Paragraph 6(c) to establish a new funding medium for any
variable contract or policy.
The Company shall not be required by this Paragraph 6(c) to establish
a new funding medium for any variable contract or policy if an offer to do
so has been declined by a vote of a majority of the Participants materially
adversely affected by the material irreconcilable conflict. The Company
will recommend to its Participants that they decline an offer to establish
a new funding medium only if the Company believes it is in the best
interest of the Participants.
(d) The Trustees' determination of the existence of an
irreconcilable material conflict and its implications promptly shall be
communicated to all Participating Insurance Companies by written notice
thereof delivered or mailed, first class postage prepaid.
7. Voting Privileges.
The Company shall be responsible for assuring that its separate
account or accounts participating in the Fund shall use a calculation
method of voting procedures substantially the same as the following: those
Participants permitted to give instructions and the number of Shares for
which instructions may be given will be determined as of the record date
for the Fund shareholders' meeting, which shall not be more than 60 days
before the date of the meeting. Whether or not voting instructions are
actually given by a particular Participant, all Fund shares held in any
separate account or sub-account thereof and attributable to policies will
be voted for, against, or withheld from voting on any proposition in the
same proportion as (i) the aggregate record date cash value held in such
sub-account for policies giving instructions, respectively, to vote for,
against, or withhold votes on such proposition, bears to (ii) the aggregate
record date cash value held in the sub-account for all policies for which
voting instructions are received. Participants continued in effect under
lapse options will not be permitted to give voting instructions. Shares
held in any other insurance company general or separate account or sub-
account thereof will be voted in the proportion specified in the second
preceding sentence for shares attributable to policies.
8. Duration and Termination.
This Agreement shall remain in force for the period ending five years
from the date of its execution (such date and any anniversary of such date
being hereinafter called a "Renegotiation Date"), and from year to year
thereafter provided that neither the Company nor the Fund shall have given
written notice to the other within thirty (30) days prior to a
Renegotiation Date that it desires to renegotiate the amount of
contribution to capital due hereunder ("Renegotiation Notice"). If a
Renegotiation Notice is properly given as aforesaid and the Fund and the
Company shall fail, within sixty (60) days after the Renegotiation Date,
either to enter into an amendment to this Agreement or a written
acknowledgment that the Agreement shall continue in effect, this Agreement
shall terminate as of the one hundred twentieth day after such
Renegotiation Date. If this Agreement is so terminated, the Fund may, at
any time thereafter, automatically redeem the Shares of any Portfolio held
by a Participating Shareholder. This Agreement may be terminated at any
time, at the option of either of the Company or the Fund, when neither the
Company, any insurance company nor the separate account or accounts of such
insurance company which is an affiliate thereof which is not a
Participating Insurance Company own any Shares of the Fund or may be
terminated by either party to the Agreement upon a determination by a
majority of the Trustees of the Fund, or a majority of its disinterested
Trustees, following certification thereof by a Participating Insurance
Company given in accordance with Paragraph 10 that an irreconcilable
conflict exists among the interests of (i) all contractholders and
policyholders of Variable Insurance Products of all separate accounts or
(ii) the interests of the Participating Insurance Companies investing in
the Fund. Notwithstanding anything to the contrary in this Agreement or
its termination as provided herein, the Company's obligation to make a
capital contribution to the Fund in accordance with this Agreement at the
time in effect shall continue (i) following a properly given Renegotiation
Notice, in the absence of agreement otherwise, until termination of this
Agreement, and (ii) (except termination due to the existence of an
irreconcilable conflict), following termination of this Agreement, until
the later of the fifth anniversary of the date of this Agreement or the
date on which the Company, its separate account(s) or the separate
account(s) of any affiliated insurance company owns no Shares.
9. Compliance.
The Fund will comply with the provisions of Section 4240(a) of the New
York Insurance Law.
Each Portfolio of the Fund will comply with the provisions of Section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"),
relating to diversification requirements for variable annuity, endowment
and life insurance contracts. Specifically, each Portfolio will comply
with either (i) the requirement of Section 817(h)(1) of the Code that its
assets be adequately diversified, or (ii) the "Safe Harbor for
Diversification" specified in Section 817(h)(2) of the Code, or (iii) the
diversification requirement of Section 817(h)(1) of the Code by having all
or part of its assets invested in U.S. Treasury securities which qualify
for the "Special Rule for Investments in United States Obligations"
specified in Section 817(h)(3) of the Code.
The provisions of Paragraphs 6 and 7 of this Agreement shall be
interpreted in a manner consistent with any Rule or order of the Securities
and Exchange Commission under the Investment Company Act of 1940, as
amended, applicable to the parties hereto.
No Shares of any Portfolio of the Fund may be sold to the general
public.
10. Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify
in writing to the other party.
If to the Fund:
Scudder Variable Life Investment Fund
175 Federal Street
Boston, Massachusetts 02110
(617) 482-3990
Attn: David B. Watts
If to the Company:
American Skandia Life Assurance Corporation
One Corporation Drive
P.O. Box 883
Shelton, CT 06484
Attn: Thomas Mazzaferro
11. Massachusetts Law to Apply.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
12. Miscellaneous.
The name "Scudder Variable Life Investment Fund" is the designation of
the Trustees for the time being under a Declaration of Trust dated March
15, 1985, as amended, and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims
against the Fund as neither the Trustees, officers, agents or shareholders
assume any personal liability for obligations entered into on behalf of the
Fund. No Portfolio shall be liable for any obligations properly
attributable to any other Portfolio.
The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect. This Agreement
may be executed simultaneously in two or more counterparts, each of which
taken together shall constitute one and the same instrument.
13. Entire Agreement.
This Agreement incorporates the entire understanding and agreement
among the parties hereto, and supersedes any and all prior understandings
and agreements between the parties hereto with respect to the subject
matter hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the 3 day
of May, 1993.
SEAL SCUDDER VARIABLE LIFE
INVESTMENT FUND
By: /s/David B. Watts
President
SEAL AMERICAN SKANDIA LIFE ASSURANCE
CORPORATION
By: /s/Wade Dokken
Its:_______________________________
Exhibit 9(c)(15)
PARTICIPATION AGREEMENT
PARTICIPATION AGREEMENT (the "Agreement") made by and between SCUDDER
VARIABLE LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust
created under a Declaration of Trust dated March 15, 1985, as amended, with
a principal place of business in Boston, Massachusetts and AUSA LIFE
INSURANCE COMPANY, INC., a New York corporation (the "Company"), with a
principal place of business in Purchase, New York, on behalf of
Diversified Investors Variable Funds, a separate account of the Company,
and any other separate account of the Company as designated by the Company
from time to time, upon written notice to the Fund in accordance with
Section 10 herein (the "Account").
WHEREAS, the Fund acts as the investment vehicle for the separate
accounts established for variable life insurance policies and variable
annuity contracts (collectively referred to herein as "Variable Insurance
Products") to be offered by insurance companies which have entered into
participation agreements substantially identical to this Agreement
("Participating Insurance Companies") and their affiliated insurance
companies; and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares of beneficial interest ("Shares"), and additional series
of Shares may be established, each designated a "Portfolio" and
representing the interest in a particular managed portfolio of securities;
and
WHEREAS, it is in the best interest of Participating Insurance
Companies to make capital contributions if required so that the annual
expenses of each Portfolio of the Fund in which a Participating Insurance
Company is a shareholder will not exceed a fixed percentage of the
Portfolio's average annual net assets; and
WHEREAS, the Parties desire to evidence their agreement as to certain
other matters,
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:
1. Additional Definitions.
For the purposes of this Agreement, the following definitions shall
apply:
(a) The "expenses of a Portfolio" for any fiscal year shall mean
the expenses for such fiscal year as shown in the Statement of Operations
(or similar report) certified by the Fund's independent public accountants;
(b) A "Portfolio's average daily net assets" for each fiscal
year shall mean the sum of the net asset values determined throughout the
year for the purpose of determining net asset value per Share, divided by
the number of such determinations during such year;
(c) The Company's "Required Contribution" on behalf of the
Account in respect of a Portfolio for any fiscal year shall mean an amount
equal to the expenses of that Portfolio for such year minus the below-
indicated percentage of that Portfolio's average daily net assets for the
year:
International Portfolio. . . . . . . . . . 1.50%
Each other Portfolio. . . . . . . . . . . . 0.75%
multiplied by a fraction the denominator of which is the average daily net
assets of that Portfolio and the numerator of which is the average daily
net asset value of the Shares of that Portfolio owned by the Account
(referred to herein as a "Participating Shareholder"). The Company's
Required Contribution in respect of a Portfolio shall be pro-rated based on
the number of business days on which this Agreement is in effect for
periods of less than a fiscal year.
(d) The "average daily net asset value of the Shares of the
Portfolio" owned by the Account for any fiscal year of the Fund shall mean
the greater of (i) $500,000 or (ii) the sum of the aggregate net asset
values of the Shares so owned determined during the fiscal year, as of each
determination of the net asset value per Share, divided by the total number
of determinations of net asset value during such year.
(e) "Shares" means shares of beneficial interest, without par
value, of any Portfolio, now or hereafter created, of the Fund.
2. Capital Contribution.
The Company on behalf of the Account shall, within sixty days after
the end of each fiscal year of the Fund, make a capital contribution to the
Fund in respect of each Portfolio equal to the Required Contribution for
that Portfolio for such year; provided, however, that in the event that
both clauses (i) and (ii) of paragraph (d) of Section 1 of this Agreement
or similar agreements are applicable to different Participating Insurance
Companies during the same fiscal year, there shall be a proportionate
reduction of the Required Contribution of each Participating Insurance
Company to which said clause (ii) is applicable so that the total of all
required capital contributions to the Fund on behalf of any Portfolio is
not greater than the excess of the expenses of that Portfolio for that
fiscal year less the percentage of that Portfolio's total expenses set
forth in paragraph (c) of Section 1 of this Agreement for such fiscal year.
3. Duty of Fund to Sell.
The Fund shall make its Shares available for purchase at the
applicable net asset value per Share by Participating Insurance Companies
and their affiliates and separate accounts on those days on which the Fund
calculates its net asset value pursuant to rules of the Securities and
Exchange Commission; provided, however, that the Trustees of the Fund may
refuse to sell Shares of any Portfolio to any person, or suspend or
terminate the offering of Shares of any Portfolio, if such action is
required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Trustees, necessary in the best interest of the
shareholders of any Portfolio.
4. Requirement to Execute Participation Agreement; Requests.
Each Participating Insurance Company shall, prior to purchasing Shares
in the Fund, execute and deliver a participation agreement in a form
substantially identical to this Agreement.
The Fund shall make available, upon written request from the
Participating Insurance Company given in accordance with Paragraph 10, to
each Participating Insurance Company which has executed an Agreement and
which Agreement has not been terminated pursuant to Paragraph 8 (i) a list
of all other Participating Insurance Companies, and (ii) a copy of the
Agreement as executed by any other Participating Insurance Company.
The Fund shall also make available upon request to each Participating
Insurance Company which has executed an Agreement and which Agreement has
not been terminated pursuant to Paragraph 8, the net asset value of any
Portfolio of the Fund as of any date upon which the Fund calculates the net
asset value of its Portfolios for the purpose of purchase and redemption of
Shares.
5. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Fund and
each of its Trustees and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the Securities Act of 1933 (the
"Act") against any and all losses, claims, damages, liabilities or
litigation (including legal and other expenses), arising out of the
acquisition of any Shares by any person, to which the Fund or such
Trustees, officers or controlling person may become subject under the Act,
under any other statute, at common law or otherwise, which (i) may be based
upon any wrongful act by the Company, any of its employees or
representatives, any affiliate of or any person acting on behalf of the
Company or a principal underwriter of its insurance products, or (ii) may
be based upon any untrue statement or alleged untrue statement of a
material fact contained in a registration statement or prospectus covering
Shares or any amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such
a statement or omission was made in reliance upon information furnished to
the Fund by the Company, or (iii) may be based on any untrue statement or
alleged untrue statement of a material fact contained in a registration
statement or prospectus covering insurance products sold by the Company or
any insurance company which is an affiliate thereof, or any amendments or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statement or statements therein not misleading, unless such statement or
omission was made in reliance upon information furnished to the Company or
such affiliate by or on behalf of the Fund; provided, however, that in no
case (i) is the Company's indemnity in favor of a Trustee or officer or any
other person deemed to protect such Trustee or officer or other person
against any liability to which any such person would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of his duties or by reason of his reckless disregard of
obligations and duties under this Agreement or (ii) is the Company to be
liable under its indemnity agreement contained in this Paragraph 5 with
respect to any claim made against the Fund or any person indemnified unless
the Fund or such person, as the case may be, shall have notified the
Company in writing pursuant to Paragraph 10 within a reasonable time after
the summons or other first legal process giving information of the nature
of the claims shall have been served upon the Fund or upon such person (or
after the Fund or such person shall have received notice of such service on
any designated agent), but failure to notify the Company of any such claim
shall not relieve the Company from any liability which it has to the Fund
or any person against whom such action is brought otherwise than on account
of its indemnity agreement contained in this Paragraph 5. The Company
shall be entitled to participate, at its own expense, in the defense, or,
if it so elects, to assume the defense of any suit brought to enforce any
such liability, but, if it elects to assume the defense, such defense shall
be conducted by counsel chosen by it and satisfactory to the Fund, to its
officers and Trustees, or to any controlling person or persons, defendant
or defendants in the suit. In the event that the Company elects to assume
the defense of any such suit and retain such counsel, the Fund, such
officers and Trustees or controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them, but, in case the Company does not elect to assume
the defense of any such suit, the Company will reimburse the Fund, such
officers and Trustees or controlling person or persons, defendant or
defendants in such suit, for the reasonable fees and expenses of any
counsel retained by them. The Company agrees promptly to notify the Fund
pursuant to Paragraph 10 of the commencement of any litigation or
proceedings against it in connection with the issue and sale of any Shares.
(b) The Fund agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who controls
the Company within the meaning of Section 15 of the Act against any and all
losses, claims, damages, liabilities or litigation (including legal and
other expenses) to which it or such directors, officers or controlling
person may become subject under the Act, under any other statute, at common
law or otherwise, arising out of the acquisition of any Shares by any
person which (i) may be based upon any wrongful act by the Fund, any of its
employees or representatives or a principal underwriter of the Fund, or
(ii) may be based upon any untrue statement or alleged untrue statement of
a material fact contained in a registration statement or prospectus
covering Shares or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading unless such statement or omission was made in reliance upon
information furnished to the Fund by the Company or (iii) may be based on
any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering insurance
products sold by the Company, or any amendment or supplement thereto, or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance
upon information furnished to the Company by or on behalf of the Fund;
provided, however, that in no case (i) is the Fund's indemnity in favor of
a director or officer or any other person deemed to protect such director
or officer or other person against any liability to which any such person
would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of his duties or by reason of his
reckless disregard of obligations and duties under this Agreement or (ii)
is the Fund to be liable under its indemnity agreement contained in this
Paragraph 5 with respect to any claims made against the Company or any such
director, officer or controlling person unless it or such director, officer
or controlling person, as the case may be, shall have notified the Fund in
writing pursuant to Paragraph 10 within a reasonable time after the summons
or other first legal process giving information of the nature of the claim
shall have been served upon it or upon such director, officer or
controlling person (or after the Company or such director, officer or
controlling person shall have received notice of such service on any
designated agent), but failure to notify the Fund of any claim shall not
relieve it from any liability which it may have to the person against whom
such action is brought otherwise than on account of its indemnity agreement
contained in this Paragraph. The Fund will be entitled to participate at
its own expense in the defense, or, if it so elects, to assume the defense
of any suit brought to enforce any such liability, but if the Fund elects
to assume the defense, such defense shall be conducted by counsel chosen by
it and satisfactory to the Company, its directors, officers or controlling
person or persons, defendant or defendants, in the suit. In the event the
Fund elects to assume the defense of any such suit and retain such counsel,
the Company, its directors, officers or controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of
any additional counsel retained by them, but, in case the Fund does not
elect to assume the defense of any such suit, it will reimburse the Company
or such directors, officers or controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Fund agrees promptly to notify the Company pursuant
to Paragraph 10 of the commencement of any litigation or proceedings
against it or any of its officers or Trustees in connection with the
issuance or sale of any Shares.
6. Procedure for Resolving Irreconcilable Conflicts.
(a) The Trustees of the Fund will monitor the operations of the Fund
for the existence of any material irreconcilable conflict among the
interests of all the contract holders and policy owners of Variable
Insurance Products (the "Participants") of all separate accounts investing
in the Fund. An irreconcilable material conflict may arise, among other
things, from: (a) an action by any state insurance regulatory authority;
(b) a change in applicable insurance laws or regulations; (c) a tax ruling
or provision of the Internal Revenue Code or the regulations thereunder;
(d) any other development relating to the tax treatment of insurers,
contract holders or policy owners or beneficiaries of Variable Insurance
Products; (e) the manner in which the investments of any Portfolio are
being managed; (f) a difference in voting instructions given by variable
annuity contract holders, on the one hand, and variable life insurance
policy owners, on the other hand, or by the contract holders or policy
owners of different participating insurance companies; or (g) a decision by
an insurer to override the voting instructions of Participants.
(b) The Company will be responsible for reporting any potential or
existing conflicts to the Trustees of the Fund. The Company will be
responsible for assisting the Trustees in carrying out their
responsibilities under this Paragraph 6(b) and Paragraph 6(a), by providing
the Trustees with all information reasonably necessary for the Trustees to
consider the issues raised. The Fund will also request its investment
adviser to report to the Trustees any such conflict which comes to the
attention of the adviser.
(c) If it is determined by a majority of the Trustees of the Fund, or
a majority of its disinterested Trustees, that a material irreconcilable
conflict exists involving the Company, the Company shall, at its expense,
and to the extent reasonably practicable (as determined by a majority of
the disinterested Trustees), take whatever steps are necessary to eliminate
the irreconcilable material conflict, including withdrawing the assets
allocable to some or all of the separate accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including another Portfolio of the Fund, offering to the affected
Participants the option of making such a change or establishing a new
funding medium including a registered investment company.
For purposes of this Paragraph 6(c), the Trustees, or the
disinterested Trustees, shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict. In the event of
a determination of the existence of an irreconcilable material conflict,
the Trustees shall cause the Fund to take such action, such as the
establishment of one or more additional Portfolios, as they in their sole
discretion determine to be in the interest of all shareholders and
Participants in view of all applicable factors, such as cost, feasibility,
tax, regulatory and other considerations. In no event will the Fund be
required by this Paragraph 6(c) to establish a new funding medium for any
variable contract or policy.
The Company shall not be required by this Paragraph 6(c) to establish
a new funding medium for any variable contract or policy if an offer to do
so has been declined by a vote of a majority of the Participants materially
adversely affected by the material irreconcilable conflict. The Company
will recommend to its Participants that they decline an offer to establish
a new funding medium only if the Company believes it is in the best
interest of the Participants.
(d) The Trustees' determination of the existence of an irreconcilable
material conflict and its implications promptly shall be communicated to
all Participating Insurance Companies by written notice thereof delivered
or mailed, first class postage prepaid.
7. Voting Privileges.
The Company shall be responsible for assuring that its separate
account or accounts participating in the Fund shall use a calculation
method of voting procedures substantially the same as the following: those
Participants permitted to give instructions and the number of Shares for
which instructions may be given will be determined as of the record date
for the Fund shareholders' meeting, which shall not be more than 60 days
before the date of the meeting. Whether or not voting instructions are
actually given by a particular Participant, all Fund shares held in any
separate account or sub-account thereof and attributable to policies will
be voted for, against, or withheld from voting on any proposition in the
same proportion as (i) the aggregate record date cash value held in such
sub-account for policies giving instructions, respectively, to vote for,
against, or withhold votes on such proposition, bears to (ii) the aggregate
record date cash value held in the sub-account for all policies for which
voting instructions are received. Participants continued in effect under
lapse options will not be permitted to give voting instructions. Shares
held in any other insurance company general or separate account or sub-
account thereof will be voted in the proportion specified in the second
preceding sentence for shares attributable to policies.
8. Duration and Termination.
This Agreement shall remain in force for the period ending five years
from the date of its execution (such date and any anniversary of such date
being hereinafter called a "Renegotiation Date"), and from year to year
thereafter provided that neither the Company nor the Fund shall have given
written notice to the other within thirty (30) days prior to a
Renegotiation Date that it desires to renegotiate the amount of
contribution to capital due hereunder ("Renegotiation Notice"). If a
Renegotiation Notice is properly given as aforesaid and the Fund and the
Company shall fail, within sixty (60) days after the Renegotiation Date,
either to enter into an amendment to this Agreement or a written
acknowledgment that the Agreement shall continue in effect, this Agreement
shall terminate as of the one hundred twentieth day after such
Renegotiation Date. If this Agreement is so terminated, the Fund may, at
any time thereafter, automatically redeem the Shares of any Portfolio held
by a Participating Shareholder. This Agreement may be terminated at any
time, at the option of either of the Company or the Fund, when neither the
Company, any insurance company nor the separate account or accounts of such
insurance company which is an affiliate thereof which is not a
Participating Insurance Company own any Shares of the Fund or may be
terminated by either party to the Agreement upon a determination by a
majority of the Trustees of the Fund, or a majority of its disinterested
Trustees, following certification thereof by a Participating Insurance
Company given in accordance with Paragraph 10 that an irreconcilable
conflict exists among the interests of (i) all contract holders and
policyholders of Variable Insurance Products of all separate accounts or
(ii) the interests of the Participating Insurance Companies investing in
the Fund. Notwithstanding anything to the contrary in this Agreement or
its termination as provided herein, the Company's obligation to make a
capital contribution to the Fund in accordance with this Agreement at the
time in effect shall continue (i) following a properly given Renegotiation
Notice, in the absence of agreement otherwise, until termination of this
Agreement, and (ii) (except termination due to the existence of an
irreconcilable conflict), following termination of this Agreement, until
the later of the fifth anniversary of the date of this Agreement or the
date on which the Company, its separate account(s) or the separate
account(s) of any affiliated insurance company owns no Shares.
9. Compliance.
The Fund will comply with the provisions of Section 4240(a) of the New
York Insurance Law.
Each Portfolio of the Fund will comply with the provisions of Section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"),
relating to diversification requirements for variable annuity, endowment
and life insurance contracts. Specifically, each Portfolio will comply
with either (i) the requirement of Section 817(h)(1) of the Code that its
assets be adequately diversified, or (ii) the "Safe Harbor for
Diversification" specified in Section 817(h)(2) of the Code, or (iii) the
diversification requirement of Section 817(h)(1) of the Code by having all
or part of its assets invested in U.S. Treasury securities which qualify
for the "Special Rule for Investments in United States Obligations"
specified in Section 817(h)(3) of the Code.
The provisions of Paragraphs 6 and 7 of this Agreement shall be
interpreted in a manner consistent with any Rule or order of the Securities
and Exchange Commission under the Investment Company Act of 1940, as
amended, applicable to the parties hereto.
No Shares of any Portfolio of the Fund may be sold to the general
public.
10. Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify
in writing to the other party.
If to the Fund:
Scudder Variable Life Investment Fund
175 Federal Street
Boston, Massachusetts 02110
(617) 482-3990
Attn: David B. Watts
If to the Company:
AUSA Life Insurance Company, Inc.
4 Manhattanville Road
Purchase, NY 10577
(914) 697-8000
Attn: Richard Finch
11. Massachusetts Law to Apply.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
12. Miscellaneous.
The name "Scudder Variable Life Investment Fund" is the designation of
the Trustees for the time being under a Declaration of Trust dated March
15, 1985, as amended, and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims
against the Fund as neither the Trustees, officers, agents or shareholders
assume any personal liability for obligations entered into on behalf of the
Fund. No Portfolio shall be liable for any obligations properly
attributable to any other Portfolio.
The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect. This Agreement
may be executed simultaneously in two or more counterparts, each of which
taken together shall constitute one and the same instrument.
13. Entire Agreement.
This Agreement incorporates the entire understanding and agreement
among the parties hereto, and supersedes any and all prior understandings
and agreements between the parties hereto with respect to the subject
matter hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the 21st
day of October, 1993.
SEAL SCUDDER VARIABLE LIFE
INVESTMENT FUND
By: /s/David B. Watts
David B. Watts
President
SEAL AUSA LIFE INSURANCE
COMPANY, INC.
By: /s/Tom Schlosberg
Its: President
Exhibit 9(c)(16)
PARTICIPATION AGREEMENT
PARTICIPATION AGREEMENT (the "Agreement") made by and between SCUDDER
VARIABLE LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust
created under a Declaration of Trust dated March 15, 1985, as amended, with
a principal place of business in Boston, Massachusetts and BANNER LIFE
INSURANCE COMPANY, a Maryland corporation (the "Company"), with a principal
place of business in Rockville, Maryland.
WHEREAS, the Fund acts as the investment vehicle for the separate
accounts established for variable life insurance policies and variable
annuity contracts (collectively referred to herein as "Variable Insurance
Products") to be offered by insurance companies which have entered into
participation agreements substantially identical to this Agreement
("Participating Insurance Companies") and their affiliated insurance
companies; and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares of beneficial interest ("Shares"), and additional series
of Shares may be established, each designated a "Portfolio" and
representing the interest in a particular managed portfolio of securities;
and
WHEREAS, it is in the best interest of Participating Insurance
Companies to make capital contributions if required so that the annual
expenses of each Portfolio of the Fund in which a Participating Insurance
Company is a shareholder will not exceed a fixed percentage of the
Portfolio's average annual net assets; and
WHEREAS, the Parties desire to evidence their agreement as to certain
other matters,
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:
1. Additional Definitions.
For the purposes of this Agreement, the following definitions shall
apply:
(a) The "expenses of a Portfolio" for any fiscal year shall mean
the expenses for such fiscal year as shown in the Statement of Operations
(or similar report) certified by the Fund's independent public accountants;
(b) A "Portfolio's average daily net assets" for each fiscal
year shall mean the sum of the net asset values determined throughout the
year for the purpose of determining net asset value per Share, divided by
the number of such determinations during such year;
(c) The Company's "Required Contribution" in respect of a
Portfolio for any fiscal year shall mean an amount equal to the expenses of
that Portfolio for such year minus the below-indicated percentage of that
Portfolio's average daily net assets for the year:
Managed International Portfolio . . . . . . . . . . . 1.5%
Managed Natural Resources Portfolio . . . . . . . . . 1.5%
Each other Portfolio. . . . . . . . . . . . . . . . . 0.75%
multiplied by a fraction the denominator of which is the average daily net
assets of that Portfolio and the numerator of which is the average daily
net asset value of the Shares of that Portfolio owned by the Company, the
separate account or accounts of the Company, and any insurance company or
the separate account or accounts of such insurance company which is an
affiliate thereof which is not a Participating Insurance Company (each
individually referred to herein as a "Participating Shareholder"). The
Company's Required Contribution in respect of a Portfolio shall be
pro-rated based on the number of business days in a fiscal year which
follow the initial offer and sale of variable annuity contracts and
variable life insurance policies or which are prior to the termination of
the Agreement.
(d) The "average daily net asset value of the Shares of the
Portfolio" owned by the Company, the separate account or accounts of the
Company and any insurance company or the separate account or accounts of
such insurance company which is an affiliate thereof which is not a
Participating Insurance Company for any fiscal year of the Fund shall mean
the greater of (i) $1,000,000 or (ii) the sum of the aggregate net asset
values of the Shares so owned determined during the fiscal year, as of each
determination of the net asset value per Share, divided by the total number
of determinations of net asset value during such year.
(e) "Shares" means shares of beneficial interest, without par
value, of any Portfolio, now or hereafter created, of the Fund.
2. Capital Contribution.
The Company shall, within sixty days after the end of each fiscal year
of the Fund, make a capital contribution to the Fund in respect of each
Portfolio equal to the Required Contribution for that Portfolio for such
year; provided, however, that in the event that both clauses (i) and (ii)
of paragraph (d) of Section 1 of this Agreement or similar agreements are
applicable to different Participating Insurance Companies during the same
fiscal year, there shall be a proportionate reduction of the Required
Contribution of each Participating Insurance Company to which said clause
(ii) is applicable so that the total of all required capital contributions
to the Fund on behalf of any Portfolio is not greater than the excess of
the expenses of that Portfolio for that fiscal year less the percentage of
that Portfolio's total expenses set forth in paragraph (c) of Section 1 of
this Agreement for such fiscal year.
3. Duty of Fund to Sell.
The Fund shall make its Shares available for purchase at the
applicable net asset value per Share by Participating Insurance Companies
and their affiliates and separate accounts on those days on which the Fund
calculates its net asset value pursuant to rules of the Securities and
Exchange Commission; provided, however, that the Trustees of the Fund may
refuse to sell Shares of any Portfolio to any person, or suspend or
terminate the offering of Shares of any Portfolio, if such action is
required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Trustees, necessary in the best interest of the
shareholders of any Portfolio.
4. Requirement to Execute Participation Agreement; Requests.
Each Participating Insurance Company shall, prior to purchasing Shares
in the Fund, execute and deliver a participation agreement in a form
substantially identical to this Agreement.
The Fund shall make available, upon written request from the
Participating Insurance Company given in accordance with Paragraph 10, to
each Participating Insurance Company which has executed an Agreement and
which Agreement has not been terminated pursuant to Paragraph 8 (i) a list
of all other Participating Insurance Companies, and (ii) a copy of the
Agreement as executed by any other Participating Insurance Company.
The Fund shall also make available upon request to each Participating
Insurance Company which has executed an Agreement and which Agreement has
not been terminated pursuant to Paragraph 8, the net asset value of any
Portfolio of the Fund as of any date upon which the Fund calculates the net
asset value of its Portfolios for the purpose of purchase and redemption of
Shares.
5. Indemnification.
The Company agrees to indemnify and hold harmless the Fund and each of
its Trustees and officers and each person, if any, who controls the Fund
within the meaning of Section 15 of the Securities Act of 1933 (the "Act")
against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses), arising out of the acquisition of any
Shares by any person, to which the Fund or such Trustees, officers or
controlling person may become subject under the Act, under any other
statute, at common law or otherwise, which (i) may be based upon any
wrongful act by the Company, any of its employees or representatives, any
affiliate of or any person acting on behalf of the Company or a principal
underwriter of its insurance products, or (ii) may be based upon any untrue
statement or alleged untrue statement of a material fact contained in a
registration statement or prospectus covering Shares or any amendment
thereof or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement or omission was
made in reliance upon information furnished to the Fund by the Company, or
(iii) may be based on any untrue statement or alleged untrue statement of a
material fact contained in a registration statement or prospectus covering
insurance products sold by the Company or any insurance company which is an
affiliate thereof, or any amendments or supplement thereto, or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statement or statements therein not
misleading, unless such statement or omission was made in reliance upon
information furnished to the Company or such affiliate by or on behalf of
the Fund; provided, however, that in no case (i) is the Company's indemnity
in favor of a Trustee or officer or any other person deemed to protect such
Trustee or officer or other person against any liability to which any such
person would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of his duties or by reason of
his reckless disregard of obligations and duties under this Agreement or
(ii) is the Company to be liable under its indemnity agreement contained in
this Paragraph 5 with respect to any claim made against the Fund or any
person indemnified unless the Fund or such person, as the case may be,
shall have notified the Company in writing pursuant to Paragraph 10 within
a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the Fund
or upon such person (or after the Fund or such person shall have received
notice of such service on any designated agent), but failure to notify the
Company of any such claim shall not relieve the Company from any liability
which it has to the Fund or any person against whom such action is brought
otherwise than on account of its indemnity agreement contained in this
Paragraph 5. The Company shall be entitled to participate, at its own
expense, in the defense, or, if it so elects, to assume the defense of any
suit brought to enforce any such liability, but, if it elects to assume the
defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Fund, to its officers and Trustees, or to any
controlling person or persons, defendant or defendants in the suit. In the
event that the Company elects to assume the defense of any such suit and
retain such counsel, the Fund, such officers and Trustees or controlling
person or persons, defendant or defendants in the suit, shall bear the fees
and expenses of any additional counsel retained by them, but, in case the
Company does not elect to assume the defense of any such suit, the Company
will reimburse the Fund, such officers and Trustees or controlling person
or persons, defendant or defendants in such suit, for the reasonable fees
and expenses of any counsel retained by them. The Company agrees promptly
to notify the Fund pursuant to Paragraph 10 of the commencement of any
litigation or proceedings against it in connection with the issue and sale
of any Shares.
The Fund agrees to indemnify and hold harmless the Company and each of
its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the Act against any and all
losses, claims, damages, liabilities or litigation (including legal and
other expenses) to which it or such directors, officers or controlling
person may become subject under the Act, under any other statute, at common
law or otherwise, arising out of the acquisition of any Shares by any
person which (i) may be based upon any wrongful act by the Fund, any of its
employees or representatives or a principal underwriter of the Fund, or
(ii) may be based upon any untrue statement or alleged untrue statement of
a material fact contained in a registration statement or prospectus
covering Shares or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading unless such statement or omission was made in reliance upon
information furnished to the Fund by the Company or (iii) may be based on
any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering insurance
products sold by the Company, or any amendment or supplement thereto. or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance
upon information furnished to the Company by or on behalf of the Fund;
provided, however, that in no case (i) is the Fund's indemnity in favor of
a director or officer or any other person deemed to protect such director
or officer or other person against any liability to which any such person
would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of his duties or by reason of his
reckless disregard of obligations and duties under this Agreement or (ii)
is the Fund to be liable under its indemnity agreement contained in this
Paragraph 5 with respect to any claims made against the Company or any such
director, officer or controlling person unless it or such director, officer
or controlling person, as the case may be, shall have notified the Fund in
writing pursuant to Paragraph 10 within a reasonable time after the summons
or other first legal process giving information of the nature of the claim
shall have been served upon it or upon such director, officer or
controlling person (or after the Company or such director, officer or
controlling person shall have received notice of such service on any
designated agent), but failure to notify the Fund of any claim shall not
relieve it from any liability which it may have to the person against whom
such action is brought otherwise than on account of its indemnity agreement
contained in this Paragraph. The Fund will be entitled to participate at
its own expense in the defense, or, if it so elects, to assume the defense
of any suit brought to enforce any such liability, but if the Fund elects
to assume the defense, such defense shall be conducted by counsel chosen by
it and satisfactory to the Company, its directors, officers or controlling
person or persons, defendant or defendants, in the suit. In the event the
Fund elects to assume the defense of any such suit and retain such counsel,
the Company, its directors, officers or controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of
any additional counsel retained by them, but, in case the Fund does not
elect to assume the defense of any such suit, it will reimburse the Company
or such directors, officers or controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Fund agrees promptly to notify the Company pursuant
to Paragraph 10 of the commencement of any litigation or proceedings
against it or any of its officers or Trustees in connection with the
issuance or sale of any Shares.
6. Procedure for Resolving Irreconcilable Conflicts.
(a) The Trustees of the Fund will monitor the operations of the Fund
for the existence of any material irreconcilable conflict among the
interests of all the contractholders and policyowners of Variable Insurance
Products (the "Participants") of all separate accounts investing in the
Fund. An irreconcilable material conflict may arise, among other things,
from: (a) an action by any state insurance regulatory authority; (b) a
change in applicable insurance laws or regulations; (c) a tax ruling or
provision of the Internal Revenue Code or the regulations thereunder; (d)
any other development relating to the tax treatment of insurers,
contractholders or policyowners or beneficiaries of Variable Insurance
Products; (e) the manner in which the investments of any Portfolio are
being managed; (f) a difference in voting instructions given by variable
annuity contractholders, on the one hand, and variable life insurance
policyowners, on the other hand, or by the contractholders or policyowners
of different participating insurance companies; or (g) a decision by an
insurer to override the voting instructions of Participants.
(b) The Company will be responsible for reporting any potential or
existing conflicts to the Trustees of the Fund. The Company will be
responsible for assisting the Trustees in carrying out their
responsibilities under this Paragraph 6(b) and Paragraph 6(a), by providing
the Trustees with all information reasonably necessary for the Trustees to
consider the issues raised. The Fund will also request its investment
adviser to report to the Trustees any such conflict which comes to the
attention of the adviser.
(c) If it is determined by a majority of the Trustees of the Fund, or
a majority of its disinterested Trustees, that a material irreconcilable
conflict exists involving the Company, the Company shall, at its expense,
and to the extent reasonably practicable (as determined by a majority of
the disinterested Trustees), take whatever steps are necessary to eliminate
the irreconcilable material conflict, including withdrawing the assets
allocable to some or all of the separate accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including another Portfolio of the Fund, offering to the affected
Participants the option of making such a change or establishing a new
funding medium including a registered investment company.
For purposes of this Paragraph 6(c), the Trustees, or the
disinterested Trustees, shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict. In the event of
a determination of the existence of an irreconcilable material conflict,
the Trustees shall cause the Fund to take such action, such as the
establishment of one or more additional Portfolios, as they in their sole
discretion determine to be in the interest of all shareholders and
Participants in view of all applicable factors, such as cost, feasibility,
tax, regulatory and other considerations. In no event will the Fund be
required by this Paragraph 6(c) to establish a new funding medium for any
variable contract or policy.
The Company shall not be required by this Paragraph 6(c) to establish
a new funding medium for any variable contract or policy if an offer to do
so has been declined by a vote of a majority of the Participants materially
adversely affected by the material irreconcilable conflict. The Company
will recommend to its Participants that they decline an offer to establish
a new funding medium only if the Company believes it is in the best
interest of the Participants.
(d) The Trustees' determination of the existence of an irreconcilable
material conflict and its implications promptly shall be communicated to
all Participating Insurance Companies by written notice thereof delivered
or mailed, first class postage prepaid.
7. Voting Privileges.
The Company shall be responsible for assuring that its separate
account or accounts participating in the Fund shall use a calculation
method of voting procedures substantially the same as the following: those
Participants permitted to give instructions and the number of Shares for
which instructions may be given will be determined as of the record date
for the Fund shareholders' meeting, which shall not be more than 60 days
before the date of the meeting. Whether or not voting instructions are
actually given by a particular Participant, all Fund shares held in any
separate account or sub-account thereof and attributable to policies will
be voted for, against, or withheld from voting on any proposition in the
same proportion as (i) the aggregate record date cash value held in such
sub-account for policies giving instructions, respectively, to vote for,
against, or withhold votes on such proposition, bears to (ii) the aggregate
record date cash value held in the sub-account for all policies for which
voting instructions are received. Participants continued in effect under
lapse options will not be permitted to give voting instructions. Shares
held in any other insurance company general or separate account or
sub-account thereof will be voted in the proportion specified in the second
preceding sentence for shares attributable to policies.
8. Duration and Termination.
This Agreement shall remain in force for the period ending five years
from the date of its execution (such date and any anniversary of such date
being hereinafter called a "Renegotiation Date"), and from year to year
thereafter provided that neither the Company nor the Fund shall have given
written notice to the other within thirty (30) days prior to a
Renegotiation Date that it desires to renegotiate the amount of
contribution to capital due hereunder ("Renegotiation Notice"). If a
Renegotiation Notice is properly given as aforesaid and the Fund and the
Company shall fail, within sixty (60) days after the Renegotiation Date,
either to enter into an amendment to this Agreement or a written
acknowledgment that the Agreement shall continue in effect, this Agreement
shall terminate as of the one hundred twentieth day after such
Renegotiation Date. If this Agreement is so terminated, the Fund may, at
any time thereafter, automatically redeem the Shares of any Portfolio held
by a Participating Shareholder. This Agreement may be terminated at any
time, at the option of either of the Company or the Fund, when neither the
Company, any insurance company nor the separate account or accounts of such
insurance company which is an affiliate thereof which is not a
Participating Insurance Company own any Shares of the Fund or may be
terminated by either party to the Agreement upon a determination by a
majority of the Trustees of the Fund, or a majority of its disinterested
Trustees, following certification thereof by a Participating Insurance
Company given in accordance with Paragraph 10 that an irreconcilable
conflict exists among the interests of (i) all contractholders and
policyholders of Variable Insurance Products of all separate accounts or
(ii) the interests of the Participating Insurance Companies investing in
the Fund. Notwithstanding anything to the contrary in this Agreement or its
termination as provided herein, the Company's obligation to make a capital
contribution to the Fund in accordance with this Agreement at the time in
effect shall continue (i) following a properly given Renegotiation Notice,
in the absence of agreement otherwise, until termination of this Agreement,
and (ii) (except termination due to the existence of an irreconcilable
conflict), following termination of this Agreement, until the later of the
fifth anniversary of the date of this Agreement or the date on which the
Company, its separate account(s) or the separate account(s) of any
affiliated insurance company owns no Shares.
9. Compliance.
The Fund will comply with the provisions of Section 4240(a) of the New
York Insurance Law.
Each Portfolio of the Fund will comply with the provisions of Section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"),
relating to diversification requirements for variable annuity, endowment
and life insurance contracts. Specifically, each Portfolio will comply with
either (i) the requirement of Section 817(h)(1) of the Code that its assets
be adequately diversified, or (ii) the "Safe Harbor for Diversification"
specified in Section 817(h)(2) of the Code, or (iii) the diversification
requirement of Section 817(h)(1) of the Code by having all or part of its
assets invested in U.S. Treasury securities which qualify for the "Special
Rule for Investments in United States Obligations" specified in Section
817(h)(3) of the Code.
The provisions of Paragraphs 6 and 7 of this Agreement shall be
interpreted in a manner consistent with any applicable order of the
Securities and Exchange Commission issued in a proceeding under the
Investment Company Act of 1940, as amended, initiated by certain
applicants, including the Fund (File No. 812-6082). In the event that Rule
6e-2 under that Act is amended or Rule 6e-3 under that Act is adopted, in
either case containing provisions which are applicable to the parties
hereto and which conflict with the conditions of such order, the parties
hereto will conform to the conditions of such Rule or Rules as adopted or
amended.
No Shares of any Portfolio of the Fund may be sold to the general
public.
10. Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify
in writing to the other party.
If to the Fund:
Scudder Variable Life Investment Fund
175 Federal Street
Boston, Massachusetts 02110
(617) 482-3990
Attn: David B. Watts
If to the Company:
Banner Life Insurance Company
1701 Research Boulevard
Rockville, Maryland 20850
Attn: Mark A. Canter
11. Massachusetts Law to Apply.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
12. Miscellaneous.
The name "Scudder Variable Life Investment Fund" is the designation of
the Trustees for the time being under a Declaration of Trust dated March
15, 198S, as amended, and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims
against the Fund as neither the Trustees, officers, agents or shareholders
assume any personal liability for obligations entered into on behalf of the
Fund. No Portfolio shall be liable for any obligations properly
attributable to any other Portfolio.
The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect. This Agreement
may be executed simultaneously in two or more counterparts, each of which
taken together shall constitute one and the same instrument.
13. Entire Agreement.
This Agreement incorporates the entire understanding and agreement
among the parties hereto, and supercedes any and all prior understandings
and agreements between the parties hereto with respect to the subject
matter hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the 18th
day of January, 1990.
SEAL SCUDDER VARIABLE LIFE
INVESTMENT FUND
By: /s/David B. Watts
President
SEAL BANNER LIFE INSURANCE COMPANY
By: /s/David J. Orr
Its: Senior Vice President
Exhibit 9(c)(17)
PARTICIPATION AGREEMENT
PARTICIPATION AGREEMENT (the "Agreement") made by and between SCUDDER
VARIABLE LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust
created under a Declaration of Trust dated March 15, 1985, as amended, with
a principal place of business in Boston, Massachusetts, and BANNER LIFE
INSURANCE COMPANY, a Maryland corporation (the "Company"), with a principal
place of business in Rockville, Maryland on behalf of Banner Life Variable
Account, Banner Life Variable Annuity Account and Banner Life Variable
Annuity Account B, each a separate account of the Company, and any other
separate account of the Company as designated by the Company from time to
time, upon written notice to the Fund in accordance with Section 10 herein
(together, an "Account").
WHEREAS, the Fund acts as the investment vehicle for the separate
accounts established for variable life insurance policies and variable
annuity contracts (collectively referred to herein as "Variable Insurance
Products") to be offered by insurance companies which have entered into
participation agreements substantially identical to this Agreement
("Participating Insurance Companies") and their affiliated insurance
companies; and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares of beneficial interest ("Shares"), and additional series
of Shares may be established, each designated a "Portfolio" and
representing the interest in a particular managed portfolio of securities;
and
WHEREAS, it is in the best interest of Participating Insurance
Companies to make capital contributions if required so that the annual
expenses of each Portfolio of the Fund in which a Participating Insurance
Company is a shareholder will not exceed a fixed percentage of the
Portfolio's average annual net assets; and
WHEREAS, the Parties desire to evidence their agreement as to certain
other matters,
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:
1. Additional Definitions.
For the purposes of this Agreement, the following definitions shall
apply:
(a) The "expenses of a Portfolio" for any fiscal year shall mean
the expenses for such fiscal year as shown in the Statement of Operations
(or similar report) certified by the Fund's independent public accountants;
(b) A "Portfolio's average daily net assets" for each fiscal
year shall mean the sum of the net asset values determined throughout the
year for the purpose of determining net asset value per Share, divided by
the number of such determinations during such year;
(c) The Company's "Required Contribution" on behalf of the
Account in respect of a Portfolio for any fiscal year shall mean an amount
equal to the expenses of that Portfolio for such year minus the below-
indicated percentage of that Portfolio's average daily net assets for the
year:
International Portfolio. . . . . . . . . . 1.50%
Each other Portfolio. . . . . . . . . . . . 0.75%
multiplied by a fraction the denominator of which is the average daily net
assets of that Portfolio and the numerator of which is the average daily
net asset value of the Shares of that Portfolio owned by the Account
(referred to herein as a "Participating Shareholder"). The Company's
Required Contribution in respect of a Portfolio shall be pro-rated based on
the number of business days on which this Agreement is in effect for
periods of less than a fiscal year.
(d) The "average daily net asset value of the Shares of the
Portfolio" owned by the Account for any fiscal year of the Fund shall mean
the greater of (i) $500,000 or (ii) the sum of the aggregate net asset
values of the Shares so owned determined during the fiscal year, as of each
determination of the net asset value per Share, divided by the total number
of determinations of net asset value during such year.
(e) "Shares" means shares of beneficial interest, without par
value, of any Portfolio, now or hereafter created, of the Fund.
2. Capital Contribution.
The Company on behalf of the Account shall, within sixty days after
the end of each fiscal year of the Fund, make a capital contribution to the
Fund in respect of each Portfolio equal to the Required Contribution for
that Portfolio for such year; provided, however, that in the event that
both clauses (i) and (ii) of paragraph (d) of Section 1 of this Agreement
or similar agreements are applicable to different Participating Insurance
Companies during the same fiscal year, there shall be a proportionate
reduction of the Required Contribution of each Participating Insurance
Company to which said clause (ii) is applicable so that the total of all
required capital contributions to the Fund on behalf of any Portfolio is
not greater than the excess of the expenses of that Portfolio for that
fiscal year less the percentage of that Portfolio's total expenses set
forth in paragraph (c) of Section 1 of this Agreement for such fiscal year.
3. Duty of Fund to Sell.
The Fund shall make its Shares available for purchase at the
applicable net asset value per Share by Participating Insurance Companies
and their affiliates and separate accounts on those days on which the Fund
calculates its net asset value pursuant to rules of the Securities and
Exchange Commission; provided, however, that the Trustees of the Fund may
refuse to sell Shares of any Portfolio to any person, or suspend or
terminate the offering of Shares of any Portfolio, if such action is
required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Trustees, necessary in the best interest of the
shareholders of any Portfolio.
4. Requirement to Execute Participation Agreement; Requests.
Each Participating Insurance Company shall, prior to purchasing Shares
in the Fund, execute and deliver a participation agreement in a form
substantially identical to this Agreement.
The Fund shall make available, upon written request from the
Participating Insurance Company given in accordance with Paragraph 10, to
each Participating Insurance Company which has executed an Agreement and
which Agreement has not been terminated pursuant to Paragraph 8 (i) a list
of all other Participating Insurance Companies, and (ii) a copy of the
Agreement as executed by any other Participating Insurance Company.
The Fund shall also make available upon request to each Participating
Insurance Company which has executed an Agreement and which Agreement has
not been terminated pursuant to Paragraph 8, the net asset value of any
Portfolio of the Fund as of any date upon which the Fund calculates the net
asset value of its Portfolios for the purpose of purchase and redemption of
Shares.
5. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Fund and
each of its Trustees and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the Securities Act of 1933 (the
"Act") against any and all losses, claims, damages, liabilities or
litigation (including legal and other expenses), arising out of the
acquisition of any Shares by any person, to which the Fund or such
Trustees, officers or controlling person may become subject under the Act,
under any other statute, at common law or otherwise, which (i) may be based
upon any wrongful act by the Company, any of its employees or
representatives, any affiliate of or any person acting on behalf of the
Company or a principal underwriter of its insurance products, or (ii) may
be based upon any untrue statement or alleged untrue statement of a
material fact contained in a registration statement or prospectus covering
Shares or any amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such
a statement or omission was made in reliance upon information furnished to
the Fund by the Company, or (iii) may be based on any untrue statement or
alleged untrue statement of a material fact contained in a registration
statement or prospectus covering insurance products sold by the Company or
any insurance company which is an affiliate thereof, or any amendments or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statement or statements therein not misleading, unless such statement or
omission was made in reliance upon information furnished to the Company or
such affiliate by or on behalf of the Fund; provided, however, that in no
case (i) is the Company's indemnity in favor of a Trustee or officer or any
other person deemed to protect such Trustee or officer or other person
against any liability to which any such person would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of his duties or by reason of his reckless disregard of
obligations and duties under this Agreement or (ii) is the Company to be
liable under its indemnity agreement contained in this Paragraph 5 with
respect to any claim made against the Fund or any person indemnified unless
the Fund or such person, as the case may be, shall have notified the
Company in writing pursuant to Paragraph 10 within a reasonable time after
the summons or other first legal process giving information of the nature
of the claims shall have been served upon the Fund or upon such person (or
after the Fund or such person shall have received notice of such service on
any designated agent), but failure to notify the Company of any such claim
shall not relieve the Company from any liability which it has to the Fund
or any person against whom such action is brought otherwise than on account
of its indemnity agreement contained in this Paragraph 5. The Company shall
be entitled to participate, at its own expense, in the defense, or, if it
so elects, to assume the defense of any suit brought to enforce any such
liability, but, if it elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to the Fund, to its
officers and Trustees, or to any controlling person or persons, defendant
or defendants in the suit. In the event that the Company elects to assume
the defense of any such suit and retain such counsel, the Fund, such
officers and Trustees or controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them, but, in case the Company does not elect to assume
the defense of any such suit, the Company will reimburse the Fund, such
officers and Trustees or controlling person or persons, defendant or
defendants in such suit, for the reasonable fees and expenses of any
counsel retained by them. The Company agrees promptly to notify the Fund
pursuant to Paragraph 10 of the commencement of any litigation or
proceedings against it in connection with the issue and sale of any Shares.
(b) The Fund agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who controls
the Company within the meaning of Section 15 of the Act against any and all
losses, claims, damages, liabilities or litigation (including legal and
other expenses) to which it or such directors, officers or controlling
person may become subject under the Act, under any other statute, at common
law or otherwise, arising out of the acquisition of any Shares by any
person which (i) may be based upon any wrongful act by the Fund, any of its
employees or representatives or a principal underwriter of the Fund, or
(ii) may be based upon any untrue statement or alleged untrue statement of
a material fact contained in a registration statement or prospectus
covering Shares or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading unless such statement or omission was made in reliance upon
information furnished to the Fund by the Company or (iii) may be based on
any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering insurance
products sold by the Company, or any amendment or supplement thereto, or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance
upon information furnished to the Company by or on behalf of the Fund;
provided, however, that in no case (i) is the Fund's indemnity in favor of
a director or officer or any other person deemed to protect such director
or officer or other person against any liability to which any such person
would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of his duties or by reason of his
reckless disregard of obligations and duties under this Agreement or (ii)
is the Fund to be liable under its indemnity agreement contained in this
Paragraph 5 with respect to any claims made against the Company or any such
director, officer or controlling person unless it or such director, officer
or controlling person, as the case may be, shall have notified the Fund in
writing pursuant to Paragraph 10 within a reasonable time after the summons
or other first legal process giving information of the nature of the claim
shall have been served upon it or upon such director, officer or
controlling person (or after the Company or such director, officer or
controlling person shall have received notice of such service on any
designated agent), but failure to notify the Fund of any claim shall not
relieve it from any liability which it may have to the person against whom
such action is brought otherwise than on account of its indemnity agreement
contained in this Paragraph. The Fund will be entitled to participate at
its own expense in the defense, or, if it so elects, to assume the defense
of any suit brought to enforce any such liability, but if the Fund elects
to assume the defense, such defense shall be conducted by counsel chosen by
it and satisfactory to the Company, its directors, officers or controlling
person or persons, defendant or defendants, in the suit. In the event the
Fund elects to assume the defense of any such suit and retain such counsel,
the Company, its directors, officers or controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of
any additional counsel retained by them, but, in case the Fund does not
elect to assume the defense of any such suit, it will reimburse the Company
or such directors, officers or controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Fund agrees promptly to notify the Company pursuant
to Paragraph 10 of the commencement of any litigation or proceedings
against it or any of its officers or Trustees in connection with the
issuance or sale of any Shares.
6. Procedure for Resolving Irreconcilable Conflicts.
(a) The Trustees of the Fund will monitor the operations of the
Fund for the existence of any material irreconcilable conflict among the
interests of all the contract holders and policy owners of Variable
Insurance Products (the "Participants") of all separate accounts investing
in the Fund. An irreconcilable material conflict may arise, among other
things, from: (a) an action by any state insurance regulatory authority;
(b) a change in applicable insurance laws or regulations; (c) a tax ruling
or provision of the Internal Revenue Code or the regulations thereunder;
(d) any other development relating to the tax treatment of insurers,
contract holders or policy owners or beneficiaries of Variable Insurance
Products; (e) the manner in which the investments of any Portfolio are
being managed; (f) a difference in voting instructions given by variable
annuity contract holders, on the one hand, and variable life insurance
policy owners, on the other hand, or by the contract holders or policy
owners of different participating insurance companies; or (g) a decision by
an insurer to override the voting instructions of Participants.
(b) The Company will be responsible for reporting any potential or
existing conflicts to the Trustees of the Fund. The Company will be
responsible for assisting the Trustees in carrying out their
responsibilities under this Paragraph 6(b) and Paragraph 6(a), by providing
the Trustees with all information reasonably necessary for the Trustees to
consider the issues raised. The Fund will also request its investment
adviser to report to the Trustees any such conflict which comes to the
attention of the adviser.
(c) If it is determined by a majority of the Trustees of the Fund, or
a majority of its disinterested Trustees, that a material irreconcilable
conflict exists involving the Company, the Company shall, at its expense,
and to the extent reasonably practicable (as determined by a majority of
the disinterested Trustees), take whatever steps are necessary to eliminate
the irreconcilable material conflict, including withdrawing the assets
allocable to some or all of the separate accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including another Portfolio of the Fund, offering to the affected
Participants the option of making such a change or establishing a new
funding medium including a registered investment company.
For purposes of this Paragraph 6(c), the Trustees, or the
disinterested Trustees, shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict. In the event of a
determination of the existence of an irreconcilable material conflict, the
Trustees shall cause the Fund to take such action, such as the
establishment of one or more additional Portfolios, as they in their sole
discretion determine to be in the interest of all shareholders and
Participants in view of all applicable factors, such as cost, feasibility,
tax, regulatory and other considerations. In no event will the Fund be
required by this Paragraph 6(c) to establish a new funding medium for any
variable contract or policy.
The Company shall not be required by this Paragraph 6(c) to establish
a new funding medium for any variable contract or policy if an offer to do
so has been declined by a vote of a majority of the Participants materially
adversely affected by the material irreconcilable conflict. The Company
will recommend to its Participants that they decline an offer to establish
a new funding medium only if the Company believes it is in the best
interest of the Participants.
(d) The Trustees' determination of the existence of an irreconcilable
material conflict and its implications promptly shall be communicated to
all Participating Insurance Companies by written notice thereof delivered
or mailed, first class postage prepaid.
7. Voting Privileges.
The Company shall be responsible for assuring that its separate
account or accounts participating in the Fund shall use a calculation
method of voting procedures substantially the same as the following: those
Participants permitted to give instructions and the number of Shares for
which instructions may be given will be determined as of the record date
for the Fund shareholders' meeting, which shall not be more than 60 days
before the date of the meeting. Whether or not voting instructions are
actually given by a particular Participant, all Fund shares held in any
separate account or sub-account thereof and attributable to policies will
be voted for, against, or withheld from voting on any proposition in the
same proportion as (i) the aggregate record date cash value held in such
sub-account for policies giving instructions, respectively, to vote for,
against, or withhold votes on such proposition, bears to (ii) the aggregate
record date cash value held in the sub-account for all policies for which
voting instructions are received. Participants continued in effect under
lapse options will not be permitted to give voting instructions. Shares
held in any other insurance company general or separate account or sub-
account thereof will be voted in the proportion specified in the second
preceding sentence for shares attributable to policies.
8. Duration and Termination.
This Agreement shall remain in force for one year from the date of its
execution (such date and any anniversary of such date being hereinafter
called a "Renegotiation Date"), and from year to year thereafter provided
that neither the Company nor the Fund shall have given written notice to
the other within thirty (30) days prior to a Renegotiation Date that it
desires to renegotiate the amount of contribution to capital due hereunder
("Renegotiation Notice").
If a Renegotiation Notice is properly given as aforesaid and the Fund
and the Company shall fail, within sixty (60) days after the Renegotiation
Date, either to enter into an amendment to this Agreement or a written
acknowledgment that the Agreement shall continue in effect, this Agreement
shall terminate as of the one hundred twentieth day after such
Renegotiation Date. If this Agreement is so terminated, the Fund may, at
any time thereafter, automatically redeem the Shares of any Portfolio held
by a Participating Shareholder. This Agreement may be terminated at any
time, at the option of either of the Company or the Fund, when neither the
Company, any insurance company nor the separate account or accounts of such
insurance company which is an affiliate thereof which is not a
Participating Insurance Company own any Shares of the Fund or may be
terminated by either party to the Agreement upon a determination by a
majority of the Trustees of the Fund, or a majority of its disinterested
Trustees, following certification thereof by a Participating Insurance
Company given in accordance with Paragraph 10 that an irreconcilable
conflict exists among the interests of (i) all contract holders and policy
holders of Variable Insurance Products of all separate accounts or (ii) the
interests of the Participating Insurance Companies investing in the Fund.
Notwithstanding anything to the contrary in this Agreement or its
termination as provided herein, the Company's obligation to make a capital
contribution to the Fund in accordance with this Agreement at the time in
effect shall continue (i) following a properly given Renegotiation Notice,
in the absence of agreement otherwise, until termination of this Agreement,
and (ii) (except termination due to the existence of an irreconcilable
conflict), following termination of this Agreement, until the later of the
anniversary date of this Agreement or the date on which the Company, its
separate account(s) or the separate account(s) of any affiliated insurance
company owns no Shares.
9. Compliance.
The Fund will comply with the provisions of Section 4240(a) of the New
York Insurance Law.
Each Portfolio of the Fund will comply with the provisions of Section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"),
relating to diversification requirements for variable annuity, endowment
and life insurance contracts. Specifically, each Portfolio will comply
with either (i) the requirement of Section 817(h)(1) of the Code that its
assets be adequately diversified, or (ii) the "Safe Harbor for
Diversification" specified in Section 817(h)(2) of the Code, or (iii) the
diversification requirement of Section 817(h)(1) of the Code by having all
or part of its assets invested in U.S. Treasury securities which qualify
for the "Special Rule for Investments in United States Obligations"
specified in Section 817(h)(3) of the Code.
The provisions of Paragraphs 6 and 7 of this Agreement shall be
interpreted in a manner consistent with any Rule or order of the Securities
and Exchange Commission under the Investment Company Act of 1940, as
amended, applicable to the parties hereto.
No Shares of any Portfolio of the Fund may be sold to the general
public.
10. Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify
in writing to the other party.
If to the Fund:
Scudder Variable Life Investment Fund
Two International Place
Boston, Massachusetts 02110
(617) 295-2275
Attn: David B. Watts
If to the Company:
Banner Life Insurance Company
1701 Research Boulevard
Rockville, Maryland 20850
Attn: Mark A. Canter
11. Massachusetts Law to Apply.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
12. Miscellaneous.
The name "Scudder Variable Life Investment Fund" is the designation of
the Trustees for the time being under a Declaration of Trust dated March
15, 1985, as amended, and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims
against the Fund as neither the Trustees, officers, agents or shareholders
assume any personal liability for obligations entered into on behalf of the
Fund. No Portfolio shall be liable for any obligations properly
attributable to any other Portfolio.
The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect. This Agreement may
be executed simultaneously in two or more counterparts, each of which taken
together shall constitute one and the same instrument.
13. Entire Agreement.
This Agreement incorporates the entire understanding and agreement
among the parties hereto, and supersedes any and all prior understandings
and agreements between the parties hereto with respect to the subject
matter hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the 18th
day of January, 1995.
SEAL SCUDDER VARIABLE LIFE
INVESTMENT FUND
By: /s/David B. Watts
David B. Watts
President
SEAL BANNER LIFE INSURANCE COMPANY
By: /s/Mark A. Canter
Its: Vice President, Secretary
& General Counsel
Exhibit 9(c)(18)
PARTICIPATION AGREEMENT
PARTICIPATION AGREEMENT (the "Agreement") made by and between
SCUDDER VARIABLE LIFE INVESTMENT FUND (the "Fund"), a Massachusetts
business trust created under a Declaration of Trust dated March 15,
1985, as amended, with a principal place of business in Boston,
Massachusetts and FORTIS BENEFITS INSURANCE COMPANY, a Minnesota
corporation (the "Company"), with a principal place of business in
Woodbury, Minnesota on behalf of Separate Account D, a separate
account of the Company, and any other separate account of the Company
as designated by the Company from time to time, upon written notice to
the Fund in accordance with Section 10 herein (each, an "Account").
WHEREAS, the Fund acts as the investment vehicle for the separate
accounts established for variable life insurance policies and variable
annuity contracts (collectively referred to herein as "Variable
Insurance Products") to be offered by insurance companies which have
entered into participation agreements substantially identical to this
Agreement ("Participating Insurance Companies") and their affiliated
insurance companies; and
WHEREAS, the beneficial interest in the Fund is divided into
several series of shares of beneficial interest ("Shares"), and
additional series of Shares may be established, each designated a
"Portfolio" and representing the interest in a particular managed
portfolio of securities; and
WHEREAS, it is in the best interest of Participating Insurance
Companies to make capital contributions if required so that the annual
expenses of each Portfolio of the Fund in which a Participating
Insurance Company is a shareholder will not exceed a fixed percentage
of the Portfolio's average annual net assets; and
WHEREAS, the Parties desire to evidence their agreement as to
certain other matters,
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereto
agree as follows:
1. Additional Definitions.
For the purposes of this Agreement, the following definitions
shall apply:
(a) The "expenses of a Portfolio" for any fiscal year shall
mean the expenses for such fiscal year as shown in the Statement of
Operations (or similar report) certified by the Fund's independent
public accountants;
(b) A "Portfolio's average daily net assets" for each
fiscal year shall mean the sum of the net asset values determined
throughout the year for the purpose of determining net asset value per
Share, divided by the number of such determinations during such year;
(c) The Company's "Required Contribution" on behalf of the
Account in respect of a Portfolio for any fiscal year shall mean an
amount equal to the expenses of that Portfolio for such year minus the
below-indicated percentage of that Portfolio's average daily net
assets for the year:
International Portfolio. . . . . . . . . . 1.50%
Each other Portfolio. . . . . . . . . . . 0.75%
multiplied by a fraction the denominator of which is the average daily
net assets of that Portfolio and the numerator of which is the average
daily net asset value of the Shares of that Portfolio owned by the
Account (referred to herein as a "Participating Shareholder"). The
Company's Required Contribution in respect of a Portfolio shall be pro-
rated based on the number of business days on which this Agreement is
in effect for periods of less than a fiscal year.
(d) The "average daily net asset value of the Shares of the
Portfolio" owned by the Account for any fiscal year of the Fund shall
mean the greater of (i) $500,000 or (ii) the sum of the aggregate net
asset values of the Shares so owned determined during the fiscal year,
as of each determination of the net asset value per Share, divided by
the total number of determinations of net asset value during such
year.
(e) "Shares" means shares of beneficial interest, without
par value, of any Portfolio, now or hereafter created, of the Fund.
2. Capital Contribution.
The Company on behalf of the Account shall, within sixty days
after the end of each fiscal year of the Fund, make a capital
contribution to the Fund in respect of each Portfolio equal to the
Required Contribution for that Portfolio for such year; provided,
however, that in the event that both clauses (i) and (ii) of paragraph
(d) of Section 1 of this Agreement or similar agreements are
applicable to different Participating Insurance Companies during the
same fiscal year, there shall be a proportionate reduction of the
Required Contribution of each Participating Insurance Company to which
said clause (ii) is applicable so that the total of all required
capital contributions to the Fund on behalf of any Portfolio is not
greater than the excess of the expenses of that Portfolio for that
fiscal year less the percentage of that Portfolio's total expenses set
forth in paragraph (c) of Section 1 of this Agreement for such fiscal
year.
3. Duty of Fund to Sell.
The Fund shall make its Shares available for purchase at the
applicable net asset value per Share by Participating Insurance
Companies and their affiliates and separate accounts on those days on
which the Fund calculates its net asset value pursuant to rules of the
Securities and Exchange Commission; provided, however, that the
Trustees of the Fund may refuse to sell Shares of any Portfolio to any
person, or suspend or terminate the offering of Shares of any
Portfolio, if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the
Trustees, necessary in the best interest of the shareholders of any
Portfolio.
4. Requirement to Execute Participation Agreement; Requests.
Each Participating Insurance Company shall, prior to purchasing
Shares in the Fund, execute and deliver a participation agreement in a
form substantially identical to this Agreement.
The Fund shall make available, upon written request from the
Participating Insurance Company given in accordance with Paragraph 10,
to each Participating Insurance Company which has executed an
Agreement and which Agreement has not been terminated pursuant to
Paragraph 8 (i) a list of all other Participating Insurance Companies,
and (ii) a copy of the Agreement as executed by any other
Participating Insurance Company.
The Fund shall also make available upon request to each
Participating Insurance Company which has executed an Agreement and
which Agreement has not been terminated pursuant to Paragraph 8, the
net asset value of any Portfolio of the Fund as of any date upon which
the Fund calculates the net asset value of its Portfolios for the
purpose of purchase and redemption of Shares.
5. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Fund
and each of its Trustees and officers and each person, if any, who
controls the Fund within the meaning of Section 15 of the Securities
Act of 1933 (the "Act") against any and all losses, claims, damages,
liabilities or litigation (including legal and other expenses),
arising out of the acquisition of any Shares by any person, to which
the Fund or such Trustees, officers or controlling person may become
subject under the Act, under any other statute, at common law or
otherwise, which (i) may be based upon any wrongful act by the
Company, any of its employees or representatives, any affiliate of or
any person acting on behalf of the Company or a principal underwriter
of its insurance products, or (ii) may be based upon any untrue
statement or alleged untrue statement of a material fact contained in
a registration statement or prospectus covering Shares or any
amendment thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if
such a statement or omission was made in reliance upon information
furnished to the Fund by the Company, or (iii) may be based on any
untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering insurance
products sold by the Company or any insurance company which is an
affiliate thereof, or any amendments or supplement thereto, or the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, unless such statement or omission was made in
reliance upon information furnished to the Company or such affiliate
by or on behalf of the Fund; provided, however, that in no case (i) is
the Company's indemnity in favor of a Trustee or officer or any other
person deemed to protect such Trustee or officer or other person
against any liability to which any such person would otherwise be
subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of his duties or by reason of his
reckless disregard of obligations and duties under this Agreement or
(ii) is the Company to be liable under its indemnity agreement
contained in this Paragraph 5 with respect to any claim made against
the Fund or any person indemnified unless the Fund or such person, as
the case may be, shall have notified the Company in writing pursuant
to Paragraph 10 within a reasonable time after the summons or other
first legal process giving information of the nature of the claims
shall have been served upon the Fund or upon such person (or after the
Fund or such person shall have received notice of such service on any
designated agent), but failure to notify the Company of any such claim
shall not relieve the Company from any liability which it has to the
Fund or any person against whom such action is brought otherwise than
on account of its indemnity agreement contained in this Paragraph 5.
The Company shall be entitled to participate, at its own expense, in
the defense, or, if it so elects, to assume the defense of any suit
brought to enforce any such liability, but, if it elects to assume the
defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Fund, to its officers and Trustees, or to any
controlling person or persons, defendant or defendants in the suit.
In the event that the Company elects to assume the defense of any such
suit and retain such counsel, the Fund, such officers and Trustees or
controlling person or persons, defendant or defendants in the suit,
shall bear the fees and expenses of any additional counsel retained by
them, but, in case the Company does not elect to assume the defense of
any such suit, the Company will reimburse the Fund, such officers and
Trustees or controlling person or persons, defendant or defendants in
such suit, for the reasonable fees and expenses of any counsel
retained by them. The Company agrees promptly to notify the Fund
pursuant to Paragraph 10 of the commencement of any litigation or
proceedings against it in connection with the issue and sale of any
Shares.
(b) The Fund agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the Act
against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses) to which it or such directors,
officers or controlling person may become subject under the Act, under
any other statute, at common law or otherwise, arising out of the
acquisition of any Shares by any person which (i) may be based upon
any wrongful act by the Fund, any of its employees or representatives
or a principal underwriter of the Fund, or (ii) may be based upon any
untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering Shares or
any amendment thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading
unless such statement or omission was made in reliance upon
information furnished to the Fund by the Company or (iii) may be based
on any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering insurance
products sold by the Company, or any amendment or supplement thereto,
or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or omission was
made in reliance upon information furnished to the Company by or on
behalf of the Fund; provided, however, that in no case (i) is the
Fund's indemnity in favor of a director or officer or any other person
deemed to protect such director or officer or other person against any
liability to which any such person would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence in the
performance of his duties or by reason of his reckless disregard of
obligations and duties under this Agreement or (ii) is the Fund to be
liable under its indemnity agreement contained in this Paragraph 5
with respect to any claims made against the Company or any such
director, officer or controlling person unless it or such director,
officer or controlling person, as the case may be, shall have notified
the Fund in writing pursuant to Paragraph 10 within a reasonable time
after the summons or other first legal process giving information of
the nature of the claim shall have been served upon it or upon such
director, officer or controlling person (or after the Company or such
director, officer or controlling person shall have received notice of
such service on any designated agent), but failure to notify the Fund
of any claim shall not relieve it from any liability which it may have
to the person against whom such action is brought otherwise than on
account of its indemnity agreement contained in this Paragraph. The
Fund will be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit
brought to enforce any such liability, but if the Fund elects to
assume the defense, such defense shall be conducted by counsel chosen
by it and satisfactory to the Company, its directors, officers or
controlling person or persons, defendant or defendants, in the suit.
In the event the Fund elects to assume the defense of any such suit
and retain such counsel, the Company, its directors, officers or
controlling person or persons, defendant or defendants in the suit,
shall bear the fees and expenses of any additional counsel retained by
them, but, in case the Fund does not elect to assume the defense of
any such suit, it will reimburse the Company or such directors,
officers or controlling person or persons, defendant or defendants in
the suit, for the reasonable fees and expenses of any counsel retained
by them. The Fund agrees promptly to notify the Company pursuant to
Paragraph 10 of the commencement of any litigation or proceedings
against it or any of its officers or Trustees in connection with the
issuance or sale of any Shares.
6. Procedure for Resolving Irreconcilable Conflicts.
(a) The Trustees of the Fund will monitor the operations of the
Fund for the existence of any material irreconcilable conflict among
the interests of all the contract holders and policy owners of
Variable Insurance Products (the "Participants") of all separate
accounts investing in the Fund. An irreconcilable material conflict
may arise, among other things, from: (a) an action by any state
insurance regulatory authority; (b) a change in applicable insurance
laws or regulations; (c) a tax ruling or provision of the Internal
Revenue Code or the regulations thereunder; (d) any other development
relating to the tax treatment of insurers, contract holders or policy
owners or beneficiaries of Variable Insurance Products; (e) the manner
in which the investments of any Portfolio are being managed; (f) a
difference in voting instructions given by variable annuity contract
holders, on the one hand, and variable life insurance policy owners,
on the other hand, or by the contract holders or policy owners of
different participating insurance companies; or (g) a decision by an
insurer to override the voting instructions of Participants.
(b) The Company will be responsible for reporting any potential
or existing conflicts to the Trustees of the Fund. The Company will
be responsible for assisting the Trustees in carrying out their
responsibilities under this Paragraph 6(b) and Paragraph 6(a), by
providing the Trustees with all information reasonably necessary for
the Trustees to consider the issues raised. The Fund will also
request its investment adviser to report to the Trustees any such
conflict which comes to the attention of the adviser.
(c) If it is determined by a majority of the Trustees of the
Fund, or a majority of its disinterested Trustees, that a material
irreconcilable conflict exists involving the Company, the Company
shall, at its expense, and to the extent reasonably practicable (as
determined by a majority of the disinterested Trustees), take whatever
steps are necessary to eliminate the irreconcilable material conflict,
including withdrawing the assets allocable to some or all of the
separate accounts from the Fund or any Portfolio and reinvesting such
assets in a different investment medium, including another Portfolio
of the Fund, offering to the affected Participants the option of
making such a change or establishing a new funding medium including a
registered investment company.
For purposes of this Paragraph 6(c), the Trustees, or the
disinterested Trustees, shall determine whether or not any proposed
action adequately remedies any irreconcilable material conflict. In
the event of a determination of the existence of an irreconcilable
material conflict, the Trustees shall cause the Fund to take such
action, such as the establishment of one or more additional
Portfolios, as they in their sole discretion determine to be in the
interest of all shareholders and Participants in view of all
applicable factors, such as cost, feasibility, tax, regulatory and
other considerations. In no event will the Fund be required by this
Paragraph 6(c) to establish a new funding medium for any variable
contract or policy.
The Company shall not be required by this Paragraph 6(c) to
establish a new funding medium for any variable contract or policy if
an offer to do so has been declined by a vote of a majority of the
Participants materially adversely affected by the material
irreconcilable conflict. The Company will recommend to its
Participants that they decline an offer to establish a new funding
medium only if the Company believes it is in the best interest of the
Participants.
(d) The Trustees' determination of the existence of an
irreconcilable material conflict and its implications promptly shall
be communicated to all Participating Insurance Companies by written
notice thereof delivered or mailed, first class postage prepaid.
7. Voting Privileges.
The Company shall be responsible for assuring that its separate
account or accounts participating in the Fund shall use a calculation
method of voting procedures substantially the same as the following:
those Participants permitted to give instructions and the number of
Shares for which instructions may be given will be determined as of
the record date for the Fund shareholders' meeting, which shall not be
more than 60 days before the date of the meeting. Whether or not
voting instructions are actually given by a particular Participant,
all Fund shares held in any separate account or sub-account thereof
and attributable to policies will be voted for, against, or withheld
from voting on any proposition in the same proportion as (i) the
aggregate record date cash value held in such sub-account for policies
giving instructions, respectively, to vote for, against, or withhold
votes on such proposition, bears to (ii) the aggregate record date
cash value held in the sub-account for all policies for which voting
instructions are received. Participants continued in effect under
lapse options will not be permitted to give voting instructions.
Shares held in any other insurance company general or separate account
or sub-account thereof will be voted in the proportion specified in
the second preceding sentence for shares attributable to policies.
8. Duration and Termination.
This Agreement shall remain in force for the period ending five
years from the date of its execution (such date and any anniversary of
such date being hereinafter called a "Renegotiation Date"), and from
year to year thereafter provided that neither the Company nor the Fund
shall have given written notice to the other within thirty (30) days
prior to a Renegotiation Date that it desires to renegotiate the
amount of contribution to capital due hereunder ("Renegotiation
Notice"). If a Renegotiation Notice is properly given as aforesaid
and the Fund and the Company shall fail, within sixty (60) days after
the Renegotiation Date, either to enter into an amendment to this
Agreement or a written acknowledgment that the Agreement shall
continue in effect, this Agreement shall terminate as of the one
hundred twentieth day after such Renegotiation Date. If this
Agreement is so terminated, the Fund may, at any time thereafter,
automatically redeem the Shares of any Portfolio held by a
Participating Shareholder. This Agreement may be terminated at any
time, at the option of either of the Company or the Fund, when neither
the Company, any insurance company nor the separate account or
accounts of such insurance company which is an affiliate thereof which
is not a Participating Insurance Company own any Shares of the Fund or
may be terminated by either party to the Agreement upon a
determination by a majority of the Trustees of the Fund, or a majority
of its disinterested Trustees, following certification thereof by a
Participating Insurance Company given in accordance with Paragraph 10
that an irreconcilable conflict exists among the interests of (i) all
contract holders and policyholders of Variable Insurance Products of
all separate accounts or (ii) the interests of the Participating
Insurance Companies investing in the Fund. Notwithstanding anything
to the contrary in this Agreement or its termination as provided
herein, the Company's obligation to make a capital contribution to the
Fund in accordance with this Agreement at the time in effect shall
continue (i) following a properly given Renegotiation Notice, in the
absence of agreement otherwise, until termination of this Agreement,
and (ii) (except termination due to the existence of an irreconcilable
conflict), following termination of this Agreement, until the later of
the fifth anniversary of the date of this Agreement or the date on
which the Company, its separate account(s) or the separate account(s)
of any affiliated insurance company owns no Shares.
9. Compliance.
The Fund will comply with the provisions of Section 4240(a) of
the New York Insurance Law.
Each Portfolio of the Fund will comply with the provisions of
Section 817(h) of the Internal Revenue Code of 1986, as amended (the
"Code"), relating to diversification requirements for variable
annuity, endowment and life insurance contracts. Specifically, each
Portfolio will comply with either (i) the requirement of Section
817(h)(1) of the Code that its assets be adequately diversified, or
(ii) the "Safe Harbor for Diversification" specified in Section
817(h)(2) of the Code, or (iii) the diversification requirement of
Section 817(h)(1) of the Code by having all or part of its assets
invested in U.S. Treasury securities which qualify for the "Special
Rule for Investments in United States Obligations" specified in
Section 817(h)(3) of the Code.
The provisions of Paragraphs 6 and 7 of this Agreement shall be
interpreted in a manner consistent with any Rule or order of the
Securities and Exchange Commission under the Investment Company Act of
1940, as amended, applicable to the parties hereto.
No Shares of any Portfolio of the Fund may be sold to the general
public.
10. Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set
forth below or at such other address as such party may from time to
time specify in writing to the other party.
If to the Fund:
Scudder Variable Life Investment Fund
175 Federal Street
Boston, Massachusetts 02110
(617) 482-3990
Attn.: David B. Watts
If to the Company:
Fortis Benefits Insurance Company
500 Bielenburg Drive
Woodbury, Minnesota 55125
Attn.: Jon Nicholson
11. Massachusetts Law to Apply.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth
of Massachusetts.
12. Miscellaneous.
The name "Scudder Variable Life Investment Fund" is the
designation of the Trustees for the time being under a Declaration of
Trust dated March 15, 1985, as amended, and all persons dealing with
the Fund must look solely to the property of the Fund for the
enforcement of any claims against the Fund as neither the Trustees,
officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund. No Portfolio shall be
liable for any obligations properly attributable to any other
Portfolio.
The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts,
each of which taken together shall constitute one and the same
instrument.
13. Entire Agreement.
This Agreement incorporates the entire understanding and
agreement among the parties hereto, and supersedes any and all prior
understandings and agreements between the parties hereto with respect
to the subject matter hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the
1st day of June, 1994.
SEAL SCUDDER VARIABLE LIFE
INVESTMENT FUND
By: /s/David B. Watts
David B. Watts
President
SEAL FORTIS BENEFITS INSURANCE
COMPANY
By: /s/Jon Nicholson
Its: Vice President
Exhibit 9(c)(19)
PARTICIPATION AGREEMENT
PARTICIPATION AGREEMENT (the "Agreement") made by and between SCUDDER
VARIABLE LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust
created under a Declaration of Trust dated March 15, 1985, as amended, with
a principal place of business in Boston, Massachusetts and LINCOLN BENEFIT
LIFE COMPANY, a Nebraska corporation (the "Company"), with a principal
place of business in Lincoln, Nebraska on behalf of Lincoln Benefit Life
Variable Annuity Account, a separate account of the Company, and any other
separate account of the Company as designated by the Company from time to
time, upon written notice to the Fund in accordance with Section 10 herein
(the "Account").
WHEREAS, the Fund acts as the investment vehicle for the separate
accounts established for variable life insurance policies and variable
annuity contracts (collectively referred to herein as "Variable Insurance
Products") to be offered by insurance companies which have entered into
participation agreements substantially identical to this Agreement
("Participating Insurance Companies") and their affiliated insurance
companies; and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares of beneficial interest ("Shares"), and additional series
of Shares may be established, each designated a "Portfolio" and
representing the interest in a particular managed portfolio of securities;
and
WHEREAS, it is in the best interest of Participating Insurance
Companies to make capital contributions if required so that the annual
expenses of each Portfolio of the Fund in which a Participating Insurance
Company is a shareholder will not exceed a fixed percentage of the
Portfolio's average annual net assets; and
WHEREAS, the Parties desire to evidence their agreement as to certain
other matters,
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:
1. Additional Definitions.
For the purposes of this Agreement, the following definitions shall
apply:
(a) The "expenses of a Portfolio" for any fiscal year shall mean
the expenses for such fiscal year as shown in the Statement of Operations
(or similar report) certified by the Fund's independent public accountants;
(b) A "Portfolio's average daily net assets" for each fiscal
year shall mean the sum of the net asset values determined throughout the
year for the purpose of determining net asset value per Share, divided by
the number of such determinations during such year;
(c) The Company's "Required Contribution" on behalf of the
Account in respect of a Portfolio for any fiscal year shall mean an amount
equal to the expenses of that Portfolio for such year minus the below-
indicated percentage of that Portfolio's average daily net assets for the
year:
International Portfolio. . . . . . . . . . 1.50%
Each other Portfolio. . . . . . . . . . . . 0.75%
multiplied by a fraction the denominator of which is the average daily net
assets of that Portfolio and the numerator of which is the average daily
net asset value of the Shares of that Portfolio owned by the Account
(referred to herein as a "Participating Shareholder"). The Company's
Required Contribution in respect of a Portfolio shall be pro-rated based on
the number of business days on which this Agreement is in effect for
periods of less than a fiscal year.
(d) The "average daily net asset value of the Shares of the
Portfolio" owned by the Account for any fiscal year of the Fund shall mean
the greater of (i) $500,000 or (ii) the sum of the aggregate net asset
values of the Shares so owned determined during the fiscal year, as of each
determination of the net asset value per Share, divided by the total number
of determinations of net asset value during such year.
(e) "Shares" means shares of beneficial interest, without par
value, of any Portfolio, now or hereafter created, of the Fund.
2. Capital Contribution.
The Company on behalf of the Account shall, within sixty days after
the end of each fiscal year of the Fund, make a capital contribution to the
Fund in respect of each Portfolio equal to the Required Contribution for
that Portfolio for such year; provided, however, that in the event that
both clauses (i) and (ii) of paragraph (d) of Section 1 of this Agreement
or similar agreements are applicable to different Participating Insurance
Companies during the same fiscal year, there shall be a proportionate
reduction of the Required Contribution of each Participating Insurance
Company to which said clause (ii) is applicable so that the total of all
required capital contributions to the Fund on behalf of any Portfolio is
not greater than the excess of the expenses of that Portfolio for that
fiscal year less the percentage of that Portfolio's total expenses set
forth in paragraph (c) of Section 1 of this Agreement for such fiscal year.
3. Duty of Fund to Sell.
The Fund shall make its Shares available for purchase at the
applicable net asset value per Share by Participating Insurance Companies
and their affiliates and separate accounts on those days on which the Fund
calculates its net asset value pursuant to rules of the Securities and
Exchange Commission; provided, however, that the Trustees of the Fund may
refuse to sell Shares of any Portfolio to any person, or suspend or
terminate the offering of Shares of any Portfolio, if such action is
required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Trustees, necessary in the best interest of the
shareholders of any Portfolio.
4. Requirement to Execute Participation Agreement; Requests.
Each Participating Insurance Company shall, prior to purchasing Shares
in the Fund, execute and deliver a participation agreement in a form
substantially identical to this Agreement.
The Fund shall make available, upon written request from the
Participating Insurance Company given in accordance with Paragraph 10, to
each Participating Insurance Company which has executed an Agreement and
which Agreement has not been terminated pursuant to Paragraph 8 (i) a list
of all other Participating Insurance Companies, and (ii) a copy of the
Agreement as executed by any other Participating Insurance Company.
The Fund shall also make available upon request to each Participating
Insurance Company which has executed an Agreement and which Agreement has
not been terminated pursuant to Paragraph 8, the net asset value of any
Portfolio of the Fund as of any date upon which the Fund calculates the net
asset value of its Portfolios for the purpose of purchase and redemption of
Shares.
5. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Fund and
each of its Trustees and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the Securities Act of 1933 (the
"Act") against any and all losses, claims, damages, liabilities or
litigation (including legal and other expenses), arising out of the
acquisition of any Shares by any person, to which the Fund or such
Trustees, officers or controlling person may become subject under the Act,
under any other statute, at common law or otherwise, which (i) may be based
upon any wrongful act by the Company, any of its employees or
representatives, any affiliate of or any person acting on behalf of the
Company or a principal underwriter of its insurance products, or (ii) may
be based upon any untrue statement or alleged untrue statement of a
material fact contained in a registration statement or prospectus covering
Shares or any amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such
a statement or omission was made in reliance upon information furnished to
the Fund by the Company, or (iii) may be based on any untrue statement or
alleged untrue statement of a material fact contained in a registration
statement or prospectus covering insurance products sold by the Company or
any insurance company which is an affiliate thereof, or any amendments or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statement or statements therein not misleading, unless such statement or
omission was made in reliance upon information furnished to the Company or
such affiliate by or on behalf of the Fund; provided, however, that in no
case (i) is the Company's indemnity in favor of a Trustee or officer or any
other person deemed to protect such Trustee or officer or other person
against any liability to which any such person would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of his duties or by reason of his reckless disregard of
obligations and duties under this Agreement or (ii) is the Company to be
liable under its indemnity agreement contained in this Paragraph 5 with
respect to any claim made against the Fund or any person indemnified unless
the Fund or such person, as the case may be, shall have notified the
Company in writing pursuant to Paragraph 10 within a reasonable time after
the summons or other first legal process giving information of the nature
of the claims shall have been served upon the Fund or upon such person (or
after the Fund or such person shall have received notice of such service on
any designated agent), but failure to notify the Company of any such claim
shall not relieve the Company from any liability which it has to the Fund
or any person against whom such action is brought otherwise than on account
of its indemnity agreement contained in this Paragraph 5. The Company
shall be entitled to participate, at its own expense, in the defense, or,
if it so elects, to assume the defense of any suit brought to enforce any
such liability, but, if it elects to assume the defense, such defense shall
be conducted by counsel chosen by it and satisfactory to the Fund, to its
officers and Trustees, or to any controlling person or persons, defendant
or defendants in the suit. In the event that the Company elects to assume
the defense of any such suit and retain such counsel, the Fund, such
officers and Trustees or controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them, but, in case the Company does not elect to assume
the defense of any such suit, the Company will reimburse the Fund, such
officers and Trustees or controlling person or persons, defendant or
defendants in such suit, for the reasonable fees and expenses of any
counsel retained by them. The Company agrees promptly to notify the Fund
pursuant to Paragraph 10 of the commencement of any litigation or
proceedings against it in connection with the issue and sale of any Shares.
(b) The Fund agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who controls
the Company within the meaning of Section 15 of the Act against any and all
losses, claims, damages, liabilities or litigation (including legal and
other expenses) to which it or such directors, officers or controlling
person may become subject under the Act, under any other statute, at common
law or otherwise, arising out of the acquisition of any Shares by any
person which (i) may be based upon any wrongful act by the Fund, any of its
employees or representatives or a principal underwriter of the Fund, or
(ii) may be based upon any untrue statement or alleged untrue statement of
a material fact contained in a registration statement or prospectus
covering Shares or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading unless such statement or omission was made in reliance upon
information furnished to the Fund by the Company or (iii) may be based on
any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering insurance
products sold by the Company, or any amendment or supplement thereto, or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance
upon information furnished to the Company by or on behalf of the Fund;
provided, however, that in no case (i) is the Fund's indemnity in favor of
a director or officer or any other person deemed to protect such director
or officer or other person against any liability to which any such person
would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of his duties or by reason of his
reckless disregard of obligations and duties under this Agreement or (ii)
is the Fund to be liable under its indemnity agreement contained in this
Paragraph 5 with respect to any claims made against the Company or any such
director, officer or controlling person unless it or such director, officer
or controlling person, as the case may be, shall have notified the Fund in
writing pursuant to Paragraph 10 within a reasonable time after the summons
or other first legal process giving information of the nature of the claim
shall have been served upon it or upon such director, officer or
controlling person (or after the Company or such director, officer or
controlling person shall have received notice of such service on any
designated agent), but failure to notify the Fund of any claim shall not
relieve it from any liability which it may have to the person against whom
such action is brought otherwise than on account of its indemnity agreement
contained in this Paragraph. The Fund will be entitled to participate at
its own expense in the defense, or, if it so elects, to assume the defense
of any suit brought to enforce any such liability, but if the Fund elects
to assume the defense, such defense shall be conducted by counsel chosen by
it and satisfactory to the Company, its directors, officers or controlling
person or persons, defendant or defendants, in the suit. In the event the
Fund elects to assume the defense of any such suit and retain such counsel,
the Company, its directors, officers or controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of
any additional counsel retained by them, but, in case the Fund does not
elect to assume the defense of any such suit, it will reimburse the Company
or such directors, officers or controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Fund agrees promptly to notify the Company pursuant
to Paragraph 10 of the commencement of any litigation or proceedings
against it or any of its officers or Trustees in connection with the
issuance or sale of any Shares.
6. Procedure for Resolving Irreconcilable Conflicts.
(a) The Trustees of the Fund will monitor the operations of the Fund
for the existence of any material irreconcilable conflict among the
interests of all the contract holders and policy owners of Variable
Insurance Products (the "Participants") of all separate accounts investing
in the Fund. An irreconcilable material conflict may arise, among other
things, from: (a) an action by any state insurance regulatory authority;
(b) a change in applicable insurance laws or regulations; (c) a tax ruling
or provision of the Internal Revenue Code or the regulations thereunder;
(d) any other development relating to the tax treatment of insurers,
contract holders or policy owners or beneficiaries of Variable Insurance
Products; (e) the manner in which the investments of any Portfolio are
being managed; (f) a difference in voting instructions given by variable
annuity contract holders, on the one hand, and variable life insurance
policy owners, on the other hand, or by the contract holders or policy
owners of different participating insurance companies; or (g) a decision by
an insurer to override the voting instructions of Participants.
(b) The Company will be responsible for reporting any potential or
existing conflicts to the Trustees of the Fund. The Company will be
responsible for assisting the Trustees in carrying out their
responsibilities under this Paragraph 6(b) and Paragraph 6(a), by providing
the Trustees with all information reasonably necessary for the Trustees to
consider the issues raised. The Fund will also request its investment
adviser to report to the Trustees any such conflict which comes to the
attention of the adviser.
(c) If it is determined by a majority of the Trustees of the Fund, or
a majority of its disinterested Trustees, that a material irreconcilable
conflict exists involving the Company, the Company shall, at its expense,
and to the extent reasonably practicable (as determined by a majority of
the disinterested Trustees), take whatever steps are necessary to eliminate
the irreconcilable material conflict, including withdrawing the assets
allocable to some or all of the separate accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including another Portfolio of the Fund, offering to the affected
Participants the option of making such a change or establishing a new
funding medium including a registered investment company.
For purposes of this Paragraph 6(c), the Trustees, or the
disinterested Trustees, shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict. In the event of
a determination of the existence of an irreconcilable material conflict,
the Trustees shall cause the Fund to take such action, such as the
establishment of one or more additional Portfolios, as they in their sole
discretion determine to be in the interest of all shareholders and
Participants in view of all applicable factors, such as cost, feasibility,
tax, regulatory and other considerations. In no event will the Fund be
required by this Paragraph 6(c) to establish a new funding medium for any
variable contract or policy.
The Company shall not be required by this Paragraph 6(c) to establish
a new funding medium for any variable contract or policy if an offer to do
so has been declined by a vote of a majority of the Participants materially
adversely affected by the material irreconcilable conflict. The Company
will recommend to its Participants that they decline an offer to establish
a new funding medium only if the Company believes it is in the best
interest of the Participants.
(d) The Trustees' determination of the existence of an irreconcilable
material conflict and its implications promptly shall be communicated to
all Participating Insurance Companies by written notice thereof delivered
or mailed, first class postage prepaid.
7. Voting Privileges.
The Company shall be responsible for assuring that its separate
account or accounts participating in the Fund shall use a calculation
method of voting procedures substantially the same as the following: those
Participants permitted to give instructions and the number of Shares for
which instructions may be given will be determined as of the record date
for the Fund shareholders' meeting, which shall not be more than 60 days
before the date of the meeting. Whether or not voting instructions are
actually given by a particular Participant, all Fund shares held in any
separate account or sub-account thereof and attributable to policies will
be voted for, against, or withheld from voting on any proposition in the
same proportion as (i) the aggregate record date cash value held in such
sub-account for policies giving instructions, respectively, to vote for,
against, or withhold votes on such proposition, bears to (ii) the aggregate
record date cash value held in the sub-account for all policies for which
voting instructions are received. Participants continued in effect under
lapse options will not be permitted to give voting instructions. Shares
held in any other insurance company general or separate account or sub-
account thereof will be voted in the proportion specified in the second
preceding sentence for shares attributable to policies.
8. Duration and Termination.
This Agreement shall remain in force for the period ending five years
from the date of its execution (such date and any anniversary of such date
being hereinafter called a "Renegotiation Date"), and from year to year
thereafter provided that neither the Company nor the Fund shall have given
written notice to the other within thirty (30) days prior to a
Renegotiation Date that it desires to renegotiate the amount of
contribution to capital due hereunder ("Renegotiation Notice"). If a
Renegotiation Notice is properly given as aforesaid and the Fund and the
Company shall fail, within sixty (60) days after the Renegotiation Date,
either to enter into an amendment to this Agreement or a written
acknowledgment that the Agreement shall continue in effect, this Agreement
shall terminate as of the one hundred twentieth day after such
Renegotiation Date. If this Agreement is so terminated, the Fund may, at
any time thereafter, automatically redeem the Shares of any Portfolio held
by a Participating Shareholder. The Fund agrees that it will not effect
such redemption during the period following the Company's filing of a
notice with the Securities and Exchange Commission (the "SEC") to obtain
approval to make a substitution for the Shares, provided, however, the
Company has filed such notice with the SEC promptly following the sixtieth
day after the Renegotiation Date. This Agreement may be terminated at any
time, at the option of either of the Company or the Fund, when neither the
Company, any insurance company nor the separate account or accounts of such
insurance company which is an affiliate thereof which is not a
Participating Insurance Company own any Shares of the Fund or may be
terminated by either party to the Agreement upon a determination by a
majority of the Trustees of the Fund, or a majority of its disinterested
Trustees, following certification thereof by a Participating Insurance
Company given in accordance with Paragraph 10 that an irreconcilable
conflict exists among the interests of (i) all contract holders and
policyholders of Variable Insurance Products of all separate accounts or
(ii) the interests of the Participating Insurance Companies investing in
the Fund. Notwithstanding anything to the contrary in this Agreement or
its termination as provided herein, the Company's obligation to make a
capital contribution to the Fund in accordance with this Agreement at the
time in effect shall continue (i) following a properly given Renegotiation
Notice, in the absence of agreement otherwise, until termination of this
Agreement, and (ii) (except termination due to the existence of an
irreconcilable conflict or if the Fund fails to meet the diversification
requirements specified in Paragraph 9), following termination of this
Agreement, until the later of the fifth anniversary of the date of this
Agreement or the date on which the Company, its separate account(s) or the
separate account(s) of any affiliated insurance company owns no Shares.
In the event that the Company elects to terminate its obligations
under this Agreement, it may nonetheless elect in writing to continue this
Agreement with respect to those contracts ("Existing Contracts") in effect
with respect to Participants at the time of such termination. If the
Company does so elect to continue this Agreement, the terms of this
Agreement and the obligations of the parties hereto shall continue with
respect to Existing Contracts. Without limitation, the Company shall be
permitted at the direction of such a Participant who shall have
continuously remained a Participant to (i) maintain, (ii) reallocate, (iii)
redeem, and (iv) invest in the Fund upon the making of additional purchase
payments under an Existing Contact. Any such election made pursuant to
this Paragraph 8 must be made by giving written notice of such election to
the Fund within thirty (30) days prior to a Renegotiation Date. The
parties agree that no such election may be made in the event that a
majority of the Trustees of the Fund, or a majority of the disinterested
Trustees, determine that an irreconcilable conflict exists as further
described in this Paragraph 8.
9. Compliance.
The Fund will comply with the provisions of Section 4240(a) of the New
York Insurance Law.
Each Portfolio of the Fund will comply with the provisions of Section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"),
relating to diversification requirements for variable annuity, endowment
and life insurance contracts. Specifically, each Portfolio will comply
with either (i) the requirement of Section 817(h)(1) of the Code that its
assets be adequately diversified, or (ii) the "Safe Harbor for
Diversification" specified in Section 817(h)(2) of the Code, or (iii) the
diversification requirement of Section 817(h)(1) of the Code by having all
or part of its assets invested in U.S. Treasury securities which qualify
for the "Special Rule for Investments in United States Obligations"
specified in Section 817(h)(3) of the Code.
The provisions of Paragraphs 6 and 7 of this Agreement shall be
interpreted in a manner consistent with any Rule or order of the Securities
and Exchange Commission under the Investment Company Act of 1940, as
amended, applicable to the parties hereto.
No Shares of any Portfolio of the Fund may be sold to the general
public.
10. Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify
in writing to the other party.
If to the Fund:
Scudder Variable Life Investment Fund
175 Federal Street
Boston, Massachusetts 02110
(617) 482-3990
Attn: David B. Watts
If to the Company:
Lincoln Benefit Life Company
134 South 13th Street
Lincoln, Nebraska, 68508
Attn: Carol S. Watson
11. Massachusetts Law to Apply.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
12. Miscellaneous.
The name "Scudder Variable Life Investment Fund" is the designation of
the Trustees for the time being under a Declaration of Trust dated March
15, 1985, as amended, and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims
against the Fund as neither the Trustees, officers, agents or shareholders
assume any personal liability for obligations entered into on behalf of the
Fund. No Portfolio shall be liable for any obligations properly
attributable to any other Portfolio.
The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect. This Agreement
may be executed simultaneously in two or more counterparts, each of which
taken together shall constitute one and the same instrument.
13. Entire Agreement.
This Agreement incorporates the entire understanding and agreement
among the parties hereto, and supersedes any and all prior understandings
and agreements between the parties hereto with respect to the subject
matter hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the 30th
day of December, 1993.
SEAL
SCUDDER VARIABLE LIFE INVESTMENT FUND
By: /s/David B. Watts
David B. Watts
President
SEAL
LINCOLN BENEFIT LIFE COMPANY
By: /s/Fred H. Jonske
President and C.O.O.
Fred H. Jonske
Exhibit 9(c)(20)
PARTICIPATION AGREEMENT
PARTICIPATION AGREEMENT (the "Agreement") made by and between SCUDDER
VARIABLE LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust
created under a Declaration of Trust dated March 15, 1985, as amended, with
a principal place of business in Boston, Massachusetts and CHARTER NATIONAL
LIFE INSURANCE COMPANY, a Missouri corporation (the "Company"), with a
principal place of business in St. Louis, Missouri, on behalf of Charter
National Variable Annuity Account and Charter National Variable Account,
each a separate account of the Company, and any other separate account of
the Company as designated by the Company from time to time, upon written
notice to the Fund in accordance with Section 10 herein (together, the
"Account").
WHEREAS, the Fund acts as the investment vehicle for the separate
accounts established for variable life insurance policies and variable
annuity contracts (collectively referred to herein as "Variable Insurance
Products") to be offered by insurance companies which have entered into
participation agreements substantially identical to this Agreement
("Participating Insurance Companies") and their affiliated insurance
companies; and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares of beneficial interest ("Shares"), and additional series
of Shares may be established, each designated a "Portfolio" and
representing the interest in a particular managed portfolio of securities;
and
WHEREAS, it is in the best interest of Participating Insurance
Companies to make capital contributions if required so that the annual
expenses of each Portfolio of the Fund in which a Participating Insurance
Company is a shareholder will not exceed a fixed percentage of the
Portfolio's average annual net assets; and
WHEREAS, the Parties desire to evidence their agreement as to certain
other matters,
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:
1. Additional Definitions.
For the purposes of this Agreement, the following definitions shall
apply:
(a) The "expenses of a Portfolio" for any fiscal year shall mean
the expenses for such fiscal year as shown in the Statement of Operations
(or similar report) certified by the Fund's independent public accountants;
(b) A "Portfolio's average daily net assets" for each fiscal
year shall mean the sum of the net asset values determined throughout the
year for the purpose of determining net asset value per Share, divided by
the number of such determinations during such year;
(c) The Company's "Required Contribution" on behalf of the
Account in respect of a Portfolio for any fiscal year shall mean an amount
equal to the expenses of that Portfolio for such year minus the below-
indicated percentage of that Portfolio's average daily net assets for the
year:
International Portfolio. . . . . . . . . . 1.50%
Each other Portfolio. . . . . . . . . . . . 0.75%
multiplied by a fraction the denominator of which is the average daily net
assets of that Portfolio and the numerator of which is the average daily
net asset value of the Shares of that Portfolio owned by the Account
(referred to herein as a "Participating Shareholder"). The Company's
Required Contribution in respect of a Portfolio shall be pro-rated based on
the number of business days on which this Agreement is in effect for
periods of less than a fiscal year.
(d) The "average daily net asset value of the Shares of the
Portfolio" owned by the Account for any fiscal year of the Fund shall mean
the greater of (i) $500,000 or (ii) the sum of the aggregate net asset
values of the Shares so owned determined during the fiscal year, as of each
determination of the net asset value per Share, divided by the total number
of determinations of net asset value during such year.
(e) "Shares" means shares of beneficial interest, without par
value, of any Portfolio, now or hereafter created, of the Fund.
2. Capital Contribution.
The Company on behalf of the Account shall, within sixty days after
the end of each fiscal year of the Fund, make a capital contribution to the
Fund in respect of each Portfolio equal to the Required Contribution for
that Portfolio for such year; provided, however, that in the event that
both clauses (i) and (ii) of paragraph (d) of Section 1 of this Agreement
or similar agreements are applicable to different Participating Insurance
Companies during the same fiscal year, there shall be a proportionate
reduction of the Required Contribution of each Participating Insurance
Company to which said clause (ii) is applicable so that the total of all
required capital contributions to the Fund on behalf of any Portfolio is
not greater than the excess of the expenses of that Portfolio for that
fiscal year less the percentage of that Portfolio's total expenses set
forth in paragraph (c) of Section 1 of this Agreement for such fiscal year.
3. Duty of Fund to Sell.
The Fund shall make its Shares available for purchase at the
applicable net asset value per Share by Participating Insurance Companies
and their affiliates and separate accounts on those days on which the Fund
calculates its net asset value pursuant to rules of the Securities and
Exchange Commission; provided, however, that the Trustees of the Fund may
refuse to sell Shares of any Portfolio to any person, or suspend or
terminate the offering of Shares of any Portfolio, if such action is
required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Trustees, necessary in the best interest of the
shareholders of any Portfolio.
4. Requirement to Execute Participation Agreement; Requests.
Each Participating Insurance Company shall, prior to purchasing Shares
in the Fund, execute and deliver a participation agreement in a form
substantially identical to this Agreement.
The Fund shall make available, upon written request from the
Participating Insurance Company given in accordance with Paragraph 10, to
each Participating Insurance Company which has executed an Agreement and
which Agreement has not been terminated pursuant to Paragraph 8 (i) a list
of all other Participating Insurance Companies, and (ii) a copy of the
Agreement as executed by any other Participating Insurance Company.
The Fund shall also make available upon request to each Participating
Insurance Company which has executed an Agreement and which Agreement has
not been terminated pursuant to Paragraph 8, the net asset value of any
Portfolio of the Fund as of any date upon which the Fund calculates the net
asset value of its Portfolios for the purpose of purchase and redemption of
Shares.
5. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Fund and
each of its Trustees and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the Securities Act of 1933 (the
"Act") against any and all losses, claims, damages, liabilities or
litigation (including legal and other expenses), arising out of the
acquisition of any Shares by any person, to which the Fund or such
Trustees, officers or controlling person may become subject under the Act,
under any other statute, at common law or otherwise, which (i) may be based
upon any wrongful act by the Company, any of its employees or
representatives, any affiliate of or any person acting on behalf of the
Company or a principal underwriter of its insurance products, or (ii) may
be based upon any untrue statement or alleged untrue statement of a
material fact contained in a registration statement or prospectus covering
Shares or any amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such
a statement or omission was made in reliance upon information furnished to
the Fund by the Company, or (iii) may be based on any untrue statement or
alleged untrue statement of a material fact contained in a registration
statement or prospectus covering insurance products sold by the Company or
any insurance company which is an affiliate thereof, or any amendments or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statement or statements therein not misleading, unless such statement or
omission was made in reliance upon information furnished to the Company or
such affiliate by or on behalf of the Fund; provided, however, that in no
case (i) is the Company's indemnity in favor of a Trustee or officer or any
other person deemed to protect such Trustee or officer or other person
against any liability to which any such person would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of his duties or by reason of his reckless disregard of
obligations and duties under this Agreement or (ii) is the Company to be
liable under its indemnity agreement contained in this Paragraph 5 with
respect to any claim made against the Fund or any person indemnified unless
the Fund or such person, as the case may be, shall have notified the
Company in writing pursuant to Paragraph 10 within a reasonable time after
the summons or other first legal process giving information of the nature
of the claims shall have been served upon the Fund or upon such person (or
after the Fund or such person shall have received notice of such service on
any designated agent), but failure to notify the Company of any such claim
shall not relieve the Company from any liability which it has to the Fund
or any person against whom such action is brought otherwise than on account
of its indemnity agreement contained in this Paragraph 5. The Company
shall be entitled to participate, at its own expense, in the defense, or,
if it so elects, to assume the defense of any suit brought to enforce any
such liability, but, if it elects to assume the defense, such defense shall
be conducted by counsel chosen by it and satisfactory to the Fund, to its
officers and Trustees, or to any controlling person or persons, defendant
or defendants in the suit. In the event that the Company elects to assume
the defense of any such suit and retain such counsel, the Fund, such
officers and Trustees or controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them, but, in case the Company does not elect to assume
the defense of any such suit, the Company will reimburse the Fund, such
officers and Trustees or controlling person or persons, defendant or
defendants in such suit, for the reasonable fees and expenses of any
counsel retained by them. The Company agrees promptly to notify the Fund
pursuant to Paragraph 10 of the commencement of any litigation or
proceedings against it in connection with the issue and sale of any Shares.
(b) The Fund agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who controls
the Company within the meaning of Section 15 of the Act against any and all
losses, claims, damages, liabilities or litigation (including legal and
other expenses) to which it or such directors, officers or controlling
person may become subject under the Act, under any other statute, at common
law or otherwise, arising out of the acquisition of any Shares by any
person which (i) may be based upon any wrongful act by the Fund, any of its
employees or representatives or a principal underwriter of the Fund, or
(ii) may be based upon any untrue statement or alleged untrue statement of
a material fact contained in a registration statement or prospectus
covering Shares or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading unless such statement or omission was made in reliance upon
information furnished to the Fund by the Company or (iii) may be based on
any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering insurance
products sold by the Company, or any amendment or supplement thereto, or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance
upon information furnished to the Company by or on behalf of the Fund;
provided, however, that in no case (i) is the Fund's indemnity in favor of
a director or officer or any other person deemed to protect such director
or officer or other person against any liability to which any such person
would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of his duties or by reason of his
reckless disregard of obligations and duties under this Agreement or (ii)
is the Fund to be liable under its indemnity agreement contained in this
Paragraph 5 with respect to any claims made against the Company or any such
director, officer or controlling person unless it or such director, officer
or controlling person, as the case may be, shall have notified the Fund in
writing pursuant to Paragraph 10 within a reasonable time after the summons
or other first legal process giving information of the nature of the claim
shall have been served upon it or upon such director, officer or
controlling person (or after the Company or such director, officer or
controlling person shall have received notice of such service on any
designated agent), but failure to notify the Fund of any claim shall not
relieve it from any liability which it may have to the person against whom
such action is brought otherwise than on account of its indemnity agreement
contained in this Paragraph. The Fund will be entitled to participate at
its own expense in the defense, or, if it so elects, to assume the defense
of any suit brought to enforce any such liability, but if the Fund elects
to assume the defense, such defense shall be conducted by counsel chosen by
it and satisfactory to the Company, its directors, officers or controlling
person or persons, defendant or defendants, in the suit. In the event the
Fund elects to assume the defense of any such suit and retain such counsel,
the Company, its directors, officers or controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of
any additional counsel retained by them, but, in case the Fund does not
elect to assume the defense of any such suit, it will reimburse the Company
or such directors, officers or controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Fund agrees promptly to notify the Company pursuant
to Paragraph 10 of the commencement of any litigation or proceedings
against it or any of its officers or Trustees in connection with the
issuance or sale of any Shares.
6. Procedure for Resolving Irreconcilable Conflicts.
(a) The Trustees of the Fund will monitor the operations of the Fund
for the existence of any material irreconcilable conflict among the
interests of all the contract holders and policy owners of Variable
Insurance Products (the "Participants") of all separate accounts investing
in the Fund. An irreconcilable material conflict may arise, among other
things, from: (a) an action by any state insurance regulatory authority;
(b) a change in applicable insurance laws or regulations; (c) a tax ruling
or provision of the Internal Revenue Code or the regulations thereunder;
(d) any other development relating to the tax treatment of insurers,
contract holders or policy owners or beneficiaries of Variable Insurance
Products; (e) the manner in which the investments of any Portfolio are
being managed; (f) a difference in voting instructions given by variable
annuity contract holders, on the one hand, and variable life insurance
policy owners, on the other hand, or by the contract holders or policy
owners of different participating insurance companies; or (g) a decision by
an insurer to override the voting instructions of Participants.
(b) The Company will be responsible for reporting any potential or
existing conflicts to the Trustees of the Fund. The Company will be
responsible for assisting the Trustees in carrying out their
responsibilities under this Paragraph 6(b) and Paragraph 6(a), by providing
the Trustees with all information reasonably necessary for the Trustees to
consider the issues raised. The Fund will also request its investment
adviser to report to the Trustees any such conflict which comes to the
attention of the adviser.
(c) If it is determined by a majority of the Trustees of the Fund, or
a majority of its disinterested Trustees, that a material irreconcilable
conflict exists involving the Company, the Company shall, at its expense,
and to the extent reasonably practicable (as determined by a majority of
the disinterested Trustees), take whatever steps are necessary to eliminate
the irreconcilable material conflict, including withdrawing the assets
allocable to some or all of the separate accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including another Portfolio of the Fund, offering to the affected
Participants the option of making such a change or establishing a new
funding medium including a registered investment company.
For purposes of this Paragraph 6(c), the Trustees, or the
disinterested Trustees, shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict. In the event of
a determination of the existence of an irreconcilable material conflict,
the Trustees shall cause the Fund to take such action, such as the
establishment of one or more additional Portfolios, as they in their sole
discretion determine to be in the interest of all shareholders and
Participants in view of all applicable factors, such as cost, feasibility,
tax, regulatory and other considerations. In no event will the Fund be
required by this Paragraph 6(c) to establish a new funding medium for any
variable contract or policy.
The Company shall not be required by this Paragraph 6(c) to establish
a new funding medium for any variable contract or policy if an offer to do
so has been declined by a vote of a majority of the Participants materially
adversely affected by the material irreconcilable conflict. The Company
will recommend to its Participants that they decline an offer to establish
a new funding medium only if the Company believes it is in the best
interest of the Participants.
(d) The Trustees' determination of the existence of an irreconcilable
material conflict and its implications promptly shall be communicated to
all Participating Insurance Companies by written notice thereof delivered
or mailed, first class postage prepaid.
7. Voting Privileges.
The Company shall be responsible for assuring that its separate
account or accounts participating in the Fund shall use a calculation
method of voting procedures substantially the same as the following: those
Participants permitted to give instructions and the number of Shares for
which instructions may be given will be determined as of the record date
for the Fund shareholders' meeting, which shall not be more than 60 days
before the date of the meeting. Whether or not voting instructions are
actually given by a particular Participant, all Fund shares held in any
separate account or sub-account thereof and attributable to policies will
be voted for, against, or withheld from voting on any proposition in the
same proportion as (i) the aggregate record date cash value held in such
sub-account for policies giving instructions, respectively, to vote for,
against, or withhold votes on such proposition, bears to (ii) the aggregate
record date cash value held in the sub-account for all policies for which
voting instructions are received. Participants continued in effect under
lapse options will not be permitted to give voting instructions. Shares
held in any other insurance company general or separate account or sub-
account thereof will be voted in the proportion specified in the second
preceding sentence for shares attributable to policies.
8. Duration and Termination.
This Agreement shall remain in force one year from the date of its
execution (such date and any anniversary of such date being hereinafter
called a "Renegotiation Date"), and from year to year thereafter provided
that neither the Company nor the Fund shall have given written notice to
the other within thirty (30) days prior to a Renegotiation Date that it
desires to renegotiate the amount of contribution to capital due hereunder
("Renegotiation Notice"). In the event any other Participating Insurance
Company (which thereafter remains a Participating Insurance Company) shall
cease to be subject to the obligation to make capital contributions under
the terms of their respective Participation Agreement, this agreement will
remain in effect; however, the Company shall discontinue payment of capital
contributions as defined in paragraph (c) of Section 1 of this Agreement.
If a Renegotiation Notice is properly given as aforesaid and the Fund
and the Company shall fail, within sixty (60) days after the Renegotiation
Date, either to enter into an amendment to this Agreement or a written
acknowledgment that the Agreement shall continue in effect, this Agreement
shall terminate as of the one hundred twentieth day after such
Renegotiation Date. If this Agreement is so terminated, the Fund may, at
any time thereafter, automatically redeem the Shares of any Portfolio held
by a Participating Shareholder. This Agreement may be terminated at any
time, at the option of either of the Company or the Fund, when neither the
Company, any insurance company nor the separate account or accounts of such
insurance company which is an affiliate thereof which is not a
Participating Insurance Company own any Shares of the Fund or may be
terminated by either party to the Agreement upon a determination by a
majority of the Trustees of the Fund, or a majority of its disinterested
Trustees, following certification thereof by a Participating Insurance
Company given in accordance with Paragraph 10 that an irreconcilable
conflict exists among the interests of (i) all contract holders and policy
holders of Variable Insurance Products of all separate accounts or (ii) the
interests of the Participating Insurance Companies investing in the Fund.
Notwithstanding anything to the contrary in this Agreement or its
termination as provided herein, the Company's obligation to make a capital
contribution to the Fund in accordance with this Agreement at the time in
effect shall continue (i) following a properly given Renegotiation Notice,
in the absence of agreement otherwise, until termination of this Agreement,
and (ii) (except termination due to the existence of an irreconcilable
conflict), following termination of this Agreement, until the later of the
anniversary of the date of this Agreement or the date on which the Company,
its separate account(s) or the separate account(s) of any affiliated
insurance company owns no Shares.
9. Compliance.
The Fund will comply with the provisions of Section 4240(a) of the New
York Insurance Law.
Each Portfolio of the Fund will comply with the provisions of Section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"),
relating to diversification requirements for variable annuity, endowment
and life insurance contracts. Specifically, each Portfolio will comply
with either (i) the requirement of Section 817(h)(1) of the Code that its
assets be adequately diversified, or (ii) the "Safe Harbor for
Diversification" specified in Section 817(h)(2) of the Code, or (iii) the
diversification requirement of Section 817(h)(1) of the Code by having all
or part of its assets invested in U.S. Treasury securities which qualify
for the "Special Rule for Investments in United States Obligations"
specified in Section 817(h)(3) of the Code.
The provisions of Paragraphs 6 and 7 of this Agreement shall be
interpreted in a manner consistent with any Rule or order of the Securities
and Exchange Commission under the Investment Company Act of 1940, as
amended, applicable to the parties hereto.
No Shares of any Portfolio of the Fund may be sold to the general
public.
10. Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify
in writing to the other party.
If to the Fund:
Scudder Variable Life Investment Fund
175 Federal Street
Boston, Massachusetts 02110
(617) 482-3990
Attn.: David B. Watts
If to the Company:
Charter National Life Insurance Company
8301 Maryland Avenue
St. Louis, Missouri 63105
Attn.:
11. Massachusetts Law to Apply.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
12. Miscellaneous.
The name "Scudder Variable Life Investment Fund" is the designation of
the Trustees for the time being under a Declaration of Trust dated March
15, 1985, as amended, and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims
against the Fund as neither the Trustees, officers, agents or shareholders
assume any personal liability for obligations entered into on behalf of the
Fund. No Portfolio shall be liable for any obligations properly
attributable to any other Portfolio.
The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect. This Agreement
may be executed simultaneously in two or more counterparts, each of which
taken together shall constitute one and the same instrument.
13. Entire Agreement.
This Agreement incorporates the entire understanding and agreement
among the parties hereto, and supersedes any and all prior understandings
and agreements between the parties hereto with respect to the subject
matter hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the 3rd
day of September, 1993.
SEAL SCUDDER VARIABLE LIFE
INVESTMENT FUND
By: /s/David B. Watts
David B. Watts
President
SEAL CHARTER NATIONAL LIFE
INSURANCE COMPANY
By: /s/Gregory R. Barstead
Its: Executive Vice President
Exhibit 9(c)(21)
PARTICIPATION AGREEMENT
PARTICIPATION AGREEMENT (the "Agreement") made by and between SCUDDER
VARIABLE LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust
created under a Declaration of Trust dated March 15, 1985, as amended, with
a principal place of business in Boston, Massachusetts, Mutual of America
Life Insurance Company, a New York corporation (the "Company"), with a
principal place of business in New York, New York on behalf of Separate
Account No. 1 (the "Account"), a separate account of the Company.
WHEREAS, the Fund acts as the investment vehicle for the separate
accounts established for variable life insurance policies and variable
annuity contracts (collectively referred to herein as "Variable Insurance
Products") to be offered by insurance companies which have entered into
participation agreements substantially identical to this Agreement
("Participating Insurance Companies") and their affiliated insurance
companies; and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares of beneficial interest ("Shares"), and additional series
of Shares may be established, each designated a "Portfolio" and
representing the interest in a particular managed portfolio of securities;
and
WHEREAS, it is in the best interest of Participating Insurance
Companies to make capital contributions if required so that the annual
expenses of each Portfolio of the Fund in which a Participating Insurance
Company is a shareholder will not exceed a fixed percentage of the
Portfolio's average annual net assets; and
WHEREAS, the Parties desire to evidence their agreement as to certain
other matters,
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:
1. Additional Definitions.
For the purposes of this Agreement, the following definitions shall
apply:
(a) The "expenses of a Portfolio" for any fiscal year shall mean
the expenses for such fiscal year as shown in the Statement of Operations
(or similar report) certified by the Fund's independent public accountants;
(b) A "Portfolio's average daily net assets" for each fiscal
year shall mean the sum of the net asset values determined throughout the
year for the purpose of determining net asset value per Share, divided by
the number of such determinations during such year;
(c) The Company's "Required Contribution" on behalf of the
Account in respect of a Portfolio for any fiscal year shall mean an amount
equal to the expenses of that Portfolio for such year minus the below-
indicated percentage of that Portfolio's average daily net assets for the
year:
<TABLE>
<S> <C>
Managed International Portfolio 1.5%
Managed Natural Resources Portfolio 1.5%
Each other Portfolio 0.75%
</TABLE>
multiplied by a fraction the denominator of which is the average daily net
assets of that Portfolio and the numerator of which is the average daily
net asset value of the Shares of that Portfolio owned by the Account
(referred to herein as a "Participating Shareholder"). The Company's
Required Contribution in respect of a Portfolio shall be pro-rated based on
the number of business days on which this Agreement is in effect for
periods of less than a fiscal year.
(d) The "average daily net asset value of the Shares of the
Portfolio" owned by the Account for any fiscal year of the Fund shall mean
the greater of (i) $500,000 or (ii) the sum of the aggregate net asset
values of the Shares so owned determined during the fiscal year, as of each
determination of the net asset value per Share, divided by the total number
of determinations of net asset value during such year.
(e) "Shares" means shares of beneficial interest, without par
value, of any Portfolio, now or hereafter created, of the Fund.
2. Capital Contribution.
The Company on behalf of the Account shall, within sixty days after
the end of each fiscal year of the Fund, make a capital contribution to the
Fund in respect of each Portfolio equal to the Required Contribution for
that Portfolio for such year; provided, however, that in the event that
both clauses (i) and (ii) of paragraph (d) of Section 1 of this Agreement
or similar agreements are applicable to different Participating Insurance
Companies during the same fiscal year, there shall be a proportionate
reduction of the Required Contribution of each Participating Insurance
Company to which said clause (ii) is applicable so that the total of all
required capital contributions to the Fund on behalf of any Portfolio is
not greater than the excess of the expenses of that Portfolio for that
fiscal year less the percentage of that Portfolio's total expenses set
forth in paragraph (c) of Section 1 of this Agreement for such fiscal year.
3. Duty of Fund to Sell.
The Fund shall make its Shares available for purchase at the
applicable net asset value per Share by Participating Insurance Companies
and their affiliates and separate accounts on those days on which the Fund
calculates its net asset value pursuant to rules of the Securities and
Exchange Commission; provided, however, that the Trustees of the Fund may
refuse to sell Shares of any Portfolio to any person, or suspend or
terminate the offering of Shares of any Portfolio, if such action is
required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Trustees, necessary in the best interest of the
shareholders of any Portfolio.
4. Requirement to Execute Participation Agreement; Requests.
Each Participating Insurance Company shall, prior to purchasing Shares
in the Fund, execute and deliver a participation agreement in a form
substantially identical to this Agreement.
The Fund shall make available, upon written request from the
Participating Insurance Company given in accordance with Paragraph 10, to
each Participating Insurance Company which has executed an Agreement and
which Agreement has not been terminated pursuant to Paragraph 8 (i) a list
of all other Participating Insurance Companies, and (ii) a copy of the
Agreement as executed by any other Participating Insurance Company.
The Fund shall also make available upon request to each Participating
Insurance Company which has executed an Agreement and which Agreement has
not been terminated pursuant to Paragraph 8, the net asset value of any
Portfolio of the Fund as of any date upon which the Fund calculates the net
asset value of its Portfolios for the purpose of purchase and redemption of
Shares.
5. Indemnification.
The Company agrees to indemnify and hold harmless the Fund and each of
its Trustees and officers and each person, if any, who controls the Fund
within the meaning of Section 15 of the Securities Act of 1933 (the "Act")
against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses), arising out of the acquisition of any
Shares by any person, to which the Fund or such Trustees, officers or
controlling person may become subject under the Act, under any other
statute, at common law or otherwise, which (i) may be based upon any
wrongful act by the Company, any of its employees or representatives, any
affiliate of or any person acting on behalf of the Company or a principal
underwriter of its insurance products, or (ii) may be based upon any untrue
statement or alleged untrue statement of a material fact contained in a
registration statement or prospectus covering Shares or any amendment
thereof or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement or omission was
made in reliance upon information furnished to the Fund by the Company, or
(iii) may be based on any untrue statement or alleged untrue statement of a
material fact contained in a registration statement or prospectus covering
insurance products sold by the Company or any insurance company which is an
affiliate thereof, or any amendments or supplement thereto, or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statement or statements therein not
misleading, unless such statement or omission was made in reliance upon
information furnished to the Company or such affiliate by or on behalf of
the Fund; provided, however, that in no case (i) is the Company's indemnity
in favor of a Trustee or officer or any other person deemed to protect such
Trustee or officer or other person against any liability to which any such
person would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of his duties or by reason of
his reckless disregard of obligations and duties under this Agreement or
(ii) is the Company to be liable under its indemnity agreement contained in
this Paragraph 5 with respect to any claim made against the Fund or any
person indemnified unless the Fund or such person, as the case may be,
shall have notified the Company in writing pursuant to Paragraph 10 within
a reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon the
Fund or upon such person (or after the Fund or such person shall have
received notice of such service on any designated agent), but failure to
notify the Company of any such claim shall not relieve the Company from any
liability which it has to the Fund or any person against whom such action
is brought otherwise than on account of its indemnity agreement contained
in this Paragraph 5. The Company shall be entitled to participate, at its
own expense, in the defense, or, if it so elects, to assume the defense of
any suit brought to enforce any such liability, but, if it elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Fund, to its officers and Trustees, or to any
controlling person or persons, defendant or defendants in the suit. In the
event that the Company elects to assume the defense of any such suit and
retain such counsel, the Fund, such officers and Trustees or controlling
person or persons, defendant or defendants in the suit, shall bear the fees
and expenses of any additional counsel retained by them, but, in case the
Company does not elect to assume the defense of any such suit, the Company
will reimburse the Fund, such officers and Trustees or controlling person
or persons, defendant or defendants in such suit, for the reasonable fees
and expenses of any counsel retained by them. The Company agrees promptly
to notify the Fund pursuant to Paragraph 10 of the commencement of any
litigation or proceedings against it in connection with the issue and sale
of any Shares.
The Fund agrees to indemnify and hold harmless the Company and each of
its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the Act against any and all
losses, claims, damages, liabilities or litigation (including legal and
other expenses) to which it or such directors, officers or controlling
person may become subject under the Act, under any other statute, at common
law or otherwise, arising out of the acquisition of any Shares by any
person which (i) may be based upon any wrongful act by the Fund, any of its
employees or representatives or a principal underwriter of the Fund, or
(ii) may be based upon any untrue statement or alleged untrue statement of
a material fact contained in a registration statement or prospectus
covering Shares or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading unless such statement or omission was made in reliance upon
information furnished to the Fund by the Company or (iii) may be based on
any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering insurance
products sold by the Company, or any amendment or supplement thereto, or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance
upon information furnished to the Company by or on behalf of the Fund;
provided, however, that in no case (i) is the Fund's indemnity in favor of
a director or officer or any other person deemed to protect such director
or officer or other person against any liability to which any such person
would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of his duties or by reason of his
reckless disregard of obligations and duties under this Agreement or (ii)
is the Fund to be liable under its indemnity agreement contained in this
Paragraph 5 with respect to any claims made against the Company or any such
director, officer or controlling person unless it or such director, officer
or controlling person, as the case may be, shall have notified the Fund in
writing pursuant to Paragraph 10 within a reasonable time after the summons
or other first legal process giving information of the nature of the claim
shall have been served upon it or upon such director, officer or
controlling person (or after the Company or such director, officer or
controlling person shall have received notice of such service on any
designated agent), but failure to notify the Fund of any claim shall not
relieve it from any liability which it may have to the person against whom
such action is brought otherwise than on account of its indemnity agreement
contained in this Paragraph. The Fund will be entitled to participate at
its own expense in the defense, or, if it so elects, to assume the defense
of any suit brought to enforce any such liability, but if the Fund elects
to assume the defense, such defense shall be conducted by counsel chosen by
it and satisfactory to the Company, its directors, officers or controlling
person or persons, defendant or defendants, in the suit. In the event the
Fund elects to assume the defense of any such suit and retain such counsel,
the Company, its directors, officers or controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of
any additional counsel retained by them, but, in case the Fund does not
elect to assume the defense of any such suit, it will reimburse the Company
or such directors, officers or controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Fund agrees promptly to notify the Company pursuant
to Paragraph 10 of the commencement of any litigation or proceedings
against it or any of its officers or Trustees in connection with the
issuance or sale of any Shares.
6. Procedure for Resolving Irreconcilable Conflicts.
(a) The Trustees of the Fund will monitor the operations of the Fund
for the existence of any material irreconcilable conflict among the
interests of all the contractholders and policyowners of Variable Insurance
Products (the "Participants") of all separate accounts investing in the
Fund. An irreconcilable material conflict may arise, among other things,
from: (a) an action by any state insurance regulatory authority; (b) a
change in applicable insurance laws or regulations; (c) a tax ruling or
provision of the Internal Revenue Code or the regulations thereunder; (d)
any other development relating to the tax treatment of insurers,
contractholders or policyowners or beneficiaries of Variable Insurance
Products; (e) the manner in which the investments of any Portfolio are
being managed; (f) a difference in voting instructions given by variable
annuity contractholders, on the one hand, and variable life insurance
policyowners, on the other hand, or by the contractholders or policyowners
of different participating insurance companies; or (g) a decision by an
insurer to override the voting instructions of Participants.
(b) The Company will be responsible for reporting any potential or
existing conflicts to the Trustees of the Fund. The Company will be
responsible for assisting the Trustees in carrying out their
responsibilities under this Paragraph 6(b) and Paragraph 6(a), by providing
the Trustees with all information reasonably necessary for the Trustees to
consider the issues raised. The Fund will also request its investment
adviser to report to the Trustees any such conflict which comes to the
attention of the adviser.
(c) If it is determined by a majority of the Trustees of the Fund, or
a majority of its disinterested Trustees, that a material irreconcilable
conflict exists involving the Company, the Company shall, at its expense,
and to the extent reasonably practicable (as determined by a majority of
the disinterested Trustees), take whatever steps are necessary to eliminate
the irreconcilable material conflict, including withdrawing the assets
allocable to some or all of the separate accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including another Portfolio of the Fund, offering to the affected
Participants the option of making such a change or establishing a new
funding medium including a registered investment company.
For purposes of this Paragraph 6(c), the Trustees, or the
disinterested Trustees, shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict. In the event of
a determination of the existence of an irreconcilable material conflict,
the Trustees shall cause the Fund to take such action, such as the
establishment of one or more additional Portfolios, as they in their sole
discretion determine to be in the interest of all shareholders and
Participants in view of all applicable factors, such as cost, feasibility,
tax, regulatory and other considerations. In no event will the Fund be
required by this Paragraph 6(c) to establish a new funding medium for any
variable contract or policy.
The Company shall not be required by this Paragraph 6(c) to establish
a new funding medium for any variable contract or policy if an offer to do
so has been declined by a vote of a majority of the Participants materially
adversely affected by the material irreconcilable conflict. The Company
will recommend to its Participants that they decline an offer to establish
a new funding medium only if the Company believes it is in the best
interest of the Participants.
(d) The Trustees' determination of the existence of an irreconcilable
material conflict and its implications promptly shall be communicated to
all Participating Insurance Companies by written notice thereof delivered
or mailed, first class postage prepaid.
7. Voting Privileges.
The Company shall be responsible for assuring that its separate
account or accounts participating in the Fund shall use a calculation
method of voting procedures substantially the same as the following: those
Participants permitted to give instructions and the number of Shares for
which instructions may be given will be determined as of the record date
for the Fund shareholders' meeting, which shall not be more than 60 days
before the date of the meeting. Whether or not voting instructions are
actually given by a particular Participant, all Fund shares held in any
separate account or sub-account thereof and attributable to policies will
be voted for, against, or withheld from voting on any proposition in the
same proportion as (i) the aggregate record date cash value held in such
sub-account for policies giving instructions, respectively, to vote for,
against, or withhold votes on such proposition, bears to (ii) the aggregate
record date cash value held in the sub-account for all policies for which
voting instructions are received. Participants continued in effect under
lapse options will not be permitted to give voting instructions. Shares
held in any other insurance company general or separate account or
sub-account thereof will be voted in the proportion specified in the second
preceding sentence for shares attributable to policies.
8. Duration and Termination.
This Agreement shall remain in force for the period ending five years
from the date of its execution (such date and any anniversary of such date
being hereinafter called a "Renegotiation Date"), and from year to year
thereafter provided that neither the Company nor the Fund shall have given
written notice to the other within thirty (30) days prior to a
Renegotiation Date that it desires to renegotiate the amount of
contribution to capital due hereunder ("Renegotiation Notice"). If a
Renegotiation Notice is properly given as aforesaid and the Fund and the
Company shall fail, within sixty (60) days after the Renegotiation Date,
either to enter into an amendment to this Agreement or a written
acknowledgment that the Agreement shall continue in effect, this Agreement
shall terminate as of the one hundred twentieth day after such
Renegotiation Date. If this Agreement is so terminated, the Fund may, at
any time thereafter, automatically redeem the Shares of any Portfolio held
by a Participating Shareholder. This Agreement may be terminated at any
time, at the option of either of the Company or the Fund, when neither the
Company, any insurance company nor the separate account or accounts of such
insurance company which is an affiliate thereof which is not a
Participating Insurance Company own any Shares of the Fund or may be
terminated by either party to the Agreement upon a determination by a
majority of the Trustees of the Fund, or a majority of its disinterested
Trustees, following certification thereof by a Participating Insurance
Company given in accordance with Paragraph 10 that an irreconcilable
conflict exists among the interests of (i) all contractholders and
policyholders of Variable Insurance Products of all separate accounts or
(ii) the interests of the Participating Insurance Companies investing in
the Fund. Notwithstanding anything to the contrary in this Agreement or its
termination as provided herein, the Company's obligation to make a capital
contribution to the Fund in accordance with this Agreement at the time in
effect shall continue (i) following a properly given Renegotiation Notice,
in the absence of agreement otherwise, until termination of this Agreement,
and (ii) (except termination due to the existence of an irreconcilable
conflict), following termination of this Agreement, until the later of the
fifth anniversary of the date of this Agreement or the date on which the
Company, its separate account(s) or the separate account(s) of any
affiliated insurance company owns no Shares.
9. Compliance.
The Fund will comply with the provisions of Section 4240(a) of the New
York Insurance Law.
Each Portfolio of the Fund will comply with the provisions of Section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"),
relating to diversification requirements for variable annuity, endowment
and life insurance contracts. Specifically, each Portfolio will comply with
either (i) the requirement of Section 817(h)(1) of the Code that its assets
be adequately diversified, or (ii) the "Safe Harbor for Diversification"
specified in Section 817(h)(2) of the Code, or (iii) the diversification
requirement of Section 817(h)(1) of the Code by having all or part of its
assets invested in U.S. Treasury securities which qualify for the "Special
Rule for Investments in United States Obligations" specified in Section
817(h)(3) of the Code.
The provisions of Paragraphs 6 and 7 of this Agreement shall be
interpreted in a manner consistent with any applicable order of the
Securities and Exchange Commission issued in a proceeding under the
Investment Company Act of 1940, as amended, initiated by certain
applicants, including the Fund (File No. 812-6082). In the event that Rule
6e-2 under that Act is amended or Rule 6e-3 under that Act is adopted, in
either case containing provisions which are applicable to the parties
hereto and which conflict with the conditions of such order, the parties
hereto will conform to the conditions of such Rule or Rules as adopted or
amended.
No Shares of any Portfolio of the Fund may be sold to the general
public.
10. Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify
in writing to the other party.
If to the Fund:
Scudder Variable Life Investment Fund
175 Federal Street
Boston, Massachusetts 02110
(617) 482-3990
Attn: David B. Watts
If to the Company:
Mutual of America Life Insurance Company
666 Fifth Avenue
New York, New York 10138
Attn: Patrick A. Burns
11. Massachusetts Law to Apply
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
12. Miscellaneous.
The name "Scudder Variable Life Investment Fund" is the designation of
the Trustees for the time being under a Declaration of Trust dated March
15, 1985, as amended, and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims
against the Fund as neither the Trustees, officers, agents or shareholders
assume any personal liability for obligations entered into on behalf of the
Fund. No Portfolio shall be liable for any obligations properly
attributable to any other Portfolio.
The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect. This Agreement
may be executed simultaneously in two or more counterparts, each of which
taken together shall constitute one and the same instrument.
13. Entire Agreement.
This Agreement incorporates the entire understanding and agreement
among the parties hereto, and supercedes any and all prior understandings
and agreements between the parties hereto with respect to the subject
matter hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the 30 day
of December, 1988.
SEAL SCUDDER VARIABLE LIFE
INVESTMENT FUND
By: /s/David B. Watts
President
SEAL MUTUAL OF AMERICA LIFE
INSURANCE COMPANY
By: /s/Dwight K. Bartlett, III
Dwight K. Bartlett, III
Its: President
Exhibit 9(c)(22)
FIRST AMENDMENT
to the
PARTICIPATION AGREEMENT
This First Amendment, executed as of the 13th day of August, 1993, is by
and among Mutual of America Life Insurance Company (the "Company"), The
Companion Life Insurance Company of New York (the "Subsidiary") and Scudder
Variable Life Investment Fund (the "Fund"); and
WHEREAS, the Company and the Fund are parties to a Participation Agreement
dated December 30, 1988 on behalf of Separate Account No. 1 (the
"Agreement").
WHEREAS, the Subsidiary, an indirect wholly-owned subsidiary of the
Company, is engaged in the business of selling variable annuity contracts
to entities engaged in business for both profit and not-for-profit, while
the Company is engaged in the business of selling products to not-for-
profit entities.
WHEREAS, the Company and the Fund now desire to modify the Agreements to
extend the terms and conditions of the Agreements to the Subsidiary.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements hereinafter contained, the parties hereto agree as follows:
1. The opening paragraph of the Agreement is hereby amended to
read as follows:
PARTICIPATION AGREEMENT (the "Agreement") made by and among
SCUDDER VARIABLE LIFE INVESTMENT FUND (the "Fund"), a
Massachusetts business trust created under a Declaration of
Trust dated March 15, 1985, as amended, with a principal
place of business in Boston, Massachusetts, MUTUAL OF
AMERICA LIFE INSURANCE COMPANY, a New York corporation, and
THE AMERICAN LIFE INSURANCE COMPANY OF NEW YORK, a New York
corporation (together, the "Company"), each with a principal
place of business in New York, New York on behalf of each of
their Separate Accounts No. 1 (together, the "Account").
2. Any notice given to the Subsidiary pursuant to Section 10 of
the Agreement shall be given to The American Life Insurance
Company of New York, 666 Fifth Avenue, New York, NY 10103;
Attention Law Department.
3. The following paragraph is hereby added to Section 12.
Miscellaneous:
The American Life Insurance Company of New York is an
indirect wholly-owned subsidiary of Mutual of America Life
Insurance Company, and each Company shall be jointly and
severally responsible for obligations of the Company under
the Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the date first above written.
SCUDDER VARIABLE LIFE INVESTMENT FUND
By: /s/ David B. Watts
Name: David B. Watts
Title: President
MUTUAL OF AMERICA LIFE INSURANCE COMPANY
By: /s/ William S. Conway
Name:
Title:
THE AMERICAN LIFE INSURANCE COMPANY OF
NEW YORK
By: /s/ Theodore L. Herman
Name:
Title:
Exhibit 9(c)(23)
PARTICIPATION AGREEMENT
PARTICIPATION AGREEMENT (the "Agreement") made by and between SCUDDER
VARIABLE LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust
created under a Declaration of Trust dated March 15, 1985, as amended, with
a principal place of business in Boston, Massachusetts, Mutual of America
Life Insurance Company, a New York corporation (the "Company"), with a
principal place of business in New York, New York on behalf of Separate
Account No. 2 (the "Account"), a separate account of the Company registered
as a unit investment trust.
WHEREAS, the Fund acts as the investment vehicle for the separate
accounts established for variable life insurance policies and variable
annuity contracts (collectively referred to herein as "Variable Insurance
Products") to be offered by insurance companies which have entered into
participation agreements substantially identical to this Agreement
("Participating Insurance Companies") and their affiliated insurance
companies; and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares of beneficial interest ("Shares"), and additional series
of Shares may be established, each designated a "Portfolio" and
representing the interest in a particular managed portfolio of securities;
and
WHEREAS, it is in the best interest of Participating Insurance
Companies to make capital contributions if required so that the annual
expenses of each Portfolio of the Fund in which a Participating Insurance
Company is a shareholder will not exceed a fixed percentage of the
Portfolio's average annual net assets; and
WHEREAS, the Parties desire to evidence their agreement as to certain
other matters,
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:
1. Additional Definitions.
For the purposes of this Agreement, the following definitions shall
apply:
(a) The "expenses of a Portfolio" for any fiscal year shall mean
the expenses for such fiscal year as shown in the Statement of Operations
(or similar report) certified by the Fund's independent public accountants;
(b) A "Portfolio's average daily net assets" for each fiscal
year shall mean the sum of the net asset values determined throughout the
year for the purpose of determining net asset value per Share, divided by
the number of such determinations during such year;
(c) The Company's "Required Contribution" on behalf of the
Account in respect of a Portfolio for any fiscal year shall mean an amount
equal to the expenses of that Portfolio for such year minus the
below-indicated percentage of that Portfolio's average daily net assets for
the year:
Managed International Portfolio . . . . . . . . . . . 1.5%
Managed Natural Resources Portfolio . . . . . . . . . 1.5%
Each other Portfolio. . . . . . . . . . . . . . . . . 0.75%
multiplied by a fraction the denominator of which is the average daily net
assets of that Portfolio and the numerator of which is the average daily
net asset value of the Shares of that Portfolio owned by the Account
(referred to herein as a "Participating Shareholder"). The Company's
Required Contribution in respect of a Portfolio shall be pro-rated based on
the number of business days on which this Agreement is in effect for
periods of less than a fiscal year.
(d) The "average daily net asset value of the Shares of the
Portfolio" owned by the Account for any fiscal year of the Fund shall mean
the greater of (i) $500,000 or (ii) the sum of the aggregate net asset
values of the Shares so owned determined during the fiscal year, as of each
determination of the net asset value per Share, divided by the total number
of determinations of net asset value during such year.
(e) "Shares" means shares of beneficial interest, without par value,
of any Portfolio, now or hereafter created, of the Fund.
2. Capital Contribution.
The Company on behalf of the Account shall, within sixty days after
the end of each fiscal year of the Fund, make a capital contribution to the
Fund in respect of each Portfolio equal to the Required Contribution for
that Portfolio for such year; provided, however, that in the event that
both clauses (i) and (ii) of paragraph (d) of Section 1 of this Agreement
or similar agreements are applicable to different Participating Insurance
Companies during the same fiscal year, there shall be a proportionate
reduction of the Required Contribution of each Participating Insurance
Company to which said clause (ii) is applicable so that the total of all
required capital contributions to the Fund on behalf of any Portfolio is
not greater than the excess of the expenses of that Portfolio for that
fiscal year less the percentage of that Portfolio's total expenses set
forth in paragraph (c) of Section 1 of this Agreement for such fiscal year.
3. Duty of Fund to Sell.
The Fund shall make its Shares available for purchase at the
applicable net asset value per Share by Participating Insurance Companies
and their affiliates and separate accounts on those days on which the Fund
calculates its net asset value pursuant to rules of the Securities and
Exchange Commission; provided, however, that the Trustees of the Fund may
refuse to sell Shares of any Portfolio to any person, or suspend or
terminate the offering of Shares of any Portfolio, if such action is
required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Trustees, necessary in the best interest of the
shareholders of any Portfolio.
4. Requirement to Execute Participation Agreement; Requests.
Each Participating Insurance Company shall prior to purchasing Shares
in the Fund, execute and deliver a participation agreement in a form
substantially identical to this Agreement.
The Fund shall make available, upon written request from the
Participating Insurance Company given in accordance with Paragraph 10, to
each Participating Insurance Company which has executed an Agreement and
which Agreement has not been terminated pursuant to Paragraph 8 (i) a list
of all other Participating Insurance Companies, and (ii) a copy of the
Agreement as executed by any other Participating Insurance Company.
The Fund shall also make available upon request to each Participating
Insurance Company which has executed an Agreement and which Agreement has
not been terminated pursuant to Paragraph 8, the net asset value of any
Portfolio of the Fund as of any date upon which the Fund calculates the net
asset value of its Portfolios for the purpose of purchase and redemption of
Shares.
5. Indemnification.
The Company agrees to indemnify and hold harmless the Fund and each of
its Trustees and officers and each person, if any, who controls the Fund
within the meaning of Section 15 of the Securities Act of 1933 (the "Act")
against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses), arising out of the acquisition of any
Shares by any person, to which the Fund or such Trustees, officers or
controlling person may become subject under the Act, under any other
statute, at common law or otherwise, which (i) may be based upon any
wrongful act by the Company, any of its employees or representatives, any
affiliate of or any person acting on behalf of the Company or a principal
underwriter of its insurance products, or (ii) may be based upon any untrue
statement or alleged untrue statement of a material fact contained in a
registration statement or prospectus covering Shares or any amendment
thereof or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement or omission was
made in reliance upon information furnished to the Fund by the Company, or
(iii) may be based on any untrue statement or alleged untrue statement of a
material fact contained in a registration statement or prospectus covering
insurance products sold by the Company or any insurance company which is an
affiliate thereof, or any amendments or supplement thereto, or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statement or statements therein not
misleading, unless such statement or omission was made in reliance upon
information furnished to the Company or such affiliate by or on behalf of
the Fund; provided, however, that in no case (i) is the Company's indemnity
in favor of a Trustee or officer or any other person deemed to protect such
Trustee or officer or other person against any liability to which any such
person would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of his duties or by reason of
his reckless disregard of obligations and duties under this Agreement or
(ii) is the Company to be liable under its indemnity agreement contained in
this Paragraph 5 with respect to any claim made against the Fund or any
person indemnified unless the Fund or such person, as the case may be,
shall have notified the Company in writing pursuant to Paragraph 10 within
a reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon the
Fund or upon such person (or after the Fund or such person shall have
received notice of such service on any designated agent), but failure to
notify the Company of any such claim shall not relieve the Company from any
liability which it has to the Fund or any person against whom such action
is brought otherwise than on account of its indemnity agreement contained
in this Paragraph 5. The Company shall be entitled to participate, at its
own expense, in the defense, or, if it so elects, to assume the defense of
any suit brought to enforce any such liability, but, if it elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Fund, to its officers and Trustees, or to any
controlling person or persons, defendant or defendants in the suit. In the
event that the Company elects to assume the defense of any such suit and
retain such counsel, the Fund, such officers and Trustees or controlling
person or persons, defendant or defendants in the suit, shall bear the fees
and expenses of any additional counsel retained by them, but, in case the
Company does not elect to assume the defense of any such suit, the Company
will reimburse the Fund, such officers and Trustees or controlling person
or persons, defendant or defendants in such suit, for the reasonable fees
and expenses of any counsel retained by them. The Company agrees promptly
to notify the Fund pursuant to Paragraph 10 of the commencement of any
litigation or proceedings against it in connection with the issue and sale
of any Shares.
The Fund agrees to indemnify and hold harmless the Company and each of
its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the Act against any and all
losses, claims, damages, liabilities or litigation (including legal and
other expenses) to which it or such directors, officers or controlling
person may become subject under the Act, under any other statute, at common
law or otherwise, arising out of the acquisition of any Shares by any
person which (i) may be based upon any wrongful act by the Fund, any of its
employees or representatives or a principal underwriter of the Fund, or
(ii) may be based upon any untrue statement or alleged untrue statement of
a material fact contained in a registration statement or prospectus
covering Shares or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading unless such statement or omission was made in reliance upon
information furnished to the Fund by the Company or (iii) may be based on
any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering insurance
products sold by the Company, or any amendment or supplement thereto, or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance
upon information furnished to the Company by or on behalf of the Fund;
provided, however, that in no case (i) is the Fund's indemnity in favor of
a director or officer or any other person deemed to protect such director
or officer or other person against any liability to which any such person
would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of his duties or by reason of his
reckless disregard of obligations and duties under this Agreement or (ii)
is the Fund to be liable under its indemnity agreement contained in this
Paragraph 5 with respect to any claims made against the Company or any such
director, officer or controlling person unless it or such director, officer
or controlling person, as the case may be, shall have notified the Fund in
writing pursuant to Paragraph 10 within a reasonable time after the summons
or other first legal process giving information of the nature of the claim
shall have been served upon it or upon such director, officer or
controlling person (or after the Company or such director, officer or
controlling person shall have received notice of such service on any
designated agent), but failure to notify the Fund of any claim shall not
relieve it from any liability which it may have to the person against whom
such action is brought otherwise than on account of its indemnity agreement
contained in this Paragraph. The Fund will be entitled to participate at
its own expense in the defense, or, if it so elects, to assume the defense
of any suit brought to enforce any such liability, but if the Fund elects
to assume the defense, such defense shall be conducted by counsel chosen by
it and satisfactory to the Company, its directors, officers or controlling
person or persons, defendant or defendants, in the suit. In the event the
Fund elects to assume the defense of any such suit and retain such counsel,
the Company, its directors, officers or controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of
any additional counsel retained by them, but, in case the Fund does not
elect to assume the defense of any such suit, it will reimburse the Company
or such directors, officers or controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Fund agrees promptly to notify the Company pursuant
to Paragraph 10 of the commencement of any litigation or proceedings
against it or any of its officers or Trustees in connection with the
issuance or sale of any Shares.
6. Procedure for Resolving Irreconcilable Conflicts.
(a) The Trustees of the Fund will monitor the operations of the Fund
for the existence of any material irreconcilable conflict among the
interests of all the contractholders and policyowners of Variable Insurance
Products (the "Participants") of all separate accounts investing in the
Fund. An irreconcilable material conflict may arise, among other things,
from: (a) an action by any state insurance regulatory authority; (b) a
change in applicable insurance laws or regulations; (c) a tax ruling or
provision of the Internal Revenue Code or the regulations thereunder; (d)
any other development relating to the tax treatment of insurers,
contractholders or policyowners or beneficiaries of Variable Insurance
Products; (e) the manner in which the investments of any Portfolio are
being managed; (f) a difference in voting instructions given by variable
annuity contractholders, on the one hand, and variable life insurance
policyowners, on the other hand, or by the contractholders or policyowners
of different participating insurance companies; or (g) a decision by an
insurer to override the voting instructions of Participants.
(b) The Company will be responsible for reporting any potential or
existing conflicts to the Trustees of the Fund. The Company will be
responsible for assisting the Trustees in carrying out their
responsibilities under this Paragraph 6(b) and Paragraph 6(a), by providing
the Trustees with all information reasonably necessary for the Trustees to
consider the issues raised. The Fund will also request its investment
adviser to report to the Trustees any such conflict which comes to the
attention of the adviser.
(c) If it is determined by a majority of the Trustees of the Fund or
a majority of its disinterested Trustees, that a material irreconcilable
conflict exists involving the Company, the Company shall, at its expense,
and to the extent reasonably practicable (as determined by a majority of
the disinterested Trustees), take whatever steps are necessary to eliminate
the irreconcilable material conflict, including withdrawing the assets
allocable to some or all of the separate accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including another Portfolio of the Fund, offering to the affected
Participants the option of making such a change or establishing a new
funding medium including a registered investment company.
For purposes of this Paragraph 6(c), the Trustees, or the
disinterested Trustees, shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict. In the event of
a determination of the existence of an irreconcilable material conflict,
the Trustees shall cause the Fund to take such action, such as the
establishment of one or more additional Portfolios, as they in their sole
discretion determine to be in the interest of all shareholders and
Participants in view of all applicable factors, such as cost, feasibility,
tax, regulatory and other considerations. In no event will the Fund be
required by this Paragraph 6(c) to establish a new funding medium for any
variable contract or policy.
The Company shall not be required by this Paragraph 6(c) to establish
a new funding medium for any variable contract or policy if an offer to do
so has been declined by a vote of a majority of the Participants materially
adversely affected by the material irreconcilable conflict. The Company
will recommend to its Participants that they decline an offer to establish
a new funding medium only if the Company believes it is in the best
interest of the Participants.
(d) The Trustees' determination of the existence of an irreconcilable
material conflict and its implications promptly shall be communicated to
all Participating Insurance Companies by written notice thereof delivered
or mailed, first class postage prepaid.
7. Voting Privileges.
The Company shall be responsible for assuring that its separate
account or accounts participating in the Fund shall use a calculation
method of voting procedures substantially the same as the following: those
Participants permitted to give instructions and the number of Shares for
which instructions may be given will be determined as of the record date
for the Fund shareholders' meeting, which shall not be more than 60 days
before the date of the meeting. Whether or not voting instructions are
actually given by a particular Participant, all Fund shares held in any
separate account or sub-account thereof and attributable to policies will
be voted for, against, or withheld from voting on any proposition in the
same proportion as (i) the aggregate record date cash value held in such
sub-account for policies giving instructions, respectively, to vote for,
against, or withhold votes on such proposition, bears to (ii) the aggregate
record date cash value held in the sub-account for all policies for which
voting instructions are received. Participants continued in effect under
lapse options will not be permitted to give voting instructions. Shares
held in any other insurance company general or separate account or
sub-account thereof will be voted in the proportion specified in the second
preceding sentence for shares attributable to policies.
8. Duration and Termination.
This Agreement shall remain in force for the period ending five years
from the date of its execution (such date and any anniversary of such date
being hereinafter called a "Renegotiation Date"), and from year to year
thereafter provided that neither the Company nor the Fund shall have given
written notice to the other within thirty (30) days prior to a
Renegotiation Date that it desires to renegotiate the amount of
contribution to capital due hereunder ("Renegotiation Notice"). If a
Renegotiation Notice is properly given as aforesaid and the Fund and the
Company shall fail, within sixty (60) days after the Renegotiation Date,
either to enter into an amendment to this Agreement or a written
acknowledgment that the Agreement shall continue in effect, this Agreement
shall terminate as of the one hundred twentieth day after such
Renegotiation Date. If this Agreement is so terminated, the Fund may, at
any time thereafter, automatically redeem the Shares of any Portfolio held
by a Participating Shareholder. This Agreement may be terminated at any
time, at the option of either of the Company or the Fund, when neither the
Company, any insurance company nor the separate account or accounts of such
insurance company which is an affiliate thereof which is not a
Participating Insurance Company own any Shares of the Fund or may be
terminated by either party to the Agreement upon a determination by a
majority of the Trustees of the Fund, or a majority of its disinterested
Trustees, following certification thereof by a Participating Insurance
Company given in accordance with Paragraph 10 that an irreconcilable
conflict exists among the interests of (i) all contractholders and
policyholders of Variable Insurance Products of all separate accounts or
(ii) the interests of the Participating Insurance Companies investing in
the Fund. Notwithstanding anything to the contrary in this Agreement or its
termination as provided herein, the Company's obligation to make a capital
contribution to the Fund in accordance with this Agreement at the time in
effect shall continue (i) following a properly given Renegotiation Notice,
in the absence of agreement otherwise, until termination of this Agreement,
and (ii) (except termination due to the existence of an irreconcilable
conflict), following termination of this Agreement, until the later of the
fifth anniversary of the date of this Agreement or the date on which the
Company, its separate account(s) or the separate account(s) of any
affiliated insurance company owns no Shares.
9. Compliance.
The Fund will comply with the provisions of Section 4240(a) of the New
York Insurance Law.
Each Portfolio of the Fund will comply with the provisions of Section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"),
relating to diversification requirements for variable annuity, endowment
and life insurance contracts. Specifically, each Portfolio will comply with
either (i) the requirement of Section 817(h)(1) of the Code that its assets
be adequately diversified, or (ii) the "Safe Harbor for Diversification"
specified in Section 817(h)(2) of the Code, or (iii) the diversification
requirement of Section 817(h)(1) of the Code by having all or part of its
assets invested in U.S. Treasury securities which qualify for the "Special
Rule for Investments in United States Obligations" specified in Section
817(h)(3) of the Code.
The provisions of Paragraphs 6 and 7 of this Agreement shall be
interpreted in a manner consistent with any applicable order of the
Securities and Exchange Commission issued in a proceeding under the
Investment Company Act of 1940, as amended, initiated by certain
applicants, including the Fund (File No. 812-6082). In the event that Rule
6e-2 under that Act is amended or Rule 6e-3 under that Act is adopted, in
either case containing provisions which are applicable to the parties
hereto and which conflict with the conditions of such order, the parties
hereto will conform to the conditions of such Rule or Rules as adopted or
amended.
No Shares of any Portfolio of the Fund may be sold to the general
public.
10. Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify
in writing to the other party.
If to the Fund:
Scudder Variable Life Investment Fund
175 Federal Street
Boston, Massachusetts 02110
(617) 482-3990
Attn: David B. Watts
If to the Company:
Mutual of America Life Insurance Company
666 Fifth Avenue
New York, New York 10138
Attn: Patrick A. Burns
11. Massachusetts Law to Apply.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
12. Miscellaneous.
The name "Scudder Variable Life Investment Fund" is the designation of
the Trustees for the time being under a Declaration of Trust dated March
15, 1985, as amended, and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims
against the Fund as neither the Trustees, officers, agents or shareholders
assume any personal liability for obligations entered into on behalf of the
Fund. No Portfolio shall be liable for any obligations properly
attributable to any other Portfolio.
The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect. This Agreement
may be executed simultaneously in two or more counterparts, each of which
taken together shall constitute one and the same instrument.
13. Entire Agreement.
This Agreement incorporates the entire understanding and agreement
among the parties hereto, and supercedes any and all prior understandings
and agreements between the parties hereto with respect to the subject
matter hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the 30 day
of December, 1988.
SEAL SCUDDER VARIABLE LIFE
INVESTMENT FUND
By: /s/David B. Watts
President
SEAL MUTUAL OF AMERICA LIFE
INSURANCE COMPANY
By: /s/Dwight K. Bartlett, III
Dwight K. Bartlett, III
Its: President
Exhibit 9(c)(24)
FIRST AMENDMENT
to the
PARTICIPATION AGREEMENT
This First Amendment, executed as of the 13th day of August, 1993, is by
and among Mutual of America Life Insurance Company (the "Company"), The
American Life Insurance Company of New York (the "Subsidiary") and Scudder
Variable Life Investment Fund (the "Fund"); and
WHEREAS, the Company and the Fund are parties to a Participation Agreement
dated December 30, 1988 on behalf of Separate Account No. 2 (the
"Agreement").
WHEREAS, the Subsidiary, an indirect wholly-owned subsidiary of the
Company, is engaged in the business of selling variable life insurance
policies and variable annuity contracts to entities engaged in business for
both profit and not-for-profit, while the Company is engaged in the
business of selling products to not-for-profit entities.
WHEREAS, the Company and the Fund now desire to modify the Agreements to
extend the terms and conditions of the Agreements to the Subsidiary.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements hereinafter contained, the parties hereto agree as follows:
1. The opening paragraph of the Agreement is hereby amended to
read as follows:
PARTICIPATION AGREEMENT (the "Agreement") made by and among
SCUDDER VARIABLE LIFE INVESTMENT FUND (the "Fund"), a
Massachusetts business trust created under a Declaration of
Trust dated March 15, 1985, as amended, with a principal
place of business in Boston, Massachusetts, MUTUAL OF
AMERICA LIFE INSURANCE COMPANY, a New York corporation, and
THE AMERICAN LIFE INSURANCE COMPANY OF NEW YORK, a New York
corporation (together, the "Company"), each with a principal
place of business in New York, New York on behalf of each of
Separate Accounts No. 2 (the "Account"), both of which are
registered as unit investment trusts.
2. Any notice given to the Subsidiary pursuant to Section 10 of
the Agreement shall be given to The American Life Insurance
Company of New York, 666 Fifth Avenue, New York, NY 10103;
Attention Law Department.
3. The following paragraph is hereby added to Section 12.
Miscellaneous:
The American Life Insurance Company of New York is an
indirect wholly-owned subsidiary of Mutual of America Life
Insurance Company, and each Company shall be jointly and
severally responsible for obligations of the Company under
the Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the date first above written.
SCUDDER VARIABLE LIFE INVESTMENT FUND
By: /s/ David B. Watts
Name: David B. Watts
Title: President
MUTUAL OF AMERICA LIFE INSURANCE COMPANY
By: /s/ William S. Conway
Name:
Title:
THE AMERICAN LIFE INSURANCE COMPANY OF
NEW YORK
By: /s/ Theodore L. Herman
Name:
Title:
Exhibit 9(c)(25)
PARTICIPATION AGREEMENT
PARTICIPATION AGREEMENT (the "Agreement") made by and among SCUDDER
VARIABLE LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust
created under a Declaration of Trust dated March 15, 1985, as amended, with
a principal place of business in Boston, Massachusetts, MUTUAL OF AMERICA
LIFE INSURANCE COMPANY and THE AMERICAN LIFE INSURANCE COMPANY OF NEW YORK,
each a New York corporation (together, the "Company"), each with a
principal place of business in New York, New York on behalf of each of
their Separate Accounts No. 1 and Separate Accounts No. 2, and any other
separate account of the Company as designated by the Company from time to
time, upon written notice to the Fund in accordance with Section 10 herein
(together, the "Account").
WHEREAS, the Fund acts as the investment vehicle for the separate
accounts established for variable life insurance policies and variable
annuity contracts (collectively referred to herein as "Variable Insurance
Products") to be offered by insurance companies which have entered into
participation agreements substantially identical to this Agreement
("Participating Insurance Companies") and their affiliated insurance
companies; and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares of beneficial interest ("Shares"), and additional series
of Shares may be established, each designated a "Portfolio" and
representing the interest in a particular managed portfolio of securities;
and
WHEREAS, it is in the best interest of Participating Insurance
Companies to make capital contributions if required so that the annual
expenses of each Portfolio of the Fund in which a Participating Insurance
Company is a shareholder will not exceed a fixed percentage of the
Portfolio's average annual net assets; and
WHEREAS, the Parties desire to evidence their agreement as to certain
other matters,
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:
1. Additional Definitions.
For the purposes of this Agreement, the following definitions shall
apply:
(a) The "expenses of a Portfolio" for any fiscal year shall mean
the expenses for such fiscal year as shown in the Statement of Operations
(or similar report) certified by the Fund's independent public accountants;
(b) A "Portfolio's average daily net assets" for each fiscal
year shall mean the sum of the net asset values determined throughout the
year for the purpose of determining net asset value per Share, divided by
the number of such determinations during such year;
(c) The Company's "Required Contribution" on behalf of the
Account in respect of a Portfolio for any fiscal year shall mean an amount
equal to the expenses of that Portfolio for such year minus the below-
indicated percentage of that Portfolio's average daily net assets for the
year:
International Portfolio. . . . . . . . . . 1.50%
Each other Portfolio. . . . . . . . . . . . 0.75%
multiplied by a fraction the denominator of which is the average daily net
assets of that Portfolio and the numerator of which is the average daily
net asset value of the Shares of that Portfolio owned by the Account
(referred to herein as a "Participating Shareholder"). The Company's
Required Contribution in respect of a Portfolio shall be pro-rated based on
the number of business days on which this Agreement is in effect for
periods of less than a fiscal year.
(d) The "average daily net asset value of the Shares of the
Portfolio" owned by the Account for any fiscal year of the Fund shall mean
the greater of (i) $500,000 or (ii) the sum of the aggregate net asset
values of the Shares so owned determined during the fiscal year, as of each
determination of the net asset value per Share, divided by the total number
of determinations of net asset value during such year.
(e) "Shares" means shares of beneficial interest, without par
value, of any Portfolio, now or hereafter created, of the Fund.
2. Capital Contribution.
The Company on behalf of the Account shall, within sixty days after
the end of each fiscal year of the Fund, make a capital contribution to the
Fund in respect of each Portfolio equal to the Required Contribution for
that Portfolio for such year; provided, however, that in the event that
both clauses (i) and (ii) of paragraph (d) of Section 1 of this Agreement
or similar agreements are applicable to different Participating Insurance
Companies during the same fiscal year, there shall be a proportionate
reduction of the Required Contribution of each Participating Insurance
Company to which said clause (ii) is applicable so that the total of all
required capital contributions to the Fund on behalf of any Portfolio is
not greater than the excess of the expenses of that Portfolio for that
fiscal year less the percentage of that Portfolio's total expenses set
forth in paragraph (c) of Section 1 of this Agreement for such fiscal year.
3. Duty of Fund to Sell.
The Fund shall make its Shares available for purchase at the
applicable net asset value per Share by Participating Insurance Companies
and their affiliates and separate accounts on those days on which the Fund
calculates its net asset value pursuant to rules of the Securities and
Exchange Commission; provided, however, that the Trustees of the Fund may
refuse to sell Shares of any Portfolio to any person, or suspend or
terminate the offering of Shares of any Portfolio, if such action is
required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Trustees, necessary in the best interest of the
shareholders of any Portfolio.
4. Requirement to Execute Participation Agreement; Requests.
Each Participating Insurance Company shall, prior to purchasing Shares
in the Fund, execute and deliver a participation agreement in a form
substantially identical to this Agreement.
The Fund shall make available, upon written request from the
Participating Insurance Company given in accordance with Paragraph 10, to
each Participating Insurance Company which has executed an Agreement and
which Agreement has not been terminated pursuant to Paragraph 8 (i) a list
of all other Participating Insurance Companies, and (ii) a copy of the
Agreement as executed by any other Participating Insurance Company.
The Fund shall also make available upon request to each Participating
Insurance Company which has executed an Agreement and which Agreement has
not been terminated pursuant to Paragraph 8, the net asset value of any
Portfolio of the Fund as of any date upon which the Fund calculates the net
asset value of its Portfolios for the purpose of purchase and redemption of
Shares.
5. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Fund and
each of its Trustees and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the Securities Act of 1933 (the
"Act") against any and all losses, claims, damages, liabilities or
litigation (including legal and other expenses), arising out of the
acquisition of any Shares by any person, to which the Fund or such
Trustees, officers or controlling person may become subject under the Act,
under any other statute, at common law or otherwise, which (i) may be based
upon any wrongful act by the Company, any of its employees or
representatives, any affiliate of or any person acting on behalf of the
Company or a principal underwriter of its insurance products, or (ii) may
be based upon any untrue statement or alleged untrue statement of a
material fact contained in a registration statement or prospectus covering
Shares or any amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such
a statement or omission was made in reliance upon information furnished to
the Fund by the Company, or (iii) may be based on any untrue statement or
alleged untrue statement of a material fact contained in a registration
statement or prospectus covering insurance products sold by the Company or
any insurance company which is an affiliate thereof, or any amendments or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statement or statements therein not misleading, unless such statement or
omission was made in reliance upon information furnished to the Company or
such affiliate by or on behalf of the Fund; provided, however, that in no
case (i) is the Company's indemnity in favor of a Trustee or officer or any
other person deemed to protect such Trustee or officer or other person
against any liability to which any such person would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of his duties or by reason of his reckless disregard of
obligations and duties under this Agreement or (ii) is the Company to be
liable under its indemnity agreement contained in this Paragraph 5 with
respect to any claim made against the Fund or any person indemnified unless
the Fund or such person, as the case may be, shall have notified the
Company in writing pursuant to Paragraph 10 within a reasonable time after
the summons or other first legal process giving information of the nature
of the claims shall have been served upon the Fund or upon such person (or
after the Fund or such person shall have received notice of such service on
any designated agent), but failure to notify the Company of any such claim
shall not relieve the Company from any liability which it has to the Fund
or any person against whom such action is brought otherwise than on account
of its indemnity agreement contained in this Paragraph 5. The Company shall
be entitled to participate, at its own expense, in the defense, or, if it
so elects, to assume the defense of any suit brought to enforce any such
liability, but, if it elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to the Fund, to its
officers and Trustees, or to any controlling person or persons, defendant
or defendants in the suit. In the event that the Company elects to assume
the defense of any such suit and retain such counsel, the Fund, such
officers and Trustees or controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them, but, in case the Company does not elect to assume
the defense of any such suit, the Company will reimburse the Fund, such
officers and Trustees or controlling person or persons, defendant or
defendants in such suit, for the reasonable fees and expenses of any
counsel retained by them. The Company agrees promptly to notify the Fund
pursuant to Paragraph 10 of the commencement of any litigation or
proceedings against it in connection with the issue and sale of any Shares.
(b) The Fund agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who controls
the Company within the meaning of Section 15 of the Act against any and all
losses, claims, damages, liabilities or litigation (including legal and
other expenses) to which it or such directors, officers or controlling
person may become subject under the Act, under any other statute, at common
law or otherwise, arising out of the acquisition of any Shares by any
person which (i) may be based upon any wrongful act by the Fund, any of its
employees or representatives or a principal underwriter of the Fund, or
(ii) may be based upon any untrue statement or alleged untrue statement of
a material fact contained in a registration statement or prospectus
covering Shares or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading unless such statement or omission was made in reliance upon
information furnished to the Fund by the Company or (iii) may be based on
any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering insurance
products sold by the Company, or any amendment or supplement thereto, or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance
upon information furnished to the Company by or on behalf of the Fund;
provided, however, that in no case (i) is the Fund's indemnity in favor of
a director or officer or any other person deemed to protect such director
or officer or other person against any liability to which any such person
would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of his duties or by reason of his
reckless disregard of obligations and duties under this Agreement or (ii)
is the Fund to be liable under its indemnity agreement contained in this
Paragraph 5 with respect to any claims made against the Company or any such
director, officer or controlling person unless it or such director, officer
or controlling person, as the case may be, shall have notified the Fund in
writing pursuant to Paragraph 10 within a reasonable time after the summons
or other first legal process giving information of the nature of the claim
shall have been served upon it or upon such director, officer or
controlling person (or after the Company or such director, officer or
controlling person shall have received notice of such service on any
designated agent), but failure to notify the Fund of any claim shall not
relieve it from any liability which it may have to the person against whom
such action is brought otherwise than on account of its indemnity agreement
contained in this Paragraph. The Fund will be entitled to participate at
its own expense in the defense, or, if it so elects, to assume the defense
of any suit brought to enforce any such liability, but if the Fund elects
to assume the defense, such defense shall be conducted by counsel chosen by
it and satisfactory to the Company, its directors, officers or controlling
person or persons, defendant or defendants, in the suit. In the event the
Fund elects to assume the defense of any such suit and retain such counsel,
the Company, its directors, officers or controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of
any additional counsel retained by them, but, in case the Fund does not
elect to assume the defense of any such suit, it will reimburse the Company
or such directors, officers or controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Fund agrees promptly to notify the Company pursuant
to Paragraph 10 of the commencement of any litigation or proceedings
against it or any of its officers or Trustees in connection with the
issuance or sale of any Shares.
6. Procedure for Resolving Irreconcilable Conflicts.
(a) The Trustees of the Fund will monitor the operations of the Fund
for the existence of any material irreconcilable conflict among the
interests of all the contract holders and policy owners of Variable
Insurance Products (the "Participants") of all separate accounts investing
in the Fund. An irreconcilable material conflict may arise, among other
things, from: (a) an action by any state insurance regulatory authority;
(b) a change in applicable insurance laws or regulations; (c) a tax ruling
or provision of the Internal Revenue Code or the regulations thereunder;
(d) any other development relating to the tax treatment of insurers,
contract holders or policy owners or beneficiaries of Variable Insurance
Products; (e) the manner in which the investments of any Portfolio are
being managed; (f) a difference in voting instructions given by variable
annuity contract holders, on the one hand, and variable life insurance
policy owners, on the other hand, or by the contract holders or policy
owners of different participating insurance companies; or (g) a decision by
an insurer to override the voting instructions of Participants.
(b) The Company will be responsible for reporting any potential or
existing conflicts to the Trustees of the Fund. The Company will be
responsible for assisting the Trustees in carrying out their
responsibilities under this Paragraph 6(b) and Paragraph 6(a), by providing
the Trustees with all information reasonably necessary for the Trustees to
consider the issues raised. The Fund will also request its investment
adviser to report to the Trustees any such conflict which comes to the
attention of the adviser.
(c) If it is determined by a majority of the Trustees of the Fund, or
a majority of its disinterested Trustees, that a material irreconcilable
conflict exists involving the Company, the Company shall, at its expense,
and to the extent reasonably practicable (as determined by a majority of
the disinterested Trustees), take whatever steps are necessary to eliminate
the irreconcilable material conflict, including withdrawing the assets
allocable to some or all of the separate accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including another Portfolio of the Fund, offering to the affected
Participants the option of making such a change or establishing a new
funding medium including a registered investment company.
For purposes of this Paragraph 6(c), the Trustees, or the
disinterested Trustees, shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict. In the event of a
determination of the existence of an irreconcilable material conflict, the
Trustees shall cause the Fund to take such action, such as the
establishment of one or more additional Portfolios, as they in their sole
discretion determine to be in the interest of all shareholders and
Participants in view of all applicable factors, such as cost, feasibility,
tax, regulatory and other considerations. In no event will the Fund be
required by this Paragraph 6(c) to establish a new funding medium for any
variable contract or policy.
The Company shall not be required by this Paragraph 6(c) to establish
a new funding medium for any variable contract or policy if an offer to do
so has been declined by a vote of a majority of the Participants materially
adversely affected by the material irreconcilable conflict. The Company
will recommend to its Participants that they decline an offer to establish
a new funding medium only if the Company believes it is in the best
interest of the Participants.
(d) The Trustees' determination of the existence of an irreconcilable
material conflict and its implications promptly shall be communicated to
all Participating Insurance Companies by written notice thereof delivered
or mailed, first class postage prepaid.
7. Voting Privileges.
The Company shall be responsible for assuring that its separate
account or accounts participating in the Fund shall use a calculation
method of voting procedures substantially the same as the following: those
Participants permitted to give instructions and the number of Shares for
which instructions may be given will be determined as of the record date
for the Fund shareholders' meeting, which shall not be more than 60 days
before the date of the meeting. Whether or not voting instructions are
actually given by a particular Participant, all Fund shares held in any
separate account or sub-account thereof and attributable to policies will
be voted for, against, or withheld from voting on any proposition in the
same proportion as (i) the aggregate record date cash value held in such
sub-account for policies giving instructions, respectively, to vote for,
against, or withhold votes on such proposition, bears to (ii) the aggregate
record date cash value held in the sub-account for all policies for which
voting instructions are received. Participants continued in effect under
lapse options will not be permitted to give voting instructions. Shares
held in any other insurance company general or separate account or sub-
account thereof will be voted in the proportion specified in the second
preceding sentence for shares attributable to policies.
8. Duration and Termination.
This Agreement shall remain in force one year from the date of its
execution (such date and any anniversary of such date being hereinafter
called a "Renegotiation Date"), and from year to year thereafter provided
that neither the Company nor the Fund shall have given written notice to
the other within thirty (30) days prior to a Renegotiation Date that it
desires to renegotiate the amount of contribution to capital due hereunder
("Renegotiation Notice"). If a Renegotiation Notice is properly given as
aforesaid and the Fund and the Company shall fail, within sixty (60) days
after the Renegotiation Date, either to enter into an amendment to this
Agreement or a written acknowledgment that the Agreement shall continue in
effect, this Agreement shall terminate as of the one hundred twentieth day
after such Renegotiation Date. If this Agreement is so terminated, the
Fund may, at any time thereafter, automatically redeem the Shares of any
Portfolio held by a Participating Shareholder. This Agreement may be
terminated at any time, at the option of either of the Company or the Fund,
when neither the Company, any insurance company nor the separate account or
accounts of such insurance company which is an affiliate thereof which is
not a Participating Insurance Company own any Shares of the Fund or may be
terminated by either party to the Agreement upon a determination by a
majority of the Trustees of the Fund, or a majority of its disinterested
Trustees, following certification thereof by a Participating Insurance
Company given in accordance with Paragraph 10 that an irreconcilable
conflict exists among the interests of (i) all contract holders and policy
holders of Variable Insurance Products of all separate accounts or (ii) the
interests of the Participating Insurance Companies investing in the Fund.
Notwithstanding anything to the contrary in this Agreement or its
termination as provided herein, the Company's obligation to make a capital
contribution to the Fund in accordance with this Agreement at the time in
effect shall continue (i) following a properly given Renegotiation Notice,
in the absence of agreement otherwise, until termination of this Agreement,
and (ii) (except termination due to the existence of an irreconcilable
conflict), following termination of this Agreement, until the later of the
anniversary of the date of this Agreement or the date on which the Company,
its separate account(s) or the separate account(s) of any affiliated
insurance company owns no Shares.
9. Compliance.
The Fund will comply with the provisions of Section 4240(a) of the New
York Insurance Law.
Each Portfolio of the Fund will comply with the provisions of Section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"),
relating to diversification requirements for variable annuity, endowment
and life insurance contracts. Specifically, each Portfolio will comply
with either (i) the requirement of Section 817(h)(1) of the Code that its
assets be adequately diversified, or (ii) the "Safe Harbor for
Diversification" specified in Section 817(h)(2) of the Code, or (iii) the
diversification requirement of Section 817(h)(1) of the Code by having all
or part of its assets invested in U.S. Treasury securities which qualify
for the "Special Rule for Investments in United States Obligations"
specified in Section 817(h)(3) of the Code.
The provisions of Paragraphs 6 and 7 of this Agreement shall be
interpreted in a manner consistent with any Rule or order of the Securities
and Exchange Commission under the Investment Company Act of 1940, as
amended, applicable to the parties hereto.
No Shares of any Portfolio of the Fund may be sold to the general
public.
10. Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify
in writing to the other party.
If to the Fund:
Scudder Variable Life Investment Fund
175 Federal Street
Boston, Massachusetts 02110
(617) 482-3990
Attn.: David B. Watts
If to the Company:
Mutual of America Life Insurance Company
and The American Life Insurance Company of New York
666 Fifth Avenue
New York, New York 10138
Attn.: Law Department
11. Massachusetts Law to Apply.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
12. Miscellaneous.
The name "Scudder Variable Life Investment Fund" is the designation of
the Trustees for the time being under a Declaration of Trust dated March
15, 1985, as amended, and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims
against the Fund as neither the Trustees, officers, agents or shareholders
assume any personal liability for obligations entered into on behalf of the
Fund. No Portfolio shall be liable for any obligations properly
attributable to any other Portfolio.
The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect. This Agreement may
be executed simultaneously in two or more counterparts, each of which taken
together shall constitute one and the same instrument.
The American Life Insurance Company of New York is an indirect wholly-
owned subsidiary of Mutual of America Life Insurance Company and each
company shall be jointly and severally responsible for obligations of the
Company under the Agreement.
13. Entire Agreement.
This Agreement incorporates the entire understanding and agreement
among the parties hereto, and supersedes any and all
prior understandings and agreements between the parties hereto with respect
to the subject matter hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the 30th
day of December, 1993.
SEAL SCUDDER VARIABLE LIFE
INVESTMENT FUND
By: /s/David B. Watts
David B. Watts
President
SEAL MUTUAL OF AMERICA LIFE
INSURANCE COMPANY
By: /s/William S. Conway
Name: William S. Conway
Title: Executive Vice President
SEAL THE AMERICAN LIFE INSURANCE
COMPANY OF NEW YORK
By: /s/Theodore L. Herman
Name: Theodore L. Herman
Title: Vice Chairman
Exhibit 9(c)(26)
PARTICIPATION AGREEMENT
PARTICIPATION AGREEMENT (the "Agreement") made by and between SCUDDER
VARIABLE LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust
created under a Declaration of Trust dated March 15, 1985, as amended, with
a principal place of business in Boston, Massachusetts and PARAGON LIFE
INSURANCE COMPANY, a Missouri corporation (the "Company"), with a principal
place of business in St. Louis County, Missouri, on behalf of the
Separate Account B (the "Account"), a separate account of the Company.
WHEREAS, the Fund acts as the investment vehicle for the separate
accounts established for variable life insurance policies and variable
annuity contracts (collectively referred to herein as "Variable Insurance
Products") to be offered by insurance companies which have entered into
participation agreements substantially identical to this Agreement
("Participating Insurance Companies") and their affiliated insurance
companies; and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares of beneficial interest ("Shares"), and additional series
of Shares may be established, each designated a "Portfolio" and
representing the interest in a particular managed portfolio of securities;
and
WHEREAS, it is in the best interest of Participating Insurance
Companies to make capital contributions if required so that the annual
expenses of each Portfolio of the Fund in which a Participating Insurance
Company is a shareholder will not exceed a fixed percentage of the
Portfolio's average annual net assets; and
WHEREAS, the Parties desire to evidence their agreement as to certain
other matters,
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:
1. Additional Definitions.
For the purposes of this Agreement, the following definitions shall
apply:
(a) The "expenses of a Portfolio" for any fiscal year shall mean
the expenses for such fiscal year as shown in the Statement of Operations
(or similar report) certified by the Fund's independent public accountants;
(b) A "Portfolio's average daily net assets" for each fiscal
year shall mean the sum of the net asset values determined throughout the
year for the purpose of determining net asset value per Share, divided by
the number of such determinations during such year;
(c) The Company's "Required Contribution" on behalf of the
Account in respect of a Portfolio for any fiscal year shall mean an amount
equal to the expenses of that Portfolio for such year minus the below-
indicated percentage of that Portfolio's average daily net assets for the
year:
Managed International Portfolio . . . . . . 1.50%
Each other Portfolio. . . . . . . . . . . . 0.75%
multiplied by a fraction the denominator of which is the average daily net
assets of that Portfolio and the numerator of which is the average daily
net asset value of the Shares of that Portfolio owned by the Account
(referred to herein as a "Participating Shareholder"). The Company's
Required Contribution in respect of a Portfolio shall be pro-rated based on
the number of business days on which this Agreement is in effect for
periods of less than a fiscal year.
(d) The "average daily net asset value of the Shares of the
Portfolio" owned by the Account for any fiscal year of the Fund shall mean
the greater of (i) $500,000 or (ii) the sum of the aggregate net asset
values of the Shares so owned determined during the fiscal year, as of each
determination of the net asset value per Share, divided by the total number
of determinations of net asset value during such year.
(e) "Shares" means shares of beneficial interest, without par
value, of any Portfolio, now or hereafter created, of the Fund.
2. Capital Contribution.
The Company on behalf of the Account shall, within sixty days after
the end of each fiscal year of the Fund, make a capital contribution to the
Fund in respect of each Portfolio equal to the Required Contribution for
that Portfolio for such year; provided, however, that in the event that
both clauses (i) and (ii) of paragraph (d) of Section 1 of this Agreement
or similar agreements are applicable to different Participating Insurance
Companies during the same fiscal year, there shall be a proportionate
reduction of the Required Contribution of each Participating Insurance
Company to which said clause (ii) is applicable so that the total of all
required capital contributions to the Fund on behalf of any Portfolio is
not greater than the excess of the expenses of that Portfolio for that
fiscal year less the percentage of that Portfolio's total expenses set
forth in paragraph (c) of Section 1 of this Agreement for such fiscal year.
3. Duty of Fund to Sell.
The Fund shall make its Shares available for purchase at the
applicable net asset value per Share by Participating Insurance Companies
and their affiliates and separate accounts on those days on which the Fund
calculates its net asset value pursuant to rules of the Securities and
Exchange Commission; provided, however, that the Trustees of the Fund may
refuse to sell Shares of any Portfolio to any person, or suspend or
terminate the offering of Shares of any Portfolio, if such action is
required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Trustees, necessary in the best interest of the
shareholders of any Portfolio.
4. Requirement to Execute Participation Agreement; Requests.
Each Participating Insurance Company shall, prior to purchasing Shares
in the Fund, execute and deliver a participation agreement in a form
substantially identical to this Agreement.
The Fund shall make available, upon written request from the
Participating Insurance Company given in accordance with Paragraph 10, to
each Participating Insurance Company which has executed an Agreement and
which Agreement has not been terminated pursuant to Paragraph 8 (i) a list
of all other Participating Insurance Companies, and (ii) a copy of the
Agreement as executed by any other Participating Insurance Company.
The Fund shall also make available upon request to each Participating
Insurance Company which has executed an Agreement and which Agreement has
not been terminated pursuant to Paragraph 8, the net asset value of any
Portfolio of the Fund as of any date upon which the Fund calculates the net
asset value of its Portfolios for the purpose of purchase and redemption of
Shares.
5. Indemnification.
The Company agrees to indemnify and hold harmless the Fund and each of
its Trustees and officers and each person, if any, who controls the Fund
within the meaning of Section 15 of the Securities Act of 1933 (the "Act")
against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses), arising out of the acquisition of any
Shares by any person, to which the Fund or such Trustees, officers or
controlling person may become subject under the Act, under any other
statute, at common law or otherwise, which (i) may be based upon any
wrongful act by the Company, any of its employees or representatives, any
affiliate of or any person acting on behalf of the Company or a principal
underwriter of its insurance products, or (ii) may be based upon any untrue
statement or alleged untrue statement of a material fact contained in a
registration statement or prospectus covering Shares or any amendment
thereof or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement or omission was
made in reliance upon information furnished to the Fund by the Company, or
(iii) may be based on any untrue statement or alleged untrue statement of a
material fact contained in a registration statement or prospectus covering
insurance products sold by the Company or any insurance company which is an
affiliate thereof, or any amendments or supplement thereto, or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statement or statements therein not
misleading, unless such statement or omission was made in reliance upon
information furnished to the Company or such affiliate by or on behalf of
the Fund; provided, however, that in no case (i) is the Company's indemnity
in favor of a Trustee or officer or any other person deemed to protect such
Trustee or officer or other person against any liability to which any such
person would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of his duties or by reason of
his reckless disregard of obligations and duties under this Agreement or
(ii) is the Company to be liable under its indemnity agreement contained in
this Paragraph 5 with respect to any claim made against the Fund or any
person indemnified unless the Fund or such person, as the case may be,
shall have notified the Company in writing pursuant to Paragraph 10 within
a reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon the
Fund or upon such person (or after the Fund or such person shall have
received notice of such service on any designated agent), but failure to
notify the Company of any such claim shall not relieve the Company from any
liability which it has to the Fund or any person against whom such action
is brought otherwise than on account of its indemnity agreement contained
in this Paragraph 5. The Company shall be entitled to participate, at its
own expense, in the defense, or, if it so elects, to assume the defense of
any suit brought to enforce any such liability, but, if it elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Fund, to its officers and Trustees, or to any
controlling person or persons, defendant or defendants in the suit. In the
event that the Company elects to assume the defense of any such suit and
retain such counsel, the Fund, such officers and Trustees or controlling
person or persons, defendant or defendants in the suit, shall bear the fees
and expenses of any additional counsel retained by them, but, in case the
Company does not elect to assume the defense of any such suit, the Company
will reimburse the Fund, such officers and Trustees or controlling person
or persons, defendant or defendants in such suit, for the reasonable fees
and expenses of any counsel retained by them. The Company agrees promptly
to notify the Fund pursuant to Paragraph 10 of the commencement of any
litigation or proceedings against it in connection with the issue and sale
of any Shares.
The Fund agrees to indemnify and hold harmless the Company and each of
its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the Act against any and all
losses, claims, damages, liabilities or litigation (including legal and
other expenses) to which it or such directors, officers or controlling
person may become subject under the Act, under any other statute, at common
law or otherwise, arising out of the acquisition of any Shares by any
person which (i) may be based upon any wrongful act by the Fund, any of its
employees or representatives or a principal underwriter of the Fund, or
(ii) may be based upon any untrue statement or alleged untrue statement of
a material fact contained in a registration statement or prospectus
covering Shares or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading unless such statement or omission was made in reliance upon
information furnished to the Fund by the Company or (iii) may be based on
any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering insurance
products sold by the Company, or any amendment or supplement thereto, or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance
upon information furnished to the Company by or on behalf of the Fund;
provided, however, that in no case (i) is the Fund's indemnity in favor of
a director or officer or any other person deemed to protect such director
or officer or other person against any liability to which any such person
would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of his duties or by reason of his
reckless disregard of obligations and duties under this Agreement or (ii)
is the Fund to be liable under its indemnity agreement contained in this
Paragraph 5 with respect to any claims made against the Company or any such
director, officer or controlling person unless it or such director, officer
or controlling person, as the case may be, shall have notified the Fund in
writing pursuant to Paragraph 10 within a reasonable time after the summons
or other first legal process giving information of the nature of the claim
shall have been served upon it or upon such director, officer or
controlling person (or after the Company or such director, officer or
controlling person shall have received notice of such service on any
designated agent), but failure to notify the Fund of any claim shall not
relieve it from any liability which it may have to the person against whom
such action is brought otherwise than on account of its indemnity agreement
contained in this Paragraph. The Fund will be entitled to participate at
its own expense in the defense, or, if it so elects, to assume the defense
of any suit brought to enforce any such liability, but if the Fund elects
to assume the defense, such defense shall be conducted by counsel chosen by
it and satisfactory to the Company, its directors, officers or controlling
person or persons, defendant or defendants, in the suit. In the event the
Fund elects to assume the defense of any such suit and retain such counsel,
the Company, its directors, officers or controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of
any additional counsel retained by them, but, in case the Fund does not
elect to assume the defense of any such suit, it will reimburse the Company
or such directors, officers or controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Fund agrees promptly to notify the Company pursuant
to Paragraph 10 of the commencement of any litigation or proceedings
against it or any of its officers or Trustees in connection with the
issuance or sale of any Shares.
6. Procedure for Resolving Irreconcilable Conflicts.
(a) The Trustees of the Fund will monitor the operations of the Fund
for the existence of any material irreconcilable conflict among the
interests of all the contractholders and policyowners of Variable Insurance
Products (the "Participants") of all separate accounts investing in the
Fund. An irreconcilable material conflict may arise, among other things,
from: (a) an action by any state insurance regulatory authority; (b) a
change in applicable insurance laws or regulations; (c) a tax ruling or
provision of the Internal Revenue Code or the regulations thereunder; (d)
any other development relating to the tax treatment of insurers,
contractholders or policyowners or beneficiaries of Variable Insurance
Products; (e) the manner in which the investments of any Portfolio are
being managed; (f) a difference in voting instructions given by variable
annuity contractholders, on the one hand, and variable life insurance
policyowners, on the other hand, or by the contractholders or policyowners
of different participating insurance companies; or (g) a decision by an
insurer to override the voting instructions of Participants.
(b) The Company will be responsible for reporting any potential or
existing conflicts to the Trustees of the Fund. The Company will be
responsible for assisting the Trustees in carrying out their
responsibilities under this Paragraph 6(b) and Paragraph 6(a), by providing
the Trustees with all information reasonably necessary for the Trustees to
consider the issues raised. The Fund will also request its investment
adviser to report to the Trustees any such conflict which comes to the
attention of the adviser.
(c) If it is determined by a majority of the Trustees of the Fund, or
a majority of its disinterested Trustees, that a material irreconcilable
conflict exists involving the Company, the Company shall, at its expense,
and to the extent reasonably practicable (as determined by a majority of
the disinterested Trustees), take whatever steps are necessary to eliminate
the irreconcilable material conflict, including withdrawing the assets
allocable to some or all of the separate accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including another Portfolio of the Fund, offering to the affected
Participants the option of making such a change or establishing a new
funding medium including a registered investment company.
For purposes of this Paragraph 6(c), the Trustees, or the
disinterested Trustees, shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict. In the event of
a determination of the existence of an irreconcilable material conflict,
the Trustees shall cause the Fund to take such action, such as the
establishment of one or more additional Portfolios, as they in their sole
discretion determine to be in the interest of all shareholders and
Participants in view of all applicable factors, such as cost, feasibility,
tax, regulatory and other considerations. In no event will the Fund be
required by this Paragraph 6(c) to establish a new funding medium for any
variable contract or policy.
The Company shall not be required by this Paragraph 6(c) to establish
a new funding medium for any variable contract or policy if an offer to do
so has been declined by a vote of a majority of the Participants materially
adversely affected by the material irreconcilable conflict. The Company
will recommend to its Participants that they decline an offer to establish
a new funding medium only if the Company believes it is in the best
interest of the Participants.
(d) The Trustees' determination of the existence of an irreconcilable
material conflict and its implications promptly shall be communicated to
all Participating Insurance Companies by written notice thereof delivered
or mailed, first class postage prepaid.
7. Voting Privileges.
The Company shall be responsible for assuring that its separate
account or accounts participating in the Fund shall use a calculation
method of voting procedures substantially the same as the following: those
Participants permitted to give instructions and the number of Shares for
which instructions may be given will be determined as of the record date
for the Fund shareholders' meeting, which shall not be more than 60 days
before the date of the meeting. Whether or not voting instructions are
actually given by a particular Participant, all Fund shares held in any
separate account or sub-account thereof and attributable to policies will
be voted for, against, or withheld from voting on any proposition in the
same proportion as (i) the aggregate record date cash value held in such
sub-account for policies giving instructions, respectively, to vote for,
against, or withhold votes on such proposition, bears to (ii) the aggregate
record date cash value held in the sub-account for all policies for which
voting instructions are received. Participants continued in effect under
lapse options will not be permitted to give voting instructions. Shares
held in any other insurance company general or separate account or sub-
account thereof will be voted in the proportion specified in the second
preceding sentence for shares attributable to policies.
8. Duration and Termination.
This Agreement shall remain in force for the period ending five years
from the date of its execution (such date and any anniversary of such date
being hereinafter called a "Renegotiation Date"), and from year to year
thereafter provided that neither the Company nor the Fund shall have given
written notice to the other within thirty (30) days prior to a
Renegotiation Date that it desires to renegotiate the amount of
contribution to capital due hereunder ("Renegotiation Notice"). If a
Renegotiation Notice is properly given as aforesaid and the Fund and the
Company shall fail, within sixty (60) days after the Renegotiation Date,
either to enter into an amendment to this Agreement or a written
acknowledgment that the Agreement shall continue in effect, this Agreement
shall terminate as of the one hundred twentieth day after such
Renegotiation Date. If this Agreement is so terminated, the Fund may, at
any time thereafter, redeem the Shares of any Portfolio held by a
Participating Shareholder. The Fund agrees that it will not effect such
redemption during the period following the Company's filing of a notice
with the Securities and Exchange Commission (the "SEC") to obtain approval
to make a substitution for the Shares provided, however, the Company has
filed such notice with the SEC promptly following the sixtieth day after
the Renegotiation Date. This Agreement may be terminated at any time, at
the option of either of the Company or the Fund, when neither the Company,
any insurance company nor the separate account or accounts of such
insurance company which is an affiliate thereof which is not a
Participating Insurance Company own any Shares of the Fund or may be
terminated by either party to the Agreement upon a determination by a
majority of the Trustees of the Fund, or a majority of its disinterested
Trustees, following certification thereof by a Participating Insurance
Company given in accordance with Paragraph 10 that an irreconcilable
conflict exists among the interests of (i) all contractholders and
policyholders of Variable Insurance Products of all separate accounts or
(ii) the interests of the Participating Insurance Companies investing in
the Fund. Notwithstanding anything to the contrary in this Agreement or
its termination as provided herein, the Company's obligation to make a
capital contribution to the Fund in accordance with this Agreement at the
time in effect shall continue (i) following a properly given Renegotiation
Notice, in the absence of agreement otherwise, until termination of this
Agreement, and (ii) (except termination due to the existence of an
irreconcilable conflict), following termination of this Agreement, until
the later of the fifth anniversary of the date of this Agreement or the
date on which the Company, its separate account(s) or the separate
account(s) of any affiliated insurance company owns no Shares.
9. Compliance.
The Fund will comply with the provisions of Section 4240(a) of the New
York Insurance Law.
Each Portfolio of the Fund will comply with the provisions of Section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"),
relating to diversification requirements for variable annuity, endowment
and life insurance contracts. Specifically, each Portfolio will comply
with either (i) the requirement of Section 817(h)(1) of the Code that its
assets be adequately diversified, or (ii) the "Safe Harbor for
Diversification" specified in Section 817(h)(2) of the Code, or (iii) the
diversification requirement of Section 817(h)(1) of the Code by having all
or part of its assets invested in U.S. Treasury securities which qualify
for the "Special Rule for Investments in United States Obligations"
specified in Section 817(h)(3) of the Code.
The provisions of Paragraphs 6 and 7 of this Agreement shall be
interpreted in a manner consistent with any Rule or order of the Securities
and Exchange Commission under the Investment Company Act of 1940, as
amended, applicable to the parties hereto.
No Shares of any Portfolio of the Fund may be sold to the general
public.
10. Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify
in writing to the other party.
If to the Fund:
Scudder Variable Life Investment Fund
175 Federal Street
Boston, Massachusetts 02110
(617) 482-3990
Attn: David B. Watts
If to the Company:
Paragon Life Insurance Company
100 South Brentwood
St. Louis, Mo 63105
Attn: Carl H. Anderson
11. Massachusetts Law to Apply.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
12. Miscellaneous.
The name "Scudder Variable Life Investment Fund" is the designation of
the Trustees for the time being under a Declaration of Trust dated March
15, 1985, as amended, and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims
against the Fund as neither the Trustees, officers, agents or shareholders
assume any personal liability for obligations entered into on behalf of the
Fund. No Portfolio shall be liable for any obligations properly
attributable to any other Portfolio.
The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect. This Agreement
may be executed simultaneously in two or more counterparts, each of which
taken together shall constitute one and the same instrument.
13. Entire Agreement.
This Agreement incorporates the entire understanding and agreement
among the parties hereto, and supersedes any and all prior understandings
and agreements between the parties hereto with respect to the subject
matter hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the 30th
day of April, 1993.
SEAL SCUDDER VARIABLE LIFE
INVESTMENT FUND
By: /s/David B. Watts
President
SEAL PARAGON LIFE INSURANCE COMPANY
By: /s/Carl H. Anderson
Its: President and Chief Executive Officer
Exhibit 9(c)(27)
PARTICIPATION AGREEMENT
PARTICIPATION AGREEMENT (the "Agreement") made by and between SCUDDER
VARIABLE LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust
created under a Declaration of Trust dated March 15, 1985, as amended, with
a principal place of business in Boston, Massachusetts, PROVIDENT MUTUAL
LIFE INSURANCE COMPANY OF PHILADELPHIA ("PMLIC"), a Pennsylvania
corporation, with a principal place of business in Philadelphia,
Pennsylvania, and PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
("PLACA"), a Delaware corporation, with a principal place of business in
Newark, Delaware (together, the "Company"), on behalf of the Provident
Mutual Variable Annuity Separate Account, a separate account of PMLIC,
and Providentmutual Variable Annuity Separate Account, a separate account
of PLACA, and any other separate account of the Company as designated by
the Company from time to time, upon written notice to the Fund in
accordance with Section 10 herein (the "Account").
WHEREAS, PLACA is a wholly-owned subsidiary of PMLIC; and
WHEREAS, the Fund acts as the investment vehicle for the separate
accounts established for variable life insurance policies and variable
annuity contracts (collectively referred to herein as "Variable Insurance
Products") to be offered by insurance companies which have entered into
participation agreements substantially identical to this Agreement
("Participating Insurance Companies") and their affiliated insurance
companies; and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares of beneficial interest ("Shares"), and additional series
of Shares may be established, each designated a "Portfolio" and
representing the interest in a particular managed portfolio of securities;
and
WHEREAS, it is in the best interest of Participating Insurance
Companies to make capital contributions if required so that the annual
expenses of each Portfolio of the Fund in which a Participating Insurance
Company is a shareholder will not exceed a fixed percentage of the
Portfolio's average annual net assets; and
WHEREAS, the Parties desire to evidence their agreement as to certain
other matters,
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:
1. Additional Definitions.
For the purposes of this Agreement, the following definitions shall
apply:
(a) The "expenses of a Portfolio" for any fiscal year shall mean
the expenses for such fiscal year as shown in the Statement of Operations
(or similar report) certified by the Fund's independent public accountants;
(b) A "Portfolio's average daily net assets" for each fiscal
year shall mean the sum of the net asset values determined throughout the
year for the purpose of determining net asset value per Share, divided by
the number of such determinations during such year;
(c) The Company's "Required Contribution" on behalf of the
Account in respect of a Portfolio for any fiscal year shall mean an amount
equal to the expenses of that Portfolio for such year minus the below-
indicated percentage of that Portfolio's average daily net assets for the
year:
International Portfolio. . . . . . . . . . 1.50%
Each other Portfolio. . . . . . . . . . . . 0.75%
multiplied by a fraction the denominator of which is the average daily net
assets of that Portfolio and the numerator of which is the average daily
net asset value of the Shares of that Portfolio owned by the Account
(referred to herein as a "Participating Shareholder"). The Company's
Required Contribution in respect of a Portfolio shall be pro-rated based on
the number of business days on which this Agreement is in effect for
periods of less than a fiscal year.
(d) The "average daily net asset value of the Shares of the
Portfolio" owned by the Account for any fiscal year of the Fund shall mean
the greater of (i) $500,000 or (ii) the sum of the aggregate net asset
values of the Shares so owned determined during the fiscal year, as of each
determination of the net asset value per Share, divided by the total number
of determinations of net asset value during such year.
(e) "Shares" means shares of beneficial interest, without par
value, of any Portfolio, now or hereafter created, of the Fund.
2. Capital Contribution.
The Company on behalf of the Account shall, within sixty days after
the end of each fiscal year of the Fund, make a capital contribution to the
Fund in respect of each Portfolio equal to the Required Contribution for
that Portfolio for such year; provided, however, that in the event that
both clauses (i) and (ii) of paragraph (d) of Section 1 of this Agreement
or similar agreements are applicable to different Participating Insurance
Companies during the same fiscal year, there shall be a proportionate
reduction of the Required Contribution of each Participating Insurance
Company to which said clause (ii) is applicable so that the total of all
required capital contributions to the Fund on behalf of any Portfolio is
not greater than the excess of the expenses of that Portfolio for that
fiscal year less the percentage of that Portfolio's total expenses set
forth in paragraph (c) of Section 1 of this Agreement for such fiscal year.
3. Duty of Fund to Sell.
The Fund shall make its Shares available for purchase at the
applicable net asset value per Share by Participating Insurance Companies
and their affiliates and separate accounts on those days on which the Fund
calculates its net asset value pursuant to rules of the Securities and
Exchange Commission; provided, however, that the Trustees of the Fund may
refuse to sell Shares of any Portfolio to any person, or suspend or
terminate the offering of Shares of any Portfolio, if such action is
required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Trustees, necessary in the best interest of the
shareholders of any Portfolio.
4. Requirement to Execute Participation Agreement; Requests.
Each Participating Insurance Company shall, prior to purchasing Shares
in the Fund, execute and deliver a participation agreement in a form
substantially identical to this Agreement.
The Fund shall make available, upon written request from the
Participating Insurance Company given in accordance with Paragraph 10, to
each Participating Insurance Company which has executed an Agreement and
which Agreement has not been terminated pursuant to Paragraph 8 (i) a list
of all other Participating Insurance Companies, and (ii) a copy of the
Agreement as executed by any other Participating Insurance Company.
The Fund shall also make available upon request to each Participating
Insurance Company which has executed an Agreement and which Agreement has
not been terminated pursuant to Paragraph 8, the net asset value of any
Portfolio of the Fund as of any date upon which the Fund calculates the net
asset value of its Portfolios for the purpose of purchase and redemption of
Shares.
5. Indemnification.
a. The Company agrees to indemnify and hold harmless the Fund and
each of its Trustees and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the Securities Act of 1933 (the
"Act") against any and all losses, claims, damages, liabilities or
litigation (including legal and other expenses), arising out of the
acquisition of any Shares by any person, to which the Fund or such
Trustees, officers or controlling person may become subject under the Act,
under any other statute, at common law or otherwise, which (i) may be based
upon any wrongful act by the Company, any of its employees or
representatives, any affiliate of or any person acting on behalf of the
Company or a principal underwriter of its insurance products, or (ii) may
be based upon any untrue statement or alleged untrue statement of a
material fact contained in a registration statement or prospectus covering
Shares or any amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such
a statement or omission was made in reliance upon information furnished to
the Fund by the Company, or (iii) may be based on any untrue statement or
alleged untrue statement of a material fact contained in a registration
statement or prospectus covering insurance products sold by the Company or
any insurance company which is an affiliate thereof, or any amendments or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statement or statements therein not misleading, unless such statement or
omission was made in reliance upon information furnished to the Company or
such affiliate by or on behalf of the Fund; provided, however, that in no
case (i) is the Company's indemnity in favor of a Trustee or officer or any
other person deemed to protect such Trustee or officer or other person
against any liability to which any such person would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of his duties or by reason of his reckless disregard of
obligations and duties under this Agreement or (ii) is the Company to be
liable under its indemnity agreement contained in this Paragraph 5 with
respect to any claim made against the Fund or any person indemnified unless
the Fund or such person, as the case may be, shall have notified the
Company in writing pursuant to Paragraph 10 within a reasonable time after
the summons or other first legal process giving information of the nature
of the claims shall have been served upon the Fund or upon such person (or
after the Fund or such person shall have received notice of such service on
any designated agent), but failure to notify the Company of any such claim
shall not relieve the Company from any liability which it has to the Fund
or any person against whom such action is brought otherwise than on account
of its indemnity agreement contained in this Paragraph 5. The Company shall
be entitled to participate, at its own expense, in the defense, or, if it
so elects, to assume the defense of any suit brought to enforce any such
liability, but, if it elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to the Fund, to its
officers and Trustees, or to any controlling person or persons, defendant
or defendants in the suit. In the event that the Company elects to assume
the defense of any such suit and retain such counsel, the Fund, such
officers and Trustees or controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them, but, in case the Company does not elect to assume
the defense of any such suit, the Company will reimburse the Fund, such
officers and Trustees or controlling person or persons, defendant or
defendants in such suit, for the reasonable fees and expenses of any
counsel retained by them. The Company agrees promptly to notify the Fund
pursuant to Paragraph 10 of the commencement of any litigation or
proceedings against it in connection with the issue and sale of any Shares.
b. The Fund agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who controls
the Company within the meaning of Section 15 of the Act against any and all
losses, claims, damages, liabilities or litigation (including legal and
other expenses) to which it or such directors, officers or controlling
person may become subject under the Act, under any other statute, at common
law or otherwise, arising out of the acquisition of any Shares by any
person which (i) may be based upon any wrongful act by the Fund, any of its
employees or representatives or a principal underwriter of the Fund, or
(ii) may be based upon any untrue statement or alleged untrue statement of
a material fact contained in a registration statement or prospectus
covering Shares or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading unless such statement or omission was made in reliance upon
information furnished to the Fund by the Company or (iii) may be based on
any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering insurance
products sold by the Company, or any amendment or supplement thereto, or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance
upon information furnished to the Company by or on behalf of the Fund;
provided, however, that in no case (i) is the Fund's indemnity in favor of
a director or officer or any other person deemed to protect such director
or officer or other person against any liability to which any such person
would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of his duties or by reason of his
reckless disregard of obligations and duties under this Agreement or (ii)
is the Fund to be liable under its indemnity agreement contained in this
Paragraph 5 with respect to any claims made against the Company or any such
director, officer or controlling person unless it or such director, officer
or controlling person, as the case may be, shall have notified the Fund in
writing pursuant to Paragraph 10 within a reasonable time after the summons
or other first legal process giving information of the nature of the claim
shall have been served upon it or upon such director, officer or
controlling person (or after the Company or such director, officer or
controlling person shall have received notice of such service on any
designated agent), but failure to notify the Fund of any claim shall not
relieve it from any liability which it may have to the person against whom
such action is brought otherwise than on account of its indemnity agreement
contained in this Paragraph. The Fund will be entitled to participate at
its own expense in the defense, or, if it so elects, to assume the defense
of any suit brought to enforce any such liability, but if the Fund elects
to assume the defense, such defense shall be conducted by counsel chosen by
it and satisfactory to the Company, its directors, officers or controlling
person or persons, defendant or defendants, in the suit. In the event the
Fund elects to assume the defense of any such suit and retain such counsel,
the Company, its directors, officers or controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of
any additional counsel retained by them, but, in case the Fund does not
elect to assume the defense of any such suit, it will reimburse the Company
or such directors, officers or controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Fund agrees promptly to notify the Company pursuant
to Paragraph 10 of the commencement of any litigation or proceedings
against it or any of its officers or Trustees in connection with the
issuance or sale of any Shares.
6. Procedure for Resolving Irreconcilable Conflicts.
(a) The Trustees of the Fund will monitor the operations of the
Fund for the existence of any material irreconcilable conflict among the
interests of all the contract holders and policy owners of Variable
Insurance Products (the "Participants") of all separate accounts investing
in the Fund. An irreconcilable material conflict may arise, among other
things, from: (a) an action by any state insurance regulatory authority;
(b) a change in applicable insurance laws or regulations; (c) a tax ruling
or provision of the Internal Revenue Code or the regulations thereunder;
(d) any other development relating to the tax treatment of insurers,
contract holders or policy owners or beneficiaries of Variable Insurance
Products; (e) the manner in which the investments of any Portfolio are
being managed; (f) a difference in voting instructions given by variable
annuity contract holders, on the one hand, and variable life insurance
policy owners, on the other hand, or by the contract holders or policy
owners of different participating insurance companies; or (g) a decision by
an insurer to override the voting instructions of Participants.
(b) The Company will be responsible for reporting any potential or
existing conflicts to the Trustees of the Fund. The Company will be
responsible for assisting the Trustees in carrying out their
responsibilities under this Paragraph 6(b) and Paragraph 6(a), by providing
the Trustees with all information reasonably necessary for the Trustees to
consider the issues raised. The Fund will also request its investment
adviser to report to the Trustees any such conflict which comes to the
attention of the adviser.
(c) If it is determined by a majority of the Trustees of the Fund, or
a majority of its disinterested Trustees, that a material irreconcilable
conflict exists involving the Company, the Fund shall promptly inform the
Company that a material irreconcilable conflict exists. The Company shall,
at its expense, and to the extent reasonably practicable (as determined by
a majority of the disinterested Trustees), take whatever steps are
necessary to eliminate the irreconcilable material conflict, including
withdrawing the assets allocable to some or all of the separate accounts
from the Fund or any Portfolio and reinvesting such assets in a different
investment medium, including another Portfolio of the Fund, offering to the
affected Participants the option of making such a change or establishing a
new funding medium including a registered investment company.
For purposes of this Paragraph 6(c), the Trustees, or the
disinterested Trustees, shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict. In the event of a
determination of the existence of an irreconcilable material conflict, the
Trustees shall cause the Fund to take such action, such as the
establishment of one or more additional Portfolios, as they in their sole
discretion determine to be in the interest of all shareholders and
Participants in view of all applicable factors, such as cost, feasibility,
tax, regulatory and other considerations. In no event will the Fund be
required by this Paragraph 6(c) to establish a new funding medium for any
variable contract or policy.
The Company shall not be required by this Paragraph 6(c) to establish
a new funding medium for any variable contract or policy if an offer to do
so has been declined by a vote of a majority of the Participants materially
adversely affected by the material irreconcilable conflict. The Company
will recommend to its Participants that they decline an offer to establish
a new funding medium only if the Company believes it is in the best
interest of the Participants.
(d) The Trustees' determination of the existence of an irreconcilable
material conflict and its implications promptly shall be communicated to
all Participating Insurance Companies by written notice thereof delivered
or mailed, first class postage prepaid.
7. Voting Privileges.
The Company shall be responsible for assuring that its separate
account or accounts participating in the Fund shall use a calculation
method of voting procedures substantially the same as the following: those
Participants permitted to give instructions and the number of Shares for
which instructions may be given will be determined as of the record date
for the Fund shareholders' meeting, which shall not be more than 60 days
before the date of the meeting. Whether or not voting instructions are
actually given by a particular Participant, all Fund shares held in any
separate account or sub-account thereof and attributable to policies will
be voted for, against, or withheld from voting on any proposition in the
same proportion as (i) the aggregate record date cash value held in such
sub-account for policies giving instructions, respectively, to vote for,
against, or withhold votes on such proposition, bears to (ii) the aggregate
record date cash value held in the sub-account for all policies for which
voting instructions are received. Participants continued in effect under
lapse options will not be permitted to give voting instructions. Shares
held in any other insurance company general or separate account or sub-
account thereof will be voted in the proportion specified in the second
preceding sentence for shares attributable to policies.
8. Duration and Termination.
This Agreement shall remain in force for the period ending five years
from the date of its execution (such date and any anniversary of such date
being hereinafter called a "Renegotiation Date"), and from year to year
thereafter provided that neither the Company nor the Fund shall have given
written notice to the other within thirty (30) days prior to a
Renegotiation Date that it desires to renegotiate the amount of
contribution to capital due hereunder ("Renegotiation Notice"). If a
Renegotiation Notice is properly given as aforesaid and the Fund and the
Company shall fail, within sixty (60) days after the Renegotiation Date,
either to enter into an amendment to this Agreement or a written
acknowledgment that the Agreement shall continue in effect, this Agreement
shall terminate as of the one hundred twentieth day after such
Renegotiation Date. If this Agreement is so terminated, the Fund may, at
any time thereafter, redeem the Shares of ant Portfolio held by a
Participating Shareholder. The Fund agrees that it will not effect such
redemption during the period following the Company's filing of a notice
with the Securities and Exchange Commission (the "SEC") to obtain approval
to make a substitution for the Shares provided, however, the Company has
filed such notice with the SEC promptly following the sixtieth day after
the Renegotiation Date. This Agreement may be terminated at any time, at
the option of either of the Company or the Fund, when neither the Company,
any insurance company nor the separate account or accounts of such
insurance company which is an affiliate thereof which is not a
Participating Insurance Company own any Shares of the Fund or may be
terminated by either party to the Agreement upon a determination by a
majority of the Trustees of the Fund, or a majority of its disinterested
Trustees, following certification thereof by a Participating Insurance
Company given in accordance with Paragraph 10 that an irreconcilable
conflict exists among the interests of (i) all contract holders and
policyholders of Variable Insurance Products of all separate accounts or
(ii) the interests of the Participating Insurance Companies investing in
the Fund. Notwithstanding anything to the contrary in this Agreement or its
termination as provided herein, the Company's obligation to make a capital
contribution to the Fund in accordance with this Agreement at the time in
effect shall continue (i) following a properly given Renegotiation Notice,
in the absence of agreement otherwise, until termination of this Agreement,
and (ii) (except termination due to the existence of an irreconcilable
conflict), following termination of this Agreement, until the later of the
fifth anniversary of the date of this Agreement or the date on which the
Company, its separate account(s) or the separate account(s) of any
affiliated insurance company owns no Shares.
9. Compliance.
The Fund will comply with the provisions of Section 4240(a) of the New
York Insurance Law.
Each Portfolio of the Fund will comply with the provisions of Section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"),
relating to diversification requirements for variable annuity, endowment
and life insurance contracts. Specifically, each Portfolio will comply
with either (i) the requirement of Section 817(h)(1) of the Code that its
assets be adequately diversified, or (ii) the "Safe Harbor for
Diversification" specified in Section 817(h)(2) of the Code, or (iii) the
diversification requirement of Section 817(h)(1) of the Code by having all
or part of its assets invested in U.S. Treasury securities which qualify
for the "Special Rule for Investments in United States Obligations"
specified in Section 817(h)(3) of the Code.
The provisions of Paragraphs 6 and 7 of this Agreement shall be
interpreted in a manner consistent with any Rule or order of the Securities
and Exchange Commission under the Investment Company Act of 1940, as
amended, applicable to the parties hereto.
No Shares of any Portfolio of the Fund may be sold to the general
public.
10. Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify
in writing to the other party.
If to the Fund:
Scudder Variable Life Investment Fund
175 Federal Street
Boston, Massachusetts 02110
(617) 482-3990
Attn: David B. Watts
If to the Company:
Provident Mutual Life Insurance Company of Philadelphia
P.O. Box 7378
Philadelphia, Pennsylvania 19109
Attn:
and
Providentmutual Life and Annuity Company of America
300 Continental Drive
Newark, Delaware 19713
11. Massachusetts Law to Apply.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
12. Miscellaneous.
The name "Scudder Variable Life Investment Fund" is the designation of
the Trustees for the time being under a Declaration of Trust dated March
15, 1985, as amended, and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims
against the Fund as neither the Trustees, officers, agents or shareholders
assume any personal liability for obligations entered into on behalf of the
Fund. No Portfolio shall be liable for any obligations properly
attributable to any other Portfolio.
The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect. This Agreement may
be executed simultaneously in two or more counterparts, each of which taken
together shall constitute one and the same instrument.
13. Entire Agreement.
This Agreement incorporates the entire understanding and agreement
among the parties hereto, and supersedes any and all prior understandings
and agreements between the parties hereto with respect to the subject
matter hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the 21st
day of July, 1993.
SEAL SCUDDER VARIABLE LIFE
INVESTMENT FUND
By: /s/David B. Watts
President
SEAL PROVIDENT MUTUAL LIFE INSURANCE
COMPANY OF PHILADELPHIA
By: /s/ L.J. Rowell, Jr.
Its: Chairman, President and CEO
SEAL PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA
By: /s/Alfred F. Wilmouth
Its: President
Exhibit 9(c)(28)
PARTICIPATION AGREEMENT
PARTICIPATION AGREEMENT (the "Agreement") made by and between SCUDDER
VARIABLE LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust
created under a Declaration of Trust dated March 15, 1985, as amended, with
a principal place of business in Boston, Massachusetts and UNITED OF OMAHA
LIFE INSURANCE COMPANY, a Nebraska corporation (the "Company"), with a
principal place of business in Omaha, Nebraska on behalf of Separate
Account C, a separate account of the Company, and any other separate
account of the Company as designated by the Company from time to time, upon
written notice to the Fund in accordance with Section 10 herein (each, an
"Account").
WHEREAS, the Fund acts as the investment vehicle for the separate
accounts established for variable life insurance policies and variable
annuity contracts (collectively referred to herein as "Variable Insurance
Products") to be offered by insurance companies which have entered into
participation agreements substantially identical to this Agreement
("Participating Insurance Companies") and their affiliated insurance
companies; and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares of beneficial interest ("Shares"), and additional series
of Shares may be established, each designated a "Portfolio" and
representing the interest in a particular managed portfolio of securities;
and
WHEREAS, it is in the best interest of Participating Insurance
Companies to make capital contributions if required so that the annual
expenses of each Portfolio of the Fund in which a Participating Insurance
Company is a shareholder will not exceed a fixed percentage of the
Portfolio's average annual net assets; and
WHEREAS, the Parties desire to evidence their agreement as to certain
other matters,
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:
1. Additional Definitions.
For the purposes of this Agreement, the following definitions shall
apply:
(a) The "expenses of a Portfolio" for any fiscal year shall mean
the expenses for such fiscal year as shown in the Statement of Operations
(or similar report) certified by the Fund's independent public accountants;
(b) A "Portfolio's average daily net assets" for each fiscal
year shall mean the sum of the net asset values determined throughout the
year for the purpose of determining net asset value per Share, divided by
the number of such determinations during such year;
(c) The Company's "Required Contribution" on behalf of the
Account in respect of a Portfolio for any fiscal year shall mean an amount
equal to the expenses of that Portfolio for such year minus the below-
indicated percentage of that Portfolio's average daily net assets for the
year:
International Portfolio. . . . . . . . . . 1.50%
Each other Portfolio. . . . . . . . . . . . 0.75%
multiplied by a fraction the denominator of which is the average daily net
assets of that Portfolio and the numerator of which is the average daily
net asset value of the Shares of that Portfolio owned by the Account
(referred to herein as a "Participating Shareholder"). The Company's
Required Contribution in respect of a Portfolio shall be pro-rated based on
the number of business days on which this Agreement is in effect for
periods of less than a fiscal year.
(d) The "average daily net asset value of the Shares of the
Portfolio" owned by the Account for any fiscal year of the Fund shall mean
the greater of (i) $500,000 or (ii) the sum of the aggregate net asset
values of the Shares so owned determined during the fiscal year, as of each
determination of the net asset value per Share, divided by the total number
of determinations of net asset value during such year.
(e) "Shares" means shares of beneficial interest, without par
value, of any Portfolio, now or hereafter created, of the Fund.
2. Capital Contribution. The Company on behalf of the Account
shall, within sixty days after the end of each fiscal year of the Fund,
make a capital contribution to the Fund in respect of each Portfolio equal
to the Required Contribution for that Portfolio for such year; provided,
however, that in the event that both clauses (i) and (ii) of paragraph (d)
of Section 1 of this Agreement or similar agreements are applicable to
different Participating Insurance Companies during the same fiscal year,
there shall be a proportionate reduction of the Required Contribution of
each Participating Insurance Company to which said clause (ii) is
applicable so that the total of all required capital contributions to the
Fund on behalf of any Portfolio is not greater than the excess of the
expenses of that Portfolio for that fiscal year less the percentage of that
Portfolio's total expenses set forth in paragraph (c) of Section 1 of this
Agreement for such fiscal year.
3. Duty of Fund to Sell.
The Fund shall make its Shares available for purchase at the
applicable net asset value per Share by Participating Insurance Companies
and their affiliates and separate accounts on those days on which the Fund
calculates its net asset value pursuant to rules of the Securities and
Exchange Commission; provided, however, that the Trustees of the Fund may
refuse to sell Shares of any Portfolio to any person, or suspend or
terminate the offering of Shares of any Portfolio, if such action is
required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Trustees, necessary in the best interest of the
shareholders of any Portfolio.
4. Requirement to Execute Participation Agreement; Requests. Each
Participating Insurance Company shall, prior to purchasing Shares in the
Fund, execute and deliver a participation agreement in a form substantially
identical to this Agreement.
The Fund shall make available, upon written request from the
Participating Insurance Company given in accordance with Paragraph 10, to
each Participating Insurance Company which has executed an Agreement and
which Agreement has not been terminated pursuant to Paragraph 8 (i) a list
of all other Participating Insurance Companies, and (ii) a copy of the
Agreement as executed by any other Participating Insurance Company.
The Fund shall also make available upon request to each Participating
Insurance Company which has executed an Agreement and which Agreement has
not been terminated pursuant to Paragraph 8, the net asset value of any
Portfolio of the Fund as of any date upon which the Fund calculates the net
asset value of its Portfolios for the purpose of purchase and redemption of
Shares.
5. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Fund and
each of its Trustees and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the Securities Act of 1933 (the
"Act") against any and all losses, claims, damages, liabilities or
litigation (including legal and other expenses), arising out of the
acquisition of any Shares by any person, to which the Fund or such
Trustees, officers or controlling person may become subject under the Act,
under any other statute, at common law or otherwise, which (i) may be based
upon any wrongful act by the Company, any of its employees or
representatives, any affiliate of or any person acting on behalf of the
Company or a principal underwriter of its insurance products, or (ii) may
be based upon any untrue statement or alleged untrue statement of a
material fact contained in a registration statement or prospectus covering
Shares or any amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such
a statement or omission was made in reliance upon information furnished to
the Fund by the Company, or (iii) may be based on any untrue statement or
alleged untrue statement of a material fact contained in a registration
statement or prospectus covering insurance products sold by the Company or
any insurance company which is an affiliate thereof, or any amendments or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statement or statements therein not misleading, unless such statement or
omission was made in reliance upon information furnished to the Company or
such affiliate by or on behalf of the Fund; provided, however, that in no
case (i) is the Company's indemnity in favor of a Trustee or officer or any
other person deemed to protect such Trustee or officer or other person
against any liability to which any such person would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of his duties or by reason of his reckless disregard of
obligations and duties under this Agreement or (ii) is the Company to be
liable under its indemnity agreement contained in this Paragraph 5 with
respect to any claim made against the Fund or any person indemnified unless
the Fund or such person, as the case may be, shall have notified the
Company in writing pursuant to Paragraph 10 within a reasonable time after
the summons or other first legal process giving information of the nature
of the claims shall have been served upon the Fund or upon such person (or
after the Fund or such person shall have received notice of such service on
any designated agent), but failure to notify the Company of any such claim
shall not relieve the Company from any liability which it has to the Fund
or any person against whom such action is brought otherwise than on account
of its indemnity agreement contained in this Paragraph 5. The Company shall
be entitled to participate, at its own expense, in the defense, or, if it
so elects, to assume the defense of any suit brought to enforce any such
liability, but, if it elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to the Fund, to its
officers and Trustees, or to any controlling person or persons, defendant
or defendants in the suit. In the event that the Company elects to assume
the defense of any such suit and retain such counsel, the Fund, such
officers and Trustees or controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them, but, in case the Company does not elect to assume
the defense of any such suit, the Company will reimburse the Fund, such
officers and Trustees or controlling person or persons, defendant or
defendants in such suit, for the reasonable fees and expenses of any
counsel retained by them. The Company agrees promptly to notify the Fund
pursuant to Paragraph 10 of the commencement of any litigation or
proceedings against it in connection with the issue and sale of any Shares.
(b) The Fund agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who controls
the Company within the meaning of Section 15 of the Act against any and all
losses, claims, damages, liabilities or litigation (including legal and
other expenses) to which it or such directors, officers or controlling
person may become subject under the Act, under any other statute, at common
law or otherwise, arising out of the acquisition of any Shares by any
person which (i) may be based upon any wrongful act by the Fund, any of its
employees or representatives or a principal underwriter of the Fund, or
(ii) may be based upon any untrue statement or alleged untrue statement of
a material fact contained in a registration statement or prospectus
covering Shares or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading unless such statement or omission was made in reliance upon
information furnished to the Fund by the Company or (iii) may be based on
any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering insurance
products sold by the Company, or any amendment or supplement thereto, or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance
upon information furnished to the Company by or on behalf of the Fund;
provided, however, that in no case (i) is the Fund's indemnity in favor of
a director or officer or any other person deemed to protect such director
or officer or other person against any liability to which any such person
would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of his duties or by reason of his
reckless disregard of obligations and duties under this Agreement or (ii)
is the Fund to be liable under its indemnity agreement contained in this
Paragraph 5 with respect to any claims made against the Company or any such
director, officer or controlling person unless it or such director, officer
or controlling person, as the case may be, shall have notified the Fund in
writing pursuant to Paragraph 10 within a reasonable time after the summons
or other first legal process giving information of the nature of the claim
shall have been served upon it or upon such director, officer or
controlling person (or after the Company or such director, officer or
controlling person shall have received notice of such service on any
designated agent), but failure to notify the Fund of any claim shall not
relieve it from any liability which it may have to the person against whom
such action is brought otherwise than on account of its indemnity agreement
contained in this Paragraph. The Fund will be entitled to participate at
its own expense in the defense, or, if it so elects, to assume the defense
of any suit brought to enforce any such liability, but if the Fund elects
to assume the defense, such defense shall be conducted by counsel chosen by
it and satisfactory to the Company, its directors, officers or controlling
person or persons, defendant or defendants, in the suit. In the event the
Fund elects to assume the defense of any such suit and retain such counsel,
the Company, its directors, officers or controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of
any additional counsel retained by them, but, in case the Fund does not
elect to assume the defense of any such suit, it will reimburse the Company
or such directors, officers or controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Fund agrees promptly to notify the Company pursuant
to Paragraph 10 of the commencement of any litigation or proceedings
against it or any of its officers or Trustees in connection with the
issuance or sale of any Shares.
6. Procedure for Resolving Irreconcilable Conflicts.
(a) The Trustees of the Fund will monitor the operations of the
Fund for the existence of any material irreconcilable conflict among the
interests of all the contract holders and policy owners of Variable
Insurance Products (the "Participants") of all separate accounts investing
in the Fund. An irreconcilable material conflict may arise, among other
things, from: (a) an action by any state insurance regulatory authority;
(b) a change in applicable insurance laws or regulations; (c) a tax ruling
or provision of the Internal Revenue Code or the regulations thereunder;
(d) any other development relating to the tax treatment of insurers,
contract holders or policy owners or beneficiaries of Variable Insurance
Products; (e) the manner in which the investments of any Portfolio are
being managed; (f) a difference in voting instructions given by variable
annuity contract holders, on the one hand, and variable life insurance
policy owners, on the other hand, or by the contract holders or policy
owners of different participating insurance companies; or (g) a decision by
an insurer to override the voting instructions of Participants.
(b) The Company will be responsible for reporting any potential or
existing conflicts to the Trustees of the Fund. The Company will be
responsible for assisting the Trustees in carrying out their
responsibilities under this Paragraph 6(b) and Paragraph 6(a), by providing
the Trustees with all information reasonably necessary for the Trustees to
consider the issues raised. The Fund will also request its investment
adviser to report to the Trustees any such conflict which comes to the
attention of the adviser.
(c) If it is determined by a majority of the Trustees of the Fund, or
a majority of its disinterested Trustees, that a material irreconcilable
conflict exists involving the Company, the Company shall, at its expense,
and to the extent reasonably practicable (as determined by a majority of
the disinterested Trustees), take whatever steps are necessary to eliminate
the irreconcilable material conflict, including withdrawing the assets
allocable to some or all of the separate accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including another Portfolio of the Fund, offering to the affected
Participants the option of making such a change or establishing a new
funding medium including a registered investment company.
For purposes of this Paragraph 6(c), the Trustees, or the
disinterested Trustees, shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict. In the event of a
determination of the existence of an irreconcilable material conflict, the
Trustees shall cause the Fund to take such action, such as the
establishment of one or more additional Portfolios, as they in their sole
discretion determine to be in the interest of all shareholders and
Participants in view of all applicable factors, such as cost, feasibility,
tax, regulatory and other considerations. In no event will the Fund be
required by this Paragraph 6(c) to establish a new funding medium for any
variable contract or policy.
The Company shall not be required by this Paragraph 6(c) to establish
a new funding medium for any variable contract or policy if an offer to do
so has been declined by a vote of a majority of the Participants materially
adversely affected by the material irreconcilable conflict. The Company
will recommend to its Participants that they decline an offer to establish
a new funding medium only if the Company believes it is in the best
interest of the Participants.
(d) The Trustees' determination of the existence of an irreconcilable
material conflict and its implications promptly shall be communicated to
all Participating Insurance Companies by written notice thereof delivered
or mailed, first class postage prepaid.
7. Voting Privileges.
The Company shall be responsible for assuring that its separate
account or accounts participating in the Fund shall use a calculation
method of voting procedures substantially the same as the following: those
Participants permitted to give instructions and the number of Shares for
which instructions may be given will be determined as of the record date
for the Fund shareholders' meeting, which shall not be more than 60 days
before the date of the meeting. Whether or not voting instructions are
actually given by a particular Participant, all Fund shares held in any
separate account or sub-account thereof and attributable to policies will
be voted for, against, or withheld from voting on any proposition in the
same proportion as (i) the aggregate record date cash value held in such
sub-account for policies giving instructions, respectively, to vote for,
against, or withhold votes on such proposition, bears to (ii) the aggregate
record date cash value held in the sub-account for all policies for which
voting instructions are received. Participants continued in effect under
lapse options will not be permitted to give voting instructions. Shares
held in any other insurance company general or separate account or sub-
account thereof will be voted in the proportion specified in the second
preceding sentence for shares attributable to policies.
8. Duration and Termination.
This Agreement shall remain in force for the period ending five years
from the date of its execution (such date and any anniversary of such date
being hereinafter called a "Renegotiation Date"), and from year to year
thereafter provided that neither the Company nor the Fund shall have given
written notice to the other within thirty (30) days prior to a
Renegotiation Date that it desires to renegotiate the amount of
contribution to capital due hereunder ("Renegotiation Notice"). If a
Renegotiation Notice is properly given as aforesaid and the Fund and the
Company shall fail, within sixty (60) days after the Renegotiation Date,
either to enter into an amendment to this Agreement or a written
acknowledgment that the Agreement shall continue in effect, this Agreement
shall terminate as of the one hundred twentieth day after such
Renegotiation Date. If this Agreement is so terminated, the Fund may, at
any time thereafter, automatically redeem the Shares of any Portfolio held
by a Participating Shareholder. This Agreement may be terminated at any
time, at the option of either of the Company or the Fund, when neither the
Company, any insurance company nor the separate account or accounts of such
insurance company which is an affiliate thereof which is not a
Participating Insurance Company own any Shares of the Fund or may be
terminated by either party to the Agreement upon a determination by a
majority of the Trustees of the Fund, or a majority of its disinterested
Trustees, following certification thereof by a Participating Insurance
Company given in accordance with Paragraph 10 that an irreconcilable
conflict exists among the interests of (i) all contract holders and policy
holders of Variable Insurance Products of all separate accounts or (ii) the
interests of the Participating Insurance Companies investing in the Fund.
Notwithstanding anything to the contrary in this Agreement or its
termination as provided herein, the Company's obligation to make a capital
contribution to the Fund in accordance with this Agreement at the time in
effect shall continue (i) following a properly given Renegotiation Notice,
in the absence of agreement otherwise, until termination of this Agreement,
and (ii) (except termination due to the existence of an irreconcilable
conflict), following termination of this Agreement, until the later of the
fifth anniversary of the date of this Agreement or the date on which the
Company, its separate account(s) or the separate account(s) of any
affiliated insurance company owns no Shares.
9. Compliance.
The Fund will comply with the provisions of Section 4240(a) of the New
York Insurance Law.
Each Portfolio of the Fund will comply with the provisions of Section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"),
relating to diversification requirements for variable annuity, endowment
and life insurance contracts. Specifically, each Portfolio will comply
with either (i) the requirement of Section 817(h)(1) of the Code that its
assets be adequately diversified, or (ii) the "Safe Harbor for
Diversification" specified in Section 817(h)(2) of the Code, or (iii) the
diversification requirement of Section 817(h)(1) of the Code by having all
or part of its assets invested in U.S. Treasury securities which qualify
for the "Special Rule for Investments in United States Obligations"
specified in Section 817(h)(3) of the Code.
The provisions of Paragraphs 6 and 7 of this Agreement shall be
interpreted in a manner consistent with any Rule or order of the Securities
and Exchange Commission under the Investment Company Act of 1940, as
amended, applicable to the parties hereto.
No Shares of any Portfolio of the Fund may be sold to the general
public.
10. Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify
in writing to the other party.
If to the Fund:
Scudder Variable Life Investment Fund
175 Federal Street
Boston, Massachusetts 02110
(617) 482-3990
Attn: David B. Watts
If to the Company:
United of Omaha Life Insurance Company
Mutual of Omaha Plaza
Law Division
3301 Dodge Street
Omaha, Nebraska 68131
Attn: Chief Counsel
11. Massachusetts Law to Apply.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
12. Miscellaneous.
The name "Scudder Variable Life Investment Fund" is the designation of
the Trustees for the time being under a Declaration of Trust dated March
15, 1985, as amended, and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims
against the Fund as neither the Trustees, officers, agents or shareholders
assume any personal liability for obligations entered into on behalf of the
Fund. No Portfolio shall be liable for any obligations properly
attributable to any other Portfolio.
The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect. This Agreement may
be executed simultaneously in two or more counterparts, each of which taken
together shall constitute one and the same instrument.
13. Entire Agreement.
This Agreement incorporates the entire understanding and agreement
among the parties hereto, and supersedes any and all prior understandings
and agreements between the parties hereto with respect to the subject
matter hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the 15th
day of May, 1994.
SEAL SCUDDER VARIABLE LIFE
INVESTMENT FUND
By: /s/David B. Watts
David B. Watts
President
SEAL UNITED OF OMAHA LIFE INSURANCE
COMPANY
By: /s/Richard A. Witt
Its: ________________________________
Richard A. Witt
Senior Vice President
Exhibit 9(c)(29)
FIRST AMENDMENT
to the
PARTICIPATION AGREEMENT
This First Amendment, executed as of the 23rd day of January, 1995, is by
and among United of Omaha Life Insurance Company (the "Company"), Companion
Life Insurance Company of New York (the "Subsidiary") and Scudder Variable
Life Investment Fund (the "Fund"); and
WHEREAS, the Company and the Fund are parties to a Participation Agreement
dated May 15, 1994 on behalf of Separate Account C (the "Agreement");
WHEREAS, in order to engage in the business of selling variable life and
annuity products in New York, the Company must have a New York domiciled
subsidiary;
WHEREAS, the Subsidiary is a New York corporation and engaged in the
business of selling variable life and annuity products; and
WHEREAS, the Company and the Fund now desire to modify the Agreement to
extend the terms and conditions of the Agreement to the Subsidiary and any
other subsidiary of the Company, as designated by the Company from time to
time, upon written notice to the Fund in accordance with Section 10 herein
(each, a "subsidiary").
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements hereinafter contained, the parties hereto agree as follows:
1. The opening paragraph of the Agreement is hereby amended to
read as follows:
PARTICIPATION AGREEMENT (the "Agreement") made by and among
SCUDDER VARIABLE LIFE INVESTMENT FUND (the "Fund"), a
Massachusetts business trust created under a Declaration of
Trust dated March 15, 1985, as amended, with a principal
place of business in Boston, Massachusetts, UNITED OF OMAHA
LIFE INSURANCE COMPANY, a Nebraska corporation, with its
principal place of business in Omaha, Nebraska, and
COMPANION LIFE INSURANCE COMPANY OF NEW YORK, a New York
corporation, with a principal place of business in Rye, New
York, and any other subsidiary of United of Omaha Life
Insurance Company, as designated by United of Omaha Life
Insurance Company, upon written notice to the Fund in
accordance with Section 10 herein (together, the "Company"),
on behalf of Separate Account C, a separate account of the
Company, and any other separate account of the Company as
designated by the Company from time to time, upon written
notice to the Fund in accordance with Section 10 herein
(each, an "Account").
2. Any notice given to the Subsidiary pursuant to Section 10 of
the Agreement shall be given to Companion Life Insurance Company
of New York, 401 Theodore Fremd Avenue, Rye, New York 10580-
1493, Attention: Dan Varona, General Counsel.
3. The following paragraph is hereby added to Section 12.
Miscellaneous:
Companion Life Insurance Company of New York is a wholly-
owned subsidiary of United of Omaha Life Insurance Company,
and each Company shall be jointly and severally responsible
for obligations of the Company under the Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the date first above written.
SCUDDER VARIABLE LIFE INVESTMENT FUND
By: /s/David B. Watts
Name: David B. Watts
Title: President
UNITED OF OMAHA LIFE INSURANCE COMPANY
By: /s/Richard A. Witt
Name: Richard A. Witt
Title: Senior Vice President
COMPANION LIFE INSURANCE COMPANY
OF NEW YORK
By: /s/Richard A. Witt
Name: Richard A. Witt
Title: Second Vice President
& Assistant Treasurer
By: /s/M.G. Echtenkamp
Name: M.G. Echtenkamp
Title: Second Vice President
& Assistant Treasurer
Exhibit 9(c)(30)
PARTICIPATION AGREEMENT
PARTICIPATION AGREEMENT (the "Agreement") made by and between SCUDDER
VARIABLE LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust
created under a Declaration of Trust dated March 15, 1985, as amended, with
a principal place of business in Boston, Massachusetts and USAA LIFE
INSURANCE COMPANY, a Texas corporation (the "Company"), with a principal
place of business in San Antonio, Texas on behalf of the Separate Account
of USAA Life Insurance Company, a separate account of the Company, and any
other separate account of the Company as designated by the Company from
time to time, upon written notice to the Fund in accordance with Section 10
herein (each, an "Account").
WHEREAS, the Fund acts as the investment vehicle for the separate
accounts established for variable life insurance policies and variable
annuity contracts (collectively referred to herein as "Variable Insurance
Products") to be offered by insurance companies which have entered into
participation agreements substantially identical to this Agreement
("Participating Insurance Companies") and their affiliated insurance
companies; and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares of beneficial interest ("Shares"), and additional series
of Shares may be established, each designated a "Portfolio" and
representing the interest in a particular managed portfolio of securities;
and
WHEREAS, it is in the best interest of Participating Insurance
Companies to make capital contributions if required so that the annual
expenses of each Portfolio of the Fund in which a Participating Insurance
Company is a shareholder will not exceed a fixed percentage of the
Portfolio's average annual net assets; and
WHEREAS, the Parties desire to evidence their agreement as to certain
other matters,
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:
1. Additional Definitions.
For the purposes of this Agreement, the following definitions shall
apply:
(a) The "expenses of a Portfolio" for any fiscal year shall mean
the expenses for such fiscal year as shown in the Statement of Operations
(or similar report) certified by the Fund's independent public accountants;
(b) A "Portfolio's average daily net assets" for each fiscal
year shall mean the sum of the net asset values determined throughout the
year for the purpose of determining net asset value per Share, divided by
the number of such determinations during such year;
(c) The Company's "Required Contribution" on behalf of the
Account in respect of a Portfolio for any fiscal year shall mean an amount
equal to the expenses of that Portfolio for such year minus the below-
indicated percentage of that Portfolio's average daily net assets for the
year:
International Portfolio. . . . . . . . . . 1.50%
Each other Portfolio. . . . . . . . . . . . 0.75%
multiplied by a fraction the denominator of which is the average daily net
assets of that Portfolio and the numerator of which is the average daily
net asset value of the Shares of that Portfolio owned by the Account
(referred to herein as a "Participating Shareholder"). The Company's
Required Contribution in respect of a Portfolio shall be pro-rated based on
the number of business days on which this Agreement is in effect for
periods of less than a fiscal year.
(d) The "average daily net asset value of the Shares of the
Portfolio" owned by the Account for any fiscal year of the Fund shall mean
the greater of (i) $500,000 or (ii) the sum of the aggregate net asset
values of the Shares so owned determined during the fiscal year, as of each
determination of the net asset value per Share, divided by the total number
of determinations of net asset value during such year.
(e) "Shares" means shares of beneficial interest, without par
value, of any Portfolio, now or hereafter created, of the Fund.
2. Capital Contribution.
The Company on behalf of the Account shall, within sixty days after
the end of each fiscal year of the Fund, make a capital contribution to the
Fund in respect of each Portfolio equal to the Required Contribution for
that Portfolio for such year; provided, however, that in the event that
both clauses (i) and (ii) of paragraph (d) of Section 1 of this Agreement
or similar agreements are applicable to different Participating Insurance
Companies during the same fiscal year, there shall be a proportionate
reduction of the Required Contribution of each Participating Insurance
Company to which said clause (ii) is applicable so that the total of all
required capital contributions to the Fund on behalf of any Portfolio is
not greater than the excess of the expenses of that Portfolio for that
fiscal year less the percentage of that Portfolio's total expenses set
forth in paragraph (c) of Section 1 of this Agreement for such fiscal year.
3. Duty of Fund to Sell.
The Fund shall make its Shares available for purchase at the
applicable net asset value per Share by Participating Insurance Companies
and their affiliates and separate accounts on those days on which the Fund
calculates its net asset value pursuant to rules of the Securities and
Exchange Commission; provided, however, that the Trustees of the Fund may
refuse to sell Shares of any Portfolio to any person, or suspend or
terminate the offering of Shares of any Portfolio, if such action is
required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Trustees, necessary in the best interest of the
shareholders of any Portfolio.
4. Requirement to Execute Participation Agreement; Requests.
Each Participating Insurance Company shall, prior to purchasing Shares
in the Fund, execute and deliver a participation agreement in a form
substantially identical to this Agreement.
The Fund shall make available, upon written request from the
Participating Insurance Company given in accordance with Paragraph 10, to
each Participating Insurance Company which has executed an Agreement and
which Agreement has not been terminated pursuant to Paragraph 8 (i) a list
of all other Participating Insurance Companies, and (ii) a copy of the
Agreement as executed by any other Participating Insurance Company.
The Fund shall also make available upon request to each Participating
Insurance Company which has executed an Agreement and which Agreement has
not been terminated pursuant to Paragraph 8, the net asset value of any
Portfolio of the Fund as of any date upon which the Fund calculates the net
asset value of its Portfolios for the purpose of purchase and redemption of
Shares.
5. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Fund and
each of its Trustees and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the Securities Act of 1933 (the
"Act") against any and all losses, claims, damages, liabilities or
litigation (including legal and other expenses), arising out of the
acquisition of any Shares by any person, to which the Fund or such
Trustees, officers or controlling person may become subject under the Act,
under any other statute, at common law or otherwise, which (i) may be based
upon any wrongful act by the Company, any of its employees or
representatives, any affiliate of or any person acting on behalf of the
Company or a principal underwriter of its insurance products, or (ii) may
be based upon any untrue statement or alleged untrue statement of a
material fact contained in a registration statement or prospectus covering
Shares or any amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such
a statement or omission was made in reliance upon information furnished to
the Fund by the Company, or (iii) may be based on any untrue statement or
alleged untrue statement of a material fact contained in a registration
statement or prospectus covering insurance products sold by the Company or
any insurance company which is an affiliate thereof, or any amendments or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statement or statements therein not misleading, unless such statement or
omission was made in reliance upon information furnished to the Company or
such affiliate by or on behalf of the Fund; provided, however, that in no
case (i) is the Company's indemnity in favor of a Trustee or officer or any
other person deemed to protect such Trustee or officer or other person
against any liability to which any such person would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of his duties or by reason of his reckless disregard of
obligations and duties under this Agreement or (ii) is the Company to be
liable under its indemnity agreement contained in this Paragraph 5 with
respect to any claim made against the Fund or any person indemnified unless
the Fund or such person, as the case may be, shall have notified the
Company in writing pursuant to Paragraph 10 within a reasonable time after
the summons or other first legal process giving information of the nature
of the claims shall have been served upon the Fund or upon such person (or
after the Fund or such person shall have received notice of such service on
any designated agent), but failure to notify the Company of any such claim
shall not relieve the Company from any liability which it has to the Fund
or any person against whom such action is brought otherwise than on account
of its indemnity agreement contained in this Paragraph 5. The Company shall
be entitled to participate, at its own expense, in the defense, or, if it
so elects, to assume the defense of any suit brought to enforce any such
liability, but, if it elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to the Fund, to its
officers and Trustees, or to any controlling person or persons, defendant
or defendants in the suit. In the event that the Company elects to assume
the defense of any such suit and retain such counsel, the Fund, its
officers and Trustees or controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them, but, in case the Company does not elect to assume
the defense of any such suit, the Company will reimburse the Fund, or such
officers and Trustees or controlling person or persons, defendant or
defendants in such suit, for the reasonable fees and expenses of any
counsel retained by them. The Company agrees promptly to notify the Fund
pursuant to Paragraph 10 of the commencement of any litigation or
proceedings against it in connection with the issue and sale of any Shares.
(b) The Fund agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who controls
the Company within the meaning of Section 15 of the Act against any and all
losses, claims, damages, liabilities or litigation (including legal and
other expenses) to which it or such directors, officers or controlling
person may become subject under the Act, under any other statute, at common
law or otherwise, arising out of the acquisition of any Shares by any
person which (i) may be based upon any wrongful act by the Fund, any of its
employees or representatives or a principal underwriter of the Fund, or
(ii) may be based upon any untrue statement or alleged untrue statement of
a material fact contained in a registration statement or prospectus
covering Shares or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading unless such statement or omission was made in reliance upon
information furnished to the Fund by the Company or (iii) may be based on
any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering insurance
products sold by the Company, or any amendment or supplement thereto, or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance
upon information furnished to the Company by or on behalf of the Fund;
provided, however, that in no case (i) is the Fund's indemnity in favor of
a director or officer or any other person deemed to protect such director
or officer or other person against any liability to which any such person
would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of his duties or by reason of his
reckless disregard of obligations and duties under this Agreement or (ii)
is the Fund to be liable under its indemnity agreement contained in this
Paragraph 5 with respect to any claims made against the Company or any such
director, officer or controlling person unless it or such director, officer
or controlling person, as the case may be, shall have notified the Fund in
writing pursuant to Paragraph 10 within a reasonable time after the summons
or other first legal process giving information of the nature of the claim
shall have been served upon it or upon such director, officer or
controlling person (or after the Company or such director, officer or
controlling person shall have received notice of such service on any
designated agent), but failure to notify the Fund of any claim shall not
relieve it from any liability which it may have to the person against whom
such action is brought otherwise than on account of its indemnity agreement
contained in this Paragraph. The Fund will be entitled to participate at
its own expense in the defense, or, if it so elects, to assume the defense
of any suit brought to enforce any such liability, but if the Fund elects
to assume the defense, such defense shall be conducted by counsel chosen by
it and satisfactory to the Company, its directors, officers or controlling
person or persons, defendant or defendants, in the suit. In the event the
Fund elects to assume the defense of any such suit and retain such counsel,
the Company, its directors, officers or controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of
any additional counsel retained by them, but, in case the Fund does not
elect to assume the defense of any such suit, it will reimburse the Company
or such directors, officers or controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Fund agrees promptly to notify the Company pursuant
to Paragraph 10 of the commencement of any litigation or proceedings
against it or any of its officers or Trustees in connection with the
issuance or sale of any Shares.
6. Procedure for Resolving Irreconcilable Conflicts.
(a) The Trustees of the Fund will monitor the operations of the Fund
for the existence of any material irreconcilable conflict among the
interests of all the contract holders and policy owners of Variable
Insurance Products (the "Participants") of all separate accounts investing
in the Fund. An irreconcilable material conflict may arise, among other
things, from: (a) an action by any state insurance regulatory authority;
(b) a change in applicable insurance laws or regulations; (c) a tax ruling
or provision of the Internal Revenue Code or the regulations thereunder;
(d) any other development relating to the tax treatment of insurers,
contract holders or policy owners or beneficiaries of Variable Insurance
Products; (e) the manner in which the investments of any Portfolio are
being managed; (f) a difference in voting instructions given by variable
annuity contract holders, on the one hand, and variable life insurance
policy owners, on the other hand, or by the contract holders or policy
owners of different participating insurance companies; or (g) a decision by
an insurer to override the voting instructions of Participants.
(b) The Company will be responsible for reporting any potential or
existing conflicts to the Trustees of the Fund. The Company will be
responsible for assisting the Trustees in carrying out their
responsibilities under this Paragraph 6(b) and Paragraph 6(a), by providing
the Trustees with all information reasonably necessary for the Trustees to
consider the issues raised. The Fund will also request its investment
adviser to report to the Trustees any such conflict which comes to the
attention of the adviser.
(c) If it is determined by a majority of the Trustees of the Fund, or
a majority of its disinterested Trustees, that a material irreconcilable
conflict exists involving the Company, the Company shall, at its expense,
and to the extent reasonably practicable (as determined by a majority of
the disinterested Trustees), take whatever steps are necessary to eliminate
the irreconcilable material conflict, including withdrawing the assets
allocable to some or all of the separate accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including another Portfolio of the Fund, offering to the affected
Participants the option of making such a change or establishing a new
funding medium including a registered investment company.
For purposes of this Paragraph 6(c), the Trustees, or the
disinterested Trustees, shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict. In the event of a
determination of the existence of an irreconcilable material conflict, the
Trustees shall cause the Fund to take such action, such as the
establishment of one or more additional Portfolios, as they in their sole
discretion determine to be in the interest of all shareholders and
Participants in view of all applicable factors, such as cost, feasibility,
tax, regulatory and other considerations. In no event will the Fund be
required by this Paragraph 6(c) to establish a new funding medium for any
variable contract or policy.
The Company shall not be required by this Paragraph 6(c) to establish
a new funding medium for any variable contract or policy if an offer to do
so has been declined by a vote of a majority of the Participants materially
adversely affected by the material irreconcilable conflict. The Company
will recommend to its Participants that they decline an offer to establish
a new funding medium only if the Company believes it is in the best
interest of the Participants.
(d) The Trustees' determination of the existence of an irreconcilable
material conflict and its implications promptly shall be communicated to
all Participating Insurance Companies by written notice thereof delivered
or mailed, first class postage prepaid.
7. Voting Privileges.
The Company shall be responsible for assuring that its separate
account or accounts participating in the Fund shall use a calculation
method of voting procedures substantially the same as the following: those
Participants permitted to give instructions and the number of Shares for
which instructions may be given will be determined as of the record date
for the Fund shareholders' meeting, which shall not be more than 60 days
before the date of the meeting. Whether or not voting instructions are
actually given by a particular Participant, all Fund shares held in any
separate account or sub-account thereof and attributable to policies will
be voted for, against, or withheld from voting on any proposition in the
same proportion as (i) the aggregate record date cash value held in such
sub-account for policies giving instructions, respectively, to vote for,
against, or withhold votes on such proposition, bears to (ii) the aggregate
record date cash value held in the sub-account for all policies for which
voting instructions are received. Participants continued in effect under
lapse options will not be permitted to give voting instructions. Shares
held in any other insurance company general or separate account or sub-
account thereof will be voted in the proportion specified in the second
preceding sentence for shares attributable to policies.
8. Duration and Termination.
This Agreement shall remain in force for the period ending five years
from the date of its execution (such date and any anniversary of such date
being hereinafter called a "Renegotiation Date"), and from year to year
thereafter provided that neither the Company nor the Fund shall have given
written notice to the other within thirty (30) days prior to a
Renegotiation Date that it desires to renegotiate the amount of
contribution to capital due hereunder ("Renegotiation Notice"). If a
Renegotiation Notice is properly given as aforesaid and the Fund and the
Company shall fail, within sixty (60) days after the Renegotiation Date,
either to enter into an amendment to this Agreement or a written
acknowledgment that the Agreement shall continue in effect, this Agreement
shall terminate as of the one hundred twentieth day after such
Renegotiation Date. If this Agreement is so terminated, the Fund may, at
any time thereafter, automatically redeem the Shares of any Portfolio held
by a Participating Shareholder. This Agreement may be terminated at any
time, at the option of either of the Company or the Fund, when neither the
Company, any insurance company nor the separate account or accounts of such
insurance company which is an affiliate thereof which is not a
Participating Insurance Company own any Shares of the Fund or may be
terminated by either party to the Agreement upon a determination by a
majority of the Trustees of the Fund, or a majority of its disinterested
Trustees, following certification thereof by a Participating Insurance
Company given in accordance with Paragraph 10 that an irreconcilable
conflict exists among the interests of (i) all contract holders and policy
holders of Variable Insurance Products of all separate accounts or (ii) the
interests of the Participating Insurance Companies investing in the Fund.
Notwithstanding anything to the contrary in this Agreement or its
termination as provided herein, the Company's obligation to make a capital
contribution to the Fund in accordance with this Agreement at the time in
effect shall continue (i) following a properly given Renegotiation Notice,
in the absence of agreement otherwise, until termination of this Agreement,
and (ii) (except termination due to the existence of an irreconcilable
conflict), following termination of this Agreement, until the later of the
fifth anniversary of the date of this Agreement or the date on which the
Company, its separate account(s) or the separate account(s) of any
affiliated insurance company owns no Shares.
9. Compliance.
The Fund will comply with the provisions of Section 4240(a) of the New
York Insurance Law.
Each Portfolio of the Fund will comply with the provisions of Section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"),
relating to diversification requirements for variable annuity, endowment
and life insurance contracts. Specifically, each Portfolio will comply
with either (i) the requirement of Section 817(h)(1) of the Code that its
assets be adequately diversified, or (ii) the "Safe Harbor for
Diversification" specified in Section 817(h)(2) of the Code, or (iii) the
diversification requirement of Section 817(h)(1) of the Code by having all
or part of its assets invested in U.S. Treasury securities which qualify
for the "Special Rule for Investments in United States Obligations"
specified in Section 817(h)(3) of the Code.
The provisions of Paragraphs 6 and 7 of this Agreement shall be
interpreted in a manner consistent with any Rule or order of the Securities
and Exchange Commission under the Investment Company Act of 1940, as
amended, applicable to the parties hereto.
No Shares of any Portfolio of the Fund may be sold to the general
public.
10. Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify
in writing to the other party.
If to the Fund:
Scudder Variable Life Investment Fund
Two International Place
Boston, Massachusetts 02110
(617) 295-2275
Attn.: David B. Watts
If to the Company:
USAA Life Insurance Company
9800 Fredericksburg Road
San Antonio, Texas 78288
Attn.: Dwain A. Akins, Esq.
11. Massachusetts Law to Apply.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
12. Miscellaneous.
The name "Scudder Variable Life Investment Fund" is the designation of
the Trustees for the time being under a Declaration of Trust dated March
15, 1985, as amended, and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims
against the Fund as neither the Trustees, officers, agents or shareholders
assume any personal liability for obligations entered into on behalf of the
Fund. No Portfolio shall be liable for any obligations properly
attributable to any other Portfolio.
The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect. This Agreement may
be executed simultaneously in two or more counterparts, each of which taken
together shall constitute one and the same instrument.
13. Entire Agreement.
This Agreement and the letter agreement dated _____, 1995 together
incorporate the entire understanding and agreement among the parties
hereto, and supersede any and all prior understandings and agreements
between the parties hereto with respect to the subject matter hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the 3rd
day of February, 1995.
SEAL SCUDDER VARIABLE LIFE
INVESTMENT FUND
By:/s/David B. Watts
David B. Watts
President
SEAL USAA LIFE INSURANCE COMPANY
By:/s/Edwin L. Rosane
Edwin L. Rosane
Its:President
Exhibit 9(c)(31)
February 3, 1995
BY EXPRESS DELIVERY
Scudder, Stevens & Clark, Inc.
Scudder Investor Services, Inc.
Scudder Variable Life Investment Fund
2 International Place
Boston, MA 02110
Executives:
We are writing to augment and clarify certain of the terms and
conditions of: (1) the participation agreement, dated February 3, 1995, by
and between USAA Life Insurance Company ("USAA Life"), on behalf of the
Separate Account of USAA Life Insurance Company ("Account"), and the
Scudder Variable Life Investment Fund ("Fund") (hereinafter "Participation
Agreement"); (2) the reimbursement agreement, dated February 3, 1995, by
and between USAA Life and Scudder, Stevens & Clark ("SS&C") (hereinafter
"Reimbursement Agreement"); and (3) the participating contract and policy
agreement, dated February 3, 1995, by and between USAA Investment
Management Company ("IMCO") and Scudder Investor Services, Inc. ("SIS")
(hereinafter "Policy Agreement").
Unless otherwise noted, the provisions set out below are intended to
apply to the Participation Agreement, Reimbursement Agreement and the
Policy Agreement (collectively, the "Agreements") and, to the extent
contrary to or inconsistent with any provision in any Agreement, shall
modify such provision. The headings used herein are for convenience of
reference only.
Kindly acknowledge your acceptance and agreement to the following by
affixing your signature to the last page of this letter.
Available Portfolios.
The Fund's Capital Growth Portfolio ("Portfolio" or "Capital Growth
Portfolio") is the only Fund series that USAA Life currently intends to
make available for investment through the Account. Accordingly, any
obligations of USAA Life with respect to capital contributions or expense
reimbursements required to be made under the Participation Agreement shall
be limited to the Capital Growth Portfolio, until such time as USAA Life
notifies the Fund that it intends to use one or more additional portfolios.
Purchases and Redemptions.
1. Timely Pricing and Orders. The Fund or its designated agent will
use all commercially reasonable efforts to provide to USAA Life the closing
net asset value and any dividend and capital gain information for the
Portfolio by 5:15 p.m., Central time on each Business Day. "Business Day"
shall mean any day on which the Fund calculates the net asset value of its
Funds pursuant to rules of the Securities and Exchange Commission and as
described in the Fund's Prospectus. USAA Life will use these data to
calculate unit values, which in turn will be used to process transactions
that receive that same Business Day's Account unit value. Such Account
processing will be done the same evening, and corresponding orders with
respect to Fund shares will be placed the morning of the following Business
Day. USAA Life will use all commercially reasonable efforts to place such
orders with the Fund by 9 a.m., Central time.
2. Timely Payments. USAA Life or its designated agent will transmit
orders for purchases and redemptions of Fund shares to SIS, and will wire
payment for net purchases to a custodial account designated by the Fund on
the same day as the order for Fund shares is placed, to the extent
practicable. Payment for net redemptions will be wired by the Fund to an
account designated by USAA Life on the same day as the order is placed, to
the extent practicable, but in any event within such reasonably practicable
period of time after the order is placed as would enable USAA Life to pay
redemption proceeds in compliance with Section 22(e) of the Investment
Company Act of 1940.
3. Applicable Price. The Fund shall effect any orders to purchase or
redeem Portfolio shares that USAA Life submits on behalf of the Account,
based on transactions under variable annuity contracts issued by USAA Life
("Contracts"), at the Portfolio's net asset value per share as of the close
of business on the Business Day the order is received by USAA Life or its
designee, acting as agent for the Fund, provided that such order is
received prior to the time as of which the Fund calculates net asset value
on that Business Day. If such order is received after that time, the order
will be effected at the Portfolio's net asset value as of the close of
business on the next Business Day. Any orders to purchase shares of an
available Fund not based on transactions under Contracts will be effected
at the Fund's net asset value per share next computed after the order is
received by the Fund.
4. Redemptions. The Fund shall redeem for cash from USAA Life those
full or fractional shares of the Portfolio that USAA Life requests from
time to time.
Reinvestment of Dividends and Capital Gains.
USAA Life, on behalf of the Account, hereby elects to reinvest all
dividends and capital gains distributions in additional shares of the
Capital Growth Portfolio at the net asset values on the payment date of
such dividends and capital gains distributions until USAA Life otherwise
notifies the Fund in writing. USAA Life reserves the right to revoke this
election and to receive all such dividends and capital gain distributions
in cash. The Fund shall promptly notify USAA Life of the number of shares
so issued as payment of such dividends and distributions.
Amendment to Policy Agreement.
As an additional inducement for IMCO to enter into the Policy
Agreement, SIS hereby agrees with IMCO as follows:
(1) in connection with Sections 6 and 12 of the Policy Agreement, SIS will
give IMCO thirty days' written notice before suspending sales or
withdrawing the offering of Shares (as defined in the Policy Agreement) or
terminating the Policy Agreement, except that sales of Shares may be
suspended or the offering of Shares withdrawn or the Policy Agreement
terminated without notice (i) if the continued offering or sale of Shares
would violate any applicable statute or regulation, order or decree of any
court, governmental agency or self-regulatory organization having
jurisdiction, or (ii) if in the sole discretion of the Trustees of the
Fund, including a majority of those Trustees who are not "interested
persons" as defined in the Investment Company Act of 1940, as amended, of
the Trust or of its investment adviser, such action is determined to be
necessary in the best interests of the Shareholders of the Portfolio.
(2) no unilateral amendment pursuant to Section 6 of the Policy Agreement
shall be effective against IMCO unless it is accompanied by a written
notice from SIS stating that the amendment is necessary to prevent the
continued offering or sale of Shares from violating any applicable statute
or regulation, order or decree of any court, governmental agency or
self-regulating organization having jurisdiction.
Fund Materials.
The Fund, at its expense, shall provide USAA Life or its designee
with camera ready copy or computer diskette versions of all prospectuses
(including supplements thereto), statements of additional information,
annual and semi-annual reports, and proxy materials (collectively, "Fund
Materials"), to be printed and distributed by USAA Life or IMCO to existing
and prospective Contract owners, as appropriate. USAA Life agrees to bear
the cost of printing and distributing such Fund Materials.
Tax Matters.
1. The Fund, SS&C, or SIS will notify USAA Life immediately upon
having a reasonable basis for believing that the Portfolio has ceased to
comply with the requirements of Section 817(h) of the Internal Revenue Code
of 1986, as amended ("Code") or that the Portfolio might not so comply in
the future. In connection with a failure to comply with the Section 817(h)
diversification requirements, SS&C shall cooperate with USAA Life by
providing it with full explanation as to the circumstances that caused the
failure, and the reasons why the failure was inadvertent.
2. The limitation against liability set out in paragraph 6(c)(viii)
of the Reimbursement Agreement shall apply only where it can be shown that
the failure of USAA Life to comply with clauses 6(c)(i) through (vii)
materially contributed to the liability.
3. Each Agreement shall terminate, at the option of USAA Life or
IMCO, as the case may be, in the event of a non-curable failure by the
Portfolio to comply with the provisions of Subchapter M or Section 817(h)
of the Code. To the extent that any Agreement by its terms provides for one
or more rights or obligations thereunder to survive the termination of that
Agreement, those provisions shall survive the termination of that Agreement
under this paragraph.
Miscellaneous.
(a) The Fund, SS&C, and SIS agree to make available to USAA Life and
its affiliates, to the extent permitted by applicable law, any arrangement
for utilization of the Portfolio, which arrangement has been or will be
made generally available to any other life insurance company or any
affiliate of a life insurance company.
(b) This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts
(c) The name "Scudder Variable Life Investment Fund" is the
designation of the Trustees for the time being under a Declaration of Trust
dated March 15, 1985, as amended, and all persons dealing with the Fund
must look solely to the property of the Fund for the enforcement of any
claims against the Fund as neither the Trustees, officers, agents or
shareholders assume any personal liability for obligations entered into on
behalf of the Fund. No Portfolio shall be liable for any obligations
properly attributable to any other Portfolio.
Very truly yours,
USAA LIFE INSURANCE COMPANY
By:/s/Edwin L. Rosane
Edwin L. Rosane
USAA INVESTMENT MANAGEMENT COMPANY
By:/s/Michael J.C. Roth
Michael J.C. Roth
We hereby agree to and accept the provisions set out above.
SCUDDER, STEVENS & CLARK, INC.
By:/s/Daniel Pierce
SCUDDER INVESTOR SERVICES, INC.
By:/s/David S. Lee
SCUDDER VARIABLE LIFE INVESTMENT FUND
By:/s/David B. Watts
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Scudder
Variable Life Investment Fund:
We consent to the incorporation by reference in Post-Effective
Amendment No. 16 to the Registration Statement of Scudder Variable Life
Investment Fund on Form N-lA of our report dated February 3, 1995 on our
audit of the financial statements and financial highlights of the Fund,
which report is included in the Annual Report to Shareholders for the year
ended December 31, 1994 which is incorporated by reference in the
Registration Statement. We also consent to the reference to our Firm under
the caption "Experts" in the Registration Statement.
/s/Coopers & Lybrand L.L.P.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
April 5, 1995
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from the Scudder Variable Life Investment
Fund Money Market Portfolio Annual Report for the
fiscal year ended December 31, 1994 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> VLIF - MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-1-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 89,090,190
<INVESTMENTS-AT-VALUE> 89,090,190
<RECEIVABLES> 1,443,221
<ASSETS-OTHER> 890
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 90,534,301
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 90,497,912
<OTHER-ITEMS-LIABILITIES> 36,389
<TOTAL-LIABILITIES> 36,389
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 90,497,912
<SHARES-COMMON-PRIOR> 48,779,657
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 90,497,912
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,175,974
<OTHER-INCOME> 0
<EXPENSES-NET> 407,483
<NET-INVESTMENT-INCOME> 2,768,491
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,768,491
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,768,491
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 186,827,297
<NUMBER-OF-SHARES-REDEEMED> 147,877,533
<SHARES-REINVESTED> 2,768,491
<NET-CHANGE-IN-ASSETS> 41,718,255
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 269,963
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 407,483
<AVERAGE-NET-ASSETS> 72,927,435
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.037
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.037)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from the Scudder Variable Life Investment
Fund International Portfolio Annual Report for the
fiscal year ended December 31, 1994 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 6
<NAME> VLIF - INTERNATIONAL PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-1-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 449,131,955
<INVESTMENTS-AT-VALUE> 474,077,284
<RECEIVABLES> 4,456,065
<ASSETS-OTHER> 125,912
<OTHER-ITEMS-ASSETS> 61,319,897
<TOTAL-ASSETS> 539,979,158
<PAYABLE-FOR-SECURITIES> 4,596,407
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 63,346,152
<TOTAL-LIABILITIES> 67,942,559
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 446,326,339
<SHARES-COMMON-STOCK> 44,139,826
<SHARES-COMMON-PRIOR> 21,943,195
<ACCUMULATED-NII-CURRENT> 722,015
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,548,747
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 23,439,498
<NET-ASSETS> 472,036,599
<DIVIDEND-INCOME> 4,589,934
<INTEREST-INCOME> 1,791,616
<OTHER-INCOME> 0
<EXPENSES-NET> 4,171,023
<NET-INVESTMENT-INCOME> 2,210,527
<REALIZED-GAINS-CURRENT> 3,671,002
<APPREC-INCREASE-CURRENT> (14,866,907)
<NET-CHANGE-FROM-OPS> (8,985,378)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,958,854
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 28,463,330
<NUMBER-OF-SHARES-REDEEMED> 6,444,615
<SHARES-REINVESTED> 177,916
<NET-CHANGE-IN-ASSETS> 233,912,933
<ACCUMULATED-NII-PRIOR> 1,007,330
<ACCUMULATED-GAINS-PRIOR> (2,659,238)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,363,597
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,171,023
<AVERAGE-NET-ASSETS> 384,801,428
<PER-SHARE-NAV-BEGIN> 10.85
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> (0.15)
<PER-SHARE-DIVIDEND> (0.07)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.69
<EXPENSE-RATIO> 1.08
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from the Scudder Variable Life Investment
Fund Growth and Income Portfolio Annual Report for the
fiscal year ended December 31, 1994 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 8
<NAME> VLIF - GROWTH AND INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-1-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 20,989,438
<INVESTMENTS-AT-VALUE> 20,661,671
<RECEIVABLES> 232,025
<ASSETS-OTHER> 609
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 20,894,305
<PAYABLE-FOR-SECURITIES> 793,868
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25,595
<TOTAL-LIABILITIES> 819,463
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20,112,939
<SHARES-COMMON-STOCK> 3,204,882
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 164,132
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 125,538
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (327,767)
<NET-ASSETS> 20,074,842
<DIVIDEND-INCOME> 242,508
<INTEREST-INCOME> 60,432
<OTHER-INCOME> 0
<EXPENSES-NET> 51,922
<NET-INVESTMENT-INCOME> 251,018
<REALIZED-GAINS-CURRENT> 124,765
<APPREC-INCREASE-CURRENT> (327,767)
<NET-CHANGE-FROM-OPS> 48,016
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 86,114
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,576,097
<NUMBER-OF-SHARES-REDEEMED> 384,876
<SHARES-REINVESTED> 13,561
<NET-CHANGE-IN-ASSETS> 20,074,242
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 32,724
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 112,235
<AVERAGE-NET-ASSETS> 10,396,703
<PER-SHARE-NAV-BEGIN> 6.00
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> 0.17
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.26
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Scudder Variable Life Investment Fund Capital Growth Portfolio Annual
Report for the fiscal year ended December 31, 1994 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> VLIF - CAPITAL GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-1-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 263,659,816
<INVESTMENTS-AT-VALUE> 261,631,236
<RECEIVABLES> 3,825,384
<ASSETS-OTHER> 50,276
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 265,506,896
<PAYABLE-FOR-SECURITIES> 8,801,508
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 174,633
<TOTAL-LIABILITIES> 8,976,141
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 249,349,266
<SHARES-COMMON-STOCK> 20,979,934
<SHARES-COMMON-PRIOR> 17,184,932
<ACCUMULATED-NII-CURRENT> 507,243
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,707,226
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,032,980)
<NET-ASSETS> 256,530,755
<DIVIDEND-INCOME> 2,191,376
<INTEREST-INCOME> 460,519
<OTHER-INCOME> 0
<EXPENSES-NET> 1,456,521
<NET-INVESTMENT-INCOME> 1,195,374
<REALIZED-GAINS-CURRENT> 8,741,905
<APPREC-INCREASE-CURRENT> (35,951,788)
<NET-CHANGE-FROM-OPS> (26,014,509)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 889,382
<DISTRIBUTIONS-OF-GAINS> 23,981,060
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,319,350
<NUMBER-OF-SHARES-REDEEMED> 10,429,402
<SHARES-REINVESTED> 1,905,054
<NET-CHANGE-IN-ASSETS> (422,528)
<ACCUMULATED-NII-PRIOR> 238,541
<ACCUMULATED-GAINS-PRIOR> 23,909,089
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,199,585
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,456,521
<AVERAGE-NET-ASSETS> 252,770,248
<PER-SHARE-NAV-BEGIN> 14.95
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> (1.42)
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> (1.31)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.23
<EXPENSE-RATIO> 0.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Scudder Variable Life Investment Fund Balanced Portfolio Annual Report for
the fiscal year ended December 31, 1994 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> VLIF - BALANCED PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-1-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 46,142,341
<INVESTMENTS-AT-VALUE> 45,904,422
<RECEIVABLES> 555,671
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 46,460,093
<PAYABLE-FOR-SECURITIES> 332,064
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 603,454
<TOTAL-LIABILITIES> 935,518
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 45,473,643
<SHARES-COMMON-STOCK> 5,076,236
<SHARES-COMMON-PRIOR> 4,407,727
<ACCUMULATED-NII-CURRENT> 392,285
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (103,434)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (237,919)
<NET-ASSETS> 45,524,575
<DIVIDEND-INCOME> 646,047
<INTEREST-INCOME> 1,163,654
<OTHER-INCOME> 0
<EXPENSES-NET> 345,377
<NET-INVESTMENT-INCOME> 1,464,324
<REALIZED-GAINS-CURRENT> (70,680)
<APPREC-INCREASE-CURRENT> (2,374,110)
<NET-CHANGE-FROM-OPS> (980,466)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,442,472
<DISTRIBUTIONS-OF-GAINS> 3,525,834
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,539,383
<NUMBER-OF-SHARES-REDEEMED> 1,403,007
<SHARES-REINVESTED> 532,133
<NET-CHANGE-IN-ASSETS> 454,289
<ACCUMULATED-NII-PRIOR> 366,737
<ACCUMULATED-GAINS-PRIOR> 3,496,777
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 218,621
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 352,496
<AVERAGE-NET-ASSETS> 45,898,671
<PER-SHARE-NAV-BEGIN> 10.23
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> (0.48)
<PER-SHARE-DIVIDEND> (0.30)
<PER-SHARE-DISTRIBUTIONS> (0.77)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.97
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Scudder Variable Life Investment Fund Bond Portfolio Annual Report for the
fiscal year ended December 31, 1994 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> VLIF - BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-1-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 144,965,622
<INVESTMENTS-AT-VALUE> 140,197,761
<RECEIVABLES> 3,054,453
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 143,252,214
<PAYABLE-FOR-SECURITIES> 736,188
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 111,414
<TOTAL-LIABILITIES> 847,602
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 150,340,377
<SHARES-COMMON-STOCK> 21,973,579
<SHARES-COMMON-PRIOR> 17,350,092
<ACCUMULATED-NII-CURRENT> 2,188,157
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5,356,061)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (4,767,861)
<NET-ASSETS> 142,404,612
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,603,254
<OTHER-INCOME> 0
<EXPENSES-NET> 796,966
<NET-INVESTMENT-INCOME> 8,806,288
<REALIZED-GAINS-CURRENT> (5,607,148)
<APPREC-INCREASE-CURRENT> (9,672,581)
<NET-CHANGE-FROM-OPS> (6,473,441)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,525,294
<DISTRIBUTIONS-OF-GAINS> 3,161,229
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,843,292
<NUMBER-OF-SHARES-REDEEMED> 9,933,459
<SHARES-REINVESTED> 1,713,654
<NET-CHANGE-IN-ASSETS> 13,706,297
<ACCUMULATED-NII-PRIOR> 2,203,911
<ACCUMULATED-GAINS-PRIOR> 3,115,565
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 650,361
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 796,966
<AVERAGE-NET-ASSETS> 136,911,110
<PER-SHARE-NAV-BEGIN> 7.42
<PER-SHARE-NII> 0.43
<PER-SHARE-GAIN-APPREC> (0.77)
<PER-SHARE-DIVIDEND> (0.43)
<PER-SHARE-DISTRIBUTIONS> (0.17)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.48
<EXPENSE-RATIO> 0.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>