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)
One South Street, Baltimore, Maryland 21202
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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: 12/31/04
ITEM 1. REPORT TO STOCKHOLDERS
Scudder Investments VIT FundsAnnual ReportDecember 31, 2004Scudder Real Estate Securities Portfolio |
Click Here Performance Summary
Click Here Information About Your Portfolio's Expenses
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 Registered Public
Accounting Firm
Click Here Tax Information
Click Here Proxy Voting
Click Here Trustees and Officers
Performance Summary as of December 31, 2004 |
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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 Portfolio's most recent 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 12/31/2004 |
[] Scudder Real Estate Securities Portfolio — Class B [] Morgan Stanley REIT Index |
 | | The Morgan Stanley REIT Index (RMS Index) is a total return index comprised of the most actively traded REIT and is designed to be a measure of real estate equity performance. 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, 2004) |
Scudder Real Estate Securities | | | Life of Class* |
Class A | Growth of $10,000 | | $12,260 |
Total return | | 22.60% |
Morgan Stanley REIT Index | Growth of $10,000 | | $11,509 |
Total return | | 15.09% |
Scudder Real Estate Securities | | 1-Year | Life of Portfolio** |
Class B | Growth of $10,000 | $13,073 | $16,459 |
Total return | 30.73% | 34.76% |
Morgan Stanley REIT Index | Growth of $10,000 | $13,149 | $17,069 |
Total return | 31.49% | 37.63% |
The growth of $10,000 is cumulative.
* The Portfolio commenced offering Class A shares on August 16, 2004. Index returns begin August 31, 2004.
** 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.
Information About Your Portfolio's Expenses |
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As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include sales charges (loads), redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Portfolio limited these expenses; had it not done so, expenses would have been higher. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2004.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2004 |
Actual Portfolio Return | Class A* | Class B |
Beginning Account Value 7/1/04 | $ 1,000.00 | $ 1,000.00 |
Ending Account Value 12/31/04 | $ 1,226.00 | $ 1,243.10 |
Expenses Paid per $1,000 | $ 4.57 | $ 8.48 |
Hypothetical 5% Portfolio Return | Class A* | Class B |
Beginning Account Value 7/1/04 | $ 1,000.00 | $ 1,000.00 |
Ending Account Value 12/31/04 | $ 1,014.61 | $ 1,017.58 |
Expenses Paid per $1,000 | $ 4.14 | $ 7.63 |
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365. For Class A shares the average account value over the period was multiplied by the number of days since commencement (August 16, 2004), then divided by 365.
Annualized Expense Ratios | Class A | Class B |
Scudder Real Estate Securities Portfolio | 1.10% | 1.50% |
For more information, please refer to the Portfolio's prospectus.
Management Summary December 31, 2004 |
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In an outstanding year for Real Estate Investment Trusts (REITs), the portfolio posted a 30.73% total return (Class B shares, unadjusted for contract charges) over the 12-month period ended December 31, 2004. During the period, the portfolio began to utilize the Morgan Stanley REIT Index (RMS Index) as the basis for its investing and as a benchmark to measure the portfolio's performance. The RMS Index is comprised of approximately 115 REITs with total market capitalization of $220 billion, covering multiple market sectors. For the 12-month period, the RMS Index returned 31.49%.*
In the first quarter of 2004, REITs experienced strong performance due to significant cash inflows that accompanied the introduction of several real estate closed-end funds. Investors seeking higher yields were another noteworthy positive factor. Following the government's stronger than expected jobs report on April 2, 2004, the bond market sold off. As a result, the yield advantage of REITs was partially erased, and REITs then endured their own market correction. However, in the second half of the year, investors came to believe that the US economy was not overheating, as new job creation didn't ratchet up as expected. While the Federal Reserve (the Fed) began its program of "measured" short-term interest rate increases over five Federal Open Market Committee (FOMC) meetings from June through December, long-term Treasury rates ended the year where they started. As a result, investor interest in yield-oriented products persisted, creating a very positive environment for REITs.
Compared with the RMS benchmark, the portfolio was overweighted in the hotel sector and the regional mall sector, which boosted overall performance during the 12-month period. In addition, the portfolio's underweight in offices — the worst-performing sector in an outstanding period for REITs — helped performance. A slight overweight in apartments and an underweight in retail detracted from performance. Top-performing individual stocks included Avalonbay Communities, Inc. (apartments) and Starwood Hotels & Resorts Worldwide, Inc.
Even as fundamentals are improving for real estate, we are cautious about returns in 2005. Although REITs continue to provide investors with attractive diversification benefits, we expect returns will fall below historical averages this year as the sector digests the performance of the past several years. That said, accelerating earnings growth and increased investor demand for real estate should provide support for current valuations in the coming months. Please note that Co-Manager Karen Knudson will be retiring on or about February 15, 2005.
Karen J. Knudson Jerry W. Ehlinger
John F. Robertson John W. Vojticek
Mark D. Zeisloft
Co-Managers
All performance shown is historical, assumes reinvestment of all dividends and capital gains, 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. Please call us at (800) 621-1048 for the Portfolio's most recent performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio or any variable life insurance policy or variable annuity contract for which the portfolio is an investment option. These charges and fees will reduce returns.
Risk Considerations
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.
* The Morgan Stanley REIT Index (RMS Index) is a total return index comprised of the most actively traded REITs and is designed to be a measure of real estate equity performance.
Index returns assume reinvestment of dividends and, unlike fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
Portfolio management market commentary is as of December 31, 2004, and may not come to pass. This information is subject to change at any time, based on market and other conditions and should not be construed as a recommentation.
Asset Allocation | 12/31/04 | 12/31/03 |
|
Common Stocks | 99% | 87% |
Repurchase Agreements | 1% | 13% |
| 100% | 100% |
Sector Diversification (Excludes Repurchase Agreements) | 12/31/04 | 12/31/03 |
|
Apartments | 19% | 23% |
Office | 16% | 22% |
Regional Malls | 15% | 18% |
Shopping Centers | 14% | — |
Hotels | 10% | 9% |
Industrials | 9% | 14% |
Diversified | 9% | — |
Health Care | 5% | — |
Other | 3% | 2% |
Retail | — | 14% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 7. A quarterly fact sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to scudder.com on the 15th of the following month. Please see the Additional Information section for contact information.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio as of December 31, 2004 |  |  |
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|
Shares
| Value ($) |
| |
Common Stocks 99.1% |
Apartments 18.7% |
AMLI Residential Properties Trust (REIT) | 4,000 | 128,000 |
Apartment Investment & Management Co. "A" (REIT) | 23,500 | 905,690 |
Archstone-Smith Trust (REIT) | 16,800 | 643,440 |
Avalonbay Communities, Inc. (REIT) | 15,882 | 1,195,914 |
BRE Properties, Inc. "A" (REIT) | 10,900 | 439,379 |
Camden Property Trust (REIT) | 1,400 | 70,972 |
Equity Residential (REIT) | 63,400 | 2,293,812 |
Home Properties, Inc. (REIT) | 6,800 | 292,400 |
Summit Properties, Inc. (REIT) | 5,800 | 188,848 |
| 6,158,455 |
Diversified 9.1% |
American Financial Realty Trust (REIT) | 29,500 | 477,310 |
Capital Automotive (REIT) | 7,300 | 259,333 |
Colonial Properties Trust (REIT) | 4,900 | 192,423 |
Crescent Real Estate Equities Co. (REIT) | 8,362 | 152,690 |
Duke Realty Corp. (REIT) | 19,900 | 679,386 |
Equity Lifestyle Properties, Inc. (REIT) | 400 | 14,324 |
Lexington Corporate Properties Trust (REIT) | 11,800 | 266,444 |
One Liberty Properties, Inc. (REIT) | 3,300 | 68,376 |
PS Business Parks, Inc. (REIT) | 11,700 | 527,670 |
Reckson Associates Realty Corp. (REIT) | 10,400 | 341,224 |
| 2,979,180 |
Health Care 5.4% |
Healthcare Realty Trust, Inc. (REIT) | 6,900 | 280,830 |
National Health Investors, Inc. (REIT) | 8,700 | 253,866 |
Nationwide Health Properties, Inc. (REIT) | 8,200 | 194,750 |
Senior Housing Properties Trust (REIT) | 17,500 | 331,450 |
Universal Health Realty Income Trust (REIT) | 3,000 | 96,390 |
Ventas, Inc. (REIT) | 22,450 | 615,355 |
| 1,772,641 |
Hotels 9.6% |
Hilton Hotels Corp. | 45,400 | 1,032,396 |
Host Marriott Corp. (REIT) | 43,900 | 759,470 |
Innkeepers USA Trust (REIT) | 700 | 10,017 |
La Quinta Corp.* | 55,800 | 507,222 |
Starwood Hotels & Resorts Worldwide, Inc. | 14,701 | 858,538 |
| 3,167,643 |
Industrial 9.4% |
AMB Property Corp. (REIT) | 1,400 | 57,522 |
Catellus Development Corp. (REIT) | 22,160 | 678,096 |
First Potomac Realty Trust (REIT) | 5,700 | 129,960 |
Liberty Property Trust (REIT) | 19,200 | 829,440 |
ProLogis (REIT) | 28,100 | 1,217,573 |
Sun Communities, Inc. (REIT) | 4,100 | 165,025 |
| 3,077,616 |
|
Shares
| Value ($) |
| |
Manufactured Homes 0.0% |
American Land Lease, Inc. (REIT) | 100 | 2,243 |
Media 0.4% |
Entertainment Properties Trust (REIT) | 2,700 | 120,285 |
Office 15.8% |
Arden Realty Group, Inc. (REIT) | 15,228 | 574,400 |
BioMed Realty Trust, Inc. (REIT) | 9,700 | 215,437 |
Brandywine Realty Trust (REIT) | 9,100 | 267,449 |
Brookfield Properties Corp. (REIT) | 17,100 | 639,540 |
CarrAmerica Realty Corp. (REIT) | 1,100 | 36,407 |
CRT Properties, Inc. (REIT) | 7,900 | 188,494 |
Equity Office Properties Trust (REIT) | 55,400 | 1,613,248 |
Glenborough Realty Trust, Inc. (REIT) | 7,700 | 163,856 |
Highwoods Properties, Inc. (REIT) | 14,300 | 396,110 |
Mack-Cali Realty Corp. (REIT) | 15,590 | 717,608 |
Parkway Properties, Inc. (REIT) | 100 | 3,075 |
Trizec Properties, Inc. (REIT) | 20,100 | 380,292 |
| 5,195,916 |
Regional Malls 15.1% |
Pennsylvania Real Estate Investment Trust (REIT) | 8,070 | 345,396 |
Simon Property Group, Inc. (REIT) | 47,850 | 3,094,459 |
Taubman Centers, Inc. (REIT) | 10,500 | 314,475 |
The Macerich Co. (REIT) | 5,500 | 345,400 |
The Mills Corp. (REIT) | 13,600 | 867,136 |
| 4,966,866 |
Shopping Centers 13.4% |
Commercial Net Lease Realty (REIT) | 6,200 | 127,720 |
Equity One, Inc. (REIT) | 11,500 | 272,895 |
Federal Realty Investment Trust (REIT) | 12,500 | 645,625 |
Inland Real Estate Corp. (REIT) | 25,500 | 406,725 |
Pan Pacific Retail Properties, Inc. (REIT) | 9,800 | 614,460 |
Ramco-Gershenson Properties Trust (REIT) | 7,100 | 228,975 |
Regency Centers Corp. (REIT) | 14,500 | 803,300 |
Vornado Realty Trust (REIT) | 17,100 | 1,301,823 |
| 4,401,523 |
Other 2.2% |
Public Storage, Inc. (REIT) | 12,700 | 708,025 |
Total Common Stocks (Cost $26,814,999) | 32,550,393 |
|
Repurchase Agreements 1.2% |
State Street Bank and Trust Co., 1.3%, dated 12/31/2004, to be repurchased at $380,041 on 1/3/2005 (b) (Cost $380,000) | 380,000 | 380,000 |
| % of Net Assets | Value ($) |
| |
Total Investment Portfolio (Cost $27,194,999) (a) | 100.3 | 32,930,393 |
Other Assets and Liabilities, Net | (0.3) | (94,613) |
Net Assets | 100.0 | 32,835,780 |
Notes to Scudder Real Estate Securities Portfolio of Investments |
* Non-income producing security.
(a) The cost for federal income tax purposes was $27,241,930. At December 31, 2004, net unrealized appreciation for all securities based on tax cost was $5,688,463. This consisted of aggregate gross unrealized appreciation for all securities in which there was a excess of value over tax cost of $5,688,464 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $1.
(b) Collateralized by $385,000 Federal Home Loan Mortgage Corp., 5.0%, maturing on 4/1/2014 with a value of $388,850.
REIT: Real Estate Investment Trust
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities as of December 31, 2004 |
Assets |
Investments: Investments in securities, at value (cost $26,814,999) | $ 32,550,393 |
Repurchase agreements, at value (cost $380,000) | 380,000 |
Investments in securities, at value (cost $27,194,999) | 32,930,393 |
Cash | 601 |
Receivable for investments sold | 327,441 |
Dividends receivable | 144,755 |
Interest receivable | 14 |
Receivable for Portfolio shares sold | 48,974 |
Total assets | 33,452,178 |
Liabilities |
Payable for investments purchased | 440,707 |
Payable for Portfolio shares redeemed | 124,835 |
Other accrued expenses and payables | 50,856 |
Total liabilities | 616,398 |
Net assets, at value | $ 32,835,780 |
Net Assets |
Net assets consist of: Undistributed net investment income | $ 407,931 |
Net unrealized appreciation (depreciation) on investment securities | 5,735,394 |
Accumulated net realized gain (loss) | 1,559,600 |
Paid-in capital | 25,132,855 |
Net assets, at value | $ 32,835,780 |
Net Asset Value |
Class A Net Asset Value, offering and redemption price per share ($1,385,442 ÷ 84,832 outstanding shares of beneficial interest, $.001 par value, unlimited number of shares authorized) | $ 16.33 |
Class B Net Asset Value, offering and redemption price per share ($31,450,338 ÷ 1,928,493 outstanding shares of beneficial interest, $.001 par value, unlimited number of shares authorized) | $ 16.31 |
Statement of Operations for the year ended December 31, 2004 |
Investment Income |
Income: Dividends (net of foreign taxes withheld of $1,650) | $ 723,871 |
Interest | 11,473 |
Total Income | 735,344 |
Expenses: Advisory fee | 189,688 |
Administrative service fee | 25,296 |
Distribution service fees (Class B) | 52,196 |
Record keeping fees (Class B) | 22,236 |
Professional fees | 41,172 |
Trustees' fees and expenses | 8,735 |
Reports to shareholders | 2,620 |
Other | 10,831 |
Total expenses, before expense reductions | 352,774 |
Expense reductions | (36,586) |
Total expenses, after expense reductions | 316,188 |
Net investment income (loss) | 419,156 |
Realized and Unrealized Gain (Loss) on Investment Transactions |
Net realized gain (loss) from investments | 1,397,940 |
Capital gain dividend received | 166,889 |
| 1,564,829 |
Net unrealized appreciation (depreciation) during the period on investments | 4,886,879 |
Net gain (loss) on investment transactions | 6,451,708 |
Net increase (decrease) in net assets resulting from operations | $ 6,870,864 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
Increase (Decrease) in Net Assets | Years Ended December 31, |
2004 | 2003** |
Operations: Net investment income (loss) | 419,156 | $ 89,448 |
Net realized gain (loss) on investment transactions | 1,564,829 | 29,389 |
Net unrealized appreciation (depreciation) during the period on investment transactions | 4,886,879 | 848,515 |
Net increase (decrease) in net assets resulting from operations | 6,870,864 | 967,352 |
Distributions to shareholders from: Net investment income — Class B | (119,208) | — |
Net realized gains on investment transactions — Class B | (25,965) | — |
Fund share transactions: Class A Proceeds from shares sold | 1,282,155 | — |
Cost of shares redeemed | (3,503) | — |
Net increase (decrease) in net assets from Class A share transactions | 1,278,652 | — |
Class B Proceeds from shares sold | 16,635,957 | 8,142,830 |
Reinvestment of distributions | 145,173 | — |
Cost of shares redeemed | (2,059,875) | — |
Net increase (decrease) in net assets from Class B share transactions | 14,721,255 | — |
Increase (decrease) in net assets | 22,725,598 | 9,110,182 |
Net assets at beginning of period | 10,110,182 | 1,000,000* |
Net assets at end of period (including undistributed net investment income of $407,931 and $99,328, respectively) | 32,835,780 | $ 10,110,182 |
Other Information |
Class A |
Shares outstanding at beginning of period | — | — |
Shares sold | 85,054 | — |
Shares redeemed | (222) | — |
Net increase in shares | 84,832 | — |
Shares outstanding at end of period | 84,832 | — |
Class B |
Shares outstanding at beginning of period | 802,965 | 100,000* |
Shares sold | 1,253,807 | 702,965 |
Shares issued to shareholders in reinvestment of distributions | 12,038 | — |
Shares redeemed | (140,317) | — |
Net increase in shares | 1,125,528 | — |
Shares outstanding at end of period | 1,928,493 | 802,965 |
* Original investment
** For the period May 1, 2003 to December 31, 2003.
The accompanying notes are an integral part of the financial statements.
Class A
| 2004a |
Selected Per Share Data |
Net asset value, beginning of period | $ 13.32 |
Income (loss) from investment operations: Net investment income (loss)b | .07 |
Net realized and unrealized gain (loss) on investment transactions | 2.94 |
Total from investment operations | 3.01 |
Net asset value, end of period | $ 16.33 |
Total Return (%)c | 22.60** |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions) | 1 |
Ratio of expenses before expense reductions (%) | 1.27* |
Ratio of expenses after expense reductions (%) | 1.10* |
Ratio of net investment income (loss) (%) | 1.24* |
Portfolio turnover rate (%) | 84 |
a For the period August 16, 2004 (commencement of sales of Class A shares) to December 31, 2004.
b Based on average shares outstanding during the period.
c Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
Class B
| 2004 | 2003a |
Selected Per Share Data |
Net asset value, beginning of period | $ 12.59 | $ 10.00 |
Income (loss) from investment operations: Net investment income (loss)b | .27 | .24 |
Net realized and unrealized gain (loss) on investment transactions | 3.56 | 2.35 |
Total from investment operations | 3.83 | 2.59 |
Less distributions from: Net investment income (loss) | (.09) | — |
Net realized gain on investment transactions | (.02) | — |
Total distributions | (.11) | — |
Net asset value, end of period | $ 16.31 | $ 12.59 |
Total Return (%)c | 30.73 | 25.90** |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions) | 31 | 10 |
Ratio of expenses before expense reductions (%) | 1.67 | 2.61* |
Ratio of expenses after expense reductions (%) | 1.50 | 1.50* |
Ratio of net investment income (loss) (%) | 1.99 | 3.07* |
Portfolio turnover rate (%) | 84 | 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 annualized
Notes to Financial Statements |
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A. Significant Accounting Policies
Scudder Investments 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 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 0.25% and up to 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 commenced August 16, 2004.
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 or official closing 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.
At December 31, 2004, the Portfolio's components of distributable earnings (accumulated gains) on a tax-basis were as follows:
| December 31, 2004 |
Undistributed ordinary income* | $ 1,255,374 |
Undistributed net long-term capital gains | $ 759,088 |
Capital loss carryforwards | $ — |
Unrealized appreciation (depreciation) on investments | $ 5,688,463 |
In addition, the tax character of distributions paid to shareholders by the Portfolio is summarized as follows:
| 2004 | 2003 |
Distributions from ordinary income* | $ 119,208 | $ — |
Distributions from long-term capital gains | $ 25,965 | $ — |
* For tax purposes short-term capital gains distributions are considered ordinary income distributions.
B. Purchase and Sales of Securities
During the year ended December 31, 2004, purchases and sales of investment securities (excluding short-term investments) aggregated $34,586,451 and $17,169,757, 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. Accordingly, for the year ended December 31, 2004, the Advisory fee was equivalent to an annual effective rate of .71% of the Portfolio's average net assets. Accordingly, the Advisory fee was $189,688 of which $36,586 was waived.
For the year ended December 31, 2004, 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 A and B shares at 1.10% and 1.50%, respectively, of average daily net assets.
The Portfolio paid insurance premiums to an unaffiliated insurance broker in 2003. This broker in turn paid a portion of its commissions to an affiliate of the Advisor, which performed certain insurance brokerage services for the broker. The Advisor has agreed to reimburse the Fund in 2005 for the portion of commissions (plus interest) paid to the affiliate of the Advisor attributable to the premiums paid by the Fund. The amount for 2003 was $4.
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 .12%. For the year ended December 31, 2004, ICCC received an administrator service fee of $25,296, of which $3,143 is unpaid.
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 year ended December 31, 2004, the Distribution fee was $52,196, of which $7,037 was unpaid.
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.
E. Regulatory Matters and Litigation
Since at least July 2003, federal, state and industry regulators have been conducting ongoing inquiries and investigations ("inquiries") into the mutual fund industry, and have requested information from numerous mutual fund companies, including Scudder Investments. It is not possible to determine what the outcome of these inquiries will be or what the effect, if any, would be on the funds or their advisors. Publicity about mutual fund practices arising from these industry-wide inquiries serves as the general basis of a number of private lawsuits against the Scudder funds. These lawsuits, which previously have been reported in the press, involve purported class action and derivative lawsuits, making various allegations and naming as defendants various persons, including certain Scudder funds, the funds' investment advisors and their affiliates, certain individuals, including in some cases fund Trustees/Directors, officers, and other parties. Each Scudder fund's investment advisor has agreed to indemnify the applicable Scudder funds in connection with these lawsuits, or other lawsuits or regulatory actions that may be filed making allegations similar to these lawsuits regarding market timing, revenue sharing, fund valuation or other subjects arising from or related to the pending inquiries. Based on currently available information, the funds' investment advisors believe the likelihood that the pending lawsuits will have a material adverse financial impact on a Scudder fund is remote and such actions are not likely to materially affect their ability to perform under their investment management agreements with the Scudder funds.
F. Line of Credit
The Portfolio and several other affiliated Funds (the "Participants") share in a $1.25 billion revolving credit facility administered by J.P. Morgan Chase Bank 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, based upon net assets, among each of the Participants. Interest is calculated at the Federal Funds Rate plus 0.5 percent. The Portfolio may borrow up to a maximum of 33 percent of its net assets under the agreement.
Report of Independent Registered Public Accounting Firm |
|
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, 2004, and the related statement of operations for the year then ended, the statement of changes in net assets for the period May 1, 2003 (commencement of operations) to December 31, 2004, and financial highlights for the periods indicated therin. 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 audits in accordance with the standards of the Public Company Accounting Oversight Board (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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2004, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Scudder Real Estate Securities Portfolio of Scudder Investments VIT Funds at December 31, 2004, and the results of its operations for the year then ended, the statement of changes in net assets for the period May 1, 2003 (commencement of operations) to December 31, 2004 and the financial highlights for the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
Boston , Massachusetts
February 15, 2005
Tax Information (Unaudited) |
|
The Fund reported distributions of $0.02 per share from net long-term capital gains during the year ended December 31, 2004, of which 100% represents 15% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the Portfolio designates approximately $840,000 as capital gain dividends for its year ended December 31, 2004, 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.
A description of the Portfolio's policies and procedures for voting proxies for portfolio securities and information about how the portfolio voted proxies related to its portfolio securities during the 12-month period ended June 30 is available on our Web site — scudder.com (type "proxy voting" in the search field) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the portfolio's policies and procedures without charge, upon request, call us toll free at (800) 621-1048.
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 |  |
Joseph R. Hardiman 5/27/37 Chairman since 2004 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, Soundview Technology Group Inc. (investment banking) (July 1998-January 2004) and 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). | 54 |
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); 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), Chairman of the Board, Weirton Steel Corporation3 (April 1996-2004). | 56 |
S. Leland Dill 3/28/30 Trustee since 2002 | Trustee, Phoenix Euclid Market Neutral Funds (since May 1998), Phoenix Funds (24 portfolios) (since May 2004) (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); Trustee, Phoenix Zweig Series Trust (September 1989-May 2004). | 54 |
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 (since January 2000) and Chairman of the Board (since February 2004), CREF (pension fund); Trustee of the TIAA-CREF mutual funds (53 portfolios) (since February 2004); 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); Director, S.G. Cowen Mutual Funds (January 1985-January 2001). | 54 |
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). | 54 |
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). | 54 |
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). | 54 |
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). | 54 |
William N. Searcy 9/3/46 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-October 2003). | 54 |
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 |
William N. Shiebler4 2/6/42 Trustee, 2004-present | Chief Executive Officer in the Americas for Deutsche Asset Management ("DeAM") and a member of the DeAM Global Executive Committee (since 2002); Vice Chairman of Putnam Investments, Inc. (1999); Director and Senior Managing Director of Putnam Investments, Inc. and President, Chief Executive Officer, and Director of Putnam Mutual Funds Inc. (1990-1999). | 137 |
Officers |
Name, Date of Birth,
Position with the Fund and Length of Time Served1,2 | Business Experience and Directorships
During the Past 5 Years |
Julian F. Sluyters5 7/14/60 President and Chief Executive Officer, 2004-present | Managing Director, Deutsche Asset Management (since May 2004); President and Chief Executive Officer of The Germany Fund, Inc., The New Germany Fund, Inc., The Central Europe and Russia Fund, Inc., The Brazil Fund, Inc., The Korea Fund, Inc., Scudder Global High Income Fund, Inc. and Scudder New Asia Fund, Inc. (since May 2004); President and Chief Executive Officer, UBS Fund Services (2001-2003); Chief Administrative Officer (1998-2001) and Senior Vice President and Director of Mutual Fund Operations (1991-1998) UBS Global Asset Management. |
Kenneth Murphy6 10/13/63 Vice President and Anti-Money Laundering Compliance Officer since 2002 | Vice President, Deutsche Asset Management (September 2000 to present). Formerly, Director, John Hancock Signature Services (1992-2000). |
Paul H. Schubert5 1/11/63 Chief Financial Officer, 2004-present | Managing Director, Deutsche Asset Management (since July 2004); formerly, Executive Director, Head of Mutual Fund Services and Treasurer for UBS Family of Funds at UBS Global Asset Management (1994-2004). |
Charles A. Rizzo6 8/5/57 Treasurer since 2002 | Managing Director, Deutsche Asset Management (since April 2004). Formerly, Director, Deutsche Asset Management (April 2000-March 2004); 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). |
John Millette6 8/23/62 Secretary since 2003 | Director, Deutsche Asset Management. |
Lisa Hertz5 8/21/70 Assistant Secretary since 2004 | Assistant Vice President, Deutsche Asset Management. |
Daniel O. Hirsch 3/27/54 Assistant Secretary since 2003 | Managing Director, Deutsche Asset Management (2002 to present) and Director, Deutsche Global Funds Ltd. (2002 to 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 Pearson6 4/1/62 Assistant Secretary since 2002 | Managing Director, Deutsche Asset Management. |
Bruce A. Rosenblum 9/14/60 Vice President since 2003 Assistant Secretary since 2002 | Director, Deutsche Asset Management. |
Kevin M. Gay6 11/12/59 Assistant Treasurer since 2004 | Vice President, Deutsche Asset Management. |
Salvatore Schiavone6 11/3/65 Assistant Treasurer since 2003 | Director, Deutsche Asset Management. |
Kathleen Sullivan D'Eramo6 1/25/57 Assistant Treasurer since 2003 | Director, Deutsche Asset Management. |
Philip Gallo5 8/2/62 Chief Compliance Officer, 2004-present | Managing Director, Deutsche Asset Management (2003-present); formerly, Co-Head of Goldman Sachs Asset Management Legal (1994-2003) |
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. Shiebler is a Trustee who is an "interested person" within the meaning of Section 2(a)(19) of the 1940 Act. Mr. Shiebler is a Managing Director of Deutsche Asset Management, the US asset management unit of Deutsche Bank AG and its affiliates. Mr. Shiebler's business address is 280 Park Avenue, New York, New York 10017.
5 Address: 345 Park Avenue, New York, New York 10154.
6 Address: Two International Place, Boston, Massachusetts 02110.
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.
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
ITEM 2. CODE OF ETHICS.
As of the end of the period, December 31, 2004, Scudder Investment VIT Funds has
adopted a code of ethics, as defined in Item 2 of Form N-CSR, that applies to
its Principal Executive Officer and Principal Financial Officer.
There have been no amendments to, or waivers from, a provision of the code of
ethics during the period covered by this report that would require disclosure
under Item 2.
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 Audit
Year Fees Audit-Related Tax Fees All Other
Ended Billed Fees Billed Billed Fees Billed
December 31, to Fund to Fund to Fund to Fund
- --------------------------------------------------------------------------------
2004 $30,800 $0 $6,700 $0
- --------------------------------------------------------------------------------
2003 $14,350 $0 $4,400 $0
- --------------------------------------------------------------------------------
The above "Tax Fees" were billed for professional services rendered for tax
compliance and tax return preparation.
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 E&Y 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 Other
Fiscal Fees Billed to Billed to Fees Billed
Year Adviser and Adviser and to Adviser and
Ended Affiliated Fund Affiliated Fund Affiliated Fund
December 31, Service Providers Service Providers Service Providers
- --------------------------------------------------------------------------------
2004 $347,500 $0 $0
- --------------------------------------------------------------------------------
2003 $112,900 $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 Total
Adviser and Non-Audit
Affiliated Fund Fees
Service Providers billed to
(engagements Adviser and
related directly Affiliated
to the Fund
Total operations and Service
Non-Audit financial Providers
Fees reporting (all
Fiscal Billed of the other Total of
Year to Fund Fund) engagements (A),(B)
Ended
December 31, (A) (B) (C) and (C)
- --------------------------------------------------------------------------------
2004 $6,700 $0 $331,601 $338,301
- --------------------------------------------------------------------------------
2003 $4,400 $0 $3,742,000 $3,746,400
- --------------------------------------------------------------------------------
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.
***
E&Y recently advised the Fund's Audit Committee that various E&Y member
firms provided certain non-audit services to Deutsche Bank entities and
affiliates (collectively, the "DB entities") between 2003 and 2005 that raise
issues under the SEC auditor independence rules. The DB entities are within the
"Investment Company Complex" (as defined by SEC rules) and therefore covered by
the SEC auditor independence rules applicable to the Fund.
First, E&Y advised the Audit Committee that in connection with providing
permitted expatriate tax compliance services for DB entities during 2003 and
2004, member firms in China and Japan ("E&Y China" and "E&Y Japan,"
respectively) received funds from the DB entities that went into E&Y
"representative bank trust accounts" and were used to pay the foreign income
taxes of the expatriates. E&Y has advised the Audit Committee that handling
those funds was in violation of Rule 2-01 of Regulation S-X. (Rule
2-01(c)(4)(viii) provides that an accountant's independence is impaired if the
accountant has custody of assets of the audit client.)
Second, E&Y advised the Audit Committee that in connection with providing
monthly payroll services to employees of certain DB entities from May 2003 to
February 2005, a member firm in Chile ("E&Y Chile") received funds from the
DB entities that went into an E&Y trust account and were used to pay the net
salaries and social security taxes of executives of the DB entities. E&Y has
advised the Audit Committee that handling those funds was in violation of Rule
2-01 of Regulation S-X.
Third, E&Y advised the Audit Committee that in connection with providing
certain services in assisting a DB entity with various regulatory reporting
requirements, a member firm in France ("E&Y France") entered into an
engagement with the DB entity that resulted in E&Y France staff functioning
under the direct responsibility and direction of a DB entity supervisor. E&Y
advised the Audit Committee that, although the services provided were "permitted
services" under Rule 2-01 of Regulation S-X, the structure of the engagement was
in violation of Rule 2-01 of Regulation S-X. (Rule 2-01(c)(4)(vi) provides that
an accountant's independence is impaired if the accountant acts as an employee
of an audit client.)
The Audit Committee was informed that E&Y China received approximately
$1,500, E&Y Japan received approximately $41,000, E&Y Chile received
approximately $12,000 and E&Y France received approximately $100,000 for the
services they provided to the DB entities. E&Y advised the Audit Committee
that it conducted an internal review of the situation and, in view of the fact
that similar expatriate tax compliance services were provided to a number of
E&Y audit clients unrelated to DB or the Fund, E&Y has advised the SEC
and the PCAOB of the independence issues arising from those services. E&Y
advised the Audit Committee that E&Y believes its independence as auditors
for the Fund was not impaired during the period the services were provided. In
reaching this conclusion, E&Y noted a number of factors, including that none
of the E&Y personnel who provided the non-audit services to the DB entities
were involved in the provision of audit services to the Fund, the E&Y
professionals responsible for the Fund's audits were not aware that these
non-audit services took place, and that the fees charged were not significant to
E&Y overall or to the fees charged to the Investment Company Complex.
E&Y also noted that E&Y China, E&Y Japan and E&Y Chile are no
longer providing these services and that the E&Y France engagement has been
restructured.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not Applicable
ITEM 6. SCHEDULE OF INVESTMENTS
Not Applicable
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not Applicable
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED PURCHASERS
Not Applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Nominating and Governance Committee evaluates and nominates Board member
candidates. Fund shareholders may also submit nominees that will be considered
by the Committee when a Board vacancy occurs. Submissions should be mailed to
the attention of the Secretary of the Fund, One South Street, Baltimore, MD
21202.
ITEM 10. 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) There have been no changes in the registrant's internal control over
financial reporting that occurred during the registrant's last half-year (the
registrant's second fiscal half-year in the case of the annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal controls over financial reporting.
ITEM 11. 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/Julian Sluyters
----------------------------
Julian Sluyters
Chief Executive Officer
Date: February 28, 2005
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/Julian Sluyters
----------------------------
Julian Sluyters
Chief Executive Officer
Date: February 28, 2005
By: /s/Paul Schubert
----------------------------
Paul Schubert
Chief Financial Officer
Date: February 28, 2005
