SCUDDER
INVESTMENTS(SM)
[LOGO]
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Scudder Variable Life Investment Fund
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Annual Report
December 31, 1999
An open-end management investment company that offers shares of beneficial
interest in nine types of diversified portfolios.
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Contents
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2 Letter from the Fund's President Large Company Growth Portfolio
50 Portfolio Management Discussion
Money Market Portfolio 51 Performance Update
3 Portfolio Management Discussion 52 Portfolio Summary
4 Investment Portfolio 53 Investment Portfolio
5 Financial Statements 56 Financial Statements
7 Financial Highlights 59 Financial Highlights
Bond Portfolio Small Company Growth Portfolio
8 Portfolio Management Discussion 60 Portfolio Management Discussion
9 Portfolio Summary 61 Performance Update
10 Investment Portfolio 62 Portfolio Summary
13 Financial Statements 63 Investment Portfolio
15 Financial Highlights 67 Financial Statements
70 Financial Highlights
Balanced Portfolio
16 Portfolio Management Discussion Global Discovery Portfolio
17 Portfolio Summary 71 Portfolio Management Discussion
18 Investment Portfolio 72 Performance Update
24 Financial Statements 73 Portfolio Summary
27 Financial Highlights 74 Investment Portfolio
78 Financial Statements
Growth and Income Portfolio 81 Financial Highlights
28 Portfolio Management Discussion
29 Performance Update International Portfolio
30 Portfolio Summary 82 Portfolio Management Discussion
31 Investment Portfolio 83 Performance Update
35 Financial Statements 84 Portfolio Summary
38 Financial Highlights 85 Investment Portfolio
89 Financial Statements
Capital Growth Portfolio 92 Financial Highlights
39 Portfolio Management Discussion
40 Performance Update
41 Portfolio Summary 93 Notes to Financial Statements
42 Investment Portfolio 97 Report of Independent Accountants
46 Financial Statements 98 Tax Information
49 Financial Highlights
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Letter from the Fund's President
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Dear Shareholders,
We are pleased to present the results of the Scudder Variable Life Investment
Fund for the twelve-month period ended December 31, 1999. The global stock
markets continued to soar in 1999 despite rising bond yields and three interest
rate hikes by the U.S. Federal Reserve. The U.S. market -- as measured by the
S&P 500 Index -- posted its fifth straight year of 20%+ gains, with large-cap
growth stocks again leading the way. Overseas, a resurgence of economic growth
and the significant reforms taking place on the corporate level sparked stellar
gains in the markets of Asia, Europe, and Latin America. The bond market did not
fare as well, however, as persistent inflation fears sparked a steady uptrend in
yields. For the full year, the benchmark 30-year Treasury issue suffered from
its worst annual performance since 1973.
Against this backdrop, the Variable Life portfolios continued to provide
excellent performance. Of the seven portfolios that were open for the entire
twelve months, six produced returns that were above that of their category
average, according to Lipper Analytical Services. The portfolios' long-term
numbers are also strong: among the five funds that have been open for ten years,
four rank in the upper half of their categories. We believe that our strong
performance relative to our peers is indicative of the firm's commitment to high
quality research, intensive fundamental analysis, and a focus on long-term
results.
Our wide range of offerings, which has been augmented in 1999 by the addition of
the Large Company Growth and Small Company Growth Portfolios, provides investors
with the opportunity to diversify among several regions, asset classes, and
investment styles. Diversification, which can help you achieve more consistent
returns with a lower level of risk than a strategy that focuses on a limited
segment of the market, is an important element of a successful investment plan.
By spreading your assets among several types of funds, such as those that
utilize both the growth and value styles and invest in both large and small
companies, you can avoid the common mistake of "putting all your eggs in one
basket." This is never more important than at a time when volatility is likely
to be a key feature of the market environment, as we believe it will in the year
ahead.
On the following pages, you will find summaries of each portfolio's performance
and investment strategy over the twelve-month period. Thank you for your
continued investment in Scudder Variable Life Investment Fund.
Sincerely,
/s/William M. Thomas
William M. Thomas
President,
Scudder Variable Life Investment Fund
2
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Portfolio Management Discussion
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December 31, 1999
Money Market Portfolio
Dear Shareholders,
The Money Market Portfolio provided shareholders with a stable $1.00 share price
and a competitive yield throughout the last 12 months. For its most recent
fiscal year ended December 31, 1999, the portfolio posted a 4.99% total return.
This performance surpassed the 4.75% average return for funds in the Variable
Life Money Market Category for the same period, according to Lipper Analytical
Services, Inc., an independent analyst of investment performance. Among its
peers, the portfolio ranked in the top 12% of 101 funds in its Lipper category.
During the second half of 1999, the U.S. Federal Reserve effectively reversed
its three rate cuts of 1998 with three quarter-point increases in the Federal
Funds Rate. The reversal primarily reflects the effectiveness of the original
interest rate cuts, which were intended to stabilize the financial markets in
the wake of the Asian financial crisis during the third quarter of 1998. With
U.S. economic growth continually exceeding expectations throughout most of 1999
and the financial markets rebounding strongly, Fed policy appeared successful --
perhaps more successful than anticipated. Gross domestic product, a measure of
U.S. economic growth, grew a robust 4.0% for the 12 months ended December 31,
1999. Such strong growth can often spark inflation, but impressively, inflation
has remained benign thus far, increasing only 2.70% over the same 12-month
period. With some warning signs that inflation could be reemerging, however, the
Fed began increasing interest rates last June.
Over the period of this report, our primary focus has been on maintaining a
sufficient level of liquidity while taking advantage of what the market was
offering. As rates rose over the second half of 1999, we increased the
portfolio's average maturity to lock in attractive yields. We accomplished this
by reducing holdings of variable-rate demand notes and increasing holdings of
commercial paper. Over its most recent fiscal year, the portfolio's average
maturity rose from 28 days as of December 31, 1998, to 37 days as of December
31, 1999.
With an acceleration of growth in certain foreign countries and the Federal
Reserve poised to act on any hints of higher inflation, we are expecting the
trend toward higher short-term interest rates to continue over the coming
months. Based on this outlook, we expect to maintain the portfolio's current
positioning while seeking to capitalize on attractive opportunities as they
arise. The portfolio's management team will continue to collect and analyze
economic data and carefully monitor the investment climate as we position the
Money Market Portfolio for current income, and stability and liquidity of
capital.
Sincerely,
Your Portfolio Management Team
/s/Frank J. Rachwalski, Jr. /s/Geoffrey A. Gibbs
Frank J. Rachwalski, Jr. Geoffrey A. Gibbs
Lead Portfolio Manager Portfolio Manager
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
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Over the period, we increased the portfolio's average maturity to lock in
attractive yields.
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Money Market Portfolio | 3
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Investment Portfolio as of December 31, 1999
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Money Market Portfolio
Principal
Amount ($) Value ($)
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Repurchase Agreements 7.4%
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<S> <C> <C>
State Street Bank and Trust Company, 2.8%, to be repurchased at $13,309,105 on 1/3/2000 ----------
(Cost $13,306,000)*** .............................................................. 13,306,000 13,306,000
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Commercial Paper 48.8%
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Alpine Securitization Corp., 5.98%*, 1/13/2000 ........................................ 5,968,000 5,956,104
Baxter International Inc., 5.86%*, 2/8/2000 ........................................... 9,000,000 8,944,330
Finova Capital Corp., 5.85%*, 2/3/2000 ................................................ 8,500,000 8,454,419
Fortis Finance Corp., 5.92%*, 2/14/2000 ............................................... 5,500,000 5,460,205
Four Winds Funding, 6.3%*, 1/18/2000 .................................................. 8,000,000 7,976,200
International Securitization Corp., 6.1%*, 2/2/2000 ................................... 7,445,000 7,404,632
Lexington Parker Capital Corp., 6%*, 2/25/2000 ........................................ 9,000,000 8,917,500
Moat Funding LLC, 6.02%*, 3/9/2000 .................................................... 8,000,000 7,909,031
Mont Blanc Capital Corp., 5.9%*, 2/4/2000 ............................................. 8,257,000 8,210,990
Park Avenue Receivable, 6.1%*, 1/18/2000 .............................................. 9,000,000 8,974,075
Wood Street Funding Corp., 6.11%*, 1/12/2000 .......................................... 9,500,000 9,482,264
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Total Commercial Paper (Cost $87,689,750) 87,689,750
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Short-Term Notes 43.8%
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American Express Centurion Bank, 6.431%, 1/22/2000** .................................. 8,000,000 8,000,000
Beneficial Corp., 6.221%, 3/5/2000** .................................................. 9,000,000 9,001,286
Comerica Bank, Floating Rate Note, 5.66%, 1/3/2000** .................................. 5,000,000 4,995,635
Credit Suisse First Boston Corp., 5.72%, 1/3/2000** ................................... 5,000,000 5,000,000
First Union National Bank, 6.501%, 1/26/2000** ........................................ 8,000,000 8,000,000
GTE Corp., 6.155%, 3/10/2000** ........................................................ 790,000 789,728
GTE Corp., 6.129%, 3/11/2000** ........................................................ 7,000,000 6,994,501
Harris Trust & Savings Bank, 5.66%, 1/3/2000** ........................................ 8,000,000 7,999,175
Heller Financial Inc., 6.35%, 1/7/2000** .............................................. 5,000,000 5,002,925
John Deere Capital Corp., 6.425%, 2/9/2000** .......................................... 5,000,000 5,008,356
MBNA Bank, 6.27%, 3/10/2000** ......................................................... 4,000,000 3,997,908
Sears Roebuck Acceptance Corp., 6.65%, 1/20/2000 ...................................... 8,000,000 8,003,469
U.S. Bank NA, 6.513%, 1/18/2000** ..................................................... 6,000,000 5,997,642
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Total Short-Term Notes (Cost $78,790,625) 78,790,625
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Total Investment Portfolio -- 100.0% (Cost $179,786,375) (a) 179,786,375
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* Annualized yield at time of purchase; not a coupon rate. (Unaudited)
** Floating rate notes are securities whose interest rates vary with a
designated market index or market rate, such as the coupon-equivalent of
the U.S. Treasury Bill rate. These securities are shown at their rate as of
December 31, 1999. Date shown is next reset date.
*** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) Cost for federal income tax purposes is $179,786,375.
The accompanying notes are an integral part of the financial statements.
4 | Money Market Portfolio
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Financial Statements
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Money Market Portfolio
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Statement of Assets and Liabilities as of December 31, 1999
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Assets
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Investments in securities, at value (cost $179,786,375) .................................................. $ 179,786,375
Cash ..................................................................................................... 11
Interest receivable ...................................................................................... 454,903
Receivable for Portfolio shares sold ..................................................................... 53,031
Other assets ............................................................................................. 1,718
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Total assets ............................................................................................. 180,296,038
Liabilities
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Payable for Portfolio shares redeemed .................................................................... 1,261,783
Accrued management fee ................................................................................... 54,537
Accrued accounting fee ................................................................................... 2,946
Other accured expenses and payables ...................................................................... 15,744
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Total liabilities ........................................................................................ 1,335,010
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Net assets, at value $ 178,961,028
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Net Assets
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Net assets consist of:
Paid-in capital .......................................................................................... 178,961,028
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Net assets, at value $ 178,961,028
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Net asset value, offering and redemption price per share ($178,961,028 / 178,961,028 outstanding shares of -------------
beneficial interest, $.01 par value, unlimited number of shares authorized) ........................... $ 1.00
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Statement of Operations for the year ended December 31, 1999
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Investment Income
Interest ................................................................................................. 9,198,852
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Expenses:
Management fee ........................................................................................... 640,633
Custodian fees ........................................................................................... 8,781
Accounting fees .......................................................................................... 39,133
Auditing ................................................................................................. 23,187
Legal .................................................................................................... 1,500
Trustees' fees and expenses .............................................................................. 17,170
Reports to shareholders .................................................................................. 6,825
Registration fees ........................................................................................ 799
Other .................................................................................................... 9,008
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Total expenses, before expense reductions ................................................................ 747,036
Expense reductions ....................................................................................... (753)
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Total expenses, after expense reductions ................................................................. 746,283
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Net investment income 8,452,569
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Net increase in net assets resulting from operations $ 8,452,569
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The accompanying notes are an integral part of the financial statements.
Money Market Portfolio | 5
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Statements of Changes in Net Assets
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Years ended December 31,
Increase (Decrease) in Net Assets 1999 1998
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Operations:
<S> <C> <C>
Net investment income ........................................................... $ 8,452,569 $ 6,799,480
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Net increase in net assets resulting from operations ............................ 8,452,569 6,799,480
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Distributions to shareholders from net investment income ........................ (8,452,569) (6,799,480)
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Portfolio share transactions at net asset value of $1.00 per share:
Proceeds from shares sold ....................................................... 507,640,208 376,936,553
Net asset value of shares issued to shareholders in reinvestment of distributions 8,452,569 6,799,315
Cost of shares redeemed ......................................................... (485,284,178) (338,159,816)
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Net increase (decrease) in net assets from Portfolio share transactions ......... 30,808,599 45,576,052
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Increase (decrease) in net assets ............................................... 30,808,599 45,576,052
Net assets at beginning of period ............................................... 148,152,429 102,576,377
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Net assets at end of period ..................................................... $ 178,961,028 $ 148,152,429
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The accompanying notes are an integral part of the financial statements.
6 | Money Market Portfolio
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Financial Highlights
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Money Market Portfolio
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<S> <C> <C> <C> <C> <C>
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Years ended December 31, 1999 1998 1997 1996 1995
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Net asset value, beginning of period $1.000 $1.000 $1.000 $1.000 $1.000
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Income from investment operations:
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Net investment income .049 .052 .051 .050 .055
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Less distributions from:
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Net investment income (.049) (.052) (.051) (.050) (.055)
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Net asset value, end of period $1.000 $1.000 $1.000 $1.000 $1.000
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Total return (%) 4.99 5.29 5.25 5.09 5.65
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Ratios to Average Net Assets and Supplemental Data
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Net assets, end of period ($ millions) 179 148 103 98 80
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Ratio of expenses (%) .43 .44 .46 .46 .50
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Ratio of net investment income (%) 4.90 5.17 5.15 4.98 5.51
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Money Market Portfolio | 7
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Portfolio Management Discussion
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December 31, 1999
Bond Portfolio
Dear Shareholders,
The year-long uptrend in bond yields picked up steam in the latter half of the
year, as investors looked ahead to the possibility of additional interest rate
hikes by the U.S. Federal Reserve early in 2000. The yield on the 30-year
Treasury fell to 5.10% on December 31, 1999 from 6.05% at the start of the year,
capping one of the worst bond market performances of the 1990s. The yield curve
flattened further as the period progressed, leaving only a 24 basis point
difference between the yields of the 2-year and 30-year bonds as of December 31
(a basis point is one-hundredth of a percentage point). Corporate bonds, after
posting weak performance in the second and third quarters due to fears about
potential supply and demand imbalances related to Y2K, outperformed Treasuries
in the final three months of the year.
Against this backdrop, the portfolio produced negative absolute returns, but it
held up well relative to its peers. For the twelve-month period ended December
31, 1999, the Bond Portfolio produced a total return of -0.95, which trailed the
- -0.84% return of its unmanaged benchmark, the Lehman Brothers Aggregate Bond
Index. The portfolio finished in the top 34% of 29 variable life products in the
corporate debt funds A-rated category for the year, according to Lipper
Analytical Services.^1
During the second half of the year, we trimmed our position in bonds with longer
maturities in favor of those on the intermediate portion of the yield curve.
Given the lack of an incremental yield advantage that could be gained from
investing in longer-term bonds, we felt that this strategy provided a better
balance of risk and return. It also helped performance in a period when
longer-duration assets underperformed. Our decision to underweight corporates
through the middle of the year then raise our weighting in the sector late in
the third quarter also provided a boost to returns. In particular, we gained the
strongest performance from our holdings in the energy and telecommunications
sectors. We also increased our weighting in high yield bonds, and are currently
approaching the maximum allocation we can hold in this sector (20%). We feel
that the combination of attractive valuations, continued strength in the
domestic economy, and powerful corporate earnings growth should work to the
benefit of the high yield sector in the first half of 2000.
We believe that the portfolio is well positioned for the year ahead. We have
increased the level of liquidity and diversification in the portfolio, and are
confident that our mix of corporate bonds, government issues, and
mortgage-backed securities will provide strong risk-adjusted returns going
forward.
Sincerely,
Your Portfolio Management Team
/s/Robert S. Cessine
Robert S. Cessine
Lead Portfolio Manager
^1 Source: Lipper Analytical Services, Inc. is an independent analyst of
investment performance. Performance includes reinvestment of dividends and
capital gains. For the period ended December 31, 1999, Scudder Variable Life
Investment Fund: Bond Portfolio's Lipper ranking was 10 out of 29 funds for
the one-year period, 21 out of 27 funds for the three-year period, 18 out of
23 for the five-year period, and 11 out of 16 funds for the ten-year period.
Past performance does not guarantee future results.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
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Management continues to find attractive opportunities in the corporate bond
sector.
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8 | Bond Portfolio
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Portfolio Summary
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December 31, 1999
Bond Portfolio
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Growth of a $10,000 Investment
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THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
Bond Portfolio --
Class A LBAB Index
89 10000 89 10000
90 10806 90 10893
91 12709 91 12636
92 13600 92 13572
93 15283 93 14896
94 14552 94 14461
95 17196 95 17133
96 17680 96 17752
97 19289 97 19469
98 20556 98 21158
99 20361 99 20980
Yearly periods ended December 31
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 Portfolio returns, do not reflect any fees or expenses.
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Bond Portfolio LBAB Index
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Total Return Total Return
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Period Ended Growth of Average Period Ended Growth of Average
12/31/1999 $10,000 Cumulative Annual 12/31/1999 $10,000 Cumulative Annual
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<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 9,905 -.95% -.95% 1 Year $ 9,916 -.84% -.84%
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5 Year $ 13,992 39.92% 6.95% 5 Year $ 14,508 45.08% 7.72%
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10 Year $ 20,361 103.61% 7.37% 10 Year $ 20,980 109.80% 7.69%
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</TABLE>
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.
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Asset Quality
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A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
U.S. Government & Agencies 29%
AAA* 12%
AA 11%
A 19%
BBB 13%
BB 12%
B 4%
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100%
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Average Quality: AA
*Category includes cash equivalents
The portfolio remains focused on the corporate bond sector, which continues to
offer attractive yields in relation to government issues.
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Effective Maturity Diversification
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<S> <C> <C> <C>
Less than 1 year 4% Corporate Bonds 58%
1 to less than 5 years 30% U.S. Treasuries 20%
5 to less than 8 years 20% U.S. Government Agency Pass-Thrus 6%
8 to less than 15 years 28% Short Term Investments 4%
15 years or greater 18% Collateralized Mortgage Obligations 3%
Foreign Bonds -- U.S.$ Denominated 3%
Government National Mortgage Assoc. 3%
Asset-Backed Securities 3%
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100% 100%
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</TABLE>
Weighted average effective maturity: 9.3 years
Bond Portfolio | 9
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Investment Portfolio as of December 31, 1999
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Bond Portfolio
Principal
Amount ($) Value ($)
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Repurchase Agreements 3.5%
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<S> <C> <C>
State Street Bank and Trust Company, 2.8%, to be repurchased at $3,276,764 on 1/3/2000 ---------
(Cost $3,276,000)* ................................................................ 3,276,000 3,276,000
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U.S. Treasuries 19.6%
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U.S. Treasury Inflationary Index Note, 3.684%, 4/15/2028 ............................. 2,000,000 1,857,486
U.S. Treasury Bond, 5.25%, 2/15/2029 ................................................. 2,650,000 2,191,206
U.S. Treasury Bond, 7.25%, 5/15/2016 ................................................. 2,500,000 2,613,275
U.S. Treasury Bond, 10.75%, 8/15/2005 ................................................ 2,500,000 2,981,650
U.S. Treasury Inflationary Index Note, 3.927%, 1/15/2009 ............................. 2,000,000 1,981,875
U.S. Treasury Note, 5.5%, 5/31/2003 .................................................. 500,000 486,795
U.S. Treasury Note, 6%, 8/15/2004 .................................................... 3,350,000 3,297,640
U.S. Treasury Note, 6%, 8/15/2009 .................................................... 700,000 678,125
U.S. Treasury Note, 6.5%, 10/15/2006 ................................................. 2,100,000 2,094,414
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Total U.S. Treasuries (Cost $19,325,749) 18,182,466
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Government National Mortgage Association 3.1%
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Government National Mortgage Association Pass-thru 7.00%, 5/1/2029 (a) ---------
(Cost $2,972,750) ................................................................. 2,933,786 2,834,770
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U.S. Government Agency Pass-Thrus 6.2%
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Federal National Mortgage Association, 6.5%, 3/1/2028 (a) ............................ 4,612,436 4,355,870
Federal National Mortgage Association, 8% with various maturities to 12/1/2012 (a) ... 1,396,337 1,418,510
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Total U.S. Government Agency Pass-Thrus (Cost $6,083,570) 5,774,380
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Collateralized Mortgage Obligations 3.2%
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Residential Accredit Loans, Inc. Series 1997-A7, 7.25%, 11/25/2027 ................... 1,495,640 1,434,412
Residential Asset Securitization Trust Series 1997-A6, 7.25%, 9/25/2012 .............. 1,500,000 1,500,938
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Total Collateralized Mortgage Obligations (Cost $3,043,613) 2,935,350
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Foreign Bonds -- U.S.$ Denominated 3.3%
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Norsk Hydro ASA, 7.75%, 6/15/2023 .................................................... 500,000 489,100
PacifiCorp Australia LLC, 6.15%, 1/15/2008 ........................................... 1,000,000 903,320
Petroleum Geo-Services, 6.625%, 3/30/2008 ............................................ 1,000,000 924,560
Saga Petroleum ASA, 7.25%, 9/23/2027 ................................................. 775,000 701,445
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Total Foreign Bonds -- U.S.$ Denominated (Cost $3,218,003) 3,018,425
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Asset Backed 3.0%
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Automobile Receivables 1.4%
First Security Auto Owner Trust, Series 1999-2 A3, 6%, 10/15/2003 .................... 1,000,000 987,813
Premier Auto Trust Asset Backed Certificate, Series 1996-3 A4, 6.75%, 11/6/2000 ...... 343,806 344,126
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1,331,939
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</TABLE>
The accompanying notes are an integral part of the financial statements.
10 | Bond Portfolio
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Principal
Amount ($) Value ($)
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Credit Card Receivables 1.6% ---------
MBNA Master Credit Card Trust, 5.8%, 12/15/2005 ..... 1,500,000 1,444,215
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Total Asset Backed (Cost $2,839,687) 2,776,154
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Corporate Bonds 58.1%
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Consumer Staples 5.4%
Bass America Inc., 6.625%, 3/1/2003 ................. 1,000,000 979,300
Pepsi Bottling Holdings, Inc., 5.625%, 2/17/2009 .... 1,250,000 1,101,463
Phillip Morris Companies, Inc., 7.2%, 2/1/2007 ...... 1,000,000 936,270
Racers-Kellogg, 5.75%, 2/2/2001 ..................... 1,000,000 993,750
Safeway Inc., 6.05%, 11/15/2003 ..................... 1,000,000 953,040
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4,963,823
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Communications 9.1%
AT&T Corp., 6%, 3/15/2009 ........................... 500,000 453,555
AT&T Corp., 6.5%, 3/15/2029 ......................... 500,000 428,345
Metromedia Fiber Network, Inc., 10%, 12/15/2009 ..... 450,000 459,000
Qwest Communications International, 7.5%, 11/1/2008 . 2,000,000 1,944,360
Sprint Capital Corp., 6.125%, 11/15/2008 ............ 3,600,000 3,264,048
WorldCom, Inc., 6.4%, 8/15/2005 ..................... 2,000,000 1,915,660
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8,464,968
---------
Financial 15.6%
Associates Corp. of North America, 6.625%, 5/15/2001 2,000,000 1,994,600
Capital One Bank, 6.57%, 1/27/2003 .................. 1,000,000 969,400
First USA Bank, 5.85%, 2/22/2001 .................... 1,500,000 1,485,420
First Union Institutional Capital II, 7.85%, 1/1/2027 1,750,000 1,588,808
Firststar Bank, 7.125%, 12/1/2009 ................... 1,000,000 965,880
Ford Motor Credit Corp., 5.75%, 2/23/2004 ........... 1,500,000 1,424,055
GS Escrow Corp., 7%, 8/1/2003 ....................... 1,000,000 918,418
General Electric Capital Corp. "A", 6.02%, 5/4/2001 . 1,500,000 1,488,750
McDonnell Douglas Finance Corp., 6.75%, 12/23/2003 .. 1,000,000 989,040
Merrill Lynch & Co., Inc., 6%, 2/17/2009 ............ 1,000,000 896,510
PNC Funding Corp., 7%, 9/1/2004 ..................... 550,000 540,271
Prudential Insurance Co., 6.375%, 7/23/2006 ......... 1,250,000 1,167,475
----------
14,428,627
----------
Media 8.0%
AMFM Inc., 8%, 11/1/2008 ............................ 1,000,000 1,002,500
Cablevision Systems Corp., 7.875%, 2/15/2018 ........ 1,000,000 947,250
Charter Communication Holdings LLC, 8.25%, 4/1/2007 . 1,000,000 925,000
News America Holdings Inc., 9.25%, 2/1/2013 ......... 1,000,000 1,088,280
Outdoor Systems, Inc., 8.875%, 6/15/2007 ............ 1,000,000 1,030,000
TCI-Communications, Inc., 8%, 8/1/2005 .............. 1,250,000 1,287,013
Time Warner Inc., 9.125%, 1/15/2013 ................. 1,000,000 1,095,160
---------
7,375,203
Service Industries 0.5% ---------
Allied Waste North America, 7.375%, 1/1/2004 ........ 500,000 461,563
---------
Durables 1.8%
BE Aerospace, Inc., 8%, 3/1/2008 .................... 850,000 733,125
Lear Corp., 7.96%, 5/15/2005 ........................ 1,000,000 953,400
---------
1,686,525
---------
The accompanying notes are an integral part of the financial statements.
Bond Portfolio | 11
<PAGE>
Principal
Amount ($) Value ($)
- --------------------------------------------------------------------------------
Manufacturing 1.4%
Dow Chemical Co., 7.375%, 11/1/2029 .................... 600,000 573,672
Graham Packaging Co., 8.75%, 1/15/2008 ................. 750,000 720,000
---------
1,293,672
---------
Technology 0.8%
Xerox Corp., 5.5%, 11/15/2003 .......................... 750,000 704,025
---------
Energy 8.4%
Apache Finance Canada, 7.75%, 12/15/2029 ............... 850,000 825,860
Barrett Resources Corp., 7.55%, 2/1/2007 ............... 750,000 706,125
Conoco Inc., 6.35%, 4/15/2009 .......................... 1,000,000 926,540
Louis Dreyfus Natural Gas Corp., 9.25%, 6/15/2004 ...... 1,575,000 1,598,625
Louisiana Land & Exploration Co., 7.65%, 12/1/2023 ..... 1,250,000 1,191,575
Pioneer Natural Resources Co., 7.2%, 1/15/2028 ......... 1,500,000 1,126,875
Texas Eastern Transmission Corp., 10%, 8/15/2001 ....... 1,000,000 1,044,420
Williams Gas Pipeline Center, 7.375%, 11/15/2006 ....... 400,000 395,144
---------
7,815,164
Construction 0.5% ---------
Nortek Inc., 9.125%, 9/1/2007 .......................... 500,000 485,000
---------
Transportation 3.6%
Allied Holdings Inc., 8.625%, 10/1/2007 ................ 700,000 619,500
Continental Airlines Inc., 6.795%, 8/2/2018 ............ 1,500,000 1,374,300
Delta Air Lines, Inc., 7.9%, 12/15/2009 ................ 250,000 245,660
Delta Air Lines, Inc., 8.3%, 12/15/2029 ................ 600,000 591,942
Newport News Shipbuilding Co., 8.625%, 12/1/2006 ....... 500,000 493,750
---------
3,325,152
---------
Utilities 3.0%
Cleveland Electric Illumination Co., 7.67%, 7/1/2004 ... 450,000 443,228
Houston Light & Power Capital Trust II, 8.257%, 2/1/2037 500,000 436,250
Niagara Mohawk Power Corp., 6.625%, 7/1/2005 ........... 1,000,000 962,350
Public Service Co. of Colorado, 6%, 4/15/2003 .......... 1,000,000 968,860
---------
2,810,688
---------
- --------------------------------------------------------------------------------
Total Corporate Bonds (Cost $56,675,479) 53,814,410
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $97,434,851) (b) 92,611,955
- --------------------------------------------------------------------------------
* Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) Effective maturities may be shorter due to prepayments.
(b) At December 31, 1999, the net unrealized depreciation on investments based
on cost for federal income tax purposes of $97,539,344 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of market value over tax cost ......... $ 197,875
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over market value ......... 5,125,264
----------
Net unrealized depreciation ........................................ $4,927,389
----------
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments and direct U.S. Government obligations), for the year ended
December 31, 1999, aggregated $46,872,648 and $49,817,470, respectively.
Purchases and sales of direct U.S. Government obligations for the year ended
December 31, 1999 aggregated $38,515,969 and $41,825,758, respectively.
- --------------------------------------------------------------------------------
At December 31, 1999 the Portfolio had a net tax basis capital loss
carryforward of approximately $1,178,000 which may be applied against any
realized net taxable capital gains of each succeeding year until fully
utilized or until December 31, 2007, the expiration date. In addition, from
November 1 through December 31, 1999, the Bond Portfolio incurred
approximately $1,111,000 of net realized capital losses. As permitted by tax
regulations, the Portfolio intends to elect to defer these losses and treat
them as arising in the year ending December 31, 2000.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
12 | Bond Portfolio
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
- ------------------------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- ------------------------------------------------------------------------------------------------------------------------
Assets
<S> <C>
Investments in securities, at value (cost $97,434,851) ................................................. $ 92,611,955
Cash ................................................................................................... 237
Interest receivable .................................................................................... 1,617,188
Receivable for Portfolio shares sold ................................................................... 201,140
Other assets ........................................................................................... 246
------------
Total assets ........................................................................................... 94,430,766
Liabilities
- ------------------------------------------------------------------------------------------------------------------------
Payable for Portfolio shares redeemed .................................................................. 56,145
Accrued management fee ................................................................................. 37,697
Accrued accounting fee ................................................................................. 3,125
Other accrued expenses and payables .................................................................... 15,006
------------
Total liabilities ...................................................................................... 111,973
- ------------------------------------------------------------------------------------------------------------------------
Net assets, at value $ 94,318,793
- ------------------------------------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income (loss) ............................................................. 4,786,426
Net unrealized appreciation (depreciation) on investments .............................................. (4,822,896)
Accumulated net realized gain (loss) ................................................................... (2,392,882)
Paid-in capital ........................................................................................ 96,748,145
- ------------------------------------------------------------------------------------------------------------------------
Net assets, at value $ 94,318,793
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per share ($94,318,793 / 14,528,870 outstanding shares of ------------
beneficial interest, no par value, unlimited number of shares authorized) ........................... $ 6.49
------------
- ------------------------------------------------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- ------------------------------------------------------------------------------------------------------------------------
Investment Income
- ------------------------------------------------------------------------------------------------------------------------
Interest ............................................................................................... 7,124,955
------------
Expenses:
Management fee ......................................................................................... 487,063
Custodian fees ......................................................................................... 12,683
Accounting fees ........................................................................................ 37,615
Auditing ............................................................................................... 19,540
Legal .................................................................................................. 2,424
Trustees' fees and expenses ............................................................................ 16,823
Reports to shareholders ................................................................................ 3,993
Registration fees ...................................................................................... 1,334
Other .................................................................................................. 3,524
------------
Total expenses, before expense reductions .............................................................. 584,999
Expense reductions ..................................................................................... (678)
------------
Total expenses, after expense reductions ............................................................... 584,321
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 6,540,634
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investments .............................................................. (2,152,373)
------------
Net unrealized appreciation (depreciation) during the period on investments ............................ (5,473,870)
------------
Net gain (loss) on investment transactions ............................................................. (7,626,243)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (1,085,609)
- ------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
Bond Portfolio | 13
<PAGE>
- -------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
Increase (Decrease) in Net Assets 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
Operations:
Net investment income .................................................................. $ 6,540,634 $ 5,872,849
Net realized gain (loss) on investment transactions .................................... (2,152,373) 1,549,350
Net unrealized appreciation (depreciation) on investment transactions during the period (5,473,870) (1,599,146)
------------- -------------
Net increase (decrease) in net assets resulting from operations ........................ (1,085,609) 5,823,053
------------- -------------
Distributions to shareholders:
From net investment income ............................................................. (3,437,261) (5,348,241)
------------- -------------
From net realized gains ................................................................ (1,738,743) (295,455)
------------- -------------
Portfolio share transactions:
Proceeds from shares sold .............................................................. 33,898,160 51,946,542
Reinvestment of distributions .......................................................... 5,176,004 5,643,696
Cost of shares redeemed ................................................................ (44,918,349) (32,732,036)
------------- -------------
Net increase (decrease) in net assets from Portfolio share transactions ................ (5,844,185) 24,858,202
------------- -------------
Increase (decrease) in net assets ...................................................... (12,105,798) 25,037,559
Net assets at beginning of period ...................................................... 106,424,591 81,387,032
Net assets at end of period (including undistributed net investment income of $4,786,426 ------------- -------------
and $1,781,274, respectively) ....................................................... $ 94,318,793 $ 106,424,591
------------- -------------
Other Information
- -------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period .............................................. 15,463,236 11,852,430
------------- -------------
Shares sold ............................................................................ 5,138,095 7,558,444
Shares issued to shareholders in reinvestment of distributions ......................... 776,741 831,464
Shares redeemed ........................................................................ (6,849,202) (4,779,102)
------------- -------------
Net increase (decrease) in Portfolio shares ............................................ (934,366) 3,610,806
------------- -------------
Shares outstanding at end of period .................................................... 14,528,870 15,463,236
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 | Bond Portfolio
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------
Bond Portfolio
The following table includes selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements.
- -----------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 6.88 $ 6.87 $ 6.73 $ 7.16 $ 6.48
-----------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income .42 .43 .44 .41 .44
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.48) .01 .15 (.22) .69
-----------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.06) .44 .59 .19 1.13
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income (.22) (.40) (.43) (.62) (.45)
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gains on investment transactions (.11) (.03) (.02) -- --
-----------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.33) (.43) (.45) (.62) (.45)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 6.49 $ 6.88 $ 6.87 $ 6.73 $ 7.16
-----------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%) (.95) 6.57 9.10 2.82 18.17
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 94 106 81 66 73
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .57 .57 .62 .61 .56
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (%) 6.38 6.34 6.55 6.20 6.29
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 86 115 56 85 177
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
Bond Portfolio | 15
<PAGE>
Portfolio Management Discussion
- --------------------------------------------------------------------------------
December 31, 1999
Balanced Portfolio
Dear Shareholders,
The U.S. stock market roared to strong gains in 1999, the fifth consecutive year
in which the S&P 500 Index has delivered gains of over 20%. In a year in which
investors again favored growth at the expense of value, large gains in the
technology sector drove the Nasdaq average to an incredible gain of 85.6%. Bonds
posted poor performance due to concerns that the U.S. Federal Reserve would have
to raise interest rates at least once in early 2000 on the heels of three
quarter-point hikes in `99. The yield on the benchmark 30-year Treasury rose
from 5.10% to 6.48% in 1999 (as its price fell), its second-worst performance
since 1973. However, certain sectors of the bond market -- such as corporates
and mortgage-backed securities -- outperformed government issues.
The portfolio produced a total return of 15.32%, beating the 11.99% return of
its unmanaged benchmark, which is a combination of the S&P 500 (60%) and the
Lehman Brothers Aggregate Bond Index (40%). This return also stacked up well
against the 8.58% average return of the 60 variable life products in the
balanced category, according to Lipper Analytical Services. The portfolio is
also in the top 20% of its category for the 3-, 5-, and 10-year periods.^1
Portfolio strategy was shaped by our strongly bullish view on the stock market.
We held a larger than normal position in equities, and were positioned to
capitalize on the rally in technology stocks. The portfolio's equity position
was also boosted by its holdings in broadcasting, retail, and biotechs, but its
positions in pharmaceuticals and financials lagged. We utilize a strategy known
as "GARP," which stands for "growth at a reasonable price." In our view, good
companies with superior long-term growth characteristics are worth more than
less reliable companies that are often "cheap" for a reason. However, we are
very conscious of valuation, and have been reducing our positions in the types
of high-octane stocks that drove market performance in 1999.
In the bond portion of the portfolio, we have built a substantial position in
Treasuries in order to gain increased flexibility and take advantage of the
value that has emerged following a period of poor performance. We continue to
hold a position in high yield issues, which we believe will outperform in an
environment of strong economic growth.
Although we expect a higher level of stock market volatility in 2000, we are
bullish on the outlook for equities. However, it is likely that the political
situation in the United States will be a key variable for specific industry
groups, more so than even inflation or interest rate concerns. Nevertheless, we
feel that an investment strategy that focuses on quality in both the stock and
bond markets will continue to produce superior results over time, regardless of
developments in the external environment.
Sincerely,
Your Portfolio Management Team
/s/Gary A. Langbaum /s/Robert S. Cessine
Gary A. Langbaum Robert S. Cessine
Lead Portfolio Manager Portfolio Manager
/s/Tracy McCormick
Tracy McCormick
Portfolio Manager
^1 Source: Lipper Analytical Services, Inc. is an independent analyst of
investment performance. Performance includes reinvestment of dividends and
capital gains. For the period ended December 31, 1999, Scudder Variable Life
Investment Fund: Balanced Portfolio's Lipper ranking was 10 out of 60 funds
for the one-year period, 4 out of 40 funds for the three-year period, 4 out
of 25 for the five-year period, and 2 out of 11 for the ten-year period. Past
performance does not guarantee future results.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The portfolio's emphasis on equities allowed it to outperform both its benchmark
and its peers.
- --------------------------------------------------------------------------------
16 | Balanced Portfolio
<PAGE>
Portfolio Summary
- --------------------------------------------------------------------------------
December 31, 1999
Balanced Portfolio
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
Balanced Portfolio --
Class A S&P 500 Index LBAB Index
89 10000 89 10000 89 10000
90 9808 90 9690 90 10893
91 12449 91 12642 91 12636
92 13316 92 13609 92 13572
93 14308 93 14980 93 14896
94 14015 94 15177 94 14461
95 17752 95 20880 95 17133
96 19863 96 25673 96 17752
97 24671 97 34242 97 19469
98 30391 98 44029 98 21158
99 35046 99 53295 99 20980
Yearly periods ended December 31
The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks representing
all major industries. 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 Portfolio returns, do not reflect any fees or expenses.
<TABLE>
<CAPTION>
Balanced Portfolio S&P 500 Index (60%) and LBAB Index (40%)
--------------------------------------------------------------- --------------------------------------------------------------
Total Return Total Return
--------------------------- ---------------------------
Period Ended Growth of Average Period Ended Growth of Average
12/31/1999 $10,000 Cumulative Annual 12/31/1999 $10,000 Cumulative Annual
- ------------------------------------------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 11,532 15.32% 15.32% 1 Year $ 11,199 11.99% 11.99%
- ------------------------------------------------------------- ------------------------------------------------------------
5 Year $ 25,006 150.06% 20.12% 5 Year $ 24,971 149.71% 20.07%
- ------------------------------------------------------------- ------------------------------------------------------------
10 Year $ 35,046 250.46% 13.36% 10 Year $ 37,415 274.15% 14.10%
- ------------------------------------------------------------- ------------------------------------------------------------
</TABLE>
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 during the 10 Year period would have
been lower if the Portfolio's expenses were not maintained. 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 162.47% and 15.56%, respectively.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Equity Holdings
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sector breakdown of the Portfolio's equity holdings Five Largest Equity Holdings
Technology 22% 1. General Electric Co.
Financial 14% Producer of electrical equipment
Media 12%
Consumer Discretionary 10% 2. Microsoft Corp.
Health 10% Developer of computer software
Communications 8%
Manufacturing 7% 3. Cisco Systems, Inc.
Energy 6% Manufacturer of computer network products
Consumer Staples 5%
Other 6% 4. Intel Corp.
- ----------------------------------------------------------- Producer of semiconductor memory curcuits
100%
- ----------------------------------------------------------- 5. Wal-Mart Stores, Inc.
Operator of discount stores
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Fixed Income Holdings
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
By Asset Type By Quality
U.S. Treasuries 34%
Corporate Bonds 33% U.S. Government & Agencies 46%
U.S. Government Agency Pass-Thrus 9% AAA* 16%
Short-Term Investments 9% AA 5%
Foreign Bonds -- U.S. Dollar Denominated 6% A 19%
Asset-Backed Securities 4% BBB 11%
Government National Mortgage Association 3% BB 3%
Collateralized Mortgage Obligations 2%
- ------------------------------------------------------------- ------------------------------------------------------------
100% 100%
- ------------------------------------------------------------- ------------------------------------------------------------
*Category includes cash equivalents
</TABLE>
Balanced Portfolio | 17
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio as of December 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio
Principal
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements 3.2%
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
State Street Bank and Trust Company, 2.8%, to be repurchased at $6,306,471 on 1/3/2000 ---------
(Cost $6,305,000)** ........................................................................ 6,305,000 6,305,000
---------
- -----------------------------------------------------------------------------------------------------------------------------
U.S. Treasuries 11.5%
- -----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Inflationary Index Bond, 3.684%, 4/15/2028 ...................................... 1,250,000 1,160,929
U.S. Treasury Bond, 5.25%, 2/15/2029 .......................................................... 1,200,000 992,244
U.S. Treasury Bond, 7.25%, 5/15/2016 .......................................................... 5,750,000 6,010,533
U.S. Treasury Inflationary Index Note, 3.927%, 1/15/2009 ...................................... 1,000,000 990,938
U.S. Treasury Note, 5.5%, 8/31/2001 ........................................................... 6,000,000 5,931,540
U.S. Treasury Note, 6%, 8/15/2004 ............................................................. 4,300,000 4,232,791
U.S. Treasury Note, 6%, 8/15/2009 ............................................................. 1,500,000 1,453,125
U.S. Treasury Note, 6.5%, 10/15/2006 .......................................................... 2,000,000 1,994,680
- -----------------------------------------------------------------------------------------------------------------------------
Total U.S. Treasuries (Cost $23,966,347) 22,766,780
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association 0.9%
- -----------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association Pass-thru, 7% with various maturities to 1/15/2029 (a) ---------
(Cost $1,951,299) .......................................................................... 1,925,723 1,860,730
---------
- -----------------------------------------------------------------------------------------------------------------------------
U.S. Government Agency Pass-thrus 3.2%
- -----------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 5.75%, 7/15/2003 (a) ........................................ 2,500,000 2,420,700
Federal National Mortgage Association, 8%, 2/1/2013 (a) ....................................... 259,680 263,817
Federal National Mortgage Association, 6.5% with various maturities to 3/1/2028 (a) ........... 3,829,237 3,621,539
- -----------------------------------------------------------------------------------------------------------------------------
Total U.S. Government Agency Pass-thrus (Cost $2,832,185) 6,306,056
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Collateralized Mortgage Obligations .7%
- -----------------------------------------------------------------------------------------------------------------------------
Prudential Home Mortgage Securities Co. Series 1993-43-A1, 5.4%, 10/25/2023 ................... 23,634 23,524
Residential Accredit Loans, Inc., Series 1997-A7, 7.25%, 11/25/2027 ........................... 974,358 934,471
Residential Asset Securitization Trust Series 1997-A6, 7.25%, 9/25/2012 ....................... 500,000 500,313
- -----------------------------------------------------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations (Cost $5,325,653) 1,458,308
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Foreign Bonds -- U.S.$ Denominated 1.8%
- -----------------------------------------------------------------------------------------------------------------------------
Norsk Hydro ASA, 7.75%, 6/15/2023 ............................................................. 500,000 489,100
PacifiCorp Australia LLC, 6.15%, 1/15/2008 .................................................... 1,500,000 1,354,980
Petroleum Geo-Services, 6.625%, 3/30/2008 ..................................................... 1,000,000 924,560
Saga Petroleum ASA, 7.25%, 9/23/2027 .......................................................... 900,000 814,581
- -----------------------------------------------------------------------------------------------------------------------------
Total Foreign Bonds -- U.S.$ Denominated (Cost $3,882,028) 3,583,221
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Asset Backed 1.5%
- -----------------------------------------------------------------------------------------------------------------------------
Automobile Receivables 0.5%
First Security Auto Owner Trust, Series 1999-2 A3, 6%, 10/15/2003 ............................. 1,000,000 987,813
---------
The accompanying notes are an integral part of the financial statements.
18 | Balanced Portfolio
<PAGE>
Principal
Amount ($) Value ($)
- ----------------------------------------------------------------------------------------
Credit Card Receivables 1.0%
Citibank Credit Card Master Trust I, Series 1999-1 A, ... 1,000,000 943,750
MBNA Master Credit Card Trust, 5.8%, 12/15/2005 ......... 1,000,000 962,810
---------
1,906,560
---------
- ----------------------------------------------------------------------------------------
Total Asset Backed (Cost $2,995,472) 2,894,373
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Corporate Bonds 11.4%
- ----------------------------------------------------------------------------------------
Consumer Staples 1.2%
Bass America Inc., 6.625%, 3/1/2003 ..................... 750,000 734,475
Pepsi Bottling Holdings, Inc., 5.625%, 2/17/2009 ........ 750,000 660,878
Racers-Kellogg, 5.75%, 2/2/2001 ......................... 1,000,000 993,750
---------
2,389,103
---------
Communications 1.4%
AT&T Corp., 6%, 3/15/2009 ............................... 600,000 544,272
Lucent Technologies Inc., 6.9%, 7/15/2001 ............... 750,000 751,470
Sprint Capital Corp., 6.125%, 11/15/2008 ................ 1,000,000 906,680
WorldCom, Inc., 6.4%, 8/15/2005 ......................... 500,000 478,915
---------
2,681,337
---------
Financial 4.2%
Associates Corp. of North America, 6.625%, 5/15/2001 .... 750,000 747,975
Boeing Capital Corp., Medium Term Note, 6.75%, 12/23/2003 500,000 494,520
Capital One Bank, 6.57%, 1/27/2003 ...................... 500,000 484,700
First USA Bank, 5.85%, 2/22/2001 ........................ 1,000,000 990,280
First Union Corporation, 8.125%, 6/24/2002 .............. 500,000 510,450
Ford Motor Credit Corp., 5.75%, 2/23/2004 ............... 750,000 712,028
General Electric Capital Corp., 6.02%, 5/4/2001 ......... 500,000 496,250
Merrill Lynch & Co., Inc., 6%, 2/17/2009 ................ 500,000 448,255
NationsBank Corp., 7.25%, 10/15/2025 .................... 1,000,000 929,330
PNC Funding Corp., 7%, 9/1/2004 ......................... 400,000 392,924
Prudential Insurance Co., 6.375%, 7/23/2006 ............. 750,000 700,485
Southern National Corp., 7.05%, 5/23/2003 ............... 1,000,000 981,740
Wells Fargo & Co., 6.875%, 4/1/2006 ..................... 500,000 487,210
---------
8,376,147
---------
Media 1.3%
Cablevision Systems Corp., 7.875%, 2/15/2018 ............ 500,000 473,625
News America Holdings, Inc., 9.25%, 2/1/2013 ............ 500,000 544,140
TCI-Communications, Inc., 8%, 8/1/2005 .................. 500,000 514,805
Time Warner, Inc., 9.125%, 1/15/2013 .................... 1,000,000 1,095,160
---------
2,627,730
---------
Service Industries 0.2%
Primedia, Inc., 7.625%, 4/1/2008 ........................ 500,000 465,000
---------
Technology 0.5%
IBM Corp., 5.1%, 11/10/2003 ............................. 1,000,000 932,500
---------
Energy 1.3%
Anadarko Petroleum Corp., 5.875%, 10/15/2003 ............ 1,000,000 938,810
Conoco Inc., 5.9%, 4/15/2004 ............................ 750,000 716,003
Louisiana Land & Exploration Co., 7.65%, 12/1/2023 ...... 1,000,000 953,260
---------
2,608,073
---------
The accompanying notes are an integral part of the financial statements.
Balanced Portfolio | 19
<PAGE>
Principal
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------
Transportation 1.0%
Continental Airlines Inc., 6.795%, 8/2/2018 .................... 1,000,000 916,200
Delta Air Lines, Inc., 7.9%, 12/15/2009 ........................ 200,000 196,528
Newport News Shipbuilding Co., 8.625%, 12/1/2006 ............... 375,000 370,313
Northwest Airlines Corp., 7.875%, 3/15/2008 .................... 500,000 421,845
---------
1,904,886
---------
Utilities 0.2%
Public Service Co. of Colorado, 6%, 4/15/2003 .................. 500,000 484,430
---------
- -------------------------------------------------------------------------------------------
Total Corporate Bonds (Cost $23,572,406) 22,469,206
- -------------------------------------------------------------------------------------------
Shares
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Common Stocks 65.8%
- -------------------------------------------------------------------------------------------
Consumer Discretionary 6.8%
Department & Chain Stores 5.2%
Dayton Hudson Corp. ............................................ 28,700 2,107,656
Federated Department Stores, Inc.* ............................. 26,200 1,324,738
Home Depot, Inc. ............................................... 45,600 3,126,450
Wal-Mart Stores, Inc. .......................................... 53,900 3,725,838
----------
10,284,682
----------
Hotels & Casinos 0.6%
Carnival Corp. "A" ............................................. 26,000 1,243,125
----------
Specialty Retail 1.0%
Tandy Corp. .................................................... 38,800 1,908,475
----------
Consumer Staples 3.5%
Food & Beverage 1.8%
Bestfoods ...................................................... 15,000 788,438
H.J. Heinz Co. ................................................. 26,700 1,062,994
PepsiCo, Inc. .................................................. 50,000 1,762,500
----------
3,613,932
----------
Package Goods/Cosmetics 1.7%
Colgate-Palmolive Co. .......................................... 20,900 1,358,500
Procter & Gamble Co. ........................................... 18,100 1,983,081
---------
3,341,581
---------
Health 6.8%
Biotechnology 1.6%
Amgen, Inc.* ................................................... 15,500 930,969
Biogen, Inc.* .................................................. 13,200 1,115,400
Genentech, Inc.* ............................................... 7,900 1,062,550
----------
3,108,919
----------
Health Industry Services 0.5%
Cigna Corp. .................................................... 11,500 926,469
----------
Medical Supply & Specialty 0.4%
Baxter International, Inc. ..................................... 12,500 785,156
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20 | Balanced Portfolio
<PAGE>
Shares Value ($)
- ---------------------------------------------------------------
Pharmaceuticals 4.3%
Allergan, Inc.* ................... 18,000 895,500
American Home Products Corp. ...... 23,000 907,063
Bristol-Myers Squibb Co. .......... 21,400 1,373,613
Forest Laboratories, Inc.* ........ 11,000 675,813
Johnson & Johnson ................. 14,400 1,341,000
Merck & Co., Inc. ................. 20,800 1,394,900
Schering-Plough Corp. ............. 17,700 746,719
Warner-Lambert Co. ................ 15,000 1,229,063
---------
8,563,671
---------
Communications 5.0%
Telephone/Communications
AT&T Corp. ........................ 29,000 1,471,750
Bell Atlantic Corp. ............... 29,000 1,785,313
BellSouth Corp. ................... 22,000 1,029,875
GTE Corp. ......................... 10,000 705,625
Global Crossing Ltd.* ............. 23,985 1,199,250
MCI WorldCom, Inc.* ............... 36,675 1,946,067
SBC Communicatons, Inc. ........... 38,000 1,852,500
---------
9,990,380
---------
Financial 9.1%
Banks 1.5%
Chase Manhattan Corp. ............. 6,000 466,125
First Tennessee National Corp. .... 25,100 715,350
J.P. Morgan & Co., Inc. ........... 5,700 721,763
Wells Fargo Co. ................... 28,500 1,152,469
---------
3,055,707
---------
Insurance 3.8%
American International Group, Inc. 27,140 2,934,513
Aon Corp. ......................... 28,300 1,132,000
Jefferson Pilot Corp. ............. 16,000 1,092,000
Marsh & McLennan Companies, Inc. .. 10,800 1,033,425
St. Paul Companies, Inc. .......... 38,000 1,280,125
---------
7,472,063
---------
Consumer Finance 3.1%
American Express Co. .............. 8,100 1,346,625
Capital One Finance Corp. ......... 30,300 1,460,081
Citigroup, Inc. ................... 35,500 1,972,469
Household International, Inc. ..... 34,300 1,277,675
---------
6,056,850
---------
Other Financial Companies 0.7%
Morgan Stanley Dean Witter & Co. .. 10,000 1,427,500
---------
Media 7.8%
Advertising 1.1%
Omnicom Group, Inc. ............... 22,100 2,210,000
---------
Broadcasting & Entertainment 4.5%
CBS Corp.* ........................ 22,000 1,406,625
Clear Channel Communications, Inc.* 37,200 3,320,100
Infinity Broadcasting Corp.* ...... 61,381 2,221,225
Univision Communication, Inc.* .... 18,600 1,900,688
---------
8,848,638
---------
The accompanying notes are an integral part of the financial statements.
Balanced Portfolio | 21
<PAGE>
Shares Value ($)
- ------------------------------------------------------------------
Cable Television 1.4%
AT&T Corp -- Liberty Media Group* ...... 30,400 1,725,200
Comcast Corp. "A" ..................... 21,000 1,055,250
---------
2,780,450
---------
Print Media 0.8%
Tribune Co. ........................... 28,500 1,569,281
---------
Service Industries 2.5%
EDP Services 1.9%
Automatic Data Processing, Inc. ....... 25,000 1,346,875
Electronic Data Systems Corp. ......... 25,800 1,726,988
First Data Corp. ...................... 13,400 660,788
---------
3,734,651
---------
Environmental Services 0.1%
Transocean Offshore Inc. .............. 4,791 161,397
---------
Printing/Publishing 0.5%
McGraw-Hill, Inc. ..................... 16,200 998,325
---------
Durables 1.3%
Aerospace 1.0%
United Technologies Corp. ............. 29,000 1,885,000
---------
Telecommunications Equipment 0.3%
Lucent Technologies, Inc. ............. 8,500 635,906
---------
Manufacturing 4.8%
Diversified Manufacturing 0.8%
Tyco International Ltd. (New) ......... 41,200 1,601,650
---------
Electrical Products 3.3%
Emerson Electric Co. .................. 11,500 659,813
General Electric Co. .................. 37,300 5,772,175
---------
6,431,988
---------
Machinery/Components/Controls 0.7%
Parker-Hannifin Corp. ................. 28,000 1,436,750
---------
Technology 14.5%
Computer Software 4.1%
America Online, Inc.* ................. 13,300 1,003,319
Microsoft Corp.* ...................... 44,200 5,160,350
Oracle Corp.* ......................... 18,000 2,017,125
---------
8,180,794
---------
Diverse Electronic Products 3.2%
Applied Materials, Inc.* .............. 14,600 1,849,638
Motorola, Inc. ........................ 12,400 1,825,900
Solectron Corp.* ...................... 15,500 1,474,438
Teradyne, Inc.* ....................... 16,900 1,115,400
---------
6,265,376
---------
Electronic Components/Distributors 2.8%
Altera Corp.* ......................... 14,000 693,875
Cisco Systems, Inc.* .................. 45,600 4,884,900
---------
5,578,775
---------
The accompanying notes are an integral part of the financial statements.
22 | Balanced Portfolio
<PAGE>
Shares Value ($)
- ------------------------------------------------------------------------
Electronic Data Processing 0.8%
Sun Microsystems, Inc.* ................... 19,500 1,510,031
---------
Semiconductors 2.6%
Intel Corp. ............................... 48,600 4,000,388
Linear Technology Corp. ................... 17,700 1,266,656
---------
5,267,044
---------
Miscellaneous 1.0%
Agilent Technologies, Inc.* ............... 25,700 1,986,917
---------
Energy 3.7%
Oil & Gas Production 1.4%
Coastal Corp. ............................. 24,000 850,500
Conoco, Inc. "A" .......................... 26,000 643,500
Royal Dutch Petroleum Co. (New York shares) 21,500 1,299,406
---------
2,793,406
---------
Oil Companies 1.6%
Exxon Mobil Corp. ......................... 31,501 2,537,799
Texaco, Inc. .............................. 11,500 624,594
---------
3,162,393
---------
Oilfield Services/Equipment 0.7%
Schlumberger Ltd. ......................... 24,700 1,389,375
---------
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $95,019,805) 130,206,657
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $165,850,195) (b) 197,850,331
- --------------------------------------------------------------------------------
* Non-income producing security.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) Effective maturities may be shorter due to prepayments.
(b) At December 31, 1999, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $166,052,604 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of market value over tax cost .. $ 37,441,362
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over market value .. 5,643,635
------------
Net unrealized appreciation ................................. $ 31,797,727
------------
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments and direct U.S. Government obligations), for the year ended
December 31, 1999, aggregated $151,127,832 and $147,111,734, respectively.
Purchases and sales of direct U.S. Government obligations for the year ended
December 31, 1999 aggregated $32,973,206 and $21,536,196, respectively.
The accompanying notes are an integral part of the financial statements.
Balanced Portfolio | 23
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
- ------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio
- ------------------------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- ------------------------------------------------------------------------------------------------------------------------
Assets
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $165,850,195) ................................................. $197,850,331
Cash .................................................................................................... 303
Dividends receivable .................................................................................... 108,277
Interest receivable ..................................................................................... 1,013,138
Receivable for Portfolio shares sold .................................................................... 14,398
Other assets ............................................................................................ 994
------------
Total assets ............................................................................................ 198,987,441
Liabilities
- ------------------------------------------------------------------------------------------------------------------------
Payable for Portfolio shares redeemed ................................................................... 44,438
Accrued management fee .................................................................................. 78,588
Accrued accounting fee .................................................................................. 5,553
Other accrued expenses and payables ..................................................................... 14,263
------------
Total liabilities ....................................................................................... 142,842
- ------------------------------------------------------------------------------------------------------------------------
Net assets, at value $198,844,599
- ------------------------------------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ..................................................................... 3,273,215
Net unrealized appreciation (depreciation) on investments ............................................... 32,000,136
Accumulated net realized gain (loss) .................................................................... 25,736,399
Paid-in capital ......................................................................................... 137,834,849
- ------------------------------------------------------------------------------------------------------------------------
Net assets, at value $198,844,599
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per share ($198,844,599 / 12,343,386 outstanding shares of ------------
beneficial interest, no par value, unlimited number of shares authorized) ............................ $ 16.11
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
24 | Balanced Portfolio
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- --------------------------------------------------------------------------------
Investment Income
- --------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $1,681) ............ $ 730,258
Interest ....................................................... 4,515,366
------------
Total Income ................................................... 5,245,624
------------
Expenses:
Management fee ................................................. 856,252
Custodian fees ................................................. 17,320
Accounting fees ................................................ 67,097
Auditing ....................................................... 20,973
Legal .......................................................... 4,206
Trustees' fees and expenses .................................... 16,996
Reports to shareholders ........................................ 5,868
Registration fees .............................................. 2,355
Other .......................................................... 2,091
------------
Total expenses, before expense reductions ...................... 993,158
Expense reductions ............................................. (364)
------------
Total expenses, after expense reductions ....................... 992,794
- --------------------------------------------------------------------------------
Net investment income (loss) 4,252,830
- --------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- --------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................... 25,821,885
Foreign currency related transactions .......................... 4,549
------------
25,826,434
------------
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................... (3,802,128)
------------
Net gain (loss) on investment transactions ..................... 22,024,306
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 26,277,136
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
Balanced Portfolio | 25
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets Years ended December 31,
1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income (loss) ........................................................... $ 4,252,830 $ 3,706,213
Net realized gain (loss) on investment transactions .................................... 25,826,434 12,882,748
Net unrealized appreciation (depreciation) on investment transactions during the period (3,802,128) 12,183,268
------------- -------------
Net increase (decrease) in net assets resulting from operations ........................ 26,277,136 28,772,229
------------- -------------
Distributions to shareholders from:
Net investment income .................................................................. (2,004,275) (3,532,592)
------------- -------------
Net realized gains ..................................................................... (12,845,342) (6,021,605)
------------- -------------
Portfolio share transactions:
Proceeds from shares sold .............................................................. 54,478,502 36,814,365
Reinvestment of distributions .......................................................... 14,849,617 9,554,198
Cost of shares redeemed ................................................................ (43,542,988) (22,327,861)
------------- -------------
Net increase (decrease) in net assets from Portfolio share transactions ................ 25,785,131 24,040,702
------------- -------------
Increase (decrease) in net assets ...................................................... 37,212,650 43,258,734
Net assets at beginning of period ...................................................... 161,631,949 118,373,215
Net assets at end of period (including undistributed net investment income of $3,273,215 ------------- -------------
and $1,005,263, respectively) ....................................................... $ 198,844,599 $ 161,631,949
------------- -------------
Other Information
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period .............................................. 10,629,925 8,902,042
------------- -------------
Shares sold ............................................................................ 3,610,443 2,658,358
Shares issued to shareholders in reinvestment of distributions ......................... 1,012,436 711,195
Shares redeemed ........................................................................ (2,909,418) (1,641,670)
------------- -------------
Net increase (decrease) in Portfolio shares ............................................ 1,713,461 1,727,883
------------- -------------
Shares outstanding at end of period .................................................... 12,343,386 10,629,925
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
26 | Balanced Portfolio
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio
The following table includes selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements.
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $15.21 $13.30 $11.61 $10.95 $ 8.97
-----------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .35 .37 .34 .31 .30
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions 1.85 2.56 2.32 .95 2.04
-----------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.20 2.93 2.66 1.26 2.34
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (.18) (.36) (.33) (.30) (.30)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (1.12) (.66) (.64) (.30) (.06)
-----------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (1.30) (1.02) (.97) (.60) (.36)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.11 $15.21 $13.30 $11.61 $10.95
-----------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) 15.32 23.19 24.21 11.89 26.67
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 199 162 118 88 68
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses (%) .55 .56 .57 .60 .65
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.36 2.71 2.73 2.82 3.01
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 98 74 43 68 88
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
Balanced Portfolio | 27
<PAGE>
Portfolio Management Discussion
- --------------------------------------------------------------------------------
December 31, 1999
Growth and Income Portfolio
Dear Shareholders,
Throughout the year performance was dominated by a small number of large-cap,
high growth stocks with generally high valuations. This trend was driven
primarily by high expectations for technology and Internet stocks. The
spectacular performance of this small group came at the expense of value stocks.
The disparity between growth and value stocks was clearly evident in the returns
of the unmanaged Russell 1000 Growth Index and the Russell 1000 Value Index,
which gained 33.16% and 7.35%, respectively. Thus, portfolios with value
characteristics -- such as this portfolio -- experienced modest returns. For the
12 months ended December 31, 1999, Class A shares returned 5.80%, which compares
to the 21.04% return of the S&P 500 Index.
At midyear, the portfolio's investment criteria were enhanced to increase the
number of ways we determine if a stock is attractively valued. Historically, we
have identified undervalued companies primarily based on above-average dividend
yields relative to the S&P 500. Because yields have declined and corporations
are generally placing less emphasis on dividends, we expanded our valuation
criteria to include additional measures, such as price/earnings and price/cash
flow ratios. Now the portfolio can invest in a stock that is deemed attractive
by one of several valuation measures, even if the stock does not pay an
above-average dividend.
Over the year, the portfolio benefited from good stock selection in a number of
sectors, including communications (Sprint, Global Crossing, Alltel, Bell
Atlantic, and GTE), energy (Total Fina), and construction (Weyerhaeuser and
Georgia Pacific). However, gains from these stocks were not enough to keep up
with the spectacular gains of technology stocks. Over most of the year the
portfolio's exposure to tech stocks was limited by our relative dividend yield
strategy, which excluded stocks that pay little or no dividends -- a
characteristic of tech stocks. We did participate indirectly in tech through
holdings such as Corning, a leader in fiber optics that is helping customers
meet the enormous demand for additional bandwidth for the Internet. With the
introduction of the portfolio's enhanced criteria in the second half, we
significantly increased the portfolio's direct exposure to technology, which
helped performance. However, the portfolio's tech position was still less then
that of the S&P 500. Weak stock selection in the finance (XL Capital, First
Union, Banc One, and FleetBoston Financial) and manufacturing sectors (Lyondell
Petrochemical) detracted from performance over the year.
While the current environment has heavily favored a handful of high priced
growth stocks, we believe that the portfolio's broadened investment universe
will provide us with additional opportunities to outperform our benchmark. Going
forward, we will continue to pursue a three-tiered investment process focused on
stocks with attractive valuations, solid fundamentals, and risk management.
Sincerely,
Your Portfolio Management Team
/s/Kathleen T. Millard /s/Benjamin W. Thorndike
Kathleen T. Millard Benjamin W. Thorndike
Lead Portfolio Manager Portfolio Manager
/s/Gregory S. Adams
Gregory S. Adams
Portfolio Manager
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
Management focuses on stocks with attractive valuations, solid fundamentals, and
controlling risk.
- --------------------------------------------------------------------------------
28 | Growth and Income Portolio
<PAGE>
Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Growth and Income Portfoliofolio
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
Growth and Income Portfolio --
Class A* S&P 500 Index
5/94* 10000 5/94* 10000
12/94 10235 12/94 10397
12/95 13483 12/95 14304
12/96 16472 12/96 17588
12/97 21491 12/97 23458
12/98 23035 12/98 30164
12/99 24370 12/99 36512
The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks representing
all major industries. Index returns assume reinvestment of dividends and, unlike
Portfolio returns, do not reflect any fees or expenses.
<TABLE>
<CAPTION>
Growth and Income Portfolio -- Class A* S&P 500 Index
- --------------------------------------------------------------- -------------------------------------------------------------
Total Return Total Return
--------------------------- ---------------------------
Period Ended Growth of Average Period Ended Growth of Average
12/31/1999 $10,000 Cumulative Annual 12/31/1999 $10,000 Cumulative Annual
- ------------------------------------------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 10,580 5.80% 5.80% 1 Year $ 12,104 21.04% 21.04%
- ------------------------------------------------------------- ------------------------------------------------------------
5 Year $ 23,811 138.11% 18.95% 5 Year $ 35,116 251.16% 28.54%
- ------------------------------------------------------------- ------------------------------------------------------------
Life of Portfolio* $ 24,980 149.80% 17.53% Life of Portfolio* $ 36,512 265.12% 25.64%
- ------------------------------------------------------------- ------------------------------------------------------------
</TABLE>
* The Portfolio commenced operations on May 2, 1994. On May 1, 1997, existing
shares were redesignated as Class A shares.
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
Growth and Income Portfolio
-- Class B S&P 500 Index
5/1/97** 10000 5/1/97** 10000
6/97 10540 6/97 11085
12/97 11601 12/97 12258
6/98 12745 6/98 14430
12/98 12407 12/98 15762
6/99 13841 6/99 17714
12/99 13087 12/99 19079
The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks representing
all major industries. Index returns assume reinvestment of dividends and, unlike
Portfolio returns, do not reflect any fees or expenses.
<TABLE>
<CAPTION>
Growth and Income Portfolio -- Class B S&P 500 Index
- ------------------------------------------------------------- ------------------------------------------------------------
Total Return Total Return
--------------------------- ---------------------------
Period Ended Growth of Average Period Ended Growth of Average
12/31/1999 $10,000 Cumulative Annual 12/31/1999 $10,000 Cumulative Annual
- ------------------------------------------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 10,548 5.48% 5.48% 1 Year $ 12,104 21.04% 21.04%
- ------------------------------------------------------------- ------------------------------------------------------------
Life of Portfolio** $ 13,863 38.63% 13.02% Life of Portfolio**$ 19,079 90.79% 27.36%
- ------------------------------------------------------------- ------------------------------------------------------------
</TABLE>
** The Portfolio commenced selling Class B shares on May 1, 1997.
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 for the Life
of the Portfolio for Class A would have been lower if the Portfolio's
expenses were not maintained.
Growth and Income Portolio | 29
<PAGE>
Portfolio Summary
- --------------------------------------------------------------------------------
December 31, 1999
Growth and Income Portfolio
- --------------------------------------------------------------------------------
Diversification
- --------------------------------------------------------------------------------
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Equity Securities 88% Sector breakdown of the
Cash Equivalents 12% Portfolio's equity holdings
- ------------------------------------
100% Financial 19%
- ------------------------------------ Manufacturing 15%
Communications 14%
Technology 13%
Energy 10%
Health 7%
Consumer Staples 5%
Service Industries 4%
Durables 3%
Other 10%
-----------------------------------
100%
-----------------------------------
A broadening of the portfolio's selection criteria resulted in an increase in
technology stocks while maintaining its value and blend fund investment style.
- --------------------------------------------------------------------------------
Ten Largest Equity Holdings
- --------------------------------------------------------------------------------
(26% of Portfolio)
1. Corning, Inc.
Specialty glass manufacturer
2. Total Fina SA
International oil and gas exploration and production
3. Dow Chemical Co.
Chemical producer
4. BellSouth Corp.
Telecommunication services
5. Oracle Corp.
Database management software
6. General Electric Co.
Producer of electrical equipment
7. Intel Corp.
Producer of semiconductor memory circuits
8. Microsoft Corp.
Developer of computer software
9. GTE Corp.
Telecommunication company
10. Citigroup, Inc.
Diversified financial services company
30 | Growth and Income Portolio
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio as of December 31, 1999
- ------------------------------------------------------------------------------------------------------------------
Growth and Income Portfolio
Principal
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Repurchase Agreements 3.8%
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
State Street Bank and Trust Company, 2.8%, to be repurchased at $8,049,878 on 1/3/2000 ---------
(Cost $8,048,000)** .............................................................. 8,048,000 8,048,000
---------
- ------------------------------------------------------------------------------------------------------------------
Short-Term Investments 8.0%
- ------------------------------------------------------------------------------------------------------------------
----------
Federal Home Loan Mortgage Corp., 1/3/2000 (Cost $16,998,583) ....................... 17,000,000 16,998,583
----------
Shares
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Common Stocks 88.2%
- ------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 1.7%
Department & Chain Stores
Wal-Mart Stores, Inc. ............................................................... 53,300 3,684,363
---------
Consumer Staples 4.5%
Alcohol & Tobacco 1.1%
Anheuser-Busch Companies, Inc. ...................................................... 34,500 2,445,188
---------
Food & Beverage 1.6%
H.J. Heinz Co. ...................................................................... 46,700 1,859,244
PepsiCo, Inc. ....................................................................... 44,400 1,565,100
---------
3,424,344
---------
Package Goods/Cosmetics 1.8%
Avon Products, Inc. ................................................................. 114,300 3,771,900
---------
Health 6.6%
Hospital Management 0.4%
Columbia/HCA Healthcare Corp. ....................................................... 26,100 765,056
---------
Pharmaceuticals 6.2%
American Home Products Corp. ........................................................ 96,300 3,797,831
Bristol-Myers Squibb Co. ............................................................ 40,600 2,606,013
Glaxo Wellcome PLC (ADR) ............................................................ 31,700 1,771,238
Johnson & Johnson ................................................................... 37,700 3,510,813
SmithKline Beecham PLC (ADR) ........................................................ 25,300 1,630,269
----------
13,316,164
----------
Communications 12.2%
Telephone/Communications
AT&T Corp. .......................................................................... 21,600 1,096,200
Alltel Corp. ........................................................................ 26,200 2,166,413
Bell Atlantic Corp. ................................................................. 55,950 3,444,422
BellSouth Corp. ..................................................................... 126,200 5,907,738
GTE Corp. ........................................................................... 58,500 4,127,906
Global Crossing Ltd. ................................................................ 56,470 2,823,500
SBC Communications, Inc. ............................................................ 77,080 3,757,650
Sprint Corp. ........................................................................ 41,400 2,786,738
----------
26,110,567
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Growth and Income Portolio | 31
<PAGE>
Shares Value ($)
- -----------------------------------------------------------------
Financial 16.4%
Banks 4.5%
Chase Manhattan Corp. ................ 43,700 3,394,944
First Union Corp. .................... 46,408 1,522,763
FleetBoston Financial Corp. .......... 58,600 2,040,013
J.P. Morgan & Co., Inc. .............. 7,100 899,038
US Bancorp ........................... 77,100 1,835,944
----------
9,692,702
----------
Insurance 5.4%
American International Group, Inc. ... 30,900 3,341,063
Marsh & McLennan Companies, Inc. ..... 36,500 3,492,594
St. Paul Companies, Inc. ............. 74,700 2,516,456
XL Capital Ltd. "A" .................. 41,942 2,175,741
----------
11,525,854
----------
Consumer Finance 3.1%
American Express Co. ................. 8,300 1,379,875
Citigroup, Inc. ...................... 74,100 4,117,181
SLM Holding Corp. .................... 28,200 1,191,450
----------
6,688,506
----------
Other Financial Companies 3.1%
Federal National Mortgage Association 55,800 3,484,013
Morgan Stanley Dean Witter & Co. ..... 21,000 2,997,750
----------
6,481,763
----------
Real Estate 0.3%
General Growth Properties, Inc. (REIT) 21,800 610,400
----------
Media 1.8%
Broadcasting & Entertainment 1.1%
Walt Disney Co. ...................... 80,100 2,342,925
----------
Cable Television 0.7%
Comcast Corp. "A" .................... 28,100 1,412,025
----------
Service Industries 3.2%
EDP Services 1.5%
Electronic Data Systems Corp. ........ 47,700 3,192,919
----------
Printing/Publishing 1.7%
McGraw-Hill, Inc. .................... 61,300 3,777,613
----------
Durables 2.8%
Aerospace 1.1%
Rockwell International Corp. ......... 48,200 2,307,575
----------
Automobiles 1.7%
Ford Motor Co. ....................... 66,800 3,569,625
Meritor Automotive, Inc. ............. 1,033 20,014
----------
3,589,639
----------
Manufacturing 13.0%
Chemicals 3.4%
Dow Chemical Co. ..................... 44,900 5,999,763
E.I. du Pont de Nemours & Co. ........ 19,300 1,271,388
----------
7,271,151
----------
The accompanying notes are an integral part of the financial statements.
32 | Growth and Income Portolio
<PAGE>
Shares Value ($)
- ----------------------------------------------------------------------
Diversified Manufacturing 2.4%
General Electric Co. ...................... 32,700 5,060,325
----------
Electrical Products 0.8%
Emerson Electric Co. ...................... 31,400 1,801,575
----------
Industrial Specialty 4.8%
Corning, Inc. ............................. 79,800 10,289,213
----------
Machinery/Components/Controls 1.6%
Parker-Hannifin Corp. ..................... 64,400 3,304,525
----------
Technology 11.5%
Computer Software 6.9%
America Online, Inc.* ..................... 37,200 2,806,275
Computer Associates International, Inc. ... 35,900 2,510,756
Microsoft Corp.* .......................... 35,400 4,132,950
Oracle Systems Corp.* ..................... 47,600 5,334,175
----------
14,784,156
----------
Electronic Data Processing 2.3%
Compaq Computer Corp. ..................... 37,400 1,012,138
Hewlett-Packard Co. ....................... 11,200 1,276,100
International Business Machines Corp. ..... 22,800 2,462,400
----------
4,750,638
----------
Semiconductors 2.3%
Intel Corp. ............................... 60,100 4,946,981
----------
Energy 8.6%
Oil & Gas Production 1.8%
Conoco, Inc. "A" .......................... 68,900 1,705,275
Conoco, Inc. "B" .......................... 1 25
Royal Dutch Petroleum Co. (New York shares) 36,400 2,199,925
----------
3,905,225
----------
Oil Companies 6.2%
Exxon Mobil Corp. ......................... 49,307 3,972,295
Texaco, Inc. .............................. 52,600 2,856,838
Total Fina SA (ADR) ....................... 92,690 6,418,783
----------
13,247,916
----------
Oilfield Services/Equipment 0.6%
Schlumberger Ltd. ......................... 18,700 1,051,875
Transocean Offshore Inc. .................. 3,628 122,212
----------
1,174,087
----------
Metals & Minerals 0.6%
Steel & Metals
Alcoa, Inc. ............................... 15,100 1,253,300
Oregon Steel Mills, Inc. .................. 9,300 73,819
----------
1,327,119
----------
Construction 1.6%
Forest Products
Weyerhaeuser Co.* ......................... 48,800 3,504,450
----------
Transportation 1.6%
Airlines 0.6%
AMR Corp.* ................................ 18,900 1,266,300
----------
The accompanying notes are an integral part of the financial statements.
Growth and Income Portolio | 33
<PAGE>
Shares Value ($)
- --------------------------------------------------------------------------------
Railroads 1.0%
CSX Corp. ................................................ 5,200 2,045,640
---------
[GRAPHIC OMITTED]
Utilities 2.1%
Electric Utilities
ScottishPower PLC (ADR) .................................. 9,368 1,942,304
Unicom Corp. ............................................. 6,100 2,549,350
---------
4,491,654
---------
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $155,912,980) ................... 188,310,458
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $180,959,563) (a) 213,357,041
- --------------------------------------------------------------------------------
* Non-income producing security.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) At December 31, 1999, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $181,060,229 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of market value over tax cost ....$38,460,498
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over market value .... 6,163,686
-----------
Net unrealized appreciation ...................................$32,296,812
-----------
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments), for the year ended December 31, 1999, aggregated $125,066,157
and $135,662,743, respectively.
- --------------------------------------------------------------------------------
From November 1, 1999 through December 31, 1999 the Portfolio incurred
approximately $3,839,000 of net realized capital losses. As permitted by tax
regulations, the Portfolio intends to defer these losses and treat them as
arising in the fiscal year ended December 31, 2000.
The accompanying notes are an integral part of the financial statements.
34 | Growth and Income Portolio
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
Growth and Income Portfolio
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- --------------------------------------------------------------------------------
Assets
- --------------------------------------------------------------------------------
Investments in securities, at value (cost $180,959,563) . $ 213,357,041
Dividends receivable .................................... 275,345
Interest receivable ..................................... 626
Receivable for Portfolio shares sold .................... 422,718
Foreign taxes recoverable ............................... 37,702
-------------
Total assets ............................................ 214,093,432
Liabilities
- --------------------------------------------------------------------------------
Due to custodian bank ................................... 2,030
Payable for Portfolio shares redeemed ................... 238,552
Accrued management fee .................................. 81,549
Accrued accounting fee .................................. 6,892
Other accrued expenses and payables ..................... 60,387
-------------
Total liabilities ....................................... 389,410
- --------------------------------------------------------------------------------
Net assets, at value .................................... $ 213,704,022
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ..................... 2,764,198
Net unrealized appreciation (depreciation) on investments 32,397,478
Accumulated net realized gain (loss) .................... (325,485)
Paid-in capital ......................................... 178,867,831
- --------------------------------------------------------------------------------
Net assets, at value .................................... $ 213,704,022
- --------------------------------------------------------------------------------
Class A
Net asset value, offering and redemption price per share
($199,864,689 / 18,237,831 outstanding shares of beneficial -------
interest, no par value, unlimited number of shares authorized) ... $ 10.96
-------
Class B
Netasset value, offering and redemption price per share
($13,839,333 / 1,266,642 outstanding shares of beneficial -------
interest, no par value, unlimited number of shares authorized).. $ 10.93
-------
The accompanying notes are an integral part of the financial statements.
Growth and Income Portolio | 35
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- --------------------------------------------------------------------------------
Investment Income
- --------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $68,842) ............. 4,718,075
Interest ......................................................... 497,603
------------
Total income ..................................................... 5,215,678
------------
Expenses:
Management fee ................................................... 968,354
Custodian fee .................................................... 19,682
Accounting fee ................................................... 80,118
Distribution fees (Class B) ...................................... 36,055
Auditing ......................................................... 19,873
Legal ............................................................ 7,063
Trustees' fees and expenses ...................................... 17,946
Reports to shareholders .......................................... 6,755
Registration fees ................................................ 738
Other ............................................................ 6,046
------------
Total expenses, before expense reductions ........................ 1,162,630
Expense reductions ............................................... (480)
------------
Total expenses, after expense reductions ......................... 1,162,150
- --------------------------------------------------------------------------------
Net investment income (loss) 4,053,528
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions
- --------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ...................................................... (424,848)
Foreign currency related transactions ............................ (1,075)
------------
(425,923)
------------
Net unrealized appreciation (depreciation) during the period on:
Investments ...................................................... 7,061,492
Foreign currency related transactions ............................ (66)
------------
7,061,426
------------
Net gain (loss) on investment transactions ....................... 6,635,503
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 10,689,031
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
36 | Growth and Income Portolio
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------------------------
Years ended December 31,
Increase (Decrease) in Net Assets 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income (loss) ........................................................... $ 4,053,528 $ 4,408,892
Net realized gain (loss) ............................................................... (425,923) 14,139,726
Net unrealized appreciation (depreciation) on investment transactions during the period 7,061,426 (7,231,709)
------------- -------------
Net increase (decrease) in net assets resulting from operations ........................ 10,689,031 11,316,909
------------- -------------
Distributions to shareholders from:
Net investment income:
Class A ................................................................................ (2,084,300) (3,753,510)
------------- -------------
Class B ................................................................................ (145,438) (233,817)
------------- -------------
Net realized gains:
Class A ................................................................................ (13,310,859) (10,931,939)
------------- -------------
Class B ................................................................................ (1,061,031) (570,394)
------------- -------------
Portfolio share transactions:
Class A
Proceeds from shares sold .............................................................. 84,060,024 75,991,394
Reinvestment of distributions .......................................................... 15,395,159 14,685,449
Cost of shares redeemed ................................................................ (78,589,880) (59,210,902)
------------- -------------
Net increase (decrease) in net assets from Class A share transactions .................. 20,865,303 31,465,941
------------- -------------
Class B
Proceeds from shares sold .............................................................. 2,289,092 9,860,282
Reinvestment of distributions .......................................................... 1,206,469 804,210
Cost of shares redeemed ................................................................ (3,472,243) (2,833,290)
------------- -------------
Net increase (decrease) in net assets from Class B share transactions .................. 23,318 7,831,202
------------- -------------
Increase (decrease) in net assets ...................................................... 14,976,024 35,124,392
Net assets at beginning of period ...................................................... 198,727,998 163,603,606
Net assets at end of period (including undistributed net investment income of $2,764,198 ------------- -------------
and $1,276,374, respectively) $ 213,704,022 $ 198,727,998
------------- -------------
Other Information
- -------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Portfolio shares
Class A
Shares outstanding at beginning of period .............................................. 16,394,977 13,656,612
------------- -------------
Shares sold ............................................................................ 7,593,339 6,776,744
Shares issued to shareholders in reinvestment of distributions ......................... 1,356,967 1,299,618
Shares redeemed ........................................................................ (7,107,452) (5,337,997)
------------- -------------
Net increase (decrease) in Portfolio shares ............................................ 1,842,854 2,738,365
------------- -------------
Shares outstanding at end of period .................................................... 18,237,831 16,394,977
------------- -------------
Class B
Shares outstanding at beginning of period .............................................. 1,267,444 593,475
------------- -------------
Shares sold ............................................................................ 207,208 859,390
Shares issued to shareholders in reinvestment of distributions ......................... 106,495 71,382
Shares redeemed ........................................................................ (314,505) (256,803)
------------- -------------
Net increase (decrease) in Portfolio shares ............................................ (802) 673,969
------------- -------------
Shares outstanding at end of period .................................................... 1,266,642 1,267,444
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Growth and Income Portolio | 37
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------
Growth and Income Portfolio
The following tables include selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements.
Class A (b)
- -----------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.25 $11.48 $ 9.37 $ 7.98 $ 6.26
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .22 .27 .27 .27 .23
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions .46 .54 2.47 1.46 1.72
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .68 .81 2.74 1.73 1.95
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (.13) (.25) (.26) (.23) (.19)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.84) (.79) (.37) (.11) (.04)
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.97) (1.04) (.63) (.34) (.23)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.96 $11.25 $11.48 $ 9.37 $ 7.98
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) 5.80 7.18 30.47 22.17 31.74
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 200 184 157 91 52
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses (%) .55 .56 .58 .66 .75
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.01 2.41 2.54 3.14 3.18
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 65 39 28 32 24
- -----------------------------------------------------------------------------------------------------------------------------
Class B
- -----------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1999 1998 1997(c)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.24 $11.47 $ 9.44
---------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .19 .25 .14
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions .46 .54 2.02
---------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .65 .79 2.16
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (.12) (.23) (.13)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.84) (.79) --
---------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.96) (1.02) (.13)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.93 $11.24 $11.47
---------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) 5.48 6.95 22.89**
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 14 14 7
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses (%) .80 .79 .80*
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 1.76 2.20 2.13*
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 65 39 28
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) On May 1, 1997 existing shares were redesignated as Class A shares.
(c) For the period May 1, 1997 (commencement of sale of Class B shares) to
December 31, 1997.
* Annualized
** Not annualized
38 | Growth and Income Portolio
<PAGE>
Portfolio Management Discussion
- --------------------------------------------------------------------------------
December 31, 1999
Capital Growth Portfolio
Dear Shareholders,
Throughout 1999, growth-company stocks outperformed virtually all other sectors
of the equity market. This outperformance was due in part to an unwinding of a
worldwide financial crisis, which led to concerns of stronger growth and higher
interest rates. In this environment, investors looked for higher-quality,
well-known companies that they believed could weather periods of uncertainty.
Many of these companies were in telecommunications and technology. The need for
communications infrastructure is increasing exponentially as the Internet grows,
and the technology and telecommunications businesses are rapidly blending
together as a result. We believe the companies at the forefront of this
convergence will experience the fastest growth, which should in turn justify
their higher earnings multiples. Examples of stocks in this category that have
performed well for us are Sun Microsystems, EMC, Cisco Systems, Corning, and
Oracle.
The strength of these and other stocks has been reflected in the performance of
the portfolio. For the 12 months ended December 31, 1999, Class A shares
returned 35.23%, compared with the 21.04% return of the portfolio's unmanaged
benchmark, the S&P 500. The portfolio's return placed it ahead of the 31.48%
average of the Lipper growth fund category.^1 While we believe the portfolio has
benefited from our disciplined stock selection, as well as a market climate that
was favorable to our investment universe, we also feel that our approach of
looking for growth at a reasonable price should allow us to outperform in an
environment that is less favorable for growth stocks.
Outside of technology and telecommunications, we continue to favor the media and
health care sectors. While both have seen periods of volatility in recent
months, we feel that our holdings in these industries should show continued
strong earnings growth over time, and are taking advantage of market dips to add
to our positions. We have been trimming our positions in retail and
pharmaceutical stocks, two sectors that may be experiencing declining growth
rates.
Similarly, we trimmed our holdings in financial services companies based on our
belief that their growth rates going forward will be hampered by rising interest
rates, slowing revenue growth, and widening lending spreads.
We have taken two important lessons from the markets' performance over the past
few years. First, it has not paid to underestimate the resilience of the U.S.
economy or the ability of the central bankers to keep things on an even keel.
Second, it has once again proven worthwhile to keep a long-term view and to
avoid the temptation to sell when market conditions deteriorate. While we remain
cautious on the outlook for the months ahead, especially with the Federal
Reserve in a tightening mode, we believe the portfolio will continue to benefit
from our disciplined investment style.
Sincerely,
Your Portfolio Management Team
/s/William F. Gadsden /s/Bruce F. Beaty
William F. Gadsden Bruce F. Beaty
Co-Lead Portfolio Manager Co-Lead Portfolio Manager
^1 Source: Lipper Analytical Services, Inc. is an independent analyst of
investment performance. Performance includes reinvestment of dividends and
capital gains. For the period ended December 31, 1999, Scudder Variable Life
Fund: Capital Growth Portfolio's A Shares Lipper ranking was 60 out of 179
funds for the one-year period, 30 out of 113 funds for the three-year period,
33 out of 87 for the five-year period, and 18 out of 40 for the ten-year
period. Past performance does not guarantee future results.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The need for communications infrastructure is rapidly increasing as the Internet
grows, to the benefit of technology and telecommunications businesses.
- --------------------------------------------------------------------------------
Capital Growth Portfolio | 39
<PAGE>
Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Capital Growth Portfolio
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
Capital Growth Portfolio
-- Class A* S&P 500 Index
89 10000 89 10000
90 9252 90 9690
91 12913 91 12642
92 13742 92 13609
93 16611 93 14980
94 15005 94 15177
95 19303 95 20880
96 23190 96 25673
97 31482 97 34242
98 38794 98 44029
99 52462 99 53295
Yearly periods ended December 31
The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks representing
all major industries. Index returns assume reinvestment of dividends and, unlike
Portfolio returns, do not reflect any fees or expenses.
<TABLE>
<CAPTION>
Capital Growth Portfolio -- Class A* S&P 500 Index
- --------------------------------------------------------------- ------------------------------------------------------------
Total Return Total Return
--------------------------- ---------------------------
Period Ended Growth of Cumulative Average Period Ended Growth of Cumulative Average
12/31/1999 $10,000 Annual 12/31/1999 $10,000 Annual
- ------------------------------------------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 13,523 35.23% 35.23% 1 Year $ 12,104 21.04% 21.04%
- ------------------------------------------------------------- ------------------------------------------------------------
5 Year $ 34,963 249.63% 28.45% 5 Year $ 35,116 251.16% 28.54%
- ------------------------------------------------------------- ------------------------------------------------------------
10 Year $ 52,462 424.62% 18.03% 10 Year $ 53,295 432.95% 18.20%
- ------------------------------------------------------------- ------------------------------------------------------------
</TABLE>
* On May 12, 1997, existing shares were redesignated as Class A shares.
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
Capital Growth Portfolio
-- Class B S&P 500 Index
5/97** 10000 5/97** 10000
6/97 10581 6/97 10449
12/97 11569 12/97 11554
6/98 13391 6/98 13601
12/98 14222 12/98 14857
6/99 15776 6/99 16697
12/99 19183 12/99 17984
The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks representing
all major industries. Index returns assume reinvestment of dividends and, unlike
Portfolio returns, do not reflect any fees or expenses.
<TABLE>
<CAPTION>
Capital Growth Portfolio -- Class B S&P 500 Index
- --------------------------------------------------------------- ------------------------------------------------------------
Total Return Total Return
--------------------------- ---------------------------
Period Ended Growth of Average Period Ended Growth of Average
12/31/1999 $10,000 Cumulative Annual 12/31/1999 $10,000 Cumulative Annual
- ------------------------------------------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 13,488 34.88% 34.88% 1 Year $ 12,104 21.04% 21.04%
- ------------------------------------------------------------- ------------------------------------------------------------
Life of Portfolio** $ 19,566 95.66% 28.97% Life of Portfolio** $ 17,984 79.84% 25.47%
- ------------------------------------------------------------- ------------------------------------------------------------
</TABLE>
** The Portfolio commenced selling Class B shares on May 12, 1997. Index
comparisons began on May 31, 1997.
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.
40 | Capital Growth Portfolio
<PAGE>
Portfolio Summary
- --------------------------------------------------------------------------------
December 31, 1999
Capital Growth Portfolio
- --------------------------------------------------------------------------------
Diversification
- --------------------------------------------------------------------------------
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Equity Securities 97% Sector breakdown of the
Cash Equivalents 3% Portfolio's equity holdings
- ------------------------------------
100% Technology 26%
- ------------------------------------ Health 13%
Consumer Discretionary 10%
Financial 9%
Media 9%
Consumer Staples 8%
Manufacturing 7%
Communications 6%
Energy 6%
Other 6%
----------------------------------
100%
----------------------------------
Outside of technology, the portfolio has focused on media and health care, where
we have used market dips to add to positions in companies that we believe have
good earnings growth outlooks.
- --------------------------------------------------------------------------------
Ten Largest Equity Holdings
- --------------------------------------------------------------------------------
(27% of Portfolio)
1. Microsoft Corp.
Developer of computer software
2. Home Depot, Inc.
Building materials and home improvement stores
3. Intel Corp.
Producer of semiconductor memory circuits
4. General Electric Co.
Producer of electrical equipment
5. AT&T Corp. -- Liberty Media Group Holding company of entertainment
networks
6. Oracle Systems Corp.
Database management software
7. Procter & Gamble Co.
Diversified manufacturer of consumer products
8. Royal Dutch Petroleum Co.
International energy company
9. America Online, Inc.
Provider of online computer services
10. EMC Corp.
Manufacturer of enhancement products for computer products
Capital Growth Portfolio | 41
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------------------------------
Capital Growth Portfolio
Principal
Amount ($) Value ($)
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Repurchase Agreements 2.4%
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
State Street Bank and Trust Company, 2.8%, to be repurchased ------------
at $30,208,047 on 1/3/2000 (Cost $30,201,000)** ....................... 30,201,000 30,201,000
------------
- --------------------------------------------------------------------------------------------------------
Short-Term Investments 0.4%
- --------------------------------------------------------------------------------------------------------
------------
Federal Home Loan Mortgage Corp., 1/3/2000 (Cost $4,999,583) .............. 5,000,000 4,999,583
------------
Shares
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Common Stocks 97.2%
- --------------------------------------------------------------------------------------------------------
Consumer Discretionary 10.0%
Department & Chain Stores 7.3%
Dayton Hudson Corp. ....................................................... 317,400 23,309,063
Home Depot, Inc. .......................................................... 580,950 39,831,384
Wal-Mart Stores, Inc. ..................................................... 284,000 19,631,500
Walgreen Co. .............................................................. 320,100 9,362,925
------------
92,134,872
------------
Recreational Products 0.5%
Premier Parks, Inc.* ...................................................... 240,200 6,935,775
------------
Restaurants 1.2%
McDonald's Corp. .......................................................... 374,100 15,080,906
------------
Specialty Retail 1.0%
Circuit City Stores, Inc. ................................................. 267,800 12,067,738
------------
Consumer Staples 7.9%
Alcohol & Tobacco 0.9%
Anheuser-Busch Companies, Inc. ............................................ 156,400 11,084,850
------------
Food & Beverage 2.6%
Bestfoods ................................................................. 298,500 15,689,906
PepsiCo, Inc. ............................................................. 478,000 16,849,500
------------
32,539,406
------------
Package Goods/Cosmetics 4.4%
Colgate-Palmolive Co. ..................................................... 201,700 13,110,500
Gillette Co. .............................................................. 355,800 14,654,513
Procter & Gamble Co. ...................................................... 253,500 27,774,094
------------
55,539,107
------------
Health 12.8%
Biotechnology 2.4%
Amgen, Inc.* .............................................................. 151,700 9,111,481
Genentech, Inc.* .......................................................... 86,400 11,620,800
MedImmune, Inc.* .......................................................... 57,300 9,504,638
------------
30,236,919
------------
Health Industry Services 0.4%
IMS Health, Inc. .......................................................... 193,100 5,249,906
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
42 | Capital Growth Portfolio
<PAGE>
Shares Value ($)
- ------------------------------------------------------------------------
Medical Supply & Specialty 2.0%
Baxter International, Inc. .......... 272,300 17,103,844
VISX, Inc.* ......................... 138,000 7,141,500
----------
24,245,344
----------
Pharmaceuticals 8.0%
Allergan, Inc. ...................... 230,800 11,482,300
American Home Products Corp. ........ 350,700 13,830,731
Bristol-Myers Squibb Co. ............ 200,200 12,850,338
Johnson & Johnson ................... 225,100 20,962,438
Merck & Co., Inc. ................... 153,700 10,307,506
Schering-Plough Corp. ............... 218,050 9,198,984
Warner-Lambert Co. .................. 267,300 21,901,894
-----------
100,534,191
-----------
Communications 6.0%
Cellular Telephone 1.8%
Nokia Oyj "A" (ADR) ................. 116,500 22,135,000
----------
Telephone/Communications 4.2%
Bell Atlantic Corp. ................. 239,300 14,731,906
JDS Uniphase Corp.* ................. 75,200 12,130,700
MCI WorldCom, Inc.* ................. 496,425 26,341,552
----------
53,204,158
----------
Financial 8.9%
Insurance 3.7%
AFLAC, Inc. ......................... 221,300 10,442,594
American International Group, Inc. .. 209,968 22,702,790
Marsh & McLennan Companies, Inc. .... 137,100 13,118,756
----------
46,264,140
----------
Consumer Finance 3.5%
American Express Co. ................ 156,600 26,034,750
Citigroup, Inc. ..................... 310,675 17,261,880
----------
43,296,630
----------
Other Financial Companies 1.7%
Federal National Mortgage Association 344,500 21,509,719
----------
Media 8.2%
Advertising 1.5%
Omnicom Group, Inc. ................. 187,200 18,720,000
----------
Broadcasting & Entertainment 1.9%
Infinity Broadcasting Corp.* ........ 273,800 9,908,138
Viacom, Inc. "B"* ................... 225,400 13,622,613
----------
23,530,751
----------
Cable Television 3.7%
AT&T Corp -- Liberty Media Group* .... 556,500 31,581,375
Comcast Corp. "A" ................... 306,300 15,391,575
----------
46,972,950
----------
Print Media 1.1%
Tribune Co. ......................... 259,000 14,261,188
----------
Service Industries 2.9%
EDP Services 2.7%
Automatic Data Processing, Inc. ..... 298,300 16,070,913
Electronic Data Systems Corp. ....... 265,100 17,745,131
----------
33,816,044
----------
The accompanying notes are an integral part of the financial statements.
Capital Growth Portfolio | 43
<PAGE>
Shares Value ($)
- ---------------------------------------------------------------------------
Environmental Services 0.2%
Transocean Offshore Inc. .................. 70,780 2,384,415
-----------
Durables 2.9%
Aerospace 1.8%
United Technologies Corp. ................. 348,800 22,672,000
-----------
Telecommunications Equipment 1.1%
Lucent Technologies, Inc. ................. 182,800 13,675,725
-----------
Manufacturing 6.8%
Diversified Manufacturing 3.7%
General Electric Co. ...................... 237,000 36,675,750
Textron, Inc. ............................. 121,700 9,332,869
-----------
46,008,619
-----------
Electrical Products 1.2%
Emerson Electric Co. ...................... 261,450 15,000,694
-----------
Industrial Specialty 1.9%
Corning, Inc. ............................. 188,100 24,253,144
-----------
Technology 25.1%
Computer Software 8.6%
America Online, Inc. ...................... 356,300 26,878,381
Microsoft Corp.* .......................... 444,400 51,883,700
Oracle Corp.* ............................. 264,650 29,657,341
-----------
108,419,422
-----------
Diverse Electronic Products 2.8%
Applied Materials, Inc.* .................. 141,200 17,888,275
Motorola, Inc. ............................ 120,800 17,787,800
-----------
35,676,075
-----------
EDP Peripherals 2.1%
EMC Corp.* ................................ 244,500 26,711,625
-----------
Electronic Components/Distributors 3.0%
Broadcom Corp.* ........................... 44,000 11,984,500
Cisco Systems, Inc.* ...................... 243,600 26,095,650
-----------
38,080,150
-----------
Electronic Data Processing 3.9%
International Business Machines Corp. ..... 236,700 25,563,600
Sun Microsystems, Inc.* ................... 293,800 22,751,138
-----------
48,314,738
-----------
Semiconductors 3.8%
Intel Corp. ............................... 463,300 38,135,381
Xilinx, Inc.* ............................. 216,200 9,830,344
-----------
47,965,725
-----------
Miscellaneous 0.9%
Agilent Technologies, Inc.* ............... 137,700 10,645,931
-----------
Energy 5.7%
Oil & Gas Production 2.2%
Royal Dutch Petroleum Co. (New York shares) 446,600 26,991,388
-----------
The accompanying notes are an integral part of the financial statements.
44 | Capital Growth Portolio
<PAGE>
Shares Value ($)
- -----------------------------------------------------------------------------
Oil Companies 1.9%
Exxon Mobil Corp. ............................... 290,441 23,398,648
----------
Oilfield Services/Equipment 1.6%
Schlumberger Ltd. ............................... 365,600 20,565,000
----------
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $798,531,656) 1,220,122,893
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $833,732,239) (a) 1,255,323,476
- --------------------------------------------------------------------------------
* Non-income producing security.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) At December 31, 1999, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $834,742,725 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of market value over tax cost ..$ 440,266,926
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over market value ... 19,686,175
Net unrealized appreciation .................................$ 420,580,751
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments), for the year ended December 31, 1999, aggregated $676,699,561
and $644,052,177, respectively.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
Capital Growth Portolio | 45
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
- -------------------------------------------------------------------------------------------------------------
Capital Growth Portfolio
- -------------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- -------------------------------------------------------------------------------------------------------------
Assets
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (identified cost $833,732,239) ........................ $1,255,323,476
Cash ...................................................................................... 216
Dividends receivable ...................................................................... 507,861
Interest receivable ....................................................................... 2,349
Receivable for Portfolio shares sold ...................................................... 618,615
Other assets .............................................................................. 146
--------------
Total assets .............................................................................. 1,256,452,663
Liabilities
- -------------------------------------------------------------------------------------------------------------
Payable for Portfolio shares redeemed ..................................................... 859,192
Accrued management fee .................................................................... 465,923
Accrued accounting fees ................................................................... 12,875
Other accrued expenses and payables ....................................................... 28,492
--------------
Total liabilities ......................................................................... 1,366,482
- -------------------------------------------------------------------------------------------------------------
Net assets, at value ...................................................................... $1,255,086,181
- -------------------------------------------------------------------------------------------------------------
Net Assets
Net assets consist of:
Undistributed net investment income ....................................................... 2,921,261
Net unrealized appreciation (depreciation) on investments ................................. 421,591,237
Accumulated net realized gain (loss) ...................................................... 148,118,122
Paid-in capital ........................................................................... 682,455,561
- -------------------------------------------------------------------------------------------------------------
Net assets, at value ...................................................................... $1,255,086,181
- -------------------------------------------------------------------------------------------------------------
Class A
Net asset value, offering and redemption price per share ($1,253,803,465 / 43,044,031
outstanding shares of beneficial interest, no par value, unlimited number of ---------------
shares authorized) ................................................................... $ 29.13
---------------
Class B
Netasset value, offering and redemption price per share ($1,282,716 / 44,161
outstanding shares of beneficial interest, no par value, unlimited number of ---------------
shares authorized) ....................................................................... $ 29.05
---------------
The accompanying notes are an integral part of the financial statements.
46 | Capital Growth Portolio
<PAGE>
- ----------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- ----------------------------------------------------------------------------------
Investment Income
- ----------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $92,965) ............. 7,928,133
Interest ......................................................... 1,376,794
-------------
Total income ..................................................... 9,304,927
-------------
Expenses:
Management fee ................................................... 4,657,834
Custodian fees ................................................... 44,040
Accounting fees .................................................. 155,167
Distribution fees (Class B) ...................................... 2,454
Auditing ......................................................... 23,393
Legal ............................................................ 14,059
Trustees' fees and expenses ...................................... 16,997
Reports to shareholders .......................................... 28,272
Registration fees ................................................ 800
Other ............................................................ 27,988
-------------
Total expenses, before expense reductions ........................ 4,971,004
Expense reductions ............................................... (1,278)
-------------
Total expenses, after expense reductions ......................... 4,969,726
- ----------------------------------------------------------------------------------
Net investment income (loss) ..................................... 4,335,201
- ----------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ...................................................... 149,905,135
Foreign currency related transactions ............................ 328
-------------
149,905,463
-------------
Net unrealized appreciation (depreciation) during the period on:
Investments ...................................................... 170,488,473
Foreign currency related transactions ............................ (288)
-------------
170,488,185
-------------
Net gain (loss) on investment transactions ....................... 320,393,648
- ----------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations .. $ 324,728,849
- ----------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
Capital Growth Portolio | 47
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
Increase (Decrease) in Net Assets 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Operations:
Net investment income (loss) ........................................................... $ 4,335,201 $ 5,827,536
Net realized gain (loss) on investment transactions .................................... 149,905,463 94,147,425
Net unrealized appreciation (depreciation) on investment transactions during the period 170,488,185 60,345,461
--------------- ---------------
Net increase (decrease) in net assets resulting from operations ........................ 324,728,849 160,320,422
--------------- ---------------
Distributions to shareholders:
From net investment income:
Class A ................................................................................ (2,669,192) (5,931,987)
--------------- ---------------
Class B ................................................................................ (1,420) (3,769)
--------------- ---------------
From net realized gains:
Class A ................................................................................ (95,714,159) (37,496,910)
--------------- ---------------
Class B ................................................................................ (90,868) (31,248)
--------------- ---------------
Portfolio share transactions:
Class A
Proceeds from shares sold .............................................................. 250,685,427 221,448,528
Reinvestment of distributions .......................................................... 98,383,351 43,428,896
Cost of shares redeemed ................................................................ (221,798,743) (156,849,029)
--------------- ---------------
Net increase (decrease) in net assets from Class A share transactions .................. 127,270,035 108,028,395
--------------- ---------------
Class B
Proceeds from shares sold .............................................................. 147,712 449,018
Reinvestment of distributions .......................................................... 92,288 35,017
Cost of shares redeemed ................................................................ (15,571) (348,013)
--------------- ---------------
Net increase (decrease) in net assets from Class B share transactions .................. 224,429 136,022
--------------- ---------------
Increase (decrease) in net assets ...................................................... 353,747,674 225,020,925
Net assets at beginning of period ...................................................... 901,338,507 676,317,582
Net assets at end of period (including undistributed net investment income of $2,921,261 --------------- ---------------
and $1,303,149, respectively) ....................................................... $ 1,255,086,181 $ 901,338,507
--------------- ---------------
Other Information
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Portfolio shares
Class A
Shares outstanding at beginning of period .............................................. 37,591,894 32,750,652
--------------- ---------------
Shares sold ............................................................................ 10,268,993 10,227,932
Shares issued to shareholders in reinvestment of distributions ......................... 4,293,111 2,045,403
Shares redeemed ........................................................................ (9,109,967) (7,432,093)
--------------- ---------------
Net increase (decrease) in Portfolio shares ............................................ 5,452,137 4,841,242
--------------- ---------------
Shares outstanding at end of period .................................................... 43,044,031 37,591,894
--------------- ---------------
Class B
Shares outstanding at beginning of period .............................................. 34,617 26,545
--------------- ---------------
Shares sold ............................................................................ 6,164 22,532
Shares issued to shareholders in reinvestment of distributions ......................... 4,032 1,651
Shares redeemed ........................................................................ (652) (16,111)
--------------- ---------------
Net increase (decrease) in Portfolio shares ............................................ 9,544 8,072
--------------- ---------------
Shares outstanding at end of period .................................................... 44,161 34,617
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
48 | Capital Growth Portolio
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------
Capital Growth Portfolio
The following table includes selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements.
Class A (b)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Years ended December 31, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $23.95 $20.63 $16.50 $15.08 $12.23
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .10 .16 .18 .19 .14
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions 7.64 4.46 5.39 2.68 3.25
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 7.74 4.62 5.57 2.87 3.39
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (.07) (.17) (.19) (.19) (.11)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (2.49) (1.13) (1.25) (1.26) (.43)
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (2.56) (1.30) (1.44) (1.45) (.54)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $29.13 $23.95 $20.63 $16.50 $15.08
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) 35.23 23.23 35.76 20.13 28.65
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 1,254 901 676 440 338
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses (%) .49 .50 .51 .53 .57
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .43 .75 .96 1.27 1.06
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 66 55 42 66 119
- -----------------------------------------------------------------------------------------------------------------------------
Class B
- -----------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1999 1998 1997(c)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $23.92 $20.61 $17.54
---------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .04 .11 .08
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions 7.62 4.45 3.08
---------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 7.66 4.56 3.16
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (.04) (.12) (.09)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (2.49) (1.13) --
---------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (2.53) (1.25) (.09)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $29.05 $23.92 $20.61
---------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) 34.88 22.94 18.00**
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 1.28 .83 .55
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses (%) .74 .75 .75*
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .18 .49 .64*
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 66 55 42
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) On May 12, 1997 existing shares were redesignated as Class A shares.
(c) For the period May 12, 1997 (commencement of sale of Class B shares) to
December 31, 1997.
* Annualized
** Not annualized
Capital Growth Portolio | 49
<PAGE>
Portfolio Management Discussion
- --------------------------------------------------------------------------------
December 31, 1999
Large Company Growth Portfolio
Dear Shareholders,
Growth stocks again topped the performance charts in 1999. The relative strength
of the sector is evident in the sharp rise of the Russell 1000 Growth Index --
33.16% in the twelve months ended December 31 -- in a period when the S&P 500
and Russell 1000 Value Index gained 21.04% and 7.35%, respectively. The sector's
rally was led by the incredible performance of technology, telecom, and media
stocks, which were propelled by investors' appetites for companies at the
forefront of the global revolution in technology and communications.
Against this backdrop, the Large Company Growth Portfolio - Class A Shares rose
36.00% in the seven months since its inception, outperforming the 28.98% return
of the Russell 1000 Growth benchmark. According to Lipper Analytical Services,
the portfolio's performance places it in the top 18% of growth-oriented variable
life products for the six-month period ended December 31, 1999.^1 Our strategy
of establishing long-term positions in companies with top-notch management
teams, strong brand franchises, and a demonstrated ability to deliver upside
earnings surprises was ideally suited for this market environment.
Excellent stock selection was the key to the portfolio's strong performance.
Portfolio returns were boosted by our overweight position in technology stocks,
particularly those in the networking and communications areas. Our top holdings
in this sector include such star performers as Qualcomm, JDS Uniphase, Cisco
Systems, Sun Microsystems, and Motorola. The portfolio's position in the media
and broadcasting group also did extremely well behind the strong gains in Clear
Channel Communications, Univision, and Omnicom. In addition, our decision to
move into the fast-growing biotech sector near the end of the third quarter
positioned the portfolio to take advantage of the group's strong December rally.
Performance was also boosted by our investments in the top companies in sectors
that did not participate in the market's rally in 1999. For instance, retailers
were mixed, but our two largest positions in the sector were in Home Depot and
Wal-Mart, two companies that rose on the strength of outstanding operating
results. Our largest position in the lagging consumer staples sector was
Colgate-Palmolive, one of the few stocks in the group that outperformed. We feel
that this illustrates the fact that even companies in weaker industries can
benefit from stock price appreciation if they produce steady earnings growth.
While we remain optimistic on the outlook for the U.S. stock market, we caution
investors to be prepared for increased volatility in 2000, particularly among
large-cap growth stocks. Even though price fluctuations can sometimes be very
uncomfortable even for long-term investors, we encourage shareholders to remain
focused on the benefits of owning companies that have outstanding track records
and powerful catalysts for future growth.
Sincerely,
Your Portfolio Management Team
/s/Valerie F. Malter /s/George Fraise
Valerie F. Malter George Fraise
Lead Portfolio Manager Portfolio Manager
^1 Source: Lipper Analytical Services, Inc. is an independent analyst of
investment performance. Performance includes reinvestment of dividends and
capital gains. For the period ended December 31, 1999, Scudder Variable Life
Investment Fund: Large Company Growth Portfolio's Lipper ranking was 36 out
of 200 funds for the six month period. Past performance does not guarantee
future results.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
Management's focus on companies with rapid, sustainable earnings growth enabled
the portfolio to outperform its benchmark in 1999.
- --------------------------------------------------------------------------------
50 | Large Company Growth Portfolio
<PAGE>
Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Large Company Growth Portfolio
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
Large Company Growth Russell 1000
Portfolio -- Class A Growth Index
5/99* 10000 5/99* 10000
6/99 10797 6/99 10700
7/99 10465 7/99 10360
8/99 10814 8/99 10529
9/99 10781 9/99 10308
10/99 11711 10/99 11086
11/99 12259 11/99 11683
12/99 13555 12/99 12898
The Russell 1000 Growth Index is an unmanaged capitalization-weighted price
index of the 1000 largest U.S. growth companies traded on the NYSE, AMEX, and
Nasdaq. Index returns assume reinvestment of dividends and, unlike Portfolio
returns, do not reflect any fees or expenses.
<TABLE>
<CAPTION>
Large Company Growth Portfolio -- Class A Russell 1000 Growth Index
- -------------------------------------------------------------- ------------------------------------------------------------
Total Return Total Return
---------------------------- ---------------------------
Period Ended Growth of Period Ended Growth of
12/31/1999 $10,000 Cumulative 12/31/1999 $10,000 Cumulative
- ------------------------------------------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Life of Portfolio* $ 13,600 36.00% Life of Portfolio* $ 12,898 28.98%
- ------------------------------------------------------------- ------------------------------------------------------------
</TABLE>
* The Portfolio commenced operations on May 3, 1999. Index comparisons begin May
31, 1999.
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
Large Company Growth Russell 1000
Portfolio -- Class B Growth Index
5/99* 10000 5/99* 10000
6/99 10781 6/99 10700
7/99 10432 7/99 10360
8/99 10797 8/99 10529
9/99 10748 9/99 10308
10/99 11661 10/99 11086
11/99 12193 11/99 11683
12/99 13505 12/99 12898
The Russell 1000 Growth Index is an unmanaged capitalization-weighted price
index of the 1000 largest U.S. growth companies traded on the NYSE, AMEX, and
Nasdaq. Index returns assume reinvestment of dividends and, unlike Portfolio
returns, do not reflect any fees or expenses.
<TABLE>
<CAPTION>
Large Company Growth Portfolio -- Class B Russell 1000 Growth Index
- -------------------------------------------------------------- ------------------------------------------------------------
Total Return Total Return
--------------------------- ---------------------------
Period Ended Growth of Period Ended Growth of
<S> <C> <C> <C> <C> <C>
12/31/1999 $10,000 Cumulative 12/31/1999 $10,000 Cumulative
- ------------------------------------------------------------- ------------------------------------------------------------
Life of Portfolio* $ 13,550 35.50% Life of Portfolio* $ 12,898 28.98%
</TABLE>
* The Portfolio commenced operations on May 3, 1999. Index comparisons begin
May 31, 1999.
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 for the Life
of Portfolio periods would have been lower if the Portfolio's expenses were
not maintained.
Large Company Growth Portfolio | 51
<PAGE>
Portfolio Summary
- --------------------------------------------------------------------------------
December 31, 1999
Large Company Growth Portfolio
- --------------------------------------------------------------------------------
Diversification
- --------------------------------------------------------------------------------
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Equity Securities 91% Sector breakdown of the
Cash Equivalents 9% Portfolio's equity holdings
- ------------------------------------
100% Technology 36%
- ------------------------------------ Health 13%
Consumer Discretionary 11%
Manufacturing 9%
Media 9%
Consumer Staples 8%
Financial 5%
Service Industries 4%
Communications 3%
Durables 2%
-----------------------------------
100%
-----------------------------------
The portfolio's weighting in the technology and media sectors provided a
significant boost to performance over the second half of the year.
- --------------------------------------------------------------------------------
Ten Largest Equity Holdings
- --------------------------------------------------------------------------------
(38% of Portfolio)
1. Microsoft Corp.
Developer of computer software
2. Cisco Systems, Inc.
Manufacturer of computer network products
3. Sun Microsystems, Inc.
Manufacturer of high-performance workstations, servers and software
4. General Electric Co.
Producer of electrical equipment
5. Intel Corp.
Producer of semiconductor memory circuits
6. Home Depot, Inc.
Building materials and home improvement stores
7. America Online, Inc.
Provider of online computer services
8. Procter & Gamble Co.
Diversified manufacturer of consumer products
9. Clear Channel Communications, Inc.
Operator of TV and radio stations
10. Wal-Mart Stores, Inc.
Operator of discount stores
52 | Large Company Growth Portfolio
<PAGE>
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
Large Company Growth Portfolio
Principal
Amount ($) Value ($)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Repurchase Agreements 9.3%
- --------------------------------------------------------------------------------
State Street Bank and Trust Company, 2.8%, to be
repurchased at $557,130 on 1/3/2000 -------
(Cost $557,000)** ............................ 557,000 557,000
-------
Shares
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common Stocks 90.7%
- --------------------------------------------------------------------------------
Consumer Discretionary 10.1%
Department & Chain Stores 8.1%
Costco Wholesale Corp.* .......................... 750 68,438
Dayton Hudson Corp. .............................. 750 55,078
Gap, Inc. ........................................ 975 44,850
Home Depot, Inc. ................................. 2,475 169,692
Wal-Mart Stores, Inc. ............................ 2,100 145,163
-------
483,221
-------
Recreational Products 1.1%
Hasbro, Inc. ..................................... 1,350 25,734
Premier Parks, Inc.* ............................. 1,350 38,981
-------
64,715
-------
Specialty Retail 0.9%
Circuit City Stores, Inc. ........................ 1,200 54,075
-------
Consumer Staples 7.5%
Food & Beverage 1.8%
Bestfoods ........................................ 1,000 52,563
PepsiCo, Inc. .................................... 1,650 58,163
-------
110,726
-------
Package Goods/Cosmetics 5.7%
Colgate-Palmolive Co. ............................ 1,850 120,250
Estee Lauder Companies "A" ....................... 1,400 70,613
Procter & Gamble Co. ............................. 1,350 147,909
-------
338,772
-------
Health 12.0%
Biotechnology 1.7%
Biogen, Inc.* .................................... 400 33,800
Immunex Corp.* ................................... 300 32,850
MedImmune, Inc.* ................................. 200 33,175
-------
99,825
-------
Medical Supply & Specialty 2.1%
Medtronic, Inc. .................................. 3,250 118,422
VISX, Inc.* ...................................... 150 7,763
-------
126,185
-------
Pharmaceuticals 8.2%
Allergan, Inc. ................................... 400 19,900
Bristol-Myers Squibb Co. ......................... 900 57,769
Johnson & Johnson ................................ 900 83,813
Merck & Co., Inc. ................................ 1,650 110,653
Pfizer, Inc. ..................................... 4,050 131,372
Warner-Lambert Co. ............................... 1,100 90,131
-------
493,638
-------
The accompanying notes are an integral part of the financial statements.
Large Company Growth Portfolio | 53
<PAGE>
Shares Value ($)
- ---------------------------------------------------------------------
Communications 2.4%
Telephone/Communications
JDS Uniphase Corp.* ................ 440 70,978
MCI WorldCom, Inc.* ................ 1,350 71,634
-------
142,612
-------
Financial 4.5%
Insurance 1.7%
American International Group, Inc. . 962 104,016
-------
Consumer Finance 1.6%
American Express Co. ............... 300 49,875
Capital One Finance Corp. .......... 1,000 48,188
-------
98,063
-------
Other Financial Companies 1.2%
Morgan Stanley Dean Witter & Co. ... 500 71,375
-------
Media 8.7%
Advertising 1.3%
Omnicom Group, Inc. ................ 750 75,000
-------
Broadcasting & Entertainment 5.3%
Clear Channel Communications, Inc. . 1,650 147,263
Infinity Broadcasting Corp. ........ 2,525 91,373
Univision Communication, Inc. ...... 750 76,641
-------
315,277
-------
Cable Television 2.1%
AT&T Corp -- Liberty Media Group .... 1,350 76,613
EchoStar Communication Corp. ....... 500 48,750
-------
125,363
-------
Service Industries 3.3%
EDP Services 2.3%
Electronic Data Systems Corp. ...... 1,100 73,631
PSINet, Inc.* ...................... 1,000 61,750
-------
135,381
-------
Investment 0.6%
Charles Schwab Corp. ............... 1,000 38,375
-------
Miscellaneous Consumer Services 0.4%
eBay, Inc.* ........................ 200 25,038
-------
Durables 1.6%
Telecommunications Equipment
Lucent Technologies, Inc. .......... 1,310 98,004
-------
Manufacturing 7.9%
Diversified Manufacturing 6.1%
General Electric Co. ............... 1,650 255,338
Honeywell International, Inc. ...... 900 51,919
Textron, Inc. ...................... 750 57,516
-------
364,773
-------
Industrial Specialty 1.8%
QUALCOMM Inc.* ..................... 600 105,675
-------
The accompanying notes are an integral part of the financial statements.
54 | Large Company Growth Portfolio
<PAGE>
Shares Value ($)
- --------------------------------------------------------------------------------
Technology 32.7%
Computer Software 9.0%
America Online, Inc.* .................................. 2,110 159,173
Microsoft Corp.* ....................................... 3,240 378,265
-------
537,438
-------
Diverse Electronic Products 5.0%
Applied Materials, Inc.* ............................... 770 97,549
Motorola, Inc. ......................................... 500 73,625
Teradyne, Inc.* ........................................ 1,950 128,700
-------
299,874
-------
EDP Peripherals 2.3%
EMC Corp.* ............................................. 1,250 136,563
-------
Electronic Components/Distributors 6.1%
Cisco Systems, Inc.* ................................... 3,420 366,368
-------
Electronic Data Processing 5.3%
International Business Machines Corp. .................. 510 55,080
Sun Microsystems, Inc.* ................................ 3,370 260,964
-------
316,044
-------
Semiconductors 5.0%
Intel Corp. ............................................ 3,010 247,761
Linear Technology Corp. ................................ 710 50,809
-------
298,570
-------
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $4,320,367) 5,424,966
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $4,877,367) (a) 5,981,966
- --------------------------------------------------------------------------------
* Non-income producing security.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) At December 31, 1999, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $4,940,453 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of market value over tax cost .... $1,156,629
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over market value .... 115,116
Net unrealized appreciation ................................... $1,041,513
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments), for the year ended December 31, 1999, aggregated $6,967,091 and
$2,719,129, respectively.
The accompanying notes are an integral part of the financial statements.
Large Company Growth Portfolio | 55
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
- -----------------------------------------------------------------------------------------------------------------
Large Company Growth Portfolio
- -----------------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- -----------------------------------------------------------------------------------------------------------------
Assets
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (identified cost $4,877,367) ................................... $5,981,966
Cash ............................................................................................... 730
Dividends receivable ............................................................................... 2,274
Interest receivable ................................................................................ 43
Receivable for Portfolio shares sold ............................................................... 55,087
Reimbursement from Adviser ......................................................................... 7,298
----------
Total assets ....................................................................................... 6,047,398
Liabilities
- -----------------------------------------------------------------------------------------------------------------
Other accrued expenses and payables ................................................................ 22,135
----------
Total liabilities .................................................................................. 22,135
- -----------------------------------------------------------------------------------------------------------------
Net assets, at value ............................................................................... $6,025,263
- -----------------------------------------------------------------------------------------------------------------
Net Assets
- -----------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ................................................................ 2,351
Net unrealized appreciation (depreciation) on investments .......................................... 1,104,599
Accumulated net realized gain (loss) ............................................................... 72,405
Paid-in capital .................................................................................... 4,845,908
- -----------------------------------------------------------------------------------------------------------------
Net assets, at value ............................................................................... $6,025,263
- -----------------------------------------------------------------------------------------------------------------
Class A
Net asset value, offering and redemption price per share ($6,024,450 / 737,872 outstanding ----------
shares of beneficial interest, no par value, unlimited number of shares authorized) ............... $ 8.16
----------
Class B
Netasset value, offering and redemption price per share ($813 / 100 outstanding
shares of beneficial interest, no par value, unlimited number of shares ----------
authorized) ....................................................................................... $ 8.13
----------
The accompanying notes are an integral part of the financial statements.
56 | Large Company Growth Portfolio
<PAGE>
- -----------------------------------------------------------------------------------------
Statement of Operations for the period May 3, 1999 (commencement of operations) to
December 31, 1999
- -----------------------------------------------------------------------------------------
Investment Income
- -----------------------------------------------------------------------------------------
Income:
Dividends ................................................................. $ 9,922
Interest .................................................................. 23,835
-----------
Total income .............................................................. 33,757
-----------
Expenses:
Management fee ............................................................ 18,718
Custodian fees ............................................................ 4,200
Accounting fees ........................................................... 28,560
Auditing .................................................................. 17,577
Legal ..................................................................... 1,494
Trustees' fees and expenses ............................................... 15,036
Reports to shareholders ................................................... 222
Other ..................................................................... 1,844
-----------
Total expenses, before expense reductions ................................. 87,651
Expense reductions ........................................................ (56,245)
-----------
Total expenses, after expense reductions .................................. 31,406
- -----------------------------------------------------------------------------------------
Net investment income (loss) .............................................. 2,351
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions
- -----------------------------------------------------------------------------------------
Net realized gain (loss) from investments ................................. 72,405
-----------
Net unrealized appreciation (depreciation) during the period on investments 1,104,599
-----------
Net gain on investment transactions ....................................... 1,177,004
- -----------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations ........... $ 1,179,355
- -----------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
Large Company Growth Portfolio | 57
<PAGE>
- ------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
- ------------------------------------------------------------------------------------------------------
For the Period
May 3, 1999
(commencement of
operations) to
Increase (Decrease) in Net Assets December 31, 1999
- ------------------------------------------------------------------------------------------------------
Operations:
Net investment income (loss) .......................................................... $ 2,351
Net realized gain (loss) on investment transactions ................................... 72,405
Net unrealized appreciation (depreciation) on investment transactions during the period 1,104,599
-----------
Net increase (decrease) in net assets resulting from operations ....................... 1,179,355
-----------
Portfolio share transactions:
Class A
Proceeds from shares sold ............................................................. 9,134,300
Cost of shares redeemed ............................................................... (5,288,392)
-----------
Net increase (decrease) in net assets from Class A share transactions ................. 3,845,908
-----------
Class B
Net increase (decrease) in net assets from Class B share transactions ................. --
-----------
Increase (decrease) in net assets ..................................................... 5,025,263
Net assets at beginning of period (original capital) .................................. 1,000,000
-----------
Net assets at end of period (including undistributed net investment income of $2,351) . $ 6,025,263
-----------
Other Information
- ------------------------------------------------------------------------------------------------------
Increase (decrease) in Portfolio shares
Class A
Shares outstanding at beginning of period ............................................. 166,567
-----------
Shares sold ........................................................................... 1,387,332
Shares redeemed ....................................................................... (816,027)
-----------
Net increase (decrease) in Portfolio shares ........................................... 571,305
-----------
Shares outstanding at end of period ................................................... 737,872
-----------
Class B
Shares outstanding at beginning of period ............................................. 100
-----------
Net increase (decrease) in Portfolio shares ........................................... --
-----------
Shares outstanding at end of period ................................................... 100
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
58 | Large Company Growth Portfolio
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
Large Company Growth Portfolio
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the financial
statements.
Class A
- --------------------------------------------------------------------------------
1999(b)
- --------------------------------------------------------------------------------
Net asset value, beginning of period $6.00(d)
--------
- --------------------------------------------------------------------------------
Income (loss) from investment operations:
- --------------------------------------------------------------------------------
Net investment income (loss) .00
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions 2.16
--------
- --------------------------------------------------------------------------------
Total from investment operations 2.16
--------
- --------------------------------------------------------------------------------
Net asset value, end of period 8.16
- --------------------------------------------------------------------------------
Total return (%) (c) 36.00**
- --------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- --------------------------------------------------------------------------------
Net assets, end of year ($ millions) 6
- --------------------------------------------------------------------------------
Ratio of expenses, before expense reductions (%) 3.47*
- --------------------------------------------------------------------------------
Ratio of expenses, after expense reductions (%) 1.25*
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .09*
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 119*
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
1999(b)
- --------------------------------------------------------------------------------
Net asset value, beginning of period $6.00(d)
--------
- --------------------------------------------------------------------------------
Income (loss) from investment operations:
- --------------------------------------------------------------------------------
Net investment income (loss) .00
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions 2.13
--------
- --------------------------------------------------------------------------------
Total from investment operations 2.13
--------
- --------------------------------------------------------------------------------
Net asset value, end of period 8.13
- --------------------------------------------------------------------------------
Total return (%) (c) 35.50**
- --------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- --------------------------------------------------------------------------------
Net assets, end of period ($ millions) 0
- --------------------------------------------------------------------------------
Ratio of expenses, before expense reductions (%) 3.72*
- --------------------------------------------------------------------------------
Ratio of expenses, after expense reductions (%) 1.50*
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.16)*
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 119*
- --------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) For the period May 3, 1999 (commencement of operations) to December 31,
1999.
(c) Total return would have been lower had certain expenses not been reduced.
(d) Original capital.
* Annualized
** Not annualized
Large Company Growth Portfolio | 59
<PAGE>
Portfolio Management Discussion
- --------------------------------------------------------------------------------
December 31, 1999
Small Company Growth Portfolio
Dear Shareholders,
The Small Company Growth Portfolio commenced operations on May 3, 1999. Though
the portfolio is a new investment vehicle, it is similar to the Scudder 21st
Century Growth Fund, which we have managed since its inception in September
1996. For the period that began with the portfolio's inception and ended
December 31, 1999, its Class A shares returned 75.83%. From May 31, 1999,
through December 31, 1999, the portfolio's benchmark, the Russell 2000 Growth
Index, gained 33.52%.
The Small Company Growth Portfolio seeks long-term growth of capital by
investing primarily in equity securities issued by emerging growth companies.
The portfolio may offer significant opportunity for capital appreciation through
its investments in companies providing innovative products or services that we
believe will have a profound and positive impact on the lives of consumers and
businesses in tomorrow's economy. We look for companies that are unique, and
that appear to be moving into leadership positions by positing significant gains
in market share. But, perhaps the most important component of our analysis is
our confidence in the management team and its track record of putting words into
action. We have found that, in the long run, it is management's conviction and
ability that determines the company's success.
One of the biggest surprises of 1999 was the strong outperformance of small-cap
growth stocks relative to large-cap growth stocks. While many people know that
technology and "dot-com" companies racked up impressive gains during the year,
many smaller-cap names also earned impressive returns.
Many of the best-performing stocks this year were in the technology, services
and biotechnology sectors. For example, Mercury Interactive has been an
important contributor to performance. The company provides companies the
capability to test new software before actual activation, which greatly reduces
the risk of purchasing and integrating software into the companies' systems. In
the services sector, the portfolio benefited from its holding of Copart, which
cleans cars that have been in accidents and maximizes the resale value on behalf
of insurance companies; and Pinnacle Systems, which designs, manufactures and
markets digital video editing equipment for broadcasters and consumers.
As we look ahead, we think one of the most promising areas is
business-to-business e-commerce. It has been estimated that this segment is far
larger than consumer Internet retailing, and we believe it offers tremendous
potential for businesses to cut costs and reduce the time required to purchase
goods.
Because small-cap stocks performed so well in 1999, some investors have
expressed concerns about a correction in these stocks. While rapid and sharp
increases in interest rates could hurt small-cap growth stocks in the short run,
if the Federal Reserve Board raises interest rates in small, gradual increments,
the impact should be muted. Given this environment, we have reduced the
portfolio's positions in companies that have posted big gains, such as Commerce
One, Network Appliance, Free Markets and Research In Motion. At the same time
we've been reinvesting the portfolio's assets in companies that we believe have
more upside potential. We believe the Small Company Growth Portfolio is an
appropriate vehicle for investors seeking exposure to this dynamic segment of
the U.S. economy.
Sincerely,
Your Portfolio Management Team
/s/Peter Chin /s/Roy C. McKay
Peter Chin Roy C. McKay
Lead Portfolio Manager Portfolio Manager
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
We think one of the most promising areas is business-to- business e-commerce, a
segment that could be far larger than consumer Internet retailing.
- --------------------------------------------------------------------------------
60 | Small Company Growth Portfolio
<PAGE>
Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Small Company Growth Portfolio
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
Small Company Growth Russell 2000
Portfolio -- Class A Growth Index
5/99* 10000 5/99* 10000
6/99 11074 6/99 10527
7/99 10810 7/99 10202
8/99 10975 8/99 9820
9/99 12083 9/99 10010
10/99 12496 10/99 10266
11/99 14529 11/99 11351
12/99 17521 12/99 13352
The Russell 2000 Growth Index is an unmanaged capitalization-weighted measure of
the 2000 smallest capitalized U.S. companies with a greater-than-average growth
orientation and whose common stocks trade on the NYSE, AMEX, and Nasdaq. Index
returns assume reinvestment of dividends and, unlike Portfolio returns, do not
reflect any fees or expenses.
<TABLE>
<CAPTION>
Small Company Growth Portfolio -- Class A Russell 2000 Growth Index
- -------------------------------------------------------------- ------------------------------------------------------------
Total Return Total Return
--------------------------- --------------------------
Period Ended Growth of Period Ended Growth of
12/31/1999 $10,000 Cumulative 12/31/1999 $10,000 Cumulative
- ------------------------------------------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Life of Portfolio* $ 17,583 75.83% Life of Portfolio* $ 13,352 33.52%
- ------------------------------------------------------------- ------------------------------------------------------------
</TABLE>
* The Portfolio commenced operations on May 3, 1999. Index comparisons begin
May 31, 1999.
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
Small Company Growth Russell 2000
Portfolio -- Class B Growth Index
5/99* 10000 5/99* 10000
6/99 11058 6/99 10527
7/99 10777 7/99 10202
8/99 10942 8/99 9820
9/99 12033 9/99 10010
10/99 12446 10/99 10266
11/99 14479 11/99 11351
12/99 17438 12/99 13352
The Russell 2000 Growth Index is an unmanaged capitalization-weighted measure of
the 2000 smallest capitalized U.S. companies with a greater-than-average growth
orientation and whose common stocks trade on the NYSE, AMEX, and Nasdaq. Index
returns assume reinvestment of dividends and, unlike Portfolio returns, do not
reflect any fees or expenses.
<TABLE>
<CAPTION>
Small Company Growth Portfolio -- Class B Russell 2000 Growth Index
- -------------------------------------------------------------- ------------------------------------------------------------
Total Return Total Return
--------------------------- ---------------------------
Period Ended Growth of Period Ended Growth of
12/31/1999 $10,000 Cumulative 12/31/1999 $10,000 Cumulative
- ------------------------------------------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Life of Portfolio* $ 17,517 75.17% Life of Portfolio* $ 13,352 33.52%
- ------------------------------------------------------------- ------------------------------------------------------------
</TABLE>
* The Portfolio commenced operations on May 3, 1999. Index comparisons begin
May 31, 1999.
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 for the Life
of Portfolio periods would have been lower if the Portfolio's expenses were
not maintained.
Small Company Growth Portfolio | 61
<PAGE>
Portfolio Summary
- --------------------------------------------------------------------------------
December 31, 1999
Small Company Growth Portfolio
- --------------------------------------------------------------------------------
Diversification
- --------------------------------------------------------------------------------
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Equity Securities 97% Sector breakdown of the
Cash Equivalents 3% Portfolio's equity holdings
- ------------------------------------
100% Technology 43%
- ------------------------------------ Service Industries 16%
Health 10%
Consumer Discretionary 5%
Media 5%
Communications 5%
Manufacturing 4%
Energy 3%
Durables 3%
Other 6%
----------------------------------
100%
----------------------------------
Although technology stocks make up its largest sector, the portfolio is well
diversified across a variety of industry sectors and subsectors.
- --------------------------------------------------------------------------------
Ten Largest Equity Holdings
- --------------------------------------------------------------------------------
(29% of Portfolio)
1. Commerce One, Inc.
Provider of Web-based, enterprise procurement solutions
2. Mercury Interactive Corp.
Producer of automated software testing tools
3. TSI International Software Ltd.
Provider of software and related services to businesses
4. Network Appliance, Inc.
Designer and manufacturer of network data storage devices
5. PMC-Sierra, Inc.
Producer of high speed internetworking component solutions
6. DoubleClick, Inc. Internet advertising network
7. Pinnacle Systems, Inc.
Manufacturer of video post-production workstations
8. Whittman-Hart, Inc.
Information technology consulting and system integration services
9. Vitesse Semiconductor Corp.
Manufacturer of digital integrated circuits
10. InterVU Inc.
Provider of Internet video delivery products
62 | Small Company Growth Portfolio
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Investment Portfolio as of December 31, 1999
- ---------------------------------------------------------------------------------------------
Small Company Growth Portfolio
Principal
Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Repurchase Agreements 3.3%
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
State Street Bank and Trust Company, 2.8%, to be repurchased -------
at $500,117 on 1/3/2000 (Cost $500,000)** ... ...................... 500,000 500,000
-------
Shares
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Common Stocks 96.7%
- ---------------------------------------------------------------------------------------------
Consumer Discretionary 5.2%
Department & Chain Stores 1.1%
Pacific Sunwear of California Inc. ..................................... 3,100 98,813
Rent-A-Center, Inc. .................................................... 3,700 73,306
-------
172,119
-------
Recreational Products 1.3%
THQ, Inc. .............................................................. 4,750 110,141
The 3DO Company* ....................................................... 9,600 87,300
-------
197,441
-------
Restaurants 1.2%
The Cheesecake Factory Inc. ............................................ 5,200 182,000
-------
Specialty Retail 1.6%
David's Bridal, Inc. ................................................... 2,600 29,088
Gildan Activewear Inc. ................................................. 5,200 94,250
Urban Outfitters, Inc. ................................................. 4,100 119,413
-------
242,751
-------
Consumer Staples 0.6%
Food & Beverage
Hain Food Group, Inc. .................................................. 4,200 93,975
-------
Health 9.5%
Biotechnology 3.2%
CryoLife, Inc. ......................................................... 10,000 117,500
Enzon Inc.* ............................................................ 3,800 164,825
QLT Phototherapeutics, Inc. ............................................ 3,600 211,809
-------
494,134
-------
Health Industry Services 0.7%
MedQuist, Inc. ......................................................... 4,200 108,413
-------
Medical Supply & Specialty 2.0%
Endocardial Solutions, Inc. ............................................ 4,240 37,100
Fusion Medical Technologies, Inc. ...................................... 6,100 79,300
VISX, Inc. ............................................................. 3,500 181,125
-------
297,525
-------
Pharmaceuticals 1.8%
Alexion Pharmaceuticals, Inc. .......................................... 4,000 120,500
Biovail Corp. Intl ..................................................... 1,600 150,000
-------
270,500
-------
Miscellaneous 1.8%
SciQuest.com, Inc. ..................................................... 3,400 270,300
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Small Company Growth Portfolio | 63
<PAGE>
Shares Value ($)
- --------------------------------------------------------------------
Communications 4.9%
Cellular Telephone 1.9%
Research in Motion Ltd. ............... 6,100 281,617
TeleCorp. PCS, Inc. ................... 100 3,800
---------
285,417
---------
Telephone/Communications 3.0%
BroadWing, Inc. ....................... 4,036 148,828
Net2Phone, Inc. ....................... 2,200 101,063
Proxim, Inc. .......................... 600 66,000
Terayon Communication Systems, Inc. ... 100 6,281
Xircom, Inc. .......................... 1,800 135,000
---------
457,172
---------
Financial 1.9%
Banks 0.6%
People's Heritage Financial Group, Inc. 6,000 90,375
---------
Real Estate 1.3%
Reckson Services Industries, Inc. ..... 3,100 193,363
---------
Media 5.2%
Advertising 3.0%
DoubleClick,Inc ....................... 1,565 396,043
Speedway Motorsports, Inc. ............ 2,200 61,188
---------
457,231
---------
Broadcasting & Entertainment 1.1%
Cumulus Media Inc. "A" ................ 3,100 157,325
Radio Unica Corp. ..................... 400 11,550
---------
168,875
---------
Cable Television 1.1%
Insight Communications Co., Inc. ...... 5,400 159,975
---------
Service Industries 15.5%
EDP Services 3.8%
Micromuse, Inc. ....................... 1,100 187,000
Pegasus Systems, Inc. ................. 2,800 168,875
Sapient Corp. ......................... 600 84,563
Ultimate Software Group, Inc. ......... 10,000 130,625
---------
571,063
---------
Investment 1.2%
Multex.com Inc. ....................... 4,900 184,363
---------
Miscellaneous Commercial Services 9.3%
AnswerThink Consulting Group, Inc. .... 5,700 195,225
Copart, Inc. .......................... 6,000 261,000
Cornell Corrections, Inc. ............. 3,800 31,825
Digital River, Inc. ................... 3,500 116,594
FreeMarkets, Inc. ..................... 500 170,656
Korn/Ferry International .............. 6,000 218,250
MedicaLogic, Inc. ..................... 200 4,200
NetRatings, Inc. ...................... 200 9,625
Newgen Results Corp. .................. 4,300 45,419
Whittman-Hart, Inc. ................... 6,700 359,288
---------
1,412,082
---------
The accompanying notes are an integral part of the financial statements.
64 | Small Company Growth Portfolio
<PAGE>
Shares Value ($)
- -----------------------------------------------------------------
Miscellaneous Consumer Services 1.2%
GetThere.com, Inc. ................. 200 8,050
Loislaw.com, Inc. .................. 3,400 133,025
Steiner Leisure Ltd. ............... 2,600 43,388
---------
184,463
---------
Durables 2.6%
Telecommunications Equipment
Com21, Inc. ........................ 5,800 130,138
Polycom, Inc. ...................... 4,200 267,488
---------
397,626
---------
Manufacturing 4.3%
Chemicals 0.6%
Albany Molecular Research, Inc. .... 2,800 85,400
---------
Electrical Products 1.9%
Power Intergrations, Inc. .......... 2,100 100,669
Power-One, Inc. .................... 4,200 192,413
---------
293,082
---------
Machinery/Components/Controls 1.2%
Asyst Technologies, Inc. ........... 2,700 177,019
---------
Miscellaneous 0.6%
Jakks Pacific, Inc. ................ 4,900 91,569
---------
Technology 42.0%
Computer Software 12.5%
Advent Software, Inc. .............. 2,950 190,091
Digex, Inc. ........................ 900 61,875
Digital Courier Technologies, Inc. . 6,300 60,638
E-Stamp Corp. ...................... 4,200 93,450
ISS Group, Inc. .................... 3,700 263,163
ITXC Corp. ......................... 800 26,900
Interactive Intelligence, Inc. ..... 900 23,963
Interleaf, Inc. .................... 2,600 87,425
Intertrust Technologies Corp. ...... 200 23,525
Keynote Systems, Inc. .............. 100 7,375
Mediaplex, Inc. .................... 1,700 106,675
Preview Systems, Inc. .............. 1,800 116,775
RSA Security Inc. .................. 900 69,750
S1 Corp. ........................... 600 46,875
Silknet Software, Inc. ............. 900 149,175
TSI International Software Ltd. .... 9,500 537,938
Viador Inc. ........................ 500 21,188
Xpedior, Inc. ...................... 200 5,750
eSPEED, Inc., "A" .................. 300 10,669
---------
1,903,200
---------
Diverse Electronic Products 1.9%
InterVU Inc. ....................... 2,800 294,000
---------
EDP Peripherals 6.7%
Mercury Interactive Corp. .......... 5,600 604,450
Network Appliance, Inc. ............ 5,100 423,619
---------
1,028,069
---------
The accompanying notes are an integral part of the financial statements.
Small Company Growth Portfolio | 65
<PAGE>
Shares Value ($)
- --------------------------------------------------------------------------------
Office/Plant Automation 3.9%
Mercury Computer Systems, Inc. ..................... 3,500 122,500
National Computer Systems, Inc. .................... 2,600 97,825
Pinnacle Systems, Inc. ............................. 9,300 378,394
----------
598,719
----------
Semiconductors 9.7%
Burr-Brown Corp. ................................... 4,250 153,531
PMC-Sierra, Inc. ................................... 2,600 416,813
Silicon Image, Inc. ................................ 2,800 196,175
Silicon Storage Technology, Inc. ................... 3,700 152,625
Transwitch Corp. ................................... 2,800 203,175
Vitesse Semiconductor Corp. ........................ 6,700 351,331
----------
1,473,650
----------
Miscellaneous 7.3%
Commerce One, Inc. ................................. 3,300 648,450
Interactive Pictures Corp. ......................... 2,900 67,606
National Information Consortium, Inc. .............. 7,300 233,600
Semitool, Inc. ..................................... 200 3,000
SonicWALL, Inc. .................................... 200 8,050
SonoSite, Inc. ..................................... 4,800 151,800
----------
1,112,506
----------
Energy 2.7%
Oil & Gas Production 1.8%
Barrett Resources Corp. ............................ 2,700 79,481
Key Production Co., Inc. ........................... 8,000 59,000
Swift Energy Co. ................................... 11,400 131,100
----------
269,581
----------
Oil Companies 0.3%
Stone Energy Corporation ........................... 1,200 42,750
----------
Oilfield Services/Equipment 0.6%
National-Oilwell, Inc. ............................. 6,100 95,694
----------
Construction 2.3%
Building Materials 0.3%
Simpson Manufacturing Co., Inc. .................... 1,200 52,500
----------
Building Products 2.0%
CoStar Group Inc. .................................. 4,500 161,438
Trex Company, Inc. ................................. 5,400 144,450
----------
305,888
----------
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $10,279,391) 14,714,790
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $10,779,391) (a) 15,214,790
- --------------------------------------------------------------------------------
* Non-income producing security.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) At December 31, 1999, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $10,779,391 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of market value over tax cost .... $4,736,254
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over market value .... 300,855
----------
Net unrealized appreciation ................................... $4,435,399
----------
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments), for the year ended December 31, 1999, aggregated $12,630,088
and $2,595,906, respectively.
The accompanying notes are an integral part of the financial statements.
66 | Small Company Growth Portfolio
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
- ---------------------------------------------------------------------------------------------------------------------
Small Company Growth Portfolio
- ---------------------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- ---------------------------------------------------------------------------------------------------------------------
Assets
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (identified cost $10,779,391) .................................... $15,214,790
Cash ................................................................................................. 358,168
Dividends receivable ................................................................................. 110
Interest receivable .................................................................................. 39
-----------
Total assets ......................................................................................... 15,573,107
Liabilities
- ---------------------------------------------------------------------------------------------------------------------
Payables for Portfolio shares redeemed ............................................................... 106,046
Accrued accounting fee ............................................................................... 11,682
Due to Adviser ....................................................................................... 2,450
Other accrued expenses and payables .................................................................. 15,393
-----------
Total liabilities .................................................................................... 135,571
- ---------------------------------------------------------------------------------------------------------------------
Net assets, at value $15,437,536
- ---------------------------------------------------------------------------------------------------------------------
Net Assets
- ---------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on investments ............................................ 4,435,399
Accumulated net realized gain (loss) ................................................................. 206,343
Paid-in capital ...................................................................................... 10,795,794
- ---------------------------------------------------------------------------------------------------------------------
Net assets, at value $15,437,536
- ---------------------------------------------------------------------------------------------------------------------
Class A
Net asset value, offering and redemption price per share ($15,436,485/ 1,462,745 outstanding shares of -----------
beneficial interest, no par value, unlimited number of shares authorized) ......................... $ 10.55
-----------
Class B
Netasset value, offering and redemption price per share ($1,051 / 100 outstanding shares of -----------
beneficial interest, no par value, unlimited number of shares authorized) ....................... $ 10.51
-----------
The accompanying notes are an integral part of the financial statements.
Small Company Growth Portfolio | 67
<PAGE>
- ------------------------------------------------------------------------------------------
Statement of Operations for the period May 3, 1999 (commencement of operations)
to December 31, 1999
- ------------------------------------------------------------------------------------------
Investment Income
- ------------------------------------------------------------------------------------------
Income:
Dividends ................................................................. $ 828
Interest .................................................................. 21,202
-----------
Total income 22,030
-----------
Expenses:
Management fee ............................................................ 35,691
Custodian fees ............................................................ 8,326
Accounting fees ........................................................... 33,923
Auditing .................................................................. 17,577
Legal ..................................................................... 1,494
Trustees' fees and expenses ............................................... 15,036
Reports to shareholders ................................................... 251
Registration fees ......................................................... 5,629
Other ..................................................................... 1,021
-----------
Total expenses, before expense reductions ................................. 118,948
Expense reductions ........................................................ (58,059)
-----------
Total expenses, after expense reductions .................................. 60,889
- ------------------------------------------------------------------------------------------
Net investment income (loss) (38,859)
- ------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ............................................................... 245,208
Foreign currency related transactions ..................................... (6)
-----------
245,202
-----------
Net unrealized appreciation (depreciation) during the period on investments 4,435,399
-----------
Net gain (loss) on investment transactions ................................ 4,680,601
- ------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 4,641,742
- ------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
68 | Small Company Growth Portfolio
<PAGE>
- ----------------------------------------------------------------------------------------------------------
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------------------------------------
For the Period
May 3, 1999
(commencement of
operations) to
Increase (Decrease) in Net Assets December 31, 1999
- ----------------------------------------------------------------------------------------------------------
Operations:
Net investment income (loss) .......................................................... $ (38,859)
Net realized gain (loss) on investment transactions ................................... 245,202
Net unrealized appreciation (depreciation) on investment transactions during the period 4,435,399
------------
Net increase (decrease) in net assets resulting from operations ....................... 4,641,742
------------
Portfolio share transactions:
Class A
Proceeds from shares sold ............................................................. 12,105,114
Cost of shares redeemed ............................................................... (3,309,320)
------------
Net increase (decrease) in net assets from Class A share transactions ................. 8,795,794
------------
Class B
Net increase (decrease) in net assets from Class B share transactions ................. --
------------
Increase (decrease) in net assets ..................................................... 13,437,536
Net assets at beginning of period (original capital) .................................. 2,000,000
------------
Net assets at end of period ........................................................... $ 15,437,536
------------
Other Information
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in Portfolio shares
Class A
Shares outstanding at beginning of period ............................................. 333,233
------------
Shares sold ........................................................................... 1,569,398
Shares redeemed ....................................................................... (439,886)
------------
Net increase (decrease) in Portfolio shares ........................................... 1,129,512
------------
Shares outstanding at end of period ................................................... 1,462,745
------------
Class B
Shares outstanding at beginning of period ............................................. 100
------------
Net increase (decrease) in Portfolio shares ........................................... --
------------
Shares outstanding at end of period ................................................... 100
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Small Company Growth Portfolio | 69
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
Small Company Growth Portfolio
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the financial
statements.
Class A
- --------------------------------------------------------------------------------
1999(b)
- --------------------------------------------------------------------------------
Net asset value, beginning of period $6.00(d)
--------
- --------------------------------------------------------------------------------
Income (loss) from investment operations:
- --------------------------------------------------------------------------------
Net investment income (loss) (.04)
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions 4.59
--------
- --------------------------------------------------------------------------------
Total from investment operations 4.55
--------
- --------------------------------------------------------------------------------
Net asset value, end of period 10.55
- --------------------------------------------------------------------------------
Total return (%) (c) 75.83**
- --------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- --------------------------------------------------------------------------------
Net assets, end of year ($ millions) 15
- --------------------------------------------------------------------------------
Ratio of expenses, before expense reductions (%) 2.90*
- --------------------------------------------------------------------------------
Ratio of expenses, after expense reductions (%) 1.50*
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.95)*
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 61
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
1999(b)
- --------------------------------------------------------------------------------
Net asset value, beginning of period $6.00(d)
--------
- --------------------------------------------------------------------------------
Income (loss) from investment operations:
- --------------------------------------------------------------------------------
Net investment income (loss) (.06)
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions 4.57
--------
- --------------------------------------------------------------------------------
Total from investment operations 4.51
--------
- --------------------------------------------------------------------------------
Net asset value, end of period 10.51
- --------------------------------------------------------------------------------
Total return (%) (c) 75.17**
- --------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- --------------------------------------------------------------------------------
Net assets, end of period ($ millions) 0
- --------------------------------------------------------------------------------
Ratio of expenses, before expense reductions (%) 3.15*
- --------------------------------------------------------------------------------
Ratio of expenses, after expense reductions (%) 1.75*
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (1.20)*
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 61
- --------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) For the period May 3, 1999 (commencement of operations) to December 31,
1999.
(c) Total return would have been lower had certain expenses not been reduced.
(d) Original capital.
* Annualized
** Not annualized
70 | Small Company Growth Portfolio
<PAGE>
Portfolio Management Summary
- --------------------------------------------------------------------------------
December 31, 1999
Global Discovery Portfolio
Dear Shareholders,
The world equity markets rose over the year, reflecting the strong performance
of technology stocks in the U.S. and a continued improvement in the outlook for
Europe and Japan. Our emphasis on growing small- and mid-sized global companies
was very successful in this environment, as the portfolio outperformed its
benchmark by a wide margin. For the 12-month period ended December 31, 1999,
Class A shares returned 65.88%, which compares to the 22.34% return of the
unmanaged Salomon Brothers World Equity Extended Market Index. Class A also
performed well relative to its peers, ranking in the top 16% of 52 global funds
according to Lipper Analytical Services, Inc.^1
In the portfolio, management continued to reduce exposure to U.S. holdings,
especially those that have risen dramatically, in favor of stocks with more
reasonable valuations and greater upside potential. Over the year, the portfolio
benefited significantly from good stock selection, as many of its top holdings
were also among its biggest gainers. The top five contributors to performance
were Network Appliance (US), ARM Holdings (UK), Tiffany & Co. (US), Altran
Technologies (France), and Jafco (Japan). While our winners far outweighed our
losers, there were a few detractors, including Sterling Commerce (US), Total
Renal (US), Jeronimo Martin (Portugal), and Billing Concepts (US).
The strong performance of Jafco, a holding/venture capital company in Japan, and
Tiffany & Co. demonstrated that tech stocks were not the only areas of strength.
Nevertheless, technology clearly drove performance for the year overall. ARM
Holdings, an intellectual property company that designs embedded RISC processors
for cellular phones and other electronic devices, has an excellent earnings
model and superior growth prospects that were recognized by investors during the
year. Altran, a French information technology services company and Symbol
Technologies, the leader in bar coding that is transforming itself into a major
wireless device provider, all benefited from solid fundamental growth but, more
importantly, from significant investor enthusiasm.
While the optimism regarding technology stocks has exceeded rational bounds, we
do not dispute the underlying fundamental change in communications. Innovative
companies in this sector will continue to play a significant role in the
portfolio. However, our overall technology position has been reduced primarily
by selling stocks that have grown to large-cap status. Included in this program
is the sale of the portfolio's most successful holding in 1998, Network
Appliance, the largest position in the portfolio at the beginning of 1999.
If a downturn in global small caps occurs, the portfolio will likely be
affected, as its principal focus is on small, growing companies around the
globe. In anticipation of a possible correction, we have continued to focus the
portfolio on smaller, reasonably priced holdings that we believe have greater
upside potential than the big winners of 1999.
Sincerely,
Your Portfolio Management Team
/s/Gerald J. Moran /s/Sewall F. Hodges
Gerald J. Moran Sewall F. Hodges
Lead Portfolio Manager Portfolio Manager
/s/Steven T. Stokes
Steven T. Stokes
Portfolio Manager
^1 Source: Lipper Analytical Services, Inc., an independent analyst of
investment performance. Performance includes reinvestment of dividends and
capital gains. For the one-year period ended December 31, 1999, Scudder
Variable Life Investment Fund: Global Discovery Portfolio's A shares ranked 8
out of 52 global funds and B shares ranked 9 out of 52 global funds. Past
performance is no guarantee of future results.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
Over the year, the portfolio benefited significantly from good stock selection,
as many of its top holdings were also among its biggest gainers.
- --------------------------------------------------------------------------------
Global Discovery Portfolio | 71
<PAGE>
Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
Global Discovery Portfolio
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
Global Discovery Salomon Brothers World
Portfolio -- Class A Equity EMI Index
5/96* 10000 5/96* 10000
6/96 10167 6/96 9946
12/96 10550 12/96 10197
6/97 11605 6/97 11010
12/97 11857 12/97 11052
6/98 13841 6/98 12202
12/98 13806 12/98 11708
6/99 15291 6/99 12660
12/99 22902 12/99 14324
The Salomon Brothers World Equity Extended Market Index is an unmanaged small
capitalization stock universe of 22 countries. Index returns assume reinvestment
of dividends and, unlike Portfolio returns, do not reflect any fees or expenses.
<TABLE>
<CAPTION>
Global Discovery Portfolio -- Class A Salomon Brothers World Equity EMI Index
- --------------------------------------------------------------- ------------------------------------------------------------
Total Return Total Return
--------------------------- ---------------------------
Period Ended Growth of Average Period Ended Growth of Average
12/31/1999 $10,000 Cumulative Annual 12/31/1999 $10,000 Cumulative Annual
- ------------------------------------------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 16,588 65.88% 65.88% 1 Year $ 12,234 22.34% 22.34%
- ------------------------------------------------------------- ------------------------------------------------------------
Life of Portfolio* $ 22,902 129.02% 25.34% Life of Portfolio* $ 14,324 43.24% 10.28%
- ------------------------------------------------------------- ------------------------------------------------------------
</TABLE>
* The Portfolio commenced operations on May 1, 1996. On May 2, 1997, existing
shares were redesignated as Class A shares. Index comparisons begin on May
31, 1996.
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
Global Discovery Portfolio Salomon Brothers World
-- Class B Equity EMI Index
5/2/97** 10000 5/2/97** 10000
6/97 10452 6/97 10329
12/97 10664 12/97 10369
6/98 12435 6/98 11448
12/98 12389 12/98 10984
6/99 13695 6/99 11848
12/99 20520 12/99 13440
The Salomon Brothers World Equity Extended Market Index is an unmanaged small
capitalization stock universe of 22 countries. Index returns assume reinvestment
of dividends and, unlike Portfolio returns, do not reflect any fees or expenses.
<TABLE>
<CAPTION>
Global Discovery Portfolio -- Class B Salomon Brothers World Equity EMI Index
- --------------------------------------------------------------- ------------------------------------------------------------
Total Return Total Return
--------------------------- ---------------------------
Period Ended Growth of Average Period Ended Growth of Average
12/31/1999 $10,000 Cumulative Annual 12/31/1999 $10,000 Cumulative Annual
- ------------------------------------------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 16,563 65.63% 65.63% 1 Year $ 12,234 22.34% 22.34%
- ------------------------------------------------------------- ------------------------------------------------------------
Life of Portfolio** $ 21,943 119.43% 34.28% Life of Portfolio**$ 13,440 34.40% 12.11%
- ------------------------------------------------------------- ------------------------------------------------------------
</TABLE>
** The Portfolio commenced selling Class B shares on May 12, 1997. Index
comparisons begin on May 31, 1997.
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 during Life of
Portfolio periods would have been lower if the Portfolio's expenses were
not maintained.
72 | Global Discovery Portfolio
<PAGE>
Portfolio Summary
- --------------------------------------------------------------------------------
December 31, 1999
Global Discovery Portfolio
- --------------------------------------------------------------------------------
Diversification
- --------------------------------------------------------------------------------
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
By Region
(Excluding 2% Cash Equivalents)
U.S. & Canada 43%
Europe 43%
Japan 10%
Other 4%
- ----------------------------------------------------------
100%
- ----------------------------------------------------------
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
By Sector
(Excluding 2% Cash Equivalents)
Technology 29%
Service Industries 22%
Consumer Discretionary 9%
Financial 8%
Health 7%
Communications 7%
Energy 5%
Manufacturing 4%
Media 4%
Other 5%
- ----------------------------------------------------------
100%
- ----------------------------------------------------------
The portfolio's impressive performance is attributed to an increased weighting
in Japan and significant exposure to selected technology stocks -- two areas
that provided some of the strongest performance.
- --------------------------------------------------------------------------------
Ten Largest Equity Holdings
- --------------------------------------------------------------------------------
(33% of Portfolio)
1. Altran Technologies SA
Provider of engineering and consulting services in France
2. ARM Holdings PLC
United Kingdom designer of RISC microprocessors and related technology
3. Symbol Technologies, Inc.
Manufacturer of bar code laser scanners in the United States
4. Tiffany & Co.
Retailer of jewelry and gift items in the United States
5. Serco Group plc
Facilities management company in the United Kingdom
6. Vitesse Semiconductor Corp.
Manufacturer of digital integrated circuits in the United States
7. Jafco Co., Ltd.
Venture capital company in Japan
8. Benesse Corp.
Provider of educational services in Japan
9. Check Point Software Technologies, Ltd.
Israeli leading provider of systems for network security firewalls
10. TSI International Software Ltd.
Provider of software and related services to businesses in the United
States
Global Discovery Portfolio | 73
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio as of December 31, 1999
- ----------------------------------------------------------------------------------------------------------------------------------
Global Discovery Portfolio
Principal
Amount ($) Value ($)
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements 1.9%
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Donaldson, Lufkin & Jenrette, 2.25%, to be repurchased at ---------
$1,300,244 on 1/3/2000 (Cost $1,300,000)** .......................................................... 1,300,000 1,300,000
---------
Shares
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stocks 98.1%
- ----------------------------------------------------------------------------------------------------------------------------------
Australia 0.3%
Austar United Communications Limited* (Provider of cable television services) .......................... 21,300 85,299
CI Technologies Group, Ltd. (Developer of process monitoring and industrial automation software) ....... 20,500 114,395
Solution 6 Holdings Limited* (Developer of software used in the accounting profession) ................. 4,100 44,681
---------
244,375
---------
Austria 0.1%
Schoeller-Bleckmann Oilfield Equipment AG (Manufacturer of parts for drilling technology) .............. 13,008 83,834
---------
Canada 2.4%
Berkley Petroleum Corp.* (Oil and gas producer) ........................................................ 44,000 385,270
Creo Products Inc.* (Manufacturer of printing related products) ........................................ 3,000 115,313
QLT Phototherapeutics, Inc.* (Developer of pharmaceutical products) .................................... 19,500 1,147,297
---------
1,647,880
---------
Croatia 0.0%
Pliva D.D. (GDR) (Pharmaceutical company) .............................................................. 2,400 31,320
---------
Finland 2.0%
Comptel Oyj* (Developer of communications software) .................................................... 800 56,263
JOT Automation Group Oyj (Manufacturer of high technology production automation systems
and equipment) ...................................................................................... 128,000 1,192,288
Perlos Oyj* (Manufacturer of injection moulds, electromechanical connectors and assembly equipment) .... 3,900 137,455
---------
1,386,006
---------
France 7.3%
Altran Technologies SA (Provider of engineering and consulting services) ............................... 5,769 3,485,629
Dassault Systemes SA (Computer aided design, manufacturing and engineering software) ................... 4,008 261,133
GFI Informatique (Provider of computer consulting and systems integration services) .................... 827 106,514
Leon de Bruxelles SA (Operator of low cost family restaurants) ......................................... 2,418 58,682
Publicis SA (International advertising company) ........................................................ 900 339,862
Transiciel SA (Developer of software for public services, finance and industry) ........................ 6,618 799,052
---------
5,050,872
---------
Germany 3.5%
Articon Information Systems AG* (Provider of network security products for Internet applications) ...... 610 30,713
Epcos AG* (Producer of electronic components and integrated circuits) .................................. 9,236 692,898
Freenet.de AG* (Provider of Internet access and related services) ...................................... 1,044 115,434
Hawesko Holding AG (Marketer of wines and liqueurs and related products) ............................... 4,061 127,999
Marschollek, Lautenschlaeger und Partner AG (Insurance company) ........................................ 3,853 1,163,991
Medion AG (Marketer and distributor of multimedia products and various consumer appliances) ............ 860 77,076
Pfeiffer Vacuum Technology AG (ADR)* (Manufacturer of various pumps and vacuum systems) ................ 5,872 135,423
W.E.T. Automotive Systems AG* (Manufacturer of heating, wiring, and cable components) ................. 1,678 61,676
---------
2,405,210
---------
Greece 0.2%
STET Hellas Telecommunications SA (ADR)* (Mobile telecommunication services) ........................... 5,500 167,750
---------
The accompanying notes are an integral part of the financial statements.
74 | Global Discovery Portfolio
<PAGE>
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Hong Kong 1.1%
Legend Holdings Ltd. (Manufacturer of computers and related products) ............................... 124,000 307,069
Li & Fung Ltd. (Exporter of consumer products) ...................................................... 142,000 356,210
I-Cable Communications Ltd. (ADR)* (Operator of cable television systems) ........................... 3,900 97,744
---------
761,023
---------
Hungary 0.2%
OTP Bank Rt (Savings and commercial bank) ........................................................... 100 5,848
OTP Bank Rt (GDR) ................................................................................... 2,050 119,413
---------
125,261
---------
Ireland 5.6%
Anglo Irish Bank Corp. PLC (Provider of financial services for business and private sectors) ........ 528,392 1,223,808
ESAT Telecom Group PLC (ADR)* (Provider of telecommunication services) .............................. 11,600 1,061,400
Elan Corp. "A" (Warrants) (expires 12/31/2001)* (Developer of controlled-absorption drug
delivery systems) ................................................................................ 18,700 561,000
Irish Continental Group PLC (Transporter of passengers, freight and containers between Ireland the
U.K. and the continent) .......................................................................... 19,651 201,843
Irish Life & Permanent PLC (Retail financial services group) ........................................ 16,969 160,625
Jury's Doyle Hotel Group PLC (Hotel operator) ....................................................... 70,346 520,662
Ryan Hotels PLC (Owner and operator of hotel chain) ................................................. 178,604 142,984
---------
3,872,322
---------
Israel 2.4%
Check Point Software Technologies, Ltd.* (Leading provider of systems for network security firewalls) 7,600 1,510,500
Orckit Communications Ltd.* (Designer of high speed data access systems) ............................ 2,000 68,625
Sapiens International Corp. NV* (Provider of software applications) ................................. 4,200 69,038
---------
1,648,163
---------
Italy 1.7%
Bulgari SpA (Manufacturer and retailer of fine jewelry, luxury watches and perfumes) ................ 73,066 656,311
Safilo SpA (Manufacturer of frames for glasses) ..................................................... 62,843 508,162
---------
1,164,473
---------
Japan 9.6%
Benesse Corp. (Provider of educational services) .................................................... 7,200 1,733,072
Chugai Pharmaceutical Co., Ltd. (Pharmaceutical company) ............................................ 17,000 183,806
FamilyMart Co., Ltd. (Convenience store chain) ...................................................... 11,500 765,166
Gunze, Ltd. (Leading manufacturer of underwear and sportswear) ...................................... 15,000 39,922
Internet Initiative Japan Inc. (ADR)* (Provider of Internet services) ............................... 3,500 340,156
Jafco Co., Ltd. (Venture capital company) ........................................................... 5,000 1,785,714
Japan Securities Finance Co., Ltd. (Provider of securities related financing services) .............. 15,000 84,393
Kyorin Pharmaceutical Co., Ltd. (Retailer of prescription medicines) ................................ 4,000 141,292
Rock Field Co., Ltd. (Marketer of delicatessen food) ................................................ 2,000 77,299
Uni-Charm Co. (Manufacturer of sanitary napkins, diapers, and body care goods) ...................... 16,700 962,456
Wako Securities Co., Ltd.* (Securities firm) ........................................................ 175,000 464,041
York-Benimaru Co., Ltd. (Operator of supermarket chain) ............................................. 5,000 130,137
---------
6,707,454
---------
Luxembourg 1.3%
Millicom International Cellular SA* (Developer and operator of cellular telephone networks) ......... 14,700 916,913
---------
Netherlands 1.8%
IHC Caland NV (Supplier of materials for offshore oilfields) ........................................ 19,070 696,126
Versatel Telecom International NV* (Telecommunication services) ..................................... 16,580 584,362
---------
1,280,488
---------
Norway 0.6%
Petroleum Geo-Services, ADR* (Provider of equipment used in the exploration of oil and gas) ......... 23,800 423,938
---------
The accompanying notes are an integral part of the financial statements.
Global Discovery Portfolio | 75
<PAGE>
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
Philippines 0.2%
International Container Terminal Services, Inc.* (Containerized cargo handling firm) ........... 1,441,335 130,543
Portugal 1.5%
Jeronimo Martins SGPS, SA (Food producer and retailer) ......................................... 19,641 502,373
PT Multimedia Servicos* (Provider of cable television, Internet and e-commerce services) ....... 7,550 429,333
SIVA-SGPS SA (Importer of automobiles) ......................................................... 3,450 48,499
Semapa-Sociedade de Investimento e Gestao, SPGS, SA (Cement producer) .......................... 2,550 44,090
UNICER-Uniao Cervejaria, SA (Bottler of beer, softdrinks, juices and water) .................... 2,120 42,014
---------
1,066,309
---------
Spain 0.6%
Sogecable, SA* (Provider of cable television) .................................................. 3,763 240,244
Telefonica Publicidad e Informacion, SA (Publisher of telephone directories) ................... 3,631 157,226
---------
397,470
---------
Sweden 1.0%
Framtidsfabriken AB* (Internet consulting company) ............................................. 701 126,885
Kinnevik AB "B" (Diversified holding company) .................................................. 4,985 154,683
Modern Times Group MTG AB* (Group of media companies) .......................................... 8,400 416,643
---------
698,211
---------
Switzerland 0.8%
Fantastic Corp.* (Provider of multimedia related software solutions) ........................... 3,040 575,515
---------
United Kingdom 14.3%
ARM Holdings PLC* (Designer of RISC microprocessors and related technology) .................... 49,138 3,320,510
Aegis Group PLC (Independent media services group) ............................................. 154,613 561,721
Baltimore Technologies PLC* (Manufacturer of computer related software) ........................ 6,407 527,615
Bodycote International PLC (Diversified holding company) ....................................... 83,565 408,845
Expro International Group PLC (Provider of oilfield services) .................................. 48,541 318,611
Games Workshop Group PLC (Manufacturer of table top war game systems and miniatures) ........... 15,151 111,802
Guardian IT PLC (Provider of business continuity and disaster recovery services) ............... 7,810 121,568
Matalan PLC (Clothing retailer) ................................................................ 28,512 783,112
PizzaExpress PLC (Operator of pizza restaurants) ............................................... 32,317 382,235
RM PLC (Information technology solutions to educational markets) ............................... 72,822 1,017,116
Serco Group PLC (Facilities management company) ................................................ 71,811 2,236,738
Taylor Nelson Sofres PLC (Market research company) ............................................. 27,932 124,030
---------
9,913,903
---------
United States 39.6%
AMCOL International Corp. (Producer and distributor of polymers) ............................... 2,700 43,538
Adelphia Business Solutions, Inc.* (Provider of communication services) ........................ 15,700 753,600
Advance Paradigm, Inc.* (Provider of health benefit management services) ....................... 1,200 25,875
Alexion Pharmaceuticals, Inc.* (Developer of immunoregulatory compounds) ....................... 15,600 469,950
Alpharma Inc. "A" (Manufacturer and marketer of human pharmaceutical and animal health products) 17,900 550,425
American Axle & Manufacturing Holdings, Inc.* (Designer and manufacturer of automobile parts) .. 2,800 33,950
American Italian Pasta Co.* (Producer and marketer of dry pasta) ............................... 1,400 43,050
Anadarko Petroleum Corp. (Oil and gas exploration and production) .............................. 17,600 600,600
AnswerThink Consulting Group, Inc.* (Provider of consulting and technology enabled solutions
focused on the Internet and web-enabled commerce) ........................................... 9,900 339,075
Aptargroup, Inc. (Manufacturer of packaging equipment components) .............................. 12,600 316,575
ArthroCare Corp.* (Manufacturer of orthopedic surgery equipment) ............................... 2,100 128,100
Audiovox Corp. "A"* (Supplier of automotive accessories) ....................................... 2,400 72,900
Axogen Ltd.* (Developer of therapeutic products for neurological disorders) .................... 13,200 456,225
Barrett Resources Corp.* (Oil and gas exploration and production) .............................. 18,800 553,425
Black Box Corp.* (Manufacturer of wide area networking products, direct marketer of computer
products) .................................................................................. 3,700 247,900
CNF Transportation, Inc. (Trucking, air freight) ............................................... 12,000 414,000
Columbia Sportswear Co.* (Manufacturer of active outdoor apparel) .............................. 2,200 47,300
The accompanying notes are an integral part of the financial statements.
76 | Global Discovery Portfolio
<PAGE>
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
Concord EFS, Inc.* (Electronic transaction authorization, processing, settlement and transfer
services) ................................................................................. 48,550 1,250,163
Cumulus Media Inc. "A"* (Radio broadcasting company) .......................................... 2,000 101,500
Daisytek International Corp.* (Distributor of computer and office automation supplies) ........ 700 16,319
Diamond Offshore Drilling, Inc. (Offshore oil and gas well drilling) .......................... 13,200 403,425
El Paso Electric Co.* (Generator and distributor of electricity) .............................. 4,200 41,213
Elcor Corp. (Manufacturer of roofing and other industrial products) ........................... 13,000 391,625
Fiserv Inc.* (Provider of data processing services) ........................................... 36,900 1,413,731
G & K Services, Inc. "A" (Uniform rentals) .................................................... 4,900 158,638
Hain Food Group, Inc.* (Manufacturer of specialty food products) .............................. 1,900 42,513
ISS Group, Inc.* (Provider of network security monitoring, detection, and response software) .. 3,200 227,600
Keane, Inc.* (Provider of computer software project management and design development services) 11,200 355,600
Korn/Ferry International* (A global executive search firm) .................................... 2,800 101,850
MIH Ltd.* (Provider of pay-TV services) ....................................................... 8,300 489,700
Mercury Computer Systems, Inc.* (Manufacturer of digital signal processing computer systems) .. 2,800 98,000
NDS Group PLC (ADR)* (Provider of open solutions that enable data to be transferred digitally) 5,600 170,800
Nabors Industries, Inc.* (Land drilling contractor) ........................................... 20,500 634,219
Network Appliance, Inc.* (Designer and manufacturer of network data storage devices) .......... 9,900 822,319
OpenTV Corp.* (Developer of interactive television software) .................................. 1,600 128,400
PSINet, Inc.* (Provider of Internet access services) .......................................... 22,700 1,401,725
Parametric Technology Corp.* (Mechanical design software producer) ............................ 41,800 1,131,213
Performance Food Group Co.* (Food distributor) ................................................ 1,400 34,125
Proxim, Inc.* (Manufacturer of wireless local area networking products) ....................... 4,200 462,000
Radio Unica Corp.* (Operator of a Spanish-language national radio network) .................... 9,000 259,875
Rational Software Corp.* (Software products and services for development of software
applications) ............................................................................. 14,500 712,313
Simpson Manufacturing Co., Inc.* (Manufacturer of wood-to-wood, wood-to-concrete and
wood-to-masonry connectors) ................................................................ 800 35,000
Symbol Technologies, Inc. (Manufacturer of bar code laser scanners) ........................... 47,575 3,023,986
Systems & Computer Technology Corp.* (Computer software for educational institutions) ......... 2,300 37,375
THQ, Inc.* (Developer, publisher and distributor of interactive entertainment software) ....... 1,800 41,738
TSI International Software Ltd.* (Provider of software and related services to businesses) .... 26,600 1,506,225
Taubman Centers, Inc. (Real estate investment trust company) .................................. 6,000 64,500
The Cheesecake Factory Inc.* (Operator of casual dining restaurants) .......................... 1,300 45,500
Tiffany & Co. (Retailer of jewelry and gift items) ............................................ 30,800 2,748,900
United Natural Foods, Inc.* (Distributor of natural foods and related products) ............... 4,100 49,200
VISX, Inc.* (Developer of laser technologies and systems for vision correction) ............... 16,400 848,700
Vitesse Semiconductor Corp.* (Manufacturer of digital integrated circuits) .................... 34,600 1,814,338
Watchgaurd Technologies, Inc.* (Provider of Internet security products) ....................... 100 3,025
Wesley Jessen VisionCare, Inc.* (Manufacturer of soft contact lenses) ......................... 8,000 303,000
Wisconsin Central Transportation Co.* (Operator of regional freight railroad) ................. 36,000 483,750
Xircom, Inc.* (Developer, manufacturer and seller of communication solutions for computer users) 8,000 600,000
Young Broadcasting Inc. "A"* (Operator of television stations) ................................ 200 10,200
-----------
27,560,791
-----------
- -----------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $43,626,399) 68,260,024
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $44,926,399) (a) 69,560,024
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a)AtDecember 31, 1999, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $46,165,461 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of market value over tax cost ... $25,062,758
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over market value ... 1,668,195
------------
Net unrealized appreciation ................................... $23,394,563
------------
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments), for the year ended December 31, 1999, aggregated $40,736,366
and $25,071,240, respectively.
The accompanying notes are an integral part of the financial statements.
Global Discovery Portfolio | 77
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
- ----------------------------------------------------------------------------------------------
Global Discovery Portfolio
- ----------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- ----------------------------------------------------------------------------------------------
Assets
- ----------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (identified cost $44,926,399) ............. $ 69,560,024
Cash .......................................................................... 7,259,986
Dividends receivable .......................................................... 11,490
Interest receivable ........................................................... 81
Receivable for Portfolio shares sold .......................................... 503,054
Foreign taxes recoverable ..................................................... 3,736
Other assets .................................................................. 6,568
------------
Total assets .................................................................. 77,344,939
Liabilities
- ----------------------------------------------------------------------------------------------
Payable for Portfolio shares redeemed ......................................... 10,063
Accrued management fee ........................................................ 87,918
Accrued accounting fee ........................................................ 21,003
------------
Total liabilities ............................................................. 118,984
- ----------------------------------------------------------------------------------------------
Net assets, at value $ 77,225,955
- ----------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ........................................... $ 976,351
Net unrealized appreciation (depreciation) on:
Investments ................................................................. 24,633,625
Foreign currency related transactions ....................................... (169)
Accumulated net realized gain (loss) .......................................... 4,927,057
Paid-in capital ............................................................... 46,689,091
- ----------------------------------------------------------------------------------------------
Net assets, at value $ 77,225,955
- ----------------------------------------------------------------------------------------------
Class A
Netasset value, offering and redemption price per share ($70,514,009 /
5,348,352 outstanding shares of beneficial interest, no par value, unlimited ------------
number of shares authorized) ................................................ $ 13.18
------------
Class B
Netasset value, offering and redemption price per share ($6,711,946 / 512,155
outstanding shares of beneficial interest, no par value, unlimited number of ------------
shares authorized) .......................................................... $ 13.11
------------
The accompanying notes are an integral part of the financial statements.
78 | Global Discovery Portfolio
<PAGE>
- ---------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- ---------------------------------------------------------------------------------
Investment Income
- ---------------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $17,236) ............. $ 194,827
Interest ......................................................... 179,339
------------
Total income ..................................................... 374,166
------------
Expenses:
Management fee ................................................... 377,844
Custodian fees ................................................... 141,317
Accounting fees .................................................. 72,667
Distribution service fees (Class B) .............................. 10,394
Auditing ......................................................... 18,397
Legal ............................................................ 552
Trustees' fees and expenses ...................................... 17,376
Reports to shareholders .......................................... 1,312
Registration fees ................................................ 1,208
Other ............................................................ 652
------------
Total expenses ................................................... 641,719
- ---------------------------------------------------------------------------------
Net investment income (loss) (267,553)
- ---------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions
- ---------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ...................................................... 6,438,579
Foreign currency related transactions ............................ (11,218)
------------
6,427,361
------------
Net unrealized appreciation (depreciation) during the period on:
Investments ...................................................... 18,888,033
Foreign currency related transactions ............................ (703)
------------
18,887,330
------------
Net gain (loss) on investment transactions ....................... 25,314,691
- ---------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 25,047,138
- ---------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Global Discovery Portfolio | 79
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------------------------
Years Ended December 31
Increase (Decrease) in Net Assets 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income (loss) ............................................................. $ (267,553) $ (106,011)
Net realized gain (loss) on investment transactions ...................................... 6,427,361 514,766
Net unrealized appreciation (depreciation) on investment transactions during the period .. 18,887,330 3,279,878
------------ ------------
Net increase (decrease) in net assets resulting from operations .......................... 25,047,138 3,688,633
------------ ------------
Distributions to shareholders from:
Net investment income:
Class A .................................................................................. -- (312,453)
------------ ------------
Class B .................................................................................. -- (41,745)
------------ ------------
Net realized gain:
Class A .................................................................................. (336,073) (182,265)
------------ ------------
Class B .................................................................................. (38,072) (24,351)
------------ ------------
Portfolio share transactions:
Class A
Proceeds from shares sold ................................................................ 47,977,272 18,978,160
Reinvestment of distributions ............................................................ 336,073 494,718
Cost of shares redeemed .................................................................. (25,592,178) (14,676,750)
------------ ------------
Net increase (decrease) in net assets from Class A share transactions .................... 22,721,167 4,796,128
------------ ------------
Class B
Proceeds from shares sold ................................................................ 2,115,662 2,431,156
Reinvestment of distributions ............................................................ 38,073 66,096
Cost of shares redeemed .................................................................. (1,824,969) (1,033,311)
------------ ------------
Net increase (decrease) in net assets from Class B share transactions .................... 328,766 1,463,941
------------ ------------
Increase (decrease) in net assets ........................................................ 47,722,926 9,387,888
Net assets at beginning of period ........................................................ 29,503,029 20,115,141
Net assets at end of period (including undistributed net investment income of $976,351 and ------------ ------------
$899, respectively) $ 77,225,955 $ 29,503,029
------------ ------------
Other Information
- -------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Portfolio shares
Class A
Shares outstanding at beginning of period ................................................ 3,172,540 2,526,754
------------ ------------
Shares sold .............................................................................. 4,926,169 2,524,146
Shares issued to shareholders in reinvestment of distributions ........................... 40,056 66,139
Shares redeemed .......................................................................... (2,790,413) (1,944,499)
------------ ------------
Net increase (decrease) in Portfolio shares .............................................. 2,175,812 645,786
------------ ------------
Shares outstanding at end of period ...................................................... 5,348,352 3,172,540
------------ ------------
Class B
Shares outstanding at beginning of period ................................................ 500,409 314,140
------------ ------------
Shares sold .............................................................................. 217,938 312,746
Shares issued to shareholders in reinvestment of distributions ........................... 4,560 8,848
Shares redeemed .......................................................................... (210,752) (135,325)
------------ ------------
Net increase (decrease) in Portfolio shares .............................................. 11,746 186,269
------------ ------------
Shares outstanding at end of period ...................................................... 512,155 500,409
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
80 | Global Discovery Portfolio
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------
Global Discovery Portfolio
The following table includes selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements.
Class A (b)
- -----------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1999 1998 1997 1996(c)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.04 $ 7.08 $ 6.33 $6.00(d)
-------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.06) (.03) (.03) (.01)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions 5.30 1.18 .81 .34
-------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 5.24 1.15 .78 .33
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income -- (.12) (.02) --
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.10) (.07) (.01) --
-------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.10) (.19) (.03) --
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.18 $ 8.04 $ 7.08 $ 6.33
-------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) 65.88 16.44(e) 12.38(e)5.50(e)**
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 71 25 18 17
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses, before expense reductions (%) 1.63 1.72 1.50 1.50*
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses, after expense reductions (%) 1.63 1.79 1.79 2.32*
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.66) (.40) (.44) (.13)*
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 70 54 83 50*
- -----------------------------------------------------------------------------------------------------------------------------
Class B
- -----------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1999 1998 1997(f)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.01 $ 7.07 $ 6.20
----------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.08) (.05) (.04)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions 5.28 1.18 .91
----------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 5.20 1.13 .87
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income -- (.12) --
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.10) (.07) --
----------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.10) (.19) --
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.11 $ 8.01 $ 7.07
----------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total Return (%) 65.63 16.18(e)14.03(e)**
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 7 4 2
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses, before expense reductions (%) 1.88 1.98 1.75*
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses, after expense reductions(%) 1.88 2.04 2.00*
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.91) (.69) (.89)*
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 70 54 83
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) On May 2, 1997 existing shares were redesignated as Class A shares.
(c) For the period May 1, 1996 (commencement of operations) to December 31,
1996.
(d) Original capital.
(e) Total returns would have been lower had certain expenses not been reduced.
(f) For the period May 2, 1997 (commencement of sale of Class B shares) to
December 31, 1997.
* Annualized
** Not annualized
Global Discovery Portfolio | 81
<PAGE>
Portfolio Management Summary
- --------------------------------------------------------------------------------
December 31, 1999
International Portfolio
Dear Shareholders,
The overseas markets posted outstanding performance in 1999 on the strength of
favorable liquidity conditions, powerful corporate earnings growth, and the
ongoing benefits of consolidation and restructuring. The European markets once
again produced impressive returns, with the bulk of the gains coming in a
furious fourth quarter rally. Japanese stocks also staged a strong runup as the
combination of renewed growth and corporate-level reforms prompted investors to
return to the market in force. The Nikkei 225 Index closed the year just short
of 19,000, a level not seen since the summer of 1997. Across most of the global
markets, technology and telecommunications stocks produced outstanding returns
as investors poured money into companies with the strongest growth
characteristics.
The International Portfolio's Class A once again outperformed both its benchmark
and its competition. For the twelve-month period ended December 31, 1999, the
portfolio's total return was 54.51%, well above the 27.92% return of its
unmanaged benchmark, the MSCI EAFE + Canada Index. In addition, the Portfolio
finished in the top 26th percentile of funds in the international variable life
category.^1 We attribute our strong showing to strong individual stock selection
across all sectors and regions, particularly in techs and telecoms.
During the second half of 1999, our fundamental investment strategy remained
essentially unchanged. We continued to focus on a wide range of international
equities that are poised to benefit from positive changes taking place on the
macroeconomic and/or company-specific levels. A good example of our focus on
companies undergoing significant restructuring is our investment in the Japanese
financial services industry. Daiwa Securities and Nikko Securities both posted
returns in excess of 300% for the year, while restructuring announcements also
boosted our commercial bank investments such as Fuji Bank (+139%) and Sakura
Bank (+129%).
The portfolio continues to hold a position in European cyclicals, which have
performed well as the region's economy has picked up steam. Our holdings in
Japanese cyclicals have not performed as well; however, since the market is not
fully convinced that the country's recovery is sustainable in light of the
government's need to eventually reduce its fiscal stimulus programs.
Looking ahead, we are confident that the improving fundamentals of the major
overseas markets will continue to support strong stock market performance,
albeit with a higher level of volatility. Consolidation, restructuring, and
stronger economic growth are likely to remain in place as key themes in the
foreign markets. We continue to see opportunities in the technology, telecom,
and financial sectors in Japan, despite the runup that the market has
experienced over the past year. In Europe, we remain focused on restructuring
stories and companies poised to capitalize on the regions renewed growth,
particularly those in the technology and communications sectors. While higher
interest rates and potential weakness in the U.S. market continue to represent
potential risks, we believe that the portfolio is positioned to outperform in
any environment.
Sincerely,
Your Portfolio Management Team
/s/Irene T. Cheng /s/Nicholas Bratt
Irene T. Cheng Nicholas Bratt
Lead Portfolio Manager Portfolio Manager
/s/Carol L. Franklin /s/Marc J. Slendebroek
Carol L. Franklin Marc J. Slendebroek
Portfolio Manager Portfolio Manager
^1 Source: Lipper Analytical Services, Inc. is an independent analyst of
investment performance. Performance includes reinvestment of dividends and
capital gains. For the period ended December 31, 1999, Scudder Variable Life
Investment Fund: International Fund's Lipper ranking was 33 out of 126 funds
for the one-year period, 13 out of 83 funds for the three-year period, 12 out
of 53 for the five-year period, and 2 out of 5 funds for the ten-year period.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
Excellent stock selection, particularly in the technology and telecommunications
sectors, enabled the fund to beat its benchmark by a wide margin.
- --------------------------------------------------------------------------------
82 | International Portfolio
<PAGE>
Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
International Portfolio
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
International Portfolio MSCI EAFE &
-- Class A* Canada Index
89 10000 89 10000
90 9235 90 7696
91 10292 91 8626
92 9975 92 7575
93 13747 93 9994
94 13630 94 10729
95 15145 95 11957
96 17384 96 12777
97 18960 97 13066
98 22465 98 15517
99 34710 99 19849
Yearly periods ended December 31
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
reinvestment of dividends net of withholding tax and, unlike Portfolio returns,
do not reflect any fees or expenses. Yearly periods ended December 31
<TABLE>
<CAPTION>
International Portfolio -- Class A* MSCI EAFE & Canada Index
- ------------------------------------------------------------- ------------------------------------------------------------
Total Return Total Return
--------------------------- ---------------------------
Period Ended Growth of Average Period Ended Growth of Average
12/31/1999 $10,000 Cumulative Annual 12/31/1999 $10,000 Cumulative Annual
- ------------------------------------------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 15,451 54.51% 54.51% 1 Year $ 12,792 27.92% 27.92%
- ------------------------------------------------------------- ------------------------------------------------------------
5 Year $ 25,466 154.66% 20.56% 5 Year $ 18,501 85.01% 13.09%
- ------------------------------------------------------------- ------------------------------------------------------------
10 Year* $ 34,710 247.10% 13.25% 10 Year* $ 19,849 98.49% 7.09%
- ------------------------------------------------------------- ------------------------------------------------------------
</TABLE>
* On May 8, 1997, existing shares were redesignated as Class A shares.
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
International Portfolio MSCI EAFE &
-- Class B Canada Index
5/97 10000 5/97 10000
6/97 10513 6/97 10534
12/97 10036 12/97 9686
6/98 12107 6/98 11196
12/98 11870 12/98 11503
6/99 13043 6/99 12021
12/99 18294 12/99 14714
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
reinvestment of dividends net of withholding tax and, unlike Portfolio returns,
do not reflect any fees or expenses.
<TABLE>
<CAPTION>
International Portfolio -- Class B MSCI EAFE & Canada Index
- --------------------------------------------------------------- ------------------------------------------------------------
Total Return Total Return
--------------------------- ---------------------------
Period Ended Growth of Cumulative Average Period Ended Growth of Cumulative Average
12/31/1999 $10,000 Annual 12/31/1999 $10,000 Annual
- ------------------------------------------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 15,413 54.13% 54.13% 1 Year $ 12,792 27.92% 27.92%
- ------------------------------------------------------------- ------------------------------------------------------------
Life of $ 18,653 86.53% 26.53% Life of $ 14,714 47.14% 16.10%
- ------------------------------------------------------------- ------------------------------------------------------------
Portfolio** Portfolio**
- ------------------------------------------------------------- ------------------------------------------------------------
</TABLE>
** The Portfolio commenced selling Class B shares on May 8, 1997. Index
comparisons began on May 31, 1997.
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.
International Portfolio | 83
<PAGE>
Portfolio Summary
- --------------------------------------------------------------------------------
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
December 31, 1999
International Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Diversification
- --------------------------------------------------------------------------------
By Region
(Excluding 4% Cash Equivalents)
Europe 58%
Japan 31%
Pacific Basin 10%
U.S. & Canada 1%
- ----------------------------------------------------------
100%
- ----------------------------------------------------------
By Sector
(Excluding 4% Cash Equivalents)
Technology 22%
Manufacturing 17%
Financial 15%
Communications 14%
Consumer Staples 6%
Service Industries 6%
Energy 4%
Metals & Materials 4%
Consumer Discretionary 3%
Other 9%
- ----------------------------------------------------------
100%
- ----------------------------------------------------------
Management increased the portfolio's weighting in Japan from 23% of net assets
as of June 30. The country continues to offer significant investment
opportunities in companies that are restructuring their operations.
- --------------------------------------------------------------------------------
Ten Largest Equity Holdings
- --------------------------------------------------------------------------------
(21% of Portfolio)
1. Mannesmann AG
Manufacturer of production machinery and assembly systems in Germany
2. NTT Mobile Communications Network, Inc.
Provider of various telecommunication services and equipment in Japan
3. Nokia Oyj
Manufacturer of telecommunications networks and equipment in Finland
4. Total Fina SA
Explorer, developer and producer of oil and gas in France
5. Sony Corp.
Manufacturer of consumer electronics in Japan
6. Murata Manufacturing Co., Ltd.
Manufacturer of ceramic applied electronic computers in Japan
7. Rio Tinto PLC
Mining Company in the United Kingdom
8. Fujitsu Ltd.
Manufacturer of computers in Japan
9. STMicroelectronics
Manufacturer of semiconductor integrated circuits in the Netherlands
10. Seat Pagine Gialle SpA
Publisher of telecommunications directories and provider of
advertising services in Italy
84 | International Portfolio
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio as of December 31, 1999
- -------------------------------------------------------------------------------------------------------------------------------
International Portfolio
Principal
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements 3.6%
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Donaldson, Lufkin & Jenrette, 2.25%, to be repurchased at 30,005,625 on 1/3/2000 ----------
(Cost $30,000,000)** ........................................................................... 30,000,000 30,000,000
----------
- -------------------------------------------------------------------------------------------------------------------------------
Bonds 0.0%
- -------------------------------------------------------------------------------------------------------------------------------
United Kingdom ----------
British Aerospace PLC, 7.45%, 11/30/2003 (Producer of military aircraft) (Cost $53,578) ........... 82,371 130,344
----------
- -------------------------------------------------------------------------------------------------------------------------------
Participating Loan Note 0.3%
- -------------------------------------------------------------------------------------------------------------------------------
Luxembourg 0.3%
Eurotunnel Finance Ltd., Step-up Coupon, 1.0% to 12/31/2005, 1% plus 26.45% of net available cash ----------
flow to 4/30/2040 (cost $2,218,612) ............................................................ 1,700(b) 2,379,540
----------
Shares
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Common Stocks 96.1%
- -------------------------------------------------------------------------------------------------------------------------------
Australia 1.7%
Broken Hill Proprietary Co. Ltd. (Petroleum, mineral and steel exploration production) ............ 523,200 6,869,961
WMC Ltd. (Mineral exploration and production) ..................................................... 903,983 4,985,105
Woodside Petroleum Ltd. (Major oil and gas producer) .............................................. 298,500 2,204,609
----------
14,059,675
----------
Canada 0.7%
Canadian National Railway Co. (Railroad operator) ................................................. 233,200 6,166,152
----------
Finland 3.4%
Nokia Oyj (Manufacturer of telecommunication networks and equipment) .............................. 105,100 19,050,419
Sonera Oyj (Telecommunication services) ........................................................... 146,600 10,045,959
----------
29,096,378
----------
France 13.4%
AXA SA (Insurance group providing insurance, finance and real estate services) .................... 43,908 6,119,403
Aventis SA (Pharmaceutical company) ............................................................... 227,543 13,221,131
Carrefour SA (Hypermarket operator and food retailer) ............................................. 29,095 5,364,584
Christian Dior (Fashion house) .................................................................... 31,001 7,679,627
Club Mediterranee SA* (Operator of vacation resorts) .............................................. 10,521 1,216,265
Dassault Systemes SA (Computer aided design, manufacturing and engineering software) .............. 42,281 2,754,729
Etablissements Economiques du Casino Guichard-Perrachon SA (Operator of supermarkets and
convenience stores) ............................................................................ 68,800 5,303,505
Eurotunnel SA (Bearer)* (Channel Tunnel consortium) ............................................... 3,989,288 4,700,138
LVMH (Louis Vuitton Moet Hennessy) (Producer of wines, spirits and luxury products) ............... 12,204 5,465,107
Lafarge SA (Producer of cement, concrete and aggregates) .......................................... 56,275 6,550,925
Pinault-Printemps-Redoute SA (Operator of department stores) ...................................... 25,335 6,684,232
Renault SA (Manufacturer of automobiles, buses, industrial and agricultural vehicles) ............. 63,721 3,071,034
Rhodia SA (Drug manufacturer and chemicals specialist) ............................................ 296,622 6,702,789
Schneider Electric SA (Manufacturer of electronic components and automated manufacturing systems) . 56,331 4,421,737
Societe BIC SA (Manufacturer of office supplies) .................................................. 105,719 4,809,817
Total Fina SA "B" (Explorer, developer and producer of oil and gas) ............................... 127,484 17,009,866
Union des Assurances Federales (Insurance group) .................................................. 23,173 2,720,885
Usinor Sacilor (Producer of flat carbon steel and stainless steel) ................................ 203,150 3,815,267
The accompanying notes are an integral part of the financial statements.
International Portfolio | 85
<PAGE>
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
Vivendi (Provider of water purification and distribution, energy, waste management, construction,
healthcare and community services) ........................................................... 65,320 5,896,928
113,507,969
Germany 12.9%
Allianz AG (Multi-line insurance company) ....................................................... 18,304 6,147,113
BASF AG (International chemical producer) ....................................................... 148,770 7,640,378
Celanese AG* (Manufacturer and distributor of industrial chemicals) ............................. 15,526 282,988
Commerzbank AG (Provider of banking services) ................................................... 85,400 3,134,619
Deutsche Telekom AG (Telecommunication services) ................................................ 62,389 4,441,777
Dresdner Bank AG (Provider of banking services) ................................................. 108,152 5,881,087
Epcos AG* (Producer of electronic components and integrated circuits) ........................... 141,088 10,584,630
Heidelberger Druckmaschinen AG (Manufacturer of commercial printing presses) .................... 20,125 1,061,931
HypoVereinsbank AG (Bank) ....................................................................... 79,589 5,433,905
Mannesmann AG (Diversified construction and technology company) ................................. 118,398 28,554,805
SAP AG (pfd.) (Computer software manufacturer) .................................................. 14,379 8,658,830
Siemens AG (Electrical engineering and electronics company) ..................................... 101,092 12,857,291
Thyssen Krupp AG (Manufacturer of building and industrial steel materials) ...................... 293,615 8,944,024
VEBA AG (Electric utility, distributor of oil and chemicals) .................................... 110,880 5,387,408
109,010,786
Hong Kong 1.2%
Cheung Kong Holdings Ltd. (Real estate company) ................................................. 358,700 4,545,179
Citic Pacific Ltd. (Diversified holding company) ................................................ 585,200 2,198,217
New World China Land Ltd.* (Property development) ............................................... 6,897 2,551
New World Development Co., Ltd. (Property investment and development company) ................... 1,254,436 2,824,034
New World Infrastructure Ltd.* (Investment in and operation of infrastructure projects) ......... 346,800 443,900
10,013,881
Italy 4.0%
Arnoldo Mondadori Editore SpA (Book publisher) .................................................. 125,000 3,965,061
Banca Nazionale del Lavoro* (Bank) .............................................................. 1,245,100 4,150,129
Gruppo Editoriale L'Espresso (Publisher) ........................................................ 477,360 5,523,259
Mediaset SpA (Broadcasting and television networks) ............................................. 407,000 6,328,066
Seat Pagine Gialle SpA (Publisher of telecommunications directories and provider of
advertising services) ....................................................................... 6,304,700 13,903,939
33,870,454
Japan 29.6%
Advantest Corp. (Producer of measuring instruments and semiconductor testing devices) ........... 26,100 6,895,303
Asahi Glass Co., Ltd. (Manufacturer of glass products) .......................................... 388,000 3,003,014
Benesse Corp. (Provider of educational services) ................................................ 12,400 2,984,736
CSK Corp. (Provider of computer related services) ............................................... 34,000 5,522,505
Canon, Inc. (Producer of visual image and information equipment) ................................ 109,000 4,330,137
DDI Corp. (Long distance telephone and cellular operator) ....................................... 781 10,698,630
Daiwa Securities Co., Ltd. (Provider of brokerage and other financial services) ................. 762,000 11,922,094
Fanuc Ltd. (Manufacturer of numerically controlled equipment for machine tools) ................. 25,500 3,246,135
Fuji Bank, Ltd. (Provider of commercial banking services) ....................................... 583,000 5,664,569
Fujisawa Pharmaceutical Co. (Manufacturer of marketer of antibiotics) ........................... 52,000 1,261,840
Fujitsu Ltd. (Manufacturer of computers) ........................................................ 328,000 14,955,773
Fujitsu Support and Service Inc. (Provider of information services) ............................. 8,500 4,166,830
Hitachi, Ltd. (Manufacturer of general electronics) ............................................. 594,000 9,531,898
Kyocera Corp. (Leading ceramic package manufacturer) ............................................ 48,000 12,446,184
Matsushita Electric Industrial Co., Ltd. (Manufacturer of consumer electronic products) ......... 341,000 9,442,564
Murata Manufacturing Co., Ltd. (Manufacturer of ceramic applied electronic computers) ........... 69,000 16,203,523
NEC Corp. (Manufacturer of telecommunication and computer equipment) ............................ 516,000 12,294,129
NSK Ltd. (Manufacturer of bearings and motor vehicle machine parts) ............................. 550,000 3,761,742
NTT Mobile Communications Network, Inc. (Provider of various telecommunication services
and equipment) .............................................................................. 559 21,495,793
Nikko Securities Co., Ltd. (Securities broker and dealer) ....................................... 642,000 8,122,368
The accompanying notes are an integral part of the financial statements.
86 | International Portfolio
<PAGE>
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
Nippon Telegraph & Telephone Corp. (Telecommunication services) ................................ 724 12,397,260
Nissan Motor Co., Ltd. (Manufacturer of motor vehicles) ........................................ 1,127,000 4,433,014
Nomura Securities Co., Ltd. (Financial advisor, securities broker and underwriter) ............. 411,000 7,419,716
SMC Corp. (Manufacturer of directional control devices) ........................................ 10,800 2,389,315
Sakura Bank, Ltd. (Provider of banking services) ............................................... 1,003,000 5,809,941
Sanwa Bank, Ltd. (Bank) ........................................................................ 28,000 340,548
Sony Corp. (Manufacturer of consumer electronic products) ...................................... 48,300 14,319,863
Sony Corp. (ADR) ............................................................................... 9,300 2,648,175
Sumitomo Trust & Banking Co., Ltd. (Commercial Bank) ........................................... 824,000 5,563,209
THK Co., Ltd. (Manufacturer of linear motion systems for industrial machinery) ................. 69,200 2,796,438
Teijin, Ltd. (Manufacturer of polyester products) .............................................. 91,000 335,685
Tokyo Electron Ltd. (Manufacturer of semiconductor production equipment) ....................... 87,000 11,917,808
Toray Industries, Inc. (Manufacturer of synthetic fibers, leather and polyester fill) .......... 578,000 2,239,609
Toshiba Corp. (Manufacturer of electric machinery) ............................................. 902,000 6,884,149
Yamanouchi Pharmaceutical Co., Ltd. (Manufacturer of ethical drugs) ............................ 88,000 3,073,973
------------
250,518,470
------------
Korea 3.0%
Dacom Corp. (Provider of domestic long-distance and internet services) ......................... 7,490 3,858,785
SK Telecom Co., Ltd. (Provider of mobile telecommunication services) ........................... 3,090 11,075,561
Samsung Electronics Co. (Electronics manufacturer) ............................................. 44,650 10,459,621
------------
25,393,967
------------
Netherlands 7.6%
AEGON Insurance Group NV (Insurance company) ................................................... 42,112 4,066,809
Akzo Nobel NV (Producer and marketer of healthcare products, coatings, chemicals and fibers) ... 90,320 4,529,420
Equant NV* (Provider of international data network services) ................................... 111,315 12,633,013
Fortis (NL) NVBank (Provider of banking and insurance services) ................................ 98,710 3,553,583
Gucci Group NV (New York Shares) (Registered) (Designer and producer of personal luxury
accessories and apparel) ................................................................... 66,700 7,637,150
KPNQuest NV* (Provider of Internet services to businesses) ..................................... 36,110 2,403,578
Koninklijke KPN NV (Telecommunications services) ............................................... 59,630 5,818,592
Laurus NV (International food retailer) ........................................................ 136,520 2,460,813
STMicroelectronics (Manufacturer of semiconductor integrated circuits) ......................... 94,522 14,544,057
United Pan-Europe Communications NV* (Provider of television and telecommunication services) ... 51,480 6,583,723
------------
64,230,738
------------
Singapore 0.5%
DBS Group Holdings Ltd. (Provider of banking and financing services) ........................... 154,679 2,535,417
Oversea-Chinese Banking Corp., Ltd. (Foreign Registered) (Commercial bank) ..................... 160,650 1,475,800
------------
4,011,217
------------
Spain 0.8%
Telefonica Publicidad e Informacion, SA* (Publisher of telephone directories) .................. 16,210 701,909
Telefonica SA (Telecommunication services) ..................................................... 244,686 6,110,688
------------
6,812,597
------------
Sweden 0.5%
LM Ericsson Telephone Co. "B" (Manufacturer telecommunications equipment) ...................... 66,000 4,243,300
------------
Switzerland 1.4%
Nestle SA (Registered) (Food manufacturer) ..................................................... 2,881 5,277,160
Novartis AG (Registered) (Pharmaceutical company) .............................................. 2,236 3,282,743
Roche Holdings AG (PC) (Producer of drugs and medicines) ....................................... 291 3,453,626
------------
12,013,529
------------
Taiwan 3.9%
Asustek Computer Inc. (Manufacturer of computer motherboards) .................................. 274,000 2,889,724
Chinatrust Commercial Bank (Bank) .............................................................. 1,227,560 1,427,623
Compal Electronics Inc.* (Rights) (Manufacturer and marketer of notebook computers and
color monitors) ............................................................................ 8,991 7,305
The accompanying notes are an integral part of the financial statements.
International Portfolio | 87
<PAGE>
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------
Far Eastern Textile Ltd. (Manufacturer of natural and synthetic textile products) ...... 2,683,560 6,412,841
Hon Hai Precision Industry Co., Ltd. (Manufacturer of electronic connectors and cable
assemblies) ........................................................................ 339,200 2,529,004
Siliconware Precision Industries Co. (Manufacturer of packaging for integrated circuits) 1,590,390 4,053,886
Taiwan Semiconductor Manufacturing Co. (Manufacturer of integrated circuits) ........... 1,187,670 6,319,608
United Microelectronics Corp., Ltd. (Manufacturer of integrated circuits) .............. 2,565,000 9,153,417
32,793,408
United Kingdom 11.4%
BOC Group PLC (Producer of industrial gases) ........................................... 337,590 7,277,174
BP Amoco PLC (Major integrated world oil company) ...................................... 719,336 7,258,521
Billiton PLC (Resource group that explores, produces and markets aluminum and other
metal products) .................................................................... 672,262 3,983,792
British Aerospace PLC (Producer of military aircraft) .................................. 1,004,588 6,601,982
Glaxo Wellcome PLC (Pharmaceutical company) ............................................ 129,546 3,668,981
Lasmo PLC (Oil production and exploration) ............................................. 5 10
Marconi PLC (Provider of telecommunications equipment) ................................. 245,063 4,321,080
Prudential Corp. PLC (Provider of broad range of financial services) ................... 516,048 10,065,815
Rentokil Initial PLC (Environmental services company) .................................. 555,741 2,019,049
Reuters Group PLC (International news and information agency) .......................... 775,711 10,771,850
Rio Tinto PLC (Registered) (Mining company) ............................................ 652,558 15,657,767
Royal & Sun Alliance Insurance Group PLC (Insurance company) ........................... 493,923 3,700,574
Shell Transport & Trading PLC (Petroleum company) ...................................... 1,248,722 10,373,924
SmithKline Beecham PLC (Manufacturer of ethical drugs and healthcare products) ......... 289,666 3,671,631
Standard Chartered PLC (International banking group) ................................... 424,769 6,755,865
96,128,015
- -----------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $501,758,322) 811,870,536
- -----------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $534,030,512) (a) 844,380,420
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
** Repurchase agreements are fully collateralized by US Treasury or Government
agency securities.
(a) At December 31, 1999, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $534,124,466 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
is an excess of market value over tax cost ............. $ 319,992,795
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over market value ............. 9,736,841
Net unrealized appreciation ................................ $ 310,255,954
(b) Represents number of contracts. Each contract equals a nominal value of EUR
2,931.
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments), for the year ended December 31, 1999, aggregated $522,968,203
and $495,187,901, respectively.
The accompanying notes are an integral part of the financial statements.
88 | International Portfolio
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
- ------------------------------------------------------------------------------------------------
International Portfolio
- ------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- ------------------------------------------------------------------------------------------------
Assets
- ------------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $534,030,512) ........................ $ 844,380,420
Cash ........................................................................... 12,580,359
Foreign currency, at value (cost $803,547) ..................................... 807,145
Dividends receivable ........................................................... 223,377
Interest receivable ............................................................ 11,757
Receivable for Fund Shares sold ................................................ 17,850,259
Foreign taxes recoverable ...................................................... 633,526
Other assets ................................................................... 40
-------------
Total assets ................................................................... 876,486,883
Liabilities
- ------------------------------------------------------------------------------------------------
Payable for Portfolio shares redeemed .......................................... 735,363
Accrued management fee ......................................................... 558,405
Accrued accounting fee ......................................................... 43,433
Other accrued expenses and payables ............................................ 158,004
-------------
Total liabilities .............................................................. 1,495,205
- ------------------------------------------------------------------------------------------------
Net assets, at value $ 874,991,678
- ------------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income 3,778,734 Net unrealized appreciation
(depreciation) on:
Investments .................................................................. 310,349,908
Foreign currency related transactions ........................................ (17,446)
Accumulated net realized gain (loss) ........................................... 80,676,504
Paid-in capital ................................................................ 480,203,978
- ------------------------------------------------------------------------------------------------
Net assets, at value $ 874,991,678
- ------------------------------------------------------------------------------------------------
Class A
Netasset value, offering and redemption price per share ($874,305,327 /
42,980,529 outstanding shares of beneficial interest, no par value, unlimited -------------
number of shares authorized) ................................................ $ 20.34
-------------
Class B
Netasset value, offering and redemption price per share ($686,351 / 33,910
outstanding shares of beneficial interest, no par value, unlimited number of -------------
shares authorized) .......................................................... $ 20.24
-------------
The accompanying notes are an integral part of the financial statements.
International Portfolio | 89
<PAGE>
- ----------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- ----------------------------------------------------------------------------------
Investment Income
- ----------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $1,152,527) .......... $ 9,551,957
Interest ......................................................... 1,121,123
-------------
Total income ..................................................... 10,673,080
-------------
Expenses:
Management fee ................................................... 5,064,630
Custodian fees ................................................... 570,264
Accounting fees .................................................. 353,062
Distribution fees (Class B) ...................................... 1,186
Auditing ......................................................... 20,918
Legal ............................................................ 11,521
Trustees' fees and expenses ...................................... 20,357
Reports to shareholders .......................................... 14,807
Other ............................................................ 74,186
-------------
Total expenses ................................................... 6,130,931
- ----------------------------------------------------------------------------------
Net investment income (loss) 4,542,149
- ----------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ...................................................... 82,164,276
Foreign currency related transactions ............................ (2,781,491)
-------------
79,382,785
-------------
Net unrealized appreciation (depreciation) during the period on:
Investments ...................................................... 218,870,062
Foreign currency related transactions ............................ 2,267,220
-------------
221,137,282
-------------
Net gain (loss) on investment transactions ....................... 300,520,067
- ----------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 305,062,216
- ----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
90 | International Portfolio
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
Increase (Decrease) in Net Assets 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income (loss) ........................................................... $ 4,542,149 $ 4,317,414
Net realized gain (loss) ............................................................... 79,382,785 51,917,934
Net unrealized appreciation (depreciation) on investment transactions during the period 221,137,282 24,787,072
--------------- ---------------
Net increase (decrease) in net assets resulting from operations ........................ 305,062,216 81,022,420
--------------- ---------------
Distributions to shareholders from:
Net investment income:
Class A ................................................................................ (722,598) (7,697,972)
--------------- ---------------
Class B ................................................................................ -- (6,202)
--------------- ---------------
Net realized gain:
Class A ................................................................................ (53,833,552) (50,628,971)
--------------- ---------------
Class B ................................................................................ (42,651) (42,421)
--------------- ---------------
Portfolio share transactions:
Class A
Proceeds from shares sold .............................................................. 2,032,640,835 821,855,468
Reinvestment of distributions .......................................................... 54,556,150 58,326,944
Cost of shares redeemed ................................................................ (1,971,986,035) (820,883,462)
--------------- ---------------
Net increase (decrease) in net assets from Class A share transactions .................. 115,210,950 59,298,950
--------------- ---------------
Class B
Proceeds from shares sold .............................................................. 116,161 34,594
Reinvestment of distributions .......................................................... 42,651 48,623
Cost of shares redeemed ................................................................ (33,017) (75,383)
--------------- ---------------
Net increase (decrease) in net assets from Class B share transactions .................. 125,795 7,834
--------------- ---------------
Increase (decrease) in net assets ...................................................... 365,800,160 81,953,638
Net assets at beginning of period ...................................................... 509,191,518 427,237,880
Net assets at end of period (including undistributed net investment income of $3,778,734 --------------- ---------------
and $2,705,077, respectively) ...................................................... $ 874,991,678 $ 509,191,518
--------------- ---------------
Other Information
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Portfolio shares
Class A
Shares outstanding at beginning of period .............................................. 34,950,563 30,264,570
--------------- ---------------
Shares sold ............................................................................ 130,483,172 59,000,919
Shares issued to shareholders in reinvestment of distributions ......................... 3,831,190 4,388,784
Shares redeemed ........................................................................ (126,284,396) (58,703,710)
--------------- ---------------
Net increase (decrease) in Portfolio shares ............................................ 8,029,966 4,685,993
--------------- ---------------
Shares outstanding at end of period .................................................... 42,980,529 34,950,563
--------------- ---------------
Class B
Shares outstanding at beginning of period .............................................. 25,342 24,670
--------------- ---------------
Shares sold ............................................................................ 7,601 2,526
Shares issued to shareholders in reinvestment of distributions ......................... 3,004 3,664
Shares redeemed ........................................................................ (2,037) (5,518)
--------------- ---------------
Net increase (decrease) in Portfolio shares ............................................ 8,568 672
--------------- ---------------
Shares outstanding at end of period .................................................... 33,910 25,342
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
International Portfolio | 91
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------
International Portfolio
The following table includes selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements.
Class A (b)
- -----------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $14.56 $14.11 $13.25 $11.82 $10.69
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .12(e) .13 .14 .12 .11
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions 7.17 2.29 1.04 1.60 1.07
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 7.29 2.42 1.18 1.72 1.18
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (.02) (.26) (.21) (.29) (.01)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (1.49) (1.71) (.11) -- (.04)
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (1.51) (1.97) (.32) (.29) (.05)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.34 $14.56 $14.11 $13.25 $11.82
--------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) 54.51 18.49 9.07 14.78 11.11
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of year ($ millions) 874 509 427 726 548
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses (%) 1.03 1.04 1.00 1.05 1.08
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .76 .90 .94 .95 .95
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 86 71 61 33 46
- -----------------------------------------------------------------------------------------------------------------------------
Class B
- -----------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1999 1998 1997(c)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $14.51 $14.08 $13.76
----------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .08(e) .10 (.00)(d)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions 7.14 2.29 .32
----------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 7.22 2.39 .32
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income -- (.25) --
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (1.49) (1.71) --
----------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (1.49) (1.96) --
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.24 $14.51 $14.08
----------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total Return (%) 54.13 18.28 2.33**
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) .69 .37 .35
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses (%) 1.28 1.28 1.24*
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .53 .69 (.00)(d)*
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 86 71 61**
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) On May 8, 1997, existing shares were designated as Class A shares.
(c) For the period May 8, 1997 (commencement of sale of Class B shares) to
December 31, 1997.
(d) Amount shown is less than one half of $.005.
(e) Net investment income per share includes non-recurring dividend income
amounting to $.03 per share.
* Annualized
** Not annualized
92 | International Portfolio
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
December 31, 1999
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 (the "1940 Act"), as amended, as an open-end, diversified management
investment company. Its shares are divided into nine separate diversified
series, called "Portfolios." The Portfolios are comprised of the Money Market
Portfolio, Bond Portfolio, Balanced Portfolio, Growth and Income Portfolio,
Capital Growth Portfolio, Large Company Growth Portfolio (which commenced
operations on May 3, 1999), Small Company Growth Portfolio (which commenced
operations on May 3, 1999), Global Discovery 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").
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of the financial statements for its Portfolios.
Multiple Classes of Shares of Beneficial Interest. The Fund offers one class of
shares for the Money Market Portfolio and two classes of shares (Class A shares
and Class B shares) for each of the other Portfolios. Class B shares are subject
to a Rule 12b-1 fee under the 1940 Act, equal to an annual rate of up to 0.25%
of the average daily net asset value of the Class B shares of the applicable
Portfolio. Class A shares are not subject to such fees. In accordance with the
Master Distribution Plan, the 12b-1 fees are remitted to the Participating
Insurance Companies for various costs incurred or paid by the Participating
Insurance Companies in connection with the distribution of Class B shares. Class
B shares for certain Portfolios have not been funded, and thus are not shown in
these financial statements.
Investment income, realized and unrealized gains and losses, and certain
fund-level expenses and expense reductions, if any, are borne pro rata on the
basis of relative net assets by the holders of all classes of shares except that
each class bears certain expenses unique to that class (including the applicable
12b-1 fee). Differences in class expenses may result in payment of different per
share dividends by class. All shares have equal rights with respect to voting
subject to class specific arrangements.
Security Valuation. The Money Market Portfolio values all portfolio securities
utilizing the amortized cost method permitted in accordance with Rule 2a-7 under
the 1940 Act 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:
Investments are stated at value determined as of the close of regular trading on
the New York Stock Exchange. 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 Nasdaq Stock Market
("Nasdaq"), for which there have been sales, are valued at the most recent sale
price reported. If there are no such sales, the value is the most recent bid
quotation. Securities which are not quoted on Nasdaq but are traded in another
over-the-counter market are valued at the most recent sale price, or if no sale
occurred, at the calculated mean between the most recent bid and asked
quotations on such market. If there are no such bid and asked quotations, the
most recent bid quotation shall be used.
Portfolio debt securities purchased with an original maturity greater than sixty
days are valued by pricing agents approved by the officers of the Fund, whose
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. Money market instruments purchased with an original 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 Board of Trustees.
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Foreign Currency Translations. The books and records of the Portfolios are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S. dollars
at the prevailing exchange rates at period end. Purchases and sales of
investment securities, income and expenses are translated into U.S. dollars at
the prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions
represent net gains and losses between trade and settlement dates on securities
transactions, the disposition of forward foreign currency exchange contracts and
foreign currencies, and the difference between the amount of net investment
income accrued and the U.S. dollar amount actually received. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed but
is included with net realized and unrealized gains and losses on investment
securities.
Repurchase Agreements. Each of the Portfolios may enter into repurchase
agreements with certain banks and broker/dealers whereby the Portfolio, through
its custodian or sub-custodian bank, 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
is equal to at least the principal amount of the repurchase price plus accrued
interest.
Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange
contract (forward contract) is a commitment to purchase or sell a foreign
currency at the settlement date at a negotiated rate. During the period, the
International Portfolio utilized forward contracts as a hedge against changes in
the exchange rates relating to foreign currency denominated assets.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Sales and
purchases of forward contracts having the same settlement date and broker are
offset and any gain (loss) is realized on the date of offset; otherwise, gain
(loss) is realized on settlement date. Realized and unrealized gains and losses
which represent the difference between the value of a forward contract to buy
and a forward contract to sell are included in net realized and unrealized gain
(loss) from foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, the Portfolio gives up the
opportunity to profit from favorable exchange rate movements during the term of
the contract.
When Issued/Delayed Delivery Securities. Each Portfolio may purchase securities
with delivery or payment to occur at a later date beyond the normal settlement
period. At the time a Portfolio enters into a commitment to purchase a security,
the transaction is recorded and the value of the security is reflected in the
net asset value. The value of the security may vary with market fluctuations. No
interest accrues to the Portfolio until payment takes place. At the time the
Portfolio enters into this type of transaction it is required to segregate cash
or other liquid assets at least equal to the amount of the commitment.
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 is to comply with the requirements of the Internal Revenue
Code, which are applicable to regulated investment companies, and to distribute
all of its 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 federal income tax provision was required.
Distribution of Income and Gains. All of the net investment income of the Money
Market Portfolio is declared as a daily dividend and is distributed to
shareholders monthly. All other Portfolios will declare and distribute dividends
from their net investment income, if any, in April, although an additional
distribution may be made if necessary. Net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to each Portfolio if not distributed, and, therefore, will be
distributed to shareholders at least annually.
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. These
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
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distributions during such period. Accordingly, each Portfolio may periodically
make reclassifications among certain of its capital accounts without impacting
the net asset value of the Portfolio.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date. Certain dividends
from foreign securities may be recorded subsequent to the ex-dividend date as
soon as the Portfolio is informed of such dividends. Realized gains and losses
from investment transactions are recorded on an identified cost basis.
Original issue discounts are accreted for both tax and financial 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 among the
Portfolios.
B. Ownership of the Portfolios
At the end of the period, the beneficial ownership in the Portfolios was as
follows:
Money Market Portfolio: Two Participating Insurance Companies were owners of
record of 10% or more of the total outstanding shares of the Portfolio, each
owning 41% and 47%, respectively.
Bond Portfolio: Three Participating Insurance Companies were owners of record of
10% or more of the total outstanding shares of the Portfolio, each owning 23%,
33%, and 14%, respectively.
Balanced Portfolio: Three Participating Insurance Companies were owners of
record of 10% or more of the total outstanding shares of the Portfolio, each
owning 41%, 13%, and 37%, respectively.
Growth and Income Portfolio: Three Participating Insurance Companies were owners
of record of 10% or more of the total outstanding Class A shares of the
Portfolio, each owning 19%, 47%, and 13%, respectively. One Participating
Insurance Company was owner of record of 96% of the total outstanding Class B
shares of the Portfolio.
Capital Growth Portfolio: Two Participating Insurance Companies were owners of
record of 10% or more of the total outstanding Class A shares of the Portfolio,
each owning 54% and 18%, respectively. One Participating Insurance Company was
owner of record of 100% of the total outstanding Class B shares of the
Portfolio.
Large Company Growth Portfolio: Two participating Insurance Companies were
owners of record of 10% or more of the total outstanding Class A shares of the
Portfolio, each owning 71% and 23%, respectively. One participating Insurance
Company was owner of record of 100% of the total outstanding Class B shares of
the Portfolio.
Small Company Growth Portfolio: Two participating Insurance Companies were
owners of record of 10% or more of the total outstanding Class A shares of the
Portfolio, each owning 76% and 23% respectively. One participating Insurance
Company was owner of record of 100% of the total outstanding Class B shares of
the Portfolio.
Global Discovery Portfolio: Three Participating Insurance Companies were owners
of record of 10% or more of the total outstanding Class A shares of the
Portfolio, each owning 30%, 51% and 12%, respectively. One Participating
Insurance Company was owner of record of 99% of the total outstanding Class B
shares of the Portfolio.
International Portfolio: Three Participating Insurance Companies were owners of
record of 10% or more of the total outstanding Class A shares of the Portfolio,
each owning 16%, 35%, and 16%, respectively. Two Participating Insurance Company
were owners of record of 10% or more of the total outstanding Class B shares of
the Portfolio, each owning 13% and 84% respectively.
C. Related Parties
Under the Fund's Investment Management Agreement (the "Agreement") with Scudder
Kemper Investments, Inc. (the "Adviser"), the Fund agrees to pay the Adviser a
fee, based on average daily net assets, equal to an annual rate of .370% for the
Money Market Portfolio, .475% for the Bond Portfolio, .475% for the Balanced
Portfolio, .475% for the Growth and Income Portfolio, .975% for the Global
Discovery Portfolio, .625% for the Large Company
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Growth Portfolio, .875% for the Small Company Growth Portfolio, .475% for the
first $500,000,000, .450% for the next $500,000,000, and .425% over
$1,000,000,000 for the Capital Growth Portfolio, and .875% for the first
$500,000,000, .725% over $500,000,000 for the International Portfolio, computed
and accrued daily and payable monthly. The equivalent annual effective rate for
the Capital Growth Portfolio and the International Portfolio was .46% and .85%,
respectively. As manager of the assets of each Portfolio, the Adviser directs
the investments of the Portfolios in accordance with their respective investment
objectives, policies, and restrictions. The Adviser determines the securities,
instruments, and other contracts relating to investments to be purchased, sold
or entered into by the Portfolios. In addition to portfolio management services,
the Adviser provides certain administrative services in accordance with the
Agreement. During the year ended December 31, 1999, the Adviser reimbursed the
Bond Portfolio and the Balanced Portfolio $116,525 and $15,360, respectively,
for losses incurred in connection with portfolio securities trading.
The Trustees authorized the Fund on behalf of each Portfolio to pay Scudder Fund
Accounting Corp., a subsidiary of the Adviser, for determining the daily net
asset value per share and maintaining the portfolio and general accounting
records of the Fund.
Related fees for such services are detailed in each Portfolio's statement of
operations.
Until April 30, 2000, the Adviser has agreed to maintain the expenses for the
Large Company Growth Portfolio and the Small Company Growth Portfolio, excluding
12b-1 fees, to the extent necessary so that the Portfolios' expenses are
maintained at 1.25% and 1.50% of average daily net assets, respectively.
The Fund pays each Trustee not affiliated with the Adviser an annual retainer
plus specified amounts for attended board and committee meetings. Allocated
Trustees' fees and expenses for each Portfolio for the year ended December 31,
1999 are detailed in each Portfolio's statement of operations.
D. Line of Credit
The Fund and several other Scudder Funds (the "Participants") share in a $1
billion revolving credit facility for temporary or emergency purposes, including
the meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated pro rata based on net assets among each of the Participants.
Interest is calculated based on the market rates at the time of the borrowing.
Each Portfolio may borrow up to a maximum of 33 percent of its net assets under
the agreement.
E. Expense Off-Set Arrangements
The Money Market Portfolio, Bond Portfolio, Balanced Portfolio, Growth and
Income Portfolio, Capital Growth Portfolio, Large Company Growth Portfolio and
Small Company Growth Portfolio have entered into an arrangement with their
custodian whereby credits as a result of uninvested cash balances were used to
reduce a portion of the Portfolios' expense. During the period ended December
31, 1999, the custodian fees were reduced as follows:
Custody
Credits ($)
- --------------------------------------------------------------------------------
Money Market Portfolio ................................................... 753
Bond Portfolio ........................................................... 678
Balanced Portfolio ....................................................... 364
Growth and Income Portfolio .............................................. 480
Capital Growth Portfolio ................................................. 1,278
Large Company Growth Portfolio ........................................... 82
Small Company Growth Portfolio ........................................... 1,765
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Report of Independent Accountants
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To the Trustees and Shareholders of Scudder Variable Life Investment Fund:
In our opinion, the accompanying statements of assets and liabilities, including
the investment portfolios, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the nine Portfolios (identified in
Note A) of Scudder Variable Life Investment Fund at December 31, 1999, the
results of their operations, the changes in their net assets, and the financial
highlights for the periods indicated therein, in conformity with accounting
principles generally accepted in the United States. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1999 by correspondence with the custodians, provide a reasonable basis for
the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
February 11, 2000
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Tax Information
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December 31, 1999
The Bond Portfolio, Balanced Portfolio, Capital Growth Portfolio, Growth and
Income Portfolio, Global Discovery Portfolio and International Portfolio paid
distributions of $0.03, $1.08, $2.49, $0.83, $0.10, and $1.41 per share,
respectively, from net long-term capital gains during the year ended December
31, 1999, of which 100% represents 20% rate gains.
Pursuant to section 852 of the Internal Revenue Code, the Balanced Portfolio,
Capital Growth Portfolio, Growth and Income Portfolio, Global Discovery
Portfolio, and International Portfolio designate $28,580,000, $143,500,000,
$3,795,000, $3,560,000 and $73,700,000, respectively, as a capital gain
dividends for the year ended December 31, 1999, of which 100% represents 20%
rate gains.
Pursuant to section 854 of the Internal Revenue Code, the percentages of income
dividends paid in calendar year 1999 which qualify for the dividends received
deduction are as follows: Balanced Portfolio 36%, Capital Growth Portfolio 100%,
and Growth and Income Portfolio 100%.
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Notes
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Notes
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About the Fund's Adviser
Scudder Kemper Investments, Inc. is one of the largest and most experienced
investment management organizations worldwide, managing more than $290 billion
in assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded over 80
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Financial Services Group. As a result, Zurich's subsidiary, Zurich
Kemper Investments, Inc., with 50 years of mutual fund and investment management
experience, was combined with Scudder. Headquartered in New York, Scudder Kemper
Investments offers a full range of investment counsel and asset management
capabilities, based on a combination of proprietary research and disciplined,
long-term investment strategies. With its global investment resources and
perspective, the firm seeks opportunities in markets throughout the world to
meet the needs of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Financial Services Group. The Zurich Financial Services Group is
an internationally recognized leader in financial services, including
property/casualty and life insurance, reinsurance, and asset management.
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.
SCUDDER INVESTMENTS (SM)
[SCUDDER LOGO]
PO Box 2291
Boston, MA 02107-2291
1-800-SCUDDER
www.scudder.com
A member of the [LOGO] Zurich Financial
Services Group
