-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WFa0JvTvH0UHsuxvO+MVANpKgpDQcaBagmMFf11mX1g8SyFv8hHNhZLV0tPlPWpB 0G74Xzi01gI8FAtpm6z9zA== 0000950109-96-005799.txt : 19960906 0000950109-96-005799.hdr.sgml : 19960906 ACCESSION NUMBER: 0000950109-96-005799 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960905 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ENGLAND VARIABLE ANNUITY SEPARATE ACCOUNT CENTRAL INDEX KEY: 0000931779 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 042708937 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-08828 FILM NUMBER: 96626201 BUSINESS ADDRESS: STREET 1: 501 BOYLSTON ST CITY: BOSTON STATE: MA ZIP: 02117 BUSINESS PHONE: 6175782000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ENGLAND ZENITH FUND CENTRAL INDEX KEY: 0000719211 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 046485680 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-03728 FILM NUMBER: 96626202 BUSINESS ADDRESS: STREET 1: 399 BOYLSTON ST STREET 2: 4TH FLOOR CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 8002831155 MAIL ADDRESS: STREET 1: 399 BOYLSTON STREET STREET 2: 4TH FLOOR CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND ZENITH FUND INC DATE OF NAME CHANGE: 19870506 FORMER COMPANY: FORMER CONFORMED NAME: ZENITH FUND INC DATE OF NAME CHANGE: 19861204 FORMER COMPANY: FORMER CONFORMED NAME: NEL SERIES FUND INC DATE OF NAME CHANGE: 19851223 N-30D 1 SEMI ANNUAL REPORT [LOGO OF THE NEW ENGLAND APPEARS HERE] ------------------------------------------------------------------------- ZENITH FUND VARIABLE PRODUCTS SEMIANNUAL REPORTS JUNE 30, 1996 TABLE OF CONTENTS Loomis Sayles Small Cap Series.............................................. 1 Draycott International Equity Series........................................ 8 Alger Equity Growth Series.................................................. 14 Capital Growth Series....................................................... 20 Loomis Sayles Avanti Growth Series.......................................... 24 Venture Value Series........................................................ 30 Westpeak Value Growth Series................................................ 36 Westpeak Stock Index Series................................................. 43 Loomis Sayles Balanced Series............................................... 53 Back Bay Advisors Managed Series............................................ 60 Salomon Brothers Strategic Bond Opportunities Series........................ 68 Back Bay Advisors Bond Income Series........................................ 74 Salomon Brothers U.S. Government Series..................................... 80 Back Bay Advisors Money Market Series....................................... 84 Notes to Financial Statements............................................... 90 Footnotes to Portfolio Manager Commentary................................... 97
IMPORTANT: Some funds appearing in this report may not be available under your variable life or variable annuity product. August, 1996 TO OUR POLICYHOLDERS/CONTRACT OWNERS: We are pleased to provide you with the 1996 Semiannual Report for the Zenith Fund variable life insurance and variable annuity products. This report includes performance histories, present investments, and financial reports as of June 30, 1996, as well as the outlook and strategy of each fund. It is intended to help you make an informed decision regarding the investment of the cash value of your variable product. The New England offers many variable life and variable annuity products to help you meet your financial objectives. We are committed to meeting your expectations by providing quality products with strong performance potential and excellent personal service. Please feel free to contact one of our Registered Representatives* with any questions you may have regarding your financial objectives. Thank you for making The New England your financial partner. Sincerely, [ART] /s/ Bruce Long David Allen Bruce Long Senior Vice President President New England Life New England Annuities * Variable products are offered through New England Securities Corporation. [LOGO OF RECYCLABLE PAPER APPEARS HERE] ZENITH LOOMIS SAYLES SMALL CAP SERIES PORTFOLIO MANAGERS: MARY CHAMPAGNE AND JEFFREY PETHERICK; LOOMIS SAYLES & COMPANY, L.P. MARKET REVIEW ---------------- ------------------- Through mid-year, the economic [PHOTO OF [PHOTO OF environment was good for small cap MARY CHAMPAGNE JEFFREY PETHERICK stocks, as investors began to favor APPEARS HERE] APPEARS HERE] niche-oriented companies. This shift from 1995's emphasis on large-cap issues served our portfolio well, given its small stock focus. We concentrated on finding undervalued, growing companies that were dominant, or look to become - ----------------- ------------------- dominant, in a specific market subsegment. Throughout the first half of 1996, these included leaders in energy, oil and gas and consumer cyclicals. Energy stocks were among the portfolio's best performers. Global Industries, which lays pipe for offshore drilling activity, and Belden and Blake, an oil and gas producer located in the Appalachian Basin, are good examples of leading small companies that have benefited from recent foreign exploration and higher oil and gas prices. Another growth area has been business services, especially the temporary help segment. CDI, which serves both the technology and automotive arenas, was up 88% for the first six months of 1996. Career Horizons was up over 100% when we sold it earlier this year. Early in 1996, we increased our weighting in consumer cyclicals--retail stores, restaurants and other consumer services--and reaped the rewards. Healthy consumer spending in the first and second quarters enhanced the growth of investments such as Ann Taylor, a retailer of upscale women's clothing, and Cole National, a specialty eyewear and giftware retailer. OUTLOOK AND STRATEGY We have deliberately limited investments in the technology sector for most of 1996. Our 7% level was significantly below the 12% average for the Russell 2000 Small Cap Index/19/. However, the sector's correction in June presented a buying opportunity, and we plan to add to our technology exposure further in the coming months if we think market conditions make it appropriate. We expect the economy to grow slowly for the balance of the year, and that interest rates will remain at or near their current levels. Given this scenario, the earnings growth of small, niche-oriented companies should support a renewed focus on small capitalization issues. Those companies which target affluent baby boomers and older consumers may do particularly well. We do not anticipate making major changes in portfolio structure or in sector weightings. We plan to take profits aggressively, eliminate any non- performers and continue to pursue added value through disciplined stock selection. Given the market outlook, we believe the portfolio is well positioned for the months ahead. 1 A $10,000 Investment Compared to an Index FUND FACTS [GRAPH APPEARS HERE] GOAL: Long-term growth from investment in common stocks or Small Cap Russell their equivalent. Series 2,000/19/ Inception 5/1/94 $10,000 $10,000 START DATE: May 1, 1994 12/31/94 9,676 10,027 12/31/95 12,470 12,879 SIZE: $50 million as of June 30, 6/30/96 14,451 14,214 1996 MANAGERS: Jeffrey Petherick and Average Annual Return Mary Champagne. Mr. Petherick has co-managed the Series since Small Cap Lipper Variable Small its inception in May, 1994. Ms. Series Company Fund Average/15/ Champagne joined the management 6 mos.* 15.88% 14.36% of the Series in July 1995. Mr. 1 year 34.43% 29.31% Petherick has also co-managed Since the Loomis Sayles portion of the inception 18.57% n/a New England Star Advisers Fund *not annualized since July 1, 1994. Ms. Champagne has co-managed the Loomis Sayles portion of the New England Star Advisers Fund since July, 1995. They also manage the Loomis Sayles Small Cap Fund and the Maxim Funds--Small Cap Series. Mr. Petherick joined Loomis Sayles in 1990. Ms. Champagne joined Loomis Sayles in 1993. Performance numbers are net of all Series expenses but do not include any insurance, sales or administrative charges of variable annuity or life insurance contracts; if these charges were included, the returns shown would be lower. This information represents past performance and is not indicative of future results. Investment return and principal value will fluctuate so that shares, upon redemption, may be worth more or less than the original cost. 2 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES SMALL CAP SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) COMMON STOCKS--87.2% OF TOTAL NET ASSETS
SHARES VALUE (A) AEROSPACE--0.4% 11,000 Whittaker Corp.(c)....................................... $ 203,500 ----------- AUTOMOBILE & RELATED--1.9% 9,900 Strattec Security Corp.(c)............................... 175,725 30,600 Tower Automotive(c)...................................... 749,700 ----------- 925,425 ----------- BANKS--SAVINGS & LOAN--2.0% 10,500 Charter One Financial, Inc. ............................. 366,188 9,250 Commercial Federal Corp. ................................ 353,813 11,000 First Financial Corp. ................................... 247,500 ----------- 967,501 ----------- BUSINESS SERVICES--1.9% 18,500 CDI Corp.(c)............................................. 624,375 16,100 Cort Business Services Corp.(c).......................... 313,950 ----------- 938,325 ----------- CHEMICALS--SPECIALTY--4.7% 10,500 Cambrex Corp. ........................................... 536,813 4,200 Cytec Industries, Inc.(c)................................ 359,100 20,600 Dexter Corp. ............................................ 612,850 27,200 Intertape Polymer Group, Inc. ........................... 550,800 10,400 Learonal, Inc. .......................................... 260,000 ----------- 2,319,563 ----------- COMPUTER SOFTWARE & SERVICES--4.8% 7,100 Analysts International Corp. ............................ 298,200 14,500 Boole & Babbage, Inc. ................................... 348,000 7,400 MDL Information System, Inc.(c).......................... 220,150 30,000 Mentor Graphics Corp. ................................... 487,500 18,300 National Computer Systems, Inc. ......................... 391,163 19,400 Read Rite Corp. ......................................... 274,025 14,900 SPSS, Inc.(c)............................................ 372,500 ----------- 2,391,538 ----------- COSMETICS--0.8% 18,000 Paragon Trade Brands, Inc. .............................. 387,000 ----------- ELECTRICAL EQUIPMENT--1.9% 12,000 Belden, Inc. ............................................ 360,000 10,200 Gasonics International Corp.(c).......................... 107,100 6,400 Technitrol, Inc. ........................................ 253,600 17,900 Woodhead Industries...................................... 210,325 ----------- 931,025 ----------- ELECTRONIC COMPONENTS--4.0% 30,000 Amphenol Corp.(c)........................................ 690,000 11,700 Burr Brown Corp.(c)...................................... 207,675 15,700 Inter Tel, Inc. ......................................... 411,144 29,200 S3, Inc. ................................................ 359,525 15,600 Unitrode Corp.(c)........................................ 302,250 ----------- 1,970,594 -----------
SHARES VALUE (A) ENVIRONMENTAL SERVICES--1.7% 10,400 United Waste Systems Inc.(c)............................. $ 335,400 27,800 World Fuel Services Corp. ............................... 503,875 ----------- 839,275 ----------- FINANCIAL SERVICES--4.8% 21,400 Dignity Partners, Inc. .................................. 197,950 26,900 DVI(c)................................................... 423,675 26,800 Financial Federal Corp. ................................. 418,750 12,760 Imperial Credit Industries, Inc.(c)...................... 385,990 17,700 Southern Pacific Funding Corp. .......................... 309,750 28,800 WFS Financial, Inc.(c)................................... 648,000 ----------- 2,384,115 ----------- FOOD & BEVERAGES--2.6% 46,000 Flowers Industries, Inc. ................................ 741,750 33,800 Unimark Group, Inc. ..................................... 561,925 ----------- 1,303,675 ----------- FREIGHT TRANSPORTATION--1.6% 9,400 ABC Rail Products Corp.(c)............................... 203,275 29,000 Harper Group, Inc. ...................................... 565,500 ----------- 768,775 ----------- HEALTH CARE--DRUGS--0.5% 10,800 Applied Bioscience International, Inc. .................. 113,400 13,600 Minntech Corp. .......................................... 147,900 ----------- 261,300 ----------- HEALTH CARE--MEDICAL TECHNOLOGY--3.0% 20,200 Conmed Corp.(c).......................................... 537,825 19,900 Gelman Sciences, Inc.(c)................................. 450,238 18,600 Sofamor/Danek Group, Inc.(c)............................. 516,150 ----------- 1,504,213 ----------- HEALTH CARE--SERVICES--3.5% 35,945 Grancare, Inc.(c)........................................ 714,407 25,100 Health Images, Inc....................................... 291,788 15,900 Healthplan Services Corp.(c)............................. 365,700 33,800 Regency Health Services(c)............................... 384,475 ----------- 1,756,370 ----------- HOME PRODUCTS--2.3% 7,300 Aptargroup, Inc. ........................................ 220,825 10,800 Bush Boake Allen, Inc.(c)................................ 234,900 9,850 Inbrand Corporation(c)................................... 275,800 25,950 US Can Corp.(c).......................................... 421,688 ----------- 1,153,213 ----------- HOTELS & RESTAURANTS--1.5% 30,000 WMS Industries, Inc. .................................... 738,750 -----------
See accompanying notes to financial statements. 3 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES SMALL CAP SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) COMMON STOCKS--(CONTINUED)
SHARES VALUE (A) HOUSING & BUILDING MATERIALS--3.0% 25,200 Congoleum Corp. ......................................... $ 289,800 11,500 Crossman Communities Inc.(c)............................. 224,250 22,700 Dayton Superior Corp. ................................... 297,938 28,700 Giant Cement Holdings Inc.(c)............................ 362,338 9,200 Toro Co. ................................................ 304,750 ----------- 1,479,076 ----------- INSURANCE--5.9% 18,400 Allied Group Inc. ....................................... 800,400 12,700 Capital Resource Corp. .................................. 466,725 10,200 Meadrowbrook Insurance Group(c).......................... 313,650 14,700 Protective Life Corp. ................................... 516,337 12,500 Reinsurance Group of America, Inc. ...................... 471,875 10,350 Triad Guaranty, Inc.(c).................................. 380,362 ----------- 2,949,349 ----------- LEISURE--0.7% 7,495 Harman International..................................... 369,129 ----------- MACHINERY--2.1% 10,600 Greenfield Industries Inc. .............................. 349,800 11,500 Hardinge Bros Inc. ...................................... 365,125 14,800 Keystone International Inc. ............................. 307,100 ----------- 1,022,025 ----------- MEDIA & ENTERTAINMENT--3.3% 27,800 Banta Corp. ............................................. 701,950 14,300 Houghton Mifflin Co. .................................... 711,425 12,400 Vertex Communications Corp. ............................. 230,950 ----------- 1,644,325 ----------- METALS--3.5% 33,100 Citation Corp.(c)........................................ 397,200 9,700 Cleveland Cliffs Inc. ................................... 379,512 20,000 Quanex Corp. ............................................ 472,500 24,300 Republic Engineered Steels(c)............................ 85,050 42,500 UNR Industries Inc. ..................................... 409,062 ----------- 1,743,324 ----------- MINING--1.2% 27,000 Pittston Co. ............................................ 583,875 ----------- MISCELLANEOUS--1.4% 10,300 Kenneth Cole Productions, Inc............................ 203,425 12,600 Horizon Group, Inc....................................... 258,300 12,300 Merix Corp............................................... 246,000 ----------- 707,725 -----------
SHARES VALUE (A) MULTI-INDUSTRY--1.4% 45,700 Griffon Corp.(c)......................................... $ 371,312 9,700 Insilco Corp.(c)......................................... 324,950 ----------- 696,262 ----------- OIL--INDEPENDENT PRODUCERS--3.7% 26,300 Belden & Blake Corp.(c).................................. 545,725 17,900 Cross Timbers Oil Co..................................... 443,025 19,400 Lomak Petroleum Inc.(c).................................. 276,450 22,800 Vintage Petroleum Inc.................................... 581,400 ----------- 1,846,600 ----------- OIL--SERVICES--3.2% 15,700 Global Industries Inc.(c)................................ 467,075 37,000 Pride Petroleum Services Inc.(c)......................... 527,250 21,300 Seitel Inc.(c)........................................... 583,087 ----------- 1,577,412 ----------- PAPER PRODUCTS--1.0% 19,400 Caraustar Industries Inc................................. 514,100 ----------- REAL-ESTATE INVESTMENT TRUSTS--5.4% 33,100 Capstone Capital Corp.(c)................................ 678,550 30,600 Chateau Properties Inc................................... 680,850 29,900 Liberty Property......................................... 594,262 25,400 Patriot American Hospitality(c).......................... 752,475 ----------- 2,706,137 ----------- RETAIL--3.1% 21,000 Carson Pirie Scott & Co.................................. 561,750 35,650 Cato Corp.(c)............................................ 213,900 19,500 99 Cents Only Stores..................................... 273,000 19,500 Haverty Furniture Companies Inc.......................... 199,875 18,500 Zale Corp. .............................................. 312,187 ----------- 1,560,712 ----------- STEEL & IRON--2.4% 7,500 J & L Specialty Steel, Inc............................... 111,562 55,600 Oregon Steel Mills, Inc.................................. 764,500 14,000 RMI Titanium Co. ........................................ 329,000 ----------- 1,205,062 ----------- TELECOMMUNICATIONS--1.5% 36,300 Cole National Corp.(c)................................... 726,000 ----------- TEXTILE & APPAREL--0.5% 4,900 Jones Apparel Group(c)................................... 240,712 ----------- Total Common Stocks (Identified Cost $38,913,135)........................... 43,315,982 -----------
See accompanying notes to financial statements. 4 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES SMALL CAP SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) SHORT-TERM INVESTMENTS--13.3%
FACE AMOUNT VALUE (A) COMMERCIAL PAPER--13.3% $2,298,440 Associates Corp. of North America 5.450%, 7/01/96... $ 2,298,440 2,300,000 Chevron Oil Finance Co. 5.250%, 7/01/96.................................... 2,300,000 2,000,000 Exxon Asset Management 5.200%, 7/01/96.................................... 2,000,000 ----------- Total Short-Term Investments (Identified Cost $6,598,440)....................... 6,598,440 ----------- Total Investments--100.5% (Identified Cost $45,511,575)(b)................... 49,914,422 Other assets less liabilities....................... (229,358) ----------- TOTAL NET ASSETS--100%.............................. $49,685,064 =========== (a) See Note 1A. (b) Federal Tax Information: At June 30, 1996 the net unrealized appreciation on investments based on cost of $45,511,575 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost...................................... $ 5,833,370 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value......................................... (1,430,523) ----------- Net unrealized appreciation......................... $ 4,402,847 =========== (c) Non-income producing security.
See accompanying notes to financial statements. 5 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES SMALL CAP SERIES) STATEMENT OF ASSETS & LIABILITIES JUNE 30, 1996 (UNAUDITED) ASSETS Investments at value..................................... $49,914,422 Cash..................................................... 194 Receivable for: Fund shares sold......................................... 319,636 Securities sold.......................................... 306,254 Dividends and interest................................... 62,364 ----------- 50,602,870 LIABILITIES Payable for: Securities purchased..................................... $839,248 Fund shares redeemed..................................... 8,489 Accrued expenses: Management fees.......................................... 38,571 Other expenses........................................... 31,498 -------- 917,806 ----------- NET ASSETS................................................ $49,685,064 =========== Net Assets consist of: Capital paid in.......................................... $41,869,961 Undistributed net investment income...................... 176,304 Accumulated net realized gains........................... 3,235,952 Unrealized appreciation on investments................... 4,402,847 ----------- NET ASSETS................................................ $49,685,064 =========== Computation of offering price: Net asset value and redemption price per share ($49,685,064 divided by 360,902 shares of beneficial interest)................................................ $ 137.67 =========== Identified cost of investments............................ $45,511,575 ===========
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) INVESTMENT INCOME Dividends................................................ $ 201,499 Interest................................................. 144,088 ---------- 345,587 EXPENSES Management fees.......................................... $184,139 Trustees' fees and expenses.............................. 6,518 Custodian................................................ 31,255 Audit and tax services................................... 5,700 Legal.................................................... 5,979 Printing................................................. 11,832 Miscellaneous............................................ 5,003 -------- Total expenses.......................................... 250,426 Less expenses assumed by the investment adviser......... (66,288) 184,138 -------- ---------- NET INVESTMENT INCOME..................................... 161,449 REALIZED AND UNREALIZED GAIN ON INVESTMENTS Realized gain on: Investments--net......................................... 2,830,789 Unrealized appreciation on: Investments--net......................................... 2,162,465 ---------- Net gain on investment transactions....................... 4,993,254 ---------- NET INCREASE IN NET ASSETS FROM OPERATIONS................ $5,154,703 ==========
See accompanying notes to financial statements. 6 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES SMALL CAP SERIES) STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1995 1996 ------------ ----------- FROM OPERATIONS Net investment income............................... $ 186,550 $ 161,449 Net realized gain on investments.................... 1,462,220 2,830,789 Unrealized appreciation on investments.............. 2,281,753 2,162,465 ----------- ----------- INCREASE IN NET ASSETS FROM OPERATIONS.............. 3,930,523 5,154,703 ----------- ----------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income............................... (171,695) 0 Net realized gain on investments.................... (1,055,203) 0 ----------- ----------- (1,226,898) 0 ----------- ----------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from sale of shares........................ 25,462,402 24,029,113 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income............ 171,695 0 Distributions from net realized gain................ 1,055,203 0 ----------- ----------- 26,689,300 24,029,113 Cost of shares redeemed............................. (4,756,656) (7,239,898) ----------- ----------- INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS....................................... 21,932,644 16,789,215 ----------- ----------- TOTAL INCREASE IN NET ASSETS........................ 24,636,269 21,943,918 NET ASSETS Beginning of the period............................. 3,104,877 27,741,146 ----------- ----------- End of the period................................... $27,741,146 $49,685,064 =========== =========== UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the period............................. $ 0 $ 14,855 =========== =========== End of the period................................... $ 14,855 $ 176,304 =========== =========== NUMBER OF SHARES OF THE FUND: Issued from the sale of shares...................... 234,111 183,310 Issued in connection with the reinvestment of: Distributions from net investment income............ 1,477 0 Distributions from net realized gain................ 9,076 0 ----------- ----------- 244,664 183,310 Redeemed............................................ (43,301) (55,910) ----------- ----------- Net change.......................................... 201,363 127,400 =========== ===========
FINANCIAL HIGHLIGHTS (UNAUDITED)
MAY 2, 1994 (A) SIX MONTHS THROUGH YEAR ENDED ENDED DECEMBER 31, DECEMBER 31, JUNE 30, 1994 1995 1996 --------------- ------------ ---------- Net Asset Value, Beginning of Period.. $100.00 $ 96.61 $118.80 ------- ------- ------- Income From Investment Operations Net Investment Income................ 0.14 0.85 0.49 Net Realized and Unrealized Gain (Loss) on Investments............... (3.38) 26.93 18.38 ------- ------- ------- Total From Investment Operations..... (3.24) 27.78 18.87 ------- ------- ------- Less Distributions Distributions From Net Investment Income.............................. (0.15) (0.78) 0.00 Distributions From Net Realized Capital Gains....................... 0.00 (4.81) 0.00 ------- ------- ------- Total Distributions.................. (0.15) (5.59) 0.00 ------- ------- ------- Net Asset Value, End of Period........ $ 96.61 $118.80 $137.67 ======= ======= ======= TOTAL RETURN (%)...................... (3.23)(c) 28.88 15.88(c) Ratio of Operating Expenses to Average Net Assets (%)....................... 1.00 (b) 1.00 1.00(b) Ratio of Net Investment Income to Average Net Assets (%)............... 0.32 (b) 1.26 0.87(b) Portfolio Turnover Rate (%)........... 80 (b) 98 63(b) Average Commission Rate(d)............ -- -- $0.0313 Net Assets, End of Period (000)....... $ 3,105 $27,741 $49,685 The ratios of expenses to average net assets without giving effect to the voluntary expense agreement described in Note 4 to the Financial Statements would have been (%).................. 2.31 (b) 1.91 1.36(b)
(a) Commencement of operations. (b) Computed on an annualized basis. (c) Not computed on an annualized basis. (d) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for trades on which commissions are charged. This rate generally does not reflect mark- ups, mark-downs, or spreads on shares traded on a principal basis. See accompanying notes to financial statements. 7 ZENITH DRAYCOTT INTERNATIONAL EQUITY SERIES PORTFOLIO MANAGERS: NICHOLAS D. P. CARN, TIMOTHY S. GRIFFEN, GREGORY D. ECKERSLEY AND NIGEL HANKIN; DRAYCOTT PARTNERS, LTD. - ----------------- ------------------ MARKET REVIEW The first six months of 1996 marked [PHOTO OF [PHOTO OF a turning point, of sorts, in world NICHOLAS D.P. TIMOTHY S. economies. The Japanese stock market CARN APPEARS GRIFFEN APPEARS continued to rise after showing signs HERE] HERE] of stabilization in the later part of 1995, though its returns were slightly reduced by the weakness of the yen when translated into dollars. German - ----------------- ------------------ bond yields are up in anticipation of a stronger economy. On the currency - ----------------- ------------------ front, the yen and, to a slightly lesser extent, the European currencies [PHOTO OF [PHOTO OF were weak against the dollar. GREGORY D. NIGEL HANKIN ECKERSLEY APPEARS HERE] Currently, the Draycott APPEARS International Equity Series is very HERE similar in structure to its performance benchmark, the EAFE Index/2/. The overall performance of - ----------------- ------------------ the EAFE/2/ was modestly surpassed by the Series. Through June 30, 1996 the Series delivered a return of 6.62%. In comparison, the EAFE Index/2/ returned 4.5% during the same time frame. In terms of international equity trends, strong stock market gains in Japan, France and Germany were partially offset by the rising dollar, which made those foreign stocks less valuable in dollar terms. Due to our closeness to the EAFE/2/, our selection of stocks was very broad based. Stock selection in Japan and Europe added the most value to the portfolio in the first six months. Again, we believe Japan is emerging from a period of very weak economic growth over the last few years, and we're going to see a continuation of very low interest rates and very fast monetary growth. These conditions will resemble the economic environment that occurred in the United States in 1990 setting the stage for Japan to take its turn at prosperity. Within Europe, countries that most benefited the Series in the first half of the year were Italy and Spain. Both economies experienced falling long term interest rates; this is in contrast to Germany, which experienced rising long- term rates. In response to these conditions, we kept the Series' portfolio overweighted in securities of issuers in Italy and Spain--a strategy we intend to maintain through the rest of the year. Less helpful to the Series performance was its overweighting of British stocks, which underperformed the international equity markets as a whole. OUTLOOK AND STRATEGY We believe that over the next six months Japan's stock market cycle will continue to turn upwards. We also think the "dollar area", which includes the United States, Canada and Latin America, will turn downwards. As a result, these areas will trade places for a while. International stock markets continue to offer tremendous opportunities to investors who recognize the wisdom of international diversification and are aware of its risks. Our emphasis on fundamental research and discovery of undervalued stocks and market situations remain keys to successful investment through the rest of 1996. 8 A $10,000 investment Compared to an Index FUND FACTS GOAL: total return from long- [GRAPH APPEARS HERE] term growth of capital and dividend income, primarily through investment in international securities. International Equity Series EAFE/2/ START DATE: October 31, 1994 10/30/94 $10,000 $10,000 12/31/94 10,260 9,555 SIZE: $29 million as of June 30, 12/31/95 10,879 10,455 1996 6/30/96 11,599 10,844 MANAGERS: Nicholas Carn, Timothy Average Annual Return Griffen, Gregory Eckersley and Lipper Variable Nigel Hankin have served as International International/13/ portfolio managers since the Equity Series Fund Average Series' inception in 1994. Each 6 mos.* 6.62% 10.46% has also served as portfolio 1 year 12.28% 17.56% manager of New England Since International Equity Fund since inception 9.31% n/a 1991. They also have managed the *not annualized Maxim Series--Foreign Equity Portfolio since November, 1994. Performance numbers are net of all Series expenses but do not include any insurance, sales or administrative charges of variable annuity or life insurance contracts; if these charges were included, the returns shown would be lower. This information represents past performance and is not indicative of future results. Investment return and principal value will fluctuate so that shares, upon redemption, may be worth more or less than the original cost. 9 NEW ENGLAND ZENITH FUND (DRAYCOTT INTERNATIONAL EQUITY SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) COMMON STOCKS--86.7% OF TOTAL NET ASSETS
SHARES VALUE (A) AUSTRALIA--4.5% 11,000 Capral Aluminum.......................................... $ 31,811 20,800 Australian & New Zealand Bank Group...................... 98,402 13,050 Amcor Ltd. .............................................. 88,709 5,200 Broken Hill Property..................................... 71,799 4,100 CRA Ltd. ................................................ 63,022 31,300 CSR Ltd. ................................................ 110,442 29,250 Fairfax (John)........................................... 60,914 6,100 Lend Lease Corp. ........................................ 93,477 22,900 News Corporation......................................... 129,752 21,800 Normandy Mining.......................................... 9,936 66,300 Normandy Mining Ltd. .................................... 104,725 31,200 North Ltd. .............................................. 89,493 28,700 QNI Limited.............................................. 64,053 14,500 Southcorp Holdings Ltd. ................................. 35,894 22,600 Westpac Bank Corp. ...................................... 99,991 23,500 WMC Limited.............................................. 168,055 ----------- 1,320,475 ----------- BELGIUM--1.0% 2,700 Delhaize Le Lion......................................... 135,856 840 Glaverbel................................................ 91,242 500 Powerfin................................................. 68,527 ----------- 295,625 ----------- DENMARK--1.0% 3,000 Carli Gry Intl A/S....................................... 98,319 600 Crisplant Industries..................................... 38,918 6,570 ISS International........................................ 146,910 ----------- 284,147 ----------- FINLAND--1.7% 2,200 Cultor OY................................................ 107,825 1,935 Huhtamaki OY............................................. 64,756 5,020 Kesko.................................................... 74,569 670 Kone Corp. .............................................. 74,788 1,800 Raison Tentaat........................................... 107,652 3,860 UPM Kymmene OY........................................... 80,090 ----------- 509,680 ----------- GERMANY--6.4% 3,020 Adidas AG................................................ 254,034 160 Boss (Hugo) AG........................................... 184,150 380 Henkel Kgaa.............................................. 164,196 9,790 Hoechst AG............................................... 332,235 970 Mannesmann AG............................................ 335,561 1,210 SGL Carbon............................................... 141,651 4,200 Tarkett AG............................................... 88,668 7,050 Veba Ag. ................................................ 374,964 ----------- 1,875,459 ----------- GREAT BRITAIN--20.1% 32,300 BAA...................................................... 234,011 46,000 BTR...................................................... 180,742 32,750 Barclays................................................. 392,908
SHARES VALUE (A) GREAT BRITAIN--(CONTINUED) 18,100 Bass..................................................... $ 227,269 22,450 British Aerospace........................................ 340,463 14,250 British Petroleum........................................ 125,039 38,750 British Telecommunication................................ 208,223 23,400 British Sky Broadcast.................................... 159,719 25,100 Cadbury Schweppes........................................ 198,414 17,875 Carlton Communications................................... 143,799 50,800 Cookson Group............................................ 223,271 22,300 General Electric......................................... 120,002 20,850 Glaxo Welcome............................................ 280,742 22,400 Greenalls Group.......................................... 200,031 55,950 Hanson................................................... 156,406 88,000 Ladbroke Group........................................... 243,951 61,150 National Grid Group...................................... 161,921 16,350 National Westminster..................................... 155,908 42,200 Orange................................................... 147,788 10,700 Pearson.................................................. 110,340 49,812 Pillar Properties Inv.................................... 123,777 19,500 Rank Organisation........................................ 150,664 20,900 Reed International....................................... 349,415 13,150 Smithkline Beecham....................................... 140,608 24,700 Storehouse............................................... 122,440 43,500 Telewest Communication................................... 108,767 33,450 Ti Group................................................. 279,486 7,265 Thorn EMI................................................ 202,414 50,650 Tomkins.................................................. 190,360 37,550 Williams Holdings........................................ 197,401 ----------- 5,876,279 ----------- ITALY--3.4% 58,250 BCA Fideuram SPA......................................... 126,296 164,500 Credito Italiano......................................... 192,942 21,700 Edison................................................... 131,086 7,200 Mediolanum............................................... 71,706 43,450 Saipem................................................... 183,022 75,300 Stet..................................................... 197,931 25,660 Unicem (Union Cem)....................................... 83,620 ----------- 986,603 ----------- JAPAN--33.0% 17,000 Asahi Glass Co. ......................................... 203,630 18,750 Bank of Tokyo............................................ 435,468 13,000 Canon Inc. .............................................. 271,019 16,000 Dai Nippon Printing...................................... 310,154 6,000 Daiwa Securities......................................... 77,356 13 East Japan Railway....................................... 68,349 21,000 Fuji Bank................................................ 453,161 1,000 Hitachi.................................................. 9,327 110,000 Hokkaido Takushoku....................................... 333,928 13,000 Honda Motor Co. ......................................... 337,585 48,000 Ishikawajima Har......................................... 234,810 11,000 Kirin Brewery Co. ....................................... 134,778 21,000 Matsushita Electronic Industries......................... 391,716 17,000 Mitsubishi Bank.......................................... 223,838
See accompanying notes to financial statements. 10 NEW ENGLAND ZENITH FUND (DRAYCOTT INTERNATIONAL EQUITY SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) COMMON STOCKS--(CONTINUED)
SHARES VALUE (A) JAPAN--(CONTINUED) 26,000 Mitsubishi Chemical...................................... $ 120,294 15,000 Mitsubishi Heavy Industrial.............................. 130,709 16,000 Mitsubishi Warehouse..................................... 286,746 15,000 Mitsui + Co. ............................................ 136,195 33,000 Mitsukoshi............................................... 353,038 17,000 Mitsui Fudosan Co. ...................................... 230,055 52,000 Nippon Credit Bank....................................... 193,517 12,000 Nippondenso Co. ......................................... 261,144 67,000 Nippon Steel Corp. ...................................... 230,348 12,000 Nomura Securities........................................ 234,810 30,780 Odakyu Electric Railway.................................. 207,705 14,000 Onward Kkashiyama........................................ 229,141 69,000 Osaka Gas Co. ........................................... 252,997 17,000 Ricoh Company............................................ 180,314 16,000 Sakura Bank.............................................. 178,485 17,000 Sanwa Bank............................................... 315,549 18,000 Sato Kogyo Co. .......................................... 110,602 8,000 Sony Corp. .............................................. 527,408 7,000 Sumitomo Bank............................................ 135,692 1,000 Sumitomo Marine & Fire................................... 8,732 22,000 Sumitomo Rubber.......................................... 190,902 28,000 Taisei Corp. ............................................ 199,186 13,000 Takashimaya Co. ......................................... 202,076 25,000 Tokai Bank............................................... 324,601 16,000 Toto..................................................... 241,393 5,000 Toyota Motor Corp. ...................................... 125,269 19,000 Yakult Honsha Co. ....................................... 269,282 46,000 Yasuda Trust & Banking................................... 291,483 ----------- 9,652,792 ----------- NETHERLANDS--3.8% 1,400 Ahrend NV................................................ 62,797 14,300 Fortis Amev NV........................................... 410,009 2,000 KLM...................................................... 64,028 4,600 Kon PTT Nederland........................................ 174,236 8,000 Vendex International..................................... 279,097 1,000 Wolters Kluwer NV........................................ 113,691 ----------- 1,103,858 ----------- NORWAY--1.8% 8,100 Benor Tankers............................................ 48,682 3,000 Narvesen ASA............................................. 68,422 2,600 Norske Skogsindust....................................... 72,522 1,600 Orkla ASA................................................ 84,326 2,050 Protector Forsikrg....................................... 51,494 16,600 Schibsted ASA............................................ 214,883 ----------- 540,329 ----------- SPAIN--4.1% 6,300 Banco Santander SA....................................... 294,317 1,950 Gas Natural Sdg SA....................................... 409,789 42,250 Sevillana de Elec........................................ 389,477 480 Sol Melia................................................ 10,125 5,100 Viscofan Envoltura....................................... 80,680 ----------- 1,184,388 -----------
SHARES VALUE (A) SWITZERLAND--5.9% 353 Alusuisse Lonza HD.................................. $ 291,673 600 Adia SA............................................. 150,696 60 Baloise Holdings.................................... 130,539 203 Nestle SA........................................... 232,032 45 Roche Holdings AG................................... 343,565 189 Sandoz AG........................................... 216,333 152 Schindler Holdings AG............................... 161,702 189 Swissair............................................ 183,074 ----------- 1,709,614 ----------- Total Common Stocks (Identified Cost $23,630,314)...................... 25,339,249 ----------- SHORT-TERM INVESTMENT--9.0% FACE AMOUNT VALUE (A) $2,627,000 Repurchase agreement with State Street Bank & Trust Company dated 6/28/96 at 4.750% to be repurchased at $2,628,040 on 7/1/96 collateralized by $2,750,000.00 U.S. Treasury Notes due 12/19/96 with a value of $2,680,750......................................... 2,627,000 ----------- Total Short-Term Investment (Identified Cost $2,627,000)....................... 2,627,000 ----------- Total Investments--95.7% (Identified Cost $26,257,314)(b)................... 27,966,249 Other assets less liabilities(c).................... 904,152 ----------- TOTAL NET ASSETS--100%.............................. $28,870,401 =========== (a) See Note 1A. (b) Federal Tax Information: At June 30, 1996 the net unrealized appreciation on investments based on cost of $26,257,314 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost...................................... $ 1,971,735 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value......................................... (258,443) ----------- Net unrealized appreciation......................... $ 1,713,292 =========== As of June 30, 1996, the Series had a net tax basis capital loss carry forward as follows:
Expiring December 31, 2002 $323 Expiring December 31, 2003 $50,456 (c) Including deposits in foreign denominated currencies with a value of $587,804 and a cost of $583,447. TEN LARGEST INDUSTRY HOLDINGS AT JUNE 30, 1996 (UNAUDITED) Banking.................................................................. 12.55% Basic Industries......................................................... 6.72% Miscellaneous Industries................................................. 6.59% Conglomerates............................................................ 5.45% Retail Trade............................................................. 4.88% Food & Beverage.......................................................... 4.44% Broadcasting/Publishing.................................................. 3.94% Household Appliances..................................................... 3.73% Electric Utilities....................................................... 3.33% Drugs/Health Care........................................................ 3.21%
See accompanying notes to financial statements. 11 NEW ENGLAND ZENITH FUND (DRAYCOTT INTERNATIONAL EQUITY SERIES) STATEMENT OF ASSETS & LIABILITIES JUNE 30, 1996 (UNAUDITED) ASSETS Investments at value..................................... $27,966,249 Cash..................................................... 797 Foreign cash at value.................................... 587,804 Receivable for: Fund shares sold......................................... 115,319 Securities sold.......................................... 419,586 Dividends and interest................................... 44,628 Foreign withholding taxes................................ 20,563 Due from adviser......................................... 11,819 Unamortized organization expense......................... 6,702 ----------- 29,173,467 LIABILITIES Payable for: Securities purchased..................................... $156,482 Fund shares redeemed..................................... 86,696 Foreign withholding taxes................................ 5,077 Accrued expenses: Management fees.......................................... 14,937 Other expenses........................................... 39,874 -------- 303,066 ----------- NET ASSETS................................................ $28,870,401 =========== Net Assets consist of: Capital paid in.......................................... $26,632,782 Undistributed net investment income...................... 154,743 Accumulated net realized gains........................... 367,987 Unrealized appreciation on investments and foreign currency................................................ 1,714,889 ----------- NET ASSETS................................................ $28,870,401 =========== Computation of offering price: Net asset value and redemption price per share ($28,870,401 divided by 2,523,511 shares of beneficial interest)................................................ $ 11.44 =========== Identified cost of investments............................ $26,257,314 ===========
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) INVESTMENT INCOME Dividends........................................... $ 306,079(a) Interest............................................ 799 ---------- 306,878 EXPENSES Management fees..................................... $ 100,615 Trustees' fees and expenses......................... 6,434 Custodian........................................... 69,651 Audit and tax services.............................. 14,000 Legal............................................... 5,411 Printing............................................ 5,523 Amortization of organization expenses............... 1,003 Miscellaneous....................................... 5,006 ---------- Total expenses..................................... 207,643 Less expenses assumed by the investment adviser.... (62,308) 145,335 ---------- ---------- NET INVESTMENT INCOME................................ 161,543 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS Realized gain (loss) on: Investments--net.................................... 906,775 Foreign currency transactions--net.................. (374,258) ---------- Total realized gain on investments and foreign currency transactions.............................. 532,517 ---------- Unrealized appreciation (depreciation) on: Investments--net.................................... 1,108,730 Foreign currency transactions--net.................. (250,872) ---------- Total unrealized appreciation on investments and foreign currency transactions...................... 857,858 ---------- Net gain on investment transactions.................. 1,390,375 ---------- NET INCREASE IN NET ASSETS FROM OPERATIONS........... $1,551,918 ========== (a)Net of foreign taxes of: $39,335.
See accompanying notes to financial statements. 12 NEW ENGLAND ZENITH FUND (DRAYCOTT INTERNATIONAL EQUITY SERIES) STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1995 1996 ------------ ----------- FROM OPERATIONS Net investment income............................... $ 123,277 $ 161,543 Net realized gain (loss) on investments and foreign currency transactions.............................. (125,269) 532,517 Unrealized appreciation on investments, and foreign currency transactions.............................. 798,519 857,858 ----------- ----------- INCREASE IN NET ASSETS FROM OPERATIONS.............. 796,527 1,551,918 ----------- ----------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income............................... (123,277) 0 In excess of net investment income.................. (48,516) 0 ----------- ----------- (171,793) 0 ----------- ----------- FROM CAPITAL SHARES TRANSACTIONS Proceeds from sale of shares........................ 16,189,698 14,181,296 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income............ 171,793 0 ----------- ----------- 16,361,491 14,181,296 Cost of shares redeemed............................. (3,707,935) (3,130,320) ----------- ----------- INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS....................................... 12,653,556 11,050,976 ----------- ----------- TOTAL INCREASE IN NET ASSETS........................ 13,278,290 12,602,894 NET ASSETS Beginning of the period............................. 2,989,217 16,267,507 ----------- ----------- End of the period................................... $16,267,507 $28,870,401 =========== =========== UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the period............................. $ 0 $ (6,800) =========== =========== End of the period................................... $ (6,800) $ 154,743 =========== =========== NUMBER OF SHARES OF THE FUND: Issued from the sale of shares...................... 1,564,292 1,290,420 Issued in connection with the reinvestment of: Distributions from net investment income............ 16,055 0 ----------- ----------- 1,580,347 1,290,420 Redeemed............................................ (355,736) (283,626) ----------- ----------- Net change.......................................... 1,224,611 1,006,794 =========== ===========
FINANCIAL HIGHLIGHTS (UNAUDITED)
OCTOBER 31, 1994 (A) YEAR SIX MONTHS THROUGH ENDED ENDED DECEMBER 31, DECEMBER 31, JUNE 30, 1994 1995 1996 -------------------- ------------ ---------- Net Asset Value, Beginning of Period.......................... $10.00 $ 10.23 $ 10.73 ------ ------- ------- Income From Investment Operations Net Investment Income........... 0.03 0.09 0.66 Net Realized and Unrealized Gain on Investments................. 0.23 0.53 0.05 ------ ------- ------- Total From Investment Operations..................... 0.26 0.62 0.71 ------ ------- ------- Less Distributions Distributions From Net Investment Income.............. (0.02) (0.09) 0.00 Distributions in Excess of Net Investment Income.............. 0.00 (0.03) 0.00 Distributions From Paid-in Capital........................ (0.01) 0.00 0.00 ------ ------- ------- Total Distributions............. (0.03) (0.12) 0.00 ------ ------- ------- Net Asset Value, End of Period... $10.23 $ 10.73 $ 11.44 ====== ======= ======= TOTAL RETURN (%)................. 2.60(c) 6.03 6.62(c) Ratio of Operating Expenses to Average Net Assets (%).......... 1.30(b) 1.30 1.30(b) Ratio of Net Investment Income to Average Net Assets (%).......... 2.56(b) 1.29 1.43(b) Portfolio Turnover Rate (%)...... 4(b) 89 104(b) Average Commission Rate(d)....... -- -- $0.0190 Net Assets, End of Period (000).. $2,989 $16,268 $28,870 The ratios of expenses to average net assets without giving effect to the voluntary expense agreement described in Note 4 to the Financial Statements would have been (%)................... 5.38(b) 3.12 3.13(b)
(a) Commencement of operations. (b) Computed on an annualized basis. (c) Not computed on an annualized basis. (d) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for trades on which commissions are charged. This rate generally does not reflect mark- ups, mark-downs, or spreads on shares traded on a principal basis. See accompanying notes to financial statements. 13 ZENITH ALGER EQUITY GROWTH SERIES PORTFOLIO MANAGER: DAVID D. ALGER FRED ALGER MANAGEMENT, INC. - ---------------- MARKET REVIEW The first six months of 1996 have been extremely [PHOTO OF DAVID challenging and volatile. On more than one occasion, we ALGER APPEARS have experienced the financial market equivalent of wind HERE] shear. The reason for market conditions so far this year has been a dramatic change in perception about the nature of the economy. The conventional wisdom in the market earlier in the year was that the economy was extremely weak, and consequently would require a series of Federal Reserve - ---------------- actions to lower interest rates in order to avoid a possible recession. Over the second quarter, the market's focus shifted to whether the economy was growing too fast which might cause inflation and potentially lead to Federal Reserve actions to raise interest. Against this backdrop, we were fairly active within the Alger Equity Growth Series. Our strategy of emphasizing individual security selection, particularly quality growth stocks at reasonable valuations, resulted in several portfolio changes. Nine West Group, Inc., Schlumberger Ltd. and Tidewater Inc. are examples of three companies that were added to the portfolio over the six month period. Examples of companies that were eliminated from the portfolio over the period include US Robotics, Inc., Bay Networks and Digital Equipment Corp. The portfolio's best performing stocks included Tellabs, Inc. and Cisco Systems, Inc., which increased in value by 80.7% and 51.8%, respectively during the first six months of 1996. During the last several weeks of this period, the portfolio felt a strong negative impact from declining technology stock prices. Although we eliminated a number of positions and reduced others in anticipation of this effect, we were startled by a few bad earnings pre-announcements. Some of the stocks which pre-announced poor earnings were stocks already presumed to be having poor quarters. Therefore, we believe this severe negative reaction was exaggerated. OUTLOOK AND STRATEGY Although the performance of the Series was unexciting during the first six months of 1996, we believe the second half of the year will be more inspired. Many of the stocks which did not have bad earnings but were nevertheless caught in the down-draft of pre-announced poor earnings should rebound nicely. The second half of the year for technology stocks, particularly those related to personal computers, should be stronger. Finally, the semiconductor glut will likely dissipate in which case we expect those companies to resume positive price movement. We continue to believe that the stock market is undervalued relative to the bond market and that the bond market should rally in the second half of the year. Moreover, we do not believe that the Federal Reserve will find it necessary to raise rates even at their August 20 meeting. For these reasons, we believe that there is a good chance that the market will attain a target objective of 6000 by year end or at least the middle of 1997. 14 A $10,000 Investment Compared to an Index FUND FACTS GOAL: Long-term capital [GRAPH APPEARS HERE] appreciation. START DATE: October 31, 1994 Alger Equity S & P Growth Series 500/20/ SIZE: $85 million as of June 30, 10/31/94 $10,000 $10,000 1996 12/31/94 9,580 9,794 12/31/95 14,245 13,461 MANAGER: David D. Alger, 6/30/96 15,019 14,818 President and Chief Investment Officer (since 1975), Executive Average Annual Return Vice President, Portfolio Lipper Manager and Director of Research Alger Variable Growth (since 1971), Fred Alger Equity Growth Fund Average/11/ Management, Inc.; Portfolio 6 mos.* 5.36% 10.56% Manager, The Alger Growth 1 year 18.39% 23.96% Portfolio (since 1986), The Since Alger American Fund Growth inception 27.66% n/a Portfolio (since 1989) and The *not annualized Alger Retirement Fund (since 1993). Performance numbers are net of all Series expenses but do not include any insurance, sales or administrative charges of variable annuity or life insurance contracts; if these charges were included, the returns shown would be lower. This information represents past performance and is not indicative of future results. Investment return and principal value will fluctuate so that shares, upon redemption, may be worth more or less than the original cost. 15 NEW ENGLAND ZENITH FUND (ALGER EQUITY GROWTH SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) COMMON STOCKS--92.5% OF TOTAL NET ASSETS
SHARES VALUE (A) AEROSPACE--3.2% 12,200 Boeing Co. ............................................... $ 1,062,925 45,400 Sundstrand Corp. ......................................... 1,662,775 ----------- 2,725,700 ----------- APPAREL--2.0% 9,000 Nike, Inc. ............................................... 924,750 15,000 Tommy Hilfiger Corp.(c)................................... 804,375 ----------- 1,729,125 ----------- BANKS--2.3% 28,000 Chase Manhattan Corp. .................................... 1,977,500 ----------- BIO TECHNOLOGY--1.8% 41,600 Biochem Pharmacy, Inc.(c)................................. 1,560,000 ----------- BUILDING & CONSTRUCTION--1.0% 42,500 Clayton Homes, Inc. ...................................... 850,000 ----------- CHEMICALS--0.9% 22,500 Monsanto Company.......................................... 731,250 ----------- COMMUNICATIONS--2.2% 7,400 Cascade Communications Corp.(c)........................... 503,200 20,000 Glenayre Technologies, Inc.(c)............................ 1,000,000 5,400 Tellabs, Inc.(c).......................................... 361,125 ----------- 1,864,325 ----------- COMPUTER RELATED & BUSINESS EQUIPMENT--11.6% 23,200 Ascend Communications, Inc.(c)............................ 1,305,000 44,000 Cisco Systems, Inc.(c).................................... 2,491,500 25,000 Compuware Corp.(c)........................................ 987,500 31,801 First Data Corp. ......................................... 2,532,155 18,400 Microchip Technology, Inc.(c)............................. 455,400 44,900 3Com Corp.(c)............................................. 2,054,175 ----------- 9,825,730 ----------- COMPUTER SOFTWARE--1.9% 70,700 Informix Corporation(c)................................... 1,590,750 ----------- COMPUTER TECHNOLOGY--0.8% 13,450 Adaptec, Inc.(c).......................................... 637,194 ----------- DEFENSE--2.4% 3,000 Lockheed Martin Corp. .................................... 252,000 36,400 McDonnell Douglas Corp. .................................. 1,765,400 ----------- 2,017,400 ----------- FINANCE--4.8% 19,400 American International Group, Inc. ....................... 1,913,325 26,500 MBNA Corp. ............................................... 755,250 30,150 Travelers Group, Inc ..................................... 1,375,594 ----------- 4,044,169 -----------
SHARES VALUE (A) FINANCIAL SERVICES--1.6% 4,000 Merrill Lynch & Co., Inc. ................................ $ 260,500 45,000 Charles Schwab Corp. ..................................... 1,102,500 ----------- 1,363,000 ----------- HEALTH CARE--5.3% 11,000 Boston Scientific Corp.(c)................................ 495,000 29,400 Columbia/HCA Healthcare Corp. ............................ 1,569,225 21,500 Merck & Co., Inc. ........................................ 1,389,437 20,500 United Healthcare Corp. .................................. 1,035,250 ----------- 4,488,912 ----------- HEALTH CARE--ADMINISTRATIVE SERVICES--0.3% 10,000 Liposome, Inc.(c)......................................... 187,500 ----------- HEALTH MAINTENANCE SERVICES--1.0% 19,900 Oxford Health Plans, Inc.(c).............................. 818,388 ----------- INSURANCE--0.7% 20,000 Travelers Aetna Property Casual Corp.(c).................. 567,500 ----------- MACHINERY--1.0% 17,200 Case Corp. ............................................... 825,600 ----------- MEDICAL SERVICES--1.7% 12,900 Guidant Corp. ............................................ 635,325 14,700 Medtronic, Inc. .......................................... 823,200 ----------- 1,458,525 ----------- MISCELLANEOUS--3.7% 30,000 Money Store, Inc. ........................................ 663,750 32,000 Service Corp. International............................... 1,840,000 15,000 Tidewater, Inc. .......................................... 658,125 ----------- 3,161,875 ----------- MORTGAGE--1.5% 39,500 Green Tree Financial Corp. ............................... 1,234,375 ----------- MOTOR VEHICLES--1.4% 19,600 Chrysler Corp. ........................................... 1,215,200 ----------- NON-FERROUS METALS--1.0% 15,200 Aluminum Co. of America................................... 872,100 ----------- OFFICE EQUIPMENT--0.8% 13,100 Xerox Corp. .............................................. 700,850 ----------- OIL SERVICES--1.6% 16,900 Halliburton Co. .......................................... 937,950 5,000 Schlumberger, Ltd. ....................................... 421,250 ----------- 1,359,200 -----------
See accompanying notes to financial statements. 16 NEW ENGLAND ZENITH FUND (ALGER EQUITY GROWTH SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) COMMON STOCKS--(CONTINUED)
SHARES VALUE (A) PHARMACEUTICALS--5.5% 10,300 Amgen, Inc.(c)............................................ $ 556,200 29,000 Astra AB(c)............................................... 1,268,750 16,100 Eli Lilly & Company....................................... 1,046,500 6,096 Johnson & Johnson......................................... 301,752 9,500 Pfizer, Inc. ............................................. 678,063 14,700 Smithkline Beecham PLC.................................... 799,313 ----------- 4,650,578 ----------- RESTAURANTS & LODGING--5.0% 52,000 Boston Chicken, Inc.(c)................................... 1,690,000 55,800 Lone Star Steakhouse Saloon(c)............................ 2,106,450 11,900 Outback Steakhouse, Inc.(c)............................... 410,364 ----------- 4,206,814 ----------- RETAILING--9.3% 9,800 Cintas Corp. ............................................. 524,300 20,500 Gucci Group NY, Inc.(c)................................... 1,337,625 15,000 Nine West Group, Inc.(c).................................. 766,875 15,000 Nordstrom, Inc. .......................................... 667,500 81,000 Officemax, Inc.(c)........................................ 1,933,875 50,000 The Gap, Inc. ............................................ 1,606,250 20,000 TJX Companies, Inc. ...................................... 675,000 11,000 Viking Office Products, Inc.(c)........................... 345,125 ----------- 7,856,550 ----------- SEMI-CONDUCTORS--6.2% 21,500 Altera Corp.(c)........................................... 817,000 15,000 Intel Corp. .............................................. 1,101,562 23,000 Linear Technology Corporation............................. 690,000 33,500 Maxim Integrated Products, Inc.(c)........................ 914,969 53,300 Xilinx, Inc.(c)........................................... 1,692,275 ----------- 5,215,806 ----------- SERVICES--3.6% 30,500 CUC International, Inc.(c)................................ 1,082,750 33,200 Loewen Group, Inc. ....................................... 1,004,300 33,500 USA Waste Services, Inc.(c)............................... 992,437 ----------- 3,079,487 ----------- SOAPS--1.2% 12,000 Colgate Palmolive Co. .................................... 1,017,000 ----------- TELECOMMUNICATIONS--5.2% 13,000 LCI International, Inc.(c)................................ 407,875 20,000 MFS Communications, Inc. ................................. 752,500 11,400 Telecomunicacoes Brasileiras.............................. 793,725 43,700 Worldcom, Inc.(c)......................................... 2,419,887 ----------- 4,373,987 ----------- Total Common Stocks (Identified Cost $72,275,066)............................ 78,206,390 -----------
SHORT-TERM INVESTMENT--11.1%
FACE AMOUNT VALUE (A) $9,372,262 Seven Seas U.S. Government Money Market Fund........ $ 9,372,262 ----------- Total Short-Term Investment (Identified Cost $9,372,262)....................... 9,372,262 ----------- Total Investments--103.6% (Identified cost $81,647,328)(b)................... 87,578,652 Other assets less liabilities....................... (3,040,763) ----------- TOTAL NET ASSETS--100%.............................. $84,537,889 =========== (a) See Note 1A. (b) Federal Tax Information: At June 30, 1996 the net unrealized appreciation on investments based on cost of $81,647,328 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost...................................... $ 7,775,714 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value......................................... (1,844,390) ----------- Net unrealized appreciation......................... $ 5,931,324 =========== (c) Non-income producing security.
See accompanying notes to financial statements. 17 NEW ENGLAND ZENITH FUND (ALGER EQUITY GROWTH SERIES) STATEMENT OF ASSETS & LIABILITIES JUNE 30, 1996 (UNAUDITED) ASSETS Investments at value................................... $87,578,652 Receivable for: Fund shares sold....................................... 341,513 Securities sold........................................ 328,056 Dividends and interest................................. 74,105 Foreign taxes.......................................... 123 Unamortized organization expense....................... 6,702 ----------- 88,329,151 LIABILITIES Payable for: Securities purchased................................... $3,557,831 Fund shares redeemed................................... 104,594 Withholding taxes...................................... 717 Accrued expenses: Management fees........................................ 80,884 Other expenses......................................... 47,236 ---------- 3,791,262 ----------- NET ASSETS.............................................. $84,537,889 =========== Net Assets consist of: Capital paid in........................................ $78,092,571 Undistributed net investment income.................... 56,676 Accumulated net realized gains......................... 457,318 Unrealized appreciation on investments................. 5,931,324 ----------- NET ASSETS.............................................. $84,537,889 =========== Computation of offering price: Net asset value and redemption price per share ($84,537,889 divided by 5,815,420 shares of beneficial interest).............................................. $ 14.54 =========== Identified cost of investments.......................... $81,647,328 ===========
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) INVESTMENT INCOME Dividends............................................. $ 160,728(a) Interest.............................................. 189,279 ---------- 350,007 EXPENSES Management fees....................................... $235,857 Trustees' fees and expenses........................... 6,655 Custodian............................................. 24,428 Audit and tax services................................ 9,900 Legal................................................. 5,411 Printing.............................................. 13,165 Amortization of organization expenses................. 1,003 Miscellaneous......................................... 5,020 -------- Total expenses....................................... 301,439 Less expenses assumed by the investment adviser...... (6,754) 294,685 -------- ---------- NET INVESTMENT INCOME.................................. 55,322 REALIZED AND UNREALIZED GAIN ON INVESTMENTS Realized gain on Investments--net..................... 1,302,740 Unrealized appreciation on Investments--net........... 1,430,434 ---------- Net gain on investment transactions.................... 2,733,174 ---------- NET INCREASE IN NET ASSETS FROM OPERATIONS............. $2,788,496 ========== (a) Net of foreign taxes of: $717
See accompanying notes to financial statements. 18 NEW ENGLAND ZENITH FUND (ALGER EQUITY GROWTH SERIES) STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1995 1996 ------------ ----------- FROM OPERATIONS Net investment income............................... $ 30,373 $ 55,322 Net realized gain on investments.................... 448,499 1,302,740 Unrealized appreciation on investments.............. 4,579,507 1,430,434 ----------- ----------- INCREASE IN NET ASSETS FROM OPERATIONS.............. 5,058,379 2,788,496 ----------- ----------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income............................... (30,373) 0 In excess of net investment income.................. (993) 0 Net realized gain on investments.................... (1,285,986) 0 ----------- ----------- (1,317,352) 0 ----------- ----------- FROM CAPITAL SHARES TRANSACTIONS Proceeds from sale of shares........................ 47,127,562 46,775,195 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income............ 31,366 0 Distributions from net realized gain................ 1,285,986 0 ----------- ----------- 48,444,914 46,775,195 Cost of shares redeemed............................. (7,716,452) (11,412,204) ----------- ----------- INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS....................................... 40,728,462 35,362,991 ----------- ----------- TOTAL INCREASE IN NET ASSETS........................ 44,469,489 38,151,487 NET ASSETS Beginning of the period............................. 1,916,913 46,386,402 ----------- ----------- End of the period................................... $46,386,402 $84,537,889 =========== =========== UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the period............................. $ 0 $ 1,354 ----------- ----------- End of the period................................... $ 1,354 $ 56,676 =========== =========== NUMBER OF SHARES OF THE FUND: Issued from the sale of shares...................... 3,648,304 3,246,736 Issued in connection with the reinvestment of: Distributions from net investment income............ 2,303 0 Distributions from net realized gain................ 94,419 0 ----------- ----------- 3,745,026 3,246,736 Redeemed............................................ (583,251) (793,512) ----------- ----------- Net change.......................................... 3,161,775 2,453,224 =========== ===========
FINANCIAL HIGHLIGHTS (UNAUDITED)
OCTOBER 31, 1994(A) SIX MONTHS THROUGH ENDED DECEMBER 31, YEAR ENDED JUNE 30, 1994 1995 1996 ------------------- ---------- ---------- Net Asset Value, Beginning of Period........................... $10.00 $ 9.56 $ 13.80 ------ ------- ------- Income From Investment Operations Net Investment Income............ 0.02 0.01 0.02 Net Realized and Unrealized Gain (Loss) on Investments........... (0.44) 4.65 0.72 ------ ------- ------- Total From Investment Operations. (0.42) 4.66 0.74 ------ ------- ------- Less Distributions Distributions From Net Investment Income.......................... (0.02) (0.01) 0.00 Distributions From Net Realized Capital Gains................... 0.00 (0.41) 0.00 ------ ------- ------- Total Distributions.............. (0.02) (0.42) 0.00 ------ ------- ------- Net Asset Value, End of Period.... $ 9.56 $ 13.80 $ 14.54 ====== ======= ======= TOTAL RETURN (%).................. (4.20)(c) 48.80 5.36 (c) Ratio of Operating Expenses to Average Net Assets (%)........... 0.85 (b) 0.85 0.90 (b) Ratio of Net Investment Income to Average Net Assets (%)........... 1.07 (b) 0.14 0.20 (b) Portfolio Turnover Rate (%)....... 32 (b) 107 89 (b) Average Commission Rate (d)....... -- -- $0.0728 Net Assets, End of Period (000)... $1,917 $46,386 $84,538 The ratios of expenses to average net assets without giving effect to the voluntary expense agreement described in Note 4 to the Financial Statements would have been (%).................... 2.74 (b) 2.45 0.92 (b)
(a) Commencement of operations. (b) Computed on an annualized basis. (c) Not computed on an annualized basis. (d) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for trades on which commissions are charged. This rate generally does not reflect mark- ups, mark-downs, or spreads on shares traded on a principal basis. See accompanying notes to financial statements. 19 ZENITH CAPITAL GROWTH SERIES PORTFOLIO MANAGER: G. KENNETH HEEBNER CAPITAL GROWTH MANAGEMENT, L.P. - ----------------- -------------------------------------------------------- MARKET REVIEW -------------------------------------------------------- [PHOTO OF Through the first half of 1996, a strong economy, low KENNETH inflation and a stable interest rate environment resulted HEEBNER in a solid stock market performance. A principal APPEARS beneficiary of these conditions was growth stocks, which HERE] continued to post gains albeit less than in the second half of 1995. Well managed moderate growth companies, which the Series favors, are proving to be long-term, steady performers. Many such companies offer earnings growth rates approaching 20% yet still at deep discounts to average market multiples. - ----------------- Capitalizing on a business environment that emphasizes low labor and capital costs and high productivity, the Capital Growth Series returned 5.31% over the first half of the year. Returns were compromised somewhat by late selloffs in the stock market in June, due in part to inflationary fears stemming from the fast growing economy. Throughout the first half of the year, we've maintained confidence in the growth of the economy. As a result, we have maintained substantial positions in airline and bank stocks, which continued to increase in value over the six- month period. The Series' success over the last ten years stems from our commitment in quality, long term investments in well established companies that are reasonably priced. We did not deviate from this approach through the first half of 1996. - -------------------------------------------------------------------------------- OUTLOOK AND STRATEGY - -------------------------------------------------------------------------------- Going forward, we anticipate continued moderate growth with relatively low inflation, an environment conducive to investing in growth companies. We will continue to avoid investing in companies with high price earnings ratios relative to high growth rates. Many investors, we believe, are displaying enormous enthusiasm for growth but without closely examining valuations. We will keep investing in growth companies but only at reasonable prices and with a long-term investment horizon in mind. While there may be periodic bursts of volatility along the way, we feel that the companies we select under this approach will continue to perform well over the long haul. A $10,000 Investment Compared to an Index FUND FACT [GRAPH APPEARS HERE] GOAL: Long-term growth of capital. Zenith Capital Growth Series S&P 500/20/ START DATE: August 26, 1983 6/30/86 $10,000 $10,000 12/86 10,634 9,824 SIZE: $992 million as of June 12/87 16,239 10,333 30, 1996 12/88 14,812 12,038 12/89 19,368 15,841 MANAGER: G. Kenneth Heebner, 12/90 18,368 15,347 since 1983; portfolio manager 12/91 28,786 20,003 of New England Growth Fund 12/92 27,045 21,525 since 1976; CGM Capital 12/93 31,096 23,685 Development Fund since 1976; 12/94 28,896 24,006 CGM Mutual Fund since 1981; 12/95 39,885 32,321 CGM Realty Fund since May, 6/30/96 42,003 36,321 1994; CGM Fixed Income Fund since June, 1993. Average Annual Return Zenith Capital Lipper Variable Growth Growth Series Fund Average/11/ 6 mos.* 5.31% 10.56% 1 year 13.97% 23.96% 5 years 13.12% 15.74% 10 years 15.43% n/a *not annualized Performance numbers are net of all Series expenses but do not include any insurance, sales or administrative charges of variable annuity or life insurance contracts; if these charges were included, the returns shown would be lower. This information represents past performance and is not indicative of future results. Investment return and principal value will fluctuate so that shares, upon redemption, may be worth more or less than the original cost. 20 NEW ENGLAND ZENITH FUND (CAPITAL GROWTH SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) COMMON STOCKS--99.6% OF TOTAL NET ASSETS
SHARES VALUE (A) AEROSPACE--1.7% 193,000 Boeing Co. ........................................... $ 16,815,125 ------------ AIRLINES--11.9% 310,700 AMR Corp.(c).......................................... 28,273,700 835,000 Northwest Airlines Corp.(c)........................... 32,982,500 1,060,000 UAL Corp.(c).......................................... 56,975,000 ------------ 118,231,200 ------------ APPAREL & TEXTILES--5.2% 500,500 NIKE, Inc. Class B.................................... 51,426,375 ------------ BANKS--MONEY CENTER--14.3% 930,000 Chase Manhattan Corp. ................................ 65,681,250 926,000 Citicorp.............................................. 76,510,750 ------------ 142,192,000 ------------ BEVERAGES & TOBACCO--7.2% 155,000 Anheuser-Bush Companies, Inc. ........................ 11,625,000 1,697,000 PepsiCo Inc. ......................................... 60,031,375 ------------ 71,656,375 ------------ COMPUTER SOFTWARE & SERVICES--7.6% 511,000 Computer Associates International, Inc. .............. 36,408,750 280,000 Microsoft Corp.(c).................................... 33,635,000 125,000 Oracle Systems Corp.(c)............................... 4,929,688 ------------ 74,973,438 ------------ ELECTRONIC COMPONENTS--5.1% 895,000 Cisco System, Inc.(c)................................. 50,679,375 ------------ FOOD--RETAILERS/WHOLESALERS--5.9% 560,000 Philip Morris Companies, Inc. ........................ 58,240,000 ------------ HOTELS & RESTAURANTS--5.1% 450,000 Hilton Hotels Corp. .................................. 50,625,000 ------------ INSURANCE--12.0% 1,255,000 Allstate Corp. ....................................... 57,259,375 628,850 American International Group, Inc. ................... 62,020,331 ------------ 119,279,706 ------------ LEISURE--3.3% 460,000 Circus Circus Enterprises(c).......................... 18,860,000 175,000 Eastman Kodak Co. .................................... 13,606,250 ------------ 32,466,250 ------------
SHARES VALUE (A) OIL--SERVICE--11.0% 1,015,000 Halliburton Co. ...................................... $ 56,332,500 626,000 Schlumberger Ltd. .................................... 52,740,500 ------------ 109,073,000 ------------ RETAIL--9.2% 3,370,000 KMart Corp.(c)........................................ 41,703,750 1,030,000 Sears Roebuck and Co. ................................ 50,083,750 ------------ 91,787,500 ------------ Total Common Stock (Identified Cost $847,205,195)....................... 987,445,344 ------------
SHORT-TERM INVESTMENT--0.3%
FACE AMOUNT $2,865,000 American Express Credit Corp. 5.390%, 07/01/96..... 2,865,000 ------------ Total Short-Term Investment (Identified Cost $2,865,000)...................... 2,865,000 ------------ Total Investments--99.9% (Identified Cost $850,070,195)(b)................. 990,310,344 Other assets less liabilities...................... 1,307,226 ------------ TOTAL NET ASSETS--100%............................. $991,617,570 ============ (a) See Note 1A. (b) Federal Tax Information: At June 30, 1996 the net unrealized appreciation on investments based on cost of $850,070,195 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost..................................... $158,314,380 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value................................... (18,074,231) ------------ Net unrealized appreciation........................ $140,240,149 ============ (c) Non-Income producing security.
See accompanying notes to financial statements. 21 NEW ENGLAND ZENITH FUND (CAPITAL GROWTH SERIES) STATEMENT OF ASSETS & LIABILITIES JUNE 30, 1996 (UNAUDITED) ASSETS Investments at value............................... $ 990,310,344 Cash............................................... 3,733 Receivable for: Fund shares sold................................... 744,117 Securities sold.................................... 16,123,240 Dividends and interest............................. 1,378,298 -------------- 1,008,559,732 LIABILITIES Payable for: Securities purchased............................... $15,905,034 Fund shares redeemed............................... 295,148 Miscellaneous...................................... 23,068 Accrued expenses: Management fees.................................... 517,781 Deferred trustees' fees............................ 44,575 Other expenses..................................... 156,556 ----------- 16,942,162 -------------- NET ASSETS.......................................... $ 991,617,570 ============== Net Assets consist of: Capital paid in.................................... $ 796,452,485 Undistributed net investment income................ 3,844,568 Accumulated net realized gains............................................. 51,080,368 Unrealized appreciation on investments............. 140,240,149 -------------- NET ASSETS.......................................... $ 991,617,570 ============== Computation of offering price: Net asset value and redemption price per share ($991,617,570 divided by 2,513,565 shares of beneficial interest)............................... $ 394.51 ============== Identified cost of investments...................... $ 850,070,195 ==============
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) INVESTMENT INCOME Dividends.............................................. $ 7,080,715 Interest............................................... 92,992 ----------- 7,173,707 EXPENSES Management fees........................................ $3,093,449 Trustees' fees and expenses............................ 18,092 Custodian.............................................. 80,133 Audit and tax services................................. 7,450 Legal.................................................. 4,028 Printing............................................... 149,575 Miscellaneous.......................................... 4,968 ---------- Total expenses........................................ 3,357,695 ----------- NET INVESTMENT INCOME................................... 3,816,012 REALIZED AND UNREALIZED GAIN ON INVESTMENTS Realized gain on: Investments--net....................................... 31,301,804 Unrealized appreciation on: Investments--net........... 13,982,314 ----------- Net gain on investment transactions..................... 45,284,118 ----------- NET INCREASE IN NET ASSETS FROM OPERATIONS.............. $49,100,130 ===========
See accompanying notes to financial statements. 22 NEW ENGLAND ZENITH FUND (CAPITAL GROWTH SERIES) STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
YEAR ENDED SIX MONTHS DECEMBER 31, ENDED 1995 JUNE 30, 1996 ------------ ------------- FROM OPERATIONS Net investment income............................ $ 7,450,611 $ 3,816,012 Net realized gain on investments................. 132,068,325 31,301,804 Unrealized appreciation on investments........... 114,117,353 13,982,314 ------------ ------------ INCREASE IN NET ASSETS FROM OPERATIONS........... 253,636,289 49,100,130 ------------ ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income............................ (7,422,072) 0 Net realized gain on investments................. (112,289,797) 0 ------------ ------------ (119,711,869) 0 ------------ ------------ FROM CAPITAL SHARES TRANSACTIONS Proceeds from sale of shares..................... 211,234,567 119,915,713 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income......... 7,422,051 0 Distributions from net realized gain............. 112,289,762 0 ------------ ------------ 330,946,380 119,915,713 Cost of shares redeemed.......................... (210,553,681) (98,842,093) ------------ ------------ INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS.................................... 120,392,699 21,073,620 ------------ ------------ TOTAL INCREASE IN NET ASSETS..................... 254,317,119 70,173,750 NET ASSETS Beginning of the period.......................... 667,126,701 921,443,820 ------------ ------------ End of the period................................ $921,443,820 $991,617,570 ============ ============ UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the period.......................... $ 278,739 $ 28,556 ============ ============ End of the period................................ $ 28,556 $ 3,844,568 ============ ============ NUMBER OF SHARES OF THE FUND: Issued from the sale of shares................... 561,255 305,199 Issued in connection with the reinvestment of: Distributions from net investment income......... 19,951 0 Distributions from net realized gain............. 301,846 0 ------------ ------------ 883,052 305,199 Redeemed......................................... (559,603) (251,290) ------------ ------------ Net change....................................... 323,449 53,909 ============ ============
FINANCIAL HIGHLIGHTS (UNAUDITED)
YEAR ENDED DECEMBER 31, SIX MONTHS ------------------------------------------------ ENDED 1991 1992 1993 1994 1995 JUNE 30, 1996 -------- -------- -------- -------- -------- ------------- Net Asset Value, Beginning of Period.... $ 249.04 $ 347.36 $ 322.23 $ 351.63 $ 312.30 $ 374.62 -------- -------- -------- -------- -------- -------- Income From Investment Operations Net Investment Income.. 3.16 4.04 2.12 5.28 3.47 1.52 Net Realized and Unrealized Gain (Loss) on Investments........ 130.75 (25.10) 46.21 (30.54) 114.91 18.37 -------- -------- -------- -------- -------- -------- Total From Investment Operations............ 133.91 (21.06) 48.33 (25.26) 118.38 19.89 -------- -------- -------- -------- -------- -------- Less Distributions Distributions From Net Investment Income..... (3.22) (4.07) (2.18) (5.15) (3.48) 0.00 Distributions From Net Realized Capital Gains................. (31.93) 0.00 (16.75) (8.92) (52.58) 0.00 Distributions From Paid-in Capital....... (0.44) 0.00 0.00 0.00 0.00 0.00 -------- -------- -------- -------- -------- -------- Total Distributions.... (35.59) (4.07) (18.93) (14.07) (56.06) 0.00 -------- -------- -------- -------- -------- -------- Net Asset Value, End of Period................. $ 347.36 $ 322.23 $ 351.63 $ 312.30 $ 374.62 $ 394.51 ======== ======== ======== ======== ======== ======== TOTAL RETURN (%)........ 54.00 (6.05) 14.97 (7.07) 38.03 5.31(b) Ratio of Operating Expenses to Average Net Assets (%)............. 0.70 0.70 0.68 0.67 0.71 0.70(a) Ratio of Net Investment Income to Average Net Assets (%)............. 1.22 1.53 0.67 1.61 0.92 0.79(a) Portfolio Turnover Rate (%).................... 174 207 169 140 242 265(a) Average Commission Rate(c)................ -- -- -- -- -- $ 0.0626 Net Assets, End of Period (000)........... $343,965 $472,017 $644,384 $667,127 $921,444 $991,618
(a) Computed on an annualized basis. (b) Not computed on an annualized basis. (c) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for trades on which commissions are charged. This rate generally does not reflect mark- ups, mark-downs, or spreads on shares traded on a principal basis. See accompanying notes to financial statements. 23 ZENITH LOOMIS SAYLES AVANTI GROWTH SERIES PORTFOLIO MANAGERS: SCOTT PAPE AND BRUCE EBEL LOOMIS, SAYLES & COMPANY, L.P. - ------------------ MARKET REVIEW [PHOTO OF SCOTT Buoyed by an acceleration of activity in key areas such PAPE & BRUCE as retail sales, employment and housing, the general EBEL APPEARS economic environment was solid during the first six months HERE] of 1996. Inflation remained under control during the period with very little evidence of pricing or labor cost pressures that traditionally ignite higher inflation. The only negative trend developing during the first half of 1996 was the rise of long-term interest rates. Yields on the thirty-year bellwether long-term Treasury Bond rose - ------------------ from 5.8% in January to 7.2% by late June. That has led to some consternation and subsequent volatility in both the fixed income and equity markets. Thanks to a boost from consumer and technology stocks, the Avanti Growth Series continued to post strong gains. For the six months ending June 30, 1996, the Series returned 10.85%. The Series' continued strong performance was fueled primarily by stocks that benefited from accelerated consumer spending and retail sales. Holdings that boosted the overall performance of the Series came from the technology, financial, and consumer staples sectors, particularly from companies that make telecommunications, software, personal care and beverage products. Energy holdings, an area where the Series increased its exposure, also performed admirably, with oil field service companies driving returns. Overall, growth indices bettered the performance of value stocks year-to-date, indicating the heavier proportion of harder-hit industrial and utility stocks in most value funds. Sectors that underperformed included heavy industrials, especially companies that sold basic materials, such as steel, building materials and construction and home building materials. Utilities were a sub-standard performer as well, attributable chiefly to the rising interest rate environment during the first half of the year. The Series was underweighted in both categories during this period. An area that received greater weighting in the Series in late 1995 and early 1996 was domestic emerging growth stocks, representing 33% of the Series as of January 1, 1996, which also performed very well over the first six months of 1996. Allocating a third of the Series to domestic emerging growth stocks follows a general strategy of uncovering dynamic growth companies earlier in their life cycles than other growth investing. By locating the next Coca-Cola's and Gillette's of the world, the Series pursued substantially higher overall returns than those derived from index funds. Combined with core stocks that have already established a long-term pattern of growth and earnings, the Series' domestic emerging growth stock allocation targets the upside potential characteristic of a growth fund, with the market correlation and limitation of risk sought by an index fund. Individual stocks that contributed to the growth of the Series during the period included Microsoft, Cintas and Paychex. Microsoft, our second largest holding in the Series, exemplifies the Series' management strategy. It's a premiere company that has dominated its industry and one that has earned above average rates of return over long periods of time. Cinta, the market leader in the uniform rental industry, underscores another tenet that the Series operates under: finding companies with a history of predictable above average earnings that they have provided quarter after quarter. Cinta has experienced average growth of 20% annually over the last ten years. Paychex personifies the emerging growth stock investment strategy that the Series employs. A small company that does payroll processing for rapidly growing businesses, Paychex presents an investment opportunity with high recurring revenues and consistently strong growth in a market that is not yet saturated. 24 OUTLOOK AND STRATEGY We believe that economic growth will slow moderately through the rest of 1996. Interest rates should remain stable and low inflation should be the norm for the period. We expect that corporate earnings will continue to be strong even if the economy loses some momentum. Companies are still enjoying increased productivity and are working hard to bolster their bottom lines. That should result in further growth for these companies in particular and the economy in general during the second half of 1996. In the meantime, the Series will continue to focus on America's premiere companies--leaders in their respective industries, with strong management and excellent prospects for increased revenues and earnings. We feel these stocks offer investors the best opportunities for long-term growth. A $10,000 Investment Compared to an Index FUND FACTS [GRAPH APPEARS HERE] GOAL: Long-term growth of capital. Avanti Growth S&P START DATE: April 30, 1993 Series 500/20/ Inception 4/30/93 $10,000 $10,000 SIZE: $65 million as of June 30, 12/31/93 11,473 10,819 1996 12/31/94 11,443 10,966 12/31/95 14,916 15,072 MANAGERS: Scott Pape has served 6/30/96 16,533 16,592 as a co-portfolio manager of the Series since 1993; Bruce Ebel replaced Richard Hurckes, who Average Annual Return retired in June 1996. They also manage New England Capital Avanti Lipper Variable Growth Growth Fund. Mr. Pape joined Growth Series Fund Average/11/ Loomis Sayles in 1991 and Mr. 6 mos.* 10.85% 10.56% Ebel in 1994. Prior to joining 1 year 20.46% 23.96% Loomis Sayles, Mr. Ebel served Since as Senior Vice President at inception 17.21% n/a Kemper Asset Management. *not annualized Performance numbers are net of all Series expenses but do not include any insurance, sales or administrative charges of variable annuity or life insurance contracts; if these charges were included, the returns shown would be lower. This information represents past performance and is not indicative of future results. Investment return and principal value will fluctuate so that shares, upon redemption, may be worth more or less than the original cost. 25 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES AVANTI GROWTH SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) COMMON STOCKS--97.3% OF NET ASSETS
SHARES VALUE (A) AEROSPACE--1.1% 7,800 Boeing Co. .............................................. $ 679,574 ----------- AIRLINES--0.5% 11,500 Southwest Airlines Co. .................................. 334,937 ----------- APPAREL & TEXTILES--0.2% 1,300 Nike, Inc. .............................................. 133,575 ----------- BANKS--1.5% 16,300 First Bank Systems....................................... 945,400 ----------- BUSINESS SERVICES--11.0% 13,000 Ceridian Corp.(c)........................................ 656,500 26,000 Checkfree Corp.(c)....................................... 516,750 21,200 Cintas Corp. ............................................ 1,134,200 19,400 Danka Business Systems................................... 567,450 21,900 First Data Corp. ........................................ 1,743,788 41,250 Fiserv, Inc.(c).......................................... 1,237,500 17,200 Medaphis Corp.(c)........................................ 683,700 11,600 Paychex, Inc. ........................................... 558,250 1,000 Sykes Enterprises, Inc.(c)............................... 49,250 ----------- 7,147,388 ----------- CHEMICALS--2.5% 10,000 Air Products & Chemicals, Inc. .......................... 577,500 28,500 Monsanto Co. ............................................ 926,250 3,500 Morton International, Inc. .............................. 130,375 ----------- 1,634,125 ----------- COMMUNICATION--9.5% 4,000 Cascade Communications Corp.(c).......................... 272,000 22,500 Cisco Systems, Inc.(c)................................... 1,274,063 14,500 Glenayre Technologies, Inc.(c)........................... 725,000 15,900 Motorola, Inc. .......................................... 999,713 4,600 Paging Network, Inc.(c).................................. 110,400 24,900 Qualcom, Inc.(c)......................................... 1,322,812 15,200 Tellabs, Inc.(c)......................................... 1,016,500 4,900 US Robotics, Inc. ....................................... 418,950 ----------- 6,139,438 ----------- COMPUTER SOFTWARE & SERVICES--9.6% 11,000 Adobe Systems, Inc. ..................................... 394,625 11,000 Automatic Data Processing................................ 424,875 9,900 HBO & Co. ............................................... 670,725 49,000 Informix Corp.(c)........................................ 1,102,500 14,400 Microsoft Corp.(c)....................................... 1,729,800 19,000 Oracle Systems Corp.(c).................................. 749,313 26,900 Parametric Technology Corp.(c)........................... 1,166,787 ----------- 6,238,625 -----------
SHARES VALUE (A) COMPUTERS & BUSINESS EQUIPMENT--2.5% 16,300 Hewlett Packard Co. ...................................... $ 1,623,887 ----------- ELECTRIC--2.4% 18,000 General Electric Co. ..................................... 1,557,000 ----------- ELECTRONIC COMPONENTS--5.5% 17,300 Intel Corp. .............................................. 1,270,468 31,000 LSI Logic Corp.(c)........................................ 806,000 7,000 Molex, Inc. .............................................. 222,250 17,500 Molex, Inc. Class A....................................... 514,063 19,500 Solectron Corp.(c)........................................ 738,563 ----------- 3,551,344 ----------- ENERGY--0.7% 2,700 Amoco Corp. .............................................. 195,413 3,100 Schlumberger, Ltd. ....................................... 261,175 ----------- 456,588 ----------- FINANCIAL SERVICES--2.1% 14,000 MBNA Corp. ............................................... 399,000 15,200 MGIC Investment Corp. .................................... 853,100 5,300 Charles Schwab Corp. ..................................... 129,850 ----------- 1,381,950 ----------- FOOD & BEVERAGES--2.8% 15,000 Coca Cola Co. ............................................ 733,125 30,400 PepsiCo, Inc. ............................................ 1,075,400 ----------- 1,808,525 ----------- GAS & PIPELINE UTILITIES--0.5% 8,300 Enron Corp. .............................................. 339,263 ----------- HEALTH CARE--5.7% 19,000 Boston Scientific Corp.(c)................................ 855,000 18,300 Indexx Labs, Inc.(c)...................................... 718,275 21,900 Medtronic, Inc. .......................................... 1,226,400 26,200 Summit Technology, Inc.(c)................................ 366,800 30,000 Ventritex, Inc.(c)........................................ 513,750 ----------- 3,680,225 ----------- HEALTH CARE--DRUGS--7.6% 22,400 Amgen, Inc.(c)............................................ 1,209,600 6,000 Biogen, Inc.(c)........................................... 329,250 25,400 Johnson & Johnson......................................... 1,257,300 19,900 Merck & Co. .............................................. 1,286,038 87,000 Oncor, Inc.(c)............................................ 478,500 23,000 Somatogen, Inc.(c)........................................ 324,875 ----------- 4,885,563 -----------
See accompanying notes to financial statements. 26 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES AVANTI GROWTH SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) COMMON STOCKS--(CONTINUED)
SHARES VALUE (A) HEALTH CARE--SERVICES--3.5% 18,000 Columbia/HCA Healthcare................................... $ 960,750 28,600 Healthsouth Corp.(c)...................................... 1,029,600 4,050 Phycor, Inc.(c)........................................... 153,900 2,000 United Healthcare Corp. .................................. 101,000 ----------- 2,245,250 ----------- HOTELS & RESTAURANTS--5.9% 11,400 Boston Chicken, Inc.(c)................................... 370,500 7,100 Circus Circus Enterprises(c).............................. 291,100 18,800 Lone Star Steakhouse Saloon(c)............................ 709,700 11,300 McDonalds Corp. .......................................... 528,275 21,900 Primadonna Resorts, Inc.(c)............................... 503,700 49,000 Starbucks Corp.(c)........................................ 1,384,250 ----------- 3,787,525 ----------- HOUSEHOLD PRODUCTS--3.5% 17,700 Duracell International, Inc. ............................. 763,313 21,500 Gillette Co. ............................................. 1,341,062 1,400 Procter & Gamble Co. ..................................... 126,875 ----------- 2,231,250 ----------- INSURANCE--2.8% 11,500 American International Group, Inc. ....................... 1,134,188 10,000 Exel Limited.............................................. 705,000 ----------- 1,839,188 ----------- LEISURE TIME--1.6% 13,300 Eastman Kodak Co. ........................................ 1,034,074 ----------- MACHINERY--1.5% 14,000 Illinois Tool Works, Inc. ................................ 946,750 ----------- MEDIA & ENTERTAINMENT--2.5% 16,400 Walt Disney Co. .......................................... 1,031,150 14,400 Tele-Communications, Inc. NE(c)........................... 261,000 1,800 Tribune Co. .............................................. 130,725 10,300 U.S. West Media Group(c).................................. 187,975 ----------- 1,610,850 ----------- METALS--0.3% 3,200 Nucor Corp. .............................................. 162,000 ----------- OIL--2.5% 22,000 Anadarko Petroleum Corp. ................................. 1,276,000 11,300 Enron Oil & Gas Co. ...................................... 314,988 ----------- 1,590,988 ----------- OIL SERVICES--0.8% 7,800 Baker Hughes, Inc. ....................................... 256,425 18,400 Rowan Companies, Inc.(c).................................. 271,400 ----------- 527,825 -----------
SHARES VALUE (A) RETAIL--3.0% 28,000 Office Max, Inc.(c)................................. $ 668,500 27,150 Petsmart, Inc.(c)................................... 1,296,412 ----------- 1,964,912 ----------- RETAIL SPECIALTY--1.8% 32,450 CUC International, Inc.(c).......................... 1,151,974 ----------- TELECOMMUNICATION--0.4% 2,000 AT & T Corp. ....................................... 124,000 6,500 MCI Communications Corp. ........................... 166,563 ----------- 290,563 ----------- TOBACCO--1.5% 9,500 Philip Morris Companies, Inc. ...................... 988,000 ----------- Total Common Stocks (Identified Cost $52,488,895)...................... 62,908,556 ----------- SHORT-TERM INVESTMENT--2.3% FACE AMOUNT $1,501,533 Associates Corp. of North America 5.45%, 7/01/96..................................... 1,501,533 ----------- Total Short-Term Investment (Identified cost $1,501,533)....................... 1,501,533 ----------- Total Investments--99.6% (Identified cost $53,990,428)(b)................... 64,410,089 Other assets less liabilities....................... 255,935 ----------- TOTAL NET ASSETS--100%.............................. $64,666,024 =========== (a) See Note 1A. (b) Federal Tax Information: At June 30, 1996 the net unrealized appreciation on investments based on cost for federal income tax purposes of $53,990,428 was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost...................................... $11,781,569 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value......................................... (1,361,908) ----------- Net unrealized appreciation......................... $10,419,661 =========== (c) Non-income producing security.
See accompanying notes to financial statements. 27 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES AVANTI GROWTH SERIES) STATEMENT OF ASSETS & LIABILITIES JUNE 30, 1996 (UNAUDITED) ASSETS Investments at value................................... $64,410,089 Receivable for: Fund shares sold....................................... 132,904 Securities sold........................................ 1,254,181 Dividends and interest................................. 47,857 Foreign withholding taxes.............................. 44 ----------- 65,845,075 LIABILITIES Payable for: Securities purchased................................... $1,060,866 Fund shares redeemed................................... 28,476 Foreign withholding taxes.............................. 212 Miscellaneous.......................................... 474 Accrued expenses: Management fees........................................ 64,343 Deferred trustees' fees................................ 633 Other expenses......................................... 24,047 ---------- 1,179,051 ----------- NET ASSETS.............................................. $64,666,024 =========== Net Assets consist of: Capital paid in........................................ $50,671,120 Undistributed net investment income.................... 43,602 Accumulated net realized gains......................... 3,531,641 Unrealized appreciation on investments................. 10,419,661 ----------- NET ASSETS.............................................. $64,666,024 =========== Computation of offering price: Net asset value and redemption price per share ($64,666,024 divided by 409,567 shares of beneficial interest).............................................. $ 157.89 =========== Identified cost of investments.......................... $53,990,428 ===========
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) INVESTMENT INCOME Dividends............................................. $ 202,346(a) Interest.............................................. 74,977 ---------- 277,323 EXPENSES Management fees....................................... $197,714 Trustees' fees and expenses........................... 6,673 Custodian............................................. 26,467 Audit and tax services................................ 5,700 Legal................................................. 5,163 Printing.............................................. 20,981 Miscellaneous......................................... 3,424 -------- Total expenses....................................... 266,122 Less expenses assumed by the investment adviser...... (26,039) 240,083 -------- ---------- NET INVESTMENT INCOME.................................. 37,240 REALIZED AND UNREALIZED GAIN ON INVESTMENTS Realized gain on: Investments--net...................................... 2,622,731 Unrealized appreciation on: Investments--net...................................... 3,089,684 ---------- Net gain on investment transactions.................... 5,712,415 ---------- NET INCREASE IN NET ASSETS FROM OPERATIONS............. $5,749,655 ========== (a) Net of foreign taxes of: $160.
See accompanying notes to financial statements. 28 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES AVANTI GROWTH SERIES) STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1995 1996 ------------ ----------- FROM OPERATIONS Net investment income............................... $ 138,413 $ 37,240 Net realized gain on investments.................... 2,703,726 2,622,731 Unrealized appreciation on investments.............. 6,182,432 3,089,684 ----------- ----------- INCREASE IN NET ASSETS FROM OPERATIONS.............. 9,024,571 5,749,655 ----------- ----------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income............................... (132,051) 0 Net realized gain on investments.................... (1,364,969) 0 ----------- ----------- (1,497,020) 0 ----------- ----------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from sale of shares........................ 25,328,373 17,711,099 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income............ 132,051 0 Distributions from net realized gain................ 1,364,969 0 ----------- ----------- 26,825,393 17,711,099 Cost of shares redeemed............................. (11,142,834) (7,627,100) ----------- ----------- INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS....................................... 15,682,559 10,083,999 ----------- ----------- TOTAL INCREASE IN NET ASSETS........................ 23,210,110 15,833,654 NET ASSETS Beginning of the period............................. 25,622,260 48,832,370 ----------- ----------- End of the period................................... $48,832,370 $64,666,024 =========== =========== UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the period............................. $ 0 $ 6,362 =========== =========== End of the period................................... $ 6,362 $ 43,602 =========== =========== NUMBER OF SHARES OF THE FUND: Issued from the sale of shares...................... 188,223 117,619 Issued in connection with the reinvestment of: Distributions from net investment income............ 929 0 Distributions from net realized gain................ 9,604 0 ----------- ----------- 198,756 117,619 Redeemed............................................ (83,183) (50,875) ----------- ----------- Net change.......................................... 115,573 66,744 =========== ===========
FINANCIAL HIGHLIGHTS (UNAUDITED)
APRIL 30, 1993 (A) YEAR ENDED SIX MONTHS THROUGH DECEMBER 31, ENDED DECEMBER 31, ------------ JUNE 30, 1993 1994 1995 1996 ------------------ ------- ------- ---------- Net Asset Value, Beginning of Period....................... $100.00 $113.67 $112.77 $142.44 ------- ------- ------- ------- Income From Investment Operations Net Investment Income........ 0.18 0.59 0.42 0.09 Net Realized and Unrealized Gain (Loss) on Investments.. 14.56 (0.89) 33.80 15.36 ------- ------- ------- ------- Total From Investment Operations.................. 14.74 (0.30) 34.22 15.45 ------- ------- ------- ------- Less Distributions Distributions From Net Investment Income........... (0.18) (0.60) (0.40) 0.00 Distributions From Net Realized Capital Gains...... (0.67) 0.00 (4.15) 0.00 Distributions From Paid-in Capital..................... (0.22) 0.00 0.00 0.00 ------- ------- ------- ------- Total Distributions.......... (1.07) (0.60) (4.55) 0.00 ------- ------- ------- ------- Net Asset Value, End of Period....................... $113.67 $112.77 $142.44 $157.89 ======= ======= ======= ======= TOTAL RETURN (%).............. 14.74 (c) (0.27) 30.35 10.85(c) Ratio of Operating Expenses to Average Net Assets (%)....... 0.85 (b) 0.84 0.85 0.85(b) Ratio of Net Investment Income to Average Net Assets (%).... 0.46 (b) 0.67 0.37 0.13(b) Portfolio Turnover Rate (%)... 21 (b) 67 58 84(b) Average Commission Rate (d).. -- -- -- $0.0312 Net Assets, End of Period (000)........................ $11,972 $25,622 $48,832 $64,666 The ratios of expenses to average net assets without giving effect to the voluntary expense agreement described in Note 4 to the Financial Statements would have been (%)................ 0.89 (b) 0.84 1.06 0.94(b)
(a) Commencement of operations. (b) Computed on an annualized basis. (c) Not computed on an annualized basis. (d) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for trades on which commissions are charged. This rate generally does not reflect mark- ups, mark-downs, or spreads on shares traded on a principal basis. See accompanying notes to financial statements. 29 ZENITH VENTURE VALUE SERIES PORTFOLIO MANAGERS: SHELBY M.C. DAVIS AND CHRISTOPHER C. DAVIS DAVIS SELECTED ADVISERS, L.P. - ----------------- ------------------------------------------------------------- MARKET REVIEW ------------------------------------------------------------- The Venture Value Series ended the six months ended June [PHOTO OF 30, 1996, with a total return of 7.71%, compared to the SHELBY M.C. total return of the 10.2% posted by the S&P 500 DAVIS AND Index/20/ over the same period. CHRISTOPHER In light of recent market activity and the market's DAVIS APPEARS average volatility over the last twenty to thirty years, HERE] investors should be prepared for a 1,000 point drop at any time. Were this to happen, we'd stay the course while looking for new opportunities to invest. Frankly, however, we're more concerned that the underlying euphoria might lead to a 1,000 upside market move--which would lead us to reexamine our investment tactics and look for selling opportunities. ---------------- But fundamentals remain positive for long term investors like us. There is still little sign of recession and inflation remains moderate. In addition, American companies are now more competitive in world markets, and have a lot of opportunity both to export goods and services as well as to locate facilities in high growth economies overseas. And while the market hovers near all-time highs, its current average price-per-earnings ratio is only slightly above its 50 year average--unlike several prior periods, when valuations reached dangerous levels. We therefore intend to stay fairly fully invested, riding out the inevitable ups and downs of the market. At the same time, we'll remain alert for strong buying or selling opportunities triggered by wide market swings. - -------------------------------------------------------------------------------- OUTLOOK AND STRATEGY - -------------------------------------------------------------------------------- As the market pushed to new highs, we asked ourselves again how to avoid losing money while still trying to make money. We responded by redoubling our efforts to control our portfolio's risk, first by continuing to focus on companies with strong balance sheets, which enables them to weather changing market conditions. Second, we've been increasing our holdings in world-class domestic and multinational natural resource companies. These stocks have just survived a 10-year depression in commodities prices, and now represent growth opportunities. At the same time, they're also defensive in nature and represent a bit of a hedge against inflation. Looking at the bigger picture, however, our strategies remain the same. We continue to emphasize four themes: financial companies with strong brand names selling at discounts to the market; growth companies whose stock volatility creates buying opportunities; high quality multinationals poised to benefit from high growth economies overseas, and companies with strong cash flows which are undergoing restructuring. To date, our investments in insurers and investment banks, which have added a lot to our performance, while our relatively low weighting in high technology stocks has helped us to avoid the losses that the sector has generated. A $10,000 Investment Compared to an Index FUND FACTS [GRAPH APPEARS HERE] GOAL: Growth of capital. Venture S&P START DATE: October 31, 1994 Value 500/20/ 10/31/94 $10,000 $10,000 SIZE: $63 million as of June 30, 12/31/94 9,650 9,794 1996 12/31/95 13,441 13,461 06/30/96 14,477 14,818 MANAGERS: Shelby M.C. Davis has served as portfolio manager since the Series' inception in Average Annual Return 1994 and has served as portfolio manager of Davis New York Venture Lipper Variable Growth Venture Fund since 1968 and of Value and Income Fund/12/ Selected American Shares since 6 mos.* 7.71% 9.48% May, 1993. He also managed the 1 year 22.20% 23.55% Selected Special Fund from May, Since 1993 through October, 1994 and inception 24.87% n/a the Davis Financial Fund from *not annualized May, 1991 through May, 1995. Christopher C. Davis has co- managed the Series since October, 1995 and has been an assistant portfolio manager and research analyst at Davis Selected since 1989. Performance numbers are net of all Series expenses but do not include any insurance, sales or administrative charges of variable annuity or life insurance contracts; if these charges were included, the returns shown would be lower. This information represents past performance and is not indicative of future results. Investment return and principal value will fluctuate so that shares, upon redemption, may be worth more or less than the original cost. 30 NEW ENGLAND ZENITH FUND (VENTURE VALUE SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) COMMON STOCKS--84.8% OF TOTAL NET ASSETS
SHARES VALUE(A) AEROSPACE--0.1% 1,000 Boeing Co. ............................................... $ 87,125 ----------- AGRICULTURE--0.1% 4,600 Archer-Daniels-Midland Co. ............................... 87,975 ----------- AUTOMOTIVE--2.1% 21,800 General Motors Corp. ..................................... 1,141,775 2,400 General Motors Corp., Class H............................. 144,300 ----------- 1,286,075 ----------- BANKS AND SAVINGS & LOANS--11.6% 26,860 Banc One Corp. ........................................... 913,240 7,300 Barnett Banks, Inc. ...................................... 445,300 18,580 Citicorp.................................................. 1,535,173 20,800 First Bank Systems, Inc. ................................. 1,206,400 300 First Union Corp. ........................................ 18,263 11,600 Golden West Financial Corp. .............................. 649,600 4,200 Signet Banking Corp. ..................................... 97,650 18,700 State Street Boston Corp. ................................ 953,700 6,400 Wells Fargo & Co. ........................................ 1,528,800 ----------- 7,348,126 ----------- COMPUTER PRODUCTS AND SERVICES--7.3% 11,900 Adobe Systems, Inc. ...................................... 426,913 17,100 Hewlett-Packard Co. ...................................... 1,703,588 28,900 Intel Corp. .............................................. 2,122,345 9,300 Novellus Systems, Inc.(c)................................. 334,800 ----------- 4,587,646 ----------- CONSUMER PRODUCTS--6.2% 600 American Brands, Inc. .................................... 27,225 400 American Home Products Corp. ............................. 24,050 32,000 Coca Cola Company......................................... 1,564,000 1,000 General Electric Co. ..................................... 86,500 8,400 The Gillette Co. ......................................... 523,950 48,900 Guinness PLC.............................................. 355,415 3,400 Kimberly-Clark Corp....................................... 262,650 9,900 Nestle SA (Switzerland) (ADR)(d).......................... 565,142 800 Philip Morris Companies, Inc. ............................ 83,200 10,900 The Seagram Co., Ltd. .................................... 366,513 ----------- 3,858,645 ----------- DIVERSIFIED FINANCIAL SERVICES--6.8% 48,900 American Express Co. ..................................... 2,182,163 16,700 Dean Witter, Discover & Co. .............................. 956,075 13,500 Federal Home Loan Mortgage Corporation.................... 1,154,250 ----------- 4,292,488 -----------
SHARES VALUE(A) ELECTRONICS--0.7% 15,200 Applied Materials, Inc.(c)................................ $ 463,600 ----------- ENERGY--5.3% 13,700 Amerada Hess Corp. ....................................... 734,663 200 Amoco Corp. .............................................. 14,475 400 Atlantic Richfield Co. ................................... 47,400 27,900 Burlington Resources, Inc. ............................... 1,199,700 1,200 Chevron Corp. ............................................ 70,800 8,500 Energy Venture, Inc.(c)................................... 276,250 1,900 Exxon Corp. .............................................. 165,062 4,700 Halliburton Co. .......................................... 260,850 200 Mobil Corp. .............................................. 22,425 4,500 Noble Affiliates, Inc. ................................... 169,875 3,500 Schlumberger, Ltd. ....................................... 294,875 300 Sonat, Inc. .............................................. 13,500 1,900 Unocal Corp. ............................................. 64,125 ----------- 3,334,000 ----------- ENTERTAINMENT--0.8% 8,500 Walt Disney Co. .......................................... 534,437 ----------- FOOD & RESTAURANT--2.7% 28,200 McDonald's Corp. ......................................... 1,318,350 14,700 Tyson Foods Inc., Class A................................. 402,413 ----------- 1,720,763 ----------- FREIGHT--0.4% 9,400 Illinois Central Corp..................................... 266,725 ----------- INTERNATIONAL CLOSED-END INVESTMENT COMPANY--1.0% 50,534 Morgan Stanley Asia Pacific Fund, Inc. ................... 606,407 ----------- INVESTMENT FIRMS--4.7% 18,900 Donaldson Lufkin & Jenrette, Inc. ........................ 585,900 11,700 J.P. Morgan & Co., Inc. .................................. 990,113 28,800 Morgan Stanley Group, Inc. ............................... 1,414,800 ----------- 2,990,813 ----------- LIFE INSURANCE--4.1% 54,800 Equitable Companies, Inc. ................................ 1,363,150 21,500 SunAmerica, Inc. ......................................... 1,214,750 ----------- 2,577,900 ----------- MANUFACTURING--0.0% 100 Dow Chemical Co. ......................................... 7,600 600 Maytag Corp. ............................................. 12,525 ----------- 20,125 -----------
See accompanying notes to financial statements. 31 NEW ENGLAND ZENITH FUND (VENTURE VALUE SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) COMMON STOCKS--(CONTINUED)
SHARES VALUE(A) PAPER PRODUCTS--1.6% 26,100 Fort Howard Corp.(c)...................................... $ 518,738 200 International Paper Co. .................................. 7,375 17,000 Jefferson Smurfit Corp.(c)................................ 184,875 6,000 The Mead Corp. ........................................... 311,250 300 Union Camp Corp. ......................................... 14,625 ----------- 1,036,863 ----------- PHARMACEUTICAL AND HEALTH CARE--2.9% 200 Bristol-Myers Squibb Co. ................................. 18,000 8,800 Johnson & Johnson......................................... 435,600 5,100 Merck & Co., Inc. ........................................ 329,588 14,700 Pfizer, Inc. ............................................. 1,049,213 ----------- 1,832,401 ----------- PHOTOGRAPHIC--1.3% 10,300 Eastman Kodak Co. ........................................ 800,824 ----------- PROPERTY/CASUALTY INSURANCE--14.8% 28,981 The Allstate Corp. ....................................... 1,322,259 5,900 American International Group, Inc. ....................... 581,888 18,900 W.R. Berkley Corp. ....................................... 789,075 25,600 Chubb Corp. .............................................. 1,276,800 10,500 General Re Corp. ......................................... 1,598,625 14,100 NAC Re Corp. ............................................. 472,350 5,800 National Re Corp. ........................................ 218,950 10,800 Progressive Corp. (Ohio).................................. 499,500 5,200 Transatlantic Holdings, Inc. ............................. 364,650 34,350 The Travelers Group, Inc. ................................ 1,567,219 20,600 20th Century Industries, Inc.(c).......................... 342,475 5,700 UNUM Corp. ............................................... 354,825 ----------- 9,388,616 ----------- PUBLISHING--2.5% 14,900 Gannet Co., Inc. ......................................... 1,054,175 7,100 Tribune Co. .............................................. 515,638 ----------- 1,569,813 ----------- REAL ESTATE--2.7% 7,400 Federal Realty Investment Trust(c)........................ 166,500 54,500 Host Marriott Corp.(c).................................... 715,313 1,600 Kimco Realty Corp. ....................................... 45,200 4,100 Mid-Atlantic Realty Trust................................. 40,744 4,600 Saul Centers, Inc. ....................................... 63,825 8,100 United Dominion Realty Trust, Inc. ....................... 116,437 11,800 Vornado Realty Trust...................................... 482,325 2,300 Weingarten Realty, Inc. .................................. 89,125 ----------- 1,719,469 -----------
SHARES VALUE(A) RETAIL--2.2% 20,600 Federated Department Stores, Inc.(c).................... $ 702,975 10,200 Harcourt General, Inc. ................................. 510,000 2,900 Home Depot, Inc. ....................................... 156,600 ----------- 1,369,575 ----------- TELECOMMUNICATIONS--2.1% 23,200 Airtouch Communications(c).............................. 655,400 2,300 AT & T Corp. ........................................... 142,600 3,600 Cellular Communications, Inc.(c)........................ 191,250 11,900 MCI Communications Corp. ............................... 304,938 200 SBC Communications, Inc. ............................... 9,850 ----------- 1,304,038 ----------- TRANSPORTATION--0.8% 7,300 Union Pacific Corp. .................................... 510,087 ----------- UTILITIES--0.0% 100 Carolina Power & Light Co. ............................. 3,800 200 Duke Power Co. ......................................... 10,250 200 Edison International.................................... 3,525 100 Enova Corp. ............................................ 2,312 100 Wisconsin Energy Corp. ................................. 2,888 ----------- 22,775 ----------- Total Common Stocks (Identified Cost $46,655,314).......................... 53,617,311 ----------- PREFERRED STOCK--1.5% 1,200 Banc One Corp., $3.50, Ser. C Conv. Pfd................. 80,100 42,900 The News Corp. Ltd., (ADR)(d)........................... 863,363 ----------- Total Preferred Stocks (Identified Cost $775,260)............................. 943,463 ----------- BONDS--0.1% FACE AMOUNT $39,000 Noble Affiliates, Inc., Conv. Sub. Notes, 4.25%, 11/01/03............................................... 42,998 ----------- Total Bonds (Identified Cost $40,005)................... 42,998 -----------
See accompanying notes to financial statements. 32 NEW ENGLAND ZENITH FUND (VENTURE VALUE SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) SHORT TERM INVESTMENTS--14.7%
FACE AMOUNT VALUE (A) $5,835,000 Federal Farm Credit Bank, Discount Note, 5.27%, 7/09/96............................................ $ 5,828,167 3,495,000 Federal Home Loan Mortgage Association, Discount Note, 5.24%, 7/01/96............................... 3,495,000 ----------- Total Short-Term Investment (Identified Cost $9,323,167)....................... 9,323,167 ----------- Total Investments--101.1% (Identified Cost $56,793,746)(b)................... 63,926,939 Other assets less liabilities(e).................... (679,242) ----------- TOTAL NET ASSETS--100%.............................. $63,247,697 =========== (a) See Note 1a. (b) Federal Tax Information: At June 30, 1996 the net unrealized appreciation on investments based on cost of $56,793,746 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost...................................... $ 7,543,853 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value......................................... (410,660) ----------- Net unrealized appreciation......................... $ 7,133,193 ===========
(c) Non-income producing security. (d) An American Depository Receipt (ADR) is a certificate issued by a U.S. bank representing the right to receive securities of the foreign issuer described. The values of ADRs are significantly influenced by trading on exchanges not located in the United States or Canada. (e) Including deposits in foreign denominated currencies with a value of $7,146 and a cost of $6,964. See accompanying notes to financial statements. 33 NEW ENGLAND ZENITH FUND (VENTURE VALUE SERIES) STATEMENT OF ASSETS & LIABILITIES JUNE 30, 1996 (UNAUDITED) ASSETS Investments at value................................... $63,926,939 Cash................................................... 7,746 Foreign cash at value.................................. 7,146 Receivable for: Fund shares sold....................................... 313,576 Securities sold........................................ 142,837 Dividends and interest................................. 67,724 Foreign withholding taxes.............................. 576 Prepaid expense........................................ 6,702 ----------- 64,473,246 LIABILITIES Payable for: Securities purchased................................... $1,048,332 Fund shares redeemed................................... 91,492 Withholding taxes...................................... 245 Accrued expenses: Management fees........................................ 43,143 Other expenses......................................... 42,337 ---------- 1,225,549 ----------- NET ASSETS.............................................. $63,247,697 =========== Net Assets consist of: Capital paid in........................................ $55,733,438 Undistributed net investment income.................... 334,013 Accumulated net realized gains......................... 46,879 Unrealized appreciation on investments and foreign currency.............................................. 7,133,367 ----------- NET ASSETS.............................................. $63,247,697 =========== Computation of offering price: Net asset value and redemption price per share ($63,247,697 divided by 4,483,306 shares of beneficial interest).............................................. $ 14.11 =========== Identified cost of investments.......................... $56,793,746 ===========
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) INVESTMENT INCOME Dividends............................................. $ 435,707(a) Interest.............................................. 115,426 ---------- 551,133 EXPENSES Management fees....................................... $184,191 Trustees' fees and expenses........................... 6,572 Custodian............................................. 46,187 Audit and tax services................................ 9,900 Legal................................................. 5,411 Printing.............................................. 8,983 Amortization of organization expenses................. 1,003 Miscellaneous......................................... 5,023 -------- Total expenses....................................... 267,270 Less expenses assumed by the investment adviser...... (46,239) 221,031 -------- ---------- NET INVESTMENT INCOME.................................. 330,102 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized loss on Investments--net..................... (36,497) Unrealized appreciation on Investments--net........... 3,190,561 ---------- Net gain on investment transactions.................... 3,154,064 ---------- NET INCREASE IN NET ASSETS FROM OPERATIONS............. $3,484,166 ========== (a) Net of foreign taxes of: $3,936.
See accompanying notes to financial statements. 34 NEW ENGLAND ZENITH FUND (VENTURE VALUE SERIES) STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1995 1996 ------------ ----------- FROM OPERATIONS Net investment income............................... $ 246,049 $ 330,102 Net realized gain (loss) on investments............. 600,646 (36,497) Unrealized appreciation on investments and foreign currency........................................... 3,966,150 3,190,561 ----------- ----------- INCREASE IN NET ASSETS FROM OPERATIONS.............. 4,812,845 3,484,166 ----------- ----------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income............................... (244,485) 0 Net realized gain on investments.................... (517,278) 0 ----------- ----------- (761,763) 0 ----------- ----------- FROM CAPITAL SHARES TRANSACTIONS Proceeds from sale of shares........................ 31,372,928 31,814,844 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income............ 244,485 0 Distributions from net realized gain................ 517,278 0 ----------- ----------- 32,134,691 31,814,844 Cost of shares redeemed............................. (4,512,250) (7,096,280) ----------- ----------- INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS....................................... 27,622,441 24,718,564 ----------- ----------- TOTAL INCREASE IN NET ASSETS........................ 31,673,523 28,202,730 NET ASSETS Beginning of the period............................. 3,371,444 35,044,967 ----------- ----------- End of the period................................... $35,044,967 $63,247,697 =========== =========== UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the period............................. $ 0 $ 3,911 =========== =========== End of the period................................... $ 3,911 $ 334,013 =========== =========== NUMBER OF SHARES OF THE FUND: Issued from the sale of shares...................... 2,627,688 2,325,674 Issued in connection with the reinvestment of: Distributions from net investment income............ 18,850 0 Distributions from net realized gain................ 39,883 0 ----------- ----------- 2,686,421 2,325,674 Redeemed............................................ (362,591) (516,790) ----------- ----------- Net change.......................................... 2,323,830 1,808,884 =========== ===========
FINANCIAL HIGHLIGHTS (UNAUDITED)
OCTOBER 31, 1994 (A) SIX MONTHS THROUGH ENDED DECEMBER 31, YEAR ENDED JUNE 30, 1994 1995 1996 -------------------- ---------- ---------- Net Asset Value, Beginning of Period........................... $10.00 $ 9.62 $ 13.10 ------ ------- ------- Income From Investment Operations Net Investment Income............ 0.03 0.10 0.17 Net Realized and Unrealized Gain (Loss) on Investments........... (0.38) 3.68 0.84 ------ ------- ------- Total From Investment Operations. (0.35) 3.78 1.01 ------ ------- ------- Less Distributions Distributions From Net Investment Income.......................... (0.03) (0.10) 0.00 Distributions From Net Realized Capital Gains................... 0.00 (0.20) 0.00 ------ ------- ------- Total Distributions.............. (0.03) (0.30) 0.00 ------ ------- ------- Net Asset Value, End of Period.... $ 9.62 $ 13.10 $ 14.11 ====== ======= ======= TOTAL RETURN (%).................. (3.50)(c) 39.28 7.71 (c) Ratio of Operating Expenses to Average Net Assets (%)........... 0.90 (b) 0.90 0.90 (b) Ratio of Net Investment Income to Average Net Assets (%)........... 2.54 (b) 1.39 1.33 (b) Portfolio Turnover Rate (%)....... 1 (b) 20 12 (b) Average Commission Rate (d)....... -- -- $0.0423 Net Assets, End of Period (000)... $3,371 $35,045 $63,248 The ratios of expenses to average net assets without giving effect to the voluntary expense agreement described in Note 4 to the Financial Statements would have been (%).................... 3.97 (b) 1.51 1.09 (b)
(a) Commencement of operations. (b) Computed on an annualized basis. (c) Not computed on an annualized basis. (d) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission per share for trades on which commissions are charged. This rate generally does not reflect mark-ups, mark-downs, or spreads on shares traded on a principal basis. See accompanying notes to financial statements. 35 ZENITH WESTPEAK VALUE GROWTH SERIES PORTFOLIO MANAGERS: GERALD SCRIVER AND PHILIP COOPER; WESTPEAK INVESTMENT ADVISORS, L.P. - ----------------- ------------------ MARKET REVIEW The first six months of 1996 held [PHOTO OF GERALD [PHOTO OF PHILIP few surprises for us in terms of the SCRIVER APPEARS COOPER APPEARS overall economic environment and its HERE] HERE] effects on the Westpeak Value Growth Series. We anticipated rising interest rates throughout 1996, as well as a rise in inflation; thus far, our expectations have been accurate. In the shadow of 1995's bull market, - ----------------- ------------------ both the stock market and the economy have remained strong. However, we do not expect the current growth rates to continue through the second half of this year. Therefore, we have positioned the portfolio for a weaker market environment by placing a stronger emphasis on value stocks, which tend to outperform growth investments in uncertain market environments. For the first half of 1996 the Series' total return was 4.70%. While the Series underperformed its benchmark, the S&P 500/20/, in the first six months of the year, its long-term track record remains strong. As of June 30, 1996, a $10,000 investment in the Westpeak Value Growth Series since inception on April 30, 1993 would have grown to $16,125. This is a hypothetical value attributable to the Series since inception and does not include variable annuity and life insurance contract charges and expenses. We believe the Series' relative underperformance for the first six months of this year was due, in part, to our own early anticipation of a changing market environment--one we believe will ultimately favor value stocks over growth stocks. The momentum of the stock market this year has been characterized by strength in highly volatile, smaller companies. Consistent with our strategy, we've focused the Series' investments on large, highly liquid companies with low price to earnings (P/E) ratios. Low P/E stocks, such as Exxon, Sears and General Motors, carry relatively low risk, but have in many cases shown the potential to achieve consistent growth over time. While these large capitalization stocks have been relatively ignored during the last six to eight months, we believe that they are about to come back into favor, especially if interest rates rise and investors become more concerned with the effects of this economic change on small cap investments. Recently, the NASDAQ and Russell 2000/19/ indexes, benchmarks for small company stock performance, have become more volatile. This trend may indicate that small cap stocks may underperform in the second half of the year. With this in mind, over the past two or three months we have been shifting the Series' focus toward a value-based investment strategy, increasing our emphasis on defensive, low P/E stocks to help offset the volatility of smaller company stocks. Currently, the Series' portfolio is overweighted in the energy sector. This was beneficial in the first half of the year, as energy stocks responded well to rising interest rates. We'll maintain this position in anticipation of continued rising rates. OUTLOOK AND STRATEGY As we enter the third quarter of 1996, we believe the outlook for stocks and bonds is fairly unfriendly. We believe the economy is going to experience several more quarters of above-potential growth. This will result in the perception of an increase in inflationary pressures and the distinct possibility of tightening in Fed interest rate policy. Bonds appear to offer decent value relative to stocks, but yields are likely to rise further as investors raise their outlook for economic growth. We expect the Long Government bond yield to reach 7.50-7.75% during this cycle. Westpeak's measures of speculation, valuation and monetary environment indicate the market (as measured by the Russell 1000/18/) is high-risk territory. An equity bear phase should emerge this summer. A market downturn will shift relative performance to value stocks and away from growth stocks. 36 A $10,000 Investment Compared to an Index FUND FACTS [GRAPH APPEARS HERE] GOAL: Long-term total return through investment in equity securities. Value Growth S&P START DATE: May 1, 1993 Series 500/20/ 4/30/93 $10,000 $10,000 SIZE: $62 million as of 12/31/93 11,424 10,819 June 30, 1996 12/31/94 11,286 10,966 12/31/95 15,402 15,072 MANAGERS: Gerald Scriver 06/30/96 16,125 16,592 and Philip Cooper. Mr. Scriver and Mr. Cooper Average Annual Return have managed the Series since its inception in Value Lipper Variable Growth 1993; they also have Growth and Income Fund Average/12/ managed Westpeak Stock 6 mos.* 4.70% 9.48% Index Series since August, 1 year 18.57% 23.55% 1993 and New England Since Growth Opportunities Fund inception 16.28% n/a since May 1, 1995. Mr. *not annualized Scriver joined Westpeak in July, 1991 and Mr. Cooper joined Westpeak in December, 1991. Performance numbers are net of all Series expenses but do not include any insurance, sales or administrative charges of variable annuity or life insurance contracts; if these charges were included, the returns shown would be lower. This information represents past performance and is not indicative of future results. Investment return and principal value will fluctuate so that shares, upon redemption, may be worth more or less than the original cost. 37 NEW ENGLAND ZENITH FUND (WESTPEAK VALUE GROWTH SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) COMMON STOCKS--97.0% OF TOTAL NET ASSETS
SHARES VALUE(A) AEROSPACE--1.4% 6,200 Lockheed Martin Corp...................................... $ 520,800 2,800 United Technologies Corp.................................. 322,000 ----------- 842,800 ----------- AGRICULTURE & FOOD--3.3% 18,100 CPC International, Inc.................................... 1,303,200 27,800 IBP, Inc.................................................. 767,975 ----------- 2,071,175 ----------- AIRLINES--0.8% 3,700 AMR Corp.(c).............................................. 336,700 2,800 UAL, Inc.(c).............................................. 150,500 ----------- 487,200 ----------- ALUMINUM--0.4% 4,100 Aluminum Company of America............................... 235,237 ----------- APPAREL--1.6% 9,600 Nike, Inc................................................. 986,400 ----------- BANKS--4.3% 13,800 Banponce Corp. New........................................ 621,000 7,000 Citicorp.................................................. 578,375 17,900 NationsBank Corp.......................................... 1,478,988 ----------- 2,678,363 ----------- BEVERAGE--1.2% 15,200 Coca Cola Co.............................................. 742,900 ----------- BUSINESS MACHINES--4.3% 2,900 Cabletron Systems, Inc.(c)................................ 199,013 5,500 Gateway 2000, Inc.(c)..................................... 187,000 10,200 Hewlett Packard Co........................................ 1,016,175 12,200 Seagate Technology(c)..................................... 549,000 1,400 Sun Microsystems, Inc.(c)................................. 82,425 24,800 Western Digital Corp.(c).................................. 647,900 ----------- 2,681,513 ----------- CHEMICAL--1.2% 4,500 Albemarle Corp............................................ 82,125 10,800 Cabot Corp................................................ 264,600 32,000 Terra Industries, Inc..................................... 396,000 ----------- 742,725 ----------- COMPUTER SOFTWARE & SERVICES--2.3% 26,600 Comdisco, Inc............................................. 708,225 3,600 Compuware Corp.(c)........................................ 142,200 8,000 Sterling Software, Inc.(c)................................ 616,000 ----------- 1,466,425 ----------- COSMETICS--3.6% 40,600 Johnson & Johnson......................................... 2,009,700 2,700 Procter & Gamble Co....................................... 244,688 ----------- 2,254,388 -----------
SHARES VALUE(A) DRUGS--4.6% 6,200 Amgen, Inc.(c)............................................ $ 334,800 5,900 Bristol Myers & Squibb Co................................. 531,000 10,100 Eli Lilly and Co.......................................... 656,500 7,500 Merck & Company, Inc...................................... 484,687 3,900 Rhone Poulenc Rorer, Inc.................................. 261,788 9,400 Schering Plough Corp...................................... 589,850 ----------- 2,858,625 ----------- ELECTRIC UTILITIES--3.1% 15,200 Consolidated Edison Co. of New York....................... 444,600 29,000 Pinnacle West Capital Corp................................ 880,875 21,500 Unicom Corp............................................... 599,313 ----------- 1,924,788 ----------- ELECTRONICS--5.1% 5,200 Kemet Corp.(c)............................................ 104,000 26,500 KLA Instruments Corp.(c).................................. 616,125 18,900 Komag, Inc.(c)............................................ 498,487 19,900 Novellus Systems, Inc.(c)................................. 716,400 17,800 Raytheon Co............................................... 918,925 5,100 Tellabs, Inc.(c).......................................... 341,063 ----------- 3,195,000 ----------- ENTERTAINMENT--0.2% 3,800 Grand Casinos, Inc.(c).................................... 97,850 ----------- FINANCIAL SERVICES--2.3% 19,110 Bear Stearns Companies, Inc............................... 451,474 41,200 Lehman Brothers Holdings, Inc............................. 1,019,700 ----------- 1,471,174 ----------- GAS UTILITIES--2.3% 4,800 Nicor, Inc................................................ 136,200 19,900 Oneok..................................................... 497,500 16,200 Williams Companies, Inc................................... 801,900 ----------- 1,435,600 ----------- HEALTHCARE--2.0% 19,700 Abbott Labs............................................... 856,950 5,600 Millipore Corp............................................ 234,500 2,000 Pacificare Health Systems, Inc.(c)........................ 135,500 ----------- 1,226,950 ----------- HOTEL & RESTAURANT--0.2% 3,000 McDonalds Corp............................................ 140,250 ----------- INSURANCE--OTHER--2.9% 14,400 Bankers Life Holdings Corp................................ 318,600 14,600 Loews Corp................................................ 1,151,575 16,350 Old Republic International Corp........................... 351,525 ----------- 1,821,700 -----------
See accompanying notes to financial statements. 38 NEW ENGLAND ZENITH FUND (WESTPEAK VALUE GROWTH SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) COMMON STOCKS--(CONTINUED)
SHARES VALUE (A) INTERNATIONAL OIL--6.7% 3,600 Chevron Corp.............................................. $ 212,400 27,500 Exxon Corp................................................ 2,389,063 14,200 Mobil Corp................................................ 1,592,175 ----------- 4,193,638 ----------- MEDIA--0.1% 1,000 King World Productions(c)................................. 36,375 ----------- METALS--1.4% 11,100 Asarco, Inc............................................... 306,637 8,700 Phelps Dodge Corp......................................... 542,663 ----------- 849,300 ----------- MISCELLANEOUS--0.2% 2,700 American Water Works, Inc................................. 108,674 ----------- MORTGAGE--0.5% 500 Federal Home Loan Mortgage Corp........................... 42,750 8,400 Green Tree Financial Corp................................. 262,500 ----------- 305,250 ----------- MOTOR VEHICLES--5.1% 22,600 Chrysler Corp............................................. 1,401,200 30,400 General Motors Corp....................................... 1,592,200 3,500 Paccar, Inc............................................... 171,500 ----------- 3,164,900 ----------- OIL REFINEMENT/DISTRIBUTION--1.2% 4,700 Royal Dutch Petroleum Co.................................. 722,625 2,000 Ultramar Corp............................................. 58,000 ----------- 780,625 ----------- OIL SERVICE--2.3% 12,300 Ensco International, Inc.(c).............................. 399,750 2,800 Halliburton Co............................................ 155,400 15,000 IPL Energy, Inc........................................... 378,750 10,400 Sonat Offshore Drilling, Inc.............................. 525,200 ----------- 1,459,100 ----------- OIL RESERVES--3.4% 23,000 Amoco Corp................................................ 1,664,625 200 NGC Corp.................................................. 3,000 12,000 Phillips Petroleum Company................................ 502,500 ----------- 2,170,125 ----------- PAPER--0.6% 8,900 Champion International Corp............................... 371,575 ----------- PHOTOGRAPHY--0.8% 6,100 Eastman Kodak............................................. 474,274 -----------
SHARES VALUE (A) PRODUCER OF GOODS--6.9% 8,000 Applied Materials, Inc.(c)................................ $ 244,000 5,300 Case Corp................................................. 254,400 12,200 Caterpillar Tractor Co.................................... 826,550 22,900 Dover Corp................................................ 1,056,263 13,600 Harsco Corp............................................... 914,600 8,000 Illinois Tool Works, Inc.................................. 541,000 8,600 Lam Research Corp.(c)..................................... 223,600 4,800 Varian Associates, Inc.................................... 248,400 ----------- 4,308,813 ----------- PUBLISHING--0.3% 3,700 Reynolds & Reynolds....................................... 197,024 ----------- RETAIL--6.3% 16,200 Eckerd Jack Corp. Del(c).................................. 366,525 10,300 Gap, Inc.................................................. 330,888 4,100 Kroger Co.(c)............................................. 161,950 18,600 May Department Stores Co.................................. 813,750 1,800 Mercantile Stores Co., Inc................................ 105,525 28,400 Sears Roebuck and Co...................................... 1,380,950 3,400 Tiffany & Co. New......................................... 248,200 9,000 TJX Companies, Inc........................................ 303,750 8,000 Waban, Inc.(c)............................................ 191,000 ----------- 3,902,538 ----------- SERVICES--2.9% 11,500 Gtech Holdings Corp.(c)................................... 340,688 2,800 Omnicom Group............................................. 130,200 22,800 PHH Corp.................................................. 1,299,600 1,000 Primark Corp.(c).......................................... 32,625 ----------- 1,803,113 ----------- SOAPS--2.1% 13,800 Clorox Co................................................. 1,223,025 2,500 First Brands Corp......................................... 67,500 ----------- 1,290,525 ----------- TELEPHONE--7.5% 27,100 Ameritech Corp............................................ 1,609,063 23,800 Bell Atlantic Corp........................................ 1,517,250 21,700 Bell South Corp........................................... 919,537 5,100 SBC Communications, Inc................................... 251,175 9,600 Sprint Corp............................................... 403,200 ----------- 4,700,225 ----------- THRIFT--0.4% 7,200 Standard Federal Bancorporation........................... 277,200 ----------- TIRES AND RUBBER GOODS--1.2% 14,900 Goodyear Tire & Rubber Company............................ 718,924 ----------- Total Common Stocks (Identified Cost $54,977,247)............................ 60,473,261 -----------
See accompanying notes to financial statements. 39 NEW ENGLAND ZENITH FUND (WESTPEAK VALUE GROWTH SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) SHORT-TERM INVESTMENT--2.8%
FACE AMOUNT VALUE (A) $1,717,000 Repurchase agreement with State Street Bank & Trust Company dated 6/28/96 at 4.75% to be repurchased at $1,717,680 on 7/1/96. Collaterized by $1,800,000 U.S Treasury Bills due 12/19/96 with a value of $1,754,672......................................... $ 1,717,000 ----------- Total Short-Term Investment (Identified cost $1,717,000)....................... 1,717,000 ----------- Total Investments--99.8% (Identified cost $56,694,247)(b)................... 62,190,261 Other assets less liabilities....................... 141,160 ----------- TOTAL NET ASSETS--100%.............................. $62,331,421 =========== (a) See Note 1A. (b) Federal Tax Information: At June 30,1996 the net unrealized appreciation on investments based on cost of $56,694,247 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost...................................... $ 7,278,606 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value......................................... (1,782,592) ----------- Net unrealized appreciation......................... $ 5,496,014 =========== (c) Non-income producing security.
See accompanying notes to financial statements. 40 NEW ENGLAND ZENITH FUND (WESTPEAK VALUE GROWTH SERIES) STATEMENT OF ASSETS & LIABILITIES JUNE 30, 1996 (UNAUDITED) ASSETS Investments at value...................................... $62,190,261 Cash...................................................... 953 Receivable for: Securities sold........................................... 33,600 Fund shares sold.......................................... 117,149 Dividends and interest.................................... 77,556 ----------- 62,419,519 LIABILITIES Payable for: Fund shares redeemed...................................... $ 4,952 Foreign withholding taxes................................. 497 Miscellaneous............................................. 471 Accrued expenses: Management fees........................................... 44,869 Deferred trustees' fees................................... 655 Other expenses............................................ 36,654 ------- 88,098 ----------- NET ASSETS................................................. $62,331,421 =========== Net Assets consist of: Capital paid in........................................... $51,849,730 Undistributed net investment income....................... 394,186 Accumulated net realized gains............................ 4,591,491 Unrealized appreciation on investments.............................................. 5,496,014 ----------- NET ASSETS................................................. $62,331,421 =========== Computation of offering price: Net asset value and redemption price per share ($62,331,421 divided by 421,289 shares of beneficial interest)......... $ 147.95 =========== Identified cost of investments............................. $56,694,247 ===========
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) INVESTMENT INCOME Dividends............................................ $ 554,012(a) Interest............................................. 62,260 ----------- 616,272 EXPENSES Management fees...................................... $194,314 Trustees' fees and expenses.......................... 6,668 Custodian............................................ 27,207 Audit and tax services............................... 5,700 Legal................................................ 5,163 Printing............................................. 16,324 Miscellaneous........................................ 3,194 -------- Total expenses...................................... 258,570 Less expenses assumed by the investment adviser..... (22,619) 235,951 -------- ----------- NET INVESTMENT INCOME................................. 380,321 REALIZED AND UNREALIZED GAIN ON INVESTMENTS Realized gain on investments--net.................... 4,109,596 Unrealized depreciation on investments--net.......... (2,154,870) ----------- Net gain on investment transactions................... 1,954,726 ----------- NET INCREASE IN NET ASSETS FROM OPERATIONS............ $ 2,335,047 =========== (a) Net of foreign taxes of $3,607.
See accompanying notes to financial statements. 41 NEW ENGLAND ZENITH FUND (WESTPEAK VALUE GROWTH SERIES) STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, 1995 JUNE 30, 1996 ----------------- ------------- FROM OPERATIONS Net investment income......................... $ 563,717 $ 380,321 Net realized gain on investments.............. 2,941,365 4,109,596 Unrealized appreciation (depreciation) on investments.................................. 6,907,865 (2,154,870) ----------- ----------- INCREASE IN NET ASSETS FROM OPERATIONS........ 10,412,947 2,335,047 ----------- ----------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income......................... (549,852) 0 Paid in capital............................... (1,825,459) 0 ----------- ----------- (2,375,311) 0 ----------- ----------- FROM CAPITAL SHARES TRANSACTIONS Proceeds from sale of shares.................. 22,945,280 17,241,926 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income...... 549,852 0 Distributions from net realized gain.......... 1,825,459 0 ----------- ----------- 25,320,591 17,241,926 Cost of shares redeemed....................... (8,163,352) (5,374,589) ----------- ----------- INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS........................... 17,157,239 11,867,337 ----------- ----------- TOTAL INCREASE IN NET ASSETS.................. 25,194,875 14,202,384 NET ASSETS Beginning of the period....................... 22,934,162 48,129,037 ----------- ----------- End of the period............................. $48,129,037 $62,331,421 =========== =========== UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the period....................... $ 0 $ 13,865 =========== =========== End of the period............................. $ 13,865 $ 394,186 =========== =========== NUMBER OF SHARES OF THE FUND: Issued from the sale of shares................ 175,593 117,244 Issued in connection with the reinvestment of: Distributions from net investment income...... 3,932 0 Distributions from net realized gain.......... 13,054 0 ----------- ----------- 192,579 117,244 Redeemed...................................... (62,314) (36,558) ----------- ----------- Net change.................................... 130,265 80,686 =========== ===========
FINANCIAL HIGHLIGHTS (UNAUDITED)
APRIL 30, 1993(A) SIX MONTHS THROUGH ENDED DECEMBER 31, YEAR ENDED YEAR ENDED JUNE 30, 1993 1994 1995 1996 ----------------- ---------- ---------- ---------- Net Asset Value, Beginning of Period................. $100.00 $112.32 $109.03 $141.31 ------- ------- ------- ------- Income From Investment Operations Net Investment Income..... 0.92 1.90 1.77 0.90 Net Realized and Unrealized Gain (Loss) on Investments.............. 13.33 (3.25) 37.91 5.74 ------- ------- ------- ------- Total From Investment Operations............... 14.25 (1.35) 39.68 6.64 ------- ------- ------- ------- Less Distributions Distributions From Net Investment Income........ (0.92) (1.92) (1.71) 0.00 Distributions From Net Realized Capital Gains... (1.00) 0.00 (5.69) 0.00 Distributions in Excess of Net Realized Capital Gains.................... (0.01) 0.00 0.00 0.00 Distributions From Paid-in Capital.................. 0.00 (0.02) 0.00 0.00 ------- ------- ------- ------- Total Distributions....... (1.93) (1.94) (7.40) 0.00 ------- ------- ------- ------- Net Asset Value, End of Period.................... $112.32 $109.03 $141.31 $147.95 ======= ======= ======= ======= TOTAL RETURN (%)........... 14.24(c) (1.21) 36.46 4.70(c) Ratio of Operating Expenses to Average Net Assets (%). 0.85(b) 0.85 0.85 0.85(b) Ratio of Net Investment Income to Average Net Assets (%)................ 2.16(b) 2.30 1.63 1.37(b) Portfolio Turnover Rate (%)....................... 49(b) 133 92 116(b) Average Commission Rate (d)....................... -- -- -- $0.0373 Net Assets, End of Period (000)..................... $ 9,082 $22,934 $48,129 $62,331 The ratios of expenses to average net assets without giving effect to the voluntary expense agreement described in Note 4 to the Financial Statements would have been (%)....................... 0.94(b) 0.86 1.06 0.93(b)
(a) Commencement of operations. (b) Computed on an annualized basis. (c) Not computed on an annualized basis. (d) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for trades on which commissions are charged. This rate generally does not reflect mark- ups, mark-downs, or spreads on shares traded on a principal basis. See accompanying notes to financial statements. 42 ZENITH WESTPEAK STOCK INDEX SERIES PORTFOLIO MANAGERS: GERALD H. SCRIVER AND PHILIP J. COOPER; WESTPEAK INVESTMENT ADVISORS, L.P. - ---------------- ------------------ ----------------------------------------- MARKET REVIEW ----------------------------------------- The Westpeak Stock Index Series [PHOTO OF GERALD [PHOTO OF PHILIP returned 9.9%, compared to 10.2% H. SCRIVER J. COOPER APPEARS posted by the S&P 500 Index/20/ for APPEARS HERE] HERE] the six months ended June 30, 1996. The Series is managed so as to track the performance of the S&P 500 Index/20/. Westpeak's approach is to seek and emulate the S&P 500 Index/20/ by owning a majority of - ---------------- ------------------ the stocks in the Index in the same proportion as the Index. This process seeks to minimize the tracking error (the difference between the performance of the Series and the Index). For example, during the second quarter the Series returned 4.42% while the S&P 500 Index returned 4.52%. - -------------------------------------------------------------------------------- OUTLOOK AND STRATEGY - -------------------------------------------------------------------------------- As we enter the third quarter of 1996, we believe the outlook for stocks and bonds is fairly unfriendly. We believe the economy is going to experience several more quarters of above-potential growth. This will result in the perception of an increase in inflationary pressures and the distinct possibility of tightening in Fed interest rate policy. Bonds appear to offer decent value relative to stocks, but yields are likely to rise further as investors raise their outlook for economic growth. We expect the Long Government bond yield to reach 7.50-7.75% during this cycle. Westpeak's measures of speculation, valuation and monetary environment indicate the market (as measured by the Russell 1000/18/) is high-risk territory. An equity bear phase should emerge this summer. A market downturn will shift relative performance to value stocks and away from growth stocks. A $10,000 Investment Compared to an Index FUND FACTS GOAL: Investment results that [GRAPH APPEARS HERE] correspond to the composite price and yield performance of United States publicly traded Stock common stocks. Index S&P Series 500/20/ START DATE: May 1, 1987 4/30/87 $10,000 $10,000 12/31/87 8,780 8,770 SIZE: $68 million as of June 12/31/88 10,215 10,216 30, 1996 12/31/89 13,294 13,444 12/31/90 12,743 13,025 MANAGERS: Gerald Scriver and 12/31/91 16,614 16,976 Philip Cooper. Mr. Scriver and 12/31/92 17,826 18,268 Mr. Cooper have managed the 12/31/93 19,560 20,101 Series since 1993; they have 12/31/94 19,783 20,374 also managed Westpeak Value 12/31/95 27,079 28,003 Growth Series since August, 06/30/96 29,752 30,825 1993 and New England Growth Opportunities Fund since May 1, 1995. Mr. Scriver joined Westpeak in July, 1991 and Mr. Cooper joined Westpeak in December, 1991. Average Annual Return Stock Index Lipper Variable S&P 500 Series Fund Index Average/18/ 6 mos.* 9.87% 9.95% 1 year 25.30% 25.45% 5 years 15.31% 15.19% Since inception 12.63% n/a *not annualized Performance numbers are net of all Series expenses but do not include any insurance, sales or administrative charges of variable annuity or life insurance contracts; if these charges were included, the returns shown would be lower. This information represents past performance and is not indicative of future results. Investment return and principal value will fluctuate so that shares, upon redemption, may be worth more or less than the original cost. 43 NEW ENGLAND ZENITH FUND (WESTPEAK STOCK INDEX SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) COMMON STOCKS--98.2% OF TOTAL NET ASSETS
SHARES VALUE (A) AEROSPACE--1.9% 4,100 Allied Signal, Inc. ...................................... $ 234,213 4,500 Boeing Co. ............................................... 392,062 900 General Dynamics Corp. ................................... 55,800 2,815 Lockheed Martin Corp. .................................... 236,460 3,000 McDonnell Douglas Corp. .................................. 145,500 400 Northrop Grumman Corp. ................................... 27,250 900 Teledyne, Inc. ........................................... 32,513 1,600 United Technologies Corp. ................................ 184,000 ----------- 1,307,798 ----------- AGRICULTURE AND FOOD--2.8% 6,596 Archer-Daniels-Midland Co. ............................... 126,149 3,300 Campbell Soup Company..................................... 232,650 3,050 Conagra, Inc. ............................................ 138,394 2,100 CPC International, Inc. .................................. 151,200 2,200 General Mills, Inc. ...................................... 119,900 4,800 H.J. Heinz Co. ........................................... 145,800 1,200 Hershey Foods Corp. ...................................... 88,050 2,900 Kellogg Co. .............................................. 212,425 800 Pioneer Hi Bred International, Inc. ...................... 42,300 1,600 Quaker Oats Co. .......................................... 54,600 6,000 Sara Lee Corp. ........................................... 194,250 2,200 Unilever N.V. ............................................ 319,275 1,800 William Wrigley Jr. Co. .................................. 90,900 ----------- 1,915,893 ----------- AIR TRANSPORT--0.4% 900 AMR Corp.(c).............................................. 81,900 900 Delta Airlines, Inc. ..................................... 74,700 700 Federal Express Corp.(c).................................. 57,400 1,600 Southwest Airlines Co. ................................... 46,600 900 US Air Group, Inc.(c)..................................... 16,200 ----------- 276,800 ----------- ALUMINUM--0.3% 2,400 Alcan Aluminum, Ltd. ..................................... 73,200 2,000 Aluminum Company of America............................... 114,750 900 Reynolds Metals Co. ...................................... 46,912 ----------- 234,862 ----------- APPAREL--0.6% 100 Brown Group, Inc. ........................................ 1,738 1,000 Fruit of the Loom, Inc. .................................. 25,500 600 Liz Claiborne, Inc. ...................................... 20,775 2,400 Nike, Inc. ............................................... 246,600 1,200 Reebok International Ltd. ................................ 40,350 300 Russell Corp. ............................................ 8,288 100 Springs Industries, Inc................................... 5,050 400 Stride Rite Corp.......................................... 3,300 1,000 VF Corp................................................... 59,625 ----------- 411,226 -----------
SHARES VALUE (A) BANKS--6.7% 5,475 Banc One Corp. ........................................... $ 186,150 1,800 Bank of Boston Corp. ..................................... 89,100 2,200 Bank of New York, Inc. ................................... 112,750 4,928 BankAmerica Corp. ........................................ 373,296 900 Bankers Trust New York Corp. ............................. 66,487 1,100 Barnett Banks of Florida, Inc. ........................... 67,100 2,000 Boatmens Bancshares, Inc. ................................ 80,250 5,570 Chase Manhattan Corp. .................................... 393,381 6,700 Citicorp(c)............................................... 553,587 1,500 Comerica, Inc. ........................................... 66,938 2,800 Core States Financial Corp. .............................. 107,800 1,300 Fifth Third Bancorp. ..................................... 70,200 2,200 First Bank Systems, Inc. ................................. 127,600 4,510 First Chicago Corp. ...................................... 176,454 3,450 First U.N. Corp. ......................................... 210,019 3,662 Fleet Financial Group, Inc. .............................. 159,297 2,400 J.P. Morgan & Co., Inc. .................................. 203,100 3,100 Keycorp................................................... 120,125 1,750 Mellon Bank Corp. ........................................ 99,750 2,700 National City Corp. ...................................... 94,838 3,816 Nationsbank Corp. ........................................ 315,297 4,600 Norwest Corp. ............................................ 160,425 4,400 PNC Bank Corp. ........................................... 130,900 700 Republic New York Corp. .................................. 43,575 2,200 Suntrust Banks, Inc. ..................................... 81,400 1,900 U.S. Bancorp. ............................................ 68,638 1,900 Wachovia Corp. ........................................... 83,125 1,333 Wells Fargo & Co. ........................................ 318,420 ----------- 4,560,002 ----------- BEVERAGES--3.5% 33,200 Coca Cola Co. ............................................ 1,622,650 20,200 PepsiCo, Inc. ............................................ 714,575 1,300 Whitman Corp. ............................................ 31,363 ----------- 2,368,588 ----------- BUSINESS MACHINES--4.4% 2,100 3Com Corp. ............................................... 96,075 1,400 Amdahl Corporation(c)..................................... 15,050 1,900 Apple Computer, Inc. ..................................... 39,900 2,500 Bay Networks, Inc. ....................................... 64,375 1,000 Cabletron Systems, Inc.(c)................................ 68,625 7,200 Cisco Systems, Inc. ...................................... 407,700 3,300 Compaq Computer Corp.(c).................................. 162,525 300 Data General Corp.(c)..................................... 3,900 1,800 Digital Equipment Corp.(c)................................ 81,000 3,000 EMC Corp. ................................................ 55,875 6,800 Hewlett-Packard Co. ...................................... 677,450 7,300 International Business Machines Corp. .................... 722,700 1,700 Pitney Bowes, Inc. ....................................... 81,175 2,200 Silicon Graphics, Inc.(c)................................. 52,800
See accompanying notes to financial statements. 44 NEW ENGLAND ZENITH FUND (WESTPEAK STOCK INDEX SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) COMMON STOCKS--(CONTINUED)
SHARES VALUE (A) BUSINESS MACHINES--(CONTINUED) 2,800 Sun Microsystems, Inc.(c)................................. $ 164,850 1,800 Tandem Computers, Inc.(c)................................. 22,275 2,200 Unisystems, Corp.(c)...................................... 15,675 4,500 Xerox Corp. .............................................. 240,750 ----------- 2,972,700 ----------- CHEMICALS--3.3% 1,500 Air Products and Chemicals, Inc. ......................... 86,625 800 Ashland, Inc. ............................................ 31,700 900 Avery Dennison Corp. ..................................... 49,388 600 B.F. Goodrich Co. ........................................ 22,425 3,050 Dow Chemical Co. ......................................... 231,800 1,300 Eastman Chemical Co. ..................................... 79,138 7,900 E.I. Du Pont de Nemours & Co. ............................ 625,087 300 FMC Corp.(c).............................................. 19,575 800 Great Lakes Chemical Corp. ............................... 49,800 1,400 Hercules, Inc. ........................................... 77,350 8,700 Monsanto Company.......................................... 282,750 2,100 Morton International, Inc. ............................... 78,225 1,000 Nalco Chemical Co. ....................................... 31,500 3,300 Occidental Petroleum Corp. ............................... 81,675 2,800 PPG Industries, Inc. ..................................... 136,500 2,000 Praxair, Inc. ............................................ 84,500 1,000 Rohm & Haas Co. .......................................... 62,750 1,000 Sigma-Aldrich Corp. ...................................... 53,500 1,700 Union Carbide Corp. ...................................... 67,575 1,200 W.R. Grace & Co. ......................................... 85,050 ----------- 2,236,913 ----------- CONSTRUCTION--0.2% 800 Armstrong World Industries, Inc. ......................... 46,100 700 Centex Corp. ............................................. 21,788 900 Fluor Corp. .............................................. 58,838 700 Sherwin Williams Co. ..................................... 32,550 100 Skyline Corp. ............................................ 2,500 ----------- 161,776 ----------- CONSUMER DURABLES--0.4% 1,000 Black & Decker Corp. ..................................... 38,625 2,000 Masco Corp. .............................................. 60,500 800 Maytag Corp. ............................................. 16,700 2,800 Tenneco, Inc. ............................................ 143,150 1,000 Whirlpool Corp. .......................................... 49,625 ----------- 308,600 ----------- CONTAINERS--0.2% 200 Ball Corp. ............................................... 5,750 400 Bemis, Inc. .............................................. 14,000 1,800 Crown Cork & Seal, Inc.(c) ............................... 81,000 900 Temple Inland, Inc. ...................................... 42,075 ----------- 142,825 -----------
SHARES VALUE (A) COSMETICS--2.6% 200 Alberto Culver Co. ........................................ $ 9,275 1,600 Avon Products, Inc. ....................................... 72,200 17,400 Johnson & Johnson ......................................... 861,300 9,060 Procter & Gamble Co. ...................................... 821,062 ---------- 1,763,837 ---------- DOMESTIC OIL RESERVES--0.8% 2,000 Atlantic Richfield Co. .................................... 237,000 1,600 Burlington Resources, Inc. ................................ 68,800 400 Louisiana Land & Exploration............................... 23,050 800 Pennzoil Company........................................... 37,000 3,900 Phillips Petroleum Company................................. 163,312 1,711 Santa Fe Energy Research, Inc.(c).......................... 20,318 ---------- 549,480 ---------- DRUGS & MEDICINE--6.1% 700 Allergan, Inc. ............................................ 27,475 1,600 Alza Corp.(c) ............................................. 43,800 8,400 American Home Products Corp. .............................. 505,050 3,800 Amgen, Inc.(c) ............................................ 205,200 6,640 Bristol Myers & Squibb Co. ................................ 597,600 7,200 Eli Lilly & Co. ........................................... 468,000 600 Mallinckrodt Group, Inc. .................................. 23,325 16,200 Merck & Co., Inc. ......................................... 1,046,925 8,500 Pfizer, Inc. .............................................. 606,687 6,680 Pharmacia & Upjohn, Inc. .................................. 296,425 4,600 Schering-Plough Corp. ..................................... 288,650 ---------- 4,109,137 ---------- ELECTRIC UTILITIES--3.2% 2,500 American Electric Power Co., Inc. ......................... 106,562 2,100 Baltimore Gas & Electric Co. .............................. 59,588 2,200 Carolina Power & Light Co. ................................ 83,600 2,500 Central & South West Corp. ................................ 72,500 2,111 Cinergy Corp. ............................................. 67,552 3,100 Consolidated Edison Co. of New York ....................... 90,675 2,050 Dominion Resources, Inc. .................................. 82,000 2,100 DTE Energy Co. ............................................ 64,838 2,800 Duke Power Co. ............................................ 143,500 5,700 Edison International ...................................... 100,462 3,200 Entergy Corp. ............................................. 90,800 2,300 FPL Group, Inc. ........................................... 105,800 1,500 General Public Utilities Corp. ............................ 52,875 4,000 Houston Industries, Inc. .................................. 98,500 2,000 Niagara Mohawk Power Corp. ................................ 15,500 500 Northern States Power Co. ................................. 24,688 2,100 Ohio Edison Co. ........................................... 45,938 5,600 Pacific Gas & Electric Corp. .............................. 130,200 4,000 Pacificorp ................................................ 89,000 2,900 PECO Energy Co. ........................................... 75,400 2,000 P.P. & L Res, Inc. ........................................ 47,250 3,200 Public Service Enterprise Group ........................... 87,600
See accompanying notes to financial statements. 45 NEW ENGLAND ZENITH FUND (WESTPEAK STOCK INDEX SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) COMMON STOCKS--(CONTINUED)
SHARES VALUE (A) ELECTRIC UTILITIES--(CONTINUED) 8,800 Southern Co. ............................................. $ 216,700 2,500 Texas Utilities Company .................................. 106,875 2,700 Unicom Corp. ............................................. 75,263 1,300 Union Electric Co. ....................................... 52,325 ----------- 2,185,991 ----------- ELECTRONICS--3.9% 1,700 Advanced Micro Devices, Inc.(c) .......................... 23,163 3,056 AMP, Inc. ................................................ 122,622 1,087 Andrew Corp.(c) .......................................... 58,426 1,300 Cooper Industries, Inc. .................................. 53,950 1,800 DSC Communications Corp.(c) .............................. 54,225 300 Harris Corp. ............................................. 18,300 1,400 Honeywell, Inc. .......................................... 76,300 11,200 Intel Corp. .............................................. 822,500 2,000 LSI Logic Corp.(c) ....................................... 52,000 3,400 Micron Technology, Inc. .................................. 87,975 7,800 Motorola, Inc. ........................................... 490,425 1,800 National Semiconductor Corp.(c) .......................... 27,900 3,100 Northern Telecom, Ltd. ................................... 168,562 300 Raychem Corp. ............................................ 21,563 2,600 Raytheon Co. ............................................. 134,225 3,500 Rockwell International Corp. ............................. 200,375 1,100 Scientific Atlanta, Inc. ................................. 17,050 200 Tektronix, Inc. .......................................... 8,950 1,100 Tellabs, Inc.(c) ......................................... 73,563 2,500 Texas Instruments, Inc. .................................. 124,687 200 Thomas & Betts Corp. ..................................... 7,500 ----------- 2,644,261 ----------- FINANCE--1.8% 6,400 American Express Co. ..................................... 285,600 400 Beneficial Corp. ......................................... 22,450 2,402 Dean Witter, Discover & Co. .............................. 137,514 1,200 Household International, Inc. ............................ 91,200 2,325 MBNA Corp. ............................................... 66,263 2,300 Merrill Lynch & Co., Inc. ................................ 149,787 2,000 Morgan Stanley Group, Inc. ............................... 98,250 1,200 Salomon, Inc. ............................................ 52,800 6,576 Travelers Group, Inc. .................................... 300,030 ----------- 1,203,894 ----------- FOREIGN OIL RESERVES--0.1% 900 Kerr McGee Corp. ......................................... 54,788 ----------- FOREST PRODUCTS--0.0% 1,300 Louisiana Pacific Corp. .................................. 28,763 ----------- GAS UTILITIES--0.8% 900 Columbia Gas System, Inc.(c).............................. 46,913 1,100 Consolidated Natural Gas Co. ............................. 57,475 700 Eastern Enterprises....................................... 23,275
SHARES VALUE (A) 3,200 Enron Corp. .............................................. $ 130,800 700 Ensearch Corporation...................................... 15,225 400 Nicor, Inc. .............................................. 11,350 1,300 Noram Energy Corp. ....................................... 14,138 200 Oneok, Inc. .............................................. 5,000 1,100 Pacific Enterprises, Ltd. ................................ 32,588 1,829 PanEnergy Corp. .......................................... 60,128 300 Peoples Energy Corp. ..................................... 10,050 1,000 Sonat, Inc. .............................................. 45,000 1,600 Williams Companies, Inc. ................................. 79,200 ----------- 531,142 ----------- HEALTH CARE--3.2% 11,000 Abbott Laboratories, Inc. ................................ 478,500 400 Bausch & Lomb, Inc. ...................................... 17,000 3,400 Baxter International, Inc. ............................... 160,650 600 Becton Dickinson & Co. ................................... 48,150 1,300 Beverly Enterprises, Inc.(c).............................. 15,600 1,300 Biomet, Inc.(c)........................................... 18,688 2,600 Boston Scientific Corp.(c)................................ 117,000 5,791 Columbia Healthcare Corp. ................................ 309,095 1,300 Community Psychiatric Centers(c).......................... 12,350 3,300 Corning, Inc. ............................................ 126,637 400 C.R. Bard, Inc. .......................................... 13,600 2,100 Humana, Inc.(c)........................................... 37,537 400 Manor Care, Inc. ......................................... 15,750 3,600 Medtronics, Inc. ......................................... 201,600 400 Millipore Corp. .......................................... 16,750 1,100 St. Jude Medical, Inc.(c)................................. 36,850 3,000 Tenet Healthcare Corp.(c)................................. 64,125 2,600 U.S. Healthcare, Inc. .................................... 143,000 2,300 United Healthcare Corp. .................................. 116,150 700 United States Surgical Corp. ............................. 21,700 3,800 Warner-Lambert Company.................................... 209,000 ----------- 2,179,732 ----------- HOTELS AND RESTAURANTS--1.2% 600 Bally Entertainment Group(c).............................. 16,500 2,200 Darden Restaurants, Inc.(c)............................... 23,650 1,750 Harrahs Entertainment, Inc. .............................. 49,437 400 Hilton Hotels Corp. ...................................... 45,000 1,300 ITT Corp. New............................................. 86,125 200 Luby's Cafeterias, Inc. .................................. 4,700 1,700 Marriott Corporation...................................... 91,375 10,100 McDonald's Corp. ......................................... 472,175 400 Ryans Family Steak Houses(c).............................. 3,700 800 Shoney's, Inc.(c)......................................... 8,700 1,400 Wendys International, Inc. ............................... 26,075 ----------- 827,437 ----------- INTERNATIONAL OIL--4.2% 8,300 Chevron Corporation....................................... 489,700 16,300 Exxon Corporation......................................... 1,416,062
See accompanying notes to financial statements. 46 NEW ENGLAND ZENITH FUND (WESTPEAK STOCK INDEX SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) COMMON STOCKS--(CONTINUED)
SHARES VALUE (A) INTERNATIONAL OIL--(CONTINUED) 5,400 Mobil Corporation......................................... $ 605,475 1,200 Oryx Energy Corp.(c)...................................... 19,500 3,700 Texaco, Inc. ............................................. 310,337 ----------- 2,841,074 ----------- LEISURE--0.3% 1,200 Brunswick Corp. .......................................... 24,000 1,400 Hasbro, Inc. ............................................. 50,050 3,750 Mattel, Inc. ............................................. 107,344 100 Outboard Marine Corp. .................................... 1,813 ----------- 183,207 ----------- LIFE INSURANCE--0.4% 2,600 American General Corp. ................................... 94,575 525 Jefferson Pilot Corp. .................................... 27,103 1,400 Providian Corp. .......................................... 60,025 1,100 Transamerica Corp. ....................................... 89,100 1,050 USLife Corp. ............................................. 34,519 ----------- 305,322 ----------- LIQUOR--0.7% 300 Adolph Coors Co. ......................................... 5,363 3,300 Anheuser-Busch Companies, Inc. ........................... 247,500 1,100 Brown Forman Corp. "B".................................... 44,000 5,100 Seagram Company, Ltd. .................................... 171,487 ----------- 468,350 ----------- MEDIA--2.0% 2,600 Comcast Corp. ............................................ 48,100 1,600 General Instrument Corp. ................................. 46,200 250 King World Productions(c)................................. 9,094 2,300 Loral Space & Communications.............................. 31,338 8,500 Tele-Communications A(c).................................. 154,062 5,000 Time-Warner, Inc. ........................................ 196,250 1,000 Tribune Co. .............................................. 72,625 4,857 Viacom, Inc.(c)........................................... 188,815 9,998 Walt Disney Co. .......................................... 628,624 ----------- 1,375,108 ----------- MISCELLANEOUS MINING--0.2% 800 Asarco, Inc. ............................................. 22,100 1,050 Cyprus Amax Minerals Co. ................................. 23,756 1,400 Inco, Ltd. ............................................... 45,150 1,000 Phelps Dodge Corp. ....................................... 62,375 ----------- 153,381 ----------- MORTGAGE--1.1% 2,400 Federal Home Loan Mortgage Corp. ......................... 205,200 14,500 Federal National Mortgage Association..................... 485,750 1,800 Green Tree Acceptance Corp. .............................. 56,250 ----------- 747,200 -----------
SHARES VALUE (A) MOTOR VEHICLES--2.3% 5,300 Chrysler Corp. ........................................... $ 328,600 1,300 Dana Corp. ............................................... 40,300 400 Echlin, Inc. ............................................. 15,150 800 Fleetwood Enterprises, Inc. .............................. 24,800 16,700 Ford Motor Co. ........................................... 540,662 10,100 General Motors Corp. ..................................... 528,987 100 Nacco Industries, Inc. ................................... 5,538 1,220 Navistar International Corp., Inc.(c)..................... 12,048 345 Paccar, Inc. ............................................. 16,905 500 Varity Corp.(c)........................................... 24,063 ----------- 1,537,053 ----------- OIL REFINING--2.8% 1,200 Amerada Hess Corp. ....................................... 64,350 6,400 Amoco Corp. .............................................. 463,200 1,400 Coastal Corp. ............................................ 58,450 7,000 Royal Dutch Petroleum Co. ADR(d).......................... 1,076,250 800 Sun, Inc. ................................................ 24,300 3,000 Unocal Corp. ............................................. 101,250 4,000 USX Marathon Group........................................ 80,500 ----------- 1,868,300 ----------- OIL SERVICES--0.7% 2,000 Baker Hughes, Inc......................................... 65,750 1,300 Halliburton Co............................................ 72,150 300 Helmerich & Payne, Inc.................................... 10,987 1,100 Rowan Companies, Inc.(c).................................. 16,225 3,100 Schlumberger, Ltd......................................... 261,175 300 Western Atlas, Inc.(c).................................... 17,475 ----------- 443,762 ----------- OTHER INSURANCE--3.0% 1,200 Aetna Life and Casualty Company........................... 85,800 5,686 Allstate Corp............................................. 259,424 6,312 American International Group, Inc......................... 622,521 1,400 Aon Corp.................................................. 71,050 3,000 Chubb Corp................................................ 149,625 1,000 CIGNA Corp................................................ 117,875 1,300 General Reinsurance Corp.................................. 197,925 1,300 ITT Hartford Group, Inc................................... 69,225 1,200 Lincoln National Corp., Inc. ............................. 55,500 1,400 Loews Corp................................................ 110,425 1,000 Safeco Corp............................................... 35,375 600 St. Paul Companies, Inc................................... 32,100 1,450 Torchmark, Inc............................................ 63,438 1,700 UNUM Corp................................................. 105,825 2,100 USF&G Corp. .............................................. 34,388 ----------- 2,010,496 -----------
See accompanying notes to financial statements. 47 NEW ENGLAND ZENITH FUND (WESTPEAK STOCK INDEX SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) COMMON STOCKS--(CONTINUED)
SHARES VALUE (A) PAPER--1.4% 1,600 Alco Standard Corp........................................ $ 72,400 633 Boise Cascade Corp........................................ 23,184 1,100 Champion International Corp............................... 45,925 1,200 Georgia Pacific Corp...................................... 85,200 3,910 International Paper Co. .................................. 144,181 900 James River Corp.......................................... 23,737 3,806 Kimberly Clark Corp....................................... 294,013 900 Mead Corp. ............................................... 46,688 200 Potlatch Corp............................................. 7,825 1,100 Stone Container Corp...................................... 15,125 500 Union Camp Corp........................................... 24,375 675 Westvaco Corporation...................................... 20,166 2,500 Weyerhaeuser Co........................................... 106,250 700 Willamette Industries, Inc................................ 41,650 ----------- 950,719 ----------- PHOTOGRAPHY--0.6% 4,950 Eastman Kodak Co.......................................... 384,862 800 Polaroid Corp............................................. 36,500 ----------- 421,362 ----------- POLLUTION CONTROL--0.5% 2,800 Browning-Ferris Industries, Inc........................... 81,200 3,200 Laidlaw, Inc.............................................. 32,400 700 Safety Kleen Corp......................................... 12,250 6,300 WMX Technologies, Inc. ................................... 206,325 ----------- 332,175 ----------- PRECIOUS METALS--0.7% 4,300 Barrick Gold Corp......................................... 116,637 1,800 Echo Bay Mines, Ltd....................................... 19,350 1,425 Engelhard Corp............................................ 32,775 2,700 Freeport McMoran Copper & Gold............................ 86,063 1,800 Homestake Mining Co. ..................................... 30,825 1,124 Newmont Mining Corp....................................... 55,498 3,000 Placer Dome, Inc.......................................... 71,625 2,200 Santa Fe Pacific Gold Corp................................ 31,075 ----------- 443,848 ----------- PRODUCER GOODS--6.2% 2,300 Applied Materials, Inc.(c) ............................... 70,150 700 Briggs & Stratton Corp. .................................. 28,788 1,000 Case Equipment Corp. ..................................... 48,000 2,900 Caterpillar Tractor Co. .................................. 196,475 700 Cincinnati Milacron, Inc. ................................ 16,800 200 Crane Co. ................................................ 8,200 700 Cummins Engine, Inc. ..................................... 28,263 4,200 Deere & Co. .............................................. 168,000 2,000 Dover Corporation......................................... 92,250 1,600 Dresser Industries, Inc. ................................. 47,200 1,000 Eaton Corp. .............................................. 58,625
SHARES VALUE (A) 3,100 Emerson Electric Co. ..................................... $ 280,162 300 Foster Wheeler Corp. ..................................... 13,463 22,700 General Electric Co. ..................................... 1,963,550 500 General Signal Corp. ..................................... 18,937 1,400 Genuine Parts Company..................................... 64,050 400 Giddings & Lewis, Inc. ................................... 6,500 800 Harnischfeger Industries, Inc. ........................... 26,600 1,300 Illinois Tool Works, Inc. ................................ 87,912 1,200 Ingersoll Rand Co. ....................................... 52,500 1,300 ITT Industries Inc. ...................................... 32,662 300 Johnson Controls, Inc. ................................... 20,850 600 McDermott International, Inc. ............................ 12,525 5,300 Minnesota Mining & Mfg. Co. .............................. 365,700 400 National Services Industries, Inc. ....................... 15,650 800 Owens Corning Fiberglas Co.(c) ........................... 34,400 1,400 Pall Corp. ............................................... 33,775 600 Parker Hannifin Corp. .................................... 25,425 800 Perkin Elmer Corp. ....................................... 38,600 300 Snap-On Tools Corp. ...................................... 14,213 600 Stanley Works............................................. 17,850 1,000 Textron, Inc. ............................................ 79,875 200 Timken Co. ............................................... 7,750 700 Trinova Corp. ............................................ 23,363 1,000 TRW, Inc. ................................................ 89,875 2,000 TYCO International Ltd. .................................. 81,500 900 W.W. Grainger, Inc. ...................................... 69,750 ----------- 4,240,188 ----------- PROPERTY--0.0% 300 Kaufman & Broad Home Corp. ............................... 4,350 200 Pulte Corp. .............................................. 5,350 ----------- 9,700 ----------- PUBLISHING--1.0% 1,100 American Greetings Corp. ................................. 30,113 2,100 Gannet Co., Inc. ......................................... 148,575 300 John H. Harland Co. ...................................... 7,387 800 Jostens, Inc. ............................................ 15,800 600 Knight-Ridder, Inc. ...................................... 43,500 800 McGraw-Hill Companies, Inc. .............................. 36,600 200 Meredith Corp. ........................................... 8,350 1,200 Moore Corp., Ltd. ........................................ 22,650 1,000 New York Times Co. ....................................... 32,625 1,700 R.R. Donnelley & Sons Co. ................................ 59,288 1,900 Time Mirror Co. .......................................... 82,650 5,600 U.S. West Media Group, Inc.(c)............................ 178,500 ----------- 666,038 ----------- RAILROADS--1.0% 2,122 Burlington Northern, Inc. ................................ 171,617 1,300 Conrail, Inc. ............................................ 86,288 2,600 CSX Corporation........................................... 125,450
See accompanying notes to financial statements. 48 NEW ENGLAND ZENITH FUND (WESTPEAK STOCK INDEX SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) COMMON STOCKS--(CONTINUED)
SHARES VALUE (A) RAILROADS--(CONTINUED) 1,500 Norfolk Southern Corp. ................................... $ 127,125 2,300 Union Pacific Corp. ...................................... 160,712 ----------- 671,192 ----------- RETAIL--FOOD--0.7% 2,800 Albertson's, Inc. ........................................ 115,850 2,100 American Stores Co. ...................................... 86,625 300 Fleming Companies, Inc. .................................. 4,313 600 Giant Foods, Inc. ........................................ 21,525 800 Great Atlantic & Pacific Tea Company, Inc. ............... 26,300 1,400 Kroger Co.(c)............................................. 55,300 1,300 SuperValu Stores, Inc. ................................... 40,950 2,700 Sysco Corp. .............................................. 92,475 1,200 Winn-Dixie Stores, Inc. .................................. 42,450 ----------- 485,788 ----------- RETAIL--OTHER--4.3% 1,400 Charming Shoppes, Inc.(c)................................. 9,887 1,200 Circuit City Stores, Inc. ................................ 43,350 800 Dayton Hudson Corp. ...................................... 82,500 1,700 Dillard Department Stores, Inc. .......................... 62,050 2,600 Federated Department Stores............................... 88,725 600 Harcourt General, Inc. ................................... 30,000 6,349 Home Depot, Inc. ......................................... 342,846 2,500 J.C. Penney Company, Inc. ................................ 131,250 5,900 KMart Corp.(c)............................................ 73,012 200 Longs Drug Stores Corp. .................................. 8,925 2,400 Lowes Companies, Inc. .................................... 86,700 2,700 May Department Stores Co. ................................ 118,125 1,100 Melville Corporation...................................... 44,550 250 Mercantile Stores Co., Inc. .............................. 14,656 1,400 Nordstrom, Inc. .......................................... 62,300 432 Payless Shoesource, Inc. ................................. 13,716 900 Pep Boys: Manny, Moe & Jack............................... 30,600 2,239 Price Costco.(c).......................................... 48,418 900 Rite Aid Corp. ........................................... 26,775 5,300 Sears, Roebuck & Co. ..................................... 257,712 1,200 Tandy Corp. .............................................. 56,850 5,200 The Gap, Inc. ............................................ 167,050 3,593 The Limited, Inc. ........................................ 77,250 1,300 TJX Companies, Inc. ...................................... 43,875 3,475 Toys R Us, Inc.(c)........................................ 99,037 3,200 Walgreen Co. ............................................. 107,200 30,200 Wal-Mart Stores, Inc. .................................... 766,325 1,800 Woolworth Corp.(c)........................................ 40,500 ----------- 2,934,184 ----------- SERVICES--4.2% 800 Alexander & Alexander Services............................ 15,800 600 Autodesk, Inc. ........................................... 17,925 4,000 Automatic Data Processing, Inc. .......................... 154,500
SHARES VALUE (A) 900 Ceridian Corp.(c)......................................... $ 45,450 3,000 Computer Associates International, Inc. .................. 213,750 700 Computer Sciences Corp.(c)................................ 52,325 2,100 CUC International, Inc.(c)................................ 74,550 1,000 De Luxe Corp. ............................................ 35,500 1,200 Dow Jones & Co., Inc. .................................... 50,100 2,320 Dun & Bradstreet Corp. ................................... 145,000 400 EG & G, Inc. ............................................. 8,550 3,100 First Data Corp. ......................................... 246,837 1,200 H & R Block, Inc. ........................................ 39,150 600 Intergraph Corp.(c)....................................... 7,275 800 Interpublic Group Companies, Inc. ........................ 37,500 1,000 Marsh & McLennan Companies................................ 96,500 7,800 Microsoft Corp.(c)........................................ 936,975 5,000 Novell, Inc.(c)........................................... 69,375 300 Ogden Corp. .............................................. 5,437 8,625 Oracle Systems Corp.(c)................................... 340,148 800 Ryder Systems, Inc. ...................................... 22,500 1,550 Service Corporation International......................... 89,125 200 Shared Medical System..................................... 12,850 5,400 Westinghouse Electric Corp. .............................. 101,250 ----------- 2,818,372 ----------- SOAPS--1.5% 400 Clorox Co. ............................................... 35,450 2,200 Colgate Palmolive Co. .................................... 186,450 1,100 Dial Corp. ............................................... 31,487 700 Ecolab, Inc. ............................................. 23,100 5,800 Gillette Co. ............................................. 361,775 1,600 International Flavours & Fragrances, Inc. ................ 76,200 1,900 Newell Co. ............................................... 58,187 800 Premark International, Inc. .............................. 14,800 1,800 Ralston Purina Co. ....................................... 115,425 2,200 Rubbermaid, Inc. ......................................... 59,950 800 Tupperware Corp. ......................................... 33,800 ----------- 996,624 ----------- STEEL & IRON--0.2% 1,300 Armco, Inc.(c)............................................ 6,500 1,200 Bethlehem Steel Corp.(c).................................. 14,250 300 Inland Steel Industries, Inc. ............................ 5,887 1,000 Nucor Corp. .............................................. 50,625 1,020 USX US Steel Corp. ....................................... 28,942 1,200 Worthington Industries, Inc. ............................. 25,050 ----------- 131,254 ----------- TELEPHONE--7.4% 6,400 Airtouch Communications................................... 180,800 2,400 ALLTEL Corp. ............................................. 73,800 6,900 Ameritech Corp. .......................................... 409,687 21,135 AT & T Corp. ............................................. 1,310,370 5,600 Bell Atlantic Corp. ...................................... 357,000
See accompanying notes to financial statements. 49 NEW ENGLAND ZENITH FUND (WESTPEAK STOCK INDEX SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) COMMON STOCKS--(CONTINUED)
SHARES VALUE (A) TELEPHONE--(CONTINUED) 13,000 BellSouth Corp. .......................................... $ 550,875 12,500 GTE Corp. ................................................ 559,375 8,900 MCI Communications Corp. ................................. 228,062 5,600 NYNEX Corp. .............................................. 266,000 5,100 Pacific Telesis Group..................................... 172,125 7,900 SBC Communications, Inc. ................................. 389,075 6,700 Sprint Corp. ............................................. 281,400 5,600 U.S. West, Inc.(c)........................................ 102,200 2,500 Worldcom, Inc. ........................................... 138,437 ----------- 5,019,206 ----------- THRIFT--0.2% 700 Golden West Financial Corp. .............................. 39,200 1,450 Great Western Financial Corp. ............................ 34,619 1,800 H.F. Ahmanson & Co. ...................................... 48,600 ----------- 122,419 ----------- TIRES AND RUBBER GOODS--0.1% 1,100 Cooper Tire & Rubber Co. ................................. 24,475 1,600 Goodyear Tire & Rubber Company............................ 77,200 ----------- 101,675 ----------- TOBACCO--2.1% 2,600 American Brands, Inc. .................................... 117,975 11,400 Philip Morris Companies, Inc. ............................ 1,185,600 3,000 UST, Inc. ................................................ 102,750 ----------- 1,406,325 ----------- TRUCKING AND FREIGHT--0.0% 300 Caliber Systems, Inc. .................................... 10,200 300 Consolidated Freightways, Inc. ........................... 6,337 300 Yellow Corp.(c)........................................... 3,975 ----------- 20,512 ----------- Total Common Stocks (Identified cost $46,062,484)............................ 66,681,279 -----------
SHORT-TERM INVESTMENT--2.7%
FACE AMOUNT VALUE (A) $1,825,000 Repurchase Agreement with State Street Bank & Trust Co. dated 6/28/96 at 4.750% to be repurchased at $1,825,722, on 7/01/96 collateralized by $1,910,000, U.S. Treasury Bills due 12/12/96, with a value of $1,861,902.............................. $ 1,825,000 ----------- Total Short Term Investment (Identified cost $1,825,000)....................... 1,825,000 ----------- Total Investments--100.9% (Identified cost $47,887,484)(b)................... 68,506,279 Other assets less liabilities....................... (632,593) ----------- TOTAL NET ASSETS--100%.............................. $67,873,686 =========== (a) See Note 1A. (b) Federal Tax Information: At June 30, 1996 the net unrealized appreciation on investments based on cost of $47,887,484 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost...................................... $21,333,863 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value......................................... (715,068) ----------- Net unrealized appreciation......................... $20,618,795 ===========
(c) Non-income producing security. (d) An American Depository Receipt (ADR) is a certificate issued by a U.S. bank representing the right to receive securities of the foreign issuer described. The values of ADR's are significantly influenced by trading on exchanges not located in the United States or Canada. 50 NEW ENGLAND ZENITH FUND (WESTPEAK STOCK INDEX SERIES) STATEMENT OF ASSETS & LIABILITIES JUNE 30, 1996 (UNAUDITED) ASSETS Investments at value..................................... $68,506,279 Cash..................................................... 167 Receivable for: Fund shares sold......................................... 78,010 Dividends and interest................................... 99,418 ----------- 68,683,874 LIABILITIES Payable for: Securities purchased..................................... $704,877 Fund shares redeemed..................................... 21,225 Miscellaneous............................................ 24,290 Accrued expenses: Management fees.......................................... 16,187 Deferred trustees' fees.................................. 33,492 Other expenses........................................... 10,117 -------- 810,188 ----------- NET ASSETS................................................ $67,873,686 =========== Net Assets consist of: Capital paid in.......................................... $46,517,888 Undistributed net investment income...................... 611,031 Accumulated net realized gains........................... 125,972 Unrealized appreciation on investments................... 20,618,795 ----------- NET ASSETS................................................ $67,873,686 =========== Computation of offering price: Net asset value and redemption price per share ($67,873,686 divided by 617,209 shares of beneficial interest)................................................ $ 109.97 =========== Identified cost of investments............................ $47,887,484 ===========
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) INVESTMENT INCOME Dividends............................................. $ 688,228(a) Interest.............................................. 29,368 ---------- 717,596 EXPENSES Management fees....................................... $ 79,263 Trustees' fees and expenses........................... 9,245 Custodian............................................. 38,946 Audit and tax services................................ 5,700 Legal................................................. 3,864 Printing.............................................. 18,437 Miscellaneous......................................... 5,540 -------- Total expenses....................................... 160,995 Less expenses assumed by the investment adviser...... (34,175) 126,820 -------- ---------- NET INVESTMENT INCOME.................................. 590,776 REALIZED AND UNREALIZED GAIN ON INVESTMENTS Realized gain on investments--net..................... 158,516 Unrealized appreciation on investments--net........... 5,183,707 ---------- Net gain on investment transactions.................... 5,342,223 ---------- NET INCREASE IN NET ASSETS FROM OPERATIONS............. $5,932,999 ========== (a) Net of foreign taxes of: $5,057
See accompanying notes to financial statements. 51 NEW ENGLAND ZENITH FUND (WESTPEAK STOCK INDEX SERIES) STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1995 1996 ------------ ----------- FROM OPERATIONS Net investment income............................... $ 1,070,362 $ 590,776 Net realized gain on investments.................... 775,273 158,516 Unrealized appreciation on investments.............. 13,212,050 5,183,707 ----------- ----------- INCREASE IN NET ASSETS FROM OPERATIONS.............. 15,057,685 5,932,999 ----------- ----------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income............................... (1,050,107) 0 Net realized gain on investments.................... (673,888) 0 ----------- ----------- (1,723,995) 0 ----------- ----------- FROM CAPITAL SHARES TRANSACTIONS Proceeds from sale of shares........................ 17,851,781 9,418,797 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income............ 1,050,107 0 Distributions from net realized gain................ 673,888 0 ----------- ----------- 19,575,776 9,418,797 Cost of shares redeemed............................. (11,403,132) (6,148,732) ----------- ----------- INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS....................................... 8,172,644 3,270,065 ----------- ----------- TOTAL INCREASE IN NET ASSETS........................ 21,506,334 9,203,064 NET ASSETS Beginning of the period............................. 37,164,288 58,670,622 ----------- ----------- End of the period................................... $58,670,622 $67,873,686 =========== =========== UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the period............................. $ 0 $ 20,255 =========== =========== End of the period................................... $ 20,255 $ 611,031 =========== =========== NUMBER OF SHARES OF THE FUND: Issued from the sale of shares...................... 202,803 89,553 Issued in connection with the reinvestment of: Distributions from net investment income............ 10,562 0 Distributions from net realized gain................ 6,778 0 ----------- ----------- 220,143 89,553 Redeemed............................................ (127,215) (58,517) ----------- ----------- Net change.......................................... 92,928 31,036 =========== ===========
FINANCIAL HIGHLIGHTS (UNAUDITED)
SIX MONTHS YEAR ENDED DECEMBER 31, ENDED ------------------------------------------- JUNE 30, 1991 1992 1993 1994 1995 1996 ------- ------- ------- ------- ------- ---------- Net Asset Value, Beginning of Period.... $108.49 $137.39 $ 72.00 $ 76.48 $ 75.35 $100.09 ------- ------- ------- ------- ------- ------- Income From Investment Operations Net Investment Income.. 3.56 8.35 1.54 1.80 1.88 0.96 Net Realized and Unrealized Gain (Loss) on Investments........ 29.29 2.02 5.18 (0.92) 25.89 8.92 ------- ------- ------- ------- ------- ------- Total From Investment Operations............ 32.85 10.37 6.72 0.88 27.77 9.88 ------- ------- ------- ------- ------- ------- Less Distributions Distributions From Net Investment Income..... (3.56) (8.35) (1.36) (1.82) (1.85) 0.00 Distributions in Excess of Net Investment Income................ 0.00 0.00 (0.18) 0.00 0.00 0.00 Distributions From Net Realized Capital Gains................. (0.39) (67.41) (0.55) (0.16) (1.18) 0.00 Distributions in Excess of Net Realized Capital Gains......... 0.00 0.00 (0.15) 0.00 0.00 0.00 Distributions From Paid-in Capital....... 0.00 0.00 0.00 (0.03) 0.00 0.00 ------- ------- ------- ------- ------- ------- Total Distributions.... (3.95) (75.76) (2.24) (2.01) (3.03) 0.00 ------- ------- ------- ------- ------- ------- Net Asset Value, End of Period................. $137.39 $ 72.00 $ 76.48 $ 75.35 $100.09 $109.97 ======= ======= ======= ======= ======= ======= TOTAL RETURN (%)........ 30.37 7.30 9.72 1.14 36.88 9.87(b) Ratio of Operating Expenses to Average Net Assets (%)............. 0.36 0.35 0.34 0.33 0.40 0.40(a) Ratio of Net Investment Income to Average Net Assets (%)............. 2.86 2.63 2.52 2.59 2.20 1.87(a) Portfolio Turnover Rate (%).................... 2 17 12 2 5 2(a) Average Commission Rate (c).................... -- -- -- -- -- $0.0353 Net Assets, End of Period (000)........... $20,496 $10,172 $28,817 $37,164 $58,671 $67,874 The ratios of expenses to average net assets without giving effect to the voluntary expense agreement described in Note 4 to the Financial Statements would have been (%)............... -- -- -- -- 0.54 0.51
(a) Computed on an annualized basis. (b) Not computed on an annualized basis. (c) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for trades on which commissions are charged. This rate generally does not reflect mark- ups, mark-downs, or spreads on shares traded on a principal basis. See accompanying notes to financial statements. 52 ZENITH LOOMIS SAYLES BALANCED SERIES PORTFOLIO MANAGERS: DOUG RAMOS, MERI ANNE BECK LOOMIS, SAYLES & COMPANY, L.P. - ------------------ ----------------- MARKET REVIEW [PHOTO OF DOUG [PHOTO OF MERI At the outset of 1996, most RAMOS APPEARS ANNE BECK APPEARS investors were expecting economic HERE] HERE] growth to start slowly and quicken as the year progressed. Some pessimistic souls even discussed the possibility of a recession. At the time this all seemed very reasonable; economic growth had slowed dramatically in the fourth quarter of 1995, the East Coast was struck by a severe blizzard and the federal government's partial shutdown all pointed to a weak first - ------------------ ----------------- quarter. However, the economic picture began to change in February and March. Unexpectedly strong reports on employment and light vehicle sales suggested that the economy was not as weak as expected. Fixed-income investors started questioning the prospect of further Federal Reserve easing. Stock investors became concerned that the Federal Reserve would raise interest rates to rein in economic growth and keep inflation from gaining momentum. Rising interest rates halted the stock market rally that began on January 11. These developments produced mixed results for the Loomis Sayles Balanced Series in the first six months of 1996. In this environment, bond market performance was negative. As measured by the Lehman Government Corporate Index/4/, bonds returned -1.88% for the first six months of the year. While the initial rally in stocks was stopped in February by the rise in interest rates, renewed economic growth and the prospects for stronger earnings growth in the second half of the year helped stocks trade marginally higher in May and June. For the first two quarters of 1996, stocks within the S&P 500/20/ produced a total return of +10.2%. Fortunately, on average, 62% of the Series' assets were invested in common stocks during this period. Overall the Series returned 4.27% during the first six months of the year. BONDS. The Series' purchase of corporate bonds in the consumer, insurance, finance and technology sectors was beneficial as spreads tightened on good credit and financial news. Individual bonds, such as Federated Department Stores and La Quinta Inns, were positive consumer holdings in an improving sector. Sears Roebuck and Delta Airlines received ratings upgrades causing spreads to narrow versus Treasury bonds. Bankers Trust lagged in performance due to a pending lawsuit regarding derivative usage, but improved after a settlement was reached. An intermediate maturity and an emphasis on current or higher coupon bonds were beneficial both on a current income and price performance basis in an environment of declining bond prices. Due to historically narrow corporate bond spreads, high quality discount coupon mortgage securities continue to be purchased. STOCKS. The equity markets continued to exhibit a positive bias toward large capitalization growth stocks, while low P/E ("value") and mid capitalization stocks continued to lag. Perhaps reversing a long-term trend, small capitalization stocks are staging an impressive comeback. However, the Series' medium to large capitalization value bias continued to be a drag on performance compared with the S&P 500/20/. The Series' financial sector holdings did very well, especially in the first quarter. In the banking industry, holdings in Chase Manhattan, Nationsbank and First Interstate--now part of Wells Fargo--performed very well. Significant positive returns were also recorded by Green Tree Financial and Ace Ltd. In the basic materials sector, chemical holdings in Dupont and Praxair did well. Energy was the best performing sector, completely reversing last year's results, with El Paso Natural Gas and Ultramar providing significant returns. Finally, technology performed well with handsome returns generated by Intel Corporation, EMC Corporation, and IBM, which was recently sold from the portfolio. The one poor performer in the portfolio was the utility sector, which was hurt by the rise in interest rates. 53 OUTLOOK AND STRATEGY In anticipation of continued potential for economic growth through the end of the year, as well as continued signs of an increase in the rate of corporate earnings growth, we are increasing the Series' weighting in stocks to 65%. We continue to invest in stocks with below average P/E ratios and above average long-term growth potential. Stock selection remains a critical element in determining performance for "value" portfolios. We believe that the market's current bias toward large capitalization growth stocks will reverse itself, though it may take an acceleration in earnings growth rates. A $10,000 Investment Compared to an Index FUND FACTS [GRAPH APPEARS HERE] GOAL: Reasonable long-term investment return from a Zenith Stock S&P Leh/gov't combination of long-term capital Index 500/20/ corp./4/ appreciation and moderate 10/31/94 $10,000 $10,000 $10,000 current income. 12/31/94 9,990 9,794 10,048 12/31/95 12,467 13,461 11,981 START DATE: October 31, 1994 06/30/96 12,998 14,818 11,756 SIZE: $35 million as of June 30, 1996 Average Annual Return Lipper Variable MANAGERS: Douglas Ramos and Meri Balanced Balanced Anne Beck have managed the Series Fund Average/8/ Series since its inception. Mr. 6 mos.* 4.27% 4.14% Ramos serves as portfolio co- 1 year 12.37% 16.47% manager of New England Balanced Since Fund and New England Value Fund. inception 17.07% n/a Ms. Beck also serves as *not annualized portfolio co-manager of New England Balanced Fund. Mr. Ramos joined Loomis Sayles in 1985 and Ms. Beck joined Loomis Sayles in 1986. Performance numbers are net of all Series expenses but do not include any insurance, sales or administrative charges of variable annuity or life insurance contracts; if these charges were included, the returns shown would be lower. This information represents past performance and is not indicative of future results. Investment return and principal value will fluctuate so that shares, upon redemption, may be worth more or less than the original cost. 54 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES BALANCED SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) COMMON STOCKS--57.3% OF TOTAL NET ASSETS
SHARES VALUE (A) AEROSPACE--3.0% 5,300 Lockheed Martin Corp. .. $ 445,200 7,200 Northrop Grumman Corp. . 490,500 2,600 Raytheon Co. ........... 134,225 ----------- 1,069,925 ----------- AUTOMOBILES--2.3% 6,800 Chrysler Corp. ......... 421,600 7,600 General Motors Corp. ... 398,050 ----------- 819,650 ----------- BANKS--4.0% 6,300 Chase Manhattan Corp. .. 444,937 5,500 NationsBank Corp. ...... 454,438 11,700 Norwest Corp. .......... 408,038 466 Wells Fargo & Co. ...... 111,316 ----------- 1,418,729 ----------- CHEMICALS--3.7% E.I. Du Pont de Nemours 5,600 & Co. ................. 443,100 8,600 PPG Industries, Inc. ... 419,250 10,600 Praxair, Inc. .......... 447,850 ----------- 1,310,200 ----------- COMPUTER & BUSINESS EQUIPMENT--1.0% 19,500 EMC Corp. .............. 363,187 ----------- CONGLOMERATES--1.9% 7,900 Allied Signal, Inc. .... 451,288 6,600 Philips NV (ADR)(d)..... 215,325 ----------- 666,613 ----------- ELECTRIC UTILITIES--1.3% 26,700 Edison International.... 470,587 ----------- ELECTRONIC COMPONENTS-- 1.9% 6,700 Intel Corp. ............ 492,031 3,700 Texas Instruments, Inc. .................. 184,538 ----------- 676,569 ----------- FINANCIAL SERVICES--3.7% 5,000 Federal Home Loan Mortgage Corp. ........ 427,500 13,700 Federal National Mortgage Association... 458,950 13,000 Green Tree Financial Corp. ................. 406,250 ----------- 1,292,700 ----------- FOOD--AGRIBUSINESS--1.3% 13,900 Penenergy Corp. ........ 456,962 -----------
SHARES VALUE (A) FOOD & BEVERAGE--1.4% 17,100 IBP, Inc. ............................................... $ 472,387 ----------- FREIGHT--TRANSPORTATION--3.9% 5,200 Burlington Northern Santa Fe............................. 420,550 21,000 Canadian Pacific Ltd. ................................... 462,000 5,900 Federal Express Corp.(c)................................. 483,800 ----------- 1,366,350 ----------- GAS & PIPELINE UTILITIES--0.5% 4,500 El Paso Natural Gas Co. ................................. 173,250 ----------- HEALTH CARE--DRUGS--0.8% 10,700 Glaxo Wellcome PLC (ADR)(d).............................. 286,225 ----------- HEALTH CARE--SERVICES--1.1% 32,300 Beverly Enterprises, Inc.(c)............................. 387,600 ----------- HOUSING & BUILDING MATERIALS--3.5% 7,500 Armstrong World Industries, Inc. ........................ 432,187 10,100 Black & Decker Corp. .................................... 390,113 13,900 Masco Corp. ............................................. 420,475 ----------- 1,242,775 ----------- HOUSEHOLD PRODUCTS--1.4% 8,200 Premark International, Inc. ............................. 151,700 8,200 Tupperware Corp. ........................................ 346,450 ----------- 498,150 ----------- INSURANCE--4.6% 9,400 ACE Ltd. ................................................ 441,800 8,800 Chubb Corp. ............................................. 438,900 11,600 Everest Reinsurance Holdings............................. 300,150 10,400 Providian Corp. ......................................... 445,900 ----------- 1,626,750 ----------- LEISURE TIME--2.5% 15,600 American Greetings Corp. ................................ 427,050 16,100 Carnival Corp. .......................................... 464,887 ----------- 891,937 ----------- OIL--2.0% 8,800 Repsol S.A., (ADR)(d).................................... 305,800 13,400 Ultramar Corp. .......................................... 388,600 ----------- 694,400 ----------- PACKAGING--1.2% 9,500 Crown Cork & Seal, Inc. ................................. 427,500 -----------
See accompanying notes to financial statements. 55 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES BALANCED SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) COMMON STOCKS--(CONTINUED)
SHARES VALUE (A) RETAIL--FOOD & DRUG--3.6% 18,500 Eckerd Corp. Delaware................................... $ 418,563 10,600 Kroger Co. ............................................. 418,700 11,000 Melville Corp. ......................................... 445,500 ----------- 1,282,763 ----------- TELECOMMUNICATIONS--3.5% 12,500 DSC Communications Corp. (Rights)(c).................... 376,563 8,700 GTE Corp. .............................................. 389,325 13,400 Pacific Telesis Group................................... 452,250 ----------- 1,218,138 ----------- TOBACCO--3.2% 5,200 Loews Corp. ............................................ 410,150 2,800 Philip Morris Companies, Inc. .......................... 291,200 12,400 UST, Inc. .............................................. 424,700 ----------- 1,126,050 ----------- Total Common Stocks (Identified Cost $18,657,639).......................... 20,239,397 ----------- MEDIUM & LONG TERM BONDS & NOTES--34.4% FACE AMOUNT AEROSPACE--0.9% $330,000 Lockheed Martin Corporation 6.550%, 5/15/99............. 329,455 ----------- BANKS--3.8% 100,000 Bankers Trust, NY Corp. 8.125%, 4/01/02................. 104,271 350,000 Capital One Bank 6.830%, 5/17/99........................ 349,422 50,000 Chase Manhattan Corp. 9.050%, 2/01/02................... 50,716 475,000 Household Bank FSB 6.250%, 4/01/99...................... 470,241 310,000 Mellon Bank NA 7.000%, 3/15/06.......................... 302,148 50,000 Norwest Corp. 7.650%, 3/15/05........................... 51,476 ----------- 1,328,274 ----------- CABLE & MEDIA--1.0% 350,000 TCI Communications, Inc. 7.250%, 6/15/99................ 350,815 ----------- COMPUTER--0.8% 300,000 Comdisco, Inc. 5.760%, 1/19/99.......................... 294,360 ----------- ENERGY--0.4% 125,000 Coastal Corp. 8.125%, 9/15/02........................... 130,324 25,000 Standard Oil Co. 9.000%, 6/01/19........................ 26,147 ----------- 156,471 -----------
FACE AMOUNT VALUE (A) FINANCE--4.9% $ 125,000 Associates Corp. NA 8.350%, 12/22/98................. $ 130,422 115,000 Avalon Properties, Inc. 7.375%, 9/15/02.............. 113,242 200,000 Ford Motor Credit Corp. 6.850%, 8/15/00..................................... 200,332 244,000 General Motors Acceptance Corp. 5.500%, 12/15/01..... 225,502 350,000 Great Western Financial Corp. 6.125%, 6/15/98........ 347,767 50,000 International Lease Finance Corp. 8.040%, 12/01/97... 51,296 100,000 Secured Finance Investment, Inc. 9.05%, 12/15/04..... 110,119 50,000 Standard Credit Card 8.625%, 1/07/02................. 50,990 300,000 WFS Financial 6.950%, 11/20/03....................... 301,968 200,000 World Omni Automobile Lease 6.550%, 6/25/02.......... 199,360 ----------- 1,730,998 ----------- GOVERNMENT AGENCY--6.5% 350,000 Federal Home Loan Banks 7.151%, 9/13/05.............. 341,702 30,000 Federal National Mortgage Association Zero Coupon 10/10/01............................................ 29,433 25,000 United States Treasury Notes 8.250%, 7/15/98......... 25,988 175,000 United States Treasury Notes 5.500%, 4/15/00......... 169,750 105,000 United States Treasury Notes 6.125%, 7/31/00......... 103,836 1,670,000 United States Treasury Notes 6.250%, 2/15/03......... 1,640,508 ----------- 2,311,217 ----------- HEALTH CARE--0.1% 50,000 Columbia/HCA Healthcare Corp. 8.020%, 8/5/02......... 52,242 ----------- INDUSTRIALS--2.2% 325,000 Amerco 7.850%, 5/15/03............................... 326,313 68,000 Anheuser Busch Companies, Inc. 8.500%, 3/01/17....... 70,818 200,000 Martin Marietta Corp. 6.500%, 4/15/03................ 194,002 200,000 Tektronix, Inc. 7.625%, 8/15/02...................... 201,280 ----------- 792,413 ----------- INSURANCE--0.8% 275,000 Travelers Aetna 6.750%, 4/15/01...................... 272,998 -----------
See accompanying notes to financial statements. 56 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES BALANCED SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) MEDIUM & LONG TERM BONDS & NOTES--(CONTINUED)
FACE AMOUNT VALUE (A) LEISURE & LODGING--1.1% $100,000 Carnival Corp. 7.050%, 5/15/05.......................... $ 97,628 300,000 La Quinta Inns, Inc. 7.400%, 9/15/05.................... 285,000 ----------- 382,628 ----------- MORTGAGE--2.4% 375,000 Federal Home Loan Mortgage 6.500%, 7/15/10.............. 357,836 390,220 Federal Home Loan Mortgage 6.000%, 8/15/22.............. 335,344 200,000 Federal National Mortgage Association 6.000%, 2/25/24... 165,340 ----------- 858,520 ----------- MORTGAGE BACKED--1.8% 200,000 Federal Home Loan Mortgage 8.000%, 7/15/21.............. 201,874 50,000 G.E. Capital Mortgage Inc. 10.000%, 3/25/24............. 52,500 75,000 PaineWebber CMO Tr. 9.000%, 10/20/03....................................... 76,945 75,000 Westam Mortgage Financial Corp. 8.950%, 8/01/18......... 80,038 200,000 Westam Mortgage Financial Corp. 9.400%, 12/01/18........ 215,936 ----------- 627,293 ----------- RETAIL STORE--1.4% 335,000 Federated Department Stores, Inc. 8.500%, 6/15/03....... 336,186 170,000 Sears Overseas Finance Zero Coupon 7/12/98.............. 148,856 ----------- 485,042 ----------- SECURITIES--3.3% 225,000 Alex Brown, Inc. 7.625%, 8/15/05........................ 225,367 200,000 Donaldson Lufkin & Jennrette 6.875%, 11/01/05........... 189,540 100,000 Lehman Bros. Inc. 5.750%, 11/15/98...................... 97,855 200,000 Lehman Bros. Inc. 7.375%, 5/15/07....................... 202,686 100,000 Merrill Lynch & Co. 8.375%, 2/09/00..................... 104,409 145,000 Salomon, Inc 7.500%, 2/01/03............................ 144,037 200,000 Smith Barney Holdings, Inc. 5.500%, 1/15/99............. 194,734 ----------- 1,158,628 ----------- TECHNOLOGY--0.6% 200,000 Digital Equipment Corp. 8.625%, 11/01/12................ 201,514 -----------
FACE AMOUNT VALUE (A) TELECOMMUNICATIONS--0.6% $ 200,000 Southern Bell Telephone & Telegraph Co. 7.625%, 3/15/13............................................ $ 197,698 ----------- TRANSPORTATION--0.4% 25,000 American Airlines 10.180%, 1/02/13.................. 28,624 100,000 AMR Corp 10.290%, 3/08/21........................... 121,457 ----------- 150,081 ----------- UTILITIES--1.3% 250,000 Cincinnati Gas & Electric Co. 7.375%, 11/01/01...... 251,057 195,000 Detroit Edison Co. 6.340%, 3/15/00.................. 191,166 ----------- 442,223 ----------- YANKEE/SUPRANATIONAL--0.1% 50,000 SKF Aktiebolaget AB 7.625%, 7/15/03................. 50,160 ----------- Total Bonds & Notes (Identified Cost $12,211,390)...................... 12,173,030 ----------- SHORT-TERM INVESTMENTS--7.7% 1,528,000 Repurchase Agreement with State Street Bank & Trust Co. dated 6/28/96 at 4.750% to be repurchased at $1,528,605 on 7/01/96. Collateralized by $1,600,000 U.S. Treasury Bill due 12/19/96, with a value of $1,559,709......................................... 1,528,000 1,200,000 Associates Corp. of North America 5.450%, 7/01/96... 1,200,000 ----------- Total Short-Term Investments (Identified Cost $2,728,000)....................... 2,728,000 ----------- Total Investments--99.4% (Identified Cost $33,597,029(b))................... 35,140,427 Other assets less liabilities....................... 204,642 ----------- TOTAL NET ASSETS--100%.............................. $35,345,069 =========== (a) See Note 1a. (b) Federal Tax Information: At June 30, 1996 the net unrealized appreciation on investments based on cost of $33,597,029 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost...................................... $ 1,888,840 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value......................................... (345,442) ----------- Net unrealized appreciation......................... $ 1,543,398 ===========
(c) Non-income producing security. (d) An American Depository Receipt (ADR) is a certificate issued by a U.S. bank representing the right to receive securities of the foreign issuer described. The values of ADRs are significantly influenced by trading on exchanges not located in the United States or Canada. See accompanying notes to financial statements. 57 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES BALANCED SERIES) STATEMENT OF ASSETS & LIABILITIES JUNE 30, 1996 (UNAUDITED) ASSETS Investments at value..................................... $35,140,427 Cash..................................................... 646 Receivable for: Fund shares sold......................................... 79,480 Securities sold.......................................... 152,004 Dividends and interest................................... 206,861 Foreign taxes............................................ 275 Due from advisor......................................... 86 Unamortized organization expense......................... 6,703 ----------- 35,586,482 LIABILITIES Payable for: Securities purchased..................................... $137,992 Fund shares redeemed..................................... 58,246 Accrued expenses: Management fees.......................................... 13,270 Other expenses........................................... 31,905 -------- 241,413 ----------- NET ASSETS................................................ $35,345,069 =========== Net Assets consist of: Capital paid in.......................................... $33,113,070 Undistributed net investment income...................... 446,272 Accumulated net realized gains........................... 242,329 Unrealized appreciation on investments................... 1,543,398 ----------- NET ASSETS................................................ $35,345,069 =========== Computation of offering price: Net asset value and redemption price per share ($35,345,069 divided by 2,837,644 shares of beneficial interest)................................................ $ 12.46 =========== Identified cost of investments............................ $33,597,029 ===========
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) INVESTMENT INCOME Dividends............................................. $ 174,405(a) Interest.............................................. 385,392 ---------- 559,797 EXPENSES Management fees....................................... $ 94,346 Trustees' fees and expenses........................... 6,453 Custodian............................................. 26,323 Audit and tax services................................ 10,347 Legal................................................. 5,411 Printing.............................................. 3,056 Amortization of organization expenses................. 1,003 Miscellaneous......................................... 4,971 -------- Total expenses....................................... 151,910 Less expenses assumed by the investment adviser...... (37,335) 114,575 -------- ---------- NET INVESTMENT INCOME.................................. 445,222 REALIZED AND UNREALIZED GAIN ON INVESTMENTS Realized gain on Investments--net..................... 103,879 Unrealized appreciation on investments--net........... 515,612 ---------- Net gain on investment transactions.................... 619,491 ---------- NET INCREASE IN NET ASSETS FROM OPERATIONS............. $1,064,713 ==========
(a)Net of foreign taxes of: $2,749. See accompanying notes to financial statements. 58 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES BALANCED SERIES) STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1995 1996 ------------ ----------- FROM OPERATIONS Net investment income............................... $ 382,625 $ 445,222 Net realized gain on investments.................... 426,765 103,879 Unrealized appreciation on investments.............. 1,029,622 515,612 ----------- ----------- INCREASE IN NET ASSETS FROM OPERATIONS.............. 1,839,012 1,064,713 ----------- ----------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income............................... (382,625) 0 In excess of net investment income.................. (1,297) 0 Net realized gain on investments.................... (288,315) 0 ----------- ----------- (672,237) 0 ----------- ----------- FROM CAPITAL SHARES TRANSACTIONS Proceeds from sale of shares........................ 18,594,352 18,604,691 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income............ 383,922 0 Distributions from net realized gain................ 288,315 0 ----------- ----------- 19,266,589 18,604,691 Cost of shares redeemed............................. (4,333,030) (3,147,011) ----------- ----------- INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS....................................... 14,933,559 15,457,680 ----------- ----------- TOTAL INCREASE IN NET ASSETS........................ 16,100,334 16,522,393 NET ASSETS Beginning of the period............................. 2,722,342 18,822,676 ----------- ----------- End of the period................................... $18,822,676 $35,345,069 =========== =========== UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the period............................. $ 251 $ 1,050 =========== =========== End of the period................................... $ 1,050 $ 446,272 =========== =========== NUMBER OF SHARES OF THE FUND: Issued from the sale of shares...................... 1,626,505 1,518,994 Issued in connection with the reinvestment of: Distributions from net investment income............ 32,426 0 Distributions from net realized gain................ 24,351 0 ----------- ----------- 1,683,282 1,518,994 Redeemed............................................ (382,082) (256,443) ----------- ----------- Net change.......................................... 1,301,200 1,262,551 =========== ===========
FINANCIAL HIGHLIGHTS (UNAUDITED)
OCTOBER 31, 1994(A) YEAR SIX MONTHS THROUGH ENDED ENDED DECEMBER 31, DECEMBER 31, JUNE 30, 1994 1995 1996 ------------------- ------------ ---------- Net Asset Value, Beginning of Period........................... $10.00 $ 9.94 $ 11.95 ------ ------- ------- Income From Investment Operations Net Investment Income............ 0.05 0.26 0.41 Net Realized and Unrealized Gain (Loss) on Investments........... (0.06) 2.20 0.10 ------ ------- ------- Total From Investment Operations. (0.01) 2.46 0.51 ------ ------- ------- Less Distributions Distributions From Net Investment Income.......................... (0.05) (0.26) 0.00 Capital Gains.................... 0.00 (0.19) 0.00 ------ ------- ------- Total Distributions.............. (0.05) (0.45) 0.00 ------ ------- ------- Net Asset Value, End of Period.... $ 9.94 $ 11.95 $ 12.46 ====== ======= ======= TOTAL RETURN (%).................. (0.10)(c) 24.79 4.27(c) Ratio of Operating Expenses to Average Net Assets (%)........... 0.85 (b) 0.85 0.85(b) Ratio of Net Investment Income to Average Net Assets (%)........... 4.16 (b) 4.03 3.26(b) Portfolio Turnover Rate (%)....... 0 (b) 72 63(b) Average Commission Rate (d)....... -- -- $0.0095 Net Assets, End of Period (000)... $2,722 $18,823 $35,345 The ratios of expenses to average net assets without giving effect to the voluntary expense agreement described in Note 4 to the Financial Statements would have been (%).................... 3.73 (b) 1.85 1.13(b)
(a) Commencement of operations. (b) Computed on an annualized basis. (c) Not computed on an annualized basis. (d) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for trades on which commissions are charged. This rate generally does not reflect mark- ups, mark-downs, or spreads on shares traded on a principal basis. See accompanying notes to financial statements. 59 ZENITH BACK BAY ADVISORS MANAGED SERIES PORTFOLIO MANAGER: PETER PALFREY; BACK BAY ADVISORS(R), L.P. - ------------------ MARKET REVIEW [PHOTO OF PETER The Back Bay Advisors Managed Series ended the first six PALFREY APPEARS months of 1996 nominally behind its peer group of Lipper HERE] "Flexible Funds", with a total return of 5.24%, versus the comparable Lipper average of 5.41%--an underperformance of 17 basis points. For the 12-month period ended June 30, 1996, the Series remained well ahead of its peer group, with a top quartile performance of 18.22% versus 15.24% for the Lipper averages--an outperformance of 298 basis points. During the first half of 1996, the Series' asset allocation moved to a slightly greater overweight position in stocks--from 67% to 69%; this was achieved through a combination of bond sales and the greater relative market - ------------------ appreciation of stock holdings. During this same period, the duration on the bond portfolio was reduced by 0.7 years to 6.58 years and the portfolio weighting in bonds was reduced from 33% to 29%. At the end of the second quarter, the allocation to stocks was trimmed modestly, raising cash and bringing equity exposure down to 69.4%. Despite being a relatively volatile period, stocks managed to extend their bull market advance, with the S&P 500 Index/20/ (including reinvestment of dividends) up 10.2% through June 30. Solid fundamentals (good corporate earnings growth, improved economic outlook), coupled with record capital inflows served to push equities to consecutive new highs, despite investor concern over "full" valuations and increasing interest rates. Bonds, in contrast, declined sharply over the same period, with the Lehman Government/Corporate Index/4/ down 1.88% through June 30. The weakness in fixed income markets reflected investor concern over the sharp rebound in U.S. economic growth (from the somewhat anemic pace of growth in late 1995), marked by strong payroll gains and higher than expected energy and commodity prices. While inflation has remained below 3% on a year-over-year basis, investors fear that tighter labor markets could lead to increased wage pressures, answered by a corresponding shift to a more restrictive monetary policy by the Federal Reserve Board. OUTLOOK AND STRATEGY Recent volatility in equity and fixed income markets during early July reflects increased investor uncertainty over the sustainability of the current economic growth cycle. The depth and extent of the present stock market correction will depend on investor reaction to the remaining second quarter earnings announcements and on management comments about the prospects for subsequent quarters. While it may take some time to work through this current correction, with market conditions expected to be quite choppy through the summer, I remain constructive on the equity market on a longer term basis. During periods of greater investor uncertainty, larger capitalization, high quality stocks, such as those favored by the Series, tend to outperform as investors seek relative safety. In the credit markets, investor interest in bonds has been perked by recent weakness in stocks, with many market pundits talking of a major asset allocation shift. Interestingly, the equity sell off has not translated into any meaningful, lasting support for bonds thus far. This is most likely due to investor fear that the economy may not slow sufficiently through the remainder of 1996 to avert Federal Reserve action and/or a pickup in inflationary pressures. However, I expect that Gross Domestic Product (GDP) growth will likely slow from the current 4-4.5% pace to a more sustainable 3% average pace during the second half of the year. This is due primarily to the dampening effect on consumer spending (housing, auto) from the 100 basis point increase in rates thus far this year. Given that the bond market has already "priced- in" 50 basis points of Federal Reserve monetary tightening between now and year-end, any signs of moderating economic growth, coupled with continued benign inflation, should be more positively received by credit market participants. Accordingly, I have begun to position the bond portion of the Series more aggressively, with issues that potentially perform best in a stable to falling interest rate environment. 60 A $10,000 Investment Compared to an Index FUND FACTS [GRAPH APPEARS HERE] GOAL: A favorable total return through investment in Zenith diversified portfolio. The Managed S&P Leh/gov't Series' portfolio is expected Series 500/20/ corp./4/ to include a mix of 5/01/87 $10,000 $10,000 $10,000 (1) common stocks, (2) notes 12/31/87 9,935 8,770 10,357 and bonds and (3) money 12/31/88 10,877 10,216 11,142 market instruments. 12/31/89 12,952 13,444 12,729 12/31/90 13,369 13,025 13,782 START DATE: May 1, 1987 12/31/91 16,085 16,976 16,001 12/31/92 17,142 18,268 17,213 SIZE: $151 million as of June 12/31/93 18,968 20,101 19,117 30, 1996 12/31/94 18,756 20,374 18,447 12/31/95 24,620 28,003 21,997 MANAGER: Peter Palfrey has 06/30/96 25,911 30,825 21,583 managed the Series since January, 1994 and joined Back Bay Advisors in 1993. Mr. Average Annual Return Palfrey also manages several other fixed income and Zenith Lipper Variable Flexible separate accounts. Managed Series Portfolio Fund Average/9/ 6 mos.* 5.24% 5.41% 1 year 18.26% 15.24% 5 years 12.67% 12.12% Since inception 10.95% n/a *not annualized Performance numbers are net of all Series expenses but do not include any insurance, sales or administrative charges of variable annuity or life insurance contracts; if these charges were included, the returns shown would be lower. This information represents past performance and is not indicative of future results. Investment return and principal value will fluctuate so that shares, upon redemption, may be worth more or less than the original cost. 61 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS MANAGED SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) COMMON STOCKS--69.4% OF TOTAL NET ASSETS
SHARES VALUE (A) AEROSPACE--1.0% 5,025 Boeing Co................................................. $ 437,803 14,600 Rockwell International Corp............................... 835,850 2,500 United Technologies Corp.................................. 287,500 ----------- 1,561,153 ----------- APPAREL--0.2% 7,400 Melville Corp............................................. 299,700 ----------- AUTOMOBILE & RELATED--1.4% 15,432 Chrysler Corp............................................. 956,784 4,600 Ford Motor Co............................................. 148,925 12,500 General Motors Corp....................................... 654,687 6,750 Genuine Parts Co.......................................... 308,813 ----------- 2,069,209 ----------- BANKS--3.5% 32,186 Banc One Corp............................................. 1,094,324 10,144 Bank America Corp......................................... 768,408 5,400 Bankers Trust New York Corp. ............................. 398,925 19,000 Citicorp.................................................. 1,569,875 10,900 J.P. Morgan & Co., Inc.................................... 922,413 7,200 Nations Bank Corp......................................... 594,900 ----------- 5,348,845 ----------- BUSINESS MACHINES--1.4% 8,500 Apple Computer............................................ 178,500 28,400 Digital Equipment Corp.(c)................................ 1,278,000 5,900 International Business Machines Corp...................... 584,100 ----------- 2,040,600 ----------- BUSINESS SERVICES--1.4% 28,500 Browning Ferris Industries, Inc........................... 826,500 10,000 Dun & Bradstreet Corp..................................... 625,000 9,200 H & R Block, Inc.......................................... 300,150 9,500 WMX Technologies, Inc..................................... 311,125 ----------- 2,062,775 ----------- CHEMICALS--3.4% 14,200 Allied-Signals, Inc....................................... 811,175 8,200 Dow Chemical Co........................................... 623,200 13,700 E.I. Du Pont de Nemours & Co.............................. 1,084,012 56,000 Monsanto Co............................................... 1,820,000 15,600 PPG Industries, Inc....................................... 760,500 ----------- 5,098,887 ----------- COMMUNICATION--5.3% 15,500 Airtouch Communications, Inc. ............................ 437,875 35,200 Ameritech Corp. .......................................... 2,090,000 27,261 AT & T Co. ............................................... 1,690,182 12,200 Bell Atlantic Corp. ...................................... 777,750
SHARES VALUE (A) 16,200 Bellsouth Corp. .......................................... $ 686,475 10,600 GTE Corp. ................................................ 474,350 14,600 NYNEX Corp. .............................................. 693,500 15,500 Pacific Telesis Group..................................... 523,125 7,200 SBC Comunications, Inc. .................................. 354,600 9,700 US West, Inc. ............................................ 309,188 ----------- 8,037,045 ----------- CONGLOMERATES--0.7% 2,200 ITT Corp. ................................................ 145,750 13,800 Minnesota Mining & Manufacturing.......................... 952,200 ----------- 1,097,950 ----------- CONSTRUCTION--1.3% 28,600 Home Depot, Inc. ......................................... 1,544,400 14,900 Masco Corp. .............................................. 450,725 ----------- 1,995,125 ----------- CONSUMER DURABLES--0.0% 800 Whirlpool Corp. .......................................... 39,700 ----------- DOMESTIC OIL--1.7% 2,400 Amoco Corp. .............................................. 173,700 2,700 Atlantic Richfield Co. ................................... 319,950 3,600 Halliburton Co. .......................................... 199,800 69,300 Oryx Energy Co. .......................................... 1,126,125 934 Santa Fe Energy, Inc.(c).................................. 11,091 3,601 Sun, Inc. ................................................ 109,380 800 Tenneco, Inc. ............................................ 40,900 15,600 Unocal Corp. ............................................. 526,500 ----------- 2,507,446 ----------- DRUGS & MEDICINE--6.2% 8,800 Abbott Laboratories....................................... 382,800 22,000 American Home Products Corp. ............................. 1,322,750 37,100 Baxter International, Inc. ............................... 1,752,975 15,200 Eli Lilly & Co. .......................................... 988,000 31,500 Merck & Co., Inc. ........................................ 2,035,687 19,200 Pfizer Inc. .............................................. 1,370,400 18,705 Pharmacia & Upjohn, Inc. ................................. 830,034 10,800 Schering Plough Corp. .................................... 677,700 ----------- 9,360,346 ----------- ELECTRONICS--4.0% 43,200 AMP, Inc. ................................................ 1,733,400 9,400 Emerson Electric Co. ..................................... 849,525 22,400 Hewlett-Packard........................................... 2,231,600 6,400 Motorola, Inc. ........................................... 402,400 15,400 Raytheon Co. ............................................. 795,025 ----------- 6,011,950 -----------
See accompanying notes to financial statements. 62 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS MANAGED SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) COMMON STOCKS--(CONTINUED)
SHARES VALUE (A) ENERGY & UTILITIES--2.8% 18,300 American Electric Power, Inc. ............................ $ 780,037 11,700 Consolidated Edison Co. .................................. 342,225 40,200 Edison International...................................... 708,525 45,700 Pacific Gas & Electric Co. ............................... 1,062,525 7,700 Public Service Enterprise Group........................... 210,788 10,200 Southern Co. ............................................. 251,175 8,900 Texas Utilities Co. ...................................... 380,475 17,300 Unicom Corp. ............................................. 482,237 ----------- 4,217,987 ----------- ENERGY RAW MATERIALS--1.1% 58,800 Occidental Petroleum Corp. ............................... 1,455,300 3,200 Schlumberger Ltd. ........................................ 269,600 ----------- 1,724,900 ----------- ENTERTAINMENT--0.0% 2,200 ITT Industry, Inc. ....................................... 55,275 ----------- FINANCE--2.1% 25,000 American Express Co. ..................................... 1,115,625 4,449 Dean Witter, Discover & Co. .............................. 254,705 11,600 Federal Home Loan Mortgage Corp. ......................... 991,800 16,900 Salomon, Inc. ............................................ 743,600 ----------- 3,105,730 ----------- FOOD & AGRICULTURE--4.8% 39,800 Coca Cola Co. ............................................ 1,945,225 5,000 General Mills, Inc. ...................................... 272,500 41,850 H. J. Heinz Co. .......................................... 1,271,194 24,600 Kellogg Co. .............................................. 1,801,950 16,200 PepsiCo, Inc. ............................................ 573,075 13,300 Ralston Purina Co. ....................................... 852,862 16,000 Sara Lee Corp. ........................................... 518,000 ----------- 7,234,806 ----------- GOLD--0.2% 18,434 Santa Fe Pacific Gold Corp. .............................. 260,380 ----------- INSURANCE--2.4% 11,500 Aetna Life & Casualty Co. ................................ 822,250 10,568 Allstate Corp. ........................................... 482,165 14,400 American General Corp. ................................... 523,800 6,468 American International Group, Inc. ....................... 637,907 2,700 CIGNA Corp. .............................................. 318,263 4,300 General Reinsurance Corp. ................................ 654,675 2,200 ITT Hartford Group, Inc. ................................. 117,150 ----------- 3,556,210 ----------- INTERNATIONAL OIL--4.9% 11,000 Chevron Corp. ............................................ 649,000 9,400 Cooper Industries, Inc. .................................. 390,100
SHARES VALUE (A) 25,100 Exxon Corp. .............................................. $ 2,180,562 7,800 Mobil Corp. .............................................. 874,575 9,800 Royal Dutch Petroleum Co. ADR(d).......................... 1,506,750 21,200 Texaco, Inc. ............................................. 1,778,150 ----------- 7,379,137 ----------- LIQUOR--0.4% 3,300 Anheuser-Busch Companies, Inc. ........................... 247,500 11,700 Seagram, Ltd. ............................................ 393,413 ----------- 640,913 ----------- MEDIA--0.6% 3,000 Gannett Co. Inc. ......................................... 212,250 15,200 Tele-Communications, Inc. ................................ 275,500 7,200 Time Warner, Inc. ........................................ 282,600 9,700 US West, Inc. ............................................ 177,025 ----------- 947,375 ----------- NON-FERROUS METALS--0.7% 8,075 Alcan Aluminum Ltd. ...................................... 246,288 14,000 Aluminum Company of America............................... 803,250 ----------- 1,049,538 ----------- OFFICE EQUIPMENT--1.8% 50,700 Xerox Corp. .............................................. 2,712,450 ----------- OPTICAL PHOTO, EQUIPMENT--0.2% 3,600 Eastman Kodak Co. ........................................ 279,900 ----------- PAPER & FOREST PRODUCTS--1.3% 12,640 Burlington Northern Santa Fe.............................. 1,022,260 3,600 Georgia-Pacific Corp. .................................... 255,600 11,800 International Paper Co. .................................. 435,125 1,400 Kimberly Clark Corp. ..................................... 108,150 4,050 Weyerhaeuser Co. ......................................... 172,125 ----------- 1,993,260 ----------- PRODUCER OF GOODS--2.9% 5,600 Caterpillar Inc. ......................................... 379,400 24,000 Deere & Co. .............................................. 960,000 34,400 General Electric Co. ..................................... 2,975,600 4,200 Westinghouse Electric Corp. .............................. 78,750 ----------- 4,393,750 ----------- RAILROADS & SHIPPING--0.4% 4,500 Norfolk Southern Corp. ................................... 381,375 4,200 Union Pacific Corp. ...................................... 293,475 ----------- 674,850 ----------- RESTAURANTS--0.3% 5,000 Darden Restaurants, Inc. ................................. 53,750 9,200 McDonald's Corp. ......................................... 430,100 ----------- 483,850 -----------
See accompanying notes to financial statements. 63 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS MANAGED SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) COMMON STOCKS--(CONTINUED)
SHARES VALUE (A) RETAIL--3.3% 19,000 Albertsons, Inc. ......................................... $ 786,125 8,000 Dayton Hudson Corp. ...................................... 825,000 15,600 J.C. Penney Company, Inc. ................................ 819,000 38,900 Kmart Corp.(c)............................................ 481,388 7,800 May Department Stores Co. ................................ 341,250 11,400 Sears Roebuck & Co. ...................................... 554,325 5,400 The Limited, Inc. ........................................ 116,100 11,625 Toys R Us(c).............................................. 331,313 29,200 Wal-Mart Stores, Inc. .................................... 740,950 ----------- 4,995,451 ----------- SOAPS & COSMETICS--3.3% 6,260 Bristol-Myers Squibb Co. ................................. 563,400 18,400 Gillette Co. ............................................. 1,147,700 10,400 Johnson & Johnson......................................... 514,800 10,300 Procter & Gamble Co. ..................................... 933,437 12,400 Unilever, N.V. ........................................... 1,799,550 ----------- 4,958,887 ----------- STEEL--0.9% 64,700 USX Marathon Group........................................ 1,302,087 220 USX-US Steel Group........................................ 6,243 ----------- 1,308,330 ----------- TOBACCO--1.2% 8,500 American Brands, Inc. .................................... 385,688 13,600 Philip Morris Companies, Inc. ............................ 1,414,400 ----------- 1,800,088 ----------- TRAVEL & RECREATION--2.3% 55,735 Walt Disney Co. .......................................... 3,504,338 ----------- Total Common Stock (Identified cost $67,194,984)............................ 104,808,136 -----------
BONDS & NOTES--29.5%
FACE AMOUNT CORPORATE BONDS--16.5% $ 3,000,000 360 Communications, 7.500%, 03/01/06..................................... 2,872,740 2,500,000 Banco de Comercio Exterior, 8.625%, 6/02/00...................................... 2,555,275 1,000,000 Boston Edison Co., 7.800%, 5/15/10...................................... 942,060 2,000,000 Cemex SA, 8.875%, 6/10/98...................................... 2,010,420 2,000,000 Lehman Brothers Holdings, Inc., 8.500%, 5/01/07...................................... 2,101,040
FACE AMOUNT VALUE (A) $ 1,730,000 Lehman Brothers Holdings, Inc., 8.800%, 3/01/15................................... $ 1,898,796 1,000,000 Maxus Energy Corp., 9.375%, 11/01/03.................................. 965,000 1,000,000 Paramount Communications, Inc., 8.250%, 8/01/22................................... 943,050 1,485,000 Public Service Electric & Gas Co., 8.750%, 11/01/21.................................. 1,586,648 5,000,000 Tele-Communications, Inc., 9.800%, 2/01/12................................... 5,402,400 10,000,000 Time Warner Inc., Zero Coupon, 12/17/12............................. 3,625,000 30,000 Viacom, Inc., 8.000%, 7/07/06................................... 27,450 ------------ 24,929,879 ------------ FOREIGN--4.9% 11,500,000 Government of Canada, Zero Coupon, 12/01/20(e).......................... 1,138,216 8,500,000 Government of Canada, 8.000%, 06/01/23(e)............................... 6,151,029 ------------ 7,289,245 ------------ YANKEE--6.9% 3,250,000 Argentina Republic, 9.250%, 2/23/01................................... 3,107,813 6,000,000 Hydro Quebec, 7.500%, 4/01/16................................... 5,830,800 1,500,000 United Mexican States, 9.750%, 2/06/01................................... 1,492,500 ------------ 10,431,113 ------------ U.S. GOVERNMENT BONDS--1.2% 501,211 Government National Mortgage Association, 10.000%, 9/15/18........................................... 546,786 594,723 Government National Mortgage Association, 11.500% with various maturities to 2013................... 668,994 1,500,000 United States Treasury Bond, Zero Coupon, 7/07/06.............................. 587,790 ------------ 1,803,570 ------------ Total Bonds & Notes (Identified Cost $43,134,047)..................... 44,453,807 ------------
See accompanying notes to financial statements. 64 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS MANAGED SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) SHORT-TERM INVESTMENT--0.5%
FACE AMOUNT VALUE (A) $825,000 American Express Credit Corp., 5.390%, 7/01/96....... $ 825,000 ------------ Short-Term Investment (Identified Cost $825,000).......................... 825,000 ------------ Total Investments--99.4% (Identified Cost $111,154,031)(b)................... 150,086,943 Other assets less liabilities........................ 863,155 ------------ TOTAL NET ASSETS--100%............................... $150,950,098 ============ (a) See Note 1A. (b) Federal Tax Information: At June 30, 1996 the net unrealized appreciation on investments based on cost of $111,154,031 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost....................................... $ 41,451,115 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value.......................................... (2,518,203) ------------ Net unrealized appreciation.......................... $ 38,932,912 ============
(c) Non-income producing security. (d) An American Depository Receipt (ADR) is a certificate issued by a U.S. bank representing the right to receive securities of the foreign issuer described. The values of ADR's are significantly influenced by trading on exchanges not located in the United States or Canada. (e) Denominated in Canadian dollars. See accompanying notes to financial statements. 65 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS MANAGED SERIES) STATEMENT OF ASSETS & LIABILITIES JUNE 30, 1996 (UNAUDITED) ASSETS Investments at value................................. $150,086,943 Cash................................................. 3,545 Receivable for: Fund shares sold..................................... 45,938 Dividends and interest............................... 1,027,938 ------------ 151,164,364 LIABILITIES Payable for: Fund shares redeemed................................. $74,343 Foreign withholding taxes............................ 282 Miscellaneous........................................ 16,591 Accrued expenses: Management fees...................................... 61,555 Deferred trustees' fees.............................. 30,097 Other expenses....................................... 31,398 ------- 214,266 ------------ NET ASSETS............................................ $150,950,098 ============ Net Assets consist of: Capital paid in...................................... $108,119,183 Undistributed net investment income.................. 2,793,804 Accumulated net realized gains....................... 1,104,183 Unrealized appreciation on investments............... 38,932,928 ------------ NET ASSETS............................................ $150,950,098 ============ Computation of offering price: Net asset value and redemption price per share ($150,950,098 divided by 877,150 shares of beneficial interest)................................ $ 172.09 ============ Identified cost of investments....................... $111,154,031 ============
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) INVESTMENT INCOME Dividends........................................... $1,286,210(a) Interest............................................ 1,929,822 ---------- 3,216,032 EXPENSES Management fees..................................... $ 372,228 Trustees' fees and expenses......................... 11,149 Custodian........................................... 43,055 Audit and tax services.............................. 7,700 Legal............................................... 6,150 Printing............................................ 22,909 Miscellaneous....................................... 4,967 ---------- Total expenses..................................... 468,158 ---------- NET INVESTMENT INCOME................................ 2,747,874 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FORWARD CURRENCY CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS Realized gain on: Investments--net.................................... 793,554 Foreign currency transactions--net.................. (45,625) ---------- Total realized gain on investments and foreign currency transactions............................. 747,929 ---------- Unrealized appreciation on: Investments--net.................................... 4,164,356 Foreign currency transactions--net.................. (88) ---------- Total unrealized appreciation on investments and foreign currency transactions..................... 4,164,268 ---------- Net gain on investment transactions.................. 4,912,197 ---------- NET INCREASE IN NET ASSETS FROM OPERATIONS........... $7,660,071 ========== (a) Net of foreign taxes of: $10,837.
See accompanying notes to financial statements. 66 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS MANAGED SERIES) STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1995 1996 ------------ ------------ FROM OPERATIONS Net investment income............................. $ 5,487,603 $ 2,747,874 Net realized gain on investments and foreign currency transactions............................ 2,566,425 747,929 Unrealized appreciation on investments, and foreign currency transactions.................... 28,568,247 4,164,268 ------------ ------------ INCREASE IN NET ASSETS FROM OPERATIONS............ 36,622,275 7,660,071 ------------ ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income............................. (5,487,603) 0 In excess of net investment income................ (212,274) 0 Net realized gain on investments.................. (764,206) 0 ------------ ------------ (6,464,083) 0 ------------ ------------ FROM CAPITAL SHARES TRANSACTIONS Proceeds from sale of shares...................... 22,221,525 10,086,880 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income.......... 5,699,877 0 Distributions from net realized gain.............. 764,206 0 ------------ ------------ 28,685,608 10,086,880 Cost of shares redeemed........................... (33,185,396) (14,332,589) ------------ ------------ DECREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS..................................... (4,499,788) (4,245,709) ------------ ------------ TOTAL INCREASE IN NET ASSETS...................... 25,658,404 3,414,362 NET ASSETS Beginning of the period........................... 121,877,332 147,535,736 ------------ ------------ End of the period................................. $147,535,736 $150,950,098 ============ ============ UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the period........................... $ 85 $ 45,930 ============ ============ End of the period................................. $ 45,930 $ 2,793,804 ============ ============ NUMBER OF SHARES OF THE FUND: Issued from the sale of shares.................... 150,563 60,278 Issued in connection with the reinvestment of: Distributions from net investment income.......... 35,150 0 Distributions from net realized gain.............. 4,713 0 ------------ ------------ 190,426 60,278 Redeemed.......................................... (223,554) (85,395) ------------ ------------ Net change........................................ (33,128) (25,117) ============ ============
FINANCIAL HIGHLIGHTS (UNAUDITED)
SIX MONTHS YEAR ENDED DECEMBER 31, ENDED ---------------------------------------------- JUNE 30, 1991 1992 1993 1994 1995 1996 ------- ------- -------- -------- -------- ---------- Net Asset Value, Beginning of Period.... $112.79 $127.87 $ 130.26 $ 137.18 $ 130.30 $ 163.52 ------- ------- -------- -------- -------- -------- Income From Investment Operations Net Investment Income.. 6.41 5.14 4.35 5.42 6.34 3.13 Net Realized and Unrealized Gain (Loss) on Investments........ 16.23 3.45 9.58 (6.92) 34.33 5.44 ------- ------- -------- -------- -------- -------- Total From Investment Operations............ 22.64 8.59 13.93 (1.50) 40.67 8.57 ------- ------- -------- -------- -------- -------- Less Distributions Distributions From Net Investment Income..... (6.41) (5.13) (4.36) (5.38) (6.34) 0.00 Distribution in Excess of Net Investment Income................ 0.00 0.00 0.00 0.00 (0.23) 0.00 Distributions From Net Realized Capital Gains................. (1.15) (1.07) (2.65) 0.00 (0.88) 0.00 ------- ------- -------- -------- -------- -------- Total Distributions.... (7.56) (6.20) (7.01) (5.38) (7.45) 0.00 ------- ------- -------- -------- -------- -------- Net Asset Value, End of Period................. $127.87 $130.26 $ 137.18 $ 130.30 $ 163.52 $ 172.09 ======= ======= ======== ======== ======== ======== TOTAL RETURN (%)........ 20.17 6.70 10.65 (1.11) 31.26 5.24(b) Ratio of Operating Expenses to Average Net Assets (%)............. 0.55 0.54 0.53 0.54 0.64 0.63(a) Ratio of Net Investment Income to Average Net Assets (%)............. 5.45 5.32 3.65 3.98 4.06 3.69(a) Portfolio Turnover Rate (%).................... 36 36 22 76 51 64(a) Average Commission Rate (c).................... -- -- -- -- -- $ 0.0555 Net Assets, End of Period (000)........... $49,995 $77,575 $121,339 $121,877 $147,536 $150,950
(a) Computed on an annualized basis. (b) Not computed on an annualized basis. (c) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for trades on which commissions are charged. This rate generally does not reflect mark- ups, mark-downs, or spreads on shares traded on a principal basis. See accompanying notes to financial statements. 67 ZENITH SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES PORTFOLIO MANAGERS: STEVEN GUTERMAN, PETER WILBY AND DAVID SCOTT; SALOMON BROTHERS ASSET MANAGEMENT INC ---------------------------------------- - ----------------- ----------------- MARKET REVIEW ---------------------------------------- [PHOTO OF STEVEN [PHOTO OF PETER The Series maintained its sector GUTERMAN APPEARS WILBY APPEARS weightings in emerging market and high HERE] HERE] yield debt securities throughout the first six months of the year. Credit quality continues to improve due to further strides made by U.S. corporations to strengthen balance sheets by posting higher earnings and paying down debt. The emerging markets sector continues to be viewed positively and the economic outlook for Latin American countries appears - ----------------- ----------------- to be especially attractive. Exposure to - ----------------- Eastern European debt was reduced at the start of the second quarter in order to reap profits from a strong performance in the first quarter. The Series also took some gains in the non-US investment grade sector by shifting assets out of Canadian government bonds which had [PHOTO OF rallied relative to US Treasuries on further strides DAVID SCOTT towards budget deficit reduction at both the Federal and APPEARS HERE] provincial level. The investment grade sector was positioned defensively throughout most of the first six months as interest rates tended to spike higher each month with the release of strong monthly employment reports and then rally back sporadically with other, more ambiguous - ----------------- data. - ------------------------------------------------------------------------------- OUTLOOK AND STRATEGY - ------------------------------------------------------------------------------- Signs of U.S. economic strength emerged in the first half of the year, suggesting that an accelerated pace of growth could be sustained into the third quarter. Fueled by gains in consumption, housing, business investment and net exports, the faster pace of growth pushed interest rates higher. We continue to believe, however, that this stepped-up rebound will prove self- limiting. GDP growth will likely peak and then slow toward trend levels in the second half of the year. The high yield and emerging markets debt sectors continue to offer attractive risk/reward opportunities and we expect to maintain our allocations to those sectors. In the investment-grade portion of the portfolio, we expect allocations to continue underweighting Treasuries and overweighing mortgages and corporate bonds. A $10,000 Investment Compared to an Index [GRAPH APPEARS HERE] Strategic Bond Lehman Aggregate FUND FACTS Opp. Series Bond/3/ 10/31/94 $10,000 $10,000 GOAL: A high level of total 12/31/94 9,860 10,047 return consistent with the 12/31/95 11,771 11,903 preservation of capital. 06/30/96 12,242 11,758 START DATE: October 31, 1994 Average Annual Return SIZE: $18 million as of June 30, 1996 Strategic Lipper Variable General Bond Opp. Bond Fund Average/10/ MANAGERS: Steven Guterman, 6 mos.* 5.53% 0.70% Peter Wilby and David Scott 1 year 12.16% 7.56% have managed the Series Since since its inception in inception 13.91% n/a October 1994. Mr. Guterman, *not annualized Mr. Wilby and Mr. Scott have managed the Salomon Brothers Investment Series--Strategic Bond Series since March 1995, and the North American Funds--Strategic Series since March 1993. Mr. Wilby also manages the Salomon Brothers Investment Series-- High Yield Bond Series. Performance numbers are net of all Series expenses but do not include any insurance, sales or administrative charges of variable annuity or life insurance contracts; if these charges were included, the returns shown would be lower. This information represents past performance and is not indicative of future results. Investment return and principal value will fluctuate so that shares, upon redemption, may be worth more or less than the original cost. 68 NEW ENGLAND ZENITH FUND (SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) BONDS & NOTES--91.1% OF TOTAL NET ASSETS
FACE AMOUNT VALUE (A) CORPORATE BONDS--36.8% $ 125,000 Airplane Pass Thru Trust 10.875%, 3/15/19....... $ 130,313 150,000 Alvey Systems, Inc. 11.375%, 1/31/03....... 155,063 150,000 American Media Operations 11.625%, 11/15/04...... 149,437 150,000 American Skiing Co. 12.000%, 7/15/06....... 148,125 150,000 Americold Corp. 12.875%, 5/01/08................ 153,375 200,000 Arch Communications Group 0/10.875%, 3/15/08(q).. 105,750 150,000 Argosy Gaming Co. 13.250%, 6/01/04....... 153,375 100,000 Berry Plastics 12.250%, 4/15/04................ 108,125 150,000 Borg Warner Security Corp. 9.125% 5/01/03......... 140,438 150,000 Cablevision Systems Corp. 10.500%, 5/15/16....... 145,875 150,000 Clark Schwebel, Inc. 10.500%, 4/15/06....... 154,875 150,000 Cobb Theaters 10.625%, 3/01/03................ 153,750 150,000 Cole National Group, Inc. 11.250%, 10/01/01...... 157,125 240,000 CS Wireless Systems, Inc. 0/11.375%, 3/01/06(q).. 124,800 150,000 Empress River Casino Financial Corp. 10.750%, 4/01/02....... 156,750 100,000 Excide Electronics Group, Inc. 11.500%, 3/15/06....... 102,500 100,000 Finlay Fine Jewelry Corp. 10.625%, 5/01/03....... 99,875 100,000 Flagstar Corp. 10.750%, 9/15/01................ 87,500 150,000 Four M Corp. 12.000%, 6/01/06................ 154,875 150,000 Hayes Wheels International, Inc. 11.000%, 7/15/06....... 152,062 100,000 Herff Jones, Inc. 11.000%, 8/15/05....... 104,875 150,000 Hines Horticulture 11.750%, 10/15/05...... 155,438 150,000 HMH Properties, Inc. 9.500%, 5/15/05........ 143,625 125,000 In Flight Phone Corp. 14.000, 5/15/02(o)..... 45,000 125,000 Intelcom Group USA, Inc. 0/13.500%, 9/15/05(q).. 75,469 150,000 Jitney Jungle Stores 12.000%, 3/01/06....... 153,187 150,000 Jordan Industries, Inc. 10.375% 8/01/03........ 143,437 150,000 KCS Energy, Inc. 11.000%, 1/15/03....... 158,250 250,000 Marcus Cable Co. Zero Coupon 12/15/05... 155,000 180,000 Mellon Financial Co. 9.750%, 6/15/01........ 201,191 150,000 Norcal Waste Systems, Inc. 12.500%, 11/15/05...... 157,875 150,000 Paracelsus Healthcare Corp. 9.875%, 10/15/03....... 151,125 250,000 Peoples Choice TV Corp. 0/13.125%, 6/01/04(q).. 147,500 150,000 Remington Product Co. 11.000%, 5/15/06....... 149,438
FACE AMOUNT VALUE (A) $ 150,000 Renco Metals, Inc. 12.000%, 7/15/00.................. $ 169,313 150,000 Revlon Worldwide Corp. Zero Coupon 3/15/98................................. 125,062 150,000 Rogers Cablesystems, LTD 10.000%, 3/15/05.................................... 150,000 150,000 Selmer, Inc. 11.000%, 5/15/05........................ 156,937 150,000 Smiths Food & Drug 11.250%, 5/15/07.................. 152,250 125,000 Southdown, Inc. 10.000%, 3/01/06..................... 123,438 150,000 Specialty Equipment Companies, Inc. 11.375% 12/01/03.................................... 156,562 100,000 Specialty Retailers, Inc. 11.000%, 8/15/03.................................... 102,000 150,000 Stone Container Corp. 10.750%, 10/01/02................................... 151,875 150,000 Talley Manufacturing & Technology, Inc. 10.750%, 10/15/03............................................ 152,062 150,000 Telex Communications, Inc. 12.000%, 7/15/04.................................... 159,750 150,000 Trump Atlantic City Associates 11.250%, 5/01/06.................................... 151,125 150,000 Twin Laboratories, Inc. 10.250%, 5/15/06.................................... 152,813 100,000 United States Leasing International 8.450%, 1/25/05..................................... 106,303 ----------- 6,684,888 ----------- FOREIGN CORPORATE BONDS--5.0% 150,000 Algoma Steel, Inc. 12.375%, 7/15/02(e)................................. 147,000 250,000 Diamond Cable Communication 0/11.750%, 12/15/05(i)(q)...................................... 148,125 300,000 International Semi Tech. Zero Coupon, 8/15/03(q)............................. 174,375 400,000 Korea Development Bank 9.600%, 12/01/00.................................... 440,588 ----------- 910,088 ----------- FOREIGN GOVERNMENT BONDS--26.0% 940,500 Argentina (Republic of) 6.3125%, 3/31/05(c)................................. 720,423 186,000 Brazil (Federal Republic of) 6.375%, 1/01/01(d).................................. 168,098 595,336 Brazil (Federal Republic of) C Bonds 4.000%, 4/15/14(d).......................................... 368,066 500,000 Brazil (Federal Republic of) 6.500%, 4/15/06(d).................................. 404,375 250,000 Brazil (Federal Republic of) 5.000%, 4/15/24(d).................................. 137,812 60,000 Denmark (Kingdom of) 9.000%, 11/15/98(f)................................. 11,110 30,000 Denmark (Kingdom of) 7.000%, 12/15/04(f)................................. 5,067
See accompanying notes to financial statements. 69 NEW ENGLAND ZENITH FUND (SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) BONDS & NOTES--(CONTINUED)
FACE AMOUNT VALUE (A) FOREIGN GOVERNMENT BONDS--(CONTINUED) $ 50,000 Dutch Government 6.250%, 7/15/98(k).................................. $ 30,519 500,000 Ecuador (Republic of) 3.250%, 2/28/25(g).................................. 179,375 210,000 Germany (Federal Republic of) 6.000%, 2/20/98(h).................................. 142,297 1,150,000 Germany (Federal Republic of) 6.000%, 4/20/98(h).................................. 779,980 220,000 Germany (Federal Republic of) 6.000%, 2/16/06(h).................................. 138,902 500,000 Morocco (Kingdom of) 4.375%, 1/01/09..................................... 363,750 250,000 Philippines (Republic of) 6.250%, 12/01/17(l)................................. 200,312 200,000 Poland (Republic of) 3.750%, 10/27/14(m)............. 150,500 250,000 United Mexican States 6.250%, 12/31/19(j)................................. 161,875 430,000 United Mexican States 11.500%, 5/15/26.................................... 391,154 500,000 Venezuela (Republic of) 6.563%, 12/18/07(n)................................. 353,812 ----------- 4,707,427 ----------- U.S. GOVERNMENT BONDS--23.3% 500,000 Federal Home Loan Bank 6.490%, 9/08/97..................................... 503,275 32,256 Federal National Mortgage Association 13.000%, 11/01/15............................................ 37,840 300,000 Federal National Mortgage Association 6.500%, 3/01/25............................................. 280,593 149,858 Federal National Mortgage Association 7.000%, 5/01/26............................................. 144,144 24,683 Government National Mortgage Association 7.000%, 4/15/24............................................. 23,688
FACE AMOUNT VALUE (A) $ 574,560 Government National Mortgage Association 7.000%, 5/15/26............................................ $ 551,400 150,000 United States Treasury Bonds 6.875%, 8/15/25.................................... 148,476 90,000 United States Treasury Notes 6.125%, 5/31/97.................................... 90,300 960,000 United States Treasury Notes 5.625%, 2/28/01.................................... 927,754 100,000 United States Treasury Notes 6.250%, 4/30/01.................................... 99,088 1,400,000 United States Treasury Notes 6.875%, 5/15/06.................................... 1,415,316 ----------- 4,221,874 ----------- Total Bonds & Notes (Identified Cost $16,422,142)...................... 16,524,277 ----------- SHORT-TERM INVESTMENT--12.2% FACE AMOUNT VALUE (A) $2,211,000 Repurchase agreement with Merrill Lynch & Co. dated 6/28/96 at 5.300% to be repurchased at $2,211,977 on 7/1/96 collateralized by $2,205,000 U.S. Treasury Bond 7.250% due 5/15/16 with a value of $2,253,951......................................... 2,211,000 ----------- Total Short-Term Investment (Identified Cost $2,211,000)....................... 2,211,000 ----------- Total Investments--103.3% (Identified Cost $18,633,142)(b)................... 18,735,277 Other assets less liabilities(p).................... (598,047) ----------- TOTAL NET ASSETS--100%.............................. $18,137,230 ===========
See accompanying notes to financial statements. 70 NEW ENGLAND ZENITH FUND (SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) CURRENCY CONTRACTS OUTSTANDING AT JUNE 30, 1996
LOCAL AGGREGATE UNREALIZED CURRENCY DELIVERY CURRENCY FACE TOTAL APPRECIATION/ CONTRACT DATE AMOUNT VALUE VALUE DEPRECIATION Australian Dollar (bought) 07/22/96 26,824 $ 21,191 $ 21,049 $ (142) Australian Dollar (sold) 07/22/96 27,689 21,542 21,729 (187) Belgian Franc (sold) 07/22/96 115,822 3,780 3,706 74 Canadian Dollar (bought) 07/22/96 218,488 159,830 160,110 280 Canadian Dollar (sold) 07/22/96 216,635 158,939 158,752 187 Deutsche Mark (bought) 07/22/96 78,967 51,720 52,008 288 Deutsche Mark (bought) 07/22/96 1,034,620 680,000 681,412 1,412 Deutsche Mark (sold) 07/22/96 427,968 286,842 281,864 4,978 Deutsche Mark (sold) 07/22/96 108,112 71,692 71,204 488 Danish Krone (bought) 07/22/96 422,907 72,540 72,262 (278) Danish Krone (sold) 07/22/96 552,452 95,845 94,398 1,447 Pound Sterling (bought) 07/22/96 167,397 258,963 259,916 953 Pound Sterling (sold) 07/22/96 153,141 234,719 237,780 (3,061) Pound Sterling (sold) 07/22/96 43,864 66,673 68,107 (1,434) Pound Sterling (sold) 07/22/96 78,089 117,680 121,247 (3,567) Pound Sterling (sold) 07/22/96 58,493 87,447 90,821 (3,374) Netherlands Guilder (bought) 07/22/96 259,487 153,452 152,411 (1,041) Netherlands Guilder (sold) 07/22/96 315,446 189,230 185,278 3,952 ------- Total Appreciation on Forward Currency contracts................ $ 975 =======
(a) See Note 1A. (b) Federal Tax Information: At June 30, 1996 the net unrealized appreciation on investments based on cost of $18,633,142 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost.............. $ 284,901 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value.............. (182,766) --------- Net unrealized appreciation................................... $ 102,135 =========
(c) Denominated in Argentinian australs. (d) Denominated in Brazilian cruzerios. (e) Denominated in Canadian dollars. (f) Denominated in Danish kroner. (g) Denominated in Ecuador sucre. (h) Denominated in German marks. (i) Denominated in Great British pound sterling. (j) Denominated in Mexican pesos. (k) Denominated in Netherland guilders. (l) Denominated in Philippine pesos. (m) Denominated in Polish zloty. (n) Denominated in Venezuelan bolivar. (o) Rights attached. (p) Including deposits in foreign denominated currencies with a value of $29,987 and a cost of $29,744. (q) Step Bond; Coupon rate is zero or below market for an initial period then increases to a higher coupon rate at a specified date and rate. See accompanying notes to financial statements. 71 NEW ENGLAND ZENITH FUND (SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES) STATEMENT OF ASSETS & LIABILITIES JUNE 30, 1996 (UNAUDITED) ASSETS Investments at value................................... $18,735,277 Cash................................................... 325 Foreign cash at value.................................. 29,987 Receivable for: Fund shares sold....................................... 33,454 Securities sold........................................ 1,560,868 Open forward currency contracts--net........................................ 975 Dividends and interest................................. 286,768 Foreign withholding taxes.............................. 432 Due from advisor....................................... 5,128 Unamortized organization expense....................... 6,706 ----------- 20,659,920 LIABILITIES Payable for: Securities purchased................................... $2,460,332 Fund shares redeemed................................... 28,363 Accrued expenses: Management fees........................................ 4,970 Other expenses......................................... 29,025 ---------- 2,522,690 ----------- NET ASSETS.............................................. $18,137,230 =========== Net Assets consist of: Capital paid in........................................ $17,235,189 Undistributed net investment income.................... 592,640 Accumulated net realized gains......................... 206,169 Unrealized appreciation on investments, forward contracts and foreign currency........................ 103,232 ----------- NET ASSETS.............................................. $18,137,230 =========== Computation of offering price: Net asset value and redemption price per share ($18,137,230 divided by 1,584,503 shares of beneficial interest).............................................. $ 11.45 =========== Identified cost of investments.......................... $18,633,142 ===========
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) INVESTMENT INCOME Dividends.................................................. $ 150 Interest................................................... 599,545 -------- 599,695 EXPENSES Management fees............................................ $ 43,905 Trustees' fees and expenses................................ 6,384 Custodian.................................................. 29,606 Audit and tax services..................................... 9,900 Legal...................................................... 5,411 Printing................................................... 1,411 Amortization of organization expenses...................... 1,001 Miscellaneous.............................................. 5,302 -------- Total expenses............................................ 102,920 Less expenses assumed by the investment adviser....................................... (45,511) 57,409 -------- -------- NET INVESTMENT INCOME....................................... 542,286 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FORWARD CURRENCY CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS Realized gain on: Investments--net........................................... 172,540 Foreign currency transactions--net......................... 13,689 -------- Total realized gain on investments and foreign currency transactions............................................. 186,229 -------- Unrealized appreciation (depreciation) on: Investments--net........................................... (65,644) Foreign currency transactions--net......................... 15,382 -------- Total unrealized depreciation on investments and foreign currency transactions.................................... (50,262) -------- Net gain on investment transactions......................... 135,967 -------- NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $678,253 ========
See accompanying notes to financial statements. 72 NEW ENGLAND ZENITH FUND (SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES) STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, 1995 JUNE 30, 1996 ----------------- ------------- FROM OPERATIONS Net investment income......................... $ 460,904 $ 542,286 Net realized gain on investments and foreign currency transactions........................ 248,441 186,229 Unrealized appreciation (depreciation) on in- vestments, and foreign currency transactions. 208,090 (50,262) ---------- ----------- INCREASE IN NET ASSETS FROM OPERATIONS........ 917,435 678,253 ---------- ----------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income......................... (435,233) 0 Net realized gain on investments.............. (170,001) 0 ---------- ----------- (605,234) 0 ---------- ----------- FROM CAPITAL SHARES TRANSACTIONS Proceeds from sale of shares.................. 9,873,846 10,055,378 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income...... 435,233 0 Distributions from net realized gain.......... 170,001 0 ---------- ----------- 10,479,080 10,055,378 Cost of shares redeemed....................... (4,757,322) (2,080,525) ---------- ----------- INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS........................... 5,721,758 7,974,853 ---------- ----------- TOTAL INCREASE IN NET ASSETS.................. 6,033,959 8,653,106 NET ASSETS Beginning of the period....................... 3,450,165 9,484,124 ---------- ----------- End of the period............................. $9,484,124 $18,137,230 ========== =========== UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the period....................... $ 0 $ 50,354 ========== =========== End of the period............................. $ 50,354 $ 592,640 ========== =========== NUMBER OF SHARES OF THE FUND: Issued from the sale of shares................ 919,222 895,511 Issued in connection with the reinvestment of: Distributions from net investment income...... 40,562 0 Distributions from net realized gain.......... 15,844 0 ---------- ----------- 975,628 895,511 Redeemed...................................... (455,476) (185,485) ---------- ----------- Net change.................................... 520,152 710,026 ========== ===========
FINANCIAL HIGHLIGHTS (UNAUDITED)
OCTOBER 31, 1994(A) YEAR ENDED SIX MONTHS THROUGH DECEMBER 31, ENDED DECEMBER 31, 1994 1995 JUNE 30, 1996 ------------------- ------------ ------------- Net Asset Value, Beginning of Period......................... $10.00 $ 9.74 $ 10.85 ------ ------ ------- Income From Investment Operations Net Investment Income.......... 0.12 0.58 0.87 Net Realized and Unrealized Gain (Loss) on Investments.... (0.26) 1.30 (0.27) ------ ------ ------- Total From Investment Operations.................... (0.14) 1.88 0.60 ------ ------ ------- Less Distributions Distributions From Net Investment Income............. (0.12) (0.55) 0.00 Distributions From Net Realized Capital Gains................. 0.00 (0.22) 0.00 ------ ------ ------- Total Distributions............ (0.12) (0.77) 0.00 ------ ------ ------- Net Asset Value, End of Period.. $ 9.74 $10.85 $ 11.45 ====== ====== ======= TOTAL RETURN (%) (1.40)(c) 19.38 5.53(c) Ratio of Operating Expenses to Average Net Assets (%)......... 0.85 (b) 0.85 0.85(b) Ratio of Net Investment Income to Average Net Assets (%)...... 7.05 (b) 8.39 7.91(b) Portfolio Turnover Rate (%)..... 403 (b) 202 219(b) Net Assets, End of Period (000). $3,450 $9,484 $18,137 The ratios of expenses to average net assets without giving effect to the voluntary expense agreement described in Note 4 to the Financial Statements would have been (%). 2.01 (b) 2.44 1.52(b)
(a) Commencement of operations. (b) Computed on an annualized basis. (c) Not computed on an annualized basis. See accompanying notes to financial statements. 73 ZENITH BACK BAY BOND INCOME SERIES PORTFOLIO MANAGER: CATHY BUNTING BACK BAY ADVISORS(R), L.P. - ---------------- MARKET REVIEW [PHOTO OF CATHY BUNTING APPEARS After rewarding investors with price gains for much of HERE] 1995, the bond market reversed direction during the first six months of 1996. Unexpected evidence of economic strength fueled a climb in interest rates, tempering last year's strong performance in the bond markets. Employment data released in March were key among a host of indicators signaling that the economy was growing at a surprisingly strong pace. The good news is that inflation levels - ---------------- remained tame in spite of the economy's vigor. Though rising interest rates create challenging conditions for fixed income investments, corporate bonds fared markedly better than government debt in the first half of the year. The favorable economic landscape helped cushion price declines of corporate issues in the face of rising interest rates. However, the Series held its own returning -1.61% compared to the Lehman Brothers Intermediate Government/Corporate Bond Index/4/ which returned -0.21% over the same period. The Series' focus on corporate bonds worked to its advantage during the past six months. With 60%-70% of the portfolio devoted to corporate issues, the Series managed to evade the steeper declines that beset government issues. All corporate sectors benefited from the favorable economic environment and institutional investors' increased participation in the corporate bond market, helping to stabilize the prices of their debt. The Series took advantage of opportunities in select sectors, namely telephone and utilities. Increasingly competitive conditions in the utility sector prompted consolidations and restructuring, rendering these bonds more attractive. Meanwhile, with no new supply to speak of, the balance between supply and demand shifted in favor of utilities. Supply, in fact, had been shrinking as many utility companies repurchased their outstanding debt. The lower quality, BBB rated bonds continue to offer good value in this sector. The portfolio's Canadian holdings also worked well for the Series. Real (inflation-adjusted) returns on Canadian bonds were attractive as the inflation rate in Canada remained low. Further, the country's Quebec Separatist referendum issue--a major source of volatility in Canada's securities markets during 1995--has been postponed until 1998 or beyond, improving overall investor sentiment. The sounder fiscal situation in Canada added further to the fundamental merit of Canadian debt. Also contributing positively to the Series' performance was the average credit quality of the portfolio--slightly lower relative to the average quality of the Lehman Aggregate Bond Index/3/. Taking a bit more credit risk during the six months was amply rewarded, as lower-grade bonds generally performed better than their higher-grade counterparts. Positives aside, volatility in the cable sector took a toll on the Series' six-month results. Specifically, Moody's--an independent bond rating agency-- unexpectedly downgraded the credit quality of TCI Communications to below investment grade (bonds rated BBB and above are considered to be "investment grade"). The sober effects reverberated throughout the sector, hampering the performance of cable/media bonds as a group. We took advantage of the consequent price weakness in the sector and added to our holdings of TCI. As always, intensive credit-by-credit research precedes all our investment decisions. One of the largest cable companies in the nation, TCI has demonstrated its commitment to trying to regain investment grade ratings, it has implemented some structural changes to help improve its balance sheet. That said, we believe the investment viability of TCI issues, as well as other select cable bonds, remain fundamentally intact. During the period, the 5.8 year average duration of the Series was modestly longer than the 4.8 year average of the Lehman Aggregate Bond Index/3/. (Duration is a more precise measure than maturity of the sensitivity of bond prices to changes in interest rates. Essentially, the longer a bond's or a portfolio's duration, the more pronounced its reactions to interest rate movements.) While the Series' longer duration boosted its performance last year amidst falling interest rates, it hampered returns this year as rates rose. 74 On the other hand, the Series' duration structure helped boost its current yield in a rising interest rate environment. During the second half, we plan to maintain our current duration strategy, anticipating that economic growth will slow, while inflation levels remain subdued. - ---------------------------------------------------------------------------- OUTLOOK AND STRATEGY - ---------------------------------------------------------------------------- Whether the recent pace of economic growth will translate into escalating inflation rates is an open question. In fact, definitive signs have yet to emerge indicating whether the recent pace of economic growth is sustainable. Job growth--a key force behind the economy's strength--bears watching. Though the direction of interest rates over the short term is unclear, a portfolio of quality fixed-income investments can still provide income- oriented investors with a reliable source of regular income. In the months ahead, thorough credit research will remain key in helping us position the Series in the securities with potential to deliver an attractive stream of income and a steady share price. A $10,000 Investment Compared to an Index FUND FACTS [GRAPH APPEARS HERE] GOAL: A high level of current income consistent with the Bond Lehman Cost protection of capital and Income Gov't/ of moderate investment risk. Series Corp./4/ Living/1/ 6/30/86 $10,000 $10,000 $10,000 START DATE: August 26, 1983 12/31/86 10,691 10,510 10,091 SIZE: $165.5 million as of June 12/31/87 10,843 10,896 10,539 30, 1996 12/31/88 11,751 11,635 11,005 12/31/89 13,196 13,119 11,516 MANAGER: Catherine Bunting, 12/31/90 14,263 14,322 12,219 since 1989; portfolio manager of 12/31/91 16,824 16,417 12,594 New England Bond Income Fund 12/31/92 18,201 17,594 12,959 since 1989, she joined Back Bay 12/31/93 20,496 19,129 13,315 Advisors in April 1987. 12/31/94 19,807 18,756 13,671 12/31/95 24,006 21,627 14,018 06/30/96 23,276 21,582 14,301 Average Annual Return Zenith Lipper Variable A-Rated Bond Income Corp. Bond Fund Avg./7/ 6 mos.* -1.61% -2.18% 1 year 5.48% 4.48% 5 years 9.64% 8.29% 10 years 8.97% n/a *not annualized Performance numbers are net of all Series expenses but do not include any insurance, sales or administrative charges of variable annuity or life insurance contracts; if these charges were included, the returns shown would be lower. This information represents past performance and is not indicative of future results. Investment return and principal value will fluctuate so that shares, upon redemption, may be worth more or less than the original cost. 75 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS BOND INCOME SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) BONDS & NOTES--94.8% OF TOTAL NET ASSETS
FACE AMOUNT VALUE (A) CORPORATE BONDS AND NOTES--69.9% BROADCASTING--4.7% $5,520,000 Continental Cablevision, Inc., 11.000%, 6/01/07..... $ 6,244,500 1,500,000 Continental Cablevision, Inc., 9.500%, 8/01/13...... 1,631,250 ------------ 7,875,750 ------------ FINANCIAL--7.8% 4,000,000 American General Financing, 8.450%, 10/15/09........ 4,433,200 4,160,000 Associates Corp. of North America, 8.550%, 7/15/09.. 4,640,771 3,750,000 Toronto Dominion Bank, 7.875%, 8/15/04.............. 3,813,375 ------------ 12,887,346 ------------ FOREIGN--6.7% 4,500,000 British Columbia Province Canada, 7.750%, 06/16/03.. 3,346,177 4,000,000 Government of Canada, 9.000%, 12/01/04(c)........... 3,192,851 2,250,000 Government of Canada, 7.500%, 09/01/00(c)........... 1,685,102 2,500,000 Government of Canada, 8.000%, 06/01/23(c)........... 1,809,126 1,300,000 Ontario Hydro, 8.875%, 10/25/05(c).................. 1,009,778 ------------ 11,043,034 ------------ LEISURE--2.8% 4,500,000 Time Warrner Inc. 9.150%, 2/01/23................... 4,688,775 ------------ OIL AND GAS--3.6% 3,290,000 Oryx Energy Co. 10.000%, 4/01/01.................... 3,578,467 2,250,000 Mitchell Energy & Development Corp., 9.250%, 1/15/02............................................ 2,391,143 ------------ 5,969,610 ------------ PUBLISHING--3.0% 2,150,000 Golden Books Publishing, Inc., 7.650%, 9/15/02...... 1,838,250 2,800,000 News America Holdings, Inc., 9.500%, 7/15/24........ 3,097,276 ------------ 4,935,526 ------------ RAILROADS--2.5% 4,000,000 Southern Pacific Rail Corp., 9.375%, 8/15/05........ 4,200,000 ------------
FACE AMOUNT VALUE (A) TELECOMMUNICATIONS--11.1% $1,300,000 360 Communications, 7.125%, 3/01/03................. $ 1,249,027 4,250,000 AT&T Corp., 8.350%, 1/15/25......................... 4,450,388 3,000,000 Bellsouth Telecomm, Inc., 5.850%, 11/15/45.......... 2,925,480 1,500,000 MCI Communications Corp., 7.750%, 3/23/25........... 1,470,975 5,035,000 Tele-Communications, Inc., 9.250%, 1/15/03.......... 5,009,976 3,500,000 US West Communication, Inc., 7.200%, 11/10/26....... 3,237,675 ------------ 18,343,521 ------------ UTILITIES--(DIVERSIFIED)--8.4% 2,200,000 Long Island Lighting Co., 8.900%, 7/15/19........... 1,992,474 2,250,000 Long Island Lighting Co., 9.000%, 11/01/22.......... 2,064,848 625,000 New York State Electric & Gas Co., 9.875%, 2/01/20.. 658,394 4,250,000 New York State Electric & Gas Co., 8.875%, 11/01/21. 4,445,755 5,000,000 Tennessee Valley Authority, 6.125%, 7/15/03......... 4,784,050 ------------ 13,945,521 ------------ UTILITIES--(ELECTRIC)--8.2% 3,450,000 Alabama Power Co., 8.750%, 12/01/21................. 3,553,500 5,700,000 Arizona Public Service Co., 8.000%, 12/30/15........ 5,714,706 1,700,000 Texas Utilities Electric Co., 8.875%, 2/01/22....... 1,789,760 2,400,000 Texas Utilities Electric Co., 8.500%, 8/01/24....... 2,464,920 ------------ 13,522,886 ------------ YANKEE--11.1% 1,500,000 Argentina Republic, 9.250%, 2/23/01................. 1,434,375 900,000 British Columbia Hydro & Power, 12.500%, 9/01/13.... 1,040,805 1,000,000 British Columbia Hydro & Power, 12.500%, 1/15/14.... 1,173,240 1,750,000 Canadian Pacific Limited, 8.850%, 06/01/22.......... 1,839,618 1,500,000 Finland Republic, 6.950%, 2/15/26................... 1,412,385 1,500,000 Hydro Quebec, 7.500%, 4/01/16....................... 1,457,700 1,000,000 Maxus Energy Corp., 11.500%, 11/15/15............... 1,043,750
See accompanying notes to financial statements. 76 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS BOND INCOME SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) BONDS & NOTES--(CONTINUED)
FACE AMOUNT VALUE (A) YANKEE--(CONTINUED) $ 450,000 Petroleos Mexicanos, 5.788%, 4/07/97, 144A(d),(e)....................... $ 451,125 7,600,000 Petroleos Mexicanos, 8.625%, 12/01/23............... 5,782,308 2,500,000 Province of Quebec, 8.625%, 12/01/26................ 2,701,250 ------------ 18,336,556 ------------ Total Corporate Bonds and Notes (Identified Cost $101,828,372)..................... 115,748,525 ------------ U.S. GOVERNMENT AND AGENCIES--24.9% 49,826 Federal Home Loan Bank, 9.000%, 5/01/01............. 51,508 18,974 Federal Home Loan Bank, 9.000%, 9/01/01............. 19,614 1,500,000 Federal National Mortgage Association, 7.850%, 9/10/04............................................ 1,513,560 8,286,789 Government National Mortgage Association, 7.000% with various maturities to 2025............................................ 7,952,748 6,811,800 Government National Mortgage Association, 7.500% with various maturities to 2025............................................ 6,718,138 2,116,083 Government National Mortgage Association, 8.5000% with various maturities to 2022............................................ 2,177,576 244,829 Government National Mortgage Association, 9.000%, 10/15/16................................... 256,458 2,500,000 Student Loan Marketing Association, 7.820%, 10/14/99........................................... 2,508,575 1,500,000 U.S. Treasury Notes, 6.375%, 7/15/99.................................... 1,504,230 2,500,000 U.S. Treasury Notes, 8.500%, 11/15/00................................... 2,694,225 3,500,000 U.S. Treasury Notes, 8.000%, 5/15/01.................................... 3,723,335 7,000,000 U.S. Treasury Notes, 5.750%, 8/15/03.................................... 6,669,390 5,500,000 U.S. Treasury Notes, 6.500%, 8/15/05.................................... 5,425,255 ------------ Total U.S. Government and Agencies (Identified Cost $57,696,766)....................................... 41,214,612 ------------ Total Bonds and Notes (Identified Cost $159,525,138)..................... 156,963,137 ------------
SHORT-TERM INVESTMENT--3.2%
FACE AMOUNT VALUE (A) COMMERCIAL PAPER--3.2% $5,365,000 American Express Credit Corp. 5.000%, 1/02/96...... $ 5,365,000 ------------ Total Short-Term Investment (Identified Cost $5,365,000)....................................... 5,365,000 ------------ Total Investments---98.1% (Identified Cost $164,890,138)(b)................. 162,328,137 Other assets less liabilities...................... 3,211,141 ------------ TOTAL NET ASSETS--100%............................. $165,539,278 ============ (a) See Note 1A. (b) Federal Tax Information: At June 30, 1996 the net unrealized depreciation on investments based on cost of $164,890,138 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost..................................... $ 748,907 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value................................... (3,310,908) ------------ Net unrealized depreciation........................ $ (2,562,001) ============ As of June 30, 1996, the Series had a net tax basis capital loss carryforward as follows: Expiring December 31, 2002......................... $ 362,321 (c) Denominated in Canadian dollars. (d) Security exempt from registration under rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. (e) Variable or floating rate security. Rate disclosed is as of June 30, 1996.
See accompanying notes to financial statements. 77 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS BOND INCOME SERIES) STATEMENT OF ASSETS & LIABILITIES JUNE 30, 1996 (UNAUDITED) ASSETS Investments at value................................ $162,328,137 Cash................................................ 5,913 Receivable for: Fund shares sold.................................... 106,074 Securities sold..................................... 1,706,208 Dividends and interest.............................. 3,375,773 ------------ 167,522,105 LIABILITIES Payable for: Securities purchased................................ $1,687,271 Fund shares redeemed................................ 151,609 Withholding taxes................................... 158 Accrued expenses: Management fees..................................... 53,544 Deferred trustees' fees............................. 33,695 Other expenses...................................... 56,550 ---------- 1,982,827 ------------ NET ASSETS........................................... $165,539,278 ============ Net Assets consist of: Capital paid in..................................... $161,935,969 Undistributed net investment income................. 5,927,287 Accumulated net realized gains...................... 238,039 Unrealized depreciation on investments.............. (2,562,017) ------------ NET ASSETS.......................................... $165,539,278 ============ Computation of offering price: Net asset value and redemption price per share ($165,539,278 divided by 1,548,292 shares of beneficial interest)................................ $ 106.92 ============ Identified cost of investments....................... $164,890,138 ============
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) INVESTMENT INCOME Interest............................................ $ 6,299,952 EXPENSES Management fees..................................... $ 324,600 Trustees' fees and expenses......................... 12,511 Custodian........................................... 38,188 Audit and tax services.............................. 7,550 Legal............................................... 5,088 Printing............................................ 33,055 Miscellaneous....................................... 4,969 ----------- Total expenses..................................... 425,961 ----------- NET INVESTMENT INCOME................................ 5,873,991 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS Realized gain on: Investments--net.................................... 575,446 Foreign currency transactions--net.................. 4,452 ----------- Total realized gain on investments................. 579,898 ----------- Unrealized depreciation on: Investments--net.................................... (9,116,191) Foreign currency transactions--net.................. 444 ----------- Total unrealized depreciation on investments and foreign currency transactions..................... (9,115,747) ----------- Net loss on investment transactions.................. (8,535,849) ----------- NET DECREASE IN NET ASSETS FROM OPERATIONS........... $(2,661,858) ===========
See accompanying notes to financial statements. 78 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS BOND INCOME SERIES) STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1995 1996 ------------ ------------ FROM OPERATIONS Net investment income............................. $ 10,335,393 $ 5,873,991 Net realized gain on investments and foreign currency transactions............................ 1,559,812 579,898 Unrealized appreciation (depreciation) on investments, and foreign currency transactions... 15,392,179 (9,115,747) ------------ ------------ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS. 27,287,384 (2,661,858) ------------ ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income............................. (9,888,438) 0 ------------ ------------ (9,888,438) 0 ------------ ------------ FROM CAPITAL SHARES TRANSACTIONS Proceeds from sale of shares...................... 46,886,957 28,541,278 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income.......... 9,888,437 0 ------------ ------------ 56,775,394 28,541,278 Cost of shares redeemed........................... (37,696,007) (23,052,092) ------------ ------------ INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS..................................... 19,079,387 5,489,186 ------------ ------------ TOTAL INCREASE IN NET ASSETS...................... 36,478,333 2,827,328 NET ASSETS Beginning of the period........................... 126,233,617 162,711,950 ------------ ------------ End of the period................................. $162,711,950 $165,539,278 ============ ============ UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the period........................... $ 0 $ 53,292 ============ ============ End of the period................................. $ 53,292 $ 5,927,287 ============ ============ NUMBER OF SHARES OF THE FUND: Issued from the sale of shares.................... 440,564 267,108 Issued in connection with the reinvestment of: Distributions from net investment income.......... 91,832 0 ------------ ------------ 532,396 267,108 Redeemed.......................................... (356,518) (216,057) ------------ ------------ Net change........................................ 175,878 51,051 ============ ============
FINANCIAL HIGHLIGHTS (UNAUDITED)
SIX MONTHS YEAR ENDED DECEMBER 31, ENDED ---------------------------------------------- JUNE 30, 1991 1992 1993 1994 1995 1996 ------- ------- -------- -------- -------- ---------- Net Asset Value, Beginning of Period.... $ 97.61 $103.44 $ 103.47 $ 106.14 $ 95.53 $ 108.67 ------- ------- -------- -------- -------- -------- Income From Investment Operations Net Investment Income.. 8.53 7.96 5.70 7.05 7.34 3.79 Net Realized and Unrealized Gain (Loss) on Investments........ 8.90 0.51 7.38 (10.61) 12.85 (5.54) ------- ------- -------- -------- -------- -------- Total From Investment Operations............ 17.43 8.47 13.08 (3.56) 20.19 (1.75) ------- ------- -------- -------- -------- -------- Less Distributions Distributions From Net Investment Income..... (9.47) (6.87) (6.20) (7.05) (7.05) 0.00 Distributions in Excess of Net Investment Income................ 0.00 0.00 (0.05) 0.00 0.00 0.00 Distributions From Net Realized Capital Gains................. (2.13) (1.57) (4.16) 0.00 0.00 0.00 ------- ------- -------- -------- -------- -------- Total Distributions.... (11.60) (8.44) (10.41) (7.05) (7.05) 0.00 ------- ------- -------- -------- -------- -------- Net Asset Value, End of Period................. $103.44 $103.47 $ 106.14 $ 95.53 $ 108.67 $ 106.92 ======= ======= ======== ======== ======== ======== TOTAL RETURN (%)........ 17.96 8.18 12.61 (3.36) 21.20 (1.61)(b) Ratio of Operating Expenses to Average Net Assets (%)............. 0.45 0.44 0.43 0.44 0.55 0.52 (a) Ratio of Net Investment Income to Average Net Assets (%)............. 8.27 7.70 6.47 6.75 7.22 7.22 (a) Portfolio Turnover Rate (%).................... 193 71 177 82 73 103 (a) Net Assets, End of Period (000)........... $49,369 $83,057 $131,242 $126,234 $162,712 $165,539
(a) Computed on an annualized basis. (b) Not computed on an annualized basis. As of January 1, 1993, the Bond Income Series discontinued the use of equalization accounting. See accompanying notes to financial statements. 79 ZENITH SALOMON BROTHERS U.S. GOVERNMENT SERIES PORTFOLIO MANAGERS: STEVEN GUTERMAN AND ROGER LAVAN; SALOMON BROTHERS ASSET MANAGEMENT INC - ------------------ ------------------ MARKET REVIEW [PHOTO OF STEVEN [PHOTO OF ROGER Signs of U.S. economic strength GUTTERMAN APPEARS LAVAN APPEARS emerged in the first half of the year, HERE] HERE] suggesting that an accelerated pace of growth could be sustained into the third quarter. Fueled by gains in consumption, housing, business investment, and net exports, the faster pace of growth pushed interest rates higher. We continue to believe, however, that this stepped-up rebound will prove self-limiting. GDP growth will likely peak and then slow toward trend levels in the second half of the - ------------------ ------------------ year. The Series reported negative returns in the first half of the year due to the sharp rise in interest rates. Portfolio duration varied between 3 and 4.5 years over the period while the average life was generally centered around 7 years. Portfolio holdings in the first half were mainly in U.S. Treasuries and U.S. Agency mortgage securities. The relative weighting to mortgage securities increased throughout the first half of the year. OUTLOOK AND STRATEGY In anticipation of high yields in the short-run, we positioned the Series defensively with a neutral duration to our benchmark. During the second quarter, the Series overweighted mortgage-backed securities. Mortgages continue to look attractive as higher interest rates have reduced the incentive for homeowners to refinance their mortgages. Barring a significant rally, mortgages will continue to perform well in the coming months and will be favored over Treasuries in the Series. Recent economic data such as new home sales and the employment report continue to point to strong economic growth and a possible increase in inflation. Therefore, we remain defensive on the market with a short to neutral duration bias in the Series. A $10,000 Investment Compared to an Index [GRAPH APPEARS HERE] Salomon Lehman Intermediate FUND FACTS US Gov't Government/5/ 10/31/94 $10,000 $10,000 GOAL: a high level of current 12/31/94 10,060 9,989 income consistent with the 12/31/95 11,571 11,430 preservation of capital and 06/30/96 11,445 11,446 maintenance of liquidity. START DATE: October 31, 1994 Average Annual Return Lipper Variable SIZE: $10.8 million as of June US Gov't US Mortgage 30, 1996 Series and GNMA Average/17/ 6 mos.* -1.09% -0.52% MANAGERS: Steven Guterman and 1 year 3.96% 4.69% Roger Lavan have managed the Since Series since its inception in inception 8.44% n/a October, 1994. Mr. Guterman and *not annualized Mr. Lavan have also managed the Salomon Bothers Investment Series--U.S. Government Income Series since March, 1995 and the North American U.S. Government Securities Fund since January, 1992. They both joined Salomon Brothers Asset Management Inc in 1990. Performance numbers are net of all Series expenses but do not include any insurance, sales or administrative charges of the variable annuity or life insurance contracts; if these charges were included, the returns shown would be lower. This information represents past performance and is not indicative of future results. Investment return and principal value will fluctuate so that shares, upon redemption, may be worth more or less than the original cost. 80 NEW ENGLAND ZENITH FUND (SALOMON BROTHERS U.S. GOVERNMENT SERIES) INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED) BONDS & NOTES--92.7% OF TOTAL NET ASSETS
FACE AMOUNT VALUE (A) FEDERAL AGENCY--71.6% $ 250,000 Federal Home Loan Banks 6.490%, 9/08/97..................................... $ 251,637 300,000 Federal Home Loan Banks 5.940%, 6/13/00..................................... 293,199 374,127 Federal Home Loan Mortgage 6.000%, 10/01/10.................................... 354,254 75,473 Federal Home Loan Mortgage 11.750%, 12/01/13................................... 84,789 46,855 Federal Home Loan Mortgage 11.750%, 12/01/13................................... 52,639 1,949,264 Federal National Mortgage Association 6.500%, 12/01/10............................................ 1,885,913 46,457 Federal National Mortgage Association 14.500%, 11/01/14............................................ 56,736 22,784 Federal National Mortgage Association 12.500%, 8/01/15............................................. 26,387 111,968 Federal National Mortgage Association 12.500% 9/01/15............................................. 130,233 104,117 Federal National Mortgage Association 13.000%, 11/01/15............................................ 122,143 53,586 Federal National Mortgage Association 12.000%, 1/01/16............................................. 61,640 33,261 Federal National Mortgage Association 11.500%, 4/01/19............................................. 37,419 113,770 Federal National Mortgage Association 11.500%, 8/01/20............................................. 127,814 170,366 Federal National Mortgage Association 9.500%, 8/01/22............................................. 182,398 448,192 Federal National Mortgage Association 6.500%, 3/01/26............................................. 419,198 1,000,000 Federal National Mortgage Association Pool 6.500%, 1/1/2099............................... 936,560 28,949 Government National Mortgage Association 7.000%, 4/15/24............................................. 27,782 38,868 Government National Mortgage Association 7.000%, 3/16/26............................................. 37,300 2,130,165 Government National Mortgage Association 7.000%, 5/15/26............................................. 2,044,298 350,000 Government National Mortgage Association 7.000%, 12/15/2098.......................................... 335,345 300,000 Student Loan Marketing Association 7.500%, 3/08/00... 308,565 ----------- 7,776,249 -----------
FACE AMOUNT VALUE (A) U.S. TREASURY--21.1% $ 1,000,000 U.S. Treasury Notes 6.125%, 5/31/97................ $ 1,003,330 500,000 U.S. Treasury Notes 5.625%, 2/28/01................ 483,575 250,000 U.S. Treasury Notes 6.500%, 5/31/01................ 250,188 450,000 U.S. Treasury Notes 6.625%, 6/30/01................ 452,883 100,000 U.S. Treasury Notes 6.875%, 5/15/06................ 101,094 ----------- 2,291,070 ----------- Total Bonds & Notes (Identified Cost $10,157,140)..................... 10,067,319 ----------- SHORT-TERM INVESTMENT--23.2% $ 2,514,000 Repurchase agreement with Merrill Lynch dated 6/28/96 at 5.300% to be repurchased $2,515,110 on 7/1/96 collateralized by $2,505,000 U.S. Treasury Bond 7.250% due 5/15/16 valued at $2,558,357...... 2,514,000 ----------- Total Short-Term Investment (Identified Cost $2,514,000)...................... 2,514,000 ----------- Total Investments--115.9% (Identified Cost $12,671,140)(b).................. 12,581,319 Other assets less liabilities...................... (1,728,675) ----------- TOTAL NET ASSETS--100%............................. $10,852,644 =========== (a) See Note 1A. (b) Federal Tax Information: At June 30, 1996 the net unrealized depreciation on investments based on cost of $12,671,140 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost..................................... $ 31,287 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value................................... (121,108) ----------- Net unrealized depreciation........................ $ (89,821) ===========
See accompanying notes to financial statements. 81 NEW ENGLAND ZENITH FUND (SALOMON BROTHERS U.S. GOVERNMENT SERIES) STATEMENT OF ASSETS & LIABILITIES JUNE 30, 1996 (UNAUDITED) ASSETS Investments at value.................................. $12,581,319 Cash.................................................. 980 Receivable for: Fund shares sold...................................... 22,343 Dividends and interest................................ 72,046 Due from advisor...................................... 10,752 Prepaid expense....................................... 6,706 ----------- 12,694,146 LIABILITIES Payable for: Securities purchased.................................. $1,709,699 Fund shares redeemed.................................. 104,211 Accrued expenses: Management fees....................................... 1,978 Other expenses........................................ 25,614 ---------- 1,841,502 ----------- NET ASSETS............................................. $10,852,644 =========== Net Assets consist of: Capital paid in....................................... $10,728,424 Undistributed net investment income................... 280,229 Accumulated net realized losses....................... (66,188) Unrealized depreciation on investments................ (89,821) ----------- NET ASSETS............................................. $10,852,644 =========== Computation of offering price: Net asset value and redemption price per share ($10,852,644 divided by 993,945 shares of beneficial interest)............................................. $ 10.92 =========== Identified cost of investments......................... $12,671,140 ===========
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) INVESTMENT INCOME Interest.................................................. $ 312,162 --------- 312,162 EXPENSES Management fees........................................... $25,664 Trustees' fees and expenses............................... 6,369 Custodian................................................. 21,456 Audit and tax services.................................... 9,850 Legal..................................................... 5,412 Printing.................................................. 745 Amortization of organization expenses..................... 1,001 Miscellaneous............................................. 4,985 ------- Total expenses........................................... 75,482 Less expenses assumed by the investment adviser.......... (42,814) 32,668 ------- --------- NET INVESTMENT INCOME...................................... 279,494 REALIZED AND UNREALIZED LOSS ON INVESTMENTS Realized loss on: Investments--net......................................... (80,877) Unrealized depreciation on: Investments--net......................................... (284,185) --------- Net loss on investment transactions........................ (365,062) --------- NET DECREASE IN NET ASSETS FROM OPERATIONS................. $ (85,568) =========
See accompanying notes to financial statements. 82 NEW ENGLAND ZENITH FUND (SALOMON BROTHERS U.S. GOVERNMENT SERIES) STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1995 1996 ------------ ----------- FROM OPERATIONS Net investment income............................... $ 214,389 $ 279,494 Net realized gain (loss) on investments............. 71,273 (80,877) Unrealized appreciation (depreciation) on invest- ments.............................................. 195,460 (284,185) ----------- ----------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS... 481,122 (85,568) ----------- ----------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income............................... (214,389) 0 In excess of net investment income.................. (1,001) 0 Net realized gain on investments.................... (50,946) 0 ----------- ----------- (266,336) 0 ----------- ----------- FROM CAPITAL SHARES TRANSACTIONS Proceeds from sale of shares........................ 7,348,256 5,096,310 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income............ 215,390 0 Distributions from net realized gain................ 50,946 0 ----------- ----------- 7,614,592 5,096,310 Cost of shares redeemed............................. (2,299,033) (1,700,134) ----------- ----------- INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS....................................... 5,315,559 3,396,176 ----------- ----------- TOTAL INCREASE IN NET ASSETS........................ 5,530,345 3,310,608 NET ASSETS Beginning of the period............................. 2,011,691 7,542,036 ----------- ----------- End of the period................................... $ 7,542,036 $10,852,644 =========== =========== UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the period............................. $ 0 $ 735 =========== =========== End of the period................................... $ 735 $ 280,229 =========== =========== NUMBER OF SHARES OF THE FUND: Issued from the sale of shares...................... 671,863 466,417 Issued in connection with the reinvestment of: Distributions from net investment income............ 19,652 0 Distributions from net realized gain................ 4,648 0 ----------- ----------- 696,163 466,417 Redeemed............................................ (214,709) (155,934) ----------- ----------- Net change.......................................... 481,454 310,483 =========== ===========
FINANCIAL HIGHLIGHTS (UNAUDITED)
OCTOBER 31, 1994(A) YEAR SIX MONTHS THROUGH ENDED ENDED DECEMBER 31, DECEMBER 31, JUNE 30, 1994 1995 1996 ------------------- ------------ ---------- Net Asset Value, Beginning of Pe- riod............................ $10.00 $ 9.96 $ 11.04 ------ ------ ------- Income From Investment Operations Net Investment Income........... 0.10 0.33 0.28 Net Realized and Unrealized Gain (Loss) on Investments.......... (0.04) 1.16 (0.40) ------ ------ ------- Total From Investment Opera- tions.......................... 0.06 1.49 (0.12) ------ ------ ------- Less Distributions Distributions From Net Invest- ment Income.................... (0.10) (0.33) 0.00 Distributions From Net Realized Capital Gains.................. 0.00 (0.08) 0.00 ------ ------ ------- Total Distributions............. (0.10) (0.41) 0.00 ------ ------ ------- Net Asset Value, End of Period... $ 9.96 $11.04 $ 10.92 ====== ====== ======= TOTAL RETURN (%)................. 0.60(c) 15.02 (1.09)(c) Ratio of Operating Expenses to Average Net Assets (%).......... 0.70(b) 0.70 0.70(b) Ratio of Net Investment Income to Average Net Assets (%).......... 5.70(b) 5.62 5.96(b) Portfolio Turnover Rate (%)...... 1,409(b) 415 421(b) Net Assets, End of Period (000).. $2,012 $7,542 $10,853 The ratios of expenses to average net assets without giving effect to the voluntary expense agreement described in Note 4 to the Financial Statements would have been (%)................... 2.54(b) 2.90 1.62(b)
(a) Commencement of operations. (b) Computed on an annualized basis. (c) Not computed on an annualized basis. See accompanying notes to financial statements. 83 ZENITH BACK BAY ADVISORS MONEY MARKET SERIES* PORTFOLIO MANAGER: JOHN DONOVAN; BACK BAY ADVISORS(R), L.P. - ----------------- MARKET REVIEW [PHOTO OF JOHN The interest rate environment during the first half of DONOVAN APPEARS 1996 was notable for its high level of volatility, as the HERE] economic releases presented conflicting views as to the strength of the domestic economy, and political events in Washington raised hopes of imminent fiscal policy reform but subsequently caused them to fade away. Based on a fourth quarter 1995 Gross Domestic Product (GDP) of only 0.5% and a January economy plagued by severe winter storms, the Federal Reserve Board lowered short term interest rates by 25 basis points to 5.25% in late - ----------------- January, pushing the three-month treasury bill yield to 4.89% and the one-year treasury bill yield to 4.79% by mid-February on market expectations of further rate cuts. However, with the return of milder weather and the end of the General Motors strike, economic activity picked up significantly, resulting in a respectable first quarter GDP growth rate of 2.2%. At this point, the market's outlook for Federal Reserve policy turned to neutral with the three-month and one-year bill yields backing up to 5.13% and 5.41% respectively. The second quarter saw continued expansion as the important housing and automobile sectors remained strong despite the pressures of higher interest rates. Job growth was surprisingly solid in spite of the ongoing trend toward downsizing in many prominent corporations, and wage pressures began to appear in certain industries and certain areas of the country. In addition, expectations of a fiscal drag on the economy through a balanced budget agreement evaporated as Washington returned to politics as usual. With second quarter GDP growth rate expected to exceed 4%, the interest rate outlook has come full circle to where participants are now expecting an imminent Federal Reserve tightening and have significantly backed up rates to a point where the three-month and one-year bills are yielding 5.30% and 5.95%. The Series is using a barbell strategy to achieve an average maturity of 63 days as of the end of June. Fifty four percent of the Series is invested in securities with maturities shorter than one month. This may give the Series flexibility to invest in higher yielding securities quickly if the Federal Reserve Board pushes up rates. As a hedge against the Federal Reserve Board not tightening credit and because of the higher yield opportunities in the longer end of the curve, 15% of the Series is invested in securities longer than 4 months. OUTLOOK AND STRATEGY The short term interest rate picture remains murky as we enter the second half of 1996. Although concerns have arisen about a strong economy leading to increased inflation, it is unclear whether the Federal Reserve will necessarily have to raise rates aggressively to slow down economic growth. The market has already priced in about 50 basis points of Federal Reserve tightening but could certainly anticipate more if inflation concerns persist. At present, the Series is well-positioned to take advantage of the backup in rates. * Money Market Funds are not insured or guaranteed by the U.S. Government. There can be no assurance that the Series will maintain a stable net asset value of $100.00 per share. All performance information represents past performance and is not indicative of future results. Investment return and principal value may fluctuate so that shares may be worth more or less than original cost. FUND FACTS BACK BAY ADVISORS MONEY MARKET SERIES GOAL: The highest possible level of current income consistent with the preservation of capital. START DATE: August 1, 1993 SIZE: $100.9 million as of June 30, 1996 MANAGER: John Donovan has served as portfolio manager since 1995. Mr. Donovan joined Back Bay Advisors in 1992. 84 NEW ENGLAND ZENITH FUND (BACK BAY ADVISERS MONEY MARKET SERIES) INVESTMENTS AS OF JUNE 30, 1996 INVESTMENTS--98.7% OF TOTAL NET ASSETS
FACE INTEREST MATURITY VALUE DESCRIPTION RATE DATE VALUE (A) CERTIFICATE OF DEPOSIT--10.9% $2,000,000 Societe Generale New York......... 5.320% 07/01/96 $ 2,000,000 1,000,000 Dresdner U.S. Finance, Inc. ...... 5.320% 07/05/96 1,000,032 2,000,000 Morgan Guaranty Trust London...... 5.350% 07/15/96 2,000,008 1,000,000 Banque National de Paris.......... 5.240% 07/30/96 1,000,039 2,000,000 Union Bank of Switzerland......... 5.300% 10/04/96 2,000,966 1,000,000 Banque National de Paris.......... 5.460% 11/14/96 1,000,052 1,000,000 Banque National de Paris.......... 5.550% 12/02/96 1,000,000 1,000,000 Societe Generale New York......... 5.650% 04/01/97 999,228 ------------ 11,000,325 ------------ Total Certificate of Deposit (Cost $11,000,325)..................... 11,000,325 ------------ CERTIFICATE OF DEPOSIT (EURODOLLAR)--1.0% 1,000,000 Toronto Dominion Bank............. 5.170% 01/17/97 1,000,491 ------------ Total Certificate of Deposit (Eurodollar) (Cost $1,000,491)... 1,000,491 ------------ COMMERCIAL PAPER--88.0% AUTOMOTIVE--9.9% 425,000 Ford Motor Credit Corp. .......... 5.450% 07/05/96 424,743 1,100,000 Ford Motor Credit Corp. .......... 5.290% 07/08/96 1,098,869 1,200,000 General Motors Acceptance Corp. .. 5.320% 07/09/96 1,198,581 1,500,000 American Honda Finance............ 5.350% 07/16/96 1,496,656 1,000,000 General Motors Acceptance Corp. .. 5.390% 07/19/96 997,305 195,000 Ford Motor Credit Corp. .......... 5.280% 07/26/96 194,285 1,200,000 General Motors Acceptance Corp. .. 5.400% 07/31/96 1,194,600 1,320,000 Ford Motor Credit Corp. .......... 5.340% 08/01/96 1,314,322 1,000,000 General Motors Acceptance Corp. .. 5.410% 08/12/96 993,688 1,045,000 Ford Motor Credit Corp. .......... 5.400% 10/17/96 1,028,071 ------------ 9,941,120 ------------ BANKING--13.8% 330,000 Royal Bank of Canada.............. 5.090% 07/01/96 330,000 1,000,000 Societe General North America..... 4.900% 07/22/96 997,142 2,000,000 ABN Amro North.................... 5.100% 07/24/96 1,993,483 2,000,000 Dresdner US Finance............... 5.320% 10/01/96 1,972,809 500,000 J.P. Morgan....................... 5.300% 11/01/96 490,946 1,500,000 ABN Amro North.................... 5.290% 11/07/96 1,471,566 1,000,000 Banque National de Paris.......... 5.310% 11/21/96 978,908 1,500,000 J.P. Morgan....................... 5.370% 12/02/96 1,465,542 1,000,000 Dresdner US Finance............... 5.410% 12/05/96 976,406 1,235,000 Swiss Bank Corp. New York......... 5.430% 12/27/96 1,201,656 First National Bank North 2,000,000 Carolina......................... 5.300% 06/03/97 2,000,000 ------------ 13,878,458 ------------ DRUGS--4.3% 1,000,000 American Home Products Corp. ..... 5.350% 07/09/96 998,811 1,500,000 American Home Products Corp. ..... 5.370% 07/26/96 1,494,406 900,000 American Home Products Corp. ..... 5.400% 08/05/96 895,275 1,000,000 American Home Products Corp. ..... 5.400% 08/13/96 993,550 ------------ 4,382,042 ------------
See accompanying notes to financial statements. 85 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS MONEY MARKET SERIES) INVESTMENTS AS OF JUNE 30, 1996 INVESTMENTS--(CONTINUED)
FACE INTEREST MATURITY VALUE DESCRIPTION RATE DATE VALUE (A) FINANCE--26.0% $ 150,000 American Express.................. 5.360% 07/02/96 $ 149,978 1,000,000 UBS Finance....................... 5.390% 07/02/96 999,850 1,300,000 Avco Financial Services........... 5.340% 07/10/96 1,298,267 2,000,000 Household Finance................. 5.360% 07/18/96 1,994,938 Associates Corporation North 1,500,000 America.......................... 5.250% 07/22/96 1,495,406 1,000,000 Avco Financial Services........... 5.370% 07/29/96 995,823 1,500,000 Avco Financial Services........... 5.390% 08/07/96 1,491,690 Associates Corporation North 1,000,000 America.......................... 5.290% 08/09/96 994,269 885,000 American Express.................. 5.270% 09/13/96 875,413 1,300,000 American Express.................. 5.270% 09/17/96 1,285,156 1,000,000 Transamerica Finance Group........ 5.220% 09/18/96 988,545 1,500,000 Transamerica Finance Group........ 5.300% 09/20/96 1,482,113 1,000,000 CIT Group Hold.................... 5.100% 09/27/96 987,533 820,000 CIT Group Hold.................... 5.100% 09/30/96 809,429 900,000 American Express.................. 5.280% 10/10/96 886,668 1,000,000 Transamerica Finance Group........ 5.300% 10/15/96 984,394 1,000,000 American Express.................. 5.270% 10/28/96 982,580 710,000 Transamerica Finance Group........ 5.290% 11/12/96 696,020 International Lease Finance 1,500,000 Corp. ........................... 5.440% 11/13/96 1,469,400 1,000,000 General Electric Capital Corp. ... 4.940% 11/26/96 979,691 1,000,000 General Electric Capital Corp. ... 5.230% 12/13/96 976,029 1,000,000 General Electric Capital Corp. ... 5.600% 02/21/96 963,445 500,000 General Electric Capital Corp. ... 5.620% 03/07/97 480,564 2,000,000 Household Finance................. 5.460% 05/22/97 2,000,000 ------------ 26,267,201 ------------ FOOD & TOBACCO--2.0% 1,040,000 BAT Capital Corp. ................ 5.280% 07/02/96 1,039,847 1,000,000 PepsiCo, Inc. .................... 5.280% 09/03/96 990,613 ------------ 2,030,460 ------------ FORESTRY--1.6% 1,600,000 Weyerhaeuser MTG.................. 5.380% 07/25/96 1,594,261 ------------ INSURANCE--4.4% 1,840,000 MetLife Funding, Inc. ............ 5.380% 07/09/96 1,837,800 1,500,000 Prudential Funding Corp. ......... 5.340% 07/17/96 1,496,440 1,175,000 Prudential Funding Corp. ......... 5.490% 12/30/96 1,142,388 ------------ 4,476,628 ------------ OIL & GAS--1.0% 1,000,000 Chevron Oil Finance Co. .......... 5.000% 10/11/96 985,833 ------------ POLLUTION CONTROL--3.4% 1,270,000 WMX Technologies, Inc. ........... 5.340% 08/16/96 1,261,334 290,000 WMX Technologies, Inc. ........... 5.280% 11/05/96 284,598 1,000,000 WMX Technologies, Inc. ........... 5.420% 01/24/97 968,535 500,000 WMX Technologies, Inc. ........... 5.630% 02/04/97 482,964 500,000 WMX Technologies, Inc ............ 5.630% 03/04/97 480,764 ------------ 3,478,195 ------------
See accompanying notes to financial statements. 86 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS MONEY MARKET SERIES) INVESTMENTS AS OF JUNE 30, 1996 INVESTMENTS--(CONTINUED)
FACE INTEREST MATURITY VALUE DESCRIPTION RATE DATE VALUE (A) RETAIL--4.0% $1,530,000 Sears Roebuck Corp. ............... 5.300% 07/11/96 $ 1,527,748 1,500,000 Sears Roebuck Corp. ............... 5.350% 07/12/96 1,497,548 1,000,000 Sears Roebuck Corp. ............... 5.390% 08/15/96 993,262 ------------ 4,018,558 ------------ SECURITIES--16.8% 2,000,000 Goldman Sachs Group................ 5.650% 07/01/96 2,000,000 460,000 Lehman Brothers, Inc. ............. 5.420% 07/01/96 460,000 500,000 Merrill Lynch, Inc. ............... 5.280% 07/02/96 499,927 1,520,000 Lehman Brothers, Inc. ............. 5.350% 07/03/96 1,519,548 1,131,000 Merrill Lynch, Inc. ............... 5.400% 07/03/96 1,130,661 1,215,000 Smith Barney, Inc. ................ 5.280% 07/03/96 1,214,644 1,445,000 Smith Barney, Inc. ................ 5.300% 07/05/96 1,444,149 1,500,000 Smith Barney, Inc. ................ 5.370% 07/08/96 1,498,434 1,310,000 Lehman Brothers, Inc. ............. 5.370% 07/09/96 1,308,437 1,000,000 Lehman Brothers, Inc. ............. 5.370% 07/10/96 998,657 1,060,000 Merrill Lynch, Inc. ............... 5.450% 07/19/96 1,057,112 625,000 Merrill Lynch, Inc. ............... 5.380% 07/22/96 623,039 900,000 Merrill Lynch, Inc. ............... 5.370% 07/24/96 896,912 1,000,000 Morgan Stanley Group............... 5.060% 08/02/96 995,502 1,300,000 Goldman Sachs Group................ 5.370% 11/22/96 1,272,076 ------------ 16,919,098 ------------ TELECOMMUNICATIONS--0.8% 825,000 Bell Atlantic Services............. 5.380% 07/23/96 822,288 ------------ Total Commercial Paper (Cost $88,794,142)................ 88,794,142 ------------ Total Investments--98.7% (Cost $100,794,958) (b)........... 100,794,958 Other assets less liabilities...... 100,962 ------------ TOTAL NET ASSETS--100%............. $100,895,920 ============
(a) See Note 1A. (b) The aggregate cost for federal income tax purposes was $100,794,958. See accompanying notes to financial statements. 87 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS MONEY MARKET SERIES) STATEMENT OF ASSETS & LIABILITIES JUNE 30, 1996 (UNAUDITED) ASSETS Investments at value.................................... $100,794,958 Cash.................................................... 3,804 Receivable for: Fund shares sold........................................ 682,617 Dividends and interest.................................. 227,388 ------------ 101,708,767 LIABILITIES Payable for: Fund shares redeemed.................................... $330,537 Dividends declared...................................... 357,184 Miscellaneous........................................... 23,792 Accrued expenses: Management fees......................................... 59,938 Deferred trustees' fees................................. 28,188 Other expenses.......................................... 13,208 -------- 812,847 ------------ NET ASSETS............................................... $100,895,920 ============ Net Assets consist of: Capital paid in......................................... $100,895,920 ------------ NET ASSETS............................................... $100,895,920 ============ Computation of offering price: Net asset value and redemption price per share ($100,895,920 divided by 1,008,959 shares of beneficial interest)............................................... $ 100.00 ============ Cost of investments...................................... $100,794,958 ============
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) INVESTMENT INCOME Interest.................................................. $2,581,876 EXPENSES Management fees........................................... $163,887 Trustees' fees and expenses............................... 9,477 Custodian................................................. 29,996 Audit and tax services.................................... 5,762 Legal..................................................... 4,065 Printing.................................................. 15,976 Miscellaneous............................................. 4,971 -------- Total expenses............................................ 234,134 ---------- NET INVESTMENT INCOME...................................... 2,347,742 ---------- NET INCREASE IN NET ASSETS FROM OPERATIONS................. $2,347,742 ==========
See accompanying notes to financial statements. 88 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS MONEY MARKET SERIES) STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1995 1996 ------------- ------------ FROM OPERATIONS Net investment income............................ $ 4,403,095 $ 2,347,742 ------------- ------------ Increase in net assets from operations........... 4,403,095 2,347,742 ------------- ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income............................ (4,403,095) (2,347,742) ------------- ------------ (4,403,095) (2,347,742) ------------- ------------ FROM CAPITAL SHARES TRANSACTIONS Proceeds from sale of shares..................... 141,012,985 105,256,018 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income......... 4,331,085 2,347,742 ------------- ------------ 145,344,070 107,603,760 Cost of shares redeemed.......................... (129,156,304) (96,855,999) ------------- ------------ INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS.................................... 16,187,766 10,747,761 ------------- ------------ TOTAL INCREASE IN NET ASSETS..................... 16,187,766 10,747,761 NET ASSETS Beginning of the period.......................... 73,960,393 90,148,159 ------------- ------------ End of the period................................ $ 90,148,159 $100,895,920 ============= ============ NUMBER OF SHARES OF THE FUND: Issued from the sale of shares................... 1,410,130 1,052,681 Issued in connection with the reinvestment of: Distributions from net investment income......... 43,311 23,357 ------------- ------------ 1,453,441 1,076,038 Redeemed......................................... (1,291,563) (968,561) ------------- ------------ Net change....................................... 161,878 107,477 ============= ============
FINANCIAL HIGHLIGHTS (UNAUDITED)
SIX MONTHS YEAR ENDED DECEMBER 31, ENDED ------------------------------------------- JUNE 30, 1991 1992 1993 1994 1995 1996 ------- ------- ------- ------- ------- ---------- Net asset value at beginning of period.... $100.00 $100.00 $100.00 $100.00 $100.00 $ 100.00 ------- ------- ------- ------- ------- -------- Income From Investment Operations Net investment income.. 6.03 3.73 2.93 3.89 5.50 2.33 ------- ------- ------- ------- ------- -------- Total from Investment Operations............ 6.03 3.73 2.93 3.89 5.50 2.33 Distributions from net investment income..... (6.03) (3.73) (2.93) (3.89) (5.50) (2.33) ------- ------- ------- ------- ------- -------- Total Distributions.... (6.03) (3.73) (2.93) (3.89) (5.50) (2.33) ------- ------- ------- ------- ------- -------- Net asset value at end of period.............. $100.00 $100.00 $100.00 $100.00 $100.00 $ 100.00 ======= ======= ======= ======= ======= ======== TOTAL RETURN (%)........ 6.20 3.79 2.97 4.01 5.64 2.51(b) Ratio of operating expenses to average net assets (%)............. 0.38 0.38 0.38 0.40 0.50 0.50(a) Ratio of net investment income to average net assets (%)............. 6.01 3.71 2.93 3.89 5.50 2.33(a) Net Assets, End of Period (000)........... $58,614 $61,607 $59,044 $73,960 $90,148 $100,896 The ratios of expenses to average net assets without giving effect to the voluntary expense agreement described in Note 4 to the Financial Statements would have been (%)............... -- -- -- -- 0.51 0.50(a)
(a) Computed on an annualized basis. (b) Not computed on an annualized basis. See accompanying notes to financial statements. 89 NEW ENGLAND ZENITH FUND NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1996 (UNAUDITED) 1. New England Zenith Fund (the "Fund") is organized as a Massachusetts business trust under the laws of the Commonwealth of Massachusetts pursuant to an Agreement and Declaration of Trust dated December 16, 1986. The Fund succeeded to the operations of The New England Zenith Fund, Inc. on February 27, 1987. The Fund is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. Shares in the Fund are not offered directly to the general public and, currently, are available only to certain separate accounts established by New England Variable Life Insurance Company ("NEVLICO"), New England Mutual Life Insurance Company ("The New England") or its subsidiaries as an investment vehicle for variable life insurance or variable annuity products, although not all Series are available to all such separate accounts. In the future, shares may be offered to separate accounts of insurance companies unaffiliated with NEVLICO or The New England. The Fund's Agreement and Declaration of Trust permits the issuance of an unlimited number of shares of beneficial interest, no par value, in separate Series, with shares of each Series representing interests in a separate portfolio of assets. Each Series is separately managed and has its own investment objective and policies. The Fund (or its predecessor) began offering shares of the Series on the dates set forth below: Bond Income Series...... August 26, 1983 Capital Growth Series... August 26, 1983 Money Market Series..... August 26, 1983 Stock Index Series...... March 30, 1987 Managed Series.......... May 1, 1987 Avanti Growth Series.... April 30, 1993 Value Growth Series..... April 30, 1993
Small Cap Series......... May 1, 1994 Balanced Series.......... October 31, 1994 International Equity Se- ries.................... October 31, 1994 U.S. Government Series... October 31, 1994 Strategic Bond Opportuni- ties Series............. October 31, 1994 Venture Value Series..... October 31, 1994 Equity Growth Series..... October 31, 1994
The following is a summary of significant accounting policies followed by the Fund in the preparation of the Financial Statements of the Series. The policies are in conformity with generally accepted accounting principles for investment companies. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. SECURITY VALUATION MONEY MARKET SERIES--The Money Market Series employs the amortized cost method of security valuation which, in the opinion of the Board of Trustees, represents the fair market value of the particular security. The Board monitors the deviations between the Series' net asset value per share, as determined by using available market quotations, and its amortized cost price per share. If the deviation exceeds 1/2 of 1%, the Board will consider what action, if any, should be initiated to provide fair valuation of the Series. BOND INCOME, MANAGED, BALANCED, U.S. GOVERNMENT AND STRATEGIC BOND OPPORTUNITIES SERIES--Debt securities (other than short-term obligations) are valued on the basis of valuations furnished by a pricing service, authorized by the Board of Trustees, which service determines valuations for normal, institutional-size trading units of such securities using market information, transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. Short-term notes are stated at amortized cost which approximates market value. CAPITAL GROWTH, MANAGED, STOCK INDEX, AVANTI GROWTH, VALUE GROWTH, SMALL CAP, BALANCED, INTERNATIONAL EQUITY, VENTURE VALUE AND EQUITY GROWTH SERIES--Equity securities are valued on the basis of market valuations furnished by a pricing service, authorized by the Board of Trustees. The pricing service provides the last reported sale price for securities listed on a national securities exchange or on the NASDAQ National Market System, or if there is no reported sale during the day, and in the case of over- the-counter securities not so listed, the last bid price. Securities for which current market quotations are not readily available are taken at fair value as determined in good faith by the Board of 90 NEW ENGLAND ZENITH FUND NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1996--(CONTINUED) (UNAUDITED) Trustees, although the actual calculations may be made by persons acting pursuant to the direction of the Board. Short-term notes are stated at amortized cost which approximates market value. B. FOREIGN CURRENCY TRANSLATION--The books and records of the Funds are maintained in U.S. dollars. The values of securities, currencies and other assets and liabilities denominated in currencies other than U.S. dollars are translated into U.S. dollars based upon foreign exchange rates prevailing at the end of the period. Purchases and sales of investment securities, income and expenses are translated on the respective dates of such transactions. Since the values of investment securities are presented at the foreign exchange rates prevailing at the end of the period, it is not practical to isolate that portion of the results of operations arising from changes in exchange rates from fluctuations arising from changes in market prices of the investment securities. Net realized and unrealized gains and losses on foreign currency transactions represent foreign exchange gains from the sale of short-term securities and holdings of foreign currencies, foreign currency gains and losses between trade dates and settlement dates on investment securities transactions, and the difference between the amounts of daily interest accruals on the books of the Fund and the amounts actually received resulting from changes in exchange rates on the payable date. FORWARD FOREIGN CURRENCY CONTRACTS. The Fund may use foreign currency contracts to facilitate transactions in foreign securities and to manage the Fund's currency exposure. Contracts to buy generally are used to acquire exposure to foreign currencies, while contracts to sell are used to hedge the Fund's investments against currency fluctuations. Also, a contract to buy or sell can offset a previous contract. These contracts involve market risk in excess of the unrealized gain or loss reflected in the Fund's Statements of Assets and Liabilities. The U.S. dollar value of the currencies the Fund has committed to buy or sell is shown in the Schedules of Investments under the caption "Forward Foreign Currency Contracts." This amount represents the aggregate exposure to each currency the Fund has acquired or hedged through currency contracts at period end. Losses may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contract's terms. The U.S. dollar value of forward foreign currency contracts is determined using forward currency exchange rates supplied by a quotation service. C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME--Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. In determining gain or loss on securities sold, the cost of securities has been determined on the identified cost basis. D. FUTURES CONTRACTS--The Value Growth, Stock Index, Managed, Balanced, International Equity, U.S. Government, Strategic Bond Opportunities and Venture Value Series each may enter into futures contracts on the S&P 500 Index or on interest-bearing securities or indices thereof, or on indices of stocks to hedge against changes in the values of securities the Series owns or expects to purchase. Upon entering into a futures contract, the Series is required to deposit with a broker an amount ("initial margin") equal to a certain percentage of the purchase price indicated in the futures contract. Subsequent payments ("variation margin") are made or received by the Series each day, dependent on the daily fluctuations in the value of the underlying security, and are recorded for financial reporting purposes as unrealized gains or losses by the Series. When entering into a closing transaction, the Series will realize, for book purposes, a gain or loss equal to the difference between the value of the futures contract to sell and the futures contract to buy. Futures contracts are valued at the most recent settlement price, unless such price does not reflect the fair market value of the contract, in which case the position will be valued by or under the direction of the Board of Trustees. Certain risks are associated with investments in futures contracts, including risk of imperfect correlation between the value of a position in futures contracts and the value of the stocks or bonds that the Series is attempting to hedge. In addition, there is a risk that the Series may not be able to close out its futures positions due to an illiquid secondary market. E. REPURCHASE AGREEMENTS--The Series, through their custodian, receive delivery of the underlying securities collateralizing repurchase agreements. It is the Series' policy that the market value of the collateral be at least equal to 100% of the repurchase price. Each Series' adviser is responsible for determining that the value of the collateral is at all times at least equal to the repurchase price. In connection with transactions in repurchase agreements, if the seller defaults and the value of the collateral declines or if the seller enters an insolvency proceeding, realization of the collateral by the Series may be delayed or limited. 91 NEW ENGLAND ZENITH FUND NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1996--(CONTINUED) (UNAUDITED) F. SHORT SALES AGAINST THE BOX--The Equity Growth Series may hedge against changes in the value of investments by engaging in short sales against the box. In a short sale against the box, the fund sells a borrowed security, while at the same time either owning an identical security or having the right to obtain such a security. By selling short against the box the equity underlying one of its convertible holdings, the Series would seek to offset the effect that a decline in the underlying equity might have on the value of the convertible security. While the short sale is outstanding, the Series will not dispose of the security hedged by the short sale. The Series is required to establish a margin account with the broker lending the security sold short. While the short sale is outstanding, the broker retains the proceeds of the short sale and the Series instructs the custodian to maintain in a separate account securities having a value at least equal to the amount of the securities sold short. The Series had no such transactions during the six months ended June 30, 1996. G. FEDERAL TAXES--Each Series, which is a separate taxable entity, intends to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute to its shareholders all of its taxable income and any net realized capital gains at least annually. Accordingly, no provision for federal income tax has been made. H. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS--Money Market Series dividends are declared daily to shareholders of record at the time and are paid monthly. Dividends and distributions are recorded by all other Series on the ex-dividend date. Net realized gains from security transactions are distributed at least annually to shareholders. The timing and characterization of certain income and capital gains distributions are determined in accordance with federal tax regulations which may differ from generally accepted accounting principles. Permanent book and tax basis differences relating to shareholder distributions will result in reclassification to paid in capital. These differences primarily relate to tax equalization, investments in mortgage backed securities and investments in foreign securities. I. OTHER--The Money Market Series invests primarily in a portfolio of money market instruments maturing in 397 days or less whose ratings are within the two highest ratings categories by a nationally recognized rating agency or, if not rated, are believed to be of comparable quality. The weighted average maturity of the Series is less than ninety days. The ability of the issuers of the securities held by the Series to meet their obligations may be affected by foreign economic, political and legal developments in the case of foreign banks or of foreign branches or subsidiaries of U.S. banks or domestic economic developments in a specific industry, state or region. 2. At June 30, 1996 The New England owned an aggregate of 11 shares of the fourteen Series and held 15,958,759 shares in separate investment accounts for annuity contracts offered by The New England. NEVLICO, a life insurance subsidiary of The New England, held the remaining 9,999,000 shares then outstanding in separate investment accounts for life insurance and annuity contracts offered by NEVLICO. As long as The New England owns (directly or through NEVLICO) more than 25% of the Fund's outstanding shares, it will be presumed to be in control (as that term is defined by the Investment Company Act of 1940, as amended) of the Fund. 3. For the six months ended June 30, 1996, purchases and sales of securities (excluding short-term investments) for each of the Series were as follows:
PURCHASES SALES ------------------------------ ------------------------------ SERIES OTHER U.S. GOVERNMENT OTHER U.S. GOVERNMENT ------ -------------- --------------- -------------- --------------- Back Bay Advisors Bond Income................. $ 72,274,167 $20,497,109 $ 58,078,109 $20,151,317 Capital Growth.......... 1,325,026,661 -- 1,290,107,685 -- Westpeak Stock Index.... 3,834,474 -- 755,737 -- Back Bay Advisors Managed................ 47,326,703 617,880 49,938,778 113,694 Loomis Sayles Avanti Growth................. 33,986,799 -- 23,063,576 -- Westpeak Value Growth... 43,718,750 -- 31,182,194 -- Loomis Sayles Small Cap. 25,727,596 -- 10,232,265 -- Loomis Sayles Balanced.. 17,409,280 4,751,545 5,074,622 2,957,387 Draycott International Equity................. 19,325,110 -- 10,470,205 -- Salomon Brothers U.S. Government............. -- 20,916,045 -- 17,423,127 Salomon Brothers Strategic Bond Opportunities.......... 13,476,185 8,315,029 7,407,314 5,633,507 Venture Value........... 22,186,884 -- 2,536,982 -- Alger Equity Growth..... 61,713,743 -- 27,029,125 --
92 NEW ENGLAND ZENITH FUND NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1996--(CONTINUED) (UNAUDITED) Purchases and sales of corporate short-term obligations for the Money Market Series aggregated $353,378,049 and $343,457,175, respectively. Transactions in index futures contracts for the Managed Series for the six months ended June 30, 1996 are summarized as follows:
PURCHASES OF FUTURES CONTRACTS ---------------------- AGGREGATE NUMBER OF FACE VALUE CONTRACTS OF CONTRACTS --------- ------------ Contracts opened........................................ 10 $ 3,153,870 Contracts closed........................................ (10) (3,153,870) --- ----------- Open at June 30, 1996................................... 0 $ 0 === ===========
Transactions in forward currency contracts for the Strategic Bond Opportunities Series for the six months ended June 30, 1996 are summarized as follows:
SALES OF CONTRACTS ------------------ AGGREGATED FACE VALUE OF CONTRACTS ------------------ Open at December 31, 1995.................................... $ 919,184 Contracts opened............................................. 3,707,020 Contracts closed............................................. (4,544,431) ----------- Open at June 30, 1996........................................ $ 81,773 ===========
4. MANAGEMENT FEES. TNE Advisers, Inc. acts as adviser to all of the Series (except the Capital Growth Series for which Capital Growth Management, L.P. ("CGM") serves as advisor). Separate management agreements for each Series provide for fees as set forth below:
NET FEES EARNED BY TNE ADVISERS FOR THE SIX MONTHS MANAGEMENT FEE ENDED JUNE 30, 1996 PAID BY SERIES TO BEFORE REDUCTION DUE TO TNE ADVISERS, INC. SERIES EXPENSE LIMITS (A) (% OF AVERAGE NET ASSETS) ------ ----------------------- --------------------------------------- Loomis Sayles Small Cap Series................. $ 85,853 1.00% all assets Draycott International Equity Series.......... 26,080 0.90% all assets Alger Equity Growth Series................. 102,399 0.75% all assets Loomis Sayles Avanti Growth Series.......... 72,303 0.70% the first $200 million 0.65% the next $300 million 0.60% amounts in excess of $500 million Venture Value Series.... 73,677 0.75% all assets Westpeak Value Growth Series................. 70,845 0.70% the first $200 million 0.65% the next $300 million 0.60% amounts in excess of $500 million Westpeak Stock Index Series................. 47,559 0.25% all assets Loomis Sayles Balanced Series................. 28,634 0.70% of all assets Back Bay Managed Series. 210,904 0.50% of all assets Salomon Brothers 0.65% of all assets Strategic Bond Opportunities Series... 20,264 Back Bay Advisors Bond Income Series.......... 149,869 0.40% the first $400 million 0.35% the next $300 million 0.30% the next $300 million 0.25% amounts in excess of $1 billion Salomon Brothers U.S. Government Series...... 15,165 0.55% all assets Back Bay Advisors Money Market Series.......... 93,653 0.35% the first $500 million 0.30% the next $500 million 0.25% amounts in excess of $1 billion
(a) There are two forms of expense limit, a Voluntary Expense Limitation and an Expense Deferral Arrangement. Only one pertains to each of these Series, as described below. 93 NEW ENGLAND ZENITH FUND NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1996--(CONTINUED) (UNAUDITED) The Capital Growth Series pays its adviser, CGM, a management fee at an annual rate of 0.70% of the first $200 million of average net assets, 0.65% of the next $300 million of such assets and 0.60% of such assets in excess of $500 million. For advisory services rendered during the six months ended June 30, 1996, CGM was paid at an annual rate of 0.64% of the Capital Growth Series' average net assets, totaling $3,093,449. SUB-ADVISORY FEES. TNE Advisers, Inc. has sub-contracted day-to-day portfolio management responsibilities to each of the following sub-advisers to manage the Series: Loomis, Sayles & Company, L.P., for the Loomis Sayles Small Cap, Loomis Sayles Avanti Growth and the Loomis Sayles Balanced Series, Draycott Partners, Ltd. for the Draycott International Equity Series; Fred Alger Management, Inc. for the Alger Equity Growth Series; Davis Selected Advisers, L.P. for the Venture Value Series; Westpeak Investment Advisors, L.P. for the Westpeak Value Growth and Westpeak Stock Index Series; Back Bay Advisors, L.P. for the Back Bay Advisors Managed, Back Bay Advisors Bond Income and Back Bay Advisors Money Market Series and Salomon Brothers Asset Management Inc, for the Salomon Brothers Strategic Bond Opportunities and Salomon Brothers U.S. Government Series. TNE Advisers, Inc. pays each sub-adviser at the following rates for providing sub-advisory services to the following Series:
GROSS FEES EARNED BY ANNUAL SUB-ADVISOR PERCENTAGE FOR SIX MONTHS RATES PAID ENDED JUNE TO SUB- AVERAGE DAILY NET ASSET SERIES 30, 1996 ADVISERS VALUE LEVELS ------ -------------- ---------- ------------------------------------ Loomis Sayles Small Cap Series................. $98,286 0.55% of the first $25 million 0.50% of the next $75 million 0.45% of the next $100 million 0.40% of amounts in excess of $200 million Draycott International Equity Series.......... $74,535 0.75% of the first $10 million 0.60% of the next $40 million 0.45% of amounts in excess of $50 million Alger Equity Growth Se- ries*.................. $133,458 0.45% of the first $100 million 0.40% of the next $400 million 0.35% of amounts in excess of $500 million Loomis Sayles Avanti Growth Series.......... $125,411 0.50% of the first $25 million 0.40% of the next $75 million 0.35% of the next $100 million 0.30% of amounts in excess of $200 million Venture Value Series.... $110,514 0.45% of the first $100 million 0.40% of the next $400 million 0.35% of amounts in excess of $500 million Westpeak Value Growth Series................. $123,469 0.50% of the first $25 million 0.40% of the next $75 million 0.35% of the next $100 million 0.30% of amounts in excess of $200 million Westpeak Stock Index Se- ries................... $31,704 0.10% of all assets Loomis Sayles Balanced Series................. $65,712 0.50% of the first $25 million 0.40% of the next $75 million 0.30% of amounts in excess of $100 million Back Bay Advisors Man- aged Series............ $161,324 0.25% of the first $50 million 0.20% of amounts in excess of $50 million
- ------- * During the period January 1, 1996 through May 1, 1996 the sub-advisory fees for the Alger Equity Growth Series were: 0.45% of the Series' first $10 million of average daily net assets; 0.40% of the next $90 million of such assets, 0.35% of the next $150 million of such assets, 0.30% of the next $250 million of such assets and 0.25% of such assets in excess of $500 million. 94 NEW ENGLAND ZENITH FUND NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1996--(CONTINUED) (UNAUDITED)
GROSS FEES EARNED BY ANNUAL SUB-ADVISOR PERCENTAGE FOR SIX MONTHS RATES PAID ENDED JUNE TO SUB- AVERAGE DAILY NET ASSET SERIES 30, 1996 ADVISERS VALUE LEVELS ------ --------------- ---------- ------------------------------------ Salomon Brothers Strate- gic Bond Opportunities Series................. $23,641 0.35% of the first $50 million 0.30% of the next $150 million 0.25% of the next $300 million 0.20% of amounts in excess of $500 million Back Bay Advisors Bond Income Series.......... $174,731 0.25% of the first $50 million 0.20% of the next $200 million 0.15% of amounts in excess of $250 million Salomon Brothers U.S. Government Series...... $10,499 0.225% of the first $200 million 0.150% of the next $300 million 0.100% of amounts in excess of $500 million Back Bay Advisors Money Market Series.......... $70,234 0.15% of the first $100 million 0.10% of amounts in excess of $100 million
VOLUNTARY EXPENSE LIMITATION AND EXPENSE DEFERRAL AGREEMENT. Each Series (except the Capital Growth Series) is subject to one of two forms of expense limit. The first form of expense limit is a Voluntary Expense Limitation, which relates to the Loomis Sayles Avanti Growth Series, Westpeak Value Growth Series, Westpeak Stock Index Series, Back Bay Advisors Managed, Back Bay Advisors Bond Income and Back Bay Advisors Money Market Series. Pursuant to this agreement TNE Advisers, Inc. bears expenses (other than advisory fees and any brokerage costs, interest, taxes or extraordinary expenses) of the Series in excess of 0.15% of the respective Series' average daily net assets. In the case of the Loomis Sayles Small Cap Series, TNE Advisers, Inc. bears all the expenses (other than any brokerage costs, interest, taxes or extraordinary expenses) of the Series in excess of 1.00% of the Series' average daily net assets. Similar Voluntary Expense Limitations with The New England were in effect with respect to the Capital Growth Series from November 1, 1994 to April 30, 1996 and with respect to the Back Bay Advisors Money Market, Back Bay Advisors Bond Income, Back Bay Advisors Managed and Westpeak Stock Index Series from November 1, 1994 to April 30, 1995 and with respect to the Loomis Sayles Small Cap, Loomis Sayles Avanti Growth and Westpeak Value Growth Series from December 1, 1994 to April 30, 1995. The second form of expense limit is an Expense Deferral Agreement which has been in effect since November 1, 1994 and relates to the Draycott International Equity Series, Alger Equity Growth Series, Venture Value Series, Loomis Sayles Balanced Series, Salomon Brothers Strategic Bond Opportunities Series, and Salomon Brothers U.S. Government Series. Under this arrangement, which TNE Advisers, Inc. can terminate at any time, TNE Advisers, Inc. has agreed to pay expenses of the Series' operations (exclusive of any brokerage costs, interest, taxes or extraordinary expenses) in excess of the annual percentages of the Series net assets set forth below, subject to the obligation of the Series to repay TNE Advisers, Inc. such expenses in future years, if any, when the Series' expenses fall below that percentage; provided, however, that no Series is obligated to repay any expenses paid by TNE Advisers, Inc. more than two years after the end of the fiscal year in which such expenses were incurred. The percentage applicable to each Series are as follows:
% OF AVERAGE SERIES NET ASSETS ------ ---------- Draycott International Equity Series......................... 1.30% Alger Equity Growth Series................................... 0.90 Venture Value Series......................................... 0.90 Loomis Sayles Balanced Series................................ 0.85 Salomon Brothers Strategic Bond Opportunities Series......... 0.85 Salomon Brothers U.S. Government Series...................... 0.70
95 NEW ENGLAND ZENITH FUND NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1996--(CONTINUED) (UNAUDITED) For the period January 1, 1996 to June 30, 1996 the effective expense ratios for each series, after giving effect to the foregoing arrangements, and the amounts of expenses deferred for those Series to which the Expense Deferral Agreement applies, are:
EXPENSES ASSUMED BY THE NEW ENGLAND AND TNE TOTAL EXPENSE RATIO ADVISERS AS A UNDER CURRENT VOLUNTARY RESULT OF THE SERIES EXPENSE AGREEMENT EXCEEDING THE OR EXPENSE DEFERRAL VOLUNTARY EXPENSE EXPENSES DEFERRED UNTIL EXPENSES DEFERRED UNTIL SERIES ARRANGEMENT LIMIT DECEMBER 1997 DECEMBER 31, 1998 ------ ----------------------- -------------------- ----------------------- ----------------------- Back Bay Advisors Money Market Series 0.50% -- not applicable not applicable Back Bay Advisors Bond Income Series 0.52% -- not applicable not applicable Back Bay Advisors Managed Series 0.63% -- not applicable not applicable Westpeak Value Growth Series 0.85% $22,619 not applicable not applicable Westpeak Stock Index Series 0.40% 34,175 not applicable not applicable Loomis Sayles Small Cap Series 1.00% 66,288 not applicable not applicable Loomis Sayles Avanti Growth Series 0.85% 26,039 not applicable not applicable Draycott International Equity Series 1.30% not applicable $176,796 $62,308 Alger Equity Growth Series 0.90%* not applicable 77,254 6,754 Venture Value Series 0.90% not applicable 108,971 46,239 Loomis Sayles Balanced Series 0.85% not applicable 96,085 37,335 Salomon Brothers Strategic Bond Opportunities Series 0.85% not applicable 88,120 45,511 Salomon Brothers U.S. Government Series 0.70% not applicable 84,623 42,814
* Prior to January 1, 1996 the voluntary expenses limit was 0.85% Effective May 1, 1996, Fred Alger Management, Inc. has agreed with TNE Advisers, Inc. that the sub-advisory fee payable by TNE Advisers, Inc. to Fred Alger Management, Inc. will be reduced by 0.05% of the first $240 million of the excess of the Series' average daily net assets over $10 million, and by 0.10% of the excess of the Series' average daily net assets over $250 million. This fee reduction benefits TNE Advisers, Inc. but does not reduce the advisory fee payable by the Series. The fee reduction agreement will expire on (a) January 1, 1998 or (b) at such time as TNE Advisers, Inc. has recovered certain expenses (generally those expenses borne by TNE Advisers, Inc. under the Expense Deferral Arrangement prior to January 1, 1996 which were not recovered from the Series), whichever occurs first. 5. The Fund does not pay any compensation to its officers or to any trustees who are directors, officers or employees of The New England, NEVLICO, Back Bay Advisors, L.P., Capital Growth Management Limited Partnership, Loomis, Sayles & Company, L.P., Westpeak Investment Advisors, L.P., New England Funds L.P. or their affiliates, other than registered investment companies. Each disinterested trustee is compensated by each Series as follows:
BOND CAPITAL MONEY STOCK AVANTI VALUE SMALL INCOME GROWTH MARKET INDEX MANAGED GROWTH GROWTH CAP ------ ------- ------ ------ ------- ------ ------ ----- Annual Retainer......... $2,416 $3,692 $1,580 $1,527 $2,391 $796 $795 $761 Meeting Fee............. $ 133 $ 133 $ 133 $ 133 $ 133 $133 $133 $133 Committee Chairman Annual Retainer (Contract Review)...... $ 287 $1,627 $ 159 $ 104 $ 261 $ 86 $ 85 $ 49 Committee Chairman Annual Retainer (Audit)................ $ 192 $1,084 $ 106 $ 69 $ 174 $ 57 $ 57 $ 33
STRATEGIC INTERNATIONAL U.S. BOND VENTURE EQUITY BALANCED EQUITY GOVERNMENT OPPORTUNITIES VALUE GROWTH -------- ------------- ---------- ------------- ------- ------ Annual Retainer......... $746 $742 $727 $730 $773 $792 Meeting Fee............. $133 $133 $133 $133 $133 $133 Committee Chairman Annual Retainer (Contract Review)...... $ 33 $ 29 $ 73 $ 77 $ 62 $ 82 Committee Chairman Annual Retainer (Audit)................ $ 22 $ 19 $ 9 $ 11 $ 41 $ 55
A deferred compensation plan is available to trustees on a voluntary basis. Each participating trustee will receive deferred compensation in an amount equal to the value that such compensation would have had if it had been invested in the relevant Series on the normal payment date. 96 FOOTNOTES TO PORTFOLIO MANAGER COMMENTARY - --------------------------------- (1) COL (Cost of Living) is based on the Consumer Price Index, a widely recognized measure of the cost of goods and services in the United States, calculated by the U.S. Bureau of Labor Statistics. (2) EAFE-Morgan Stanley Capital International Europe, AustralAsia, Far East Index is an arithmetical average (weighted by market value) of the performance (in U.S. dollars) of 1,036 companies representing the stock markets of Europe, Australia, New Zealand and the Far East. The Index performance has not been adjusted for ongoing management, distribution and operating expenses and sale charges applicable to mutual funds investments. (3) Lehman Brothers Aggregate Bond Index includes most obligations of the U.S. Treasury, agencies and quasi-federal corporations, most publicly issued investment grade corporate bonds, and most bonds backed by mortgage pools of GNMA, FNMA and FHLMC. The index has not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual funds expenses. (4) Lehman Brothers Government/Corporate Bond Index is an unmanaged index of the market value of approximately 5,300 bonds with a face value currently in excess of $1.3 trillion. To be included in the Lehman Brothers Government/ Corporate Bond Index, an issue must have amounts outstanding in excess of $25 million, have at least one year to maturity and be rated "Baa" or higher ("investment grade") by a nationally recognized rating agency. The index has not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund expenses. (5) Lehman Brothers Intermediate Government Bond Index includes most obligations of the U.S. Treasury, agencies and quasi-federal corporations having maturities of 1 to 10 years. The index has not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund expenses. (6) Lehman Brothers Intermediate Government/Corporate Bond Index is an unmanaged index of investment grade bonds issued by the U.S. government and U.S. corporations having maturities between one and ten years. The Index performance has not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments. (7) Lipper Variable A-Rated Corporate Bond Fund Average is an average of the total return performance (calculated on the basis of net asset value) of funds with similar investment objectives as calculated by Lipper Analytical Services, an independent mutual fund ranking service. (8) Lipper Variable Balanced Fund Average is an average of the total return performance (calculated on the basis of net asset level) of funds with similar investment objectives as calculated by Lipper Analytical Services, an independent mutual fund ranking service. (9) Lipper Variable Flexible Portfolio Fund Average is an average of the total return performance (calculated on the basis of net asset value) of funds with similar investment objectives as calculated by Lipper Analytical Services, an independent mutual fund ranking service. (10) Lipper Variable General Bond Fund Average is an average of the total return performance (calculated on the basis of net asset value) of funds with similar investment objectives as calculated by Lipper Analytical Services, an independent mutual fund ranking service. (11) Lipper Variable Growth Fund Average is an average of the total return performance (calculated on the basis of net asset value) of funds with similar investment objectives as calculated by Lipper Analytical Services, an independent mutual fund ranking service. (12) Lipper Variable Growth and Income Fund Average is an average of the total return performance (calculated on the basis of net asset value) of funds with similar investment objectives as calculated by Lipper Analytical Services, an independent mutual fund ranking service. (13) Lipper Variable International Funds Average is an average of the total return performance (calculated on the basis of net asset value) of funds with similar investment objectives as calculated by Lipper Analytical Services, an independent mutual fund ranking service. (14) Lipper Variable Intermediate Investment Grade Debt Average is an average of the total return performance (calculated on the basis of net asset value) of funds with similar investment objectives as calculated by Lipper Analytical Services, an independent mutual fund ranking service. 97 (15) Lipper Variable Small Company Fund Average is an average of the total return performance (calculated on the basis of net asset value) of funds with similar investment objectives as calculated by Lipper Analytical Services, an independent mutual fund ranking service. (16) Lipper Variable S&P 500 Index Fund Average is an average of the total return performance (calculated on the basis of net asset value) of funds with similar investment objectives as calculated by Lipper Analytical Services, an independent mutual fund ranking service. (17) Lipper Variable U.S. Mortgage and GNMA Fund Average is an average of the total return performance (calculated on the basis of net asset value) of funds with similar investment objectives as calculated by Lipper Analytical Services, an independent mutual fund ranking service. (18) The Russell 1000 represents the "large cap" segment of the Russell 3000 index. This index is comprised of 1,000 large U.S. companies as determined by market capitalization, the smallest of which has approximately $250 million in market capitalization. The average market capitalization for this index is currently $510 million, and the median capitalization is $2.38 billion. (19) Russell 2000 Index consists of 2000 small market capitalization stocks having an average market cap of $160 million. The Russell 2000 Index performance has not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments. (20) Standard & Poor's 500 Index (S&P 500) is an unmanaged index representing the performance of 500 major companies, most of which are listed on the New York Stock Exchange. The S&P 500 performance has not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments. 98 THIS PAGE INTENTIONALLY LEFT BLANK 99 [LOGO OF THE NEW ENGLAND APPEARS HERE] ------------------- Bulk Rate U.S. Postage PAID Hudson, MA Permit No. 19 ------------------- NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY 501 BOYLSTON STREET BOSTON, MASSACHUSETTS 02116 EQUAL OPPORTUNITY EMPLOYER M/F (C) 1996 NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY (C) 1996 NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- This booklet has been prepared for variable contract owners of New England Variable Life Insurance Company and of The New England. -----END PRIVACY-ENHANCED MESSAGE-----