-----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, TvRZWLKAGKxuaUHKDCT2JOHPpaDOjcdP/3kliel8pmLlN1U7IVnRjPsHjYwEvIhg aQME1Yj+IdZ5JihC7IAwRg== 0000950109-97-001595.txt : 19970227 0000950109-97-001595.hdr.sgml : 19970227 ACCESSION NUMBER: 0000950109-97-001595 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970226 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: 97544108 BUSINESS ADDRESS: STREET 1: 501 BOYLSTON ST CITY: BOSTON STATE: MA ZIP: 02117 BUSINESS PHONE: 6175782000 MAIL ADDRESS: STREET 1: 501 BOYLSTON STREET CITY: BOSTON STATE: MA ZIP: 02117 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: 97544109 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 ANNUAL REPORT [LOGO OF THE NEW ENGLAND INSURANCE AND INVESTMENT APPEARS HERE] ------------------------------------------------------------------------- ZENITH FUND VARIABLE PRODUCTS ANNUAL REPORTS DECEMBER 31, 1996 TABLE OF CONTENTS
Draycott International Equity Series Supplement . . . . . . . . . . . . I Davis Venture Value Series Supplement . . . . . . . . . . . . . . . . . II Loomis Sayles Small Cap Series . . . . . . . . . . . . . . . . . . . . 1 Draycott International Equity Series . . . . . . . . . . . . . . . . . 7 Alger Equity Growth Series . . . . . . . . . . . . . . . . . . . . . . 13 Capital Growth Series . . . . . . . . . . . . . . . . . . . . . . . . . 19 Loomis Sayles Avanti Growth Series . . . . . . . . . . . . . . . . . . 23 Davis Venture Value Series . . . . . . . . . . . . . . . . . . . . . . 29 Westpeak Growth and Income Series . . . . . . . . . . . . . . . . . . . 35 Westpeak Stock Index Series . . . . . . . . . . . . . . . . . . . . . . 42 Loomis Sayles Balanced Series . . . . . . . . . . . . . . . . . . . . . 52 Back Bay Advisors Managed Series . . . . . . . . . . . . . . . . . . . 59 Salomon Brothers Strategic Bond Opportunities Series . . . . . . . . . 67 Back Bay Advisors Bond Income Series . . . . . . . . . . . . . . . . . 75 Salomon Brothers U.S. Government Series . . . . . . . . . . . . . . . . 81 Back Bay Advisors Money Market Series . . . . . . . . . . . . . . . . . 85 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . 91 Footnotes to Portfolio Manager Commentary . . . . . . . . . . . . . . . 100
IMPORTANT: Some funds appearing in this report may not be available under your variable life or variable annuity product. February, 1997 TO ZENITH VARIABLE PRODUCT POLICYHOLDERS/CONTRACT OWNERS: I am pleased to provide you with the 1996 Annual Report for the Zenith Fund variable life insurance and variable annuity products.* This report includes performance histories, present investments, and financial reports as of December 31, 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 1996 Annual Report also contains important information pertaining to several funds that may be available under your variable life or variable annuity product. An explanation of the changes affecting these funds can be found on the next few pages. The New England and its affiliates offer 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 your Registered Representative with any questions you may have regarding your financial objectives. Thank you for choosing a Zenith variable product. Sincerely, [DAVID ALLEN SIGNATURE] [BRUCE LONG SIGNATURE] David Allen Bruce Long Senior Vice President President New England Life New England Annuities * Variable products are offered through New England Securities [RECYCLE LOGO] LOOMIS SAYLES SMALL CAP SERIES PORTFOLIO MANAGERS: JEFFREY PETHERICK, MARY CHAMPAGNE LOOMIS, SAYLES & COMPANY, L.P. [PHOTOS OF JEFFREY PETHERICK & MARY CHAMPAGNE] Q. HOW DID THE LOOMIS SAYLES SMALL CAP SERIES PERFORM IN 1996? A. For the fiscal year ended December 31, 1996 the total return for the Series was 30.67%. This compares favorably to the Russell 2000 Index/18/ return of 16.50% over the same period. The Series also outperformed the Lipper Variable Small Company Fund Average which returned 19.85% over the same period. Q. HOW DID YOU MANAGE THE LOOMIS SAYLES SMALL CAP SERIES IN 1996? A. As always, we concentrated on locating undervalued, growing companies that dominate, or are becoming dominant, in a specific market subsegment. Earlier in 1996, we increased our weighting in consumer cyclicals--retail stores, restaurants and other services--with great success. Healthy consumer spending throughout the year boosted many stocks, including Ann Taylor, an upscale women's clothier, and Cole National, a specialty eyewear and giftware retailer. We adopted a more defensive portfolio strategy in the second half of the year, moving away from economically sensitive companies and toward companies with strong value characteristics. That explains our increased exposure to Real Estate Investment Trusts (REITs) and a more aggressive move into food stocks. Q. WOULD YOU GIVE US MORE EXAMPLES? A. Virtually every sector showed positive returns. The capital goods sector was the exception; mixed stock selection held back portfolio performance in that sector. Strong individual performers were Lance, Inc., a snack food manufacturer; Public Service Company of North Carolina; Patriot American, a REIT that owns valuable hotel property; and Alliant Telecommunications, a Nebraska-based telephone company. Q. WHAT IS YOUR INVESTMENT OUTLOOK FOR THE MONTHS AHEAD? A. We expect that the economy will continue to slow in 1997 and that corporate earnings will suffer as a result. In light of that assumption, we will move away from sectors that are more economically sensitive, like capital goods and raw materials. We'll look to sectors with favorable valuations, like health care, where fundamentals are sound and earnings prospects are excellent. [A CHART APPEARS HERE COMPARING THE GROWTH OF A $10,000 INVESTMENT COMPARED TO AN INDEX]
Small Cap Russell Series 2000 Inception 5/1/94 10000 10000 12/31/94 9676 10027 12/31/95 12470 12879 12/31/96 16295 15004
FUND FACTS GOAL: Long-term capital growth from investments in common stocks or their equivalent. START DATE: May 1, 1994 SIZE: $89 million as of December 31, 1996 MANAGERS: Jeffrey Petherick and Mary Champagne. Mr. Petherick has managed the Series since its inception in May 1994. Ms. Champagne joined the management of the Fund in July 1995. Mr. Petherick has also managed the Loomis Sayles portion of the New England Star Advisers Fund 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 Value Fund and the Maxim Series--Small Cap Fund. Mr. Petherick joined Loomis Sales 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. 1 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES SMALL CAP SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
COMMON STOCKS--87.9% OF TOTAL NET ASSETS SHARES VALUE (A) AEROSPACE--0.2% 17,100 Kaman Corp. . . . . . . . . . . . . . $ 222,300 ---------- AUTOMOBILE & RELATED--1.6% 9,200 Amcast Industrial Corp. . . . . . . . 227,700 11,100 Borg Warner Automotive, Inc. . . . . 427,350 24,900 Echlin, Inc. . . . . . . . . . . . . 787,463 ---------- 1,442,513 ---------- BANKS--SAVINGS & LOAN--3.4% 28,700 Bank Utd. Corp. . . . . . . . . . . . 767,725 1,525 Charter One Financial, Inc. . . . . . 64,050 12,050 Commercial Federal Corp. . . . . . . 578,400 28,500 First Financial Corp. . . . . . . . . 698,250 32,500 Magna Group, Inc. . . . . . . . . . . 958,750 ---------- 3,067,175 ---------- BUSINESS SERVICES--2.0% 12,800 CDI Corp.(c) . . . . . . . . . . . . 363,200 36,900 Cort Business Services Corp.(c) . . . 761,063 20,900 Prime Service, Inc.(c) . . . . . . . 574,750 8,300 Team America Corp.(c) . . . . . . . . 94,413 ---------- 1,793,426 ---------- CHEMICALS--SPECIALTY--4.7% 9,850 Cambrex Corp. . . . . . . . . . . . . 322,588 36,900 Dexter Corp. . . . . . . . . . . . . 1,176,187 56,600 Hexcel Corp.(c) . . . . . . . . . . . 919,750 27,200 Intertape Polymer Group, Inc. . . . 625,600 64,300 Lawter International, Inc. . . . . . 811,787 13,600 Learonal, Inc. . . . . . . . . . . . 312,800 ---------- 4,168,712 ---------- COMPUTER SOFTWARE & SERVICES--3.5% 21,600 Award Software International, Inc.(c) . . . . . . . . . . . . . . 210,600 21,000 Boole & Babbage, Inc. . . . . . . . . 525,000 22,000 ESS Technology, Inc.(c) . . . . . . . 618,750 31,000 National Computer Systems, Inc. . . . 790,500 18,600 Nichols Research Corp. . . . . . . . 474,300 33,500 Symantec Corp.(c) . . . . . . . . . . 485,750 ---------- 3,104,900 ---------- ELECTRICAL EQUIPMENT--1.2% 19,400 Belden, Inc. . . . . . . . . . . . . 717,800 26,200 Woodhead Industries . . . . . . . . . 360,250 ---------- 1,078,050 ---------- ELECTRONIC COMPONENTS--2.9% 30,000 Amphenol Corp.(c) . . . . . . . . . . 667,500 22,000 Burr Brown Corp.(c) . . . . . . . . . 572,000 6,200 Etec Systems, Inc.(c) . . . . . . . . 237,150 30,000 Merix Corp.(c) . . . . . . . . . . . 457,500 22,000 Unitrode Corp.(c) . . . . . . . . . . 646,250 ---------- 2,580,400 ----------
SHARES VALUE (A) ENVIRONMENTAL SERVICES--0.8% 32,100 World Fuel Services Corp. . . . . . $ 714,225 ---------- FINANCIAL SERVICES--2.1% 40,000 DVI, Inc.(c) . . . . . . . . . . . . 520,000 34,500 Financial Federal Corp. . . . . . . 577,875 17,720 Imperial Credit Industries, Inc.(c) . . . . . . . . . . . . . . 372,120 20,580 WFS Financial, Inc.(c) . . . . . . . 409,028 ---------- 1,879,023 ---------- FOOD PACKAGING & MISCELLANEOUS--2.1% 28,800 Flowers Industries, Inc. . . . . . . 619,200 42,700 Lance, Inc. . . . . . . . . . . . . 768,600 37,200 Michaels Foods . . . . . . . . . . . 474,300 ---------- 1,862,100 ---------- FREIGHT TRANSPORTATION--3.3% 37,500 Harper Group, Inc. . . . . . . . . . 890,625 39,400 Pittston Co. . . . . . . . . . . . . 788,000 46,000 US Freightways Corp. . . . . . . . . 1,262,125 ---------- 2,940,750 ---------- HEALTH CARE--DRUGS--1.1% 49,300 Bindley Western Industries, Inc. . . 955,188 ---------- HEALTH CARE--MEDICAL TECHNOLOGY--2.5% 36,800 Conmed Corp.(c) . . . . . . . . . . 754,400 21,700 Protocol Systems, Inc.(c) . . . . . 282,100 39,000 Sofamor/Danek Group, Inc.(c) . . . . 1,189,500 ---------- 2,226,000 ---------- HEALTH CARE--SERVICES--5.3% 56,245 Grancare, Inc.(c) . . . . . . . . . 1,005,379 40,800 Health Images, Inc. . . . . . . . . 678,300 35,800 Healthplan Services Corp.(c) . . . . 756,275 36,900 Integrated Health Services, Inc. . . 899,437 33,000 Regency Health Services(c) . . . . . 317,625 51,500 Rotech Medical Corp.(c) . . . . . . 1,081,500 ---------- 4,738,516 ---------- HOME PRODUCTS--3.2% 10,000 Aptargroup, Inc. . . . . . . . . . . 352,500 14,000 Bush Boake Allen, Inc.(c) . . . . . 372,750 14,800 Department 56, Inc.(c) . . . . . . . 366,300 37,800 Premark International, Inc. . . . . 841,050 53,650 US Can Corp.(c) . . . . . . . . . . 905,344 ---------- 2,837,944 ---------- HOTELS & RESTAURANTS--0.8% 19,500 Cooker Restaurant Corp. . . . . . . 226,688 24,800 WMS Industries, Inc.(c) . . . . . . 496,000 ---------- 722,688 ----------
See accompanying notes to financial statements. 2 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES SMALL CAP SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
COMMON STOCKS--(CONTINUED) SHARES VALUE (A) HOUSING & BUILDING MATERIALS--3.5% 31,300 Congoleum Corp.(c) . . . . . . . . $ 434,287 12,700 Crossman Communities, Inc.(c) . . . 215,900 26,700 Dayton Superior Corp.(c) . . . . . 350,437 56,400 Giant Cement Holdings, Inc.(c) . . 909,450 34,000 Toro Co. . . . . . . . . . . . . . 1,241,000 ---------- 3,151,074 ---------- INSURANCE--7.1% 34,050 Allied Group, Inc. . . . . . . . . 1,110,881 20,400 Capital Resource Corp. . . . . . . 951,150 15,500 Capmac Holdings, Inc. . . . . . . . 513,438 21,400 Dignity Partners, Inc.(c) . . . . . 56,175 31,100 Everest Reinsurance Holdings . . . 894,125 20,900 Meadrowbrook Insurance Group(c) . . 438,900 25,100 Protective Life Corp. . . . . . . . 1,000,862 18,000 Reinsurance Group of America, Inc. . . . . . . . . . . . . . . . 848,250 17,925 Triad Guaranty, Inc.(c) . . . . . . 515,344 ---------- 6,329,125 ---------- LEISURE--1.6% 7,795 Harman International . . . . . . . 433,597 37,500 Scientific Games Holdings Corp.(c) . . . . . . . . . . . . . 1,003,125 ---------- 1,436,722 ---------- MACHINERY--2.5% 33,200 Brown & Sharpe Manufacturing Co.(c) . . . . . . . . . . . . . . 464,800 18,500 BW/IP, Inc. . . . . . . . . . . . . 305,250 20,800 Greenfield Industries Inc. . . . . 637,000 6,700 Hardinge Bros., Inc. . . . . . . . 178,387 34,000 Keystone International, Inc. . . . 684,250 ---------- 2,269,687 ---------- MEDIA & ENTERTAINMENT--2.7% 33,800 Banta Corp. . . . . . . . . . . . . 773,175 33,200 Cadmus Communications Corp. . . . . 514,600 20,400 Houghton Mifflin Co. . . . . . . . 1,155,150 ---------- 2,442,925 ---------- METALS--3.5% 38,400 Citation Corp.(c) . . . . . . . . . 393,600 16,900 Clevland Cliffs, Inc. . . . . . . . 766,837 28,700 Lone Star Technologies, Inc.(c) . . 487,900 51,100 Oregon Steel Mills, Inc. . . . . . 855,925 9,300 RMI Titanium Co.(c) . . . . . . . . 261,563 59,600 UNR Industries Inc. . . . . . . . . 357,600 ---------- 3,123,425 ---------- MULTI-INDUSTRY--2.7% 84,000 Griffon Corp.(c) . . . . . . . . . 1,029,000 10,500 Insilco Corp.(c) . . . . . . . . . 404,250 56,600 Viad Corp. . . . . . . . . . . . . 933,900 ---------- 2,367,150 ----------
SHARES VALUE (A) NATURAL GAS PIPELINES--0.3% 14,000 Public Service Co. of North Carolina . $ 255,500 ---------- OIL--INDEPENDENT PRODUCERS--2.5% . . . 42,800 American Exploration Co.(c) . . . . . 684,800 21,200 Belden & Blake Corp.(c) . . . . . . . 540,600 34,500 Lomak Petroleum, Inc.(c) . . . . . . . 590,812 12,300 Vintage Petroleum, Inc.(c) . . . . . . 424,350 ---------- 2,240,562 ---------- OIL--SERVICES--4.2% 38,100 Global Industries, Inc.(c) . . . . . . 709,612 54,100 Pride Petroleum Services, Inc.(c) . . 1,257,825 16,100 Seitel, Inc.(c) . . . . . . . . . . . 644,000 33,200 Tuboscope Vetco International Corp.(c) . . . . . . . . . . . . . . 514,600 22,100 Weatherford Enterra, Inc.(c) . . . . . 663,000 ---------- 3,789,037 ---------- PAPER PRODUCTS--0.4% 10,000 Caraustar Industries, Inc. . . . . . . 332,500 ---------- REAL-ESTATE INVESTMENT TRUSTS--7.2% 25,500 Brandywine Realty Trust . . . . . . . 497,250 21,800 Cali Realty Corp. . . . . . . . . . . 673,075 52,400 Capstone Capital Corp.(c) . . . . . . 1,172,450 46,000 Koger Equity, Inc.(c) . . . . . . . . 862,500 42,100 Liberty Property . . . . . . . . . . . 1,084,075 27,600 Patriot American Hospitality(c) . . . 1,190,250 27,000 Sun Communities, Inc. . . . . . . . . 931,500 ---------- 6,411,100 ---------- RETAIL--GENERAL MERCHANDISE--1.6% 49,000 Family Dollar Stores, Inc. . . . . . . 998,375 25,000 99 Cents Only Stores(c) . . . . . . . 409,375 ---------- 1,407,750 ---------- RETAIL--SPECIALTY--3.3% 32,000 Carson Pirie Scott & Co.(c) . . . . . 808,000 40,650 Cato Corp.(c) . . . . . . . . . . . . 203,250 34,100 Cole National Corp.(c) . . . . . . . . 895,125 36,600 Tandycrafte, Inc.(c) . . . . . . . . . 219,600 41,300 Zale Corp.(c) . . . . . . . . . . . . 789,862 ---------- 2,915,837 ---------- TELECOMMUNICATIONS--2.1% 53,000 Alliant Communications, Inc. . . . . . 901,000 33,200 Inter Tel, Inc.(c) . . . . . . . . . . 630,800 21,000 Vertex Communications Corp.(c) . . . . 380,626 ---------- 1,912,426 ---------- TEXTILE & APPAREL--0.8% 15,000 Kenneth Cole Productions CLA(c) . . . 232,500 44,400 Stride Rite Corp. . . . . . . . . . . 444,000 ---------- 676,500 ----------
See accompanying notes to financial statements. 3 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES SMALL CAP SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
COMMON STOCKS--(CONTINUED) SHARES VALUE (A) UTILITIES--ELECTRIC--1.2% 51,700 Calpine Corp. (c) . . . . . . . . . $ 1,034,000 ----------- Total Common Stocks (Identified Cost $68,222,622). . . . . . . . . . . . 78,429,230 -----------
SHORT-TERM INVESTMENTS--12.9% FACE AMOUNT $4,121,000 Repurchase Agreement with State Street Bank & Trust Company dated 12/31/96 at 4.750% to be repurchased at $4,122,087 on 1/02/97 collateralized by $3,835,000 U.S. Treasury Bond 7.250% due 8/15/22 valued at $4,205,319 . . . . . . . . . . . . . . . . 4,121,000 4,100,000 Chevron Oil Finance Co. 5.350%, 1/02/97 . . . . . . . . . . . . . 4,100,000 3,300,000 Exxon Asset Management 6.250%, 1/02/97 . . . . . . . . . . . . . 3,300,000 ----------- Short-Term Investments (Identified Cost $11,521,000) . . . . . . 11,521,000 ----------- Total Investments--100.8% (Identified Cost $79,743,622)(b) . . . . . 89,950,230 Other assets less liabilities . . . . . . . (756,205) ----------- TOTAL NET ASSETS--100% . . . . . . . . . . $89,194,025 ===========
(a) See Note 1A. (b) Federal Tax Information: At December 31, 1996 the net unrealized appreciation on investments based on cost of $79,776,544 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 . . . . . . . . . . $11,583,498 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value . . . . . . . . . . (1,409,812) ----------- Net unrealized appreciation. . . . . . . . . $10,173,686 ===========
(c) Non-income Producing Security See accompanying notes to financial statements. 4 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES SMALL CAP SERIES)
STATEMENT OF ASSETS & LIABILITIES DECEMBER 31, 1996 ASSETS Investments at value . . . . . . . . . $89,950,230 Cash . . . . . . . . . . . . . . . . . 4,302 Receivable for: Fund shares sold . . . . . . . . . . . 601,019 Securities sold . . . . . . . . . . . 307,835 Dividends and interest . . . . . . . . 91,955 ----------- 90,955,341 LIABILITIES Payable for: Securities purchased . . . . . . . . . $1,513,473 Fund shares redeemed . . . . . . . . . 130,505 Accrued expenses: Management fees . . . . . . . . . . . 85,761 Deferred trustees' fees . . . . . . . 291 Other expenses . . . . . . . . . . . . 31,286 ---------- 1,761,316 ----------- $89,194,025 =========== NET ASSETS Net Assets consist of: Capital paid in . . . . . . . . . . . $78,276,114 Undistributed net investment income . 9,342 Accumulated net realized gains . . . . 701,961 Unrealized appreciation on investments . . . . . . . . . . . . . 10,206,608 ----------- NET ASSETS . . . . . . . . . . . . . . . $89,194,025 =========== Computation of offering price: Net asset value and redemption price per share ($89,194,025 divided by 618,171 shares of beneficial interest) . . . . $ 144.29 =========== Identified cost of investments . . . . . $79,743,622 ===========
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME Dividends . . . . . . . . . . . . $ 717,775 Interest . . . . . . . . . . . . . 380,416 ----------- 1,098,191 EXPENSES Management fees . . . . . . . . . $ 506,292 Trustees' fees and expenses . . . 10,713 Custodian . . . . . . . . . . . . 73,049 Audit and tax services . . . . . . 13,200 Legal . . . . . . . . . . . . . . 11,564 Printing . . . . . . . . . . . . . 28,409 Miscellaneous . . . . . . . . . . 8,418 --------- Total expenses . . . . . . . . . 651,645 Less expenses assumed by the investment adviser . . . . . . (145,353) 506,292 --------- ----------- NET INVESTMENT INCOME . . . . . . . 591,899 REALIZED AND UNREALIZED GAIN ON INVESTMENTS Realized gain on: Investments--net . . . . . . . . 5,566,031 Unrealized appreciation on: Investments--net . . . . . . . . 7,966,226 ----------- Net gain on investment transactions 13,532,257 ----------- NET INCREASE IN NET ASSETS FROM OPERATIONS . . . . . . . . . . . . $14,124,156 ===========
See accompanying notes to financial statements. 5 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES SMALL CAP SERIES)
STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1995 1996 ------------ --------------- FROM OPERATIONS Net investment income . . . . . . . . . . . . $ 186,550 $ 591,899 Net realized gain on investments . . . . . . . 1,462,220 5,566,031 Unrealized appreciation on investments . . . . 2,281,753 7,966,226 ----------- ------------ INCREASE IN NET ASSETS FROM OPERATIONS . . . . 3,930,523 14,124,156 ----------- ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income . . . . . . . . . . . . (171,695) (597,412) Net realized gain on investments . . . . . . . (1,055,203) (5,269,235) ----------- ------------ (1,226,898) (5,866,647) ----------- ------------ FROM CAPITAL SHARES TRANSACTIONS Proceeds from sale of shares . . . . . . . . . 25,462,402 66,168,269 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income . . 171,695 597,412 Distributions from net realized gain . . . . 1,055,203 5,269,235 ----------- ------------ 26,689,300 72,034,916 Cost of shares redeemed . . . . . . . . . . . (4,756,656) (18,839,546) ----------- ------------ INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS. . . . . . . . . . . . . . 21,932,644 53,195,370 ----------- ------------ TOTAL INCREASE IN NET ASSETS . . . . . . . . . 24,636,269 61,452,879 NET ASSETS Beginning of the year . . . . . . . . . . . . 3,104,877 27,741,146 ----------- ------------ End of the year . . . . . . . . . . . . . . . $27,741,146 $ 89,194,025 =========== ============ UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the year . . . . . . . . . . . . $ 0 $ 14,855 =========== ============ End of the year . . . . . . . . . . . . . . . $ 14,855 $ 9,342 =========== ============ NUMBER OF SHARES OF THE FUND: Issued from the sale of shares . . . . . . . . 234,111 482,269 Issued in connection with the reinvestment of: Distributions from net investment income . . 1,477 7,195 Distributions from net realized gain . . . . 9,076 34,411 ----------- ------------ 244,664 523,875 Redeemed . . . . . . . . . . . . . . . . . . . (43,301) (139,206) ----------- ------------ Net change . . . . . . . . . . . . . . . . . . 201,363 384,669 =========== ============
FINANCIAL HIGHLIGHTS MAY 2, 1994(A) THROUGH YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 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 1.05 Net Realized and Unrealized Gain (Loss) on Investments . . . . (3.38) 26.93 35.03 ------- ------- ------- Total From Investment Operations . . . . . . . . . . (3.24) 27.78 36.08 ------- ------- ------- Less Distributions Dividends From Net Investment Income . . . . . . . . . . . . (0.15) (0.78) (1.03) Distributions From Net Realized Capital Gains . . . . . . . . 0.00 (4.81) (9.56) ------- ------- ------- Total Distributions . . . . . . (0.15) (5.59) (10.59) ------- ------- ------- Net Asset Value, End of Period . . . . . . . . . . . . $ 96.61 $118.80 $144.29 ======= ======= ======= TOTAL RETURN (%) . . . . . . . . (3.23)(c) 28.88 30.67 Ratio of Operating Expenses to Average Net Assets (%) . . . . 1.00 (b) 1.00 1.00 Ratio of Net Investment Income to Average Net Assets (%) . . . . 0.32 (b) 1.26 1.15 Portfolio Turnover Rate (%) . . 80 (b) 98 62 Average Commission Rate (d) . . -- -- $0.0568 Net Assets, End of Period (000) . . . . . . . . . $ 3,105 $27,741 $89,194 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 1.29
(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. 6 DRAYCOTT INTERNATIONAL EQUITY SERIES* PORTFOLIO MANAGERS: NICHOLAS CARN, TIMOTHY GRIFFEN, GREGORY ECKERSLEY AND NIGEL HANKIN DRAYCOTT PARTNERS, LTD. [PHOTOS OF NICHOLAS CARN, TIM GRIFFEN, GREGORY ECKERSLEY AND NIGEL HANKIN] Q. HOW DID THE DRAYCOTT INTERNATIONAL EQUITY SERIES PERFORM IN 1996? A. The Series generated 6.67% total return for the year ended December 31, 1996, this compares favorably to the Morgan Stanley Capital Europe Australasia Far East (EAFE) Index/2/, which returned 6.36% for the same period. The Series' performance was most influenced by its relatively large exposure to the Japanese stock market. The perception that the Japanese domestic economy was weakening as the fiscal stimulus of the first quarter subsided, caused the stock market to deteriorate once again in the second half. In addition, the Japanese stocks in the Series' portfolio as a whole underperformed the Japanese broad market indexes. European markets, however, staged a second half recovery from a weak showing at the beginning of the year. The world economy continued to register steady non-inflationary growth, due in part to the desynchronization of the European and Japanese economies and also to the continued slow, steady growth of the U.S. economy. It should be noted that exposure to the UK, Spain and Italy benefited performance as interest rates fell further. Unprecedented earnings growth and a decline in long-term interest rates in Japan during the year slowed the Japanese stock market. This environment contrasts sharply to the U.S. stock market, where earnings growth slowed, long term interest rates rose and fell, and the equity risk premium declined to historical lows. Consequently, we believe that the underperformance of the Japanese stock market in 1996 is mostly attributable to an unprecedented rise in equity risk premiums. Q. HOW DID YOU MANAGE THE SERIES IN 1996? A. Through the first half of the year we maintained a weighting in Japan below that of the EAFE Index, the Series was overweighted in the UK and underweighted in East Asia, while we kept our continental European holdings broadly in line with the EAFE Index. In the Fall, we increased our investments in Japan, primarily because of lower stock market performance and signs of improvement in the Japanese economy. Q. WHAT IS YOUR INVESTMENT OUTLOOK FOR THE MONTHS AHEAD?* A. Global monetary policy is currently very accommodative and global interest rates are at twenty-year lows. Some of the challenges facing the world economy--continuing balance-sheet problems in Japan, high labor costs and rigid labor markets in Europe, together with the legacy of exchange rate overvaluation and the prospect of tight fiscal policy to remedy the effects of the long recession in Japan and the wish to meet the Maastricht criteria in Europe. We believe that this policy mix generally favors world stock markets in the coming months. The discount rate applied to future earnings is likely to remain low while an environment of low economic volatility favors companies restructuring efforts. * On January 22, 1997, the Board of Trustees of New England Zenith Fund approved a new subadvisory agreement relating to the Draycott International Equity Series between TNE Advisers, Inc. and Morgan Stanley Asset Management Inc. ("MSAM"). This new agreement, is expected to become effective May 1, 1997 (subject to shareholder approval). Under this new agreement MSAM would become subadviser of the Series, succeeding Draycott Partners, Ltd. and would be responsible for the day to day management of the Series. The new name of the Series will be Morgan Stanley International Magnum Equity Series. 7
International Equity Series EAFE 10/31/94 10000 10000 1994 10260 9555 1995 10879 10455 1996 11627 10915
FUND FACTS GOAL: Total return from long-term growth of capital and dividend income, primarily through investment in international equity securities. START DATE: October 31, 1994 SIZE: $39 million as of December 31, 1996 MANAGERS: Nicholas Carn, Timothy Griffen, Gregory Eckersley and Nigel Hankin have served as portfolio managers since the Series' inception in 1994. Each have also served as portfolio manager of New England International Equity Fund since 1991. They also have managed the Maxim Series Fund--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. 8 NEW ENGLAND ZENITH FUND (DRAYCOTT INTERNATIONAL EQUITY SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
COMMON STOCKS--93.3% OF TOTAL NET ASSETS SHARES VALUE (A) AUSTRALIA--4.8% 28,800 Australian & New Zealand Bank Group, 144A(d) . . . . . . . . . . . . . . . . . $ 181,531 28,900 Boral Ltd. . . . . . . . . . . . . . . . . 82,237 9,200 Broken Hill Proprietary Co., 144A(d) . . . 131,042 18,100 Capral Aluminum . . . . . . . . . . . . . . 57,547 40,250 Fairfax, John . . . . . . . . . . . . . . . 91,179 8,200 Lend Lease Corp., 144A(d) . . . . . . . . . 159,033 29,500 News Corp. . . . . . . . . . . . . . . . . 155,695 21,800 Normandy Mining Ltd. . . . . . . . . . . . 7,278 100,400 Normandy Mining Ltd. Warrants . . . . . . . 138,857 50,400 North Ltd. . . . . . . . . . . . . . . . . 147,422 81,000 Oil Search Ltd. . . . . . . . . . . . . . . 157,738 48,000 QNI Limited . . . . . . . . . . . . . . . . 96,527 27,400 Southcorp Holdings Ltd. . . . . . . . . . . 87,115 9,000 Wesfarmers . . . . . . . . . . . . . . . . 62,952 31,100 Westpac Bank Corp. . . . . . . . . . . . . 176,994 26,500 WMC Ltd. . . . . . . . . . . . . . . . . . 167,034 ---------- 1,900,181 ---------- BELGIUM--1.2% 3,630 Delhaize Le Lion, 144A(d) . . . . . . . . . 215,666 1,270 Glaverbel . . . . . . . . . . . . . . . . . 147,504 740 Powerfin . . . . . . . . . . . . . . . . . 113,120 ---------- 476,290 ---------- DENMARK--0.8% 1,300 BG Bank . . . . . . . . . . . . . . . . . . 60,909 2,000 Crisplant Industries . . . . . . . . . . . 96,761 6,470 ISS International Service Systems, 144A(d) . . . . . . . . . 170,240 ---------- 327,910 ---------- FINLAND--2.1% 2,535 Huhtamaki OY . . . . . . . . . . . . . . . 117,933 7,720 Kesko . . . . . . . . . . . . . . . . . . . 108,919 870 Kone Corp. . . . . . . . . . . . . . . . . 96,078 1,800 Metra AB . . . . . . . . . . . . . . . . . 101,348 2,200 Raison Tehtaat . . . . . . . . . . . . . . 138,696 12,860 UPM Kymmene OY . . . . . . . . . . . . . . 269,780 ---------- 832,754 ---------- GERMANY--8.6% 3,630 Adidas AG . . . . . . . . . . . . . . . . . 313,745 180 Bayer Motoren Werk . . . . . . . . . . . . 125,513 190 Boss Hugo AG . . . . . . . . . . . . . . . 238,673 3,950 Deutsche Telekom . . . . . . . . . . . . . 83,297 3,460 Henkel Kgaa . . . . . . . . . . . . . . . . 173,810 11,350 Hoechst AG . . . . . . . . . . . . . . . . 536,226 23,850 Lufthansa AG, 144A(d) . . . . . . . . . . . 325,481 1,130 Mannesmann AG,144A(d) . . . . . . . . . . . 489,804 1,200 Preussag AG . . . . . . . . . . . . . . . . 271,770 1,590 SGL Carbon, 144A(d) . . . . . . . . . . . . 200,455 6,350 Tarkett AG . . . . . . . . . . . . . . . . 126,686 8,510 Veba AG . . . . . . . . . . . . . . . . . . 492,195 ---------- 3,377,655 ----------
SHARES VALUE (A) GREAT BRITAIN--26.8% 42,400 BAA . . . . . . . . . . . . . $ 351,578 47,400 BTR . . . . . . . . . . . . . 231,437 23,000 BPB . . . . . . . . . . . . . 151,311 48,350 Barclays . . . . . . . . . . . 828,751 23,200 Bass . . . . . . . . . . . . . 326,716 29,450 British Aerospace . . . . . . 644,802 28,400 British Petroleum . . . . . . 340,586 29,700 British Sky Broadcasting . . . 265,606 45,850 British Telecommunication . . 310,275 35,700 Cadbury Schweppes . . . . . . 301,527 40,000 Caradon PLC . . . . . . . . . 164,468 31,675 Carlton Communications . . . . 277,624 10,765 EMI Group . . . . . . . . . . 254,463 35,900 General Electric Co. PLC . . . 235,561 27,850 Glaxo Wellcome . . . . . . . . 453,272 29,300 Greenalls Group . . . . . . . 295,158 177,450 Hanson . . . . . . . . . . . . 249,287 39,100 IMI . . . . . . . . . . . . . 250,529 35,700 J. Sainsbury . . . . . . . . . 236,695 116,800 Ladbroke Group . . . . . . . . 464,239 80,650 National Grid Group . . . . . 269,432 19,750 National Westminster . . . . . 232,114 98,250 Orange . . . . . . . . . . . . 318,130 19,850 Pearson . . . . . . . . . . . 253,354 62,200 Rank Group . . . . . . . . . . 466,740 29,920 Reed International . . . . . . 562,826 17,750 Reuters Holdings . . . . . . . 228,223 16,520 Shell Transportation & Trading . . . . . . . . . . . 286,418 18,450 Smithkline Beecham . . . . . . 255,398 98,400 Telewest Communication . . . . 208,196 44,150 Ti Group . . . . . . . . . . . 437,945 89,100 Toxkins . . . . . . . . . . . 412,147 ----------- 10,564,808 ----------- ITALY--3.4% 73,250 BCA Fideuram SPA . . . . . . . 161,034 83,000 ENI Spa . . . . . . . . . . . 425,943 28,700 Edison . . . . . . . . . . . . 181,621 51,950 Saipem, 144A(d) . . . . . . . 239,032 90,800 Stet . . . . . . . . . . . . . 306,757 ----------- 1,314,387 ----------- JAPAN--28.6% 23,000 Asahi Glass Co. . . . . . . . 216,475 22,000 Dai Nippon Printing . . . . . 385,632 87,000 Daiwa Bank . . . . . . . . . . 454,494 9,000 Daiwa Securities, 144A(d) . . 80,045 16,000 Denso Corp. . . . . . . . . . 385,459 72 East Japan Railway, 144A(d) . 323,910 26,000 Fuji Bank . . . . . . . . . . 379,415 1,000 Hitachi . . . . . . . . . . . 9,326 151,000 Hokkaido Takushoku, 144A(d) . 293,368 67,000 Ishikawajima Har . . . . . . . 297,945 18,000 Kirin Brewery Co. . . . . . . 177,187
See accompanying notes to financial statements. 9 NEW ENGLAND ZENITH FUND (DRAYCOTT INTERNATIONAL EQUITY SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
COMMON STOCKS--(CONTINUED) SHARES VALUE (A) JAPAN--(CONTINUED) 26,000 Matsushita Electronic Industries, 144A(d) . . . . . . . . . . . . . . . . . $ 424,316 21,000 Mitsubishi Corp., 144A(d) . . . . . . . . 217,598 40,000 Mitsubishi Chemical . . . . . . . . . . . 129,522 21,000 Mitsubishi Logistic . . . . . . . . . . . 271,997 23,000 Mitsubishi Heavy Industry, Ltd., 144A(d) . 182,713 23,000 Mitsui & Co. . . . . . . . . . . . . . . . 186,685 43,000 Mitsukoshi . . . . . . . . . . . . . . . . 305,207 21,000 Mitsui Fudosan Co., 144A(d) . . . . . . . 210,344 7,000 Nintendo Co. . . . . . . . . . . . . . . . 501,079 70,000 Nippon Credit Bank . . . . . . . . . . . . 184,354 93,000 Nippon Steel Corp. . . . . . . . . . . . . 274,639 31 Nippon Telephone & Telegraph Corp. . . . . 235,023 16,000 Nomura Securities . . . . . . . . . . . . 240,394 43,000 Odakyu Electric Railway . . . . . . . . . 258,052 18,000 Onward Kashiyama . . . . . . . . . . . . . 253,346 96,000 Osaka Gas Co. . . . . . . . . . . . . . . 262,775 23,000 Ricoh Co. . . . . . . . . . . . . . . . . 264,139 21,000 Sakura Bank . . . . . . . . . . . . . . . 150,142 21,000 Sanwa Bank, 144A(d) . . . . . . . . . . . 286,504 36,000 Sato Kogyo Co. . . . . . . . . . . . . . . 125,585 9,000 Secom Co. . . . . . . . . . . . . . . . . 544,772 5,000 Sony Corp. . . . . . . . . . . . . . . . . 327,692 12,000 Sumitomo Bank, 144A(d) . . . . . . . . . . 173,042 1,000 Sumitomo Marine & Fire, 144A(d) . . . . . 6,217 39,000 Taisei Corp. . . . . . . . . . . . . . . . 202,055 17,000 Takashimaya Co. . . . . . . . . . . . . . 204,041 34,000 Tokai Bank . . . . . . . . . . . . . . . . 355,237 20,000 Tokyo Electric Power Co. . . . . . . . . . 438,649 23,000 Toto . . . . . . . . . . . . . . . . . . . 262,154 8,000 Toyota Motor Corp. . . . . . . . . . . . . 230,032 26,000 Yakult Honsha Co. . . . . . . . . . . . . 269,407 65,000 Yasuda Trust & Banking . . . . . . . . . . 275,581 ----------- 11,256,549 ----------- NETHERLANDS--4.2% 2,250 ABN Amro Holdings NV . . . . . . . . . . . 146,481 1,060 Akzo Nobel NV . . . . . . . . . . . . . . 144,894 1,800 CSM NV . . . . . . . . . . . . . . . . . . 100,087 16,200 Fortis Amev NV . . . . . . . . . . . . . . 567,680 2,300 Kon Ahrend NV . . . . . . . . . . . . . . 128,289 13,600 Vendex International . . . . . . . . . . . 582,126 ----------- 1,669,557 ----------- NORWAY--2.1% 13,100 Benor Tankers. . . . . . . . . . . . . . . 85,394 4,500 Narvesen ASA . . . . . . . . . . . . . . . 132,700 2,000 Orkla ASA . . . . . . . . . . . . . . . . 138,132 10,000 Schibsted ASA . . . . . . . . . . . . . . 182,366 9,450 Smedvig . . . . . . . . . . . . . . . . . 192,136 7,400 Unitor A/S . . . . . . . . . . . . . . . . 94,178 ----------- 824,906 ----------- SPAIN--3.5% 2,880 Abengoa SA . . . . . . . . . . . . . . . . 99,827 10,250 Autupistas del Mare . . . . . . . . . . . 161,063 7,200 BCO Santander SA . . . . . . . . . . . . . 460,866
SHARES VALUE (A) 65,250 Corp Fin Reunido . . . . . . . . . . . . . $ 214,107 4,300 Repsol SA . . . . . . . . . . . . . . . . . 164,945 4,000 Tabacalera SA . . . . . . . . . . . . . . . 172,232 6,800 Viscofan Envoltura . . . . . . . . . . . . 99,519 ----------- 1,372,559 ----------- SWEDEN--0.4% 8,300 Scandic Hotels AB . . . . . . . . . . . . . 138,741 ----------- SWITZERLAND--6.8% 425 Alusuisse Lonza HD . . . . . . . . . . . . 338,793 907 Adecco SA . . . . . . . . . . . . . . . . . 227,682 79 Baloise Holdings . . . . . . . . . . . . . 158,767 250 Danzas Holding . . . . . . . . . . . . . . 277,363 244 Nestle SA . . . . . . . . . . . . . . . . . 261,956 227 Novartis AG . . . . . . . . . . . . . . . . 259,986 52 Roche Holdings AG . . . . . . . . . . . . . 404,617 172 Schindler Holdings AG . . . . . . . . . . . 186,971 227 Swissair . . . . . . . . . . . . . . . . . 183,669 2,400 Tag Heuer . . . . . . . . . . . . . . . . . 387,299 ----------- 2,687,103 ----------- Total Common Stocks (Identified Cost $34,842,843) . . . . . . 36,743,400 -----------
SHORT-TERM INVESTMENT--2.1% FACE AMOUNT $845,000 Repurchase agreement with State Street Bank & Trust Company dated 12/31/96 at 4.750% to be repurchased at $845,223 on 1/02/97 collateralized by $675,000 U.S. Treasury Notes 8.875% due 8/15/17 with a value of $865,055 . . . . . . . . . . . . . . . . . . 845,000 ----------- Total Short-Term Investment (Identified Cost $845,000) . . . . . . . . . 845,000 ----------- Total Investments--95.4% (Identified Cost $35,687,843)(b) . . . . . . 37,588,400 Other assets less liabilities(c) . . . . . . 1,803,786 ----------- TOTAL NET ASSETS--100% . . . . . . . . . . . $39,392,186 ===========
(a) See Note 1a. (b) Federal Tax Information: At December 31,1996 the net unrealized appreciation on investments based on cost of $35,771,235 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 . . . . . . . . . . . . . $ 3,909,393 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value . . . . . . . . . . . . . . . (2,092,228) ----------- Net unrealized appreciation . . . . . . . . . . $ 1,817,165 ===========
(c) Including deposits in foreign denominated currencies with a value of $1,642,744 and a cost of $1,640,556. (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. See accompanying notes to financial statements. 10 NEW ENGLAND ZENITH FUND (DRAYCOTT INTERNATIONAL EQUITY SERIES)
STATEMENT OF ASSETS & LIABILITIES DECEMBER 31, 1996 ASSETS Investments at value . . . . . . . . . . $37,588,400 Cash . . . . . . . . . . . . . . . . . . 716 Foreign cash at value (Cost $1,640,556) . . . . . . . . . . . 1,642,744 Receivable for: Fund shares sold . . . . . . . . . . . 178,332 Securities sold . . . . . . . . . . . . 162,550 Dividends and interest . . . . . . . . 46,471 Foreign taxes . . . . . . . . . . . . . 9,279 Unamortized organization expense . . . . 5,688 ----------- 39,634,180 LIABILITIES Payable for: Securities purchased . . . . . . . . . $ 42,498 Fund shares redeemed . . . . . . . . . 101,049 Withholding taxes . . . . . . . . . . . 5,779 Accrued expenses: Management fees . . . . . . . . . . . . 34,246 Deferred trustees' fees . . . . . . . . 277 Other expenses . . . . . . . . . . . . 58,145 -------- 241,994 ----------- $39,392,186 =========== NET ASSETS Net Assets consist of: Capital paid in . . . . . . . . . . . . $37,517,658 Overdistributed net investment income . (55,074) Accumulated net realized gain . . . . . 21,291 Unrealized appreciation on investments and foreign currency . . . . . . . . . 1,908,311 ----------- NET ASSETS . . . . . . . . . . . . . . . $39,392,186 =========== Computation of offering price: Net asset value and redemption price per share ($39,392,186 divided by 3,490,576 shares of beneficial interest) . . . . . $ 11.29 =========== Identified cost of investments . . . . . $35,687,843 ===========
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME Dividends . . . . . . . . . . . . . . . . $ 448,320(a) Interest . . . . . . . . . . . . . . . . 113,890 ---------- 562,210 EXPENSES Management fees . . . . . . . . . . . . . $ 256,659 Trustees' fees and expenses . . . . . . . 10,340 Custodian . . . . . . . . . . . . . . . . 145,265 Audit and tax services . . . . . . . . . 21,500 Legal . . . . . . . . . . . . . . . . . . 11,566 Printing . . . . . . . . . . . . . . . . 14,701 Amortization of organization expenses . . . . . . . . . . . . . . . . 2,017 Miscellaneous . . . . . . . . . . . . . . 11,335 ---------- Total expenses . . . . . . . . . . . . 473,383 Less expenses assumed by the investment adviser. . . . . . . . . . . . . . . . (102,652) 370,731 ---------- ---------- NET INVESTMENT INCOME . . . . . . . . . . 191,479 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS Realized gain (loss) on: Investments--net . . . . . . . . . . . . 727,827 Foreign currency transactions--net . . . (191,286) ---------- Net realized gain on investments and foreign currency transactions . . . . . 536,541 ---------- Unrealized appreciation (depreciation) on: Investments--net . . . . . . . . . . . . 1,298,183 Foreign currency transactions--net . . . (246,903) ---------- Net unrealized appreciation on investments and foreign currency transactions. . . . . . . . . . . . . . 1,051,280 ---------- Net gain on investment transactions . . . 1,587,821 ---------- NET INCREASE IN NET ASSETS FROM OPERATIONS $1,779,300 ==========
(a) Net of foreign taxes of: $68,624. See accompanying notes to financial statements. 11 NEW ENGLAND ZENITH FUND (DRAYCOTT INTERNATIONAL EQUITY SERIES)
STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1995 1996 ------------ -------------- FROM OPERATIONS Net investment income . . . . . . . . . . . . . $ 123,277 $ 191,479 Net realized gain (loss) on investments and foreign currency transactions . . . . . . . . (125,269) 536,541 Unrealized appreciation on investments and foreign currency transactions . . . . . . . . 798,519 1,051,280 ----------- ----------- INCREASE IN NET ASSETS FROM OPERATIONS . . . . 796,527 1,779,300 ----------- ----------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income . . . . . . . . . . . . . (123,277) (50,813) In excess of net investment income . . . . . . (48,516) 0 Net realized gain on investments . . . . . . . 0 (542,008) ----------- ----------- (171,793) (592,821) ----------- ----------- FROM CAPITAL SHARES TRANSACTIONS Proceeds from sale of shares . . . . . . . . . 16,189,698 30,118,413 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income . . . 171,793 50,813 Distributions from net realized gain . . . . . 0 542,008 ----------- ----------- 16,361,491 30,711,234 Cost of shares redeemed . . . . . . . . . . . . (3,707,935) (8,773,034) ----------- ----------- INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS . . . . . . . . . . . . . . 12,653,556 21,938,200 ----------- ----------- TOTAL INCREASE IN NET ASSETS . . . . . . . . . 13,278,290 23,124,679 NET ASSETS Beginning of the year . . . . . . . . . . . . . 2,989,217 16,267,507 ----------- ----------- End of the year . . . . . . . . . . . . . . . . $16,267,507 $39,392,186 =========== =========== OVERDISTRIBUTED NET INVESTMENT INCOME Beginning of the year . . . . . . . . . . . . . $ 0 $ (6,800) =========== =========== End of the year . . . . . . . . . . . . . . . . $ (6,800) $ (55,074) =========== =========== NUMBER OF SHARES OF THE FUND: Issued from the sale of shares . . . . . . . . 1,564,292 2,705,127 Issued in connection with the reinvestment of: Distributions from net investment income . . . 16,055 4,565 Distributions from net realized gain . . . . . 0 48,698 ----------- ----------- 1,580,347 2,758,390 Redeemed . . . . . . . . . . . . . . . . . . . (355,736) (784,531) ----------- ----------- Net change . . . . . . . . . . . . . . . . . . 1,224,611 1,973,859 =========== ===========
FINANCIAL HIGHLIGHTS OCTOBER 31, 1994 (A) THROUGH YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 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 0.06 Net Realized and Unrealized Gain (Loss) on Investments. . . . . . . 0.23 0.53 0.68 ------ ------- ------- Total From Investment Operations . . . . . . . 0.26 0.62 0.74 ------ ------- ------- Less Distributions Dividends From Net Investment Income . . . (0.02) (0.09) (0.02) Distributions in Excess of Net Investment Income . 0.00 (0.03) 0.00 Distributions From Net Realized Capital Gains . 0.00 0.00 (0.16) Distributions From Paid-in Capital. . . . . . . . . (0.01) 0.00 0.00 ------ ------- ------- Total Distributions . . . (0.03) (0.12) (0.18) ------ ------- ------- Net Asset Value, End of Period. . . . . . . . . . $10.23 $ 10.73 $ 11.29 ====== ======= ======= TOTAL RETURN (%) . . . . . 2.60(c) 6.03 6.67 Ratio of Operating Expenses to Average Net Assets (%) . . . . . . . 1.30(b) 1.30 1.30 Ratio of Net Investment Income to Average Net Assets (%) . . . . . . . 2.56(b) 1.29 0.67 Portfolio Turnover Rate (%) . . . . . . . . 4(b) 89 64 Average Commission Rate (d) . . . . . . . . -- -- $0.0204 Net Assets, End of Period (000) . . . . . . $2,989 $16,268 $39,392 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 1.66
(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. 12 ALGER EQUITY GROWTH SERIES PORTFOLIO MANAGER: DAVID D. ALGER FRED ALGER MANAGEMENT, INC. [PHOTO OF DAVID D. ALGER] Q. HOW DID THE ALGER EQUITY GROWTH SERIES PERFORM IN 1996? A. 1996 proved to be an interesting and turbulent time in the market. In January, the Alger Equity Growth Series was coming off an extraordinary year, having significantly outperformed all relevant major market indices. During the past twelve months, however, it has been much more difficult to outperform the market. Although the portfolio posted a positive return of 13.17%, it lagged its benchmark index, the S&P 500 Index/19/, which returned 22.90% for the year. In a sense, this past year has been almost a cycle. We began with the assumption that the economy was exceedingly weak, went through a period from mid-March to late October during which the popular view was that the economy was too strong, and then moved back in the direction to close the year where we began it. The economic uncertainty which existed throughout most of the year resulted in defensive positioning of investors. Consequently, there was a flight to blue-chip stocks. Therefore, both the Dow Jones Industrial Average and the S&P 500 Index/ /enjoyed very strong years. It appears that the performance of the S&P 500 was primarily driven by a handful of blue-chip type stocks noted for stable and predictable earnings growth. The portfolio typically invests in stocks of companies that are expected to grow their earnings at a faster rate (25% and above). Thus, the portfolio did not perform as well as funds largely investing in blue chip companies or broad market indices. In addition, many of the growth stocks the portfolio invested in were hit more severely during the sell off in July and recovered less impressively. Q. HOW DID YOU MANAGE THE SERIES IN 1996? A. Although there were shifts within the portfolio, our strategy remained consistent, emphasizing the individual selection of quality growth stocks through in-depth, internal research conducted by talented analysts. At no time during the course of the year did we stray from the philosophy and process that have driven our long term success as an investment manager. One specific area which contributed to underperformance was our failure to foresee the earnings collapse of the HMO's. As a result, many medical technology companies we owned did very poorly after the first quarter. Although the portfolio remained diversified, owning many stocks across numerous sectors, several key holdings impacted performance. Intel and Adaptec, for instance, performed exceptionally well in spite of significant volatility within their sector. Glenayre Technologies, which the portfolio held at year end, fell victim to this volatility, and performance was disappointing. Q. WHAT IS YOUR INVESTMENT OUTLOOK FOR THE MONTHS AHEAD? A. The good news is that we feel that the factors which have contributed to our recent performance are now behind us, setting the stage for a strong rebound in 1997. We continue to maintain that economic growth is not overly robust. Factors which support our belief include a recent drop in the price of gold, the rising dollar and slowing corporate profits. We contend that the stock market continues to be undervalued relative to the bond market. Furthermore, we feel that growth stocks are undervalued relative to the rest of the stock market. Currently, good quality growth stocks, which typically trade in the range of 1.5 to 2.5 times the market multiple, are trading at 1.3 times based on our 1997 estimated earnings per share: below the low-end of the historical range. In other words, investors are paying only a very small premium for quality growth stocks, such as those in the portfolio. As it becomes clearer in the months ahead that the economy is expanding at a noninflationary, steady pace, we expect that investor confidence will rebound and premiums for growth stocks will expand. This should translate into strong performance potential for the portfolio. 13
Alger Equity Growth Series S&P 500 10/31/94 10000 10000 1994 9580 9794 1995 14245 13461 1996 16122 16544
FUND FACTS GOAL: Long-term capital appreciation. START DATE: October 31, 1994 SIZE: $120 million as of December 31, 1996 MANAGER: David D. Alger, President and Chief Financial Officer (since 1975), Executive Vice President, portfolio Manager and Director of Research (since 1971), Fred Alger Management, Inc.; Portfolio Manager, The Alger Growth Portfolio (since 1986), The Alger American Fund Growth Portfolio (since 1989) and the 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. 14 NEW ENGLAND ZENITH FUND (ALGER EQUITY GROWTH SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
COMMON STOCKS--93.9% OF TOTAL NET ASSETS SHARES VALUE (A) AEROSPACE--3.4% 25,700 Boeing Co. . . . . . . . . . . $ 2,733,837 31,500 Gulfstream Aerospace Corp. New(c) . . . . . . . . . . . . . 763,875 9,100 United Technologies Corp. . . . 600,600 ------------ 4,098,312 ------------ APPAREL--0.6% 15,000 Tommy Hilfiger Corp.(c) . . . . . 720,000 ------------ BANKS--5.3% 28,000 Chase Manhattan Corp. . . . . . 2,499,000 37,900 Citicorp . . . . . . . . . . . . 3,903,700 ------------ 6,402,700 ------------ BIO TECHNOLOGY--0.7% 10,300 Amgen, Inc.(c) . . . . . . . . . 560,063 6,000 Biochem Pharmacy, Inc.(c) . . . . 301,500 ------------ 861,563 ------------ BUILDING & CONSTRUCTION--0.8% 17,200 Case Corp. . . . . . . . . . . 937,400 ------------ CASINOS & RESORTS--0.7% 40,000 Mirage Resorts, Inc. . . . . . 865,000 ------------ CHEMICALS--2.6% 14,100 Avery Dennison Corp. . . . . . 498,788 68,500 Monsanto Co. . . . . . . . . . 2,662,937 ------------ 3,161,725 ------------ COMMUNICATIONS--4.4% 14,300 LCI International, Inc.(c) . . . 307,450 9,000 Lucent Technologies, Inc. . . . 416,250 12,400 Nokia Corp. . . . . . . . . . . 714,550 16,000 PictureTel Corp.(c) . . . . . . 416,000 18,000 QUALCOMM, Inc.(c) . . . . . . . 717,750 18,500 Telecomunicacoes Brasileiras . . 1,415,250 48,700 Worldcom, Inc.(c) . . . . . . . . 1,269,244 ------------ 5,256,494 ------------ COMMUNICATIONS EQUIPMENT--6.3% 19,300 Ascend Communications, Inc.(c) . 1,199,013 12,200 Cascade Communications Corp.(c) . . . . . . . . . . . . 672,525 59,000 Cisco Systems, Inc.(c) . . . . . 3,753,875 20,000 Glenayre Technologies, Inc.(c) . 431,250 13,200 PairGain Technologies, Inc. . . 401,775 30,800 Tellabs, Inc.(c) . . . . . . . . 1,158,850 ------------ 7,617,288 ------------ COMPUTER RELATED & BUSINESS EQUIPMENT--6.0% 82,502 First Data Corp. . . . . . . . 3,011,323 39,000 Ingram Micro, Inc.(c) . . . . . 897,000 48,600 Sun Microsystems, Inc. . . . . 1,248,413 28,500 3Com Corp.(c) . . . . . . . . . . 2,091,187 ------------ 7,247,923 ------------
SHARES VALUE (A) COMPUTER SERVICES--0.4% 16,200 SABRE Group Holdings, Inc.(c) . . . . $ 451,575 ------------ COMPUTER SOFTWARE--4.9% 9,400 Computer Associates International, Inc. . . . . . . . . . . . . . . . . 467,650 25,000 Compuware Corp.(c) . . . . . . . . . . . 1,253,125 54,900 Informix Corp.(c) . . . . . . . . . . . 1,118,588 28,600 Microsoft Corp. . . . . . . . . . . . 2,363,075 12,400 Parametric Technology Corp. . . . . . 637,050 ------------ 5,839,488 ------------ COMPUTER TECHNOLOGY--2.4% 71,500 Adaptec, Inc.(c) . . . . . . . . . . . . 2,860,000 ------------ CONSUMER PRODUCTS--4.3% 50,750 CUC International, Inc.(c) . . . . . . . 1,205,312 11,000 Colgate Palmolive Co. . . . . . . . . 1,014,750 39,500 Nike, Inc. . . . . . . . . . . . . . . 2,360,125 12,000 Tyco International, Ltd. . . . . . . . 634,500 ------------ 5,214,687 ------------ CONGLOMERATE--2.0% 24,500 General Electric Co. . . . . . . . . . 2,422,437 ------------ DEFENSE--1.8% 3,000 Lockheed Martin Corp. . . . . . . . . 274,500 45,400 Sundstrand Corp. . . . . . . . . . . . 1,929,500 ------------ 2,204,000 ------------ ELECTRONICS--1.1% 26,300 Hewlett-Packard Co. . . . . . . . . . 1,321,575 ------------ ENERGY & ENERGY SERVICES--3.1% 19,000 Halliburton Co. . . . . . . . . . . . 1,144,750 18,500 Schlumberger, Ltd. . . . . . . . . . . 1,847,687 15,000 Tidewater, Inc. . . . . . . . . . . . 678,750 ------------ 3,671,187 ------------ FINANCE--5.3% 29,400 American International Group, Inc. . . 3,182,550 39,500 Green Tree Financial Corp. . . . . . . 1,525,687 13,000 MBNA Corp. . . . . . . . . . . . . . . 539,500 39,300 Money Store, Inc. . . . . . . . . . . 1,085,663 ------------ 6,333,400 ------------ FINANCIAL SERVICES--1.9% 37,700 Charles Schwab Corp. . . . . . . . . . 1,206,400 35,000 Equifax, Inc. . . . . . . . . . . . . 1,071,875 ------------ 2,278,275 ------------ FOOD CHAINS--0.5% 14,000 Safeway, Inc. . . . . . . . . . . . . 598,500 ------------ HEALTH CARE--8.9% 11,000 Boston Scientific Corp.(c) . . . . . . 660,000 45,500 Columbia/HCA Healthcare Corp. . . . . 1,854,125
See accompanying notes to financial statements. 15 NEW ENGLAND ZENITH FUND (ALGER EQUITY GROWTH SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
COMMON STOCKS--(CONTINUED) SHARES VALUE (A) HEALTH CARE--(CONTINUED) 33,100 Eli Lilly & Co. . . . . . . . . . $ 2,416,300 40,900 Merck & Co. . . . . . . . . . . . 3,241,325 33,600 Warner-Lambert Co. . . . . . . . . 2,520,000 ------------ 10,691,750 ------------ LEISURE & ENTERTAINMENT--0.8% 56,000 International Game Technology . . 1,022,000 ------------ MEDICAL SERVICES--1.6% 28,000 Medtronic, Inc. . . . . . . . . . 1,904,000 ------------ MISCELLANEOUS--3.1% 33,200 Loewen Group, Inc. . . . . . . . . 1,298,950 87,600 Service Corp. International . . . 2,452,800 ------------ 3,751,750 ------------ OIL & GAS--0.5% 12,100 BJ Services Co.(c) . . . . . . . . 617,100 ------------ PHARMACEUTICALS--1.5% 5,100 Bristol-Myers Squibb Co. . . . . . 554,625 14,500 Pfizer, Inc. . . . . . . . . . . . 1,201,688 ------------ 1,756,313 ------------ POLLUTION CONTROL--1.3% 51,000 USA Waste Services, Inc.(c) . . . 1,625,625 ------------ RESTAURANTS & LODGING--2.5% 36,200 Boston Chicken, Inc.(c) . . . . . 1,298,675 55,800 Lone Star Steakhouse Saloon(c) . . 1,492,650 8,900 Outback Steakhouse, Inc.(c) . . . 238,075 ------------ 3,029,400 ------------ RETAILING--7.8% 15,700 Cintas Corp. . . . . . . . . . . . 922,375 18,500 Dollar General Corp. . . . . . . . 592,000 22,800 Gucci Group NY, Inc.(c) . . . . . 1,456,350 58,500 Home Depot, Inc. . . . . . . . . . 2,932,312 15,000 Nine West Group, Inc.(c) . . . . . 695,625 121,500 Officemax, Inc.(c) . . . . . . . . 1,290,938 15,000 Rite Aid Corp. . . . . . . . . . . 596,250 20,000 TJX Companies, Inc. . . . . . . . 947,500 ------------ 9,433,350 ------------ SEMI-CONDUCTORS--7.4% 33,500 Altera Corp.(c) . . . . . . . . . 2,435,031 29,900 Intel Corp. . . . . . . . . . . . 3,915,031 15,400 Linear Technology Corp. . . . . . 675,675 13,000 Maxim Integrated Products, Inc.(c) . . . . . . . . . . . . . 562,250 36,200 Xilinx, Inc.(c) . . . . . . . . . 1,332,613 ------------ 8,920,600 ------------ Total Common Stocks (Identified Cost $99,255,368) . . 113,115,417 ------------
SHORT-TERM INVESTMENTS--4.9% FACE AMOUNT VALUE (A) $3,000,000 Baltimore Gas & Electric Co. 5.85% 01/07/97 . . . . . . . . . $ 2,997,075 2,903,196 Seven Seas U.S. Government Money Market Fund . . . . . . . . . . . 2,903,196 ------------ Total Short-Term Investments (Identified Cost $5,900,271) . . 5,900,271 ------------ Total Investments--98.8% (Identified Cost $105,155,639)(b) . . . . . . . . 119,015,688 Other assets less liabilities . . 1,439,819 ------------ TOTAL NET ASSETS--100% . . . . . . $120,455,507 ============
(a) See Note 1A. (b) Federal Tax Information: At December 31, 1996 the net unrealized appreciation on investments based on cost of $105,368,896 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 . . . . . . . . . . $ 16,735,570 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value. . . . . . . . . . . (3,088,778) ------------ Net unrealized appreciation. . . . . . . . . $ 13,646,792 ============
(c) Non-income producing security. See accompanying notes to financial statements. 16 NEW ENGLAND ZENITH FUND (ALGER EQUITY GROWTH SERIES)
STATEMENT OF ASSETS & LIABILITIES DECEMBER 31, 1996 ASSETS Investments at value . . . . . . . . . $119,015,688 Cash . . . . . . . . . . . . . . . . . 2,209 Receivable for: Fund shares sold . . . . . . . . . . . 676,306 Securities sold . . . . . . . . . . . 2,594,031 Dividends and interest . . . . . . . . 71,336 Due from advisor . . . . . . . . . . . 44,918 Unamortized organization expense . . . 5,688 ------------ 122,410,176 LIABILITIES Payable for: Securities purchased . . . . . . . . . $1,684,074 Fund shares redeemed . . . . . . . . . 169,719 Accrued expenses: Management fees . . . . . . . . . . . 35,929 Deferred trustees' fees . . . . . . . 313 Other expenses . . . . . . . . . . . . 64,634 ---------- 1,954,669 ------------ $120,455,507 ============ NET ASSETS Net Assets consist of: Capital paid in . . . . . . . . . . . $106,473,943 Undistributed net investment income . 2,272 Accumulated net realized gains . . . . 119,243 Unrealized appreciation on investments . . . . . . . . . . . . . 13,860,049 ------------ NET ASSETS . . . . . . . . . . . . . . . $120,455,507 ============ Computation of offering price: Net asset value and redemption price per share ($120,455,507 divided by 7,733,167 shares of beneficial interest) . . . . $ 15.58 ============ Identified cost of investments . . . . . $105,155,639 ============
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME Dividends . . . . . . . . . . . . . . $ 473,183(a) Interest . . . . . . . . . . . . . . 487,549 ----------- 960,732 EXPENSES Management fees . . . . . . . . . . . $620,895 Trustees' fees and expenses . . . . . 11,316 Custodian . . . . . . . . . . . . . . 52,986 Audit and tax services . . . . . . . 11,935 Legal . . . . . . . . . . . . . . . . 11,567 Printing . . . . . . . . . . . . . . 40,276 Amortization of organization expenses . . . . . . . . . . . . . . 2,017 Miscellaneous . . . . . . . . . . . . 5,738 -------- Total expenses . . . . . . . . . . 756,730 ----------- NET INVESTMENT INCOME . . . . . . . . 204,002 REALIZED AND UNREALIZED GAIN ON INVESTMENTS Realized gain on: Investments--net . . . . . . . . . . 965,295 Unrealized appreciation on: Investments--net . . . . . . . . . . 9,359,159 ----------- Net gain on investment transactions . 10,324,454 ----------- NET INCREASE IN NET ASSETS FROM OPERATIONS. . . . . . . . . . . . . . $10,528,456 ===========
(a) Net of foreign taxes of: $2,410. See accompanying notes to financial statements. 17 NEW ENGLAND ZENITH FUND (ALGER EQUITY GROWTH SERIES)
STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1995 1996 ------------ --------------- FROM OPERATIONS Net investment income . . . . . . . . . . . . $ 30,373 $ 204,002 Net realized gain on investments . . . . . . . 448,499 965,295 Unrealized appreciation on investments . . . . 4,579,507 9,359,159 ----------- ------------ INCREASE IN NET ASSETS FROM OPERATIONS . . . . 5,058,379 10,528,456 ----------- ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income . . . . . . . . . . . . (30,373) (206,060) In excess of net investment income . . . . . . (993) 0 Net realized gain on investments . . . . . . . (1,285,986) 0 ----------- ------------ (1,317,352) (206,060) ----------- ------------ FROM CAPITAL SHARES TRANSACTIONS Proceeds from sale of shares . . . . . . . . . 47,127,562 92,225,724 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income . . 31,366 206,060 Distributions from net realized gain . . . . 1,285,986 0 ----------- ------------ 48,444,914 92,431,784 Cost of shares redeemed . . . . . . . . . . . (7,716,452) (28,685,075) ----------- ------------ INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS . . . . . . . . . . . . . 40,728,462 63,746,709 ----------- ------------ TOTAL INCREASE IN NET ASSETS . . . . . . . . . 44,469,489 74,069,105 NET ASSETS Beginning of the year . . . . . . . . . . . . 1,916,913 46,386,402 ----------- ------------ End of the year . . . . . . . . . . . . . . . $46,386,402 $120,455,507 =========== ============ UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the year . . . . . . . . . . . . $ 0 $ 1,354 =========== ============ End of the year . . . . . . . . . . . . . . . $ 1,354 $ 2,272 =========== ============ NUMBER OF SHARES OF THE FUND: Issued from the sale of shares . . . . . . . . 3,648,304 6,311,990 Issued in connection with the reinvestment of: Distributions from net investment income . . 2,303 13,117 Distributions from net realized gain . . . . 94,419 0 ----------- ------------ 3,745,026 6,325,107 Redeemed . . . . . . . . . . . . . . . . . . . (583,251) (1,954,136) ----------- ------------ Net change . . . . . . . . . . . . . . . . . . 3,161,775 4,370,971 =========== ============
FINANCIAL HIGHLIGHTS OCTOBER 31, 1994(A) THROUGH YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 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 0.04 Net Realized and Unrealized Gain (Loss) on Investments . . . . . (0.44) 4.65 1.78 ------ ------- -------- Total From Investment Operations . . . . . . . (0.42) 4.66 1.82 ------ ------- -------- Less Distributions Dividends From Net Investment Income . . . . (0.02) (0.01) (0.04) Distributions From Net Realized Capital Gains . 0.00 (0.41) 0.00 ------ ------- -------- Total Distributions . . . (0.02) (0.42) (0.04) ------ ------- -------- Net Asset Value, End of Period . . . . . . . . . . $ 9.56 $ 13.80 $ 15.58 ====== ======= ======== TOTAL RETURN (%) . . . . . (4.20)(c) 48.80 13.17 Ratio of Operating Expenses to Average Net Assets (%) . . . . . . 0.85 (b) 0.85 0.90 Ratio of Net Investment Income to Average Net Assets (%) . . . . . . . . 1.07 (b) 0.14 0.24 Portfolio Turnover Rate (%) . . . . . . . . . 32 (b) 107 78 Average Commission Rate(d) . . . . . . . . . -- -- $ 0.0716 Net Assets, End of Period (000) . . . . . . . $1,917 $46,386 $120,456 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 0.90
(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. 18 CAPITAL GROWTH SERIES PORTFOLIO MANAGER: G. KENNETH HEEBNER CAPITAL GROWTH MANAGEMENT LIMITED PARTNERSHIP [Photo Of G. Kenneth Heebner] Q. HOW DID THE CAPITAL GROWTH SERIES PERFORM IN 1996? A. A continuing strong economy, low-to-moderate inflation, and a relatively stable interest rate environment contributed to a strong stock market overall. The Series posted solid performance of 21.08% for the year, on top of 1995's return of 38.03%, as compared to the S&P 500 Index/19/ return of 37.44% and 22.90% for 1995 and 1996, respectively. Well-managed, moderate growth companies, which the Series favors, continue to be steady, long-term performers. Many offer double-digit growth rates, yet still sold at deep discounts, particularly in the first half of the year. Sectors that fueled the Series' performance included energy, banks, insurance and computers. Growth companies within these sectors, most notably Citicorp, Intel, Dell Computer and Chase Manhattan, performed admirably, benefiting from sustained, positive economic and market conditions. Q. HOW DID YOU MANAGE THE SERIES IN 1996? A. Throughout 1996, we remained confident about the economy. We therefore maintained substantial positions in banking, energy and computing stocks, which held up well throughout the year after a strong start. While 1996 may have presented an uphill battle for business in terms of earnings growth, nothing on the horizon seriously challenges this optimal business scenario. In recent years, price earnings ratios for companies, especially exotic technology firms, have risen to high levels not seen since the late 1960's. While some attractive values remain, they now are difficult to find. The Series' concentrated investment approach is well-suited to this type of market environment. Our overall strategy of buying quality, long-term investments in well-established companies at reasonable prices remains in place. Q. WHAT IS YOUR INVESTMENT OUTLOOK FOR THE MONTHS AHEAD? A. For the economy, we expect to see moderate growth with relatively low inflation, an environment that favors the type of growth companies that comprise your Series' portfolio. We will continue to avoid companies with high price/earnings ratios relative to high growth rates. Many investors, we believe, continue to be overly enthusiastic about growth without closely examining valuations. More specifically, we will continue to invest in companies that are industry leaders that have reasonable valuations and proven track records. While periodic bursts of volatility may surface along the way, we feel that the companies we selected using this approach continue to hold potential for investor rewards over the long term. [A CHART APPEARS HERE COMPARING THE GROWTH OF A $10,000 INVESTMENT COMPARED TO AN INDEX]
Capital Growth Series S&P 500 12/31/86 10000 10000 1987 15270 10518 1988 13928 12253 1989 18212 16124 1990 17577 15622 1991 27068 20360 1992 25430 21909 1993 29240 24108 1994 27171 24435 1995 37504 33585 1996 45409 41276
FUND FACTS GOAL: Long-term growth of capital. START DATE: August 26, 1983 SIZE: $1.1 billion as of December 31, 1996 MANAGER: G. Kenneth Heebner, since 1983; portfolio manager of New England Growth Fund since 1976; CGM Capital Development Fund since 1976; CGM Mutual Fund since 1981; CGM Realty Fund since May 1994; CGM Fixed Income Fund since June 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. 19 NEW ENGLAND ZENITH FUND (CAPITAL GROWTH SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
COMMON STOCKS--97.7% OF TOTAL NET ASSETS SHARES VALUE (A) AEROSPACE--5.3% 567,000 Boeing Co. . . . . . . . . . . . . $ 60,314,625 ------------ AIRLINES--2.3% 415,000 UAL Corp.(c) . . . . . . . . . . . 25,937,500 ------------ BANKS--MONEY CENTER--12.8% 630,000 Chase Manhattan Corp. . . . . . . 56,227,500 871,000 Citicorp . . . . . . . . . . . . . 89,713,000 ------------ 145,940,500 ------------ BEVERAGES & TOBACCO--4.2% 1,198,000 Anheuser-Busch Companies, Inc. . . 47,920,000 ------------ COMPUTER SOFTWARE & SERVICES--3.2% 244,000 Compaq Computer Corp.(c) . . . . . 18,117,000 350,000 Dell Computer Corp.(c) . . . . . . 18,593,750 ------------ 36,710,750 ------------ ELECTRONIC COMPONENTS--6.8% 593,000 Intel Corp. . . . . . . . . . . . 77,645,937 ------------ FOOD--RETAILERS/WHOLESALERS--9.8% 1,063,000 Hershey Foods Corp. . . . . . . . 46,506,250 585,000 Philip Morris Companies, Inc. . . 65,885,625 ------------ 112,391,875 ------------ HOME PRODUCTS & COSMETIC--2.6% 275,000 Procter & Gamble Co. . . . . . . . 29,562,500 ------------ INSURANCE--16.0% 473,000 Aetna, Inc. . . . . . . . . . . . 37,840,000 1,165,000 Allstate Corp. . . . . . . . . . . 67,424,375 603,850 American International Group, Inc. . . . . . . . . . . . 65,366,763 200,000 Aon Corp. . . . . . . . . . . . . 12,425,000 ------------ 183,056,138 ------------ MISCELLANEOUS--5.7% 876,000 NIKE, Inc. Class B . . . . . . . . 52,341,000 190,000 United Technologies Corp. . . . . 12,540,000 ------------ 64,881,000 ------------ OFFICE EQUIPMENT & SUPPLIES--1.8% 136,000 International Business Machines . 20,536,000 ------------ OIL--MAJOR INTEGRATED--9.5% 364,500 British Petroleum PLC (ADR)(d) . . 51,531,188 586,000 Texaco, Inc. . . . . . . . . . . . 57,501,250 ------------ 109,032,438 ------------
SHARES VALUE (A) OIL--SERVICE--13.1% 740,000 Baker Hughes, Inc. . . . . . . $ 25,530,000 1,015,000 Halliburton Co. . . . . . . . . 61,153,750 626,000 Schlumberger Ltd. . . . . . . . 62,521,750 -------------- 149,205,500 -------------- PERIPHERALS--4.6% 1,338,000 Seagate Technology(c) . . . . . 52,851,000 -------------- Total Common Stock (Identified Cost $867,912,359) . . . . . . . . 1,115,985,763 --------------
SHORT-TERM INVESTMENT--1.9% FACE AMOUNT $21,290,000 American Express Credit Corp. 6.55%, 01/02/97 . . . . . . . . . 21,290,000 -------------- Total Short-Term Investment (Identified Cost $21,290,000) . . 21,290,000 -------------- Total Investments--99.6% (Identified Cost $889,202,359)(b) . . . . . . . . 1,137,275,763 Other assets less liabilities . . 5,384,412 -------------- TOTAL NET ASSETS--100% . . . . . . $1,142,660,175 ==============
(a) See Note 1A. (b) Federal Tax Information: At December 31, 1996 the net unrealized appreciation on investments based on cost of $889,787,876 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 . . . . . . . . . . $251,334,507 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value . . . . . . . . . . (3,846,620) ------------ Net unrealized appreciation . . . . . . . . $247,487,887 ============
(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. 20 NEW ENGLAND ZENITH FUND (CAPITAL GROWTH SERIES)
STATEMENT OF ASSETS & LIABILITIES DECEMBER 31, 1996 ASSETS Investments at value . . . . . . . $1,137,275,763 Cash . . . . . . . . . . . . . . . 1,293 Receivable for: Fund shares sold . . . . . . . . . 739,181 Securities sold . . . . . . . . . 17,254,428 Dividends and interest . . . . . . 1,510,108 -------------- 1,156,780,773 LIABILITIES Payable for: Securities purchased . . . . . . . $12,706,300 Fund shares redeemed . . . . . . . 616,582 Withholding taxes . . . . . . . . 74,007 Miscellaneous . . . . . . . . . . 23,225 Accrued expenses: Management fees . . . . . . . . . 613,663 Deferred trustees' fees . . . . . 56,092 Other expenses . . . . . . . . . . 30,729 ----------- 14,120,598 -------------- $1,142,660,175 ============== NET ASSETS Net Assets consist of: Capital paid in . . . . . . . . . $ 863,208,951 Undistributed net investment income . . . . . . . . 36,394 Accumulated net realized gains . . 31,341,426 Unrealized appreciation on investments . . . . . . . . . . . 248,073,404 -------------- NET ASSETS . . . . . . . . . . . . . $1,142,660,175 ============== Computation of offering price: Net asset value and redemption price per share ($1,142,660,175 divided by 2,675,506 shares of beneficial interest) . . . . . . . . . . . . . $ 427.08 ============== Identified cost of investments . . . $ 889,202,359 ==============
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME Dividends . . . . . . . . . . . . $ 14,724,056(a) Interest . . . . . . . . . . . . . 163,836 ------------ 14,887,892 EXPENSES Management fees . . . . . . . . . $6,398,659 Trustees' fees and expenses . . . 59,562 Custodian . . . . . . . . . . . . 156,442 Audit and tax services . . . . . . 16,800 Legal . . . . . . . . . . . . . . 11,564 Printing . . . . . . . . . . . . . 304,709 Miscellaneous . . . . . . . . . . 10,791 ---------- Total expenses . . . . . . . . . 6,958,527 ------------ NET INVESTMENT INCOME . . . . . . . 7,929,365 REALIZED AND UNREALIZED GAIN ON INVESTMENTS Realized gain on: Investments--net . . . . . . . . 68,632,360 Unrealized appreciation on: Investments--net . . . . . . . . 121,815,567 ------------ Net gain on investment transactions 190,447,927 ------------ NET INCREASE IN NET ASSETS FROM OPERATIONS . . . . . . . . . . . . $198,377,292 ============
(a) Net of foreign taxes of: $74,164. See accompanying notes to financial statements. 21 NEW ENGLAND ZENITH FUND (CAPITAL GROWTH SERIES)
STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1995 1996 -------------- ----------------- FROM OPERATIONS Net investment income . . . . . . . . . . $ 7,450,611 $ 7,929,365 Net realized gain on investments . . . . . 132,068,325 68,632,360 Unrealized appreciation on investments . . 114,117,353 121,815,567 ------------- -------------- INCREASE IN NET ASSETS FROM OPERATIONS . . 253,636,289 198,377,292 ------------- --------------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income . . . . . . . . . . (7,422,072) (7,921,505) ============= ============== Net realized gain on investments . . . . . (112,289,797) (57,069,463) ------------- -------------- (119,711,869) (64,990,968) ------------- -------------- FROM CAPITAL SHARES TRANSACTIONS Proceeds from sale of shares . . . . . . . 211,234,567 236,084,630 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income 7,422,051 7,921,505 Distributions from net realized gain . . 112,289,762 57,069,463 ------------- -------------- 330,946,380 301,075,598 Cost of shares redeemed . . . . . . . . . (210,553,681) (213,245,567) ------------- -------------- INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS . . . . . . . . . . . 120,392,699 87,830,031 ------------- -------------- TOTAL INCREASE IN NET ASSETS . . . . . . . 254,317,119 221,216,355 NET ASSETS Beginning of the year . . . . . . . . . . 667,126,701 921,443,820 ------------- -------------- End of the year . . . . . . . . . . . . . $ 921,443,820 $1,142,660,175 ============= ============== UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the year . . . . . . . . . . $ 278,739 $ 28,556 ============= ============== End of the year . . . . . . . . . . . . . $ 28,556 $ 36,394 ============= ============== NUMBER OF SHARES OF THE FUND: Issued from the sale of shares . . . . . . 561,255 647,661 Issued in connection with the reinvestment of: Distributions from net investment income 19,951 18,320 Distributions from net realized gain . . 301,846 83,188 ------------- -------------- 883,052 749,169 Redeemed . . . . . . . . . . . . . . . . . (559,603) (533,320) ------------- -------------- Net change . . . . . . . . . . . . . . . . 323,449 215,849 ============= ==============
FINANCIAL HIGHLIGHTS YEAR ENDED DECEMBER 31, ------------------------------------------------------ 1992 1993 1994 1995 1996 --------- --------- --------- --------- ------------- Net Asset Value, Beginning of Period $ 347.36 $ 322.23 $ 351.63 $ 312.30 $ 374.62 -------- -------- -------- -------- ---------- Income From Investment Operations Net Investment Income . . . . . . 4.04 2.12 5.28 3.47 3.08 Net Realized and Unrealized Gain (Loss) on Investments . . . . (25.10) 46.21 (30.54) 114.91 74.80 -------- -------- -------- -------- ---------- Total From Investment Operations. . . . . (21.06) 48.33 (25.26) 118.38 77.88 -------- -------- -------- -------- ---------- Less Distributions Dividends From Net Investment Income . (4.07) (2.18) (5.15) (3.48) (3.08) Distributions From Net Realized Capital Gains . . . . . . . 0.00 (16.75) (8.92) (52.58) (22.34) -------- -------- -------- -------- ---------- Total Distributions (4.07) (18.93) (14.07) (56.06) (25.42) -------- -------- -------- -------- ---------- Net Asset Value, End of Period . . . . . $ 322.23 $ 351.63 $ 312.30 $ 374.62 $ 427.08 ======== ======== ======== ======== ========== TOTAL RETURN (%) . . (6.05) 14.97 (7.07) 38.03 21.08 Ratio of Operating Expenses to Average Net Assets (%) . . . 0.70 0.68 0.67 0.71 0.69 Ratio of Net Investment Income to Average Net Assets (%) . . . . . 1.53 0.67 1.61 0.92 0.79 Portfolio Turnover Rate (%) . . . . . . 207 169 140 242 207 Average Commission Rate (a) . . . . . . -- -- -- -- $ 0.0669 Net Assets, End of Period (000) . . . . $472,017 $644,384 $667,127 $921,444 $1,142,660
(a) 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. 22 LOOMIS SAYLES AVANTI GROWTH SERIES PORTFOLIO MANAGERS: SCOTT PAPE AND BRUCE EBEL LOOMIS, SAYLES & COMPANY, L.P. [PHOTO OF SCOTT PAPE & BRUCE EBEL] Q. HOW DID LOOMIS SAYLES AVANTI GROWTH SERIES PERFORM IN 1996? A. The Series' total return of 17.58% was not far behind the Lipper Variable Growth Average/11/ of 20.39%. Meanwhile, the widely-followed large-cap indices--the Dow Jones Industrial Average and the Standard & Poor's 500 Stock Index/19/--gained 26.01% and 22.90%, respectively. These strong returns by the major indices masked underperformance by the broader marketplace. In absolute terms, the Series' 1996 total return of 17.58% came on top of 1995's figure of 30.35%. In both cases, shareholders profited from a positive foundation for equities: a strong profit picture coupled with modest inflation. In addition, fairly stable interest rates favored investors through most of the year. Long-term rates began the year at around 6%, moved up briefly to the 7% range during the summer, and had settled back down to around 6% by the end of December. The U.S. economy was more vigorous than we expected, especially in the first two quarters. Later, a slowdown that we had anticipated began to materialize, as first half growth of over 3% in the nation's Gross Domestic Product (GDP) had shrunk to less than 2% by the third quarter. The market then grew defensive, favoring larger cap issues for their greater liquidity and lower risk potential. This shift drove the major indices higher, creating relative underperformance in the rest of the marketplace. Q. HOW DID YOU MANAGE THE SERIES THIS YEAR? A. We took advantage of corporate earnings trends that tracked the economic pattern; higher first-half growth rates gave way to a slowdown in growth--not a downturn--later in the year. As a result, the market's leadership group became narrower, as investors were willing to pay more for those companies whose earnings met or exceeded expectations. The Series benefited from this blue-chip trend because of its positions in General Electric, Coca Cola, Merck and Microsoft, all industry leaders and good examples of our long-standing strategy. Using a bottom-up approach, we look for America's premier companies: dominant well-managed companies whose earnings potential should reward shareholders with above- average long term returns. We make few assumptions about sectors; the Series' industry allocation is chiefly the result of our stock selection process. Performance also benefited from our technology holdings, including positions in Cisco Systems, Oracle, Hewlett Packard and Intel. Strength in financial issues also favored the Series. These interest-rate sensitive companies did particularly well in the second half of the year as rates began to fall. Among our financial holdings were American International Group, First Bank Systems and MGIC. Two mergers also boosted performance; the acquisition of Duracell by Gillette and St. Jude Medical's purchase of Ventritex. We increased our defensive stance with a commitment to consumer staples--health care, food and beverage and consumer products companies. Better than expected earnings from these less economically sensitive companies added value to the portfolio. Our focus on energy stocks was also beneficial, as an improved supply/demand balance led to a pickup in drilling and exploration, after years of underinvestment in this sector. Meanwhile, our exposure to emerging growth companies hampered performance. Although many of these fast-growing companies did well, their stock prices lagged as the market began to favor more established names. Late in the year we took profits in--but did not eliminate--some of our blue chips, where prices seemed overextended. We reinvested part of the proceeds into emerging companies like Amgen, Informix, Idexx Labs and Thermo Electron, which we judged to offer attractive growth prospects. Q. WHAT IS YOUR INVESTMENT OUTLOOK FOR THE MONTHS AHEAD? A. For the next several months, the economy should continue to slow, putting pressure on profit growth. In a more sluggish environment, investors will probably be willing to pay a premium for companies with strong potential for earnings increases. Over the next six to twelve months, we believe interest rates will remain stable or decline. Historically, markets are not as strong following presidential elections. Also, the increase in stock prices over the last two years has pushed overall valuations to the high end of historical ranges, making stock selection even more important in 1997. Large cap stocks are unlikely to outrun the rest of the market again, a view which favors mid-cap and emerging growth companies. American companies continue to do a good job of bringing money to the bottom line. Productivity is up. U.S. firms have become more competitive globally. Many are leaders in a wide range of industries; semiconductors, medical devices, telecommunications products, software and semiconductor capital equipment. 23 The cost of technology goods and services is declining steadily. Technology's share of the economy continues to grow--it now represents 15% of GDP--producing a disinflationary effect and a positive impact on productivity. Labor costs have increased slightly--but this is not unusual at this stage in the economic cycle. Thus, these costs present very little threat of future inflation. Q. HOW HAVE YOU POSITIONED THE SERIES IN LIGHT OF THESE ASSUMPTIONS? A. We believe the Series is well-positioned in view of our outlook for a more positive tone in the broader stock market. We are emphasizing consumer non-durables and have increased exposure to emerging growth stocks. We have also built a strong position in technology, designed to take advantage of a long-term trend toward expanded spending in this area. A pickup in consumer spending could counter our thesis of a slowing economy. Also, accelerating economic activity abroad might be a contrary indicator. Finally, we will continue to watch closely the flow of money into mutual funds and the stock market overall. [A CHART APPEARS HERE COMPARING THE GROWTH OF A $10,000 INVESTMENT IN THE SERIES COMPARED TO AN INDEX]
Avanti Growth Series S&P 500 Inception 4/30/93 10000 10000 1993 11474 10819 1994 11443 10966 1995 14916 15072 12/31/96 17538 18524
FUND FACTS GOAL: Long-term growth of capital. START DATE: April 30, 1993 SIZE: $83 million as of December 31, 1996 MANAGERS: Scott Pape has co-managed the Series since 1993; Bruce Ebel began co-managing the Series in June 1996. They both also manage the New England Capital Growth Fund. Mr. Pape joined Loomis Sayles in 1991 and Mr. Ebel joined Loomis Sayles in 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. 24 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES AVANTI GROWTH SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
COMMON STOCKS--98.8% OF NET ASSETS SHARES VALUE (A) AEROSPACE--1.9% 15,000 Boeing Co. . . . . . . . . . . . . . . $ 1,595,625 ----------- AIRLINES--0.9% 34,900 Southwest Airlines Co.. . . . . . . . . 772,162 ----------- APPAREL & TEXTILES--0.6% 8,100 NIKE, Inc., Class B . . . . . . . . . . 483,975 ----------- BANKS--1.8% 2,900 Chase Manhattan Corp., New . . . . . . 258,825 17,800 First Bank Systems, Inc. . . . . . . . 1,214,850 ----------- 1,473,675 ----------- BEVERAGES--2.7% 25,100 Coca-Cola Co. . . . . . . . . . . . . . 1,320,887 31,200 PepsiCo, Inc. . . . . . . . . . . . . . 912,600 ----------- 2,233,487 ----------- BUSINESS SERVICES--10.9% 14,000 ABR Information Services, Inc.(c) . . . 551,250 30,700 Automatic Data Processing . . . . . . . 1,316,263 36,000 Checkfree Corp.(c) . . . . . . . . . . 616,500 24,200 Cintas Corp. . . . . . . . . . . . . . 1,421,750 21,400 Danka Business Systems . . . . . . . . 757,025 41,500 First Data Corp. . . . . . . . . . . . 1,514,750 44,250 Fiserv, Inc.(c) . . . . . . . . . . . . 1,626,188 22,100 Paychex, Inc. . . . . . . . . . . . . . 1,136,769 1,500 Sykes Enterprises, Inc.(c) . . . . . . 56,250 ----------- 8,996,745 ----------- CHEMICALS--1.6% 34,500 Monsanto Co. . . . . . . . . . . . . . 1,341,188 ----------- COMPUTER SOFTWARE & SERVICES--7.1% 5,500 Computer Associates International, Inc. 273,625 18,400 HBO & Co. . . . . . . . . . . . . . . . 1,092,500 16,500 HNC Software, Inc.(c) . . . . . . . . . 515,625 47,400 Informix Corp.(c) . . . . . . . . . . . 965,775 22,100 Microsoft Corp. . . . . . . . . . . . . 1,826,013 27,800 Oracle Systems Corp.(c) . . . . . . . . 1,160,650 ----------- 5,834,188 ----------- CONGLOMERATES--1.4% 27,500 Thermo Electron Corp.(c) . . . . . . . 1,134,375 ----------- ELECTRICAL EQUIPMENT--2.6% 21,800 General Electric Co. . . . . . . . . . 2,155,475 ----------- ELECTRONIC COMPONENTS--6.5% 28,500 Glenayre Technologies, Inc.(c) . . . . 614,531 12,900 Intel Corp. . . . . . . . . . . . . . . 1,689,094 27,800 LSI Logic Corp.(c) . . . . . . . . . . 743,650 7,000 Molex, Inc. . . . . . . . . . . . . . . 273,875 30,000 Molex, Inc. Class A . . . . . . . . . . 1,068,750 18,700 Solectron Corp.(c) . . . . . . . . . . 998,112 ----------- 5,388,012 -----------
SHARES VALUE (A) FINANCIAL SERVICES--2.3% 17,300 Charles Schwab Corp., New . . . . . . $ 553,600 17,800 MGIC Investment Corp. . . . . . . . . 1,352,800 ----------- 1,906,400 ----------- GAS & PIPELINE UTILITIES--0.5% 9,800 Enron Corp. . . . . . . . . . . . . . 422,625 ----------- HEALTH CARE--MEDICAL TECHNOLOGY--5.0% 21,200 Boston Scientific Corp.(c) . . . . . 1,272,000 40,300 Indexx Laboratories, Inc.(c) . . . . 1,450,800 21,100 Medtronic, Inc. . . . . . . . . . . . 1,434,800 ----------- 4,157,600 ----------- HEALTH CARE--DRUGS--9.2% 18,000 Abbott Laboratories . . . . . . . . . 913,500 26,300 Amgen, Inc.(c) . . . . . . . . . . . 1,430,063 26,000 Biogen, Inc.(c) . . . . . . . . . . . 1,007,500 6,900 Eli Lilly & Co. . . . . . . . . . . 503,700 19,700 Johnson & Johnson . . . . . . . . . . 980,075 26,000 Merck & Co. . . . . . . . . . . . 2,060,500 107,000 Oncor, Inc.(c) . . . . . . . . . . . 421,312 23,000 Somatogen, Inc.(c) . . . . . . . . . 253,000 ----------- 7,569,650 ----------- HEALTH CARE--SERVICES--3.8% 33,000 Columbia / HCA Healthcare Corp. . . 1,344,750 32,600 Healthsouth Corp.(c) . . . . . . . . 1,259,175 17,650 Phycor, Inc.(c) . . . . . . . . . . . 500,819 ----------- 3,104,744 ----------- HOTELS & RESTAURANTS--4.7% 14,000 Boston Chicken, Inc.(c) . . . . . . . 502,250 8,100 Circus Circus Enterprises, Inc.(c) . 278,437 10,000 Einstein Noah Bagel Corp.(c) . . . . 297,500 30,000 Lone Star Steakhouse Saloon(c) . . . 802,500 3,300 McDonald's Corp. . . . . . . . . . 149,325 15,900 Primadonna Resorts, Inc.(c) . . . . . 270,300 54,900 Starbucks Corp.(c) . . . . . . . . . 1,571,513 ----------- 3,871,825 ----------- HOUSEHOLD PRODUCTS--5.0% 22,200 Duracell International, Inc. . . . . 1,551,225 19,500 Gillette Co. . . . . . . . . . . . . 1,516,125 2,000 Kimberly-Clark Corp. . . . . . . . 190,500 22,500 Newell Co. . . . . . . . . . . . . 708,750 1,600 Procter & Gamble Co. . . . . . . . 172,000 ----------- 4,138,600 ----------- INSURANCE--1.7% 13,100 American International Group, Inc.(c) 1,418,075 ----------- LEISURE TIME--1.3% 13,400 Eastman Kodak Co. . . . . . . . . . . 1,075,350 -----------
See accompanying notes to financial statements. 25 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES AVANTI GROWTH SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
COMMON STOCKS--(CONTINUED) SHARES VALUE (A) MACHINERY--1.5% 15,400 Illinois Tool Works, Inc. . . . . . $1,230,075 ---------- MEDIA & ENTERTAINMENT--1.3% 1,550 TCI Satellite Entertainment, Inc.(c) 15,306 17,300 Tele-Communicationas, Inc.(c) . . . 225,981 12,100 Walt Disney Co. . . . . . . . . . . 842,462 ---------- 1,083,749 ---------- METALS---0.2% 3,900 Nucor Corp. . . . . . . . . . . . . 198,900 ---------- OFFICE EQUIPMENT & SUPPLIES--7.3% 24,600 Cascade Communications Corp.(c) . . 1,356,075 25,400 Cisco Systems, Inc.(c) . . . . . . . 1,616,075 21,400 Hewlett-Packard Co. . . . . . . . . 1,075,350 26,200 Parametric Technology Corp. . . . . 1,346,025 8,500 U.S. Robotics Corp.(c) . . . . . . . 612,000 ---------- 6,005,525 ---------- OIL--INDEPENDENT PRODUCERS--2.4% 27,700 Anadarko Petroleum Corp. . . . . . . 1,793,575 6,000 Enron Oil & Gas Co. . . . . . . . . 151,500 ---------- 1,945,075 ---------- OIL--MAJOR INTEGRATED--0.3% 3,300 Amoco Corp. . . . . . . . . . . . . 265,650 ---------- OIL SERVICES--2.4% 14,500 Baker Hughes, Inc. . . . . . . . . . 500,250 14,300 Rowan Companies(c) . . . . . . . . . 323,537 11,500 Schlumberger, Ltd. . . . . . . . . . 1,148,563 ---------- 1,972,350 ---------- RETAIL---0.2% 7,800 Wal-Mart Stores, Inc. . . . . . . . 178,425 ---------- RETAIL SPECIALTY--5.4% 70,125 CUC International, Inc.(c) . . . . . 1,665,469 21,500 Home Depot, Inc. . . . . . . . . . . 1,077,687 77,200 Petsmart, Inc.(c) . . . . . . . . . 1,688,750 ---------- 4,431,906 ---------- TELECOMMUNICATION--4.4% 8,100 MCI Communications . . . . . . . . . 264,769 8,400 Paging Network, Inc.(c) . . . . . . 128,100 17,200 PairGain Technologies, Inc.(c) . . . 523,525 30,900 QUALCOMM, Inc.(c) . . . . . . . . . 1,232,138 28,000 Tellabs, Inc.(c) . . . . . . . . . . 1,053,500 8,800 U.S. West Media Group(c) . . . . . . 162,800 11,800 Worldcom, Inc.(c) . . . . . . . . . 307,537 ---------- 3,672,369 ----------
SHARES VALUE (A) TOBACCO--1.9% 13,900 Philip Morris Companies, Inc. $ 1,565,488 ----------- Total Common Stocks (Identified Cost $69,052,280) . . . . . . . . 81,623,288 -----------
SHORT-TERM INVESTMENT--4.0% FACE AMOUNT VALUE (A) $3,285,796 Associates Corp. North America 6.55% 1/02/97 . . . . . . . . . 3,285,796 ----------- Total Short-Term Investment (Identified cost $3,285,796) . . 3,285,796 ----------- Total Investments 102.8% (Identified cost $72,338,076)(b) 84,909,084 Other assets less liabilities . . (2,241,739) ----------- TOTAL NET ASSETS--100% . . . . . $82,667,345 ===========
(a) See Note 1A. (b) Federal Tax Information: At December 31, 1996 the net unrealized appreciation on investments based on cost of $72,665,614 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 . . . . . . . . . . $14,356,377 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value . . . . . . . . . . (2,112,907) ----------- Net unrealized appreciation . . . . . . . . $12,243,470 ===========
(c) Non-income producing security. See accompanying notes to financial statements. 26 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES AVANTI GROWTH SERIES)
STATEMENT OF ASSETS & LIABILITIES DECEMBER 31, 1996 ASSETS Investments at value . . . . . . . . . $84,909,084 Receivable for: Fund shares sold . . . . . . . . . . . 260,183 Dividends and interest . . . . . . . . 66,351 Foreign taxes . . . . . . . . . . . . 44 ----------- 85,235,662 LIABILITIES Payable for: Securities purchased . . . . . . . . . $2,383,605 Fund shares redeemed . . . . . . . . . 74,873 Withholding taxes . . . . . . . . . . 351 Miscellaneous . . . . . . . . . . . . 474 Accrued expenses: Management fees . . . . . . . . . . . 82,461 Deferred trustees' fees . . . . . . . 1,086 Other expenses . . . . . . . . . . . . 25,467 ---------- 2,568,317 ----------- $82,667,345 =========== NET ASSETS Net Assets consist of: Capital paid in . . . . . . . . . . . $68,933,894 Accumulated net realized gains . . . . 1,162,443 Unrealized appreciation on investments . . . . . . . . . . . . . 12,571,008 ----------- NET ASSETS . . . . . . . . . . . . . . . $82,667,345 =========== Computation of offering price: Net asset value and redemption price per share ($82,667,345 divided by 523,600 shares of beneficial interest) . . . . $ 157.88 =========== Identified cost of investments . . . . . $72,338,076 ===========
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME Dividends . . . . . . . . . . . . $ 436,309(a) Interest . . . . . . . . . . . . . 164,434 ----------- 600,743 EXPENSES Management fees . . . . . . . . . $454,015 Trustees' fees and expenses . . . 11,532 Custodian . . . . . . . . . . . . 55,097 Audit and tax services . . . . . . 13,200 Legal . . . . . . . . . . . . . . 11,564 Printing . . . . . . . . . . . . . 44,769 Miscellaneous . . . . . . . . . . 4,122 -------- Total expenses . . . . . . . . . 594,299 Less expenses assumed by the investment adviser. . . . . . . (42,992) 551,307 -------- ----------- NET INVESTMENT INCOME . . . . . . . 49,436 REALIZED AND UNREALIZED GAIN ON INVESTMENTS Realized gain on: Investments--net . . . . . . . . 4,796,759 Unrealized appreciation on: Investments--net . . . . . . . . 5,241,031 ----------- Net gain on investment transactions 10,037,790 ----------- NET INCREASE IN NET ASSETS FROM OPERATIONS . . . . . . . . . . . . $10,087,226 ===========
(a) Net of foreign taxes of: $514. See accompanying notes to financial statements. 27 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES AVANTI GROWTH SERIES)
STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1995 1996 ------------- --------------- FROM OPERATIONS Net investment income . . . . . . . . . . . . $ 138,413 $ 49,436 Net realized gain on investments . . . . . . 2,703,726 4,796,759 Unrealized appreciation on investments . . . 6,182,432 5,241,031 ------------ ------------ INCREASE IN NET ASSETS FROM OPERATIONS . . . 9,024,571 10,087,226 ------------ ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income . . . . . . . . . . . . (132,051) (56,514) Net realized gain on investments . . . . . . (1,364,969) (4,542,510) ------------ ------------ (1,497,020) (4,599,024) ------------ ------------ FROM CAPITAL SHARES TRANSACTIONS Proceeds from sale of shares . . . . . . . . 25,328,373 40,573,027 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income . . 132,051 56,514 Distributions from net realized gain . . . . 1,364,969 4,542,510 ------------ ------------ 26,825,393 45,172,051 Cost of shares redeemed . . . . . . . . . . . (11,142,834) (16,825,278) ------------ ------------ Increase in net assets derived from capital share transactions . . . . . . . . . . . . . 15,682,559 28,346,773 ------------ ------------ Total increase in net assets . . . . . . . . 23,210,110 33,834,975 NET ASSETS Beginning of the year . . . . . . . . . . . . 25,622,260 48,832,370 ------------ ------------ End of the year . . . . . . . . . . . . . . . $ 48,832,370 $ 82,667,345 ============ ============ UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the year . . . . . . . . . . . . $ 0 $ 6,362 ============ ============ End of the year . . . . . . . . . . . . . . . $ 6,362 $ 0 ============ ============ NUMBER OF SHARES OF THE FUND: Issued from the sale of shares . . . . . . . 188,223 265,834 Issued in connection with the reinvestment of: Distributions from net investment income . . 929 313 Distributions from net realized gain . . . . 9,604 22,968 ------------ ------------ 198,756 289,115 Redeemed . . . . . . . . . . . . . . . . . . (83,183) (108,338) ------------ ------------ Net change . . . . . . . . . . . . . . . . . 115,573 180,777 ============ ============
FINANCIAL HIGHLIGHTS APRIL 30, 1993(A) YEAR YEAR YEAR THROUGH ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 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 0.11 Net Realized and Unrealized Gain (Loss) on Investment . . . . 14.56 (0.89) 33.80 24.88 ------- ------- ------- ------- Total From Investment Operations. . . . . 14.74 (0.30) 34.22 24.99 ------- ------- ------- ------- Less Distributions Dividends From Net Investment Income . (0.18) (0.60) (0.40) (0.13) Distributions From Net Realized Capital Gains . . . . . . . (0.67) 0.00 (4.15) (9.42) Distributions From Paid-in Capital . . (0.22) 0.00 0.00 0.00 ------- ------- ------- ------- Total Distributions (1.07) (0.60) (4.55) (9.55) ------- ------- ------- ------- Net Asset Value, End of Period . . . . . $113.67 $112.77 $142.44 $157.88 ======= ======= ======= ======= TOTAL RETURN (%) . . 14.74(c) (0.27) 30.35 17.58 Ratio of Operating Expenses to Average Net Assets (%) . . . 0.85(b) 0.84 0.85 0.85 Ratio of Net Investment Income to Average Net Assets (%) . . . . . 0.46(b) 0.67 0.37 0.08 Portfolio Turnover Rate (%) . . . . . . 21(b) 67 58 65 Average Commission Rate(d) . . . . . . -- -- -- $0.0508 Net Assets, End of Period (000) . . . . $11,972 $25,622 $48,832 $82,667 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 0.92
(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. 28 DAVIS VENTURE VALUE SERIES PORTFOLIO MANAGERS: SHELBY M.C. DAVIS AND CHRISTOPHER C. DAVIS DAVIS SELECTED ADVISERS, L.P. PHOTO OF SHELBY AND CHRISTOPHER DAVIS Q. HOW DID THE SERIES PERFORM IN 1996? A. The Davis Venture Value Series delivered a total return of 25.84% for the twelve months ended December 31, 1996, compared to a 22.90% gain for the Standard & Poor's 500 Index/19/. The strong performance of the index and the Series was to a large extent the result of a fairly benign U.S. economy during 1996. While various economic indicators argued for an acceleration of growth and a step-up in inflation, others contradicted this conclusion, and the net result was a so-called "Goldilocks" economy--neither too fast nor too slow. Combined with widely reported strong corporate profits, the result was a buoyant (if somewhat skittish) stock market during most of the year. The final quarter of 1996 was an exceptionally strong period for U.S. stocks, with the Dow Jones Industrial Average broaching an all-time high of 6548 on December 27, 1996. However, as happened generally throughout 1996, large-capitalization stocks fared better than smaller-capitalization issues. Also, investors continued to punish the stock of any company, large or small, that reported disappointing earnings, creating considerable volatility and a dichotomous market of substantial winners and losers. Q. HOW DID YOU MANAGE THE SERIES IN 1996? A. Consistent with our long-term approach to investing, we did not revise the portfolio in response to the economy or market momentum, except to take advantage of others' short-term thinking. We believed that staying the course would best serve our strategy, the key tenets of which are: . An emphasis on stocks of financial companies with strong brand names that are selling at a discount to the market. Such companies stand to be the beneficiaries of long-term demographic trends as baby-boomers approach their peak earnings and savings years with greater discretionary cash and an increasing need to invest for retirement. Despite a strong year for many banks and brokerage firms, financial company stocks remain undervalued relative to the broader market. . Purchasing high-quality growth companies during temporary lows. As we mentioned earlier, the market tended to abandon stocks quickly if quarterly earnings disappointed, regardless of sound fundamentals or long-term prospects. In keeping with our longer-term perspective, we view these short-term price dips as an opportunity to buy at favorable prices. Among our opportunistic additions to the portfolio was IBM, which did extremely well. . Investing in high-quality U.S.-based multinational corporations positioned to grow with the expanding economies overseas. . Choosing companies with strong cash flows and top management teams that are undergoing restructuring. We look for those where the cash is being used to implement a long-term vision and/or to buy back stock. As a group, financial stocks continued to be our strong- performing sector, led primarily by banks and brokerage firms. The best-performing individual stocks, however, were pri marily very large companies with consistently strong earnings, spread across a wide variety of industries, including consumer products (Philip Morris), technology (IBM and Intel), diversified financial services (American Express), oil services (Noble Drilling) and automotive ( General Motors). Results were least favorable overall for the telecommunications sector, where the market, in our view, tended to overreact to any negative event or information. The least profitable of the portfolio's holdings were in a variety of industries, such as life insurance (Equitable) and food (McDonald's). Stock prices of both companies fell as a result of lower-than-expected short-term earnings. However, the downturn was neither sudden nor unpredictable in either case, and we continue to believe in their long-term potential. Q. WHAT IS YOUR INVESTMENT OUTLOOK FOR THE MONTHS AHEAD? A. We remain optimistic about the state of the economy and believe that 1997 could be another year of modest growth and stable interest rates. We are less positive about the outlook for corporate profits, as few companies can sustain earnings growth rates of 20% and 30% indefinitely. Benign economic conditions notwithstanding, a falloff in profits would likely spell a slower-growing stock market. Whether or not the market continues its record-setting runup, we do not anticipate major adjustments to the portfolio. As value-conscious, buy-and-hold investors, we make commitments to companies with superior managements that are positioned to take 29 advantage of broad economic, demographic and social trends and have the attributes to consistently deliver more reasonable (i.e., sustainable) earnings growth. Historically, this has resulted in solid results during up cycles and superior returns during downturns. [A CHART APPEARS HERE COMPARING A $10,000 INVESTMENT IN THE SERIES AND AN INDEX]
Venture Value Series S&P 500 10/31/94 10000 10000 12/94 9650 9794 12/95 13441 13461 12/96 16914 16544
FUND FACTS GOAL: Growth of capital. START DATE: October 31, 1994 SIZE: $108 million as of December 31, 1996 MANAGER: Shelby M.C. Davis has served as portfolio manager since the Series' inception in 1994 and has served as portfolio manager of Davis New York Venture Fund since 1968 and of Selected American Shares since May 1993. He also managed the Selected Special Fund from May 1993 through October 1994 and the Davis Financial Fund from 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. 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 (DAVIS VENTURE VALUE SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
COMMON STOCKS--90.8% OF TOTAL NET ASSETS SHARES VALUE (A) AEROSPACE--1.9% 19,600 Boeing Co. . . . . . . . . . . . $ 2,084,950 ----------- AGRICULTURE--1.0% 48,855 Archer-Daniels-Midland Co. . . . . 1,074,810 ----------- AUTOMOTIVE--2.4% 30,100 General Motors Corp. . . . . . . . 1,678,075 17,200 General Motors Corp., Class H . . . 967,500 ----------- 2,645,575 ----------- BANKS AND SAVINGS & LOANS--12.3% 24,160 Banc One Corp. . . . . . . . . . . 1,038,880 23,900 BankAmerica Corp. . . . . . . . . . 2,384,025 18,100 Barnett Banks, Inc. . . . . . . . . 744,363 22,880 Citicorp . . . . . . . . . . . . . 2,356,640 25,700 First Bank Systems, Inc. . . . . . 1,754,025 400 First Union Corp. . . . . . . . . . 29,600 14,300 Golden West Financial Corp. . . . . 902,687 23,100 State Street Boston Corp. . . . . . 1,489,950 9,500 Wells Fargo & Co. . . . . . . . . . 2,562,625 ----------- 13,262,795 ----------- CONSUMER PRODUCTS--5.9% 800 American Brands, Inc. . . . . . . . 39,700 500 American Home Products Corp. . . . 29,313 21,400 Coca-Cola Co. . . . . . . . . . . 1,126,175 1,200 General Electric Co. . . . . . . . 118,650 63,400 Guinness PLC(f) . . . . . . . . . . 498,554 30,000 Masco Corp. . . . . . . . . . . . . 1,080,000 12,300 Nestle S.A. (ADR)(d) . . . . . . . 658,180 25,500 Philip Morris Companies, Inc. . . . 2,871,937 ----------- 6,422,509 ----------- DIVERSIFIED FINANCIAL SERVICES--6.4% 62,400 American Express Co. . . . . . . . 3,525,600 24,400 Dean Witter, Discover & Co. . . . 1,616,500 16,600 Federal Home Loan Mortgage Corp. . 1,828,075 ----------- 6,970,175 ----------- DRILLING EQUIPMENT--0.3% 8,400 Smith International, Inc.(c) . . . 376,950 ----------- ENERGY--7.8% 400 Amerada Hess Corp. . . . . . . . . 23,150 300 Amoco Corp. . . . . . . . . . . . . 24,150 500 Atlantic Richfield Co. . . . . . . 66,250 46,100 Burlington Resources, Inc. . . . . 2,322,287 1,500 Chevron Corp. . . . . . . . . . . . 97,500 15,500 Energy Venture, Inc.(c) . . . . . . 788,562 2,400 Exxon Corp. . . . . . . . . . . . 235,200 4,000 Falcon Drilling(c) . . . . . . . . 157,000 33,500 Halliburton Co. . . . . . . . . . 2,018,375 200 Mobil Corp. . . . . . . . . . . . . 24,450 27,364 Noble Affiliates, Inc. . . . . . . 1,310,052 13,100 Schlumberger, Ltd. . . . . . . . . 1,308,362 400 Sonat, Inc. . . . . . . . . . . . . 20,600 ----------- 8,395,938 -----------
SHARES VALUE (A) ENTERTAINMENT--0.7% 10,600 Walt Disney Co. . . . . . . . . . . . . $ 738,025 ----------- FOOD & RESTAURANT--2.1% 39,600 McDonald's Corp. . . . . . . . . . . . . 1,791,900 15,100 Tyson Foods Inc. . . . . . . . . . . . 517,175 ----------- 2,309,075 ----------- HOUSING & BUILDING MATERIALS--1.2% 53,800 Martin Marietta Materials, Inc. . . . . 1,250,850 ----------- INFORMATION SERVICES--0.0% 100 Cognizant Corp.(c) . . . . . . . . . . . 3,300 ----------- INTERNATIONAL CLOSED-END INVESTMENT COMPANY--0.7% 76,034 Morgan Stanley Asia Pacific Fund, Inc. . . . . . . . . . . . . . . . . 741,332 ----------- INVESTMENT FIRMS--4.1% 23,500 Donaldson Lufkin & Jenrette, Inc. . . 846,000 16,000 J.P. Morgan & Co., Inc. . . . . . . . . 1,562,000 35,600 Morgan Stanley Group, Inc. . . . . . . 2,033,650 ----------- 4,441,650 ----------- LIFE INSURANCE--3.1% 59,300 Equitable Companies, Inc. . . . . . . . 1,460,262 43,700 SunAmerica, Inc. . . . . . . . . . . . . 1,939,187 ------------ 3,399,449 ------------ MANUFACTURING--0.0% 200 Dow Chemical Co. . . . . . . . . . . . . 15,675 800 Maytag Corp. . . . . . . . . . . . . . . 15,800 ----------- 31,475 ----------- MARKETING ANALYSIS--0.0% 33 ACNeilson Corp. (c) . . . . . . . . . . 499 ----------- PAPER PRODUCTS--1.4% 25,200 Fort Howard Corp.(c) . . . . . . . . . . 697,725 300 International Paper Co. . . . . . . . 12,113 21,500 Jefferson Smurfit Corp.(c) . . . . . . . 345,344 4,200 Kimberly-Clark Corp. . . . . . . . . . . 400,050 400 Union Camp Corp. . . . . . . . . . . . . 19,100 ----------- 1,474,332 ----------- PHARMACEUTICAL AND HEALTH CARE--2.9% 200 Bristol-Myers Squibb Co. . . . . . . . . 21,750 8,900 Eli Lilly & Co. . . . . . . . . . . . . 649,700 11,000 Johnson & Johnson . . . . . . . . . . . 547,250 5,100 Merck & Co. . . . . . . . . . . . . . . 404,175 18,100 Pfizer, Inc. . . . . . . . . . . . . . . 1,500,037 ----------- 3,122,912 ----------- PHOTOGRAPHIC--1.6% 21,100 Eastman Kodak Co. . . . . . . . . . . 1,693,275 ----------- PROPERTY/CASUALTY INSURANCE--12.6% 35,481 The Allstate Corp. . . . . . . . . . . 2,053,463 7,200 American International Group, Inc. . . 779,400 23,200 W.R. Berkley Corp. . . . . . . . . . . . 1,177,400 31,400 Chubb Corp. . . . . . . . . . . . . . . 1,687,750
See accompanying notes to financial statements. 31 NEW ENGLAND ZENITH FUND (DAVIS VENTURE VALUE SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
COMMON STOCKS--(CONTINUED) SHARES VALUE (A) PROPERTY/CASUALTY INSURANCE--(CONTINUED) 12,774 General Re Corp. . . . . . . . . . $ 2,015,098 6,100 NAC Re Corp. . . . . . . . . . . . 206,638 13,500 Progressive Corp. . . . . . . . . . . 909,563 15,500 Transatlantic Holdings, Inc. . . . 1,247,750 56,033 The Travelers Group, Inc. . . . . . . 2,542,497 25,400 20th Century Industries, Inc.(c) . . 428,625 7,100 UNUM Corp. . . . . . . . . . . . . 512,975 ------------ 13,561,159 ------------ PUBLISHING--2.8% 100 Dun & Bradstreet Corp. . . . . . . . 2,375 18,400 Gannet Co., Inc. . . . . . . . . . . 1,377,700 52,900 News Corporation, Ltd. . . . . . . . 932,362 8,700 Tribune Co. . . . . . . . . . . . . . 686,213 ------------ 2,998,650 ------------ RAILROAD--3.4% 21,900 Burlington Northern Santa Fe . . . . 1,891,612 11,800 Illinois Central Corp. . . . . . . 377,600 23,800 Union Pacific Corp. . . . . . . . . 1,430,975 ------------ 3,700,187 ------------ REAL ESTATE--2.3% 19,400 Crescent Real Estate Equities . . . . 1,023,350 9,100 Federal Realty Investment Trust . . . 246,838 2,100 Kimco Realty Corp. . . . . . . . . . 73,238 5,200 Mid-Atlantic Realty Trust . . . . . . 58,500 5,900 Saul Centers, Inc. . . . . . . . . . 93,663 10,100 United Dominion Realty Trust, Inc. . 156,550 14,600 Vornado Realty Trust . . . . . . . . 766,500 2,900 Weingarten Realty . . . . . . . . . . 117,813 ------------ 2,536,452 ------------ RETAIL--1.3% 25,600 Federated Department Stores, Inc.(c) 873,600 12,500 Harcourt General, Inc. . . . . . . . 576,562 ------------ 1,450,162 ------------ TECHNOLOGY--9.7% 18,700 Applied Materials, Inc.(c) . . . . . 672,031 39,700 Hewlett-Packard Co. . . . . . . . . . 1,994,925 23,500 Intel Corp. . . . . . . . . . . . . . 3,077,031 19,200 International Business Machines . . . 2,899,200 41,200 Komag, Inc.(c) . . . . . . . . . . . 1,117,550 13,000 Novellus Systems, Inc.(c) . . . . . . 704,438 ------------ 10,465,175 ------------ TELECOMMUNICATIONS--2.3% 60,800 Airtouch Communications(c) . . . . . 1,535,200 2,800 AT&T Corp. . . . . . . . . . . . . . 121,800 1,900 Globalstar Telecommunications . . . . 119,700 842 Lucent Technologies, Inc. . . . . . . 38,943 300 SBC Communications, Inc. . . . . . . 15,525 27,000 360 Communications Co.(c) . . . . . . 624,375 ------------ 2,455,543 ------------
SHARES VALUE (A) UTILITIES--0.6% 300 Carolina Power & Light Co. . . . . . . . . . . $ 10,950 2,200 Cooper Cameron Corp. (c) . . . . . . . . . . . 168,300 300 Duke Power Co. . . . . . . . . . . . . . . . . 13,875 200 Edison International . . . . . . . . . . . . . 3,975 100 Enova Corp. . . . . . . . . . . . . . . . . . 2,275 15,359 Union Pacific Resources Group . . . . . . . . 449,251 200 Wisconsin Energy Corp. . . . . . . . . . . . . 5,375 ----------- 654,001 ----------- Total Common Stocks (Identified Cost $80,077,440) . . . . . . . . 98,261,205 -----------
PREFERRED STOCK--0.3% 3,920 Airtouch Communications, Inc. . . . . . . . . $106,820 2,496 Airtouch Communications, Inc. . . . . . . . . 112,944 1,500 Banc One Corp., $3.50, Ser. C Conv. Pfd. . . 124,500 -------- Total Preferred Stocks (Identified Cost $317,241) . . . . . . . . . 344,264 --------
SHORT-TERM INVESTMENTS--8.6% FACE AMOUNT $4,150,000 Federal National Mortgage Assn., Discount Note, 5.715%, 1/02/97 . . . . . . . . . $ 4,149,352 5,160,000 Repurchase agreement with State Street Bank & Trust Company dated 12/31/96 at 5.50% to be repurchased at $5,161,577 on 1/2/97. Collateralized by $5,265,000 U.S Treasury Bills 4.75% due 8/31/98 with a value of $5,265,374 . . . . . . . . . . 5,160,000 ------------ Total Short-Term Investment (Identified Cost $9,309,352) . . . . . . 9,309,352 ------------ Total Investments--99.7% (Identified Cost $89,704,033)(b) . . . . 107,914,821 Other assets less liabilities(e) . . . . 274,205 ------------ TOTAL NET ASSETS--100% . . . . . . . . . $108,189,026 ============
(a) See Note 1a. (b) Federal Tax Information: At December 31, 1996 the net unrealized appreciation on investments based on cost of $89,706,946 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 . . . . . . . . . . $18,568,358 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value . . . . . . . . . . (360,483) ----------- Net unrealized appreciation . . . . . . . . $18,207,875 ===========
(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 $12,397 and a cost of $11,296. (f) Denominated in Great Britain Pounds. See accompanying notes to financial statements. 32 NEW ENGLAND ZENITH FUND (DAVIS VENTURE VALUE SERIES)
STATEMENT OF ASSETS & LIABILITIES DECEMBER 31, 1996 ASSETS Investments at value . . . . . . . . . . $107,914,821 Cash . . . . . . . . . . . . . . . . . . 1,072 Foreign cash at value (Cost $11,296) . . 12,397 Receivable for: Fund shares sold . . . . . . . . . . . . 737,470 Dividends and interest . . . . . . . . . 185,699 Foreign taxes . . . . . . . . . . . . . 697 Unamortized organization expense . . . . 5,688 ------------ 108,857,844 LIABILITIES Payable for: Securities purchased . . . . . . . . . . $398,508 Fund shares redeemed . . . . . . . . . . 132,279 Withholding taxes . . . . . . . . . . . 24 Accrued expenses: Management fees . . . . . . . . . . . . 110,121 Deferred trustees' fees . . . . . . . . 300 Other expenses . . . . . . . . . . . . . 27,586 -------- 668,818 ------------ $108,189,026 ============ NET ASSETS Net Assets consist of: Capital paid in . . . . . . . . . . . . $ 89,700,900 Undistributed net investment income . . 17,317 Accumulated net realized gains . . . . . 258,829 Unrealized appreciation on investments and foreign currency . . . 18,211,980 ------------ NET ASSETS . . . . . . . . . . . . . . . . $108,189,026 ============ Computation of offering price: Net asset value and redemption price per share ($108,189,026 divided by 6,723,469 shares of beneficial interest) . . . . . $ 16.09 ============ Identified cost of investments . . . . . . $ 89,704,033 ============
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME Dividends . . . . . . . . . . . . . . $ 1,003,895(a) Interest . . . . . . . . . . . . . . . 424,772 ----------- 1,428,667 EXPENSES Management fees . . . . . . . . . . . $495,948 Trustees' fees and expenses . . . . . 10,949 Custodian . . . . . . . . . . . . . . 71,633 Audit and tax services . . . . . . . . 13,200 Legal . . . . . . . . . . . . . . . . 11,567 Printing . . . . . . . . . . . . . . . 26,071 Amortization of organization expenses . . . . . . . . . . . . . . 2,017 Miscellaneous . . . . . . . . . . . . 5,661 -------- Total expenses . . . . . . . . . . . 637,046 Less expenses assumed by the investment adviser . . . . . . . . (41,906) 595,140 -------- ----------- NET INVESTMENT INCOME . . . . . . . . . 833,527 REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS Realized gain on: Investments--net . . . . . . . . . . 1,885,474 Unrealized appreciation on: Investments--net . . . . . . . . . . 14,269,076 Foreign currency transactions--net . 91 ----------- Total unrealized appreciation on investments and foreign currency transactions. . . . . . . . . . . . 14,269,167 ----------- Net gain on investment transactions . . 16,154,641 ----------- NET INCREASE IN NET ASSETS FROM OPERATIONS . . . . . . . . . . . . . . $16,988,168 ===========
(a) Net of foreign taxes of: $5,824. See accompanying notes to financial statements. 33 NEW ENGLAND ZENITH FUND (DAVIS VENTURE VALUE SERIES)
STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1995 1996 ------------ --------------- FROM OPERATIONS Net investment income . . . . . . . . . . . . $ 246,049 $ 833,527 Net realized gain on investments . . . . . . . 600,646 1,885,474 Unrealized appreciation on investments and foreign currency transactions . . . . . . . . 3,966,150 14,269,167 ----------- ------------ INCREASE IN NET ASSETS FROM OPERATIONS . . . . 4,812,845 16,988,168 ----------- ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income . . . . . . . . . . . . (244,485) (818,557) Net realized gain on investments . . . . . . . (517,278) (1,709,985) ----------- ------------ (761,763) (2,528,542) ----------- ------------ FROM CAPITAL SHARES TRANSACTIONS Proceeds from sale of shares . . . . . . . . . 31,372,928 73,335,902 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income . . 244,485 818,557 Distributions from net realized gain . . . . 517,278 1,709,985 ----------- ------------ 32,134,691 75,864,444 Cost of shares redeemed . . . . . . . . . . . (4,512,250) (17,180,011) ----------- ------------ INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS . . . . . . . . . . . . . 27,622,441 58,684,433 ----------- ------------ TOTAL INCREASE IN NET ASSETS . . . . . . . . . 31,673,523 73,144,059 NET ASSETS Beginning of the year . . . . . . . . . . . . 3,371,444 35,044,967 ----------- ------------ End of the year . . . . . . . . . . . . . . . $35,044,967 $108,189,026 =========== ============ UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the year . . . . . . . . . . . . $ 0 $ 3,911 =========== ============ End of the year . . . . . . . . . . . . . . . $ 3,911 $ 17,317 =========== ============ NUMBER OF SHARES OF THE FUND: Issued from the sale of shares . . . . . . . . 2,627,688 5,082,303 Issued in connection with the reinvestment of: Distributions from net investment income . . 18,850 49,916 Distributions from net realized gain . . . . 39,883 106,943 ----------- ------------ 2,686,421 5,239,162 Redeemed . . . . . . . . . . . . . . . . . . . (362,591) (1,190,115) ----------- ------------ Net change . . . . . . . . . . . . . . . . . . 2,323,830 4,049,047 =========== ============
FINANCIAL HIGHLIGHTS OCTOBER 31, 1994 (A) THROUGH YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 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 0.13 Net Realized and Unrealized Gain (Loss) on Investments. . . . . . . (0.38) 3.68 3.26 ------ ------- -------- Total From Investment Operations . . . . . . . (0.35) 3.78 3.39 ------ ------- -------- Less Distributions Dividends From Net Investment Income . . . (0.03) (0.10) (0.13) Distributions From Net Realized Capital Gains . 0.00 (0.20) (0.27) ------ ------- -------- Total Distributions . . . (0.03) (0.30) (0.40) ------ ------- -------- Net Asset Value, End of Period. . . . . . . . . . $ 9.62 $ 13.10 $ 16.09 ====== ======= ======== TOTAL RETURN (%) . . . . . (3.50)(c) 39.28 25.84 Ratio of Operating Expenses to Average Net Assets (%) . . . . . 0.90 (b) 0.90 0.90 Ratio of Net Investment Income to Average Net Assets (%) . . . . . . . 2.54 (b) 1.39 1.25 Portfolio Turnover Rate (%) . . . . . . . . 1 (b) 20 18 Average Commission Rate(d) . . . . . . . . . -- -- $ 0.0599 Net Assets, End of Period (000) . . . . . . $3,371 $35,045 $108,189 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 0.96
(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. 34 WESTPEAK GROWTH AND INCOME SERIES PORTFOLIO MANAGERS: GERALD SCRIVER AND PHILIP COOPER WESTPEAK INVESTMENT ADVISORS, L.P. [PHOTOS OF GERALD SCRIVER PHILIP COOPER] Q. HOW DID WESTPEAK GROWTH AND INCOME SERIES PERFORM IN 1996? For the year ended December 31, 1996, Westpeak Growth and Income delivered a total return of 18.10%. This compares with 22.90% for the S&P 500 Index/19/, the Series' benchmark. Most of this relative underperformance occurred in the first half of the year. As the year progressed, the Series began to close the gap, outperforming the S&P 500 in six of the last seven months of 1996. The Series' track record remains exceptional: An investment of $10,000 at the Series' inception date of April 30, 1993 would have grown to $18,189 by year-end 1996. This is a hypothetical value attributable to the Series since inception and does not include variable annuity and life insurance contract charges and expenses. Q. HOW DID YOU MANAGE THE SERIES IN 1996? Entering the year, our outlook for the U.S. economy was positive. As events played out, however, particularly in the first half of the year, the economy's continued vigor surpassed our expectations. The strong economy produced rising interest rates, accompanied by notable volatility in the nation's securities markets. These factors led us to believe that a continued rise in stock prices was limited. What's more, these conditions implied a weaker market environment ahead, one more favorable to value stocks--companies whose market prices appear low relative to their potential worth--than to growth stocks--those with expanding earnings. We therefore moved cautiously, tilting the Series' portfolio toward value investments and away from growth. By July our view had changed somewhat. Interest rates seemed likely to remain flat--although higher than in late 1995--as the economy's expansionary trend began to cool. Therefore we maintained a cautious position, focusing the portfolio on stocks that, while carrying lower price/earnings ratios (a measure of a stock's price relative to the company's earning power), than our S&P benchmark, appeared to offer attractive prospects for price appreciation. We also underestimated the remarkably strong and persistent cash flows into mutual funds. This record influx, coupled with an underlying tone of speculation and excitement over new issues, helped to drive the stock market higher. A heavy commitment to the regional telephone operating companies--the so-called Baby Bells, as well as some large international oil companies, hindered performance early in the year. These companies, selected for their value characteristics, underperformed despite their size and quality. Our decision to emphasize value stocks came too early. But during the second half of the year the market favored such stocks, enabling the Series to close part of the performance gap. We took advantage of downturns to build positions in IBM, Intel and Compaq Computer while they were available at attractive prices. These selections were very positive contributors to Series performance as the year progressed. Overall our conservative approach held Series performance back somewhat this year. But we prefer to stick to our established philosophy rather than deviate from it as markets ebb and flow. We hope that our avoidance of timing the market will reduce the effects of risk on your Series' portfolio over the long-term. Q. WHAT IS YOUR INVESTMENT OUTLOOK FOR THE MONTHS AHEAD? As is often the case, changes in interest rates are the most powerful influence on the stock market's direction. And a pickup in inflation, which has been modest by historical measures in recent years, would almost certainly bring Fed tightening. But taking a longer term view, we see a continued favorable investment scenario, marked by low inflation and good earnings growth. While there is some risk built into the current market environment, a drop in stock prices would cause investors' expectations to fall. This may create a very positive situation for long-term investors. 35 [A CHART APPEARS HERE COMPARING A $10,000 INVESTMENT IN THE SERIES AND AN INDEX]
Growth and Income Series S&P 500 4/30/93 10000 10000 12/31/93 11424 10819 12/31/94 11286 10966 12/31/95 15402 15072 12/31/96 18189 18524
FUND FACTS GOAL: Long-term total return through investment in equity securities. START DATE: May 1, 1993 SIZE: $82 million as of December 31, 1996. MANAGERS: Gerald Scriver and Philip Cooper. Mr. Scriver and Mr. Cooper have managed the Series from its inception in 1993; they also have managed Westpeak Stock Index Series since August 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. 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. 36 NEW ENGLAND ZENITH FUND (WESTPEAK GROWTH & INCOME SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
COMMON STOCKS--97.6% OF TOTAL NET ASSETS SHARES VALUE (A) AEROSPACE--3.0% 7,700 Boeing Co. . . . . . . . . . . . $ 819,087 25,600 United Technologies Corp. . . . . 1,689,600 ---------- 2,508,687 ---------- AGRICULTURE & FOOD--6.3% 44,500 Archer-Daniels-Midland Co. . . . 979,000 18,700 CPC International, Inc. . . . . . 1,449,250 28,800 IBP, Inc. . . . . . . . . . . . . 698,400 13,100 Tyson Foods, Inc. . . . . . . . . 448,675 9,300 Unilever NV . . . . . . . . . . . 1,629,825 ---------- 5,205,150 ---------- AIRLINES--0.2% 2,800 UAL, Inc.(c) . . . . . . . . . . 175,000 ---------- BANKS--7.7% 12,000 BankAmerica Corp. . . . . . . . . 1,197,000 8,300 Bankers Trust NY . . . . . . . . 715,875 40,000 Banponce Corp., New . . . . . . . 1,350,000 10,500 First Union Corp. . . . . . . . . 777,000 19,300 NationsBank Corp. . . . . . . . . 1,886,575 5,800 Republic NY Corp. . . . . . . . . 473,425 ---------- 6,399,875 ---------- BEVERAGE--0.9% 14,300 Coca-Cola Co. . . . . . . . . . . 752,537 ---------- BUSINESS MACHINES--5.2% 16,900 Compaq Computer Corp.(c) . . . . 1,254,825 11,400 International Business Machines . 1,721,400 23,100 Western Digital Corp.(c) . . . . 1,313,817 ---------- 4,290,042 ---------- CHEMICAL--3.3% 4,700 Albemarle Corp. . . . . . . . . . 85,188 22,500 Dow Chemical Co. . . . . . . . . 1,763,437 4,000 EI Du Pont de Nemours & Co. . . . 377,500 5,900 Rohm & Haas Co. . . . . . . . . . 481,587 ---------- 2,707,712 ---------- COMPUTER SOFTWARE & SERVICES--1.3% 27,500 Comdisco, Inc. . . . . . . . . . 873,125 3,600 Compuware Corp.(c) . . . . . . . 180,450 ---------- 1,053,575 ---------- COSMETICS--2.5% 42,000 Johnson & Johnson . . . . . . . . 2,089,500 ---------- DRUGS--7.2% 20,400 Abbott Laboratories . . . . . . . 1,035,300 7,900 Amgen, Inc.(c) . . . . . . . . 429,562 6,100 Bristol Myers & Squibb Co. . . . 663,375 20,800 Merck & Co. . . . . . . . . . . . 1,648,400 4,600 Pfizer, Inc. . . . . . . . . . . 381,225
SHARES VALUE (A) DRUGS--(CONTINUED) 9,300 Rhone Poulenc Rorer, Inc. . . . $ 726,562 15,800 Schering Plough Corp. . . . . . 1,023,050 ---------- 5,907,474 ---------- ELECTRIC UTILITIES--3.9% 27,700 Entergy Corp. . . . . . . . . . 768,675 52,900 Pinnacle West Capital Corp. . . 1,679,575 29,600 Unicom Corp. . . . . . . . . . . 802,900 ---------- 3,251,150 ---------- ELECTRONICS--2.6% 3,600 Intel Corp. . . . . . . . . . . 471,375 27,400 KLA Instruments Corp.(c) . . . . 972,700 6,100 SCI Systems, Inc.(c) . . . . . . 272,213 10,600 Tellabs, Inc.(c) . . . . . . . . 398,825 ---------- 2,115,113 ---------- FINANCIAL--SERVICES--3.2% 19,810 Bear Stearns Companies, Inc. . . 552,204 42,600 Lehman Brothers Holdings, Inc. . 1,336,575 9,500 Merrill Lynch & Co., Inc. . . . 774,250 ---------- 2,663,029 ---------- GAS UTILITIES--0.2% 5,000 Nicor, Inc. . . . . . . . . . . 178,750 ---------- HEALTHCARE--2.6% 28,800 OrNda Healthcorp.(c) . . . . . . 842,400 57,600 Tenet Healthcare Corp.(c) . . . 1,260,000 ---------- 2,102,400 ---------- INSURANCE--OTHER--3.7% 12,000 AMBAC, Inc.(c) . . . . . . . . . 796,500 3,000 CIGNA Corp. . . . . . . . . . . 409,875 15,100 Loews Corp. . . . . . . . . . . 1,423,175 16,650 Old Republic International Corp. . . . . . . . . . . . . . 445,387 ---------- 3,074,937 ---------- INTERNATIONAL OIL--5.2% 3,600 Chevron Corp. . . . . . . . . . 234,000 28,400 Exxon Corp. . . . . . . . . . . 2,783,200 10,500 Mobil Corp. . . . . . . . . . . 1,283,625 ---------- 4,300,825 ---------- LIFE INSURANCE--1.0% 12,300 Conseco, Inc. . . . . . . . . . 784,125 ---------- MEDIA--1.0% 22,100 King World Productions(c) . . . 814,937 ---------- METALS--1.1% 11,500 Asarco, Inc. . . . . . . . . . . 286,062 9,000 Phelps Dodge Corp. . . . . . . . 607,500 ---------- 893,562 ----------
See accompanying notes to financial statements. 37 NEW ENGLAND ZENITH FUND (WESTPEAK GROWTH & INCOME SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
COMMON STOCKS--(CONTINUED) SHARES VALUE (A) MISCELLANEOUS--0.1% 5,600 American Water Works, Inc. . . . $ 115,500 ---------- MORTGAGE--1.2% 16,600 Federal National Mortgage Assoc. 618,350 8,700 Green Tree Financial Corp. . . . 336,037 ---------- 954,387 ---------- MOTOR VEHICLES--1.8% 22,500 Chrysler Corp. . . . . . . . . . 742,500 13,900 General Motors Corp. . . . . . . 774,925 ---------- 1,517,425 ---------- OIL REFINEMENT/DISTRIBUTION--2.6% 12,400 Royal Dutch Petroleum Co. . . . 2,117,300 ---------- OIL SERVICE--0.3% 8,700 Noble Drilling Corp.(c) . . . . 172,913 2,000 Rowan Companies(c) . . . . . . . 45,250 ---------- 218,163 ---------- OIL RESERVES--3.1% 14,800 Amoco Corp. . . . . . . . . . . 1,191,400 9,300 National Fuel Gas Co. . . . . . 383,625 21,200 Phillips Petroleum Co. . . . . . 938,100 ---------- 2,513,125 ---------- PAPER--3.3% 9,200 Champion International Corp. . . 397,900 7,800 Georgia-Pacific Corp. . . . . . 561,600 24,400 Mead Corp. . . . . . . . . . . . 1,418,250 8,300 Rayonier, Inc. . . . . . . . . . 318,512 ---------- 2,696,262 ---------- PHOTOGRAPHY--1.5% 14,900 Eastman Kodak Co. . . . . . . . 1,195,725 ---------- PRODUCER OF GOODS--5.6% 8,300 Applied Materials, Inc.(c) . . . 298,282 5,500 Case Corp. . . . . . . . . . . . 299,750 24,300 Caterpillar Tractor Co. . . . . 1,828,575 9,800 Harsco Corp. . . . . . . . . . . 671,300 8,300 Illinois Tool Works, Inc. . . . 662,962 38,400 Premark International, Inc. . . 854,400 ---------- 4,615,269 ---------- PUBLISHING--1.0% 39,300 Moore Corp., Ltd. . . . . . . . 800,737 ---------- RAILROAD--1.5% 29,100 CSX Corp. . . . . . . . . . . . 1,229,475 ----------
SHARES VALUE (A) RETAIL--3.0% 19,000 Dayton Hudson Corp. . . . . . . $ 745,750 6,598 Eckerd Corp.(c) . . . . . . . . 211,136 10,700 Gap, Inc. . . . . . . . . . . . 322,337 12,700 Mercantile Stores Co., Inc. . . 627,062 2,800 Tiffany & Co., New . . . . . . 102,550 9,300 TJX Companies, Inc. . . . . . . 440,587 ----------- 2,449,422 ----------- SAVINGS & LOAN--1.5% 1,900 Ahmanson & Co. . . . . . . . . 61,750 20,300 Dime Bancorp(c) . . . . . . . . 299,425 6,600 Golden West Financial Corp. del . . . . . . . . . . . . . 416,625 7,400 Standard Federal Bancorp. . . . 420,875 ----------- 1,198,675 ----------- SERVICES--0.2% 2,800 Omnicom Group . . . . . . . . . 128,100 ----------- SOAPS--0.1% 2,500 First Brands Corp. . . . . . . 70,938 ----------- STEEL--1.3% 34,900 USX-U.S. Steel Group . . . . . 1,094,987 ----------- TELEPHONE--6.4% 28,000 Ameritech Corp. . . . . . . . . 1,697,500 24,600 Bell Atlantic Corp. . . . . . . 1,592,850 22,400 Bell South Corp. . . . . . . . 904,400 24,100 MCI Communications . . . . . . 787,769 9,900 Sprint Corp. . . . . . . . . . 394,763 ----------- 5,377,282 ----------- TIRES AND RUBBER GOODS--1.0% 15,400 Goodyear Tire & Rubber Co. . . 791,175 ----------- Total Common Stocks (Identified Cost $70,424,057) 80,352,327 ------------
See accompanying notes to financial statements. 38 NEW ENGLAND ZENITH FUND (WESTPEAK GROWTH & INCOME SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
SHORT-TERM INVESTMENT--2.3% FACE AMOUNT VALUE (A) $1,900,000 Repurchase agreement with State Street Bank & Trust Company dated 12/31/96 at 4.75% to be repurchased at $1,900,501 on 1/2/97. Collaterized by $1,515,000 U.S. Treasury Bond 8.875% due 8/15/97 with a value of $1,941,568 . . . . . . . . . . . . . . . . $ 1,900,000 ----------- Total Short-Term Investment (Identified cost $1,900,000) . . . . . . . 1,900,000 ----------- Total Investments --99.9% (Identified cost $72,324,057)(b) . . . . . 82,252,327 Other assets less liabilities . . . . . . . 77,816 ----------- TOTAL NET ASSETS--100% . . . . . . . . . . $82,330,143 ===========
(a) See Note 1A. (b) Federal Tax Information: At December 31,1996 the net unrealized appreciation on investments based on cost of $72,331,708 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 . . . . . . . . . . . . . $10,880,192 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value . . . . . . . . . . . . . . . (959,573) ----------- Net unrealized appreciation . . . . . . . . . . $ 9,920,619 ===========
(c) Non-income producing security. See accompanying notes to financial statements. 39 NEW ENGLAND ZENITH FUND (WESTPEAK GROWTH & INCOME SERIES)
STATEMENT OF ASSETS & LIABILITIES DECEMBER 31, 1996 ASSETS Investments at value . . . . . . . . . . . . $82,252,327 Cash . . . . . . . . . . . . . . . . . . . . 728 Receivable for: Fund shares sold . . . . . . . . . . . . . . 129,763 Dividends and interest . . . . . . . . . . . 115,999 ----------- 82,498,817 LIABILITIES Payable for: Fund shares redeemed . . . . . . . . . . . . $59,014 Withholding taxes . . . . . . . . . . . . . 565 Miscellaneous . . . . . . . . . . . . . . . 471 Accrued expenses: Management fees . . . . . . . . . . . . . . 79,576 Deferred trustees' fees . . . . . . . . . . 1,102 Other expenses . . . . . . . . . . . . . . . 27,946 ------- 168,674 ----------- $82,330,143 =========== NET ASSETS Net Assets consist of: Capital paid in . . . . . . . . . . . . . . $70,263,879 Undistributed net investment income . . . . 469 Accumulated net realized gains . . . . . . . 2,137,525 Unrealized appreciation on investments . . . . . . . . . . . . . . . . 9,928,270 ----------- NET ASSETS . . . . . . . . . . . . . . . . . . $82,330,143 =========== Computation of offering price: Net asset value and redemption price per share ($82,330,143 divided by 542,449 shares of beneficial interest) . . . . . . . . . . . . $ 151.77 =========== Identified cost of investments . . . . . . . . $72,324,057 ===========
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME Dividends . . . . . . . . . . . . $ 1,301,995(a) Interest . . . . . . . . . . . . . 127,382 ----------- 1,429,377 EXPENSES Management fees . . . . . . . . . $443,509 Trustees' fees and expenses . . . 11,505 Custodian . . . . . . . . . . . . 57,352 Audit and tax services . . . . . . 13,200 Legal . . . . . . . . . . . . . . 11,564 Printing . . . . . . . . . . . . . 35,527 Miscellaneous . . . . . . . . . . 3,883 -------- Total expenses . . . . . . . . . 576,540 Less expenses assumed by the investment adviser . . . . . . (37,994) 538,546 -------- ----------- NET INVESTMENT INCOME . . . . . . . 890,831 REALIZED AND UNREALIZED GAIN ON INVESTMENTS Realized gain on: Investments--net . . . . . . . . 8,163,321 Unrealized appreciation on: Investments--net . . . . . . . . 2,277,386 ----------- Net gain on investment transactions 10,440,707 ----------- NET INCREASE IN NET ASSETS FROM OPERATIONS . . . . . . . . . . . . $11,331,538 ===========
(a) Net of foreign taxes of: $6,549. See accompanying notes to financial statements. 40 NEW ENGLAND ZENITH FUND (WESTPEAK GROWTH & INCOME SERIES)
STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1995 1996 ------------ --------------- FROM OPERATIONS Net investment income . . . . . . . . . . . . $ 563,717 $ 890,831 Net realized gain on investments . . . . . . . 2,941,365 8,163,321 Unrealized appreciation on investments . . . . 6,907,865 2,277,386 ----------- ------------ INCREASE IN NET ASSETS FROM OPERATIONS . . . . 10,412,947 11,331,538 ----------- ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income . . . . . . . . . . . . (549,852) (904,227) Net realized gain on investments . . . . . . . (1,825,459) (6,507,691) ----------- ------------ (2,375,311) (7,411,918) ----------- ------------ FROM CAPITAL SHARES TRANSACTIONS Proceeds from sale of shares . . . . . . . . . 22,945,280 35,852,491 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income . . 549,852 904,227 Distributions from net realized gain . . . . 1,825,459 6,507,691 ----------- ------------ 25,320,591 43,264,409 Cost of shares redeemed . . . . . . . . . . . (8,163,352) (12,982,923) ----------- ------------ INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS . . . . . . . . . . . . . 17,157,239 30,281,486 ----------- ------------ TOTAL INCREASE IN NET ASSETS . . . . . . . . . 25,194,875 34,201,106 NET ASSETS Beginning of the year . . . . . . . . . . . . 22,934,162 48,129,037 ----------- ------------ End of the year . . . . . . . . . . . . . . . $48,129,037 $ 82,330,143 =========== ============ UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the year . . . . . . . . . . . . $ 0 $ 13,865 =========== ============ End of the year . . . . . . . . . . . . . . . $ 13,865 $ 469 =========== ============ NUMBER OF SHARES OF THE FUND: Issued from the sale of shares . . . . . . . . 175,593 239,114 Issued in connection with the reinvestment of: Distributions from net investment income . . 3,932 5,851 Distributions from net realized gain . . . . 13,054 42,976 ----------- ------------ 192,579 287,941 Redeemed . . . . . . . . . . . . . . . . . . . (62,314) (86,095) ----------- ------------ Net change . . . . . . . . . . . . . . . . . . 130,265 201,846 =========== ============
FINANCIAL HIGHLIGHTS APRIL 30, 1993 (A) YEAR YEAR YEAR THROUGH ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 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 1.78 Net Realized and Unrealized Gain (Loss) on Investments . . . . 13.33 (3.25) 37.91 23.69 ------- ------- ------- ------- Total From Investment Operations. . . . . 14.25 (1.35) 39.68 25.47 ------- ------- ------- ------- Less Distributions Dividends From Net Investment Income . (0.92) (1.92) (1.71) (1.82) Distributions From Net Realized Capital Gains . . . . . . . (1.00) 0.00 (5.69) (13.19) 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) (15.01) ------- ------- ------- ------- Net Asset Value, End of Period . . . . . $112.32 $109.03 $141.31 $151.77 ======= ======= ======= ======= TOTAL RETURN (%) . . 14.24(c) (1.21) 36.46 18.10 Ratio of Operating Expenses to Average Net Assets (%) . . . 0.85(b) 0.85 0.85 0.85 Ratio of Net Investment Income to Average Net Assets (%) . . . . . 2.16(b) 2.30 1.63 1.40 Portfolio Turnover Rate (%) . . . . . . 49(b) 133 92 104 Average Commission Rate(d). . . . . . . -- -- -- $0.0344 Net Assets, End of Period (000) . . . . $ 9,082 $22,934 $48,129 $82,330 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 0.91
(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 spread on shares traded on a principal basis. See accompanying notes to financial statements. 41 WESTPEAK STOCK INDEX SERIES PORTFOLIO MANAGERS: GERALD SCRIVER AND PHILIP COOPER WESTPEAK INVESTMENT ADVISORS, L. P. [PHOTOS OF GERALD SCRIVER & PHILIP COOPER] Q. HOW DID THE WESTPEAK STOCK INDEX SERIES PERFORM IN 1996? A. The Westpeak Stock Index Series returned 22.47% compared to 22.90% posted by the S&P 500 Index/19/ for the fiscal year ended December 31, 1996. The backdrop for the continued market success was the continued low interest rate environment with little action from the Federal Reserve Board to raise interest rates. Q. HOW DID YOU MANAGE THE SERIES IN 1996? A. The Series' seeks to track the performance of the S&P 500 Stock Index. Our approach is to own all of the 500 stocks in the Index in the same proportion as the Index. The past year was a difficult year for actively managed Funds to keep pace. This was due to the fact that much of the most profitable returns came from a small concentration of stocks such as Microsoft and Intel. Q. WHAT IS THE OUTLOOK FOR THE MONTHS AHEAD? A. Although recent market returns may not be sustainable in 1997, the Westpeak Stock Index Series seeks to maintain full participation in S&P 500 returns. [A CHART APPEARS HERE WHICH COMPARES A $10,000 INVESTMENT VERSUS AN INDEX]
Stock Index Series S&P 500 4/30/87 10000 10000 1987 8780 8770 1988 10215 10216 1989 13294 13444 1990 12743 13025 1991 16614 16976 1992 17826 18268 1993 19560 20101 1994 19783 20374 1995 27079 28003 1996 33163 34415
FUND FACTS GOAL: Investment results that correspond to the composite price and yield performance of United States publicly traded common stocks. START DATE: May 1, 1987. SIZE: $81 million as of December 31, 1996 MANAGERS: Gerald Scriver and Philip Cooper. Mr. Scriver and Mr. Cooper have managed the Series since 1993; they have also managed Westpeak Growth and Income Series since August 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. 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. 42 NEW ENGLAND ZENITH FUND (WESTPEAK STOCK INDEX SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
COMMON STOCKS--99.4% OF TOTAL NET ASSETS SHARES VALUE (A) AEROSPACE--2.0% 4,100 Allied Signal, Inc. . . . . . . . $ 274,700 5,247 Boeing Co. . . . . . . . . . . . 558,150 900 General Dynamics Corp. . . . . . . 63,450 2,815 Lockheed Martin Corp. . . . . . . 257,573 3,000 McDonnell Douglas Corp. . . . . . . 192,000 900 Northrop Grumman Corp. . . . . . . 74,475 3,500 United Technologies Corp. . . . . . 231,000 ---------- 1,651,348 ---------- AGRICULTURE AND FOOD--2.8% 7,725 Archer-Daniels-Midland Co. . . . . 169,950 3,300 Campbell Soup Co. . . . . . . . . . 264,825 3,250 Conagra, Inc. . . . . . . . . . . 161,687 2,100 CPC International, Inc. . . . . . . 162,750 2,200 General Mills, Inc. . . . . . . . . 139,425 5,200 H.J. Heinz Co. . . . . . . . . . . 185,900 2,200 Hershey Foods Corp. . . . . . . . . 96,250 2,900 Kellogg Co. . . . . . . . . . . . . 190,312 1,200 Pioneer Hi Bred International, Inc. . . . . . . . . . . . . . . . 84,000 1,900 Quaker Oats Co. . . . . . . . . . 72,437 7,000 Sara Lee Corp. . . . . . . . . . 260,750 2,200 Unilever N.V. . . . . . . . . . . . 385,550 1,800 William Wrigley Jr. Co. . . . . . . 101,250 ---------- 2,275,086 ---------- AIR TRANSPORT--0.4% 1,400 AMR Corp.(c) . . . . . . . . . . . 123,375 1,100 Delta Airlines, Inc. . . . . . . 77,963 1,600 Federal Express Corp.(c) . . . . . 71,200 2,100 Southwest Airlines Co. . . . . . . 46,463 900 US Air Group, Inc.(c) . . . . . . . 21,038 ---------- 340,039 ---------- ALUMINUM--0.4% 3,200 Alcan Aluminum, Ltd. . . . . . . . 107,600 2,500 Aluminum Company of America . . . . 159,375 900 Reynolds Metals Co. . . . . . . . 50,738 ---------- 317,713 ---------- APPAREL--0.6% 1,000 Fruit of the Loom, Inc. . . . . . . 37,875 1,000 Liz Claiborne, Inc. . . . . . . . . 38,625 4,000 Nike, Inc. . . . . . . . . . . . . 239,000 800 Reebok International Ltd. . . . . 33,600 600 Russell Corp. . . . . . . . . . . . 17,850 100 Springs Industries, Inc. . . . . 4,300 700 Stride Rite Corp. . . . . . . . . 7,000 1,000 VF Corp. . . . . . . . . . . . . . 67,500 ---------- 445,750 ---------- BANKS--7.5% 6,175 Banc One Corp. . . . . . . . . . . 265,525 2,200 Bank of Boston Corp. . . . . . . 141,350 5,400 Bank of New York, Inc. . . . . . . 182,250
SHARES VALUE (A) 4,928 BankAmerica Corp. . . . . . . . . . $ 491,568 900 Bankers Trust New York Corp. . . . . 77,625 2,600 Barnett Banks of Florida, Inc. . . . 106,925 2,000 Boatmens Bancshares, Inc. . . . . . . 129,000 6,070 Chase Manhattan Corp. . . . . . . . . 541,747 6,700 Citicorp(c) . . . . . . . . . . . . . 690,100 1,600 Comerica, Inc. . . . . . . . . . . 83,800 3,200 Core States Financial Corp. . . . . . 166,000 1,300 Fifth Third Bancorp. . . . . . . . . 81,656 1,900 First Bank Systems, Inc. . . . . . 129,675 4,510 First Chicago Corp. . . . . . . . . . 242,412 3,950 First U.N. Corp. . . . . . . . . . 292,300 3,662 Fleet Financial Group, Inc. . . . . . 182,642 2,600 J.P. Morgan & Co., Inc. . . . . . . . 253,825 3,100 Keycorp . . . . . . . . . . . . . . . 156,550 1,750 Mellon Bank Corp. . . . . . . . . . 124,250 3,100 National City Corp. . . . . . . . . . 139,112 4,016 Nationsbank Corp. . . . . . . . . . . 392,564 5,100 Norwest Corp. . . . . . . . . . . . 221,850 4,800 PNC Bank Corp. . . . . . . . . . . 180,600 800 Republic New York Corp. . . . . . . 65,300 3,200 Suntrust Banks, Inc. . . . . . . . 157,600 2,200 U.S. Bancorp. . . . . . . . . . . . . 98,863 2,300 Wachovia Corp. . . . . . . . . . . . 129,950 1,333 Wells Fargo & Co. . . . . . . . . . 359,577 ---------- 6,084,616 ---------- BEVERAGES--3.1% 35,300 Coca Cola Co. . . . . . . . . . . . . 1,857,662 22,400 PepsiCo, Inc. . . . . . . . . . . . . 655,200 1,300 Whitman Corp. . . . . . . . . . . . 29,738 ---------- 2,542,600 ---------- BUSINESS MACHINES--5.2% 2,300 3Com Corp. . . . . . . . . . . . . . 168,762 1,600 Alco Standard Corp. . . . . . . . . . 82,600 1,700 Amdahl Corporation(c) . . . . . . . . 20,612 1,900 Apple Computer, Inc. . . . . . . . 39,662 2,800 Bay Networks, Inc. . . . . . . . . 58,450 2,000 Cabletron Systems, Inc.(c) . . . . . 66,500 9,400 Cisco Systems, Inc. . . . . . . . . 598,075 3,800 Compaq Computer Corp.(c) . . . . . . 282,150 600 Data General Corp.(c) . . . . . . . . 8,700 2,400 Dell Computer Corp. . . . . . . . . . 127,500 2,200 Digital Equipment Corp.(c) . . . . . 80,025 3,200 EMC Corp. . . . . . . . . . . . . . . 106,000 14,400 Hewlett-Packard Co. . . . . . . . . 723,600 7,300 International Business Machines Corp. . . . . . . . . . . . . . . . 1,102,300 2,000 Pitney Bowes, Inc. . . . . . . . . . 109,000 3,200 Seagate Technology . . . . . . . . . 126,400 2,500 Silicon Graphics, Inc.(c) . . . . . . 63,750 5,300 Sun Microsystems, Inc.(c) . . . . . . 136,144 1,800 Tandem Computers, Inc.(c) . . . . . . 24,750 2,500 Unisys, Corp.(c) . . . . . . . . . . 16,875 4,500 Xerox Corp. . . . . . . . . . . . . 236,813 ---------- 4,178,668 ----------
See accompanying notes to financial statements. 43 NEW ENGLAND ZENITH FUND (WESTPEAK STOCK INDEX SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
COMMON STOCKS--(CONTINUED) SHARES VALUE (A) CHEMICALS--3.2% 1,500 Air Products and Chemicals, Inc. . . . . . . . . $ 103,687 900 Ashland, Inc. . . . . . . . . . 39,488 1,500 Avery Dennison Corp. . . . . . . 53,063 700 B.F. Goodrich Co. . . . . . . . 28,350 3,450 Dow Chemical Co. . . . . . . . . 270,394 1,100 Eastman Chemical Co. . . . . . . 60,775 8,100 E.I. Du Pont de Nemours & Co. . 764,437 2,025 Engelhard Corp. . . . . . . . . 38,728 500 FMC Corp.(c) . . . . . . . . . . 35,063 800 Great Lakes Chemical Corp. . . . 37,400 1,500 Hercules, Inc. . . . . . . . . . 64,875 8,500 Monsanto Co. . . . . . . . . . . 330,437 2,100 Morton International, Inc. . . . 85,575 1,000 Nalco Chemical Co. . . . . . . . 36,125 4,700 Occidental Petroleum Corp. . . . 109,862 2,600 PPG Industries, Inc. . . . . . . 145,925 2,100 Praxair, Inc. . . . . . . . . . 96,862 1,000 Rohm & Haas Co. . . . . . . . . 81,625 700 Sigma-Aldrich Corp. . . . . . . 43,706 1,700 Union Carbide Corp. . . . . . . 69,488 1,300 W.R. Grace & Co. . . . . . . . . 67,275 ---------- 2,563,140 ---------- CONSTRUCTION--0.4% 600 Armstrong World Industries, Inc. . . . . . . . 41,700 400 Centex Corp. . . . . . . . . . . 15,050 1,200 Fluor Corp. . . . . . . . . . . 75,300 600 Kaufman & Broad Home Corp. . . . 7,725 2,300 Masco Corp. . . . . . . . . . . 82,800 1,200 Sherwin Williams Co. . . . . . . 67,200 ---------- 289,775 ---------- CONSUMER DURABLES--0.1% 1,300 Black & Decker Corp. . . . . . . 39,163 1,400 Maytag Corp. . . . . . . . . . . 27,650 1,000 Whirlpool Corp. . . . . . . . . 46,625 ---------- 113,438 ---------- CONTAINERS--0.4% 200 Ball Corp. . . . . . . . . . . . 5,200 700 Bemis, Inc. . . . . . . . . . . 25,813 1,800 Crown Cork & Seal, Inc.(c) . . . 97,875 900 Temple Inland, Inc. . . . . . . 48,713 2,400 Tenneco, Inc. . . . . . . . . . 108,300 ---------- 285,901 ---------- COSMETICS--1.3% 200 Alberto Culver Co. . . . . . . . 9,600 1,900 Avon Products, Inc. . . . . . . 108,537 19,200 Johnson & Johnson . . . . . . . 955,200 ---------- 1,073,337 ----------
SHARES VALUE (A) DOMESTIC OIL RESERVES--1.7% 7,200 Amoco Corp. . . . . . . . . . . . . $ 579,600 2,300 Atlantic Richfield Co. . . . . . . 304,750 1,600 Burlington Resources, Inc. . . . . 80,600 400 Louisiana Land & Exploration . . . 21,450 800 Pennzoil Co. . . . . . . . . . . . 45,200 3,800 Phillips Petroleum Co. . . . . . . 168,150 1,311 Santa Fe Energy Research, Inc.(c) . 18,190 3,464 Union Pacific Resources Group, Inc. . . . . . . . . . . . 101,322 2,400 Williams Companies, Inc. . . . . . 90,000 ---------- 1,409,262 ---------- DRUGS & MEDICINE--7.2% 11,200 Abbott Laboratories, Inc. . . . . . 568,400 900 Allergan, Inc. . . . . . . . . . . 32,063 1,200 Alza Corp.(c) . . . . . . . . . . . 31,050 9,200 American Home Products Corp. . . . 539,350 3,800 Amgen, Inc.(c) . . . . . . . . . . 206,625 7,240 Bristol Myers & Squibb Co. . . . . 787,350 7,700 Eli Lilly & Co. . . . . . . . . . . 562,100 1,100 Mallinckrodt Group, Inc. . . . . . 48,537 17,400 Merck & Co., Inc. . . . . . . . . . 1,378,950 9,300 Pfizer, Inc. . . . . . . . . . . . 770,737 7,180 Pharmacia & Upjohn, Inc. . . . . . 284,507 5,100 Schering-Plough Corp. . . . . . . . 330,225 4,000 Warner-Lambert Co. . . . . . . . . 300,000 ---------- 5,839,894 ---------- ELECTRIC UTILITIES--2.8% 2,500 American Electric Power Co., Inc. . 102,812 2,100 Baltimore Gas & Electric Co. . . . 56,175 2,200 Carolina Power & Light Co. . . . . 80,300 2,900 Central & South West Corp. . . . . 74,313 2,211 Cinergy Corp. . . . . . . . . . . . 73,792 3,400 Consolidated Edison Co. of New York . . . . . . . . . . . . . 99,450 2,350 Dominion Resources, Inc. . . . . . 90,475 2,100 DTE Energy Co. . . . . . . . . . . 67,988 2,800 Duke Power Co. . . . . . . . . . . 129,500 6,200 Edison International . . . . . . . 123,225 3,200 Entergy Corp. . . . . . . . . . . . 88,800 2,600 FPL Group, Inc. . . . . . . . . . . 119,600 1,500 GPU, Inc. . . . . . . . . . . . . . 50,437 3,400 Houston Industries, Inc. . . . . . 76,925 2,000 Niagara Mohawk Power Corp. . . . . 19,750 900 Northern States Power Co. . . . . . 41,288 2,100 Ohio Edison Co. . . . . . . . . . . 47,775 5,900 Pacific Gas & Electric Corp. . . . 123,900 4,000 Pacificorp . . . . . . . . . . . . 82,000 3,200 PECO Energy Co. . . . . . . . . . . 80,800 2,300 P.P. & L Res, Inc. . . . . . . . . 52,900 3,200 Public Service Enterprise Group . . 87,200 9,700 Southern Co. . . . . . . . . . . . 219,462 3,100 Texas Utilities Co. . . . . . . . . 126,325 3,200 Unicom Corp. . . . . . . . . . . . 86,800 1,400 Union Electric Co. . . . . . . . . 53,900 ---------- 2,255,892 ----------
See accompanying notes to financial statements. 44 NEW ENGLAND ZENITH FUND (WESTPEAK STOCK INDEX SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
COMMON STOCKS--(CONTINUED) SHARES VALUE (A) ELECTRONICS--4.8% 1,900 Advanced Micro Devices, Inc.(c) . . . . . . . . . . . $ 48,925 2,632 Allegheny Teldyne, Inc. . . . . 60,536 3,056 AMP, Inc. . . . . . . . . . . . 117,274 887 Andrew Corp.(c) . . . . . . . . 47,066 1,600 Cooper Industries, Inc. . . . . 67,400 500 Harris Corp. . . . . . . . . . 34,312 1,700 Honeywell, Inc. . . . . . . . . 111,775 11,900 Intel Corp. . . . . . . . . . . 1,558,156 2,000 LSI Logic Corp.(c) . . . . . . 53,500 3,000 Micron Technology, Inc. . . . . 87,375 8,500 Motorola, Inc. . . . . . . . . 521,687 1,900 National Semiconductor Corp.(c) 46,312 3,600 Northern Telecom, Ltd. . . . . 222,750 600 Raychem Corp. . . . . . . . . . 48,075 3,300 Raytheon Co. . . . . . . . . . 158,812 3,500 Rockwell International Corp. . 213,062 1,100 Scientific Atlanta, Inc. . . . 16,500 500 Tektronix, Inc. . . . . . . . . 25,625 2,600 Tellabs, Inc.(c) . . . . . . . 97,825 2,600 Texas Instruments, Inc. . . . . 165,750 600 Thomas & Betts Corp. . . . . . 26,625 8,900 U.S. West Media Group, Inc.(c) . . . . . . . . . . . 164,650 ---------- 3,893,992 ---------- FINANCE--2.0% 6,900 American Express Co. . . . . . 389,850 800 Beneficial Corp. . . . . . . . 50,700 2,402 Dean Witter, Discover & Co. . . 159,132 1,200 Household International, Inc. . 110,700 3,325 MBNA Corp. . . . . . . . . . . 137,987 2,300 Merrill Lynch & Co., Inc. . . . 187,450 2,000 Morgan Stanley Group, Inc. . . 114,250 1,600 Salomon, Inc. . . . . . . . . . 75,400 9,168 Travelers Group, Inc. . . . . . 415,998 ---------- 1,641,467 ---------- FOREIGN OIL RESERVES--0.1% 700 Kerr McGee Corp. . . . . . . . 50,400 ---------- FOREST PRODUCTS--0.0% 1,600 Louisiana Pacific Corp. . . . . 33,800 ---------- GAS UTILITIES--0.7% 900 Columbia Gas System, Inc.(c) . 57,263 1,300 Consolidated Natural Gas Co. . 71,825 300 Eastern Enterprises . . . . . . 10,612 3,600 Enron Corp. . . . . . . . . . . 155,250 900 Ensearch Corp. . . . . . . . . 20,700 700 Nicor, Inc. . . . . . . . . . . 25,025 1,900 Noram Energy Corp. . . . . . . 29,212 200 Oneok, Inc. . . . . . . . . . . 6,000 1,100 Pacific Enterprises, Ltd. . . . 33,412 2,229 PanEnergy Corp. . . . . . . . . 100,305 500 Peoples Energy Corp. . . . . . 16,937 1,000 Sonat, Inc. . . . . . . . . . . 51,500 ---------- 578,041 ----------
SHARES VALUE (A) HEALTH CARE--1.9% 800 Bausch & Lomb, Inc. . . . . $ 28,000 3,800 Baxter International, Inc. . 155,800 1,700 Becton Dickinson & Co. . . . 73,738 1,300 Beverly Enterprises, Inc.(c) . . . . . . . . . . 16,575 1,700 Biomet, Inc.(c) . . . . . . 25,713 2,600 Boston Scientific Corp.(c) . 156,000 9,686 Columbia Healthcare Corp. . 394,704 800 C.R. Bard, Inc. . . . . . . 22,400 1,100 Guidant Corp. . . . . . . . 62,700 2,300 Humana, Inc.(c) . . . . . . 43,987 900 Manor Care, Inc. . . . . . . 24,300 3,600 Medtronics, Inc. . . . . . . 244,800 400 Millipore Corp. . . . . . . 16,550 1,100 St. Jude Medical, Inc.(c) . 46,888 3,000 Tenet Healthcare Corp.(c) . 65,625 2,800 United Healthcare Corp. . . 126,000 900 United States Surgical Corp. . . . . . . . . . . . 35,438 ---------- 1,539,218 ---------- HOTELS AND RESTAURANTS--1.1% 2,200 Darden Restaurants, Inc.(c) . . . . . . . . . . 19,250 1,450 Harrahs Entertainment, Inc. . . . . . . . . . . . 28,819 1,900 HFS, Inc. . . . . . . . . . 113,525 3,600 Hilton Hotels Corp. . . . . 94,050 1,600 ITT Corp. New . . . . . . . 69,400 1,800 Marriott International, Inc. . . . . . . . . . . . 99,450 10,100 McDonald's Corp. . . . . . . 457,025 1,800 Wendys International, Inc. . 36,900 ---------- 918,419 ---------- INTERNATIONAL OIL--4.4% 9,400 Chevron Corp. . . . . . . . 611,000 17,900 Exxon Corp. . . . . . . . . 1,754,200 5,700 Mobil Corp. . . . . . . . . 696,825 1,500 Oryx Energy Corp.(c) . . . . 37,125 3,700 Texaco, Inc. . . . . . . . . 363,063 ---------- 3,462,213 ---------- LEISURE--0.3% 1,200 Brunswick Corp. . . . . . . 28,800 1,200 Hasbro, Inc. . . . . . . . . 46,650 3,750 Mattel, Inc. . . . . . . . . 104,062 ---------- 179,512 ---------- LIFE INSURANCE--0.8% 2,283 Aetna Life and Casualty Co. . . . . . . . . . . . . 182,640 2,900 American General Corp. . . . 118,537 1,025 Jefferson Pilot Corp. . . . 58,041 1,400 Lincoln National Corp., Inc. . . . . . . . . . . . 73,500 1,400 Providian Corp. . . . . . . 71,925 1,000 Transamerica Corp. . . . . . 79,000 450 USLife Corp. . . . . . . . . 14,963 ---------- 598,606 ----------
See accompanying notes to financial statements. 45 NEW ENGLAND ZENITH FUND (WESTPEAK STOCK INDEX SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
COMMON STOCKS--(CONTINUED) SHARES VALUE (A) LIQUOR--0.7% 300 Adolph Coors Co. . . . . . . . . . . $ 5,700 7,000 Anheuser-Busch Companies, Inc. . . . 280,000 1,100 Brown Forman Corp. "B" . . . . . . . 50,325 5,400 Seagram Company, Ltd. . . . . . . . . 209,250 ---------- 545,275 ---------- MEDIA--2.1% 4,600 Comcast Corp. . . . . . . . . . . . . 81,938 1,900 General Instrument Corp. . . . . . . 41,087 450 King World Productions, Inc.(c) . . . 16,594 9,600 Tele-Communications A(c) . . . . . . 125,400 8,000 Time-Warner, Inc. . . . . . . . . . . 300,000 1,000 Tribune Co. . . . . . . . . . . . . . 78,875 4,857 Viacom, Inc.(c) . . . . . . . . . . . 169,388 9,798 Walt Disney Co. . . . . . . . . . . . 682,186 9,000 Westinghouse Electric Corp. . . . . . 178,875 ---------- 1,674,343 ---------- MISCELLANEOUS FINANCE--0.1% 1,500 H & R Block, Inc. . . . . . . . . . . 43,500 ---------- MISCELLANEOUS MINING--0.2% 600 Asarco, Inc. . . . . . . . . . . . . 14,925 1,250 Cyprus Amax Minerals Co. . . . . . . 29,219 2,400 Inco, Ltd. . . . . . . . . . . . . . 76,500 1,000 Phelps Dodge Corp. . . . . . . . . . 67,500 ---------- 188,144 ---------- MORTGAGE--1.1% 2,400 Federal Home Loan Mortgage Corp. . . 264,300 15,700 Federal National Mortgage Association . . . . . . . . . . . . 584,825 1,800 Green Tree Acceptance Corp. . . . . . 69,525 ---------- 918,650 ---------- MOTOR VEHICLES--2.1% 10,600 Chrysler Corp. . . . . . . . . . . . 349,800 1,300 Dana Corp. . . . . . . . . . . . . . 42,413 900 Echlin, Inc. . . . . . . . . . . . . 28,462 500 Fleetwood Enterprises, Inc. . . . . . 13,750 17,100 Ford Motor Co. . . . . . . . . . . . 545,062 10,400 General Motors Corp. . . . . . . . . 579,800 1,220 Navistar International Corp., Inc.(c) . . . . . . . . . . . 11,132 645 Paccar, Inc. . . . . . . . . . . . . 43,860 1,800 TRW, Inc. . . . . . . . . . . . . . . 89,100 ---------- 1,703,379 ---------- OIL REFINING--2.1% 1,300 Amerada Hess Corp. . . . . . . . . . 75,237 1,400 Coastal Corp. . . . . . . . . . . . . 68,425 7,500 Royal Dutch Petroleum Co. ADR(d) . . 1,280,625 1,100 Sun, Inc. . . . . . . . . . . . . . . 26,813 3,500 Unocal Corp. . . . . . . . . . . . . 142,188 4,000 USX Marathon Group . . . . . . . . . 95,500 ---------- 1,688,788 ----------
SHARES VALUE (A) OIL SERVICES--0.8% 2,000 Baker Hughes, Inc. . . . . . . . . $ 69,000 1,800 Halliburton Co. . . . . . . . . . 108,450 300 Helmerich & Payne, Inc. . . . . . 15,638 1,100 Rowan Companies, Inc.(c) . . . . . 24,888 3,600 Schlumberger, Ltd. . . . . . . . . 359,550 700 Western Atlas, Inc.(c) . . . . . . 49,613 ---------- 627,139 ---------- OTHER INSURANCE--3.0% 6,386 Allstate Corp. . . . . . . . . . . 369,590 6,812 American International Group, Inc. . . . . . . . . . . . 737,399 1,500 Aon Corp. . . . . . . . . . . . . 93,188 2,500 Chubb Corp. . . . . . . . . . . . 134,375 1,000 CIGNA Corp. . . . . . . . . . . . 136,625 1,200 General Reinsurance Corp. . . . . 189,300 1,600 ITT Hartford Group, Inc. . . . . . 108,000 1,600 Loews Corp. . . . . . . . . . . . 150,800 1,000 Marsh & McLennan Companies . . . . 104,000 700 MBIA, Inc. . . . . . . . . . . . . 70,875 800 MGIC Investment Corp. . . . . . . 60,800 1,800 Safeco Corp. . . . . . . . . . . . 70,988 1,200 St. Paul Companies, Inc. . . . . . 70,350 950 Torchmark, Inc. . . . . . . . . . 47,975 1,000 UNUM Corp. . . . . . . . . . . . . 72,250 1,700 USF&G Corp. . . . . . . . . . . . 35,488 ---------- 2,452,003 ---------- PAPER--1.4% 733 Boise Cascade Corp. . . . . . . . 23,273 1,400 Champion International Corp. . . . 60,550 1,300 Georgia Pacific Corp. . . . . . . 93,600 4,310 International Paper Co. . . . . . 174,016 1,200 James River Corp. . . . . . . . . 39,750 4,106 Kimberly Clark Corp. . . . . . . . 391,096 900 Mead Corp. . . . . . . . . . . . . 52,312 200 Potlatch Corp. . . . . . . . . . . 8,600 1,400 Stone Container Corp. . . . . . . 20,825 1,000 Union Camp Corp. . . . . . . . . . 47,750 1,475 Westvaco Corp. . . . . . . . . . . 42,406 2,900 Weyerhaeuser Co. . . . . . . . . . 137,388 700 Willamette Industries, Inc. . . . 48,738 ---------- 1,140,304 ---------- PHOTOGRAPHY--0.5% 7,850 Eastman Kodak Co. . . . . . . . . 381,188 800 Polaroid Corp. . . . . . . . . . . 34,800 ---------- 415,988 ---------- POLLUTION CONTROL--0.4% 2,900 Browning-Ferris Industries, Inc. . 76,125 4,400 Laidlaw, Inc. . . . . . . . . . . 50,600 700 Safety Kleen Corp. . . . . . . . . 11,463 6,900 WMX Technologies, Inc. . . . . . . 225,112 ---------- 363,300 ----------
See accompanying notes to financial statements. 46 NEW ENGLAND ZENITH FUND (WESTPEAK STOCK INDEX SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
COMMON STOCKS--(CONTINUED) SHARES VALUE (A) PRECIOUS METALS--0.6% 5,100 Barrick Gold Corp. . . . . . . . . . $ 146,625 3,100 Battle Mountain Gold Co. . . . . . . 21,313 1,800 Echo Bay Mines, Ltd. . . . . . . . . 11,925 2,700 Freeport McMoran Copper & Gold . . . 80,662 1,900 Homestake Mining Co. . . . . . . . . 27,075 1,424 Newmont Mining Corp. . . . . . . . . 63,724 3,400 Placer Dome, Inc. . . . . . . . . . 73,950 1,900 Santa Fe Pacific Gold Corp. . . . . 29,213 ---------- 454,487 ---------- PRODUCER OF GOODS--6.8% 2,600 Applied Materials, Inc.(c) . . . . . 93,438 400 Briggs & Stratton Corp. . . . . . . 17,600 1,000 Case Equipment Corp. . . . . . . . . 54,500 2,800 Caterpillar Tractor Co. . . . . . . 210,700 700 Cincinnati Milacron, Inc. . . . . . 15,313 700 Crane Co. . . . . . . . . . . . . . 20,300 700 Cummins Engine, Inc. . . . . . . . . 32,200 3,600 Deere & Co. . . . . . . . . . . . . 146,250 1,600 Dover Corp. . . . . . . . . . . . . 80,400 2,500 Dresser Industries, Inc. . . . . . . 77,500 1,800 DSC Communications Corp.(c) . . . . 32,175 1,000 Eaton Corp. . . . . . . . . . . . . 69,750 3,100 Emerson Electric Co. . . . . . . . . 299,925 600 Foster Wheeler Corp. . . . . . . . . 22,275 23,700 General Electric Co. . . . . . . . . 2,343,337 500 General Signal Corp. . . . . . . . . 21,375 1,700 Genuine Parts Co. . . . . . . . . . 75,650 400 Giddings & Lewis, Inc. . . . . . . . 5,150 800 Harnischfeger Industries, Inc. . . . 38,500 1,700 Illinois Tool Works, Inc. . . . . . 135,787 1,500 Ingersoll Rand Co. . . . . . . . . . 66,750 1,600 ITT Industries Inc. . . . . . . . . 39,200 600 Johnson Controls, Inc. . . . . . . . 49,725 9,206 Lucent Technologies, Inc. . . . . . 425,777 600 McDermott International, Inc. . . . 9,975 5,800 Minnesota Mining & Manufacturing Co. . . . . . . . . . 480,675 700 National Services Industries, Inc. . 26,162 800 Owens Corning Fiberglas Co.(c) . . . 34,100 1,700 Pall Corp. . . . . . . . . . . . . . 43,350 1,000 Parker Hannifin Corp. . . . . . . . 38,750 600 Perkin Elmer Corp. . . . . . . . . . 35,325 850 Snap-On Tools Corp. . . . . . . . . 30,281 1,200 Stanley Works . . . . . . . . . . . 32,400 1,100 Textron, Inc. . . . . . . . . . . . 103,675 2,100 Thermo Electron Corp. . . . . . . . 86,625 200 Timken Co. . . . . . . . . . . . . . 9,175 400 Trinova Corp. . . . . . . . . . . . 14,550 2,100 TYCO International Ltd. . . . . . . 111,037 900 W.W. Grainger, Inc. . . . . . . . . 72,225 ---------- 5,501,882 ----------
SHARES VALUE (A) PROPERTY--0.0% 200 Pulte Corp. . . . . . . . . . . . . . . . $ 6,150 ---------- PUBLISHING--0.7% 1,100 American Greetings Corp. . . . . . . . . . 31,212 2,100 Gannet Co., Inc. . . . . . . . . . . . . . 157,237 1,000 Harcourt General, Inc. . . . . . . . . . . 46,125 300 John H. Harland Co. . . . . . . . . . . . 9,900 600 Jostens, Inc. . . . . . . . . . . . . . . 12,675 1,200 Knight-Ridder, Inc. . . . . . . . . . . . 45,900 1,400 McGraw-Hill Companies, Inc. . . . . . . . 64,575 200 Meredith Corp. . . . . . . . . . . . . . . 10,550 1,200 Moore Corp., Ltd. . . . . . . . . . . . . 24,450 1,400 New York Times Co. . . . . . . . . . . . . 53,200 2,100 R.R.Donnelley & Sons Co. . . . . . . . . . 65,888 1,400 Time Mirror Co. . . . . . . . . . . . . . 69,650 ---------- 591,362 ---------- RAILROADS--0.9% 2,122 Burlington Northern, Inc. . . . . . . . . 183,288 1,100 Conrail, Inc. . . . . . . . . . . . . . . 109,588 3,100 CSX Corporation . . . . . . . . . . . . . 130,975 1,500 Norfolk Southern Corp. . . . . . . . . . . 131,250 3,500 Union Pacific Corp. . . . . . . . . . . . 210,438 ---------- 765,539 ---------- RETAIL-FOOD--0.7% 3,600 Albertson's, Inc. . . . . . . . . . . . . 128,250 2,100 American Stores Co. . . . . . . . . . . . 85,837 300 Fleming Companies, Inc. . . . . . . . . . 5,175 900 Giant Foods, Inc. . . . . . . . . . . . . 31,050 600 Great Atlantic & Pacific Tea Company, Inc. . . . . . . . . . . . . . . 19,125 1,800 Kroger Co.(c) . . . . . . . . . . . . . . 83,700 1,000 SuperValu Stores, Inc. . . . . . . . . . . 28,375 2,700 Sysco Corp. . . . . . . . . . . . . . . . 88,088 2,100 Winn-Dixie Stores, Inc. . . . . . . . . . 66,413 ---------- 536,013 ---------- RETAIL-OTHER--3.8% 2,100 Autozone, Inc. . . . . . . . . . . . . . . 57,750 1,400 Charming Shoppes, Inc.(c) . . . . . . . . 7,088 1,200 Circuit City Stores, Inc. . . . . . . . . 36,150 1,500 CVS Corp. . . . . . . . . . . . . . . . . 62,062 3,000 Dayton Hudson Corp. . . . . . . . . . . . 117,750 1,700 Dillard Department Stores, Inc. . . . . . 52,488 3,100 Federated Department Stores . . . . . . . 105,787 6,849 Home Depot, Inc. . . . . . . . . . . . . . 343,306 3,100 J.C. Penney Company, Inc. . . . . . . . . 151,125 6,900 K-Mart Corp.(c) . . . . . . . . . . . . . 71,587 200 Longs Drug Stores Corp. . . . . . . . . . 9,825 2,400 Lowes Companies, Inc. . . . . . . . . . . 85,200 3,400 May Department Stores Co. . . . . . . . . 158,950 450 Mercantile Stores Co., Inc. . . . . . . . 22,219 1,200 Nordstrom, Inc. . . . . . . . . . . . . . 42,525 900 Pep Boys: Manny, Moe & Jack . . . . . . . 27,675 2,739 Price Costco.(c) . . . . . . . . . . . . . 68,817
See accompanying notes to financial statements. 47 NEW ENGLAND ZENITH FUND (WESTPEAK STOCK INDEX SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
COMMON STOCKS--(CONTINUED) SHARES VALUE (A) RETAIL-OTHER--(CONTINUED) 1,800 Rite Aid Corp. . . . . . . . . . . . . . $ 71,550 5,400 Sears, Roebuck & Co. . . . . . . . . . . 249,075 800 Tandy Corp. . . . . . . . . . . . . . . . 35,200 4,000 The Gap, Inc. . . . . . . . . . . . . . . 120,500 3,693 The Limited, Inc. . . . . . . . . . . . . 67,859 1,100 TJX Companies, Inc. . . . . . . . . . . . 52,113 3,975 Toys R Us, Inc.(c) . . . . . . . . . . . 119,250 3,500 Walgreen Co. . . . . . . . . . . . . . . 140,000 32,000 Wal-Mart Stores, Inc. . . . . . . . . . . 732,000 1,800 Woolworth Corp.(c) . . . . . . . . . . . 39,375 ----------- 3,047,226 ----------- SERVICES--4.0% 600 Alexander & Alexander Services . . . . . 10,425 600 Autodesk, Inc. . . . . . . . . . . . . . 16,800 4,000 Automatic Data Processing, Inc. . . . . . 171,500 900 Ceridian Corp.(c) . . . . . . . . . . . . 36,450 5,100 Computer Associates International, Inc. . 253,725 1,000 Computer Sciences Corp.(c) . . . . . . . 82,125 2,320 Cognizant Corp. . . . . . . . . . . . . . 76,560 5,500 CUC International, Inc.(c) . . . . . . . 130,625 1,000 De Luxe Corp. . . . . . . . . . . . . . . 32,750 1,300 Dow Jones & Co., Inc. . . . . . . . . . . 44,038 2,320 Dun & Bradstreet Corp. . . . . . . . . . 55,100 700 EG & G, Inc. . . . . . . . . . . . . . . 14,088 6,200 First Data Corp. . . . . . . . . . . . . 226,300 600 Intergraph Corp.(c) . . . . . . . . . . . 6,150 1,100 Interpublic Group Companies, Inc. . . . . 52,250 17,200 Microsoft Corp.(c) . . . . . . . . . . . 1,421,150 5,000 Novell, Inc.(c) . . . . . . . . . . . . . 47,344 9,525 Oracle Systems Corp.(c) . . . . . . . . . 397,669 1,200 Ryder Systems, Inc. . . . . . . . . . . . 33,750 3,400 Service Corporation International . . . . 95,200 200 Shared Medical System . . . . . . . . . . 9,850 ----------- 3,213,849 ----------- SOAPS--3.0% 700 Clorox Co. . . . . . . . . . . . . . . . 70,263 2,200 Colgate Palmolive Co. . . . . . . . . . . 202,950 3,300 Corning, Inc. . . . . . . . . . . . . . . 152,625 700 Ecolab, Inc. . . . . . . . . . . . . . . 26,338 7,700 Gillette Co. . . . . . . . . . . . . . . 598,675 1,600 International Flavours & Fragrances, Inc. . . . . . . . . . . . . . . . . . . 72,000 100 Nacco Industries, Inc. . . . . . . . . . 5,350 2,200 Newell Co. . . . . . . . . . . . . . . . 69,300 9,560 Procter & Gamble Co. . . . . . . . . . . 1,027,700 1,500 Ralston Purina Co. . . . . . . . . . . . 110,063 2,200 Rubbermaid, Inc. . . . . . . . . . . . . 50,050 900 Tupperware Corp. . . . . . . . . . . . . 48,263 ----------- 2,433,577 -----------
SHARES VALUE (A) STEEL & IRON--0.2% 1,300 Armco, Inc.(c) . . . . . . . . . . . . . $ 5,363 1,600 Bethlehem Steel Corp.(c) . . . . . . . . 14,400 800 Inland Steel Industries, Inc. . . . . . 16,000 1,300 Nucor Corp. . . . . . . . . . . . . . . 66,300 1,020 USX US Steel Corp. . . . . . . . . . . . 32,003 1,200 Worthington Industries, Inc. . . . . . . 21,750 ----------- 155,816 ----------- TELEPHONE--6.7% 7,200 Airtouch Communications . . . . . . . . 181,800 2,700 ALLTEL Corp. . . . . . . . . . . . . . . 84,712 7,900 Ameritech Corp. . . . . . . . . . . . . 478,937 22,735 AT & T Corp. . . . . . . . . . . . . . . 988,972 6,100 Bell Atlantic Corp. . . . . . . . . . . 394,975 14,300 BellSouth Corp. . . . . . . . . . . . . 577,362 2,300 Frontier Corp. . . . . . . . . . . . . . 52,037 13,900 GTE Corp. . . . . . . . . . . . . . . . 632,450 9,900 MCI Communications Corp. . . . . . . . . 323,606 6,200 NYNEX Corp. . . . . . . . . . . . . . . 298,375 6,200 Pacific Telesis Group . . . . . . . . . 227,850 8,500 SBC Communications, Inc. . . . . . . . . 439,875 6,100 Sprint Corp. . . . . . . . . . . . . . . 243,237 6,900 U.S. West, Inc.(c) . . . . . . . . . . . 222,525 10,300 Worldcom, Inc. . . . . . . . . . . . . . 268,444 ----------- 5,415,157 ----------- THRIFT--0.2% 800 Golden West Financial Corp. . . . . . . 50,500 1,850 Great Western Financial Corp. . . . . . 53,650 1,500 H.F. Ahmanson & Co. . . . . . . . . . . 48,750 ----------- 152,900 ----------- TIRES AND RUBBER GOODS--0.2% 1,100 Cooper Tire & Rubber Co. . . . . . . . . 21,725 2,200 Goodyear Tire & Rubber Co. . . . . . . . 113,025 ----------- 134,750 ----------- TOBACCO--1.9% 2,600 American Brands, Inc. . . . . . . . . . 129,025 11,700 Philip Morris Companies, Inc. . . . . . 1,317,712 2,700 UST, Inc. . . . . . . . . . . . . . . . 87,413 ----------- 1,534,150 ----------- TRUCKING AND FREIGHT--0.0% 600 Caliber Systems, Inc. . . . . . . . . . 11,550 ----------- Total Common Stocks (Identified cost $53,081,323) . . . . . 80,277,348 -----------
See accompanying notes to financial statements. 48 NEW ENGLAND ZENITH FUND (WESTPEAK STOCK INDEX SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
SHORT-TERM INVESTMENT--0.5% FACE AMOUNT VALUE (A) $419,000 Repurchase Agreement with State Street Bank & Trust Co. dated 12/31/96 at 4.750% to be repurchased at $419,111, on 1/02/97 collateralized by $335,000, U.S. Treasury Bills 8.875% due 8/15/17, with a value of $429,324 . . . . . . . . . . . . . . . . . . $ 419,000 ----------- Total Short Term Investment (Identified cost $419,000) . . . . . . . . . 419,000 ----------- Total Investments--99.9% (Identified cost $53,500,323)(b) . . . . . . 80,696,348 Other assets less liabilities . . . . . . . . 67,500 ----------- TOTAL NET ASSETS--100% . . . . . . . . . . . $80,763,848 ===========
(a) See Note 1A. (b) Federal Tax Information: At December 31, 1996 the net unrealized appreciation on investments based on cost of $53,630,435 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 . . . . . . . . . . . . . $28,002,651 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value . . . . . . . . . . . . . . . (936,738) ----------- Net unrealized appreciation . . . . . . . . . . $27,065,913 ===========
(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. See accompanying notes to financial statements. 49 NEW ENGLAND ZENITH FUND (WESTPEAK STOCK INDEX SERIES)
STATEMENT OF ASSETS & LIABILITIES DECEMBER 31, 1996 ASSETS Investments at value . . . . . . . . . . . . $80,696,348 Cash . . . . . . . . . . . . . . . . . . . . 699 Receivable for: Fund shares sold . . . . . . . . . . . . . . 113,468 Dividends and interest . . . . . . . . . . . 138,258 Foreign taxes . . . . . . . . . . . . . . . 290 ----------- 80,949,063 LIABILITIES Payable for: Fund shares redeemed . . . . . . . . . . . . $88,403 Withholding taxes . . . . . . . . . . . . . 42 Accrued expenses: Management fees . . . . . . . . . . . . . . 24,772 Deferred trustees' fees . . . . . . . . . . 42,230 Other expenses . . . . . . . . . . . . . . . 29,768 ------- 185,215 ----------- $80,763,848 =========== Net Assets Net Assets consist of: Capital paid in . . . . . . . . . . . . . . $53,271,948 Undistributed net investment income . . . . 8,445 Accumulated net realized gains . . . . . . . 287,430 Unrealized appreciation on investments . . . 27,196,025 ----------- NET ASSETS . . . . . . . . . . . . . . . . . . $80,763,848 =========== Computation of offering price: Net asset value and redemption price per share ($80,763,848 divided by 675,146 shares of beneficial interest) . . . . . . . . . . . . $ 119.62 =========== Identified cost of investments . . . . . . . . $53,500,323 ===========
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME Dividends . . . . . . . . . . . . $ 1,474,292(a) Interest . . . . . . . . . . . . . 57,446 ----------- 1,531,738 EXPENSES Management fees . . . . . . . . . $170,651 Trustees' fees and expenses . . . 24,999 Custodian . . . . . . . . . . . . 78,749 Audit and tax services . . . . . . 11,800 Legal . . . . . . . . . . . . . . 14,012 Printing . . . . . . . . . . . . . 37,606 Miscellaneous . . . . . . . . . . 6,367 -------- Total expenses . . . . . . . . . 344,184 Less expenses assumed by the investment adviser . . . . . . (71,003) 273,181 -------- ----------- NET INVESTMENT INCOME . . . . . . . 1,258,557 REALIZED AND UNREALIZED GAIN ON INVESTMENTS Realized gain on: Investments--net . . . . . . . . 995,215 Unrealized appreciation on: Investments--net . . . . . . . . 11,760,936 ----------- Net gain on investment transactions . . . . . . . . . . . 12,756,151 ----------- NET INCREASE IN NET ASSETS FROM OPERATIONS . . . . . . . . . . . . $14,014,708 ===========
(a) Net of foreign taxes of: $9,140. See accompanying notes to financial statements. 50 NEW ENGLAND ZENITH FUND (WESTPEAK STOCK INDEX SERIES)
STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1995 1996 ------------ ------------ FROM OPERATIONS Net investment income . . . . . . . . . . . . $ 1,070,362 $ 1,258,557 Net realized gain on investments . . . . . . 775,273 995,215 Unrealized appreciation on investments . . . 13,212,050 11,760,936 ------------ ------------ INCREASE IN NET ASSETS FROM OPERATIONS . . . 15,057,685 14,014,708 ------------ ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income . . . . . . . . . . . . (1,050,107) (1,270,368) Net realized gain on investments . . . . . . (673,888) (675,238) ------------ ------------ (1,723,995) (1,945,606) ------------ ------------ FROM CAPITAL SHARES TRANSACTIONS Proceeds from sale of shares . . . . . . . . 17,851,781 21,863,034 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income . . 1,050,107 1,270,368 Distributions from net realized gain . . . . 673,888 675,238 ------------ ------------ 19,575,776 23,808,640 Cost of shares redeemed . . . . . . . . . . . (11,403,132) (13,784,516) ------------ ------------ INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS . . . . . . . . . . . . . 8,172,644 10,024,124 ------------ ------------ TOTAL INCREASE IN NET ASSETS . . . . . . . . 21,506,334 22,093,226 NET ASSETS Beginning of the year . . . . . . . . . . . . 37,164,288 58,670,622 ------------ ------------ End of the year . . . . . . . . . . . . . . . $ 58,670,622 $ 80,763,848 ============ ============ UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the year . . . . . . . . . . . . $ 0 $ 20,255 ============ ============ End of the year . . . . . . . . . . . . . . . $ 20,255 $ 8,445 ============ ============ NUMBER OF SHARES OF THE FUND: Issued from the sale of shares . . . . . . . 202,803 198,327 Issued in connection with the reinvestment of: Distributions from net investment income . . 10,562 10,371 Distributions from net realized gain . . . . 6,778 5,855 ------------ ------------ 220,143 214,553 Redeemed . . . . . . . . . . . . . . . . . . (127,215) (125,580) ------------ ------------ Net change . . . . . . . . . . . . . . . . . 92,928 88,973 ============ ============
FINANCIAL HIGHLIGHTS YEAR ENDED DECEMBER 31, ----------------------------------------------- 1992 1993 1994 1995 1996 -------- -------- -------- -------- ---------- Net Asset Value, Beginning of Year . . . . . . . . . $137.39 $ 72.00 $ 76.48 $ 75.35 $100.09 ------- ------- ------- ------- ------- Income From Investment Operations Net Investment Income . . 8.35 1.54 1.80 1.88 1.91 Net Realized and Unrealized Gain (Loss) on Investments. . . . . . . 2.02 5.18 (0.92) 25.89 20.58 ------- ------- ------- ------- ------- Total From Investment Operations . . . . . . . 10.37 6.72 0.88 27.77 22.49 ------- ------- ------- ------- ------- Less Distributions Dividends From Net Investment Income . . . (8.35) (1.36) (1.82) (1.85) (1.93) Distributions in Excess of Net Investment Income . 0.00 (0.18) 0.00 0.00 0.00 Distributions From Net Realized Capital Gains . (67.41) (0.55) (0.16) (1.18) (1.03) Distributions in Excess of Net Realized Capital Gains. . . . . . . . . . 0.00 (0.15) 0.00 0.00 0.00 Distributions From Paid-in Capital. . . . . . . . . 0.00 0.00 (0.03) 0.00 0.00 ------- ------- ------- ------- ------- Total Distributions . . . (75.76) (2.24) (2.01) (3.03) (2.96) ------- ------- ------- ------- ------- Net Asset Value, End of Year . . . . . . . . . . $ 72.00 $ 76.48 $ 75.35 $100.09 $119.62 ======= ======= ======= ======= ======= TOTAL RETURN (%) . . . . . 7.30 9.72 1.14 36.88 22.47 Ratio of Operating Expenses to Average Net Assets (%) 0.35 0.34 0.33 0.40 0.40 Ratio of Net Investment Income to Average Net Assets (%) . . . . . . . 2.63 2.52 2.59 2.20 1.84 Portfolio Turnover Rate (%) . . . . . . . . 17 12 2 5 4 Average Commission Rate (a) . . . . . . . . -- -- -- -- $0.0309 Net Assets, End of Year (000) . . . . . . . $10,172 $28,817 $37,164 $58,671 $80,764 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 0.50
(a) 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. 51 LOOMIS SAYLES BALANCED SERIES PORTFOLIO MANAGERS: DOUG RAMOS AND MERI ANNE BECK LOOMIS, SAYLES & COMPANY, L.P. [PHOTOS OF DOUG RAMOS & MERI ANNE BECK] Q. HOW DID LOOMIS SAYLES BALANCED SERIES PERFORM IN 1996? A. The Series generated 16.91% total return through December 31, 1996, thanks primarily to strong performance in the equity portion of the Series during the second half of the year. The Series outperformed its benchmark, the Lipper Variable Balanced Fund Average, which finished the year with a 12.41% total return. Q. HOW DID YOU MANAGE THE SERIES IN 1996? A. For the equity component of the Series' portfolio, the key to performance in 1996 was stock selection. In the technology area, strong demand for personal computers and computer networks resulted in outstanding performance for companies such as EMC Corp. and Intel Corp. Solid business fundamentals and higher energy prices powered investments in Tosco and Pan Energy. In the financial sector, where the portfolio had a large weighting, ongoing consolidation in the banking industry benefited our holdings in NationsBank and Chase Manhattan. Attractive business fundamentals also helped produce strong performance in other financial services holdings such as Ace Ltd., a liability insurer; Federal Home Loan Mortgage Corporation (Freddie Mac); and Green Tree, a financial services company. In the capital goods sector, McDonnell-Douglas and Northrup were solid performers that benefited from the ongoing consolidation in the defense industry. Specific company events also contributed to performance in the case of Eckerd, a drugstore chain, that was bought out by JCPenney. Allied Signal, a large multinational conglomerate in the businesses of aerospace, automotive and engineered materials, and Carnival Corp., the popular cruise line operator, performed well as they continued to execute their business strategies. Higher interest rates and new telecommunications legislation contributed to weak performance in the Series' utilities and communications holdings. It should be noted, however, that the Series was significantly underweighted in these industries. On the fixed-income side, our overweighting in corporate bonds had a positive impact on the Series for most of the year. Profits were taken in Hospital Corp. of America, International Lease Finance, Lockheed Martin and Smith Barney corporate bonds. Coastal Corp. and Tektronix also performed well due to improving fundamentals, and Carnival Corp. was upgraded in quality while TCI Communications performed poorly as the company recorded losses. Toward the end of the year we increased our allocation to U.S. Treasury and U.S. Government Agency mortgage bonds as the risk/reward trade-off now favors these issues. Our continuing focus is on credit and sector selection to provide the best total return potential. Q. WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD? A. We continue to expect moderate economic growth, low inflation and a stable interest rate environment in 1997. Overall, this should not produce any major dislocations in the financial markets. However, we believe that equity markets will experience increased volatility in 1997. An increase in the possibility of earnings disappointments and investor concerns over lower corporate earnings growth than last year should contribute to this volatility. We believe these concerns will make stock selection an important factor in performance in 1997. 52 [A CHART APPEARS HERE WHICH COMPARES A $10,000 INVESTMENT IN THE SERIES VERSUS AN INDEX]
Balanced Leh/Gov't Series S&P 500 Corp. 10/31/94 10000 10000 10000 1994 9990 9794 10048 1995 12467 13461 11981 1996 14575 16552 12328
FUND FACTS GOAL: Reasonable long-term investment return from a combination of long-term capital appreciation and moderate current income. START DATE: October 31, 1994 SIZE: $59 million as of December 31, 1996 MANAGERS: Douglas Ramos and Meri Anne Beck have managed the Series since its inception. Mr. Ramos serves as portfolio manager of New England Balanced Fund and New England Value Fund. Ms. Beck also serves as portfolio 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. 53 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES BALANCED SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
COMMON STOCKS--62.9% OF TOTAL NET ASSETS SHARES VALUE (A) AEROSPACE--3.3% 6,700 Lockheed Martin Corp. . . . . . . . . $ 613,050 7,900 Northrop Grumman Corp. . . . . . . . 653,725 13,600 Raytheon Co. . . . . . . . . . . . . 654,500 ----------- 1,921,275 ----------- APPAREL & TEXTILES--1.2% 17,200 Reebok International, Ltd. . . . . 722,400 ----------- AUTOMOTIVE & RELATED--1.1% 11,600 General Motors Corp. . . . . . . . 646,700 ----------- BANKS--5.3% 7,400 BankAmerica Corp. . . . . . . . . . . 738,150 8,400 Chase Manhattan Corp., New . . . . . 749,700 9,100 NationsBank Corp. . . . . . . . . . . 889,525 16,300 Norwest Corp. . . . . . . . . . . . . 709,050 ----------- 3,086,425 ----------- BEVERAGES--1.4% 35,600 Whitman Corp. . . . . . . . . . . . . 814,350 ----------- CHEMICALS--3.7% 26,300 Crompton & Knowles Corp. . . . . . . 506,275 8,900 El du Pont de Nemours & Co. . . . . . 839,938 14,700 PPG Industries, Inc. . . . . . . . . 825,037 ----------- 2,171,250 ----------- COMPUTERS & BUSINESS EQUIPMENT--1.2% 21,300 EMC Corp.(c) . . . . . . . . . . . . 705,562 ----------- CONGLOMERATES--3.2% 12,100 Allied Signal, Inc. . . . . . . . . . 810,700 16,400 Dover Corp. . . . . . . . . . . . . . 824,100 6,600 Philips Electronics NV (ADR)(d) . . . 264,000 ----------- 1,898,800 ----------- ELECTRIC UTILITIES--1.1% 33,300 Edison International . . . . . . . . 661,837 ----------- ELECTRICAL EQUIPMENT--1.1% 11,900 York International Corp., New . . . . 664,913 ----------- ELECTRONIC COMPONENTS--1.1% 5,100 Intel Corp. . . . . . . . . . . . 667,781 ----------- FINANCIAL SERVICES--3.5% 6,800 Federal Home Loan Mortgage Corp. . . 748,850 17,000 Federal National Mortgage Association 633,250 17,400 Green Tree Financial Corp. . . . . 672,075 ----------- 2,054,175 ----------- FOOD--AGRIBUSINESS--0.8% 19,200 IBP, Inc. . . . . . . . . . . . . . . 465,600 -----------
SHARES VALUE (A) FREIGHT TRANSPORTATION--3.5% 9,600 Burlington Northern Santa Fe . . . . $ 829,200 20,100 Canadian Pacific, Ltd., New . . . . 532,650 15,200 Federal Express Corp.(c) . . . . . . 676,400 ----------- 2,038,250 ----------- GAS & PIPELINE UTILITIES--1.4% 3,200 Columbia Gas Systems, Inc. . . . . . 203,600 13,900 Panenergy Corp. . . . . . . . . . . 625,500 ----------- 829,100 ----------- HEALTH CARE--SERVICES--4.1% 10,500 Aetna, Inc. . . . . . . . . . . . . 840,000 32,300 Beverly Enterprises, Inc. . . . . 411,825 21,450 Columbia/HCA Healthcare Corp. . . . 874,088 7,900 Foundation Health Corp.(c) . . . . . 250,825 ----------- 2,376,738 ----------- HOUSEHOLD PRODUCTS--2.4% 4,000 Kimberly-Clark Corp. . . . . . . . . 381,000 9,200 Premark International, Inc. . . . . 204,700 15,500 Tupperware Corp. . . . . . . . . . . 831,188 ----------- 1,416,888 ----------- HOUSING & BUILDING MATERIALS--5.0% 12,200 Armstrong World Industries, Inc. . . 847,900 9,000 Black & Decker Corp. . . . . . . 271,125 28,500 Leggett & Platt, Inc. . . . . . . . 986,812 23,200 Masco Corp. . . . . . . . . . . . . 835,200 ----------- 2,941,037 ----------- INSURANCE--5.1% 14,200 ACE, Ltd. . . . . . . . . . . . . . 853,775 11,200 Allstate Corp. . . . . . . . . . . . 648,200 14,800 Chubb Corp. . . . . . . . . . . . . 795,500 22,900 Everest Reinsurance Holdings, Inc. . . . . . . . . . . . . . . 658,375 ----------- 2,955,850 ----------- LEISURE TIME--2.3% 15,600 American Greetings Corp. . . . . . . 442,650 27,900 Carnival Corp. . . . . . . . . . . . 920,700 ----------- 1,363,350 ----------- OIL & GAS--3.0% 10,800 Tosco Corp. . . . . . . . . . . . . 854,550 17,000 United Meridian Corp.(c) . . . . . . 879,750 ----------- 1,734,300 ----------- PACKAGING--1.5% 15,900 Crown Cork & Seal Co., Inc. . . . . 864,563 ----------- RETAIL--FOOD & DRUG--1.5% 18,400 Kroger Co.(c) . . . . . . . . . . . 855,600 -----------
See accompanying notes to financial statements. 54 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES BALANCED SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
COMMON STOCKS--(CONTINUED) SHARES VALUE (A) TELECOMMUNICATION--3.3% 3,100 Ameritech Corp. . . . . . . . . . . . . $ 187,937 19,200 GTE Corp. . . . . . . . . . . . . . . . 873,600 23,400 Pacific Telesis Group . . . . . . . . . 859,950 ----------- 1,921,487 ----------- TOBACCO--1.8% 6,600 Loews Corp. . . . . . . . . . . . . . . 622,050 12,400 UST, Inc. . . . . . . . . . . . . . . . 401,450 ----------- 1,023,500 ----------- Total Common Stocks (Identified Cost $31,413,750) . . . . 36,801,731 ----------- MEDIUM & LONG TERM BONDS & NOTES--33.1% FACE AMOUNT BANKS--1.3% $ 350,000 Capital One Bank, 6.830%, 5/17/99 . . . . . . . . . . . 351,543 50,000 Chase Manhattan Corp., 9.050%, 2/01/02 . . . . . . . . . . . 50,093 310,000 Mellon Bank N A, 7.000%, 3/15/06 . . . . . . . . . . . 308,258 50,000 Norwest Corp., 7.650%, 3/15/05 . . . . . . . . . . . 52,436 ----------- 762,330 ----------- CABLE & MEDIA--0.6% 350,000 TCI Communications, Inc., 7.250%, 6/15/99 . . . . . . . . . . . 350,987 ----------- COMPUTER--0.5% 300,000 Comdisco, Inc., 5.760%, 1/19/99 . . . . . . . . . . . 297,045 ----------- ENERGY--0.2% 125,000 Coastal Corp., 8.125% , 9/15/02 . . . . . . . . . . . 132,210 ----------- FINANCE--4.2% 125,000 Associates Corp. NA, 8.350%, 12/22/98 . . . . . . . . . . . 130,106 115,000 Avalon Properties, Inc., 7.375%, 9/15/02 . . . . . . . . . . . 116,018 260,000 Dean Witter Discover & Co., 6.750%, 1/01/16 . . . . . . . . . . . 239,361 200,000 Ford Motor Credit Corp., 6.850%, 8/15/00 . . . . . . . . . . . 201,818 244,000 General Motors Acceptance Corp. 5.500%, 12/15/01 . . . . . . . . . . . 230,868 280,000 Oasis Residential, Inc., 7.000%, 11/15/03 . . . . . . . . . . . 276,825 100,000 Secured Finance, 9.050%, 12/15/04 . . . . . . . . . . . 112,709
FACE AMOUNT VALUE (A) $ 50,000 Standard Credit Card, 8.625%, 1/07/02 . . . . . . . . . . . $ 50,175 575,000 Transamerica Finance Corp., 6.750%, 6/01/00 . . . . . . . . . . . 577,312 300,000 Western Financial Services, 6.950%, 11/20/03 . . . . . . . . . . . 304,071 200,000 World Omni Automobile Lease Finance Corp., 6.550%, 6/25/02 . . . . . . . . 200,938 ----------- 2,440,201 ----------- GOVERNMENT AGENCIES--0.6% 350,000 Federal Home Loan Bank, 7.151%, 9/13/05 . . . . . . . . . . . 347,295 ----------- U.S. GOVERNMENT--14.6% 700,000 United States Treasury Notes, 5.375%, 5/31/98 . . . . . . . . . . . 696,388 1,020,000 United States Treasury Notes, 6.750%, 6/30/99 . . . . . . . . . . . 1,038,013 455,000 United States Treasury Notes, 6.125%, 7/31/00 . . . . . . . . . . . 455,000 1,815,000 United States Treasury Notes, 6.250%, 2/15/03 . . . . . . . . . . . 1,812,731 2,550,000 United States Treasury Notes, 6.500%, 8/15/05 . . . . . . . . . . . 2,566,346 2,500,000 United States Treasury Notes, Zero Coupon, 11/15/09 . . . . . . . . 1,055,475 830,000 United States Treasury Bonds, 7.875%, 2/15/21 . . . . . . . . . . . 938,157 ----------- 8,562,110 ----------- HEALTH CARE--SERVICES--0.1% 50,000 Columbia/HCA Healthcare Co., 8.020%, 8/5/02 . . . . . . . . . . . . 53,104 ----------- INDUSTRIALS--1.7% 325,000 Amerco, 7.850%, 5/15/03. . . . . . . . . . . . 332,429 200,000 Martin Marietta Corp., 6.500%, 4/15/03 . . . . . . . . . . . 197,248 260,000 Philips Electronics NV, 7.250%, 8/15/13 . . . . . . . . . . . 253,539 200,000 Tektronix, Inc., 7.625%, 8/15/02 . . . . . . . . . . . 205,600 ----------- 988,816 ----------- INSURANCE--0.5% 275,000 Travelers Aetna Property & Casualty Co., 6.750%, 4/15/01 . . . . . . . . . . . 276,086 -----------
See accompanying notes to financial statements. 55 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES BALANCED SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
MEDIUM & LONG TERM BONDS & NOTES--(CONTINUED) FACE AMOUNT VALUE (A) LEISURE & LODGING--0.7% $ 100,000 Carnival Corp., 7.050%, 5/15/05 . . . . . . . . . . . . . $ 99,539 300,000 La Quinta Inns, Inc., 7.400%, 9/15/05 . . . . . . . . . . . . . 294,750 ----------- 394,289 ----------- MORTGAGE--2.0% 368,008 Federal National Mortgage Association, 7.000%, 12/01/11 . . . . . . . . . . . . 279,650 280,000 Federal National Mortgage Association, 7.000%, 12/01/11 . . . . . . . . . . . . 367,548 620,000 Federal National Mortgage Association, 6.000%, 2/25/24 . . . . . . . . . . . . . 548,712 ----------- 1,195,910 ----------- MORTGAGED BACKED--1.5% 200,000 Federal Home Loan Mortgage Corp., 8.000%, 7/15/21 . . . . . . . . . . . . . 206,374 390,220 Federal Home Loan Mortgage Association, 6.000%, 8/15/22 . . . . . . . . . . . . . 348,880 50,000 General Electric Capital Mortgage Services, Inc.,10.000%, 3/25/24 . . . . . . . . . . 51,344 75,000 Westam Mortgage Financial Corp., 8.950%, 8/01/18 . . . . . . . . . . . . . 80,132 200,000 Westam Mortgage Financial Corp., 9.400%, 12/01/18 . . . . . . . . . . . . 211,186 ----------- 897,916 ----------- RETAIL--0.6% 335,000 Federated Department Stores, Inc., 8.500%, 6/15/03 . . . . . . . . . . . . . 350,799 ----------- SECURITIES--2.3% 225,000 Alex. Brown, Inc., 7.625%, 8/15/05 . . . . . . . . . . . . . 229,556 200,000 Donaldson Lufkin & Jennrette, Inc., 6.875%, 11/01/05 . . . . . . . . . . . . 194,868 100,000 Lehman Brothers Holdings, Inc., 5.750%, 11/15/98 . . . . . . . . . . . . 98,865 200,000 Lehman Brothers Holdings, Inc., 7.360%, 12/15/03 . . . . . . . . . . . . 200,798 100,000 Merrill Lynch & Co., 8.375%, 2/09/00 . . . . . . . . . . . . . 105,262 390,000 Salomon Bros., Inc, 7.125%, 8/01/99 . . . . . . . . . . . . . 394,376 145,000 Salomon, Inc, 7.500%, 2/01/03 . . . . . . . . . . . . . 146,814 ----------- 1,370,539 -----------
FACE AMOUNT VALUE (A) TECHNOLOGY--0.3% $ 200,000 Digital Equipment Corp., 8.625%, 11/01/12 . . . . . . . . . . . . $ 193,806 ---------- TELECOMMUNICATION--0.3% 200,000 Southern Bell Telephone & Telegraph Co., 7.625%, 3/15/13 . . . . . . . . . . . . . 199,266 ---------- TRANSPORTATION--0.3% 25,000 American Airlines, 10.180%, 1/02/13 . . . . . . . . . . . . 30,196 100,000 AMR Corp., 10.290%, 3/08/21 . . . . . . . . . . . . 126,975 ---------- 157,171 ---------- UTILITIES--0.8% 250,000 Cincinnati Gas & Electric Co., 7.375%, 11/01/01 . . . . . . . . . . . . 252,930 195,000 Detroit Edison Co., 6.340%, 3/15/00 . . . . . . . . . . . . . 193,292 ---------- 446,222 ---------- Total Bonds & Notes (Identified Cost $19,295,649) . . . . . . 19,416,102 ----------
SHORT-TERM INVESTMENT--3.3% $1,937,000 Associates Corp. of North America, 6.550%, 1/2/97 . . . . . . . . . 1,937,000 ----------- Total Short-Term Investment (Identified Cost $1,937,000) . . 1,937,000 ----------- Total Investments--99.3% (Identified Cost $52,646,399 (b)) . . . . . . . . 58,154,833 Other assets less liabilities . . 370,010 ------------ TOTAL NET ASSETS--100% . . . . . . $58,524,843 ============
(a) See Note 1a. (b) Federal Tax Information: At December 31, 1996 the net unrealized appreciation on investments based on cost of $52,686,315 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 . . . . . . . . . . . . $5,702,244 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value . . . . . . . . . . . . . . . (233,726) ---------- Net unrealized appreciation . . . . . . . . . . $5,468,518 ==========
(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. 56 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES BALANCED SERIES)
STATEMENT OF ASSETS & LIABILITIES DECEMBER 31, 1996 ASSETS Investments at value . . . . . . . . . . . . $58,154,833 Cash . . . . . . . . . . . . . . . . . . . . 748 Receivable for: Fund shares sold . . . . . . . . . . . . . . 242,693 Securities sold . . . . . . . . . . . . . . 52,642 Dividends and interest . . . . . . . . . . . 298,016 Foreign taxes . . . . . . . . . . . . . . . 275 Unamortized organization expense . . . . . . 5,689 ----------- 58,754,896 LIABILITIES Payable for: Securities purchased . . . . . . . . . . . . $ 24,224 Fund shares redeemed . . . . . . . . . . . . 132,521 Withholding taxes . . . . . . . . . . . . . 265 Accrued expenses: Management fees . . . . . . . . . . . . . . 34,792 Deferred trustees' fees . . . . . . . . . . 280 Other expenses . . . . . . . . . . . . . . . 37,971 -------- 230,053 ----------- $58,524,843 =========== NET ASSETS Net Assets consist of: Capital paid in . . . . . . . . . . . . . . $52,484,161 Undistributed net investment income . . . . 10,566 Accumulated net realized gains . . . . . . . 521,682 Unrealized appreciation on investments . . . 5,508,434 ----------- NET ASSETS . . . . . . . . . . . . . . . . . . $58,524,843 =========== Computation of offering price: Net asset value and redemption price per share ($58,524,843 divided by 4,318,444 shares of beneficial interest) . . . . . . . . . . . . $ 13.55 =========== Identified cost of investments . . . . . . . . $52,646,399 ===========
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME Dividends . . . . . . . . . . . . . . $ 432,720(a) Interest . . . . . . . . . . . . . . . 996,102 ---------- 1,428,822 EXPENSES Management fees . . . . . . . . . . . $252,822 Trustees' fees and expenses . . . . . 10,423 Custodian . . . . . . . . . . . . . . 53,131 Audit and tax services . . . . . . . . 14,100 Legal . . . . . . . . . . . . . . . . 11,567 Printing . . . . . . . . . . . . . . . 9,528 Amortization of organization expenses 2,017 Miscellaneous . . . . . . . . . . . . 5,490 -------- Total expenses . . . . . . . . . . . 359,078 Less expenses assumed by the investment adviser . . . . . . . . (52,078) 307,000 -------- ---------- NET INVESTMENT INCOME . . . . . . . . . 1,121,822 REALIZED AND UNREALIZED GAIN ON INVESTMENTS Realized gain on: Investments--net . . . . . . . . . . 940,791 Unrealized appreciation on: Investments--net . . . . . . . . . . 4,480,648 ---------- Net gain on investment transactions . 5,421,439 ---------- NET INCREASE IN NET ASSETS FROM OPERATIONS . . . . . . . . . . . . . . $6,543,261 ==========
(a) Net of foreign taxes of: $5,506. See accompanying notes to financial statements. 57 NEW ENGLAND ZENITH FUND (LOOMIS SAYLES BALANCED SERIES)
STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1995 1996 ------------ -------------- FROM OPERATIONS Net investment income . . . . . . . . . . . . . $ 382,625 $ 1,121,822 Net realized gain on investments . . . . . . . 426,765 940,791 Unrealized appreciation on investments . . . . 1,029,622 4,480,648 ----------- ----------- Increase in net assets from operations . . . . 1,839,012 6,543,261 ----------- ----------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income . . . . . . . . . . . . . (382,625) (1,114,677) In excess of net investment income . . . . . . (1,297) 0 Net realized gain on investments . . . . . . . (288,315) (557,561) ----------- ----------- (672,237) (1,672,238) ----------- ----------- FROM CAPITAL SHARES TRANSACTIONS Proceeds from sale of shares . . . . . . . . . 18,594,352 41,044,288 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income . . . 383,922 1,114,677 Distributions from net realized gain . . . . . 288,315 557,561 ----------- ----------- 19,266,589 42,716,526 Cost of shares redeemed . . . . . . . . . . . . (4,333,030) (7,885,382) ----------- ----------- Increase in net assets derived from capital share transactions . . . . . . . . . . . . . . 14,933,559 34,831,144 ----------- ----------- Total increase in net assets . . . . . . . . . 16,100,334 39,702,167 NET ASSETS Beginning of the year . . . . . . . . . . . . . 2,722,342 18,822,676 ----------- ----------- End of the year . . . . . . . . . . . . . . . . $18,822,676 $58,524,843 =========== =========== UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the year . . . . . . . . . . . . . $ 251 $ 1,050 =========== =========== End of the year . . . . . . . . . . . . . . . . $ 1,050 $ 10,566 =========== =========== NUMBER OF SHARES OF THE FUND: Issued from the sale of shares . . . . . . . . 1,626,505 3,250,311 Issued in connection with the reinvestment of: Distributions from net investment income . . . 32,426 82,445 Distributions from net realized gain . . . . . 24,351 30,535 ----------- ----------- 1,683,282 3,363,291 Redeemed . . . . . . . . . . . . . . . . . . . (382,082) (619,940) ----------- ----------- Net change . . . . . . . . . . . . . . . . . . 1,301,200 2,743,351 =========== ===========
FINANCIAL HIGHLIGHTS OCTOBER 31, 1994 (A) THROUGH YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 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 0.27 Net Realized and Unrealized Gain (Loss) on Investments. . . . . . . (0.06) 2.20 1.73 ------ ------- ------- Total From Investment Operations . . . . . . . (0.01) 2.46 2.00 ------ ------- ------- Less Distributions Dividends From Net Investment Income . . . (0.05) (0.26) (0.27) Distributions From Net Realized Capital Gains . 0.00 (0.19) (0.13) ------ ------- ------- Total Distributions . . . (0.05) (0.45) (0.40) ------ ------- ------- Net Asset Value, End of Period. . . . . . . . . . $ 9.94 $ 11.95 $ 13.55 ====== ======= ======= TOTAL RETURN (%) . . . . . (0.10)(c) 24.79 16.91 Ratio of Operating Expenses to Average Net Assets (%) . . . . . . . 0.85 (b) 0.85 0.85 Ratio of Net Investment Income to Average Net Assets (%) . . . . . . . 4.16 (b) 4.03 3.08 Portfolio Turnover Rate (%) . . . . . . . . 0 (b) 72 59 Average Commission Rate(d) . . . . . . . . . -- -- $0.0594 Net Assets, End of Period (000) . . . . . . $2,722 $18,823 $58,525 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 0.99
(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 spread on shares traded on a principal basis. See accompanying notes to financial statements. 58 BACK BAY ADVISORS MANAGED SERIES PORTFOLIO MANAGER: PETER PALFREY BACK BAY ADVISORS, L.P. [PHOTO OF PETER PALFREY] The Back Bay Advisors Managed Series is a "Flexible" fund, typically targeting a 65%/35% split between stocks and bonds. As market conditions dictate, the stock allocation can vary from 50% to 80% of the total, based on market outlook, and the relative valuation between stocks and bonds. During 1996, the stock allocation ranged from 68-73%. Over the past three years, the stock allocation has ranged from 50-75%. Q. HOW DID THE BACK BAY ADVISORS MANAGED SERIES PERFORM IN 1996? A. The Managed Series continued its strong relative and absolute performance in 1996, returning 15.01% for the year versus 13.85% for the average Lipper Variable Flexible Portfolio Fund. This should be viewed in the context of a 2.90% return for the year ended December 31, 1996 for the Lehman Brothers Government/Corporate Index/4/ and a 22.90% return for the S&P 500 Index/19/. The U.S. economy rebounded sharply during the first half of 1996, fueled in part by the lagged effect of easier Federal Reserve monetary policy through 1995 and into early 1996. With the backdrop of a favorable interest rate environment, corporations continued their strong year-over-year earnings growth in 1996, propelled by the rebound in U.S. economic activity, particularly during the first two quarters. Additionally, leaner and more efficient operations and healthier balance sheets allowed corporations to translate robust top line revenue growth into solid bottom line earnings. This, coupled with monthly flows of $10-20 billion into stock mutual funds throughout the year supported the strong performance in U.S. equity markets. The fixed income market, however, suffered from the strong rebound in the U.S. economy early in 1996, with investors worried that higher than expected Gross Domestic Product (GDP) growth would translate into increased inflationary pressures going forward. Steady gains in nonfarm payrolls, solid personal income growth and relatively high manufacturing capacity utilization rates, coupled with a spike in energy costs, all served to push interest rates sharply higher through the first half of 1996, as investors speculated over the timing (or necessity) of a pre-emptive strike by the Federal Reserve. After a very difficult first half of the year for bonds, signs of continued modest inflationary pressures, coupled with a modest slowdown in the U.S. economy during the early part of the second half of the year, allowed bond prices to rebound somewhat. The Series' overweight position in equities throughout 1996 positively impacted performance, with stocks significantly outperforming bonds for the year. Within the equity portfolio, larger capitalization growth stocks performed relatively better than value and mid-to-small cap holdings. Within the fixed income portfolio, short and intermediate holdings performed relatively better than longer duration issues, given the 70-85 basis point backup in interest rates during 1996. Emerging market, upgraded bonds and high yield issues were among the best performing sectors in the fixed income market, due to significant spread tightening. Canadian denominated obligations also turned in a very strong performance due to significant spread tightening versus U.S. Treasuries. Q. HOW DID YOU MANAGE THE SERIES IN 1996? A. Given the continued strong capital flows into equities, our positive corporate earnings outlook, and expectations for a range-bound interest rate environment, overall portfolio strategy during the year continued to favor a bias towards stocks (68.3% at December 31, 1996). While the stock allocation remains slightly overweight versus the normally "targeted" 65% stock/35% bond split, the allocation to stocks was reduced from nearly 73% in November as a hedge against very "full" equity valuations. The proceeds were redirected into intermediate and longer maturity bonds. The U.S. economy slowed from a 4.7% pace in the second quarter to 2.1% in the third quarter, easing investor fears of runaway economic growth pushing inflation much beyond the 3.1% year-over-year rate experienced through November 1996. While fourth quarter 1996 GDP estimates had been running at 2-2.5%, the most recent payroll figures, earnings and manufacturing data now point to a greater than expected rebound in economic growth as we enter 1997. Q. WHAT IS YOUR INVESTMENT OUTLOOK FOR THE MONTHS AHEAD? A. Although the rising GDP has put considerable pressure on fixed income markets (and to a lesser degree, equity markets) 59 over the past several weeks, I remain constructive on the bond and equity markets over the longer term, and would need to see several months of stronger data before changing my expectation of a sidelined Federal Reserve. [A CHART APPEARS HERE COMPARING A $10,000 INVESTMENT IN THE SERIES COMPARED TO AN INDEX]
Managed Leh/Gov't Series S&P 500 Corp. 5/1/87 10000 10000 10000 1987 9935 8770 10357 1988 10877 10216 11142 1989 12952 13444 12729 1990 13369 13025 13782 1991 16065 16976 16001 1992 17142 18268 17213 1993 18968 20101 19117 1994 18756 20374 18447 1995 24620 28003 21997 1996 28316 34432 22635
FUND FACTS GOAL: A favorable total return through investment in diversified portfolio. The Series' portfolio is expected to include a mix of (1) common stocks, (2) notes and bonds and (3) money market instruments. START DATE: May 1, 1987 SIZE: $161 million as of December 31, 1996 MANAGER: Peter Palfrey has managed the Series since January 1994 and joined Back Bay Advisors in 1993. Mr. Palfrey also manages several other fixed income and separate accounts. 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. 60 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS MANAGED SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
COMMON STOCKS--68.2% OF TOTAL NET ASSETS SHARES VALUE (A) AEROSPACE--1.1% 5,638 Boeing Co. . . . . . . . . . . . . . $ 599,742 14,600 Rockwell International Corp. . . . . 888,775 5,000 United Technologies Corp. . . . . . . 330,000 ---------- 1,818,517 ---------- AUTOMOBILE & RELATED--1.3% 30,864 Chrysler Corp. . . . . . . . . . . . 1,018,512 4,600 Ford Motor Co. . . . . . . . . . . . 146,625 12,500 General Motors Corp. . . . . . . . . 696,875 6,750 Genuine Parts Co. . . . . . . . . . . 300,375 ---------- 2,162,387 ---------- BANKS--5.4% 32,186 Banc One Corp. . . . . . . . . . . . 1,383,998 10,144 Bank America Corp. . . . . . . . . . 1,011,864 5,400 Bankers Trust NY . . . . . . . . . . 465,750 8,700 Chase Manhattan Corp. New . . . . . . 776,475 9,400 Citicorp . . . . . . . . . . . . . . 968,200 10,300 First Union Corp. . . . . . . . . . . 762,200 10,900 J.P. Morgan & Co., Inc. . . . . . . . 1,064,113 7,200 Nations Bank Corp. . . . . . . . . . 703,800 17,100 Norwest Corp. . . . . . . . . . . . . 743,850 2,800 Wells Fargo & Co. . . . . . . . . . . 755,300 ---------- 8,635,550 ---------- BUSINESS MACHINES--1.7% 8,500 Apple Computer . . . . . . . . . . . 177,437 28,400 Digital Equipment Corp.(c) . . . . . 1,033,050 10,300 International Business Machines Corp. . . . . . . . . . . . . . . . 1,555,300 ---------- 2,765,787 ---------- BUSINESS SERVICES--1.0% 28,500 Browning Ferris Industries, Inc. . . 748,125 10,000 Dun & Bradstreet Corp. . . . . . . . 237,500 9,200 H & R Block, Inc. . . . . . . . . . . 266,800 9,500 WMX Technologies, Inc. . . . . . . . 309,938 ---------- 1,562,363 ---------- CHEMICALS--2.2% 14,200 Allied-Signals, Inc. . . . . . . . . 951,400 8,200 Dow Chemical Co. . . . . . . . . . . 642,675 13,700 E.I. Du Pont de Nemours & Co. . . . . 1,292,937 17,500 Monsanto Co. . . . . . . . . . . . . 680,313 500 PPG Industries, Inc. . . . . . . . . 28,063 ---------- 3,595,388 ---------- COMMUNICATION--5.1% 15,500 Airtouch Communications, Inc. . . . . 391,375 13,100 Ameritech Corp. . . . . . . . . . . . 794,187 27,261 AT & T Co. . . . . . . . . . . . . . 1,185,853 12,200 Bell Atlantic Corp. . . . . . . . . . 789,950 16,200 Bellsouth Corp. . . . . . . . . . . . 654,075 10,600 GTE Corp. . . . . . . . . . . . . . . 482,300 8,834 Lucent Technologies, Inc. . . . . . . 408,572 11,900 Northern Telecom LTD . . . . . . . . 736,313
SHARES VALUE (A) 14,600 NYNEX Corp. . . . . . . . . . . . . $ 702,625 15,500 Pacific Telesis Group . . . . . . . 569,625 21,900 SBC Comunications, Inc. . . . . . . 1,133,325 9,700 US West, Inc. . . . . . . . . . . . 312,825 ---------- 8,161,025 ---------- CONGLOMERATES--0.8% 2,200 ITT Corp. . . . . . . . . . . . . . 95,425 13,800 Minnesota Mining & Manufacturing . . . . . . . . . 1,143,675 ---------- 1,239,100 ---------- CONSTRUCTION--0.8% 13,400 Home Depot, Inc. . . . . . . . . . 671,675 14,900 Masco Corp. . . . . . . . . . . . . 536,400 ---------- 1,208,075 ---------- CONSUMER DURABLES--0.0% 800 Whirlpool Corp. . . . . . . . . . . 37,300 ---------- DATA PROCESSING--3.0% 16,100 Intel Corp. . . . . . . . . . . . . 2,108,094 23,400 Microsoft Corp. . . . . . . . . . . 1,933,425 17,100 Oracle Sys. Corp. . . . . . . . . . 713,925 ---------- 4,755,444 ---------- DOMESTIC OIL--1.3% 9,700 Amoco Corp. . . . . . . . . . . . . 780,850 2,700 Atlantic Richfield Co. . . . . . . 357,750 3,600 Halliburton Co. . . . . . . . . . . 216,900 934 Santa Fe Energy, Inc.(c) . . . . . 12,959 3,601 Sun, Inc. . . . . . . . . . . . . . 87,774 800 Tenneco, Inc. . . . . . . . . . . . 36,100 15,600 Unocal Corp. . . . . . . . . . . . 633,750 ---------- 2,126,083 ---------- DRUGS & MEDICINE--5.6% 8,800 Abbott Laboratories . . . . . . . . 446,600 22,000 American Home Products Corp. . . . 1,289,750 17,500 Baxter International, Inc. . . . . 717,500 15,200 Eli Lilly & Co. . . . . . . . . . . 1,109,600 31,500 Merck & Co., Inc. . . . . . . . . . 2,496,376 19,200 Pfizer, Inc. . . . . . . . . . . . 1,591,200 18,705 Pharmacia & Upjohn, Inc. . . . . . 741,186 10,800 Schering Plough Corp. . . . . . . . 699,300 ---------- 9,091,512 ---------- ELECTRONICS--3.0% 21,400 AMP, Inc. . . . . . . . . . . . . . 821,225 9,400 Emerson Electric Co. . . . . . . . 909,450 20,000 Hewlett-Packard . . . . . . . . . . 1,005,000 22,000 Motorola, Inc. . . . . . . . . . . 1,350,250 15,400 Raytheon Co. . . . . . . . . . . . 741,125 ---------- 4,827,050 ----------
See accompanying notes to financial statements. 61 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS MANAGED SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
COMMON STOCKS--(CONTINUED) SHARES VALUE (A) ENERGY & UTILITIES--2.6% 18,300 American Electric Power, Inc. . . $ 752,587 11,700 Consolidated Edison Co. . . . . . 342,225 40,200 Edison International . . . . . . . 798,975 74 El Paso Nat. Gas Co. . . . . . . . 3,737 45,700 Pacific Gas & Electric Co. . . . . 959,700 7,700 Public Service Enterprise Group . 209,825 10,200 Southern Co. . . . . . . . . . . . 230,775 8,900 Texas Utilities Co. . . . . . . . 362,675 17,300 Unicom Corp. . . . . . . . . . . . 469,263 ------------ 4,129,762 ------------ ENERGY RAW MATERIALS--0.8% 58,800 Occidental Petroleum Corp. . . . . 1,374,450 ------------ ENTERTAINMENT--0.0% 2,200 ITT Industry, Inc. . . . . . . . . 53,900 1,520 TCI Satellite Entertainment Inc. . 15,010 ------------ 68,910 ------------ FINANCE--2.8% 25,000 American Express Co. . . . . . . . 1,412,500 4,449 Dean Witter, Discover & Co. . . . 294,746 11,600 Federal Home Loan Mortgage Corp. . 1,277,450 21,400 Federal Nat'l Mortgage Assn. . . . 797,150 16,900 Salomon, Inc. . . . . . . . . . . 796,413 ------------ 4,578,259 ------------ FOOD & AGRICULTURE--4.2% 48,800 Coca Cola Co. . . . . . . . . . . 2,568,100 5,000 General Mills, Inc. . . . . . . . 316,875 20,450 H. J. Heinz Co. . . . . . . . . . 731,087 11,200 Kellogg Co. . . . . . . . . . . . 735,000 30,700 PepsiCo, Inc. . . . . . . . . . . 897,975 13,300 Ralston Purina Co. . . . . . . . . 975,888 16,000 Sara Lee Corp. . . . . . . . . . . 596,000 ------------ 6,820,925 ------------ GOLD--0.2% 18,434 Santa Fe Pacific Gold Corp. . . . 283,423 ------------ INSURANCE--2.5% 11,500 Aetna Life & Casualty Co. . . . . 920,000 10,568 Allstate Corp. . . . . . . . . . . 611,623 14,400 American General Corp. . . . . . . 588,600 6,468 American International Group, Inc. 700,161 2,700 CIGNA Corp. . . . . . . . . . . . 368,887 4,300 General Reinsurance Corp. . . . . 678,325 2,200 ITT Hartford Group, Inc. . . . . . 148,500 ------------ 4,016,096 ------------ INTERNATIONAL OIL--4.3% 11,000 Chevron Corp. . . . . . . . . . . 715,000 9,400 Cooper Industries, Inc. . . . . . 395,975 25,100 Exxon Corp. . . . . . . . . . . . 2,459,800 7,800 Mobil Corp. . . . . . . . . . . . 953,550
SHARES VALUE (A) 9,800 Royal Dutch Petroleum Co. ADR(d) $ 1,673,350 7,100 Texaco, Inc. . . . . . . . . . . 696,688 ------------ 6,894,363 ------------ LIQUOR--0.4% 6,600 Anheuser-Busch Companies, Inc. . 264,000 11,700 Seagram, Ltd. . . . . . . . . . 453,375 ------------ 717,375 ------------ MEDIA--1.0% 3,000 Gannett Company, Inc. . . . . . 224,625 15,200 Tele-Communications, Inc. . . . 198,550 26,500 Time Warner, Inc. . . . . . . . 993,750 9,700 US West, Inc. . . . . . . . . . 179,450 ------------ 1,596,375 ------------ MISCELLANEOUS--0.9% 3,333 Acnielson Corp. . . . . . . . . 50,412 7,420 Allegiance Corp. . . . . . . . . 204,977 12,700 Cisco Sys. Corp. . . . . . . . . 808,037 10,000 Cognizant Corp. . . . . . . . . 330,000 160 Newport News Shipbuilding . . . 2,400 ------------ 1,395,826 ------------ NON-FERROUS METALS--0.7% 8,075 Alcan Aluminum Ltd. . . . . . . 271,522 14,000 Aluminum Company of America . . 892,500 ------------ 1,164,022 ------------ OFFICE EQUIPMENT--0.5% 15,600 Xerox Corp. . . . . . . . . . . 820,950 ------------ OPTICAL PHOTO, EQUIPMENT--0.2% 3,600 Eastman Kodak Co. . . . . . . . 288,900 ------------ PAPER & FOREST PRODUCTS--1.8% 12,640 Burlington Northern Santa Fe . . 1,091,780 3,600 Georgia-Pacific Corp. . . . . . 259,200 11,800 International Paper Co. . . . . 476,425 9,500 Kimberly Clark Corp. . . . . . . 904,875 4,050 Weyerhaeuser Co. . . . . . . . . 191,869 ------------ 2,924,149 ------------ PRODUCER OF GOODS--2.5% 5,600 Caterpillar, Inc. . . . . . . . 421,400 1,100 Deere & Co. . . . . . . . . . . 44,687 34,400 General Electric Co. . . . . . . 3,401,300 4,200 Westinghouse Electric Corp. . . 83,475 ------------ 3,950,862 ------------ RAILROADS & SHIPPING--0.5% 4,500 Norfolk Southern Corp. . . . . . 393,750 4,200 Union Pacific Corp. . . . . . . 252,525 3,557 Union Pacific Resources Group IN 104,042 ------------ 750,317 ------------
See accompanying notes to financial statements. 62 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS MANAGED SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
COMMON STOCKS--(CONTINUED) SHARES VALUE (A) RESTAURANTS--0.3% 5,000 Darden Restaurants, Inc. . . . . . $ 43,750 9,200 McDonald's Corp. . . . . . . . . . 416,300 ------------ 460,050 ------------ RETAIL--3.8% 19,000 Albertsons, Inc. . . . . . . . . . 676,875 7,400 CVS Corp. . . . . . . . . . . . . . 306,175 24,000 Dayton Hudson Corp. . . . . . . . . 942,000 38,900 Kmart Corp.(c) . . . . . . . . . . 403,587 26,400 Mattel Inc. . . . . . . . . . . . . 732,600 7,800 May Department Stores Co. . . . . . 364,650 11,600 Nike Inc. . . . . . . . . . . . . . 693,100 11,400 Sears Roebuck & Co. . . . . . . . . 525,825 5,400 The Limited, Inc. . . . . . . . . . 99,225 11,625 Toys R Us(c) . . . . . . . . . . . 348,750 44,900 Wal-Mart Stores, Inc. . . . . . . . 1,027,088 ------------ 6,119,875 ------------ SOAPS & COSMETICS--3.6% 9,860 Bristol-Myers Squibb Co. . . . . . 1,072,275 18,400 Gillette Co. . . . . . . . . . . . 1,430,600 26,100 Johnson & Johnson . . . . . . . . . 1,298,475 10,300 Procter & Gamble Co. . . . . . . . 1,107,250 4,800 Unilever, N.V. . . . . . . . . . . 841,200 ------------ 5,749,800 ------------ STEEL--0.5% 31,700 USX Marathon Group . . . . . . . . 756,838 220 USX-US Steel Group . . . . . . . . 6,903 ------------ 763,741 ------------ TOBACCO--1.2% 8,500 American Brands, Inc. . . . . . . . 421,812 13,600 Philip Morris Companies, Inc. . . . 1,531,700 ------------ 1,953,512 ------------ TRAVEL & RECREATION--0.6% 13,235 Walt Disney Co. . . . . . . . . . . 921,487 ------------ Total Common Stock (Identified cost $70,717,612) . . 109,729,010 ------------
BONDS & NOTES--30.9% FACE AMOUNT CORPORATE BONDS--20.2% $ 4,000,000 Banco de Comercio Exterior, 8.625%, 6/02/00 . . . . . . . 4,144,440 1,000,000 Boston Edison Co., 7.800%, 5/15/10 . . . . . . . 966,000 500,000 Continental Cablevision Inc., 11.00%, 06/01/07 . . . . . . 573,750 2,000,000 Continental Cablevision IN, 9.00%, 09/01/08 . . . . . . . 2,218,160
FACE AMOUNT VALUE (A) $ 2,000,000 Lehman Brothers Holdings, Inc., 8.500%, 5/01/07 . . . . . . . . . $ 2,145,720 1,000,000 Maxus Energy Corp., 9.375%, 11/01/03 . . . . . . . . . 1,015,000 4,025,000 News Amer. Holdings Inc., 10.125%, 10/15/12 . . . . . . . . 4,615,910 1,000,000 Paramount Communications, Inc., 8.250%, 8/01/22 . . . . . . . . . 944,970 7,000,000 Tele-Communications, Inc., 9.800%, 2/01/12 . . . . . . . . . 7,575,400 10,000,000 Time Warner, Inc., Zero Coupon, 12/17/12 . . . . . . 3,762,500 4,500,000 Total Access Communication, 8.375%, 11/04/06 . . . . . . . . . 4,527,495 30,000 Viacom, Inc., 8.000%, 7/07/06 . . . . . . . . . 29,025 ----------- 32,518,370 ----------- FOREIGN--7.8% 5,000,000 Government of Canada, Zero Coupon, 3/15/21(d) . . . . . 644,599 11,500,000 Government of Canada, Zero Coupon,12/01/20(d) . . . . . 1,494,924 5,000,000 Government of Canada, 8.000%, 6/01/23(d) . . . . . . . . 4,058,643 30,000,000 Ontario Province, Zero Coupon, 09/08/23(d) . . . . . 2,968,670 4,250,000 Quebec Province, Zero Coupon, 03/30/23(d) . . . . . 397,283 3,600,000 Quebec Province, 8.50%, 04/01/26(d) . . . . . . . . 2,895,932 ----------- 12,460,051 ----------- YANKEE--2.3% 2,000,000 Republic of Colombia, 144A(f), 8.66%, 10/07/16 . . . . . . . . . 2,119,240 1,500,000 United Mexican States, 9.750%, 2/06/01 . . . . . . . . . 1,558,125 ----------- 3,677,365 ----------- U.S. GOVERNMENT BONDS--0.6% 427,561 Government National Mortgage Association, 10.000%, 9/15/18 . . . . . . . . . 470,715 491,692 Government National Mortgage Association, 11.500% with various maturities to 2013 . . . . . . . . . . . . . . . 562,209 ----------- 1,032,924 ----------- Total Bonds & Notes (Identified Cost $47,486,764) . . 49,688,710 -----------
See accompanying notes to financial statements. 63 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS MANAGED SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
SHORT-TERM INVESTMENT--2.0% FACE AMOUNT VALUE (A) $ 3,160,000 Household Finance Corp., 6.250%, 1/02/97 . . . . . . . . . $ 3,159,451 ------------ Short-Term Investment (Identified Cost $3,159,451) . . 3,159,451 ------------ Total Investments--101.1% (Identified Cost $121,363,826)(b) 162,577,171 Other assets less liabilities(e) . (1,688,743) ------------ TOTAL NET ASSETS--100% . . . . . . $160,888,428 ============
(a) See Note 1A. (b) Federal Tax Information: At December 31, 1996 the net unrealized appreciation on investments based on cost of $121,363,826 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 . . . . . $43,001,247 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value . . . . . (1,787,902) ------------- Net unrealized appreciation . . . . . . . $41,213,345 =============
(c) Non-income producing security. (d) Denominated in Canadian dollars. (e) Including deposits in foreign denominated currency with a value of $131 and a cost of $133. (f) 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. See accompanying notes to financial statements. 64 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS MANAGED SERIES)
STATEMENT OF ASSETS & LIABILITIES DECEMBER 31, 1996 ASSETS Investments at value . . . . . . . . . $162,577,171 Cash . . . . . . . . . . . . . . . . . 2,364 Foreign cash at value (Cost $133) . . . 131 Receivable for: Fund shares sold . . . . . . . . . . . 44,425 Dividends and interest . . . . . . . . 1,058,524 Foreign taxes . . . . . . . . . . . . 632 ------------ 163,683,247 LIABILITIES Payable for: Securities purchased . . . . . . . . . $2,593,440 Fund shares redeemed . . . . . . . . . 63,083 Accrued expenses: Management fees . . . . . . . . . . . 68,383 Deferred trustees' fees . . . . . . . 35,859 Other expenses . . . . . . . . . . . . 34,054 ---------- 2,794,819 ------------ $160,888,428 ============ NET ASSETS Net Assets consist of: Capital paid in . . . . . . . . . . . $119,495,162 Undistributed net investment income . 40,029 Accumulated net realized gains . . . . 140,816 Unrealized appreciation on investments and foreign currency . . . . . . . . 41,212,421 ------------ NET ASSETS . . . . . . . . . . . . . . . $160,888,428 ============ Computation of offering price: Net asset value and redemption price per share ($160,888,428 divided by 944,370 shares of beneficial interest) . . . . $ 170.37 ============ Identified cost of investments . . . . . $121,363,826 ============
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME Dividends . . . . . . . . . . . . . $ 2,573,306(a) Interest . . . . . . . . . . . . . . 3,903,015 ----------- 6,476,321 EXPENSES Management fees . . . . . . . . . . $ 759,871 Trustees' fees and expenses . . . . 28,419 Custodian . . . . . . . . . . . . . 79,808 Audit and tax services . . . . . . . 17,400 Legal . . . . . . . . . . . . . . . 11,564 Printing . . . . . . . . . . . . . . 45,989 Miscellaneous . . . . . . . . . . . 6,200 ---------- Total expenses . . . . . . . . . . 949,251 ----------- NET INVESTMENT INCOME . . . . . . . . 5,527,070 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS Realized gain (loss) on: Investments--net . . . . . . . . . 9,604,547 Foreign currency transactions--net . . . . . . . . (72,774) Net realized gain on investments and foreign currency transactions 9,531,773 ---------- Unrealized appreciation (depreciation) on: Investments--net . . . . . . . . . 6,444,788 Foreign currency transactions--net (1,027) ---------- Net unrealized appreciation on investments and foreign currency transactions. . . . . . . . . . . 6,443,761 ---------- Net gain on investment transactions . 15,975,534 ----------- NET INCREASE IN NET ASSETS FROM OPERATIONS . . . . . . . . . . . . . $21,502,604 ===========
(a) Net of foreign taxes of: $16,633. See accompanying notes to financial statements. 65 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS MANAGED SERIES)
STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1995 1996 ------------ ------------ FROM OPERATIONS Net investment income . . . . . . . . . . . . $ 5,487,603 $ 5,527,070 Net realized gain on investments and foreign currency transactions . . . . . . . . . . . 2,566,425 9,531,773 Unrealized appreciation on investments and foreign currency transactions . . . . . . . 28,568,247 6,443,761 ------------ ------------ INCREASE IN NET ASSETS FROM OPERATIONS . . . 36,622,275 21,502,604 ------------ ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income . . . . . . . . . . . . (5,487,603) (5,442,217) In excess of net investment income . . . . . (212,274) 0 Net realized gain on investments . . . . . . (764,206) (9,837,965) ------------ ------------ (6,464,083) (15,280,182) ------------ ------------ FROM CAPITAL SHARES TRANSACTIONS Proceeds from sale of shares . . . . . . . . 22,221,525 20,225,126 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income . . 5,699,877 5,442,217 Distributions from net realized gain . . . . 764,206 9,837,965 ------------ ------------ 28,685,608 35,505,308 Cost of shares redeemed . . . . . . . . . . . (33,185,396) (28,375,038) ------------ ------------ INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS . . . . . . . . . (4,499,788) 7,130,270 ------------ ------------ TOTAL INCREASE IN NET ASSETS . . . . . . . . 25,658,404 13,352,692 NET ASSETS Beginning of the year . . . . . . . . . . . . 121,877,332 147,535,736 ------------ ------------ End of the year . . . . . . . . . . . . . . . $147,535,736 $160,888,428 ============ ============ UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the year . . . . . . . . . . . . $ 85 $ 45,930 ============ ============ End of the year . . . . . . . . . . . . . . . $ 45,930 $ 40,029 ============ ============ NUMBER OF SHARES OF THE FUND: Issued from the sale of shares . . . . . . . 150,563 120,220 Issued in connection with the reinvestment of: Distributions from net investment income . . 35,150 31,471 Distributions from net realized gain . . . . 4,713 55,351 ------------ ------------ 190,426 207,042 Redeemed . . . . . . . . . . . . . . . . . . (223,554) (164,939) ------------ ------------ Net change . . . . . . . . . . . . . . . . . (33,128) 42,103 ============ ============
FINANCIAL HIGHLIGHTS YEAR ENDED DECEMBER 31, --------------------------------------------------- 1992 1993 1994 1995 1996 -------- --------- --------- --------- ----------- Net Asset Value, Beginning of Year . . $127.87 $ 130.26 $ 137.18 $ 130.30 $ 163.52 ------- -------- -------- -------- -------- Income From Investment Operations Net Investment Income 5.14 4.35 5.42 6.34 6.43 Net Realized and Unrealized Gain (Loss) on Investments . . . . 3.45 9.58 (6.92) 34.33 18.21 ------- -------- -------- -------- -------- Total From Investment Operations . . . . . 8.59 13.93 (1.50) 40.67 24.64 ------- -------- -------- -------- -------- Less Distributions Dividends From Net Investment Income . (5.13) (4.36) (5.38) (6.34) (6.34) Distributions in Excess of Net Investment Income . 0.00 0.00 0.00 (0.23) 0.00 Distributions From Net Realized Capital Gains. . . . . . . . (1.07) (2.65) 0.00 (0.88) (11.45) ------- -------- -------- -------- -------- Total Distributions . (6.20) (7.01) (5.38) (7.45) (17.79) ------- -------- -------- -------- -------- Net Asset Value, End of Year. . . . . . . . . $130.26 $ 137.18 $ 130.30 $ 163.52 $ 170.37 ======= ======== ======== ======== ======== TOTAL RETURN (%) . . . 6.70 10.65 (1.11) 31.26 15.01 Ratio of Operating Expenses to Average Net Assets (%) . . . 0.54 0.53 0.54 0.64 0.62 Ratio of Net Investment Income to Average Net Assets (%) . . . . . 5.32 3.65 3.98 4.06 3.64 Portfolio Turnover Rate (%) . . . . . . . . . 36 22 76 51 72 Average Commission Rate (a) . . . . . . . . . -- -- -- -- $ 0.0318 Net Assets, End of Year (000) . . . . . . . . $77,575 $121,339 $121,877 $147,536 $160,888
(a) 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. 66 SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES PORTFOLIO MANAGERS: STEVEN GUTERMAN, PETER WILBY AND DAVID SCOTT SALOMON BROTHERS ASSET MANAGEMENT INC [PHOTOS OF STEVEN GUTERMAN, PETER WILBY AND DAVID SCOTT] Q. HOW DID THE SERIES PERFORM IN 1996? A. For the year ended December 31, 1996, the Series posted a 14.36% return versus 3.63% for the Lehman Brothers Aggregate Bond Index/3/. The Series' ability to rotate its assets among global fixed income markets enabled it to outperform the broad fixed income market. Over the course of the year, the Series maintained and allocated about 35% of its assets to the high yield sector and about 22% to emerging markets debt (Brady Bonds). These two sectors responded favorably to the improving credit quality of their issuers. High yield issuers were supported by moderate economic growth as corporations strengthened their balance sheets by posting higher earnings and paying down debt. The strength in the emerging markets debt sector is attributable to the improving fiscal and monetary practices of these countries. During the year, both Moody's and S&P upgraded Poland's debt to investment grade. This positive development helped to boost prices across the whole emerging markets debt sector. In addition, during 1996, a large and growing number of institutional investors, particularly U.S. pension funds and insurance companies, entered this market in search of higher yields. This flow of institutional funds has helped to stabilize and support the market sector. Q. HOW DID YOU MANAGE THE SERIES IN 1996? A. During 1996, the Series allocated its assets among the U.S. high yield sector, U.S. investment grade sector, emerging markets debt and non-dollar government bonds. Our strategy for the U.S. investment grade sector was to overweight mortgage pass-through securities and underweight U.S. Treasuries. We believed that mortgage pass-through securities were attractive as higher interest rates reduced the incentive for homeowners to refinance their mortgages. In the non-dollar portion of the Series, we allocated assets among government bonds of Germany, Denmark, Ireland, the United Kingdom, Canada and Australia. The Canadian government bond market posted solid gains for the year supported by the absence of constitutional problems, and fiscal consolidation and a pro-growth monetary policy stance from the Bank of Canada. The progress toward European Monetary Union dominated the European bond market in 1996. As prospects improved for a prompt start to the single currency on January 1, 1999, yield spreads to the German market converged. Q. WHAT IS YOUR INVESTMENT OUTLOOK FOR THE MONTHS AHEAD? A. We anticipate moderate economic growth in the U.S. and positive supply and demand factors in the high yield corporate market. We also maintain a positive outlook on emerging market debt as broader participation in the sector and favorable monetary and fiscal policies by emerging market nations should continue to be positive for the market. Our U.S. investment grade outlook is cautious over the short run. However, long-term we remain constructive on the fixed income market as inflation remains benign and economic growth remains modest. 67 [A CHART APPEARS HERE COMPARING A $10,000 INVESTMENT IN THE SERIES VERSUS AN INDEX]
Strategic Lehman Bond Opp. Aggregate Series Bond 10/31/94 10000 10000 1994 9860 10047 1995 11771 11903 1996 13461 12335
FUND FACTS GOAL: A high level of total return consistent with preservation of capital. START DATE: October 31, 1994 SIZE: $36 million as of December 31, 1996 MANAGERS: Peter Wilby, Steven Guterman and David Scott have managed the Series since its inception in October of 1994. Mr. Wilby and Mr. Scott have also managed the Salomon Brothers Investment Series--Strategic Bond Fund since March 1995. Mr. Wilby also manages the Salomon Brothers Investment Series--High Yield Bond Fund. Mr. Guterman also co-manages the Salomon Brothers U.S. Government Series of New England Zenith Fund. 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 DECEMBER 31, 1996
BONDS & NOTES--92.4% OF TOTAL NET ASSETS FACE AMOUNT VALUE (A) CORPORATE BONDS--37.2% $ 125,000 Airplane Pass Thru Trust, 10.875%, 3/15/19 . . . . . . . . . . . . . $ 137,884 150,000 Alvey Systems, Inc., 11.375%, 1/31/03 . . . . . . . . . . . . . 158,250 150,000 American Media Operations 11.625%, 11/15/04 . . . . . . . . . . . . 161,250 150,000 Americold Corp. 12.875%, 5/01/08 . . . . . . . . . . . . . 154,875 200,000 Arch Communications Group 0/10.875%, 3/15/08(j) . . . . . . . . . . 115,000 200,000 Arkla, Inc. 8.875%, 7/15/99 . . . . . . . . . . . . . 211,224 150,000 Berry Plastics 12.250%, 4/15/04 . . . . . . . . . . . . . 163,125 150,000 Borg Warner Security Corp. 9.125%, 5/01/03 . . . . . . . . . . . . . 147,000 150,000 Cablevision Systems Corp. 10.500%, 5/15/16 . . . . . . . . . . . . . 155,625 150,000 Carr Gottstein Foods Co. 12.000%, 11/15/05 . . . . . . . . . . . . 160,875 166,000 Central Transportation Rental Finance Corp. 9.500%, 4/30/03 . . . . . . . . . . . . . 158,115 150,000 Cinemark USA, Inc. 9.625%, 8/01/08 . . . . . . . . . . . . . 151,500 150,000 Clark Schwebel, Inc. 10.500%, 4/15/06 . . . . . . . . . . . . . 159,750 150,000 Cobb Theaters 10.625%, 3/01/03 . . . . . . . . . . . . . 158,062 200,000 Crown Paper Co. 11.000%, 9/01/05 . . . . . . . . . . . . . 188,000 240,000 CS Wireless Systems, Inc. 0/11.375%, 3/01/06(j) . . . . . . . . . . 87,600 150,000 CSK Auto, Inc. 11.000%, 11/01/06 . . . . . . . . . . . . 155,250 200,000 Dole Foods, Inc. 6.750%, 7/15/00 . . . . . . . . . . . . . 199,870 150,000 Dollar Financial Group, Inc. 10.875%, 11/15/06 . . . . . . . . . . . . 154,875 150,000 Ekco Group, Inc. 9.250%, 4/01/06 . . . . . . . . . . . . . 146,250 100,000 Excide Electronics Group, Inc. 11.500%, 3/15/06 (h) . . . . . . . . . . . 109,000 200,000 Eye Care Ctrs. America, Inc. 12.000%, 10/01/03 . . . . . . . . . . . . 215,750 100,000 Finlay Fine Jewerly Corp. 10.625%, 5/01/03 . . . . . . . . . . . . . 105,000 150,000 Foamex L.P/Foamex Cap. Corp. 11.875%, 10/01/04 . . . . . . . . . . . . 160,875 150,000 Four M Corp. 12.000%, 6/01/06 . . . . . . . . . . . . . 158,250 150,000 Freedom Chemical Co. 10.625%, 10/15/06 . . . . . . . . . . . . 156,750 150,000 Fresenius Medical Care Cap 9.000%, 12/01/06 . . . . . . . . . . . . . 152,625 150,000 Guitar CTR Management Co., Inc. 11.000%, 7/01/06 . . . . . . . . . . . . . 159,750
FACE AMOUNT VALUE (A) $ 150,000 Harveys Casino Resorts 10.625%, 6/01/06 . . . . . $ 162,000 100,000 Herff Jones, Inc. 11.000%, 8/15/05 . . . . . 108,000 150,000 Hills Stores Co. 12.500%, 7/01/03 . . . . . 133,500 150,000 Hines Horticulture 11.750%, 10/15/05 . . . . 159,000 150,000 HMH Properties, Inc. 9.500%, 5/15/05 . . . . . 156,750 150,000 Hollinger International 9.250%, 2/01/06 . . . . . 148,500 275,000 ICG Holdings, Inc. 0/13.500%, 9/15/05(j) . . 193,875 200,000 Imed Corp. 9.750%, 12/01/06 . . . . . 204,500 200,000 International Cabletel, Inc. 0/11.500%, 2/01/06(j) . . 136,000 150,000 Iron Mountain, Inc. 10.125%, 10/01/06 . . . . 158,813 200,000 Jacor Communications Co. 9.750%, 12/15/06 . . . . . 206,000 150,000 Jitney Jungle Stores 12.000%, 3/01/06 . . . . . 159,000 250,000 Jordan Industries, Inc. 10.375% 8/01/03 . . . . . 247,500 150,000 KCS Energy, Inc. 11.000%, 1/15/03 . . . . . 162,000 200,000 Lamar Advertising Co. 9.625%, 12/01/06 . . . . . 206,500 250,000 Marcus Cable Co. 0/14.250%, 12/15/05(j) . . 177,500 150,000 Maxxam Medical, Inc. 10.500%, 8/01/06 . . . . . 157,125 180,000 Mellon Financial Co. 9.750%, 6/15/01 . . . . . 201,289 150,000 Mesa Oper Co. 10.625%, 7/01/06 . . . . . 163,500 250,000 NL Industries, Inc. 0/13.000%, 10/15/05(j) . . 215,625 200,000 National Energy Group, Inc. 10.750%, 11/01/06 . . . . 208,500 250,000 Norcal Waste Systems, Inc. 12.500%, 11/15/05 . . . . 277,500 450,000 Paine Webber Group, Inc. 7.000%, 3/01/00 . . . . . 453,091 150,000 Parker Distilling Co. 9.750%, 11/15/06 . . . . . 158,250 150,000 Penn Traffic Co. 9.625%, 4/15/05 . . . . . 85,500 200,000 Peoples Choice TV Corp. 0/13.125%, 6/01/04(j) . . 85,000 150,000 Printpack, Inc. 10.625%, 8/15/06 . . . . . 156,750
See accompanying notes to financial statements. 69 NEW ENGLAND ZENITH FUND (SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
BONDS & NOTES--(CONTINUED) FACE AMOUNT VALUE(A) CORPORATE BONDS--(CONTINUED) $ 150,000 Quest Diagnostics, Inc. 10.750%, 12/15/06 . . . . . . . . . . $ 157,875 200,000 Radnor Holdings Corp. 10.000%, 12/01/03 . . . . . . . . . . 204,500 150,000 Rayovac Corp. 10.250%, 11/01/06 . . . . . . . . . . 154,875 150,000 Remington Product Co. 11.000%, 5/15/06 . . . . . . . . . . . 127,500 150,000 Renco Metals, Inc. 11.500%, 7/01/03 . . . . . . . . . . . 156,750 250,000 Revlon Worldwide Corp. Zero Coupon 3/15/98 . . . . . . . . . 215,625 150,000 Rogers Cablesystems, LTD 10.000%, 3/15/05 . . . . . . . . . . . 160,688 200,000 Ryder Transportation, Inc. 10.000%, 12/01/06 . . . . . . . . . . 208,000 150,000 Selmer, Inc. 11.000%, 5/15/05 . . . . . . . . . . . 161,062 150,000 SFX Broadcasting, Inc. 10.750%, 5/15/06 . . . . . . . . . . . 158,625 150,000 Smiths Food & Drug 11.250%, 5/15/07 . . . . . . . . . . . 166,500 125,000 Southdown, Inc. 10.000%, 3/01/06 . . . . . . . . . . . 132,500 150,000 Specialty Equipment Companies, Inc. 11.375%, 12/01/03 . . . . . . . . . . 162,938 100,000 Specialty Retailers, Inc. 11.000%, 8/15/03 . . . . . . . . . . . 104,250 250,000 Speedy Muffler King, Inc. 10.875%, 10/01/06 . . . . . . . . . . 268,125 150,000 Stroh Brewery Co. 11.100%, 7/01/06 . . . . . . . . . . . 156,750 150,000 Talley Manufacturing & Technology, Inc. 10.750%, 10/15/03 . . . . . . . . . . 157,125 150,000 Telex Communications, Inc. 12.000%, 7/15/04 . . . . . . . . . . . 165,000 150,000 Trump Atlantic City Associates 11.250%, 5/01/06 . . . . . . . . . . . 148,500 150,000 Twin Laboratories, Inc. 10.250%, 5/15/06 . . . . . . . . . . . 156,937 250,000 UNC, Inc. 11.000%, 6/01/06 . . . . . . . . . . . 267,500 100,000 United States Leasing International 8.450%, 1/25/05 . . . . . . . . . . . 108,102 150,000 Universal Outdoor, Inc. 9.750%, 10/15/06 . . . . . . . . . . . 155,250 150,000 Winstar Communications, Inc. 0/14.000%, 10/15/05(j) . . . . . . . . 91,500 150,000 Wyndham Hotel Corp. 10.500%, 5/15/06 . . . . . . . . . . . 159,375 ----------- 13,329,800 -----------
FACE AMOUNT VALUE(A) FOREIGN CORPORATE BONDS--5.4% $ 150,000 Algoma Steel, Inc., 12.375%, 7/15/05 . . . . . . $ 162,750 250,000 Costilla Energy, Inc. 10.250%, 10/01/06 . . . . . . 265,000 250,000 Diamond Cable Communication 0/11.750%, 12/15/05(j) . . . 178,750 250,000 Doane Products Co. 10.625%, 3/01/06 . . . . . . 266,875 150,000 Doman Industries, Ltd. 8.750%, 3/15/04 . . . . . . . 141,375 300,000 International Semi Tech. 0/11.500%, 8/15/03(e)(j) . . 197,250 400,000 Korea Development Bank 9.600%, 12/01/00 . . . . . . 441,952 250,000 Nextlink Communications, Ltd. 12.500%, 4/15/06 . . . . . . 268,125 ----------- 1,922,077 ----------- FOREIGN GOVERNMENT BONDS--21.0% 1,323,000 Argentina (Republic of) 6.3125%, 3/31/05 . . . . . . 1,152,664 40,000 Australia (Commonwealth of) 6.750%, 11/15/06(c) . . . . . 30,446 182,000 Brazil (Federal Republic of) 6.375%, 1/01/01 . . . . . . . 176,426 1,266,575 Brazil (Federal Republic of) C Bonds 8.000%, 4/15/14 . . . 935,683 250,000 Brazil (Federal Republic of) 5.000%, 4/15/24 . . . . . . . 158,125 730,000 Canada (Government of) 6.500%, 8/01/99(d) . . . . . 557,125 330,000 Canada (Government of) 7.500%, 9/01/00(d) . . . . . 259,662 270,000 Canada (Government of) 7.000%, 9/01/01(d) . . . . . 209,406 950,000 Denmark (Kingdom of) 8.000%, 11/15/01(e) . . . . . 179,008 500,000 Ecuador (Republic of) 3.250%, 2/28/25 . . . . . . . 233,125 80,000 Germany (Federal Republic of) 8.250%, 9/20/01(f) . . . . . 59,522 260,000 Germany (Federal Republic of) 7.500%, 11/11/04(f) . . . . . 188,884 100,000 Ireland (Republic of) 6.250%, 4/01/99(g) . . . . . 170,395 120,000 Ireland (Republic of) 6.500%, 10/18/01(g) . . . . . 206,711 1,300,000 Morocco (Kingdom of) 4.375%, 1/01/09(k) . . . . . 1,073,313 500,000 Panama (Republic of) 3.500%, 7/17/14 . . . . . . . 346,250
See accompanying notes to financial statements. 70 NEW ENGLAND ZENITH FUND (SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
BONDS & NOTES--(CONTINUED) FACE AMOUNT VALUE (A) FOREIGN GOVERNMENT BONDS--(CONTINUED) $ 216,000 Philippines (Republic of) 8.750% 10/07/16 . . . . . . . . . . $ 224,640 250,000 United Mexican States 6.250%, 12/31/19 . . . . . . . . . . 184,062 750,000 United Mexican States 6.250%, 12/31/19 . . . . . . . . . . 547,500 750,000 Venezuela (Republic of) 6.563%, 12/18/07 . . . . . . . . . . 637,500 ----------- 7,530,447 ----------- U.S. GOVERNMENT BONDS--28.8% 500,000 Federal Home Loan Bank 6.490%, 9/08/97 . . . . . . . . . . 502,755 295,275 Federal Home Loan Mortgage 10.000%, 5/15/20 . . . . . . . . . . 314,831 500,000 Federal National Mortgage Association 7.000%, 12/01/99 . . . . . . . . . . 488,905 28,523 Federal National Mortgage Association 13.000%, 11/01/15 . . . . . . . . . 33,684 117,446 Federal National Mortgage Association 13.000%, 04/25/19 . . . . . . . . . 126,186 297,663 Federal National Mortgage Association 6.500%, 3/01/26 . . . . . . . . . . 284,176 146,928 Federal National Mortgage Association 7.000%, 5/01/26 . . . . . . . . . . 143,668 200,000 Government National Mortgage Association 7.000%, 11/15/99 . . . . 195,624 23,326 Government National Mortgage Association 7.000%, 4/15/24 . . . . 22,823 547,468 Government National Mortgage Association 7.000%, 5/15/26 . . . . 535,664 2,000,000 United States Treasury Bonds 5.750%, 12/31/98 . . . . . . . . . . 1,995,500 150,000 United States Treasury Bonds 6.875%, 8/15/25 . . . . . . . . . . 152,922 140,000 United States Treasury Bonds 6.750%, 8/15/26 . . . . . . . . . . 141,243 90,000 United States Treasury Bonds 6.125%, 5/31/97 . . . . . . . . . . 90,272 1,870,000 United States Treasury Notes 5.625%, 2/28/01 . . . . . . . . . . 1,833,628 100,000 United States Treasury Notes 6.250%, 4/30/01 . . . . . . . . . . 100,289
FACE AMOUNT VALUE (A) $ 250,000 United States Treasury Notes 6.500%, 8/31/01 . . . . . . . . . . $ 252,867 750,000 United States Treasury Notes 6.125%, 12/31/01 . . . . . . . . . . 747,292 1,100,000 United States Treasury Notes 6.875%, 5/15/06 . . . . . . . . . . 1,133,935 1,200,000 United States Treasury Notes 6.500%, 10/15/06 . . . . . . . . . . 1,206,744 ----------- 10,303,008 ----------- Total Bonds & Notes (Identified Cost $32,283,175) . . . 33,085,332 -----------
SHORT-TERM INVESTMENT--20.1% $7,187,000 Repurchase agreement with Merrill Lynch & Co. dated 12/31/96 at 6.500% to be repurchased at $7,189,595 on 1/2/97 collateralized by $5,735,000. U. S. Treasury Bond 8.875% due 2/15/19 with a value of $7,333,631 . . . . . . . . . . 7,187,000 ----------- Total Short-Term Investment (Identified Cost $7,187,000) . . . . . . 7,187,000 ----------- Total Investments--112.5% (Identified Cost $39,470,175)(b) . . . . 40,272,332 Other assets less liabilities(i) . . . . (4,464,681) ----------- TOTAL NET ASSETS--100% . . . . . . . . . $35,807,651 ===========
See accompanying notes to financial statements. 71 NEW ENGLAND ZENITH FUND (SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
FORWARD CONTRACT OUTSTANDING AT DECEMBER 31, 1996 LOCAL AGGREGATE UNREALIZED CURRENCY DELIVERY CURRENCY FACE TOTAL APPRECIATION/ CONTRACT DATE AMOUNT VALUE VALUE DEPRECIATION Australian Dollar (sold) 01/22/97 38,653 $ 30,714 $ 30,536 $ (178) Canadian Dollar (sold) 01/22/97 358,684 262,324 268,275 5,951 Canadian Dollar (sold) 01/22/97 292,121 213,642 219,640 5,998 Canadian Dollar (sold) 01/22/97 483,711 353,763 362,059 8,296 Canadian Dollar (sold) 01/22/97 297,222 217,374 219,352 1,978 Deutsche Mark (bought) 01/22/97 1,080,900 703,441 720,000 (16,559) Deutsche Mark (bought) 01/22/97 284,369 185,065 189,529 (4,464) Deutsche Mark (bought) 01/22/97 522,375 339,958 350,000 (10,042) Deutsche Mark (bought) 01/22/97 693,074 451,047 462,049 (11,002) Deutsche Mark (bought) 01/22/97 520,680 338,854 344,821 (5,967) Deutsche Mark (bought) 01/22/97 225,907 147,017 145,221 1,796 Deutsche Mark (bought) 01/22/97 715,654 465,742 474,950 (9,208) Deutsche Mark (sold) 01/22/97 2,477,588 1,612,395 1,615,116 2,721 Deutsche Mark (sold) 01/22/97 799,290 520,172 536,797 16,625 Deutsche Mark (sold) 01/22/97 520,422 338,687 348,808 10,121 Deutsche Mark (sold) 01/22/97 264,852 172,363 170,000 (2,363) Deutsche Mark (sold) 01/22/97 92,986 60,515 59,837 (678) Danish Krone (bought) 01/22/97 334,390 56,831 56,200 631 Danish Krone (sold) 01/22/97 1,364,953 231,979 234,649 2,670 Pound Sterling (bought) 01/22/97 280,931 476,007 455,951 20,056 Pound Sterling (bought) 01/22/97 166,943 282,867 275,790 7,077 Pound Sterling (bought) 01/22/97 251,712 426,498 423,882 2,616 Pound Sterling (bought) 01/22/97 146,286 247,867 241,226 6,641 Pound Sterling (sold) 01/22/97 276,963 469,284 442,587 (26,697) Pound Sterling (sold) 01/22/97 289,739 490,931 474,950 (15,981) Pound Sterling (sold) 01/22/97 250,245 424,014 414,156 (9,858) Pound Sterling (sold) 01/22/97 252,445 427,741 414,534 (13,207) New Zealand Dollar (bought) 01/22/97 1,316,335 929,316 925,779 3,537 New Zealand Dollar (sold) 01/22/97 1,316,335 929,316 929,431 115 -------- Total depreciation on Forward Currency contracts . . . . . . . . . . . $(29,375) ========
(a) See Note 1A. (b) Federal Tax Information: At December 31, 1996 the net unrealized appreciation on investments based on cost of $39,482,198 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 . . . . $1,043,478 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value . . . . (253,344) ---------- Net unrealized appreciation . . . . . . . . . . . . . . . . $ 790,134 ==========
(c) Denominated in Australian dollars. (d) Denominated in Canadian Dollars. (e) Denominated in Danish Kroner. (f) Denominated in German Marks. (g) Denominated in Irish Pounds. (h) Rights attached. (i) Including deposits in foreign denominated currencies with a value of $54 and a cost of $54. (j) Step Bond; Coupon rate is zero or below market for an initial period and then increases to a higher coupon rate at a specified date and rate. (k) These securities represent loan participations which are arranged through private negotiations between the Fund and a lender. Due to the nature of these securities, they are typically purchased on a forward delivery basis (Note 1), some of which remain unsettled, in whole or in part, at December 31, 1996. See accompanying notes to financial statements. 72 NEW ENGLAND ZENITH FUND (SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
STATEMENT OF ASSETS & LIABILITIES DECEMBER 31, 1996 ASSETS Investments at value . . . . . . . . . . $40,272,332 Foreign cash at value (Cost $54) . . . . 54 Receivable for: Fund shares sold . . . . . . . . . . . 93,719 Dividends and interest . . . . . . . . 546,979 Miscellaneous . . . . . . . . . . . . . 1,574 Unamortized organization expense . . . . 5,694 ----------- 40,920,352 LIABILITIES Payable for: Securities purchased . . . . . . . . . $4,362,169 Loan participations purchased . . . . . 664,000 Open forward currency contracts--net . 29,375 Fund shares redeemed . . . . . . . . . 5,503 Due to custodian bank . . . . . . . . . 355 Accrued expenses: Management fees . . . . . . . . . . . . 21,647 Deferred trustees' fees . . . . . . . . 270 Other expenses . . . . . . . . . . . . 29,382 ---------- 5,112,701 ----------- $35,807,651 =========== NET ASSETS Net Assets consist of: Capital paid in . . . . . . . . . . . . $35,037,908 Undistributed net investment income . . 18,251 Accumulated net realized loss . . . . . (21,203) Unrealized appreciation on investments, forward contracts and foreign currency . . . . . . . . . . . . . . . 772,695 ----------- NET ASSETS . . . . . . . . . . . . . . . $35,807,651 =========== Computation of offering price: Net asset value and redemption price per share ($35,807,651 divided by 3,081,361 shares of beneficial interest) . . . . . $ 11.62 =========== Identified cost of investments . . . . . $39,470,175 ===========
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME Dividends . . . . . . . . . . . . . . . . . $ 150 Interest . . . . . . . . . . . . . . . . . 1,729,474(a) ---------- 1,729,624 EXPENSES Management fees . . . . . . . . . . . . . . $130,094 Trustees' fees and expenses . . . . . . . . 10,121 Custodian . . . . . . . . . . . . . . . . . 61,710 Audit and tax services . . . . . . . . . . 13,000 Legal . . . . . . . . . . . . . . . . . . . 11,498 Printing . . . . . . . . . . . . . . . . . 4,280 Amortization of organization expenses . . . 2,013 Miscellaneous . . . . . . . . . . . . . . . 5,776 -------- Total expenses . . . . . . . . . . . . . 238,492 Less expenses assumed by the investment adviser. . . . . . . . . . . . . . . . . (68,374) 170,118 -------- ---------- NET INVESTMENT INCOME . . . . . . . . . . . 1,559,506 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FORWARD CURRENCY CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS Realized gain on: Investments--net . . . . . . . . . . . . . 480,879 Foreign currency transactions--net . . . . 106,879 -------- Net realized gain on Investments and foreign currency transactions . . . . . . 587,758 -------- Unrealized appreciation (depreciation) on: Investments--net . . . . . . . . . . . . . 634,136 Foreign currency transactions--net . . . . (14,935) -------- Net unrealized appreciation on investments and foreign currency transactions . . . . 619,201 -------- Net gain on investment transactions . . . . 1,206,959 ---------- NET INCREASE IN NET ASSETS FROM OPERATIONS . $2,766,465 ==========
(a) Net of foreign taxes of: $178. See accompanying notes to financial statements. 73 NEW ENGLAND ZENITH FUND (SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1995 1996 ------------ -------------- FROM OPERATIONS Net investment income . . . . . . . . . . . . . $ 460,904 $ 1,559,506 Net realized gain on investments and foreign currency transactions . . . . . . . . . . . . 248,441 587,758 Unrealized appreciation on investments and foreign currency transactions . . . . . . . . 208,090 619,201 ----------- ----------- Increase in net assets from operations . . . . 917,435 2,766,465 ----------- ----------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income . . . . . . . . . . . . . (435,233) (1,704,472) Net realized gain on investments . . . . . . . (170,001) (518,385) ----------- ----------- (605,234) (2,222,857) ----------- ----------- FROM CAPITAL SHARES TRANSACTIONS Proceeds from sale of shares . . . . . . . . . 9,873,846 29,554,662 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income . . . 435,233 1,704,472 Distributions from net realized gain . . . . . 170,001 518,385 ----------- ----------- 10,479,080 31,777,519 Cost of shares redeemed . . . . . . . . . . . . (4,757,322) (5,997,600) ----------- ----------- Increase in net assets derived from capital share transactions . . . . . . . . . . . . . . 5,721,758 25,779,919 ----------- ----------- Total increase in net assets . . . . . . . . . 6,033,959 26,323,527 NET ASSETS Beginning of the year . . . . . . . . . . . . . 3,450,165 9,484,124 ----------- ----------- End of the year . . . . . . . . . . . . . . . . $ 9,484,124 $35,807,651 =========== =========== UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the year . . . . . . . . . . . . . $ 0 $ 50,354 =========== =========== End of the year . . . . . . . . . . . . . . . . $ 50,354 $ 18,251 =========== =========== NUMBER OF SHARES OF THE FUND: Issued from the sale of shares . . . . . . . . 919,222 2,532,646 Issued in connection with the reinvestment of: Distributions from net investment income . . . 40,562 144,891 Distributions from net realized gain . . . . . 15,844 42,731 ----------- ----------- 975,628 2,720,268 Redeemed . . . . . . . . . . . . . . . . . . . (455,476) (513,384) ----------- ----------- Net change . . . . . . . . . . . . . . . . . . 520,152 2,206,884 =========== ===========
FINANCIAL HIGHLIGHTS OCTOBER 31, 1994(A) THROUGH YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1995 1996 ------------------- ------------ -------------- Net Asset Value, Beginning of Period . . . . . . . . $10.00 $ 9.74 $ 10.85 ------ ------ ------- Income From Investment Operations Net Investment Income . . 0.12 0.58 0.51 Net Realized and Unrealized Gain (Loss) on Investments . . . . . . . (0.26) 1.30 1.05 ------ ------ ------- Total From Investment Operations. . . . . . . . (0.14) 1.88 1.56 ------ ------ ------- Less Distributions Dividends From Net Investment Income . . . . (0.12) (0.55) (0.60) Distributions From Net Realized Capital Gains . 0.00 (0.22) (0.19) ------ ------ ------- Total Distributions . . . (0.12) (0.77) (0.79) ------ ------ ------- Net Asset Value, End of Period . . . . . . . . . . $ 9.74 $10.85 $ 11.62 ====== ====== ======= TOTAL RETURN (%) . . . . . (1.40)(c) 19.38 14.36 Ratio of Operating Expenses to Average Net Assets (%) 0.85 (b) 0.85 0.85 Ratio of Net Investment Income to Average Net Assets (%) . . . . . . . . 7.05 (b) 8.39 7.79 Portfolio Turnover Rate (%) 403 (b) 202 176 Net Assets, End of Period (000) . . . . . . . $3,450 $9,484 $35,808 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 1.19
(a) Commencement of operations. (b) Computed on an annualized basis. (c) Not computed on an annualized basis. See accompanying notes to financial statements. 74 BACK BAY ADVISORS BOND INCOME SERIES PORTFOLIO MANAGER: CATHY BUNTING BACK BAY ADVISORS, L.P. [PHOTO OF CATHY BUNTING] Q. HOW DID THE BACK BAY ADVISORS BOND INCOME SERIES PERFORM IN 1996? A. The Back Bay Advisors Bond Income Series continued to deliver consistently strong results, despite the challenging conditions that pervaded bond markets. Rising long-term interest rates early in 1996 along with weak bond market returns stood in vivid contrast to the remarkable strength of bonds in 1995. Concerned that robust economic growth might cause inflationary pressures to escalate, bond investors pushed down fixed income prices and drove up yields. By the second half of the year, slower yet steady economic growth, continued low inflation and strong demand for U.S. government bonds from foreign investors fostered better performance from bonds. After a disappointing first half in 1996, the Series more than made up for lost ground by the year's end. For the 12 months ended December 31, 1996, the Series generated a total return of 4.61%. This return reflects the reinvestment of $8.05 per share in income distributions paid during the year and a decline in share price to $105.63 on December 31, 1996, from $108.67 a year ago. By comparison, the Lipper Variable "A" Rated Bond Funds Average return was 2.61% for the same period. The Series also outperformed the Lehman Brothers Intermediate Government/ Corporate Index/6/, the Series' benchmark, which posted a return of 4.05%. Q. WHAT WAS BEHIND THE SERIES' STRONG PERFORMANCE? A. An emphasis on corporate bonds--ranging between 60% to 70% of the portfolio--worked well for the Series. When economic activity is strong, as was the case last year, improving company fundamentals can help cushion price declines of corporate bonds from rising interest rates. Supply and demand relationships also worked to the advantage of the corporate sector. Institutional investors kept demand at healthy levels, which helped support bond prices even as interest rates rose and prices of government securities fell. Government issues are particularly sensitive to changes in interest rates, in part because they gain no additional benefit from improving credit conditions--they already enjoy the distinction as the most creditworthy fixed income instruments around. Q. HOW DID YOU MANAGE THE SERIES DURING THE YEAR? A. We took steps to make the most of mixed conditions in the bond markets. For example, we focused on corporate bonds from select industries. We favored fundamentally solid though undervalued corporate sectors. Careful credit research played a critical role in enabling us to identify attractive issues in areas such as utilities, oil and gas, and cable and media. Utility bonds, for instance, benefited from a combination of technical factors, including low levels of bond issuance and expanded debt repurchase programs, which tipped the supply/demand balance toward higher bond prices. The sector's fundamentals also were attractive, thanks to merger activity that improved the operating and financial strength of formerly separate entities. We invested in utility bonds that offered favorable price and yield characteristics, namely those with a 15-year maturity structure. These holdings contributed positively to the Series' performance, as did energy investments. Severe winter weather across the country significantly increased oil prices, providing a windfall for the energy industry and price gains for the Series' holdings of Oryx Energy, Mitchell Energy, Pemex and Transgas. The cable/media sector, meanwhile, experienced setbacks. During the first half of the year, Moody's--an independent bond rating agency--downgraded the credit quality of Tele-Communications, Inc. to below investment grade. (Bonds rated BBB and above are considered "investment grade.") This event raised concerns about the industry's financial condition as a whole, taking a toll on the Series' cable bond holdings. However, many companies, including Tele-Communications, have begun programs to improve their financial position by reducing their debt loads. We remain invested in cable bonds, believing that industry fundamentals are essentially sound and that bond prices should recover. Nearly 6.9% of the Series' assets were invested in the Canadian bond market. Canada's lower inflation rates and moderate economic growth, compared to that of the United States, enabled Canadian bonds to outperform their U.S. counterparts. Further, the postponement of Quebec's Separatist referendum to 1998 improved investor sentiment and attracted foreign investors, further buoying the market. The Series' approach to duration worked both for and against it during the year. Duration is measured in years, and is a more precise gauge than maturity of a bond's sensitivity to interest rate changes. Essentially, the longer a bond's duration, the more its price reacts to changes in interest rates--rising when interest rates fall and declining when interest rates rise. The portfolio's 75 average duration at the beginning of the period was relatively long--about six years--which boosted the Series' current yield but hampered its price performance when interest rates were rising. As market conditions improved, however, the Series' longer duration enhanced its performance by capturing price gains and offsetting losses sustained earlier in 1996. During 1996, we selectively invested in lower-grade bonds. Given the strength of the economy, taking a measure of credit risk was amply rewarded with higher yields and additional price gains relative to higher-grade issues. Nevertheless, the overall quality of the portfolio remains high at A. Q. WHAT IS YOUR INVESTMENT OUTLOOK FOR THE MONTHS AHEAD? A. Going forward, we believe the ingredients that foster positive bond market performance--moderate economic growth, low inflation, and stable interest rates--will remain in place. As always, thorough credit research continues to be instrumental in helping us sort through opportunities in the bond markets. And, we will closely monitor the investment landscape to help gauge the direction of interest rates over the short term and adjust portfolio strategy to take advantage of market changes. [A CHART APPEARS HERE COMPARING A $10,000 INVESTMENT IN THE SERIES COMPARED TO AN INDEX]
Lehman Bond Income Intermediate Cost of Series Gov't/Corp. Living 12/31/86 10000 10000 10000 1987 10143 10366 10443 1988 10992 11057 10905 1989 12343 12469 11412 1990 13341 13612 12109 1991 15737 15602 12480 1992 17025 16721 12842 1993 19171 18191 13195 1994 18527 17840 13548 1995 22454 20575 13891 1996 23489 21408 14353
FUND FACTS GOAL: A high level of current income consistent with the protection of capital and moderate investment risk. START DATE: August 26, 1983 SIZE: $180 million as of December 31, 1996 MANAGER: Cathy Bunting has managed the Series since 1989. She has also acted as portfolio manager of New England Bond Income Fund since 1989. She joined Back Bay Advisors in April 1987. 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. 76 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS BOND INCOME SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
BONDS AND NOTES--91.9% OF TOTAL NET ASSETS FACE AMOUNT VALUE (A) BROADCASTING--5.5% $ 2,050,000 Cablevision Industrial Corp., 9.250%, 4/01/08 . . . . . . . . . . . $ 2,190,938 4,520,000 Continental Cablevision, Inc., 11.000%, 6/01/07 . . . . . . . . . . . 5,149,772 2,300,000 Continental Cablevision, Inc., 9.500%, 8/01/13 . . . . . . . . . . . 2,641,665 ------------ 9,982,375 ------------ FEDERAL AGENCIES--10.2% 42,105 Federal Home Loan Bank, 9.000%, 5/01/01 . . . . . . . . . . . 43,816 16,084 Federal Home Loan Bank, 9.000%, 9/01/01 . . . . . . . . . . . 16,737 1,500,000 Federal National Mortgage Association, 7.850%, 9/10/04 . . . . . . . . . . . 1,521,375 7,948,949 Government National Mortgage Association, 7.000% with various maturities to 2025 . . . . . . . . . . 7,777,570 6,552,031 Government National Mortgage Association, 7.500% with various maturities to 2025 . . . . . . . . . . 6,558,190 2,013,581 Government National Mortgage Association, 8.5000% with various maturities to 2022 . . . . . . . . . . 2,087,197 242,199 Government National Mortgage Association, 9.000%, 10/15/16 . . . . 255,217 ------------ 18,260,102 ------------ FINANCIAL--9.9% 2,500,000 American General Financing, 8.450%, 10/15/09 . . . . . . . . . . . 2,795,625 5,160,000 Associates Corporation of North America, 8.550%, 7/15/09 . . . . . . . . . . . 5,819,706 3,000,000 Intermediate American Development Bank, 6.950%, 8/01/26 . . . . . . . . . . . 3,101,340 1,800,000 Pitney Bowes Credit Corp., 8.550%, 9/15/09 . . . . . . . . . . . 2,049,786 3,750,000 Toronto Dominion Bank, 7.875%, 8/15/04 . . . . . . . . . . . 3,873,300 ------------ 17,639,757 ------------ FOREIGN--6.9% 4,500,000 British Columbia Province, 7.750%, 6/16/03(c) . . . . . . . . . . 3,567,301 6,500,000 Government of Canada, 8.000%, 6/01/23(c) . . . . . . . . . . 5,276,236 15,000,000 Ontario Hydro, Zero Coupon, 11/27/20(c) . . . . . . . 1,818,447
FACE AMOUNT VALUE (A) $16,050,000 Ontario Hydro, Zero Coupon, 8/06/21(c) . . . . . . . $ 1,846,108 ------------ 12,508,092 ------------ LEISURE--2.7% 4,500,000 Time Warner, Inc. 9.150%, 2/01/23 . . . . . . . . . . . 4,889,700 ------------ OIL AND GAS--2.7% 2,400,000 Gulf Canada Resources, Ltd., 9.000%, 8/15/99 . . . . . . . . . . . 2,526,000 2,250,000 Mitchell Energy & Development Corp., 9.250%, 1/15/02 . . . . . . . . . . . 2,430,743 ------------ 4,956,743 ------------ PUBLISHING--2.6% 2,150,000 Golden Books Publishing, Inc., 7.650%, 9/15/02 . . . . . . . . . . . 1,945,750 1,500,000 News America Holdings, Inc., 7.750%, 2/01/24 . . . . . . . . . . . 1,434,705 1,300,000 News America Holdings, Inc., 8.250%, 8/10/18 . . . . . . . . . . . 1,327,599 ------------ 4,708,054 ------------ TELECOMMUNICATIONS--11.5% 2,600,000 360 Communications, 7.125%, 3/01/03 . . . . . . . . . . . 2,567,318 7,300,000 AT&T Corp., 8.350%, 1/15/25 . . . . . . . . . . . 7,702,303 3,000,000 Bellsouth Telecomm, Inc., 5.850%, 11/15/45 . . . . . . . . . . . 2,964,180 2,935,000 Tele-Communications, Inc., 9.250%, 1/15/03 . . . . . . . . . . . 2,920,530 1,500,000 Tele-Communications, Inc., 9.800%, 2/01/12 . . . . . . . . . . . 1,622,385 3,000,000 Total Access Communication, 8.375%, 11/04/06 . . . . . . . . . . . 3,018,330 ------------ 20,795,046 ------------ U.S. GOVERNMENT--14.9% 10,000,000 U.S. Treasury Notes, 5.750%, 8/15/03 . . . . . . . . . . . 9,705,201 1,500,000 U.S. Treasury Notes, 6.375%, 7/15/99 . . . . . . . . . . . 1,515,105 2,500,000 U.S. Treasury Notes, 6.500%, 8/15/05 . . . . . . . . . . . 2,516,125 6,500,000 U.S. Treasury Notes, 6.875%, 7/30/99 . . . . . . . . . . . 6,635,200 3,500,000 U.S. Treasury Notes, 8.000%, 5/15/01 . . . . . . . . . . . 3,741,640 2,500,000 U.S. Treasury Notes, 8.500%, 11/15/00 . . . . . . . . . . . 2,701,950 ------------ 26,815,221 ------------
See accompanying notes to financial statements. 77 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS BOND INCOME SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
BONDS AND NOTES--(CONTINUED) FACE AMOUNT VALUE (A) UTILITIES--(DIVERSIFIED)--8.5% $ 5,000,000 Long Island Lighting Co., 9.000%, 11/01/22 . . . . . . . . $ 5,296,900 625,000 New York State Electric & Gas Co., 9.875%, 2/01/20 . . . . . . . . . 626,681 4,250,000 New York State Electric & Gas Co., 8.875%, 11/01/21 . . . . . . . . 4,485,832 5,000,000 Tennessee Valley Authority, 6.125%, 7/15/03 . . . . . . . . . 4,862,700 ------------ 15,272,113 ------------ UTILITIES--(ELECTRIC)--7.8% 6,700,000 Arizona Public Service Co., 8.000%, 12/30/15 . . . . . . . . 6,879,359 3,000,000 New Mexico Public Service Corp., 10.250%, 10/01/12 . . . . . . . . 3,371,250 1,000,000 Ohio Edison Corp., 8.680%, 6/01/17 . . . . . . . . . 992,030 1,700,000 Texas Utilities Electric Co., 8.875%, 2/01/22 . . . . . . . . . 1,832,549 1,100,000 Toledo Edison Co., 7.875%, 8/01/04 . . . . . . . . . 1,089,748 ------------ 14,164,936 ------------ YANKEE--8.7% 900,000 British Columbia Hydro & Power, 12.500%, 9/01/13 . . . . . . . . 1,020,600 1,000,000 British Columbia Hydro & Power, 12.500%, 1/15/14 . . . . . . . . 1,152,720 2,000,000 Hydro Quebec, 8.050%, 7/07/24 . . . . . . . . . 2,196,380 5,400,000 Petroleos Mexicanos, 8.625%, 12/01/23 . . . . . . . . 4,428,000 2,000,000 Province of Quebec, 8.625%, 12/01/26 . . . . . . . . 2,234,540 1,700,000 Republic of Colombia, 8.660%, 10/07/16 . . . . . . . . 1,801,352 2,700,000 Transgas de Occidente SA, 9.790%, 11/01/10 . . . . . . . . 2,862,000 ------------ 15,695,592 ------------ Total Bonds and Notes (Identified Cost $164,803,203) . 165,687,731 ------------
SHORT-TERM INVESTMENT--6.3% FACE AMOUNT VALUE (A) COMMERCIAL PAPER---6.3% $11,320,000 Household Finance Corp. 6.250%, 1/02/97 . . . . . . . . . $ 11,318,035 ------------ Total Short-Term Investment (Identified Cost $11,318,035) . . 11,318,035 ------------ Total Investments--98.2% (Identified Cost $176,121,238)(b) . . . . . . . . 177,005,766 Other assets less liabilities(e) . 3,353,190 ------------ TOTAL NET ASSETS--100% . . . . . . $180,358,956 ============
(a) See Note 1A. (b) Federal Tax Information: At December 31, 1996 the net unrealized appreciation on investments based on cost of $176,234,143 for federal income tax purposed was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost . . . . . . . . . . $ 2,646,350 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value . . . . . . . . . . (1,874,727) ----------- Net unrealized appreciation . . . . . . . . $ 771,623 ===========
(c) Denominated in Canadian dollars. (d) Including deposits in foreign denominated currency with a value of $274 and a cost of $275. See accompanying notes to financial statements. 78 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS BOND INCOME SERIES)
STATEMENT OF ASSETS & LIABILITIES DECEMBER 31, 1996 ASSETS Investments at value . . . . . . . . . . $177,005,766 Cash . . . . . . . . . . . . . . . . . . 3,991 Foreign cash at value (Cost $275) . . . . 274 Receivable for: Fund shares sold . . . . . . . . . . . . 331,818 Accrued interest . . . . . . . . . . . . 3,304,914 ------------ 180,646,763 LIABILITIES Payable for: Fund shares redeemed . . . . . . . . . . $155,160 Miscellaneous . . . . . . . . . . . . . 27,647 Accrued expenses: Management fees . . . . . . . . . . . . 60,640 Deferred trustees' fees . . . . . . . . 36,363 Other expenses . . . . . . . . . . . . . 7,997 -------- 287,807 ------------ $180,358,956 ============ NET ASSETS Net Assets consist of: Capital paid in . . . . . . . . . . . . $178,899,513 Undistributed net investment income . . 146,994 Accumulated net realized gains . . . . . 428,101 Unrealized appreciation on investments and foreign currency . . . . . . . . . 884,348 ------------ NET ASSETS . . . . . . . . . . . . . . . . $180,358,956 ============ Computation of offering price: Net asset value and redemption price per share ($180,358,956 divided by 1,707,523 shares of beneficial interest) . . . . . $ 105.63 ============ Identified cost of investments . . . . . . $176,121,238 ============
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME Interest . . . . . . . . . . . . . . . $13,045,963 ----------- 13,045,963 EXPENSES Management fees . . . . . . . . . . . $ 672,348 Trustees' fees and expenses . . . . . 27,049 Custodian . . . . . . . . . . . . . . 75,732 Audit and tax services . . . . . . . . 17,000 Legal . . . . . . . . . . . . . . . . 11,564 Printing . . . . . . . . . . . . . . . 66,987 Miscellaneous . . . . . . . . . . . . 6,125 ----------- Total expenses . . . . . . . . . . . 876,805 ----------- NET INVESTMENT INCOME . . . . . . . . . 12,169,158 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS Realized gain on: Investments--net . . . . . . . . . . 1,392,369 Foreign currency transactions--net . 42,011 ----------- Net realized gain on investments and foreign currency transactions . . . 1,434,380 ----------- Unrealized appreciation (depreciation) on: Investments--net . . . . . . . . . . (5,669,661) Foreign currency transactions--net . 280 ----------- Net unrealized depreciation on investments and foreign currency transactions . . . . . . . . . . . . (5,669,381) ----------- Net loss on investment transactions . . (4,235,001) ----------- NET INCREASE IN NET ASSETS FROM OPERATIONS . . . . . . . . . . . . . . $ 7,934,157 ===========
See accompanying notes to financial statements. 79 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS BOND INCOME SERIES)
STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1995 1996 ------------- --------------- FROM OPERATIONS Net investment income . . . . . . . . . . . . $ 10,335,393 $ 12,169,158 Net realized gain on investments and foreign currency transactions . . . . . . . . . . . 1,559,812 1,434,380 Unrealized appreciation (depreciation) on investments and foreign currency transactions . . . . . . . . . . . . . . . . 15,392,179 (5,669,381) ------------ ------------ INCREASE IN NET ASSETS FROM OPERATIONS . . . 27,287,384 7,934,157 ------------ ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income . . . . . . . . . . . . (9,888,438) (12,191,823) Net realized gain on investments . . . . . . 0 (496,515) ------------ ------------ (9,888,438) (12,688,338) ------------ ------------ FROM CAPITAL SHARES TRANSACTIONS Proceeds from sale of shares . . . . . . . . 46,886,957 53,162,089 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income . . 9,888,437 12,191,823 Distributions from net realized gain . . . . 0 496,515 ------------ ------------ 56,775,394 65,850,427 Cost of shares redeemed . . . . . . . . . . . (37,696,007) (43,449,240) ------------ ------------ INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS . . . . . . . . . . . . . 19,079,387 22,401,187 ------------ ------------ TOTAL INCREASE IN NET ASSETS . . . . . . . . 36,478,333 17,647,006 NET ASSETS Beginning of the year . . . . . . . . . . . . 126,233,617 162,711,950 ------------ ------------ End of the year . . . . . . . . . . . . . . . $162,711,950 $180,358,956 ============ ============ UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the year . . . . . . . . . . . . $ 0 $ 53,292 ============ ============ End of the year . . . . . . . . . . . . . . . $ 53,292 $ 146,994 ============ ============ NUMBER OF SHARES OF THE FUND: Issued from the sale of shares . . . . . . . 440,564 491,882 Issued in connection with the reinvestment of: Distributions from net investment income . . 91,832 114,880 Distributions from net realized gain . . . . 0 4,700 ------------ ------------ 532,396 611,462 Redeemed . . . . . . . . . . . . . . . . . . (356,518) (401,180) ------------ ------------ Net change . . . . . . . . . . . . . . . . . 175,878 210,282 ============ ============
FINANCIAL HIGHLIGHTS YEAR ENDED DECEMBER 31, --------------------------------------------------- 1992 1993 1994 1995 1996 -------- --------- --------- --------- ----------- Net Asset Value, Beginning of Year . . $103.44 $ 103.47 $ 106.14 $ 95.53 $ 108.67 ------- -------- -------- -------- -------- Income From Investment Operations Net Investment Income . . . . . . . 7.96 5.70 7.05 7.34 7.72 Net Realized and Unrealized Gain (Loss) on Investments . . . . 0.51 7.38 (10.61) 12.85 (2.70) ------- -------- -------- -------- -------- Total From Investment Operations . . . . . 8.47 13.08 (3.56) 20.19 5.02 ------- -------- -------- -------- -------- Less Distributions Dividends From Net Investment Income . (6.87) (6.20) (7.05) (7.05) (7.74) Distributions in Excess of Net Investment Income . 0.00 (0.05) 0.00 0.00 0.00 Distributions From Net Realized Capital Gains. . . . . . . . (1.57) (4.16) 0.00 0.00 (0.32) ------- -------- -------- -------- -------- Total Distributions . (8.44) (10.41) (7.05) (7.05) (8.06) ------- -------- -------- -------- -------- Net Asset Value, End of Year. . . . . . . . . $103.47 $ 106.14 $ 95.53 $ 108.67 $ 105.63 ======= ======== ======== ======== ======== TOTAL RETURN (%) . . . 8.18 12.61 (3.36) 21.20 4.61 Ratio of Operating Expenses to Average Net Assets (%) . . . 0.44 0.43 0.44 0.55 0.52 Ratio of Net Investment Income to Average Net Assets (%) . . . . . 7.70 6.47 6.75 7.22 7.22 Portfolio Turnover Rate (%) . . . . . . 71 177 82 73 98 Net Assets, End of Year (000) . . . . . $83,057 $131,242 $126,234 $162,712 $180,359
As of January 1, 1993, the Bond Income Series discontinued the use of equalization accounting. See accompanying notes to financial statements. 80 SALOMON BROTHERS U.S. GOVERNMENT SECURITIES PORTFOLIO MANAGERS: STEVEN GUTERMAN AND ROGER LAVAN SALOMON BROTHERS ASSET MANAGEMENT INC [PHOTOS OF STEVEN GUTERMAN & ROGER LAVAN] Q. HOW DID THE SERIES PERFORM IN 1996? A. For the year ended December 31, 1996, the Series posted a 3.31% return versus a 4.06% return for the Lehman Intermediate Government Index/5/. In general, the performance of the U.S. government bond market and the Salomon Brothers U.S. Government Securities Series was hindered by the dramatic rise in interest rates during the first half of 1996. Although a rally occurred in the fourth quarter as inflation remained in check while economic indicators signaled moderate growth, it was not enough to overcome the dramatic rise in rates during the first half of 1996. Q. HOW DID YOU MANAGE THE SERIES IN 1996? A. For most of the year, the Series maintained a neutral duration strategy in anticipation of higher yields. This defensive strategy posture was taken in response to reports of stronger economic growth (e.g. strong job growth and increases in consumption and housing activity). Market participants also focused on stronger than expected rises in average hourly earnings which led to concerns that inflationary pressures could develop and influence the Federal Reserve to hike short term rates. The Series also had an overweight allocation to the mortgage pass-through sector versus its benchmark. Mortgage pass-through securities performed strongly in 1996 as higher interest rates reduced the incentive for homeowners to refinance their mortgages. During the fourth quarter, the Series extended its duration to about 4.25 years as inflation threats subsided and it became clear that Federal Reserve policy was on hold. At year-end, the Series' assets were allocated as follows: U.S. Treasuries 30%, U.S. Agency debentures 7%, mortgage pass-throughs 62% and short-term investments 1%. Q. WHAT IS YOUR INVESTMENT OUTLOOK FOR THE MONTHS AHEAD? A. Bonds are likely to experience volatility early in 1997 as investors sort out the implications of stronger growth. We do not expect Fed action in the first several months of 1997. Given our optimistic view of inflation, we believe interest rates will move modestly lower during the year. [A CHART APPEARS HERE COMPARING A $10,000 INVESTMENT IN THE SERIES VERSUS AN INDEX]
US Gov't Lehman Intermediate Series Government 10/31/94 10000 10000 1994 10060 9989 1995 11571 11430 1996 11955 11894
FUND FACTS GOAL: A high level of current income consistent with the preservation of capital and maintenance of liquidity. START DATE: October 31, 1994 SIZE: $13 million as of December 31, 1996 MANAGERS: Steven Guterman and Roger Lavan have managed the Series since its inception in October of 1994. Mr. Guterman and Mr. Lavan have also managed the Salomon Brothers Investment Series--U.S. Government Income Fund 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 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. 81 NEW ENGLAND ZENITH FUND (SALOMON BROTHERS U.S. GOVERNMENT SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
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 . . . . . . . . . . . $ 251,377 300,000 Federal Home Loan Banks 5.940%, 6/13/00 . . . . . . . . . . . 297,231 22,355 Federal Home Loan Mortgage 6.000%, 10/01/10 . . . . . . . . . . . 21,537 412,932 Federal Home Loan Mortgage 7.000%, 7/01/11 . . . . . . . . . . . 413,060 72,265 Federal Home Loan Mortgage 11.750%, 1/01/12 . . . . . . . . . . . 81,795 46,446 Federal Home Loan Mortgage 11.750%, 12/01/13 . . . . . . . . . . 52,571 447,285 Federal Home Loan Mortgage 8.250%, 4/01/17 . . . . . . . . . . . 465,176 1,000,000 Federal Home Loan Mortgage 6.500%, 1/01/99 . . . . . . . . . . . 955,930 1,835,342 Federal National Mortgage Association 6.500%, 12/01/10 . . . . . . . . . . . 1,802,654 40,089 Federal National Mortgage Association 14.500%, 11/01/14 . . . . . . . . . . 49,447 19,584 Federal National Mortgage Association 12.500%, 8/01/15 . . . . . . . . . . . 22,870 92,292 Federal National Mortgage Association 12.500%, 9/01/15 . . . . . . . . . . . 108,184 93,718 Federal National Mortgage Association 13.000%, 11/01/15 . . . . . . . . . . 110,675 48,599 Federal National Mortgage Association 12.000%, 1/01/16 . . . . . . . . . . . 56,177 30,326 Federal National Mortgage Association 11.500%, 9/01/19 . . . . . . . . . . . 34,486 99,536 Federal National Mortgage Association 11.500%, 2/01/20 . . . . . . . . . . . 112,601 440,611 Federal National Mortgage Association 6.500%, 3/01/26 . . . . . . . . . . . 420,783 450,000 Federal National Mortgage Association Pool TBA 7.000%, 12/01/2099 . . . . . 440,014 291,904 Government National Mortgage Association TBA 9.000%, 12/15/16 . . . . . . . . . 309,555 28,366 Government National Mortgage Association TBA 7.000%, 4/15/24 . . . . . . . . . 27,755 38,430 Government National Mortgage Association TBA 7.000%, 3/15/26 . . . . . . . . . 37,601 2,104,732 Government National Mortgage Association TBA 7.000%, 5/15/26 . . . . . . . . . 2,059,357 350,000 Government National Mortgage Association TBA 7.000%, 12/15/2099 . . . . . . . . 341,908 300,000 Student Loan Marketing Association 7.500%, 3/08/00 . . . . . . . . . . . 311,157 ---------- 8,783,901 ----------
FACE AMOUNT VALUE (A) U.S. TREASURY--21.1% $ 500,000 U.S. Treasury Notes 6.125%, 5/31/97 $ 501,510 1,000,000 U.S. Treasury Notes 5.750%, 12/31/98 . . . . . . . . . 997,750 500,000 U.S. Treasury Notes 5.625%, 2/28/01 490,275 200,000 U.S. Treasury Notes 6.500%, 5/31/01 202,348 270,000 U.S. Treasury Notes 6.625%, 7/31/01 274,388 100,000 U.S. Treasury Notes 6.875%, 5/15/06 103,085 100,000 U.S. Treasury Notes 7.000%, 7/15/06 103,940 1,260,000 U.S. Treasury Notes 6.500%, 10/15/06 . . . . . . . . . 1,267,081 ----------- 3,940,377 ----------- Total Bonds & Notes (Identified Cost $12,744,814) . . 12,724,278 ===========
SHORT-TERM INVESTMENT--23.2% 3,120,000 Repurchase Agreement with Merrill Lynch dated 12/31/96 at 6.500% to be repurchased at $3,121,127 on 1/02/97 collateralized by $2,490,000 U.S. Treasury Bonds 8.875% due 2/15/19 with a value of $3,184,088 . . . . . . . . 3,120,000 ----------- Total Short-Term Investment (Identified Cost $3,120,000) . . . . . 3,120,000 ----------- Total Investments--115.9% (Identified Cost $15,864,814)(b) . . . 15,844,278 Liabilities . . . . . . . . . . . . . . (2,633,614) ----------- TOTAL NET ASSETS--100% . . . . . . . . $13,210,664 ===========
(a) See Note 1a. (b) Federal Tax Information: At December 31, 1996 the net unrealized depreciation on investments based on cost of $15,866,361 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 . . . . . . . . . . $ 45,984 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value . . . . . . . . . . (68,067) -------- Net unrealized depreciation . . . . . . . . $(22,083) ========
See accompanying notes to financial statements. 82 NEW ENGLAND ZENITH FUND (SALOMON BROTHERS U.S. GOVERNMENT SERIES)
STATEMENT OF ASSETS & LIABILITIES DECEMBER 31, 1996 ASSETS Investments at value . . . . . . . . . $15,844,278 Cash . . . . . . . . . . . . . . . . . 796 Receivable for: Fund shares sold . . . . . . . . . . . 65,804 Accrued interest . . . . . . . . . . . 101,198 Due from advisor . . . . . . . . . . . 6,102 Unamortized organization . . . . . . . 5,694 ----------- 16,023,872 LIABILITIES Payable for: Securities purchased . . . . . . . . . $2,757,054 Fund shares redeemed . . . . . . . . . 28,921 Accrued expenses: Management fees . . . . . . . . . . . 2,465 Deferred trustees' fees . . . . . . . 267 Other expenses . . . . . . . . . . . . 24,501 ---------- 2,813,208 ----------- $13,210,664 =========== NET ASSETS Net Assets consist of: Capital paid in . . . . . . . . . . . $13,203,810 Undistributed net investment income . 6,776 Accumulated net realized gains . . . . 20,614 Unrealized depreciation on investments . . . . . . . . . . . . . (20,536) ----------- NET ASSETS . . . . . . . . . . . . . . . $13,210,664 =========== Computation of offering price: Net asset value and redemption price per share ($13,210,664 divided by 1,219,959 shares of beneficial interest) . . . . $ 10.83 =========== Identified cost of investments . . . . . $15,864,814 ===========
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME Interest . . . . . . . . . . . . . . . . $ 740,123 --------- 740,123 EXPENSES Management fees . . . . . . . . . . . . . $ 59,626 Trustees' fees and expenses . . . . . . . 10,057 Custodian . . . . . . . . . . . . . . . . 44,258 Audit and tax services . . . . . . . . . 13,000 Legal . . . . . . . . . . . . . . . . . . 11,495 Printing . . . . . . . . . . . . . . . . 2,423 Amortization of organization expenses . . 2,013 Miscellaneous . . . . . . . . . . . . . . 5,424 -------- Total expenses . . . . . . . . . . . . 148,296 Less expenses assumed by the investment adviser . . . . . . . . . . . . . . . (72,404) 75,892 -------- --------- NET INVESTMENT INCOME . . . . . . . . . . 664,231 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized gain on: Investments--net . . . . . . . . . . . . 1,275 Unrealized depreciation on: Investments--net . . . . . . . . . . . . (214,900) --------- Net loss on investment transactions . . . (213,625) --------- NET INCREASE IN NET ASSETS FROM OPERATIONS $ 450,606 =========
See accompanying notes to financial statements. 83 NEW ENGLAND ZENITH FUND (SALOMON BROTHERS U.S. GOVERNMENT SERIES)
STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1995 1996 ------------ -------------- FROM OPERATIONS Net investment income . . . . . . . . . . . . . $ 214,389 $ 664,231 Net realized gain on investments . . . . . . . 71,273 1,275 Unrealized appreciation (depreciation) on investments. . . . . . . . . . . . . . . . . . 195,460 (214,900) ----------- ----------- INCREASE IN NET ASSETS FROM OPERATIONS . . . . 481,122 450,606 ----------- ----------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income . . . . . . . . . . . . . (214,389) (639,626) In excess of net investment income . . . . . . (1,001) 0 Net realized gain on investments . . . . . . . (50,946) (16,259) ----------- ----------- (266,336) (655,885) ----------- ----------- FROM CAPITAL SHARES TRANSACTIONS Proceeds from sale of shares . . . . . . . . . 7,348,256 9,363,646 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income . . . 215,390 639,626 Distributions from net realized gain . . . . . 50,946 16,259 ----------- ----------- 7,614,592 10,019,531 Cost of shares redeemed . . . . . . . . . . . . (2,299,033) (4,145,624) ----------- ----------- INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS . . . . . . . . . . . . . . 5,315,559 5,873,907 ----------- ----------- TOTAL INCREASE IN NET ASSETS . . . . . . . . . 5,530,345 5,668,628 NET ASSETS Beginning of the year . . . . . . . . . . . . . 2,011,691 7,542,036 ----------- ----------- End of the year . . . . . . . . . . . . . . . . $ 7,542,036 $13,210,664 =========== =========== UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the year . . . . . . . . . . . . . $ 0 $ 735 =========== =========== End of the year . . . . . . . . . . . . . . . . $ 735 $ 6,776 =========== =========== NUMBER OF SHARES OF THE FUND: Issued from the sale of shares . . . . . . . . 671,863 852,094 Issued in connection with the reinvestment of: Distributions from net investment income . . . 19,652 58,698 Distributions from net realized gain . . . . . 4,648 0 ----------- ----------- 696,163 910,792 Redeemed . . . . . . . . . . . . . . . . . . . . (214,709) (374,295) ----------- ----------- Net change . . . . . . . . . . . . . . . . . . . 481,454 536,497 =========== ===========
FINANCIAL HIGHLIGHTS OCTOBER 31, 1994 (A) THROUGH YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 1995 1996 -------------------- ------------ -------------- Net Asset Value, Beginning of Period . . . . . . . . $10.00 $ 9.96 $ 11.04 ------ ------ ------- Income From Investment Operations Net Investment Income . . 0.10 0.33 0.58 Net Realized and Unrealized Gain (Loss) on Investments. . . . . . . (0.04) 1.16 (0.21) ------ ------ ------- Total From Investment Operations . . . . . . . 0.06 1.49 0.37 ------ ------ ------- Less Distributions Dividends From Net Investment Income . . . (0.10) (0.33) (0.56) Distributions From Net Realized Capital Gains . 0.00 (0.08) (0.02) ------ ------ ------- Total Distributions . . . (0.10) (0.41) (0.58) ------ ------ ------- Net Asset Value, End of Period. . . . . . . . . . $ 9.96 $11.04 $ 10.83 ====== ====== ======= TOTAL RETURN (%) . . . . . 0.60(c) 15.02 3.31 Ratio of Operating Expenses to Average Net Assets (%) 0.70(b) 0.70 0.70 Ratio of Net Investment Income to Average Net Assets (%) . . . . . . . 5.70(b) 5.62 6.13 Portfolio Turnover Rate (%) . . . . . . . . 1,409(b) 415 388 Net Assets, End of Period (000) . . . . . . $2,012 $7,542 $13,211 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 1.37
(a) Commencement of operations. (b) Computed on an annualized basis. (c) Not computed on an annualized basis. See accompanying notes to financial statements. 84 BACK BAY ADVISORS MONEY MARKET SERIES* PORTFOLIO MANAGER: JOHN DONOVAN BACK BAY ADVISORS, L.P. [PHOTO OF JOHN DONOVAN] Q. HOW DID BACK BAY ADVISORS MONEY MARKET SERIES PERFORM DURING 1996? A. The Series continued to provide shareholders a stable cash reserve, maintaining a constant share price of $100 while delivering competitive money market yields. As was the case in the first half of the year, short-term interest rates remained volatile as the markets debated the strength of the economy and the outlook for inflation. Although short rates ended the year moderately below their early July highs, the Series' dividend distributions remained fairly stable throughout the period. For the fiscal year ended December 31, 1996, the Money Market Series had a total return of 5.11%. This compares favorably to the Lipper Variable Money Market Fund average of 4.97% Q. HOW DID YOU MANAGE THE SERIES DURING THE PERIOD? A. Although interest rates were volatile during the period, the actual indicator of the direction of short-term interest rates--the overnight Federal Funds level--remained unchanged. In this environment, we attempted to extend the average days to maturity of the portfolio when interest rates rose and, conversely, to shorten that figure when rates reversed their direction. Q. WHAT IS YOUR INVESTMENT OUTLOOK FOR THE MONTHS AHEAD? A. After a weak third quarter, Gross Domestic Product appears to have rebounded significantly in the last three months of the year. Despite few signs of rising inflation, fixed income investors continue to be concerned from time to time about the economy overheating. At this juncture, however, we do not foresee a significant sustained rise in short-term rates, and thus our recent investment strategy remains in place. FUND FACTS GOAL: The highest possible level of current income consistent with the preservation of capital. START DATE: August 1, 1983 SIZE: $116 million as of December 31, 1996 MANAGER: John Donovan has served as portfolio manager since 1995. Mr. Donovan joined Back Bay Advisors in 1992. 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. * 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. 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. 85 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS MONEY MARKET SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
INVESTMENTS--98.8% OF TOTAL NET ASSETS FACE INTEREST MATURITY VALUE DESCRIPTION RATE DATE VALUE (A) CERTIFICATES OF DEPOSIT--11.1% $2,000,000 Sumitomo Bank, Ltd. . . . . . . 5.647% 01/13/97 $ 1,999,913 2,000,000 Societe Generale New York . . . 5.450% 02/10/97 1,999,996 3,000,000 Sumitomo Bank, Ltd. . . . . . . 5.580% 02/10/97 2,999,415 1,000,000 National Westminster Bank . . . 5.420% 02/24/97 1,000,028 1,000,000 Societe Generale New York . . . 5.650% 04/01/97 999,746 2,000,000 Morgan Guaranty Trust Co. . . . 5.900% 09/30/97 2,002,754 2,000,000 Deutsche Bank Finance, Inc. . . 5.690% 10/28/97 2,002,547 ----------- Total Certificates of Deposit ($13,004,399). . . . . . . . . 13,004,399 ----------- CERTIFICATE OF DEPOSIT--EURO DOLLAR--0.9% 1,000,000 Toronto Dominion Bank . . . . . 5.170% 01/17/97 1,000,039 ----------- Total Certificate of Deposit--Euro Dollar ($1,000,039) . . . . . . . . . 1,000,039 ----------- COMMERCIAL PAPER--86.8% AUTOMOTIVE--8.2% 1,280,000 General Motors Acceptance Corp. 5.340% 01/17/97 1,276,962 2,500,000 Ford Motor Credit Corp. . . . . 5.310% 01/27/97 2,490,413 720,000 Ford Motor Credit Corp. . . . . 5.320% 01/30/97 716,914 3,345,000 General Motors Acceptance Corp. 5.470% 02/27/97 3,316,030 535,000 Ford Motor Credit Corp. . . . . 5.330% 05/07/97 525,020 1,295,000 Ford Motor Credit Corp. . . . . 5.260% 08/14/97 1,252,427 ----------- 9,577,766 ----------- BANKING--15.6% 2,000,000 Banque National de Paris . . . 5.450% 01/09/97 1,997,578 1,500,000 Societe Gereral North America . 5.450% 01/22/97 1,495,231 3,035,000 Commerzbank U.S. Finance . . . 5.300% 01/31/97 3,021,595 1,055,000 Banque National de Paris . . . 5.420% 02/04/97 1,049,600 500,000 Banque National de Paris . . . 5.420% 02/18/97 496,387 2,000,000 Bank of Nova Scotia . . . . . . 5.340% 03/10/97 1,979,827 1,000,000 Banque National de Paris . . . 5.400% 03/13/97 989,350 1,700,000 Svenska Handelsbanken, Inc. . . 5.340% 03/26/97 1,678,818 2,000,000 ABN Amro North . . . . . . . . 5.430% 04/01/97 1,972,850 500,000 Banque National de Paris . . . 5.330% 05/06/97 490,747 2,000,000 First UN National Bank . . . . 5.890% 06/03/97 2,000,000 1,125,000 Commerzbank U.S. Finance . . . 5.300% 08/01/97 1,089,887 ----------- 18,261,870 ----------- FINANCE--32.8% 3,000,000 International Lease Finance Corp.. . . . . . . . . . . . . 5.320% 01/06/97 2,997,783 1,000,000 CIT Group Holdings, Inc. . . . 5.420% 01/10/97 998,645 910,000 Heller Financial, Inc. . . . . 5.370% 01/10/97 908,778 2,170,000 UBS Finance, Inc. . . . . . . . 5.400% 01/10/97 2,167,070 3,000,000 CIT Group Holdings, Inc. . . . 5.420% 01/14/97 2,994,128 230,000 Avco Financial Services, Inc. . 5.340% 01/15/97 229,522 660,000 Heller Financial, Inc. . . . . 5.440% 01/15/97 658,604 2,000,000 American General Corp. . . . . 5.100% 01/16/97 1,995,492 2,000,000 Household Finance Corp. . . . . 5.310% 01/21/97 1,994,100 750,000 Household Finance Corp. . . . . 5.530% 01/21/97 747,696 2,000,000 Beneficial Corp. . . . . . . . 5.320% 01/27/97 1,992,316 2,500,000 Heller Financial, Inc. . . . . 5.580% 01/28/97 2,489,537 2,000,000 Beneficial Corp. . . . . . . . 5.320% 01/29/97 1,991,724 1,325,000 American Express Credit Corp. . 5.300% 01/31/97 1,319,148
See accompanying notes to financial statements. 86 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS MONEY MARKET SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
INVESTMENTS--(CONTINUED) FACE INTEREST MATURITY VALUE DESCRIPTION RATE DATE VALUE (A) $3,000,000 Transamerica Finance Group, Inc. . . . . . . . . . 5.300% 02/03/97 $ 2,985,425 2,000,000 Commercial Credit Co. . . . . . 5.470% 02/05/97 1,989,364 2,000,000 American Express Credit Corp. . 5.310% 02/13/97 1,987,315 1,000,000 General Electric Capital Corp. 5.600% 02/21/97 992,067 1,000,000 Heller Financial, Inc. . . . . 5.440% 02/28/97 991,236 500,000 General Electric Capital Corp. 5.620% 03/07/97 494,926 2,000,000 Avco Financial Services, Inc. . 5.480% 03/24/97 1,975,036 2,000,000 Household Finance Corp. . . . . 5.460% 05/22/97 2,000,000 1,500,000 General Electric Capital Corp. 5.360% 07/07/97 1,458,237 ----------- 38,358,149 ----------- FOOD & TOBACCO--1.2% 1,355,000 Philip Morris Capital Corp. . . 6.150% 01/03/97 1,354,537 ----------- FORESTRY--1.5% 1,750,000 Weyerhauser MTG . . . . . . . . 5.300% 01/07/97 1,748,454 ----------- INSURANCE--5.4% 3,000,000 Prudential Funding Corp. . . . 6.000% 01/02/97 2,999,500 1,000,000 Prudential Funding Corp. . . . 5.350% 01/23/97 996,731 2,335,000 USAA Capital Corp. . . . . . . 5.300% 01/09/97 2,332,250 ----------- 6,328,481 ----------- OIL & GAS--3.4% 3,000,000 BP America, Inc. . . . . . . . 6.750% 01/02/97 2,999,437 1,010,000 Michigan Consolidated Gas Co. . 5.580% 01/21/97 1,006,869 ----------- 4,006,306 ----------- POLLUTION CONTROL--2.5% 1,000,000 WMX Technologies, Inc. . . . . 5.420% 01/24/97 996,537 500,000 WMX Technologies, Inc. . . . . 5.630% 02/04/97 497,341 500,000 WMX Technologies, Inc. . . . . 5.630% 03/04/97 495,152 1,000,000 WMX Technologies, Inc. . . . . 5.630% 04/18/97 983,266 ----------- 2,972,296 ----------- RETAIL--3.5% 1,390,000 Sears Roebuck Acceptance Corp. 5.480% 01/29/97 1,384,076 315,000 Sears Roebuck Acceptance Corp. 5.400% 02/14/97 312,921 2,395,000 Sears Roebuck Acceptance Corp. 5.440% 02/14/97 2,379,076 ----------- 4,076,073 ----------- SECURITIES--11.4% 2,000,000 Lehman Brothers, Inc. . . . . . 5.500% 01/13/97 1,996,333 1,700,000 Merrill Lynch & Co., Inc. . . . 5.400% 01/13/97 1,696,940 2,000,000 Lehman Brothers, Inc. . . . . . 5.500% 01/15/97 1,995,722 1,000,000 Goldman Sachs Group . . . . . . 5.430% 01/16/97 997,737 800,000 Merrill Lynch & Co., Inc. . . . 5.410% 01/17/97 798,076 390,000 Merrill Lynch & Co., Inc. . . . 5.330% 01/23/97 388,730 2,000,000 Merrill Lynch & Co., Inc. . . . 5.440% 01/24/97 1,993,049 1,500,000 Goldman Sachs Group . . . . . . 5.420% 02/06/97 1,491,870 2,000,000 Goldman Sachs Group . . . . . . 5.300% 04/21/97 1,967,611 ----------- 13,326,068 -----------
See accompanying notes to financial statements. 87 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS MONEY MARKET SERIES) INVESTMENTS AS OF DECEMBER 31, 1996
INVESTMENTS--(CONTINUED) FACE INTEREST MATURITY VALUE DESCRIPTION RATE DATE VALUE (A) GOVERNMENT AGENCIES--1.3% $1,530,000 Canadian Wheat Board . . . . . 5.420% 03/19/97 $ 1,512,264 ------------ Total Commercial Papers (Cost $101,522,264) . . . . . 101,522,264 ------------ Total Investments--98.8% (Cost $115,526,702) (b) . . . 115,526,702 Other assets less liabilities 1,472,017 ------------ TOTAL NET ASSETS--100% . . . . $116,998,719 ============
(a) See Note 1A. (b) The aggregate cost for federal income tax purposes was $115,526,702 See accompanying notes to financial statements. 88 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS MONEY MARKET SERIES)
STATEMENT OF ASSETS & LIABILITIES DECEMBER 31, 1996 ASSETS Investments at value . . . . . . . . . . $115,526,702 Cash . . . . . . . . . . . . . . . . . . 903 Receivable for: Fund shares sold . . . . . . . . . . . 2,354,876 Accrued interest . . . . . . . . . . . 218,005 ------------ 118,100,486 LIABILITIES Payable for: Fund shares redeemed . . . . . . . . . $555,513 Dividends declared . . . . . . . . . . 441,934 Accrued expenses: Management fees . . . . . . . . . . . . 32,519 Deferred trustees' fees . . . . . . . . 29,240 Other expenses . . . . . . . . . . . . 42,561 -------- 1,101,767 ------------ $116,998,719 ============ NET ASSETS Net Assets consist of: Capital paid in . . . . . . . . . . . . $116,998,719 ------------ NET ASSETS . . . . . . . . . . . . . . . $116,998,719 ============ Computation of offering price: Net asset value and redemption price per share ($116,998,719 divided by 1,169,987 shares of beneficial interest) . . . . . $ 100.00 ============ Cost of investments . . . . . . . . . . . $115,526,702 ============
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME Interest . . . . . . . . . . . . . $5,523,727 EXPENSES Management fees . . . . . . . . . . $350,632 Trustees' fees and expenses . . . . 18,295 Custodian . . . . . . . . . . . . . 57,962 Audit and tax services . . . . . . 12,911 Legal . . . . . . . . . . . . . . . 16,412 Printing . . . . . . . . . . . . . 24,379 Miscellaneous . . . . . . . . . . . 18,629 -------- Total expenses . . . . . . . . . 499,220 ---------- NET INVESTMENT INCOME . . . . . . . 5,024,507 NET INCREASE IN NET ASSETS FROM OPERATIONS. . . . . . . . . . . . . $5,024,507 ==========
See accompanying notes to financial statements. 89 NEW ENGLAND ZENITH FUND (BACK BAY ADVISORS MONEY MARKET SERIES)
STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1995 1996 -------------- ---------------- FROM OPERATIONS Net investment income . . . . . . . . . . . $ 4,403,095 $ 5,024,507 ------------- ------------- INCREASE IN NET ASSETS FROM OPERATIONS . . 4,403,095 5,024,507 ------------- ------------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income . . . . . . . . . . . (4,403,095) (5,024,507) ------------- ------------- (4,403,095) (5,024,507) ------------- ------------- FROM CAPITAL SHARES TRANSACTIONS Proceeds from sale of shares . . . . . . . 141,012,985 234,677,851 Net asset value of shares issued in connection with the reinvestment of: Distributions from net investment income . 4,331,085 4,966,805 ------------- ------------- 145,344,070 239,644,656 Cost of shares redeemed . . . . . . . . . . (129,156,304) (212,794,096) ------------- ------------- INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS . . . . . . . . . . . . 16,187,766 26,850,560 ------------- ------------- TOTAL INCREASE IN NET ASSETS . . . . . . . 16,187,766 26,850,560 NET ASSETS Beginning of the year . . . . . . . . . . . 73,960,393 90,148,159 ------------- ------------- End of the year . . . . . . . . . . . . . . $ 90,148,159 $ 116,998,719 ============= ============= NUMBER OF SHARES OF THE FUND: Issued from the sale of shares . . . . . . 1,410,130 2,346,128 Issued in connection with the reinvestment of: Distributions from net investment income . 43,311 50,319 ------------- ------------- 1,453,441 2,396,447 Redeemed . . . . . . . . . . . . . . . . . (1,291,563) (2,127,942) ------------- ------------- Net change . . . . . . . . . . . . . . . . 161,878 268,505 ============= =============
FINANCIAL HIGHLIGHTS YEAR ENDED DECEMBER 31, ------------------------------------------------ 1992 1993 1994 1995 1996 -------- -------- -------- -------- ----------- Net Asset Value Beginning of Year. . . . . . . . . $100.00 $100.00 $100.00 $100.00 $ 100.00 ------- ------- ------- ------- -------- Income From Investment Operations Net investment income . 3.73 2.93 3.89 5.50 4.99 ------- ------- ------- ------- -------- Total from Investment Operations. . . . . . . 3.73 2.93 3.89 5.50 4.99 Distributions from net investment income . . . (3.73) (2.93) (3.89) (5.50) (4.99) ------- ------- ------- ------- -------- Total Distributions . . (3.73) (2.93) (3.89) (5.50) (4.99) ------- ------- ------- ------- -------- Net Asset Value End of Year . . . . . . . . . . $100.00 $100.00 $100.00 $100.00 $ 100.00 ======= ======= ======= ======= ======== TOTAL RETURN (%) . . . . 3.79 2.97 4.01 5.64 5.11 Ratio of operating expenses to average net assets (%) . . . . . . . 0.38 0.38 0.40 0.50 0.50 Ratio of net investment income to average net assets (%) . . . . . . . 3.71 2.93 3.89 5.50 4.99 Net Assets, End of Year (000). . . . . . . . . . $61,607 $59,044 $73,960 $90,148 $116,999 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
See accompanying notes to financial statements. 90 NEW ENGLAND ZENITH FUND NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1996 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 Life Insurance Company ("NELICO") or Metropolitan Life Insurance Company ("MetLife") 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 other insurance companies, including companies unaffiliated with NELICO or MetLife. 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 Series (or its predecessor) commenced operations on the dates set forth below:
Bond Income Series . August 26, 1983 Small Cap Series . . May 1, 1994 Capital Growth Series . . . . . . . August 26, 1983 Balanced Series . . . October 31, 1994 Money Market Series . August 26, 1983 International Equity Series . . . . . . . October 31, 1994 Stock Index Series . March 30, 1987 U.S. Government Series . . . . . . . October 31, 1994 Managed Series . . . May 1, 1987 Strategic Bond Opportunities Series . . . . . . . October 31, 1994 Avanti Growth Venture Value Series . . . . . . . April 30, 1993 Series . . . . . . . October 31, 1994 Growth & Income Equity Growth Series . . . . . . . April 30, 1993 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, GROWTH & INCOME, 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 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. 91 NEW ENGLAND ZENITH FUND NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1996--(CONTINUED) 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 denominated in foreign currencies, income and expenses are translated on the respective dates of such transactions, and items of income and expense payable in foreign currencies are translated on the date they arise. 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 Growth & Income, 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. 92 NEW ENGLAND ZENITH FUND NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1996--(CONTINUED) 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 Series 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 year ended December 31, 1996. G. FEDERAL TAXES--Each Series is a separate taxable entity and 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. J. WHEN-ISSUED SECURITIES AND FORWARD DELIVERY SECURITIES--Delivery and payment for securities purchased on a when-issued or forward delivery basis can take place one month or more after the date of the transaction. The securities so purchased are subject to market fluctuation during this period. 2. At December 31, 1996 MetLife held 19,352,266 shares of the Fund in separate investment accounts for annuity contracts issued by MetLife. NELICO, a life insurance subsidiary of MetLife, held the remaining 16,071,462 shares of the Fund then outstanding in separate investment accounts for life insurance and annuity contracts issued by NELICO. As long as MetLife owns (directly or through NELICO) 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 year ended December 31, 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 . . . . . . . $ 137,692,765 $35,235,320 $ 130,989,953 $23,057,601 Capital Growth . . . 2,055,920,897 -- 2,037,625,313 -- Westpeak Stock Index 12,219,996 -- 2,831,698 -- Back Bay Advisors Managed . . . . . . 104,791,938 617,880 107,609,326 597,480 Loomis Sayles Avanti Growth . . . . . . . 65,735,396 -- 40,422,818 -- Westpeak Growth & Income . . . . . . . 87,838,838 -- 63,909,195 -- Loomis Sayles Small Cap . . . . . . . . 69,835,843 -- 27,766,266 -- Loomis Sayles Balanced . . . . . . 41,932,898 11,418,054 16,369,200 3,877,406 Draycott International Equity . . . . . . . 36,645,208 -- 16,747,918 -- Salomon Brothers U.S. Government . . . . . 33,158,910 11,099,705 28,772,597 9,489,383 Salomon Brothers Strategic Bond Opportunities . . . 41,128,270 14,362,320 24,965,572 6,343,657 Venture Value . . . . 61,385,281 -- 10,733,253 -- Alger Equity Growth . 121,063,456 -- 59,061,091 --
Purchases and sales of corporate short-term obligations for the Money Market Series aggregated $737,083,687 and $714,742,304, respectively. 93 NEW ENGLAND ZENITH FUND NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1996--(CONTINUED) Transactions in index futures contracts for the Managed Series for the year ended December 31, 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 December 31, 1996 . . . . . . . . . . . . 0 $ 0 === ===========
Transactions in forward currency contracts for the Strategic Bond Opportunities Series for the year ended December 31, 1996 are summarized as follows:
SALES OF CONTRACTS -------------------- AGGREGATED FACE VALUE OF CONTRACTS -------------------- Open at December 31, 1995 . . . . . . . . . . . . . . . $ 919,184 Contracts opened . . . . . . . . . . . . . . . . . . . . 17,086,127 Contracts closed . . . . . . . . . . . . . . . . . . . . (15,855,033) ------------ Open at December 31, 1996 . . . . . . . . . . . . . . . $ 2,150,278 ============
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 adviser). Separate management agreements for each Series provide for fees as set forth below:
FEES PAYABLE TO BY TNE ADVISERS MANAGEMENT FEE RATE FOR THE YEAR ENDED PAYABLE BY THE SERIES TO DECEMBER 31, 1996 TNE ADVISERS, INC. BEFORE REDUCTION DUE TO (ANNUAL % OF AVERAGE NET SERIES EXPENSE LIMITS (A) ASSETS) ------ ----------------------- ----------------------------- Loomis Sayles Small Cap Series . . . . . $240,646 1.00% all assets Draycott International Equity Series . . . 70,553 0.90% all assets Alger Equity Growth Series . . . . . . . 281,325 0.75% all assets Loomis Sayles Avanti Growth Series . . . 169,578 0.70% the first $200 million 0.65% the next $300 million 0.60% amounts in excess of $500 million Venture Value Series 198,620 0.75% all assets Westpeak Growth & Income Series . . . 165,074 0.70% the first $200 million 0.65% the next $300 million 0.60% amounts in excess of $500 million Westpeak Stock Index Series . . . . . . . 102,444 0.25% all assets Loomis Sayles Balanced Series . . . . . . . 83,980 0.70% of all assets Back Bay Managed Series . . . . . . . 430,921 0.50% of all assets Salomon Brothers Strategic Bond Opportunities Series 60,044 0.65% of all assets Back Bay Advisors Bond Income Series . . . 311,174 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 . 35,234 0.55% all assets Back Bay Advisors Money Market Series 201,904 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. 94 NEW ENGLAND ZENITH FUND NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1996--(CONTINUED) 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 year ended December 31, 1996, CGM was paid at an annual rate of 0.64% of the Capital Growth Series' average net assets, totaling $6,398,659. 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 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 Growth & Income 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:
FEES ANNUAL PAID TO PERCENTAGE SUB-ADVISER RATES PAID SERIES AVERAGE DAILY NET FOR YEAR ENDED TO SUB- ASSET SERIES DECEMBER 31, 1996 ADVISER VALUE LEVELS ------ ----------------- ---------- --------------------------- Loomis Sayles Small Cap Series . . . . . $265,646 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 . . . 186,106 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 Series* . . . . . . 339,570 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 . . . 284,437 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 Davis Venture Value Series . . . . . . . 297,328 0.45% of the first $100 million 0.40% of the next $400 million 0.35% of amounts in excess of $500 million Westpeak Growth & Income Series . . . 278,435 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 Series . . . . . . . 68,207 0.10% of all assets Loomis Sayles Balanced Series . . . . . . . 168,842 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 Managed Series . . . 328,950 0.25% of the first $50 million 0.20% of amounts in excess of $50 million
- --------- * Amount shown does not reflect fee reduction pursuant to the agreement between TNE Advisers, Inc. and Fred Alger Management, Inc. that is described in this Note 4. During the period January 1, 1996 through May 1, 1996 the annual percentage rates of 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. 95 NEW ENGLAND ZENITH FUND NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1996--(CONTINUED)
FEES ANNUAL PAID TO PERCENTAGE SUB-ADVISER RATES PAID SERIES AVERAGE DAILY NET FOR YEAR ENDED TO SUB- ASSET SERIES DECEMBER 31, 1996 ADVISERS VALUE LEVELS ------ ----------------- ---------- --------------------------- Salomon Brothers Strategic Bond Opportunities Series $ 70,050 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 . . . $361,174 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 . $ 24,392 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 $148,728 0.15% of the first $100 million 0.10% of amounts in excess of $100 million
TNE Advisers, Inc., which acts as adviser to each Series of the Fund (except the Capital Growth Series) is a wholly-owned subsidiary of NELICO. Loomis Sayles, Westpeak and Back Bay Advisors are each independently operated subsidiaries, and CGM is an independently operated affiliate, of New England Investment Companies, L.P. ("NEIC"). The general partners of each of Loomis Sayles, Westpeak and Back Bay Advisors are special purpose corporations which are indirect wholly-owned subsidiaries of NEIC. NEIC's sole general partner, New England Investment Companies, Inc., is a wholly-owned subsidiary of MetLife, which also owns a majority of the limited partnership interest in NEIC. NEIC is the owner of a majority limited partnership interest in the Capital Growth Series' investment adviser, CGM. Consequently, the subadvisers (Loomis Sayles, Westpeak and Back Bay Advisors) of eight Series of the Fund are currently wholly-owned subsidiaries of NEIC and an additional Series is advised by a majority-owned subsidiary (CGM) of NEIC. The sub-advisers of the remaining five Series are not affiliated with MetLife or NEIC. 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 Growth & Income Series, Westpeak Stock Index Series, Back Bay Advisors Managed, Back Bay Advisors Bond Income and Back Bay Advisors Money Market Series. Pursuant to this arrangement, TNE Advisers, Inc. bears expenses (other than advisory fees and any brokerage costs, interest, taxes or extraordinary expenses) of each Series in excess of 0.15% of 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 New England Mutual Life Insurance Company ("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 Growth & Income Series from December 1, 1994 to April 30, 1995. The current voluntary expense arrangements limit each of the affected series to the following levels:
TOTAL EXPENSE RATIO UNDER CURRENT VOLUNTARY SERIES EXPENSE ARRANGEMENT ------ ------------------------- Back Bay Advisors Money Market Series 0.50% Back Bay Advisors Bond Income Series . 0.55% Back Bay Advisors Managed Series . . . 0.64% Westpeak Value Growth Series . . . . . 0.85% Westpeak Stock Index Series . . . . . 0.40% Loomis Sayles Small Cap Series . . . . 1.00% Loomis Sayles Avanti Growth Series . . 0.85%
96 NEW ENGLAND ZENITH FUND NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1996--(CONTINUED) TNE Advisers, Inc. may terminate these expense agreements at any time. If these expense arrangements were terminated, the expense ratios would be higher. Prior to November 1, 1994, The New England had agreed to pay the charges and expenses of preparing, printing and distributing prospectuses and reports to shareholders, custodial and transfer agent charges and expenses, auditing, accounting and legal fees and certain other expenses in connection with the affairs of the Fund and the expenses of shareholders' and trustees' meetings. 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 Agreement, 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 SERIES 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
For the period January 1, 1996 to December 31, 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 TOTAL EXPENSE RATIO BY THE NEW ENGLAND OR UNDER CURRENT VOLUNTARY TNE ADVISERS AS A EXPENSE ARRANGEMENT RESULT OF THE SERIES EXPENSES DEFERRED OR EXPENSE DEFERRAL EXCEEDING THE UNTIL EXPENSES DEFERRED UNTIL SERIES AGREEMENT VOLUNTARY EXPENSE LIMIT DECEMBER 31, 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 Growth & Income Series 0.85% $ 37,994 not applicable not applicable Westpeak Stock Index Series 0.40% 71,003 not applicable not applicable Loomis Sayles Small Cap Series 1.00% 145,353 not applicable not applicable Loomis Sayles Avanti Growth Series 0.85% 42,992 not applicable not applicable Draycott International Equity Series 1.30% not applicable $176,796 $102,652 Alger Equity Growth Series 0.90%* not applicable 77,254 -- Davis Venture Value Series 0.90% not applicable 108,971 41,906 Loomis Sayles Balanced Series 0.85% not applicable 96,085 52,078 Salomon Brothers Strategic Bond Opportunities Series 0.85% not applicable 88,120 68,374 Salomon Brothers U.S. Government Series 0.70% not applicable 84,623 72,404
* Prior to January 1, 1996, the voluntary expense 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 97 NEW ENGLAND ZENITH FUND NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1996--(CONTINUED) 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 MetLife, NELICO, 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 GROWTH & SMALL INCOME GROWTH MARKET INDEX MANAGED GROWTH INCOME 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. 6. SUBSEQUENT EVENT On January 22, 1997, the Board of Trustees of New England Zenith Fund (the "Fund") approved a new Subadvisory Agreement (the "New Agreement") relating to the Fund's Draycott International Equity Series (the "Series") between TNE Advisers, Inc. and Morgan Stanley Asset Management Inc. ("MSAM"). The New Agreement is expected to become effective on May 1, 1997, subject to shareholder approval, if required. (Shareholder approval of the New Agreement will be required unless the Fund obtains an order of exemption from the Securities and Exchange Commission relieving it of that requirement.) Under the New Agreement, MSAM would become the subadviser of the Series, succeeding Draycott Partners, Ltd., and would be responsible for the day-to-day management of the Series' investment operations under the oversight of TNE Advisers, Inc. The name of the Series will be changed to the "Morgan Stanley International Magnum Equity Series" at the time the New Agreement takes effect. In the event that the Fund's shareholders do not approve the Agreement at the special shareholder meeting, then the Trust's Board of Trustees will convene a special meeting of trustees to consider alternative arrangements for the management of the Series' investment portfolio. 7. SHAREHOLDER MEETING (UNAUDITED) At a Special Meeting of the shareholders of the Davis Venture Value Series held on December 16, 1996 such shareholders voted for the following proposals:
VOTED VOTED ABSTAINED FOR AGAINST VOTES ------------ --------- ------------ 1. To approve a new Sub-Advisory Agreement relating to the Series by and among TNE Advisers, Inc., Davis Selected Advisers, L.P. and Davis Selected Advisors--NY, Inc. 1,590,110.29 53,103.34 101,225.26
98 NEW ENGLAND ZENITH FUND REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Trustees of New England Zenith Fund: We have audited the accompanying statements of assets and liabilities of New England Zenith Fund (comprising, respectively, the Back Bay Advisors Bond Income Series, Capital Growth Series, Back Bay Advisors Money Market Series, Westpeak Stock Index Series, Back Bay Advisors Managed Series, Loomis Sayles Avanti Growth Series, Westpeak Growth & Income Series, Loomis Sayles Small Cap Series, Loomis Sayles Balanced Series, Draycott International Equity Series, Salomon Brothers U.S. Government Series, Salomon Brothers Strategic Bond Opportunities Series, Davis Venture Value Series, and Alger Equity Growth Series--the "Series"), including the schedules of portfolio investments, as of December 31, 1996, and the related statements of operations, changes in net assets and financial highlights for the periods indicated herein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1996, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the respective Series constituting New England Zenith Fund as of December 31, 1996, the results of their operations, the changes in their net assets, and the financial highlights for the periods indicated herein, in conformity with generally accepted accounting principles. Boston, Massachetts COOPERS & LYBRAND L.L.P. February 14, 1997 99 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 sales charges. (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. (4) Lehman Brothers Government/Corporate 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 applicable sales charges. (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 performance has not been adjusted for ongoing management, distribution and operating expenses and applicable sales charges. (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 applicable sales charges (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. 100 (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) Russell 2000 Index consists of 2000 small market capitalization stocks having an average market cap of $160 million. (19) 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. (20) S&P/BARRA Growth Index is constructed by dividing stocks in the S&P 500 according to price-to-book ratios. The Growth Index contains stocks with higher price-to-book ratios than the average ratio. (21) S&P/BARRA Value Index is constructed by dividing stocks in the S&P 500 according to price-to-book ratios. The Value Index contains stocks with lower price-to-book ratios than the average ratio. 101 Bulk Rate [N/E THE NEW ENGLAND/(R)/ INSURANCE AND INVESTMENT LOGO] U.S. Postage PAID NEW ENGLAND LIFE INSURANCE COMPANY Hudson, MA 501 BOYLSTON STREET Permit No. 19 BOSTON, MASSACHUSETTS 02116 --------------- EQUAL OPPORTUNITY EMPLOYER M/F /(C) /1997 NEW ENGLAND LIFE INSURANCE COMPANY ----------------------------------------------------------------------------- This booklet has been prepared for variable contract owners of New England Life Insurance Company and Zenith Accumulator Contract owners of MetLife Insurance Co. VA 1 -----END PRIVACY-ENHANCED MESSAGE-----