UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-CSR
Investment Company Act file number 811-07507
SCUDDER INVESTMENTS VIT FUNDS
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(Exact Name of Registrant as Specified in Charter)
101 Federal Street Boston, Massachusetts 02110
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2663
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Salvatore Schiavone
Two International Place
Boston, Massachusetts 02110
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(Name and Address of Agent for Service)
Date of fiscal year end: 12/31
Date of reporting period: 12/31/03
ITEM 1. REPORT TO STOCKHOLDERS
Scudder Investments VIT Funds
Annual Report
December 31, 2003
Scudder Real Estate Securities Portfolio
<Click Here> Management Summary
<Click Here> Investment Portfolio
<Click Here> Financial Statements
<Click Here> Financial Highlights
<Click Here> Notes to Financial Statements
<Click Here> Report of Independent Auditors
<Click Here> Tax Information
<Click Here> Trustees and Officers
This report must be preceded or accompanied by a prospectus. To obtain a prospectus, call (800) 778-1482 or your financial representative. We advise you to consider the product's objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the investment product. Please read the prospectus carefully before you invest.
Investments in variable portfolios involve risk. Some portfolios have more risk than others. This portfolio is nondiversified and can take larger positions in fewer companies, increasing its overall potential risk. The portfolio involves additional risk due to its narrow focus. There are special risks associated with an investment in real estate, including credit risk, interest rate fluctuations and the impact of varied economic conditions. Please read this portfolio's prospectus for specific details regarding its investments and risk profile.
NOT FDIC/NCUA INSURED NO BANK GUARANTEE MAY LOSE VALUE
Management Summary December 31, 2003 |
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Scudder Real Estate Securities Portfolio posted an impressive 25.90% (Class B shares unadjusted for sales charges) total return from its inception May 1, 2003, to December 31, 2003. For the same period, the portfolio's benchmark, the Wilshire REIT Index (an unmanaged index that measures publicly traded REITs with a market capitalization of at least $100 million) posted a return of 28.60%. Since its inception, the portfolio benefited from both sector and stock selection, with every sector posting positive performance. However, the portfolio was opened on May 1 and initial inflows inhibited the fund from participating in the full upside of the market and contributed to its underperformance versus the benchmark. This effect is knows as "cash drag." As the fund continues to grow, the daily inflows into the fund become a smaller percentage of the overall portfolio, and the effect of this cash drag becomes less and less over time.
At the start of the year, investor optimism and attractive valuations created a positive environment for REITs. While the war in Iraq and deflationary warnings from the Fed temporarily gave investors pause, their steady focus on the economic recovery that continued to unfold during the period drove a tremendous migration into stocks in general and REITs in particular.
As compared with the benchmark, the portfolio was overweight in the regional mall and retail sectors, which boosted relative performance over the period. Top-performing individual issues included Chelsea Property Group (retail) and General Growth Properties (regional malls). We began with a slight underweight in hotels and gradually increased our position over the course of the year to a slight overweight. An underweight position in self-storage detracted from performance, as this small sector outpaced the index over the period.
A respectable yield in a low-interest-rate environment is often cited as the reason for the outstanding performance of REITs in recent years. While yield has been a factor, we also believe that investors are recognizing the solid total return potential within the REIT market.
Karen J. Knudson John F. Robertson
John W. Vojticek Mark D. Zeisloft
Co-Managers
The unmanaged Wilshire REIT Index is a capitalization-weighted group of real estate investment trusts. The index includes the reinvestment of all distributions and is not available for direct investment.
Performance is historical and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please visit our Web site at scudder.com for the product's most recent month-end performance. Performance does not include the effect of contract charges, which would reduce the returns shown.
This portfolio is nondiversified and can take larger positions in fewer companies, increasing its overall potential risk. The portfolio involves additional risk due to its narrow focus. There are special risks associated with an investment in real estate, including credit risk, interest rate fluctuations and the impact of varied economic conditions. Please read this portfolio's prospectus for specific details regarding its risk profile.
Portfolio management market commentary is as of December 31, 2003, and may not come to pass. This information is subject to change at any time, based on market and other conditions.
Performance Summary as of December 31, 2003 |
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All performance shown is historical and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less then their original cost. Current performance may be lower or higher than the performance data quoted. For the product's most recent month-end performance call 1-800-621-1048. Performance does not include the effect of contract charges, which would reduce the returns shown.
The investment advisor has agreed to either limit, waive or reduce certain fees temporarily for this Portfolio; see the prospectus for complete details. Without such limits, waivers or reductions, the performance figures for this Portfolio would be lower.
Earnings from variable annuity investments compound tax free until withdrawal, so no adjustments are made for income taxes.
Growth of an Assumed $10,000 Investment in Scudder Real Estate Securities Portfolio from 5/1/2003 to 12/31/2003 |
[] Scudder Real Estate Securities Portfolio
[] Wilshire REIT Index
|
 | | The Wilshire REIT Index is an unmanaged index of publicly traded real estate securities, such as Real Estate Investment Trusts (REITs), Real Estate Operating Companies (REOCs) and partnerships. The Index is comprised of companies whose charter is the equity ownership and operation of commercial real estate. Index returns assume reinvestment of dividends and, unlike funds returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. |
| | |
Comparative Results (as of December 31, 2003) |
| | Life of Portfolio* |
Scudder Real Estate Securities Portfolio
| Growth of $10,000
| $12,590 |
Total return
| 25.90% |
Wilshire REIT Index | Growth of $10,000
| $12,950 |
Total return
| 29.50% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on May 1, 2003. Index returns begin April 30, 2003.Information concerning portfolio holdings of the portfolio as of a month end is available upon request no earlier than 15 days after the month end. Please call 1-800-621-1048.
Investment Portfolio as of December 31, 2003 | |
|
|
Shares
| Value ($) |
|
|
Common Stocks 87.1% |
Apartments 19.6%
|
Archstone-Smith Trust (REIT)
| 16,300
| 456,074
|
Avalonbay Communities, Inc. (REIT)
| 3,800
| 181,640
|
Boardwalk Equities, Inc. (REIT)
| 2,987
| 41,310
|
BRE Properties, Inc. "A" (REIT)
| 4,300
| 143,620
|
Equity Residential (REIT)
| 21,400
| 631,514
|
Essex Property Trust, Inc. (REIT)
| 1,200
| 77,064
|
Home Properties, Inc.* (REIT)
| 5,000
| 201,950
|
Summit Properties, Inc. (REIT)
| 3,700
| 88,874
|
United Dominion Realty Trust, Inc. (REIT)
| 10,600
| 203,520
|
| 2,025,566 |
Hotels 7.5%
|
Hilton Hotels Corp.
| 15,800
| 270,654
|
Host Marriott Corp. (REIT)
| 26,200
| 322,784
|
Starwood Hotels & Resorts Worldwide, Inc.
| 4,900
| 176,253
|
| 769,691 |
Industrials 12.6%
|
Catellus Development Corp. (REIT)
| 15,060
| 363,247
|
CenterPoint Properties Corp. (REIT)
| 2,400
| 179,760
|
Liberty Property Trust (REIT)
| 3,500
| 136,150
|
ProLogis (REIT)
| 19,500
| 625,755
|
| 1,304,912 |
Office 19.1%
|
Arden Realty Group, Inc. (REIT)
| 9,028
| 273,910
|
Boston Properties, Inc. (REIT)
| 5,600
| 269,864
|
Brookfield Properties Corp. (REIT)
| 10,400
| 298,480
|
CarrAmerica Realty Corp. (REIT)
| 3,600
| 107,208
|
Equity Office Properties Trust (REIT)
| 8,500
| 243,525
|
Glenborough Realty Trust, Inc. (REIT)
| 2,300
| 45,885
|
Highwoods Properties, Inc. (REIT)
| 8,800
| 223,520
|
|
Shares
| Value ($) |
|
|
Mack-Cali Realty Corp. (REIT)
| 8,700
| 362,094
|
Reckson Associates Realty Corp. (REIT)
| 2,500
| 60,750
|
SL Green Realty Corp. (REIT)
| 2,200
| 90,310
|
| 1,975,546 |
Regional Malls 15.8%
|
General Growth Properties, Inc. (REIT)
| 16,600
| 460,650
|
Pennsylvania Real Estate Investment Trust (REIT)
| 4,970
| 180,411
|
The Rouse Co. (REIT)
| 4,600
| 216,200
|
Simon Property Group, Inc. (REIT)
| 14,750
| 683,515
|
Taubman Centers, Inc. (REIT)
| 4,400
| 90,640
|
| 1,631,416 |
Retail 10.8%
|
Chelsea Property Group, Inc. (REIT)
| 6,200
| 339,822
|
Developers Diversified Realty Corp. (REIT)
| 5,600
| 187,992
|
Pan Pacific Retail Properties, Inc. (REIT)
| 7,700
| 366,905
|
Regency Centers Corp. (REIT)
| 5,600
| 223,160
|
| 1,117,879 |
Other 1.7%
|
Public Storage, Inc. (REIT)
| 4,100
| 177,899 |
Total Common Stocks (Cost $8,154,394)
| 9,002,909 |
| Principal Amount ($) | Value ($) |
|
|
Repurchase Agreements 12.9% |
State Street Bank and Trust Co., 0.78%, dated 12/31/2003, to be repurchased at $1,334,058 on 1/2/2004 (b) (Cost $1,334,000)
| 1,334,000
| 1,334,000 |
Total Investment Portfolio - 100.0% (Cost $9,488,394) (a)
| 10,336,909 |
Notes to Scudder Real Estate Securities Portfolio of Investments |
* Non-income producing security.(a) The cost for federal income tax purposes was $9,488,953. At December 31, 2003, net unrealized appreciation for all securities based on tax cost was $847,956. This consisted of aggregate gross unrealized appreciation for all securities in which there was a excess of value over tax cost of $849,531 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $1,575.(b) Collaterized by $905,000 US Treasury Bond, 13.25%, maturing on 5/15/2014 with value of $1,360,894.The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities as of December 31, 2003 |
Assets
|
Investments:
Investments in securities, at value (cost $8,154,394)
| $ 9,002,909 |
Repurchase agreements, at value (cost $1,334,000)
| 1,334,000 |
Investments in securities, at value (cost $9,488,394)
| $ 10,336,909 |
Cash
| 944 |
Receivable for investments sold
| 15,111 |
Dividends receivable
| 35,853 |
Interest receivable
| 29 |
Receivable for Portfolio shares sold
| 142,058 |
Total assets
| 10,530,904 |
Liabilities
|
Payable for investments purchased
| 394,889 |
Payable for fund shares redeemed
| 27 |
Advisory fee payable
| 3,258 |
Other accrued expenses and payables
| 22,548 |
Total liabilities
| 420,722 |
Net assets, at value
| $ 10,110,182 |
Net Assets
|
Net assets consist of:
Undistributed net investment income
| $ 99,328 |
Net unrealized appreciation (depreciation) on:
Investment securities
| 848,515 |
Accumulated net realized gain (loss)
| 29,389 |
Paid-in capital
| 9,132,950 |
Net assets, at value
| $ 10,110,182 |
Class B
|
Net Asset Value, offering and redemption price per share ($10,110,182 / 802,965 outstanding shares of beneficial interest, $.001 par value, unlimited number of shares authorized)
| $ 12.59 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the period May 1, 2003 (commencement of operations) to December 31, 2003 |
Investment Income
|
Income:
Dividends (net of foreign taxes withheld of $331)
| $ 128,858 |
Interest
| 4,314 |
Total Income
| 133,172 |
Expenses:
Advisory fee
| 26,235 |
Administrator service fee
| 3,500 |
Distribution service fees (Class B)
| 7,287 |
Record keeping fees (Class B)
| 4,372 |
Professional fees
| 21,804 |
Trustees' fees and expenses
| 1,124 |
Reports to shareholders
| 2,686 |
Organization and offering costs
| 4,417 |
Excise tax
| 4,443 |
Other
| 1,560 |
Total expenses, before expense reductions
| 77,428 |
Expense reductions
| (33,704) |
Total expenses, after expense reductions
| 43,724 |
Net investment income (loss)
| 89,448 |
Realized and Unrealized Gain (Loss) on Investment Transactions
|
Net realized gain (loss) from:
Investments
| 7,920 |
Capital gain dividends received
| 21,469 |
| 29,389 |
Net unrealized appreciation (depreciation) during the period on investments
| 848,515 |
Net gain (loss) on investment transactions
| 877,904 |
Net increase (decrease) in net assets resulting from operations
| $ 967,352 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
Increase (Decrease) in Net Assets
| For the Period May 1, 2003 (commencement of operations) to December 31, 2003 |
Operations:
Net investment income (loss)
| $ 89,448 |
Net realized gain (loss) on investment transactions
| 29,389 |
Net unrealized appreciation (depreciation) on investment transactions during the period
| 848,515 |
Net increase (decrease) in net assets resulting from operations
| 967,352 |
Fund share transactions:
Proceeds from shares sold - Class B
| 8,142,830 |
Net increase (decrease) in net assets from Fund share transactions
| 8,142,830 |
Increase (decrease) in net assets
| 9,110,182 |
Net assets at beginning of period (original investment)
| 1,000,000 |
Net assets at end of period (including undistributed net investment income of $94,885)
| $ 10,110,182 |
Other Information
|
Class B
|
Shares outstanding at beginning of period (original investment)
| 100,000 |
Shares sold
| 702,965 |
Shares outstanding at end of period
| 802,965 |
The accompanying notes are an integral part of the financial statements.
Class B
| 2003a |
Selected Per Share Data
|
Net asset value, beginning of period
| $ 10.00 |
Income (loss) from investment operations:
Net investment income (loss)b
| .24 |
Net realized and unrealized gain (loss) on investment transactions
| 2.35 |
Total from investment operations
| 2.59 |
Net asset value, end of period
| $ 12.59 |
Total Return (%)c
| 25.90** |
Ratios to Average Net Assets and Supplemental Data
|
Net assets, end of period ($ millions)
| 10 |
Ratio of expenses before expense reductions (%)
| 2.61* |
Ratio of expenses after expense reductions (%)
| 1.50* |
Ratio of net investment income (loss) (%)
| 3.07* |
Portfolio turnover rate (%)
| 10* |
a For the period May 1, 2003 (commencement of sales of Class B shares) to December 31, 2003.b Based on average shares outstanding during the period.c Total return would have been lower had certain expenses not been reduced.* Annualized** Not annualizedNotes to Financial Statements |
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A. Significant Accounting Policies
Scudder Investments VIT Funds (formerly, Deutsche Asset Management VIT Funds) (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company organized as a Massachusetts business Trust. The Trust is comprised of several funds. Scudder Real Estate Securities Portfolio (the "Portfolio") is a non-diversified series of the Trust.
Multiple Classes of Shares of Beneficial Interest. The Portfolio offers Class A shares (none sold as of December 31, 2003) and Class B shares. Sales of Class B shares commenced May 1, 2003 and are subject to Rule 12b-1 fees under the 1940 Act and record keeping fees, equal to an annual rate of up to 0.25% and 0.15%, respectively, of the average daily net assets of the Class B shares. Class A shares are not subject to such fees. Class A shares have not been funded and thus are not shown in these financial statements.
Investment income, realized and unrealized gains and losses, and certain portfolio-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 and record keeping fee). Differences in class-level 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.
The Portfolio's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Portfolio in the preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading. Equity securities are valued at the most recent sale price reported on the exchange (US or foreign) or over-the-counter market on which the security is traded most extensively. Securities for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation.
Money market instruments purchased with an original or remaining maturity of sixty days or less, maturing at par, are valued at amortized cost.
Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Trustees.
Repurchase Agreements. The Portfolio 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. The custodian or agent bank holds the collateral in a separate account until the agreement matures. If the value of the securities falls below the principal amount of the repurchase agreement plus accrued interest, the financial institution deposits additional collateral by the following business day. If the financial institution either fails to deposit the required additional collateral or fails to repurchase the securities as agreed, the Portfolio has the right to sell the securities and recover any resulting loss from the financial institution. If the financial institution enters into bankruptcy, the Portfolio's claims on the collateral may be subject to legal proceedings.
Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on the trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. 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. Distributions received from Real Estate Investment Trusts (REITs) in excess of income are recorded as a reduction of cost of investments and/or realized gain.
Expense. The Trust accounts separately for the assets, liabilities and operations of each of the series in the Trust. Expenses directly attributable to a series are charged to that series, while the expenses that are attributable to the Trust are allocated among the series in the Trust based upon the relative net assets of each series.
Federal Income Taxes. It is Portfolio's policy to continue to qualify as a regulated investment company under the Internal Revenue Code and to distribute substantially all of its taxable income to shareholders. Therefore, no federal income taxes have been accrued.
Distribution of Income and Gains. The Portfolio pays annual dividends from its net investment income and makes annual distributions of any net realized capital gains to the extent they exceed capital loss carryforwards. The Portfolio records dividends and distributions on its books on the ex-dividend date.
The timing and characterization of certain income and capital gains distributions are determined annually in accordance with federal tax regulations which may differ from accounting principles generally accepted in the United States of America. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.
The Portfolio's components of distributable earnings (accumulated gains) on a tax-basis were as follows:
| December 31, 2003 |
Undistributed ordinary income*
| $ 107,981 |
Undistributed net long-term capital gains
| $ 21,295 |
Capital loss carryforwards
| $ - |
Unrealized appreciation (depreciation) on investments
| $ 847,956 |
* For tax purposes short-term capital gains distributions are considered ordinary income distributions.B. Purchase and Sales
The aggregate cost of purchases and proceeds from sales of investments for the period ended December 31, 2003, were $8,431,757 and $258,823, respectively.
C. Related Parties
Deutsche Asset Management, Inc. ("DeAM" or the "Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, is the Portfolio's Advisor. Under the Investment Advisory Agreement, the Portfolio pays the Advisor an annual fee based on its average daily net assets which is calculated daily and paid monthly at the annual rate of 0.90% of the first $250,000,000 of Portfolio's average daily net assets, 0.875% of the next $250,000,000 of such net assets, 0.85% of the next $500,000,000 of such net assets, 0.825% of the next $1,500,000,000 of such net assets, and 0.80% of such net assets in excess of $2,500,000,000.
The Advisor has delegated all its advisory responsibilities to RREEF America L.L.C. ("RREEF" or the "Sub-Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG. The Sub-Advisor is responsible for managing the investment operations of the Portfolio and the composition of the Portfolio's holdings of securities and other investments. As compensation for its services, under the Sub-Advisory Agreement, RREEF is entitled to an annual fee, paid monthly, at the annual rate of 0.45% of the first $100,000,000 of the Portfolio's average daily net assets, 0.40% of the next $100,000,000 of such assets, and 0.35% of such assets exceeding $200,000,000. RREEF is paid by DeAM and not the Portfolio.
For the period ended December 31, 2003, the Advisor and Administrator agreed to waive their fees and/or reimburse expenses of the Portfolio, to the extent necessary, to maintain the annualized expenses of Class B shares at 1.50% of average daily net assets. Accordingly, for the period ended December 31, 2003, the Advisor did not impose a portion of its fee amounting to $18,545, and the portion imposed amounted to $7,690 which was equivalent to an annual effective rate of 0.26% of the Portfolio's average net assets. In addition, the Advisor and Administrator waived additional expenses of $4,372.
Investment Company Capital Corp. ("ICCC" or the "Administrator"), an affiliate of the Advisor and Sub-Advisor, is the Portfolio's Administrator. The Portfolio pays the Administrator an annual fee ("Administrator service fee") based on its average daily net assets which is accrued daily and payable monthly at an annual rate of 0.12%. For the period ended December 31, 2003, ICCC received an administrator service fee of $3,500, all of which was waived.
ICCC has entered into a sub-accounting agreement with Scudder Fund Accounting Corp. ("SFAC"), a wholly owned subsidiary of Deutsche Bank. Under the agreement, SFAC performs accounting services and other related services to the Portfolio. Pursuant to a sub-accounting agreement between SFAC and State Street Bank and Trust Company, SFAC has delegated certain accounting functions to State Street Corp. The costs and expenses of such delegation are borne by ICCC, not by the Portfolio.
Scudder Distributors, Inc. ("SDI"), also an affiliate of the Advisor and Sub-Advisor, is the Portfolio's Distributor. In accordance with the Distribution Plan, SDI receives 12b-1 fees of up to 0.25% of average daily net assets of Class B shares. For the period ended December 31, 2003, the Distribution fee was $7,287, all of which was waived.
Certain officers and trustees of the Portfolio are also officers and trustees of DeAM. These persons are not paid by the Portfolio for serving in these capacities. The Portfolio pays each Trustee not affiliated with the Advisor retainer fees plus specified amounts for attended board and committee meetings.
D. Real Estate Concentration Risk
The Fund concentrates its investments in real estate securities, including REITs. A fund with a concentrated portfolio is vulnerable to the risks of the industry in which it invests and is subject to greater risks and market fluctuations than funds investing in a broader range of industries. Real estate securities are susceptible to the risks associated with direct ownership of real estate, such as declines in property values; increase in property taxes, operating expenses, interest rates or competition; zoning changes; and losses from casualty and condemnation.
Report of Independent Auditors |
|
To the Shareholders and Board of Trustees
Scudder Investments VIT Funds - Scudder Real Estate Securities Portfolio
We have audited the accompanying statement of assets and liabilities, including the investment portfolio, of Scudder Real Estate Securities Portfolio (the "Portfolio") one of the Portfolios of Scudder Investments VIT Funds, as of December 31, 2003, and the related statement of operations, statement of changes in net assets, and financial highlights for the period May 1, 2003 (commencement of operations) to December 31, 2003. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Scudder Real Estate Securities Portfolio of Scudder Investments VIT Funds at December 31, 2003, and the results of its operations, the changes in its net assets, and its financial highlights for the period May 1, 2003 (commencement of operations) to December 31, 2003, in conformity with accounting principles generally accepted in the United States.
Philadelphia, Pennsylvania
February 13, 2004
Tax Information (Unaudited) |
|
Pursuant to Section 852 of the Internal Revenue Code, the Portfolio designates $24,000 as capital gain dividends for its year ended December 31, 2003, of which 100% represents 15% rate gains.
Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, please call 1-800-SCUDDER.
Independent Trustees |
Name, Date of Birth, Position with the Fund and Length of Time Served1,2
| Business Experience and Directorships
During the Past 5 Years
| Number of Funds in the Fund Complex Overseen
|
Richard R. Burt
2/3/47
Trustee since 2002
| Chairman, Diligence LLC (international information-collection and risk-management firm) (September 2002 to present); Chairman, IEP Advisors, Inc. (July 1998 to present); Chairman of the Board, Weirton Steel Corporation3 (April 1996 to present); Member of the Board, Hollinger International, Inc.3 (publishing) (September 1995 to present), HCL Technologies Limited (information technology) (April 1999 to present), UBS Mutual Funds (formerly known as Brinson and Mitchell Hutchins families of funds) (registered investment companies) (September 1995 to present); and Member, Textron Inc.3 International Advisory Council (July 1996 to present). Formerly, Partner, McKinsey & Company (consulting) (1991-1994) and US Chief Negotiator in Strategic Arms Reduction Talks (START) with former Soviet Union and US Ambassador to the Federal Republic of Germany (1985-1991); Member of the Board, Homestake Mining3 (mining and exploration) (1998-February 2001), Archer Daniels Midland Company3 (agribusiness operations) (October 1996-June 2001) and Anchor Gaming (gaming software and equipment) (March 1999-December 2001).
| 68 |
S. Leland Dill
3/28/30
Trustee since 2002
| Trustee, Phoenix Zweig Series Trust (since September 1989), Phoenix Euclid Market Neutral Funds (since May 1998) (registered investment companies); Retired (since 1986). Formerly, Partner, KPMG Peat Marwick (June 1956-June 1986); Director, Vintners International Company Inc. (wine vintner) (June 1989-May 1992); Coutts (USA) International (January 1992-March 2000), Coutts Trust Holdings Ltd., Coutts Group (private bank) (March 1991-March 1999); General Partner, Pemco (investment company) (June 1979-June 1986).
| 66 |
Martin J. Gruber
7/15/37
Trustee since 2002
| Nomura Professor of Finance, Leonard N. Stern School of Business, New York University (since September 1964); Trustee, CREF (pension fund) (since January 2000); Director, Japan Equity Fund, Inc. (since January 1992), Thai Capital Fund, Inc. (since January 2000) and Singapore Fund, Inc. (since January 2000) (registered investment companies). Formerly, Trustee, TIAA (pension fund) (January 1996-January 2000).
| 66 |
Joseph R. Hardiman
5/27/37
Trustee since 2002
| Private Equity Investor (January 1997 to present); Director, Corvis Corporation3 (optical networking equipment) (July 2000 to present), Brown Investment Advisory & Trust Company (investment advisor) (February 2001 to present), The Nevis Fund (registered investment company) (July 1999 to present), and ISI Family of Funds (registered investment companies) (March 1998 to present). Formerly, Director, Circon Corp.3 (medical instruments) (November 1998-January 1999); President and Chief Executive Officer, The National Association of Securities Dealers, Inc. and The NASDAQ Stock Market, Inc. (1987-1997); Chief Operating Officer of Alex. Brown & Sons Incorporated (now Deutsche Bank Securities Inc.) (1985-1987); General Partner, Alex. Brown & Sons Incorporated (now Deutsche Bank Securities Inc.) (1976-1985).
| 66 |
Richard J. Herring
2/18/46
Trustee since 2002
| Jacob Safra Professor of International Banking and Professor, Finance Department, The Wharton School, University of Pennsylvania (since July 1972); Director, Lauder Institute of International Management Studies (since July 2000); Co-Director, Wharton Financial Institutions Center (since July 2000). Formerly, Vice Dean and Director, Wharton Undergraduate Division (July 1995-June 2000).
| 66 |
Graham E. Jones
1/31/33
Trustee since 2002
| Senior Vice President, BGK Realty, Inc. (commercial real estate) (since 1995); Trustee, 8 open-end mutual funds managed by Weiss, Peck & Greer (since 1985) and Trustee of 18 open-end mutual funds managed by Sun Capital Advisers, Inc. (since 1998).
| 66 |
Rebecca W. Rimel
4/10/51
Trustee since 2002
| President and Chief Executive Officer, The Pew Charitable Trusts (charitable foundation) (1994 to present); Executive Vice President, The Glenmede Trust Company (investment trust and wealth management) (1983 to present).
| 66 |
Philip Saunders, Jr.
10/11/35
Trustee since 2002
| Principal, Philip Saunders Associates (economic and financial consulting) (since November 1988). Formerly, Director, Financial Industry Consulting, Wolf & Company (consulting) (1987-1988); President, John Hancock Home Mortgage Corporation (1984-1986); Senior Vice President of Treasury and Financial Services, John Hancock Mutual Life Insurance Company, Inc. (1982-1986).
| 66 |
William N. Searcy
9/03/46
Trustee since 2002
| Private investor (since October 2003); Trustee of 18 open-end mutual funds managed by Sun Capital Advisers, Inc. (since October 1998). Formerly, Pension & Savings Trust Officer, Sprint Corporation3 (telecommunications) (November 1989 to October 2003).
| 66 |
Robert H. Wadsworth
1/29/40
Trustee since 2002
| President, Robert H. Wadsworth Associates, Inc. (consulting firm) (May 1983 to present). Formerly, President and Trustee, Trust for Investment Managers (registered investment company) (April 1999-June 2002); President, Investment Company Administration, L.L.C. (January 1992*-July 2001); President, Treasurer and Director, First Fund Distributors, Inc. (June 1990-January 2002); Vice President, Professionally Managed Portfolios (May 1991-January 2002) and Advisors Series Trust (October 1996-January 2002) (registered investment companies).
* Inception date of the corporation which was the predecessor to the L.L.C.
| 69 |
Interested Trustee |
Name, Date of Birth, Position with the Fund and Length of Time Served1,2
| Business Experience and Directorships
During the Past 5 Years
| Number of Funds in the Fund Complex Overseen
|
Richard T. Hale4
7/17/45
Chairman and Trustee since 2002
| Managing Director, Deutsche Investment Management Americas Inc. (2003-present); Managing Director, Deutsche Bank Securities Inc. (formerly Deutsche Banc Alex. Brown Inc.) and Deutsche Asset Management (1999 to present); Director and President, Investment Company Capital Corp. (registered investment advisor) (1996 to present); Director, Deutsche Global Funds, Ltd. (2000 to present), CABEI Fund (2000 to present), North American Income Fund (2000 to present) (registered investment companies); Director, Scudder Global Opportunities Fund (since 2003); Director/Officer Deutsche/Scudder Mutual Funds (various dates); President, Montgomery Street Income Securities, Inc. (2002 to present) (registered investment companies); Vice President, Deutsche Asset Management, Inc. (2000 to present). Formerly, Director, ISI Family of Funds (registered investment companies; 4 funds overseen) (1992-1999).
| 201 |
Officers |
Name, Date of Birth,
Position with the Fund and Length of Time Served1,2
| Business Experience and Directorships
During the Past 5 Years
|
Richard T. Hale4
7/17/45
Chief Executive Officer since 2003
| See information presented under Interested Trustee.
|
Brenda Lyons5
2/21/63
President since 2003
| Managing Director, Deutsche Asset Management.
|
Kenneth Murphy5
10/13/63
Vice President and Anti-Money Laundering Compliance Officer since 2002
| Vice President, Deutsche Asset Management (September 2000-present). Formerly, Director, John Hancock Signature Services (1992-2000).
|
Bruce A. Rosenblum
9/14/60
Vice President since 2003
Assistant Secretary since 2002
| Director, Deutsche Asset Management.
|
Charles A. Rizzo5
8/5/57
Treasurer and Chief Financial Officer since 2002
| Director, Deutsche Asset Management (April 2000 to present); Formerly, Vice President and Department Head, BT Alex. Brown Incorporated (now Deutsche Bank Securities Inc.) (1998-1999); Senior Manager, Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers LLP) (1993-1998).
|
Salvatore Schiavone5
11/03/65
Assistant Treasurer since 2003
| Director, Deutsche Asset Management.
|
Lucinda H. Stebbins5
11/19/45
Assistant Treasurer since 2003
| Director, Deutsche Asset Management.
|
Kathleen Sullivan D'Eramo5
1/25/57
Assistant Treasurer since 2003
| Director, Deutsche Asset Management.
|
John Millette5
8/23/62
Secretary since 2003
| Director, Deutsche Asset Management.
|
Daniel O. Hirsch
3/27/54
Assistant Secretary since 2003
| Managing Director, Deutsche Asset Management (2002-present) and Director, Deutsche Global Funds Ltd. (2002-present). Formerly, Director, Deutsche Asset Management (1999-2002); Principal, BT Alex. Brown Incorporated (now Deutsche Bank Securities Inc.) (1998-1999); Assistant General Counsel, United States Securities and Exchange Commission (1993-1998).
|
Caroline Pearson5
4/01/62
Assistant Secretary since 2002
| Managing Director, Deutsche Asset Management.
|
1 Unless otherwise indicated, the mailing address of each Trustee and Officer with respect to fund operations is One South Street, Baltimore, MD 21202.2 Length of time served represents the date that each Trustee or Officer first began serving in that position with Scudder Investments VIT Funds of which this fund is a series.3 A publicly held company with securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.4 Mr. Hale is a Trustee who is an "interested person" within the meaning of Section 2(a)(19) of the 1940 Act. Mr. Hale is Vice President of Deutsche Asset Management, Inc. and a Managing Director of Deutsche Asset Management, the US asset management unit of Deutsche Bank AG and its affiliates.5 Address: Two International Place, Boston, Massachusetts.The fund's Statement of Additional Information includes additional information about the fund's Trustees. To receive your free copy of the Statement of Additional Information, call toll-free: 1-800-621-1048.
About the Portfolio's Advisor
Deutsche Asset Management, Inc. ("DeAM, Inc.") is the Portfolio's advisor and RREEF America L.L.C. ("RREEF") is the Portfolio's sub-advisor. DeAM, Inc. and RREEF are indirect wholly owned subsidiaries of Deutsche Bank AG.
Scudder Investments is part of Deutsche Asset Management, which is the marketing name in the US for the asset management activities of Deutsche Bank AG, Deutsche Investment Management Americas Inc., Deutsche Asset Management Inc., Deutsche Asset Management Investment Services Ltd., Deutsche Bank Trust Company Americas and Scudder Trust Company.
The views expressed in this report reflect those of the portfolio managers only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions and should not be construed as a recommendation.
Scudder Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606
(800) 778-1482
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by individual investors.
VIT-2 (2/29/04) 27895
ITEM 2. CODE OF ETHICS.
As of the end of the period, December 31, 2003, Scudder Investments VIT Funds
has adopted a code of ethics, as defined in Item 2 of Form N-CSR, that applies
to its President and Treasurer and its Chief Financial Officer. A copy of the
code of ethics is filed as an exhibit to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Fund's Board of Directors/Trustees has determined that the Fund has at least
one "audit committee financial expert" serving on its audit committee: Mr. S.
Leland Dill. This audit committee member is "independent," meaning that he is
not an "interested person" of the Fund (as that term is defined in Section
2(a)(19) of the Investment Company Act of 1940) and he does not accept any
consulting, advisory, or other compensatory fee from the Fund (except in the
capacity as a Board or committee member).
An "audit committee financial expert" is not an "expert" for any purpose,
including for purposes of Section 11 of the Securities Act of 1933, as a result
of being designated as an "audit committee financial expert." Further, the
designation of a person as an "audit committee financial expert" does not mean
that the person has any greater duties, obligations, or liability than those
imposed on the person without the "audit committee financial expert"
designation. Similarly, the designation of a person as an "audit committee
financial expert" does not affect the duties, obligations, or liability of any
other member of the audit committee or board of directors.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
SCUDDER REAL ESTATE FUND
FORM N-CSR DISCLOSURE RE: AUDIT FEES
The following table shows the amount of fees that Ernst & Young, LLP
("E&Y"), the Fund's auditor, billed to the Fund during the Fund's last two
fiscal years. For engagements with E&Y entered into on or after May 6, 2003,
the Audit Committee approved in advance all audit services and non-audit
services that E&Y provided to the Fund.
The Audit Committee has delegated certain pre-approval responsibilities to its
Chairman (or, in his absence, any other member of the Audit Committee).
Services that the Fund's Auditor Billed to the Fund
- --------------------------------------------------------------------------------
Fiscal Year Audit All Other
Ended Fees Billed Audit-Related Tax Fees Fees Billed
December 31 to Fund Fees Billed to Fund Billed toFund to Fund
- --------------------------------------------------------------------------------
2003 $14,350 $0 $4,400 $0
- --------------------------------------------------------------------------------
2002* N/A N/A N/A N/A
- --------------------------------------------------------------------------------
The above "Tax Fees" were billed for professional services rendered for tax
compliance.
* The Fund commenced operations on May 1, 2003.
Services that the Fund's Auditor Billed to the Adviser and
Affiliated Fund Service Providers
The following table shows the amount of fees billed by Ernst & Young to
Deutsche Investment Management Americas, Inc. ("DeIM" or the "Adviser"), and any
entity controlling, controlled by or under common control with DeIM ("Control
Affiliate") that provides ongoing services to the Fund ("Affiliated Fund Service
Provider"), for engagements directly related to the Fund's operations and
financial reporting, during the Fund's last two fiscal years.
- --------------------------------------------------------------------------------
Audit-Related Tax Fees All
Fees Billed to Billed to Other Fees Billed
Fiscal Year Adviser and Adviser and to Adviser and
Ended Affiliated Fund Affiliated Fund Affiliated Fund
December 31 Service Providers Service Providers Service Providers
- --------------------------------------------------------------------------------
2003 $112,900 $0 $0
- --------------------------------------------------------------------------------
2002 $212,800 $0 $0
- --------------------------------------------------------------------------------
The "Audit-Related Fees" were billed for services in connection with the
assessment of internal controls and additional related procedures.
Non-Audit Services
The following table shows the amount of fees that E&Y billed during the
Fund's last two fiscal years for non-audit services. For engagements entered
into on or after May 6, 2003, the Audit Committee pre-approved all non-audit
services that E&Y provided to the Adviser and any Affiliated Fund Service
Provider that related directly to the Fund's operations and financial reporting.
The Audit Committee requested and received information from E&Y about any
non-audit services that E&Y rendered during the Fund's last fiscal year to
the Adviser and any Affiliated Fund Service Provider. The Committee considered
this information in evaluating E&Y's independence.
- --------------------------------------------------------------------------------
Total Non-Audit Fees
billed to Adviser and
Affiliated Fund
Service Providers Total Non-Audit Fees
Total (engagements related billed to Adviser
Non-Audit directly to the and Affiliated Fund
Fees operations and Service Providers
Billed financial reporting (all other
Fiscal Year to Fund of the Fund) engagements) Total of
Ended (A), (B)
December 31 (A) (B) (C) and (C)
- --------------------------------------------------------------------------------
2003 $4,400 $0 $3,742,000 $3,746,400
- --------------------------------------------------------------------------------
2002 N/A $0 $963,492 $963,492
- --------------------------------------------------------------------------------
All other engagement fees were billed for services in connection with risk
management and process improvement initiatives for DeIM and other related
entities that provide support for the operations of the fund.
ITEM 5. [RESERVED]
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) The Chief Executive and Financial Officers concluded that the Registrant's
Disclosure Controls and Procedures are effective based on the evaluation of the
Disclosure Controls and Procedures as of a date within 90 days of the filing
date of this report.
(b) During the filing period of the report, management identified issues
relating to the overall fund expense payment and accrual process. Management
discussed these matters with the Registrant's Audit Committee and auditors,
instituted additional procedures to enhance its internal controls and will
continue to develop additional controls and redesign work flow to strengthen the
overall control environment associated with the processing and recording of fund
expenses.
ITEM 10. EXHIBITS.
(a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached
hereto as EX-99.CODE ETH.
(a)(2) Certification pursuant to Rule 30a-2(a) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as
Exhibit 99.CERT.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as
Exhibit 99.906CERT.
Form N-CSR Item F
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: Scudder VIT Real Estate Securities Portfolio
By: /s/Richard T. Hale
---------------------------
Richard T. Hale
Chief Executive Officer
Date: February 27, 2004
---------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Registrant: Scudder VIT Real Estate Securities Portfolio
By: /s/Richard T. Hale
---------------------------
Richard T. Hale
Chief Executive Officer
Date: February 27, 2004
---------------------------
By: /s/Charles A. Rizzo
---------------------------
Charles A. Rizzo
Chief Financial Officer
Date: February 27, 2004
---------------------------
