<PAGE>
[LOGO OF NEW ENGLAND FINANCIAL]
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ZENITH FUND
VARIABLE PRODUCTS
ANNUAL REPORTS
DECEMBER 31, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Back Bay Advisors Money Market Series....................................... 1
Back Bay Advisors Bond Income Series........................................ 7
Salomon Brothers Strategic Bond Opportunities Series........................ 15
Salomon Brothers U.S. Government Series..................................... 25
Back Bay Advisors Managed Series............................................ 31
Loomis Sayles Balanced Series............................................... 40
Alger Equity Growth Series.................................................. 49
Capital Growth Series....................................................... 56
Davis Venture Value Series.................................................. 61
Goldman Sachs Midcap Value Series........................................... 68
Loomis Sayles Small Cap Series.............................................. 74
MFS Investors Series........................................................ 84
MFS Research Managers Series................................................ 91
Westpeak Growth and Income Series........................................... 98
Westpeak Stock Index Series................................................. 105
Morgan Stanley International Magnum Equity Series........................... 116
Notes to Financial Statements............................................... 125
Footnotes to Portfolio Managers Commentary.................................. 135
New England Variable Life Separate Account.................................. 137
Fidelity VIP High Income Portfolio..........................................
Fidelity VIP II Asset Manager Portfolio.....................................
Fidelity VIP Equity-Income Portfolio........................................
Fidelity VIP Overseas Portfolio.............................................
</TABLE>
IMPORTANT:
Some funds appearing in this report may not be available under your variable
life or variable annuity product.
<PAGE>
February, 2000
TO OUR POLICYHOLDERS/CONTRACT OWNERS:
We are pleased to provide you with the 1999 Annual Report for the Zenith
variable life insurance and variable annuity products.* This report includes
performance histories, present investments, and financial reports as of
December 31, 1999, 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
contract value of your variable product.
New England Financial 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,
/s/ David Allen /s/ Hugh C. McHaffie
David Allen Hugh C. McHaffie
Senior Vice President Senior Vice President Annuity Product
New England Life Insurance Company Management
New England Life Insurance Company
* Variable products are offered through New England Securities Corporation.
New England Financial is the service mark for New England Life Insurance
Company, Boston, MA and related companies.
<PAGE>
The National Association of Securities Dealers Regulation, Inc. (NASDR) has a
"Public Disclosure Program" which provides current and historical information
on registered representatives and Financial Institutions registered with the
NASD. If you would like information pertaining to the "Public Disclosure
Program", including an informational brochure that describes the program, you
may contact the NASD directly by calling the NASDR, Inc. Public Disclosure
Hotline at 800-289-9999 or by visiting the NASDR, Inc.'s website at NASDR.com.
If you would like to contact New England Financial concerning any aspect of
your variable annuity contract, please call our customer service team at 800-
435-4117. Please call 800-388-4000 if you have any questions on our variable
life products.
<PAGE>
BACK BAY ADVISORS MONEY MARKET SERIES
PORTFOLIO MANAGER: JOHN MALONEY BACK BAY ADVISORS, L.P.
[PHOTO OF JOHN MALONEY]
Q: HOW DID THIS SERIES PERFORM DURING THE PAST TWELVE MONTHS RELATIVE TO ITS
INDEX AND RELATIVE TO ITS PEERS?
A: The Series returned 5.0% for the year ending December 31, 1999 compared to
the 4.8% return of the Three-Month Treasury Bill and the 4.8% return of the
Lipper Variable Product Money Market Fund Average./1/
Q: BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST SIX
MONTHS.
A: The U.S. economy was very strong in 1999. Retail sales, home sales and in-
dustrial activity were all strong. Job and income growth also showed strong
gains throughout the year. The Federal Reserve, in response to this above trend
growth, raised the Federal Funds rate by a total of 75 basis points with three
25 basis points moves (one in June, August, and the final one in November.)
These moves were meant to preempt accelerating future inflation.
Q: GIVEN THIS INVESTMENT ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY? WHAT
CHANGES DID YOU MAKE SINCE THE START OF THE YEAR?
A: The Series extended its average days to maturity whenever interest rates in-
creased. As the market began to experience year-end pressure, the Series took
this opportunity to invest more of its assets that will mature in the new year.
This allowed the Series to pick up additional yield.
Q: WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE (ON BOTH AN
ABSOLUTE AND RELATIVE BASIS) DURING THE PAST SIX MONTHS? WHAT INVESTMENT
DECISIONS WERE MOST EFFECTIVE AND WHICH ONES WERE LEAST EFFECTIVE?
A: At the end of the year, the Series had 74% of its assets invested in
commercial paper and 26% in Certificates of Deposit. All of the securities held
in the Series were first tier securities, which means that they are rated in
the top rating category by Moody's, Standard and Poor's, or Fitch.
Q: WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT SIX
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO THE WAY YOU MANAGE
YOUR PORTFOLIO?
A: The Federal Reserve is still concerned about the economy overheating, which
in our view means additional rate increases in the early part of 2000. The Se-
ries allowed its average days to maturity to shorten to 45 days in order to be
in position to be able to reinvest its maturing assets at higher rates. The Se-
ries will then look to lengthen its average days to maturity into the 60 to 70
day range over the next six months.
[checkmark] FUND FACTS
GOAL: The highest possible level
of current income consistent with
the preservation of capital.
START DATE: August 1, 1983
SIZE: $308 million as of December
31, 1999
MANAGER: John Maloney has served
as portfolio manager since 1996.
Mr. Maloney also manages the New
England Tax Exempt Money Market
Fund.
*The Back Bay Money Market Series is neither insured nor guaranteed by the U.S.
Government. The Series seeks but cannot assure a stable share price of $100.00.
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 may fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
1
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
INVESTMENTS--99.4% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
FACE INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1A)
<C> <S> <C> <C> <C>
CERTIFICATES OF DEPOSIT--25.8%
$ 5,000,000 Barclays Bank, Plc. ............. 5.030% 1/4/00 $ 4,999,467
4,000,000 Deutsche Bank AG New York........ 5.000% 1/6/00 3,999,116
4,000,000 Commerzbank AG New York.......... 5.010% 1/10/00 3,999,951
1,000,000 Deutsche Bank AG New York........ 5.030% 1/12/00 999,510
1,000,000 Societe Generale................. 5.020% 1/14/00 999,972
1,500,000 Societe Generale................. 5.025% 1/14/00 1,500,010
5,000,000 Svenska Handelsbanken............ 6.060% 1/14/00 5,000,054
2,000,000 ABN-Amro Bank NV................. 5.790% 1/18/00 1,999,840
1,000,000 Deutsche Bank AG New York........ 6.250% 1/18/00 1,000,047
2,000,000 Dresdner Bank AG New York........ 5.100% 1/18/00 1,998,527
2,000,000 Dresdner Bank AG New York........ 6.120% 1/19/00 2,000,019
4,000,000 Svenska Handelsbanken............ 6.060% 1/24/00 4,000,152
3,000,000 Canadian Imperial Bank........... 5.000% 1/27/00 2,998,955
2,000,000 Commerzbank AG New York.......... 4.975% 2/1/00 1,997,711
1,000,000 Societe Generale................. 5.990% 2/1/00 999,540
2,000,000 Canadian Imperial Bank........... 5.010% 2/7/00 1,999,922
4,000,000 Deutsche Bank AG New York........ 5.050% 2/9/00 3,999,522
3,000,000 Bank of Nova Scotia.............. 5.830% 2/14/00 2,999,574
2,000,000 Toronto Dominion Bank............ 5.050% 2/14/00 1,999,384
3,000,000 Rabobank Nederland NV............ 5.125% 2/18/00 2,999,970
1,000,000 Toronto Dominion Bank............ 5.270% 3/2/00 999,819
2,000,000 Deutsche Bank AG New York........ 5.330% 3/9/00 2,000,456
4,000,000 Barclays Bank, Plc............... 5.870% 3/14/00 3,998,282
1,000,000 Societe Generale................. 6.000% 3/14/00 999,586
1,000,000 Commerzbank AG New York.......... 5.230% 5/11/00 999,926
5,000,000 Bank Of Montreal................. 5.200% 5/12/00 4,999,130
3,000,000 Commerzbank AG New York.......... 5.295% 5/19/00 2,999,396
5,000,000 UBS AG Stamford, CT.............. 5.700% 7/27/00 4,998,635
5,000,000 UBS AG Stamford, CT.............. 6.240% 12/6/00 4,997,337
------------
Total Certificates of Deposit
(Cost $79,483,810).............. 79,483,810
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COMMERCIAL PAPER--73.6%
ASSET BACKED--3.8%
1,000,000 Clipper Receivables Corp......... 6.550% 1/14/00 997,635
4,000,000 Clipper Receivables Corp......... 6.280% 1/20/00 3,986,742
4,000,000 Clipper Receivables Corp......... 6.020% 2/2/00 3,978,596
2,705,000 Clipper Receivables Corp......... 6.120% 2/10/00 2,686,606
------------
11,649,579
------------
AUTOMOTIVE--11.3%
2,000,000 Ford Motor Credit Corp........... 5.950% 1/11/00 1,996,694
4,700,000 American Honda Finance........... 5.980% 1/12/00 4,691,412
5,000,000 Ford Motor Credit Corp........... 5.940% 1/12/00 4,990,925
1,000,000 General Motors Acceptance Corp... 5.410% 1/18/00 997,445
1,500,000 General Motors Acceptance Corp... 5.760% 1/19/00 1,495,680
3,000,000 General Motors Acceptance Corp... 5.410% 1/20/00 2,991,434
2,000,000 General Motors Acceptance Corp... 5.410% 1/21/00 1,993,989
1,050,000 General Motors Acceptance Corp... 5.780% 1/25/00 1,045,954
1,000,000 General Motors Acceptance Corp... 5.980% 1/25/00 996,013
3,400,000 Ford Motor Credit Corp........... 5.750% 2/11/00 3,377,735
3,000,000 American Honda Finance........... 5.850% 2/15/00 2,978,062
1,000,000 General Motors Acceptance Corp... 5.420% 2/15/00 993,225
3,900,000 Ford Motor Credit Corp........... 5.900% 2/18/00 3,869,320
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
INVESTMENTS--(CONTINUED)
<TABLE>
<CAPTION>
FACE INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1A)
<C> <S> <C> <C> <C>
AUTOMOTIVE--(CONTINUED)
$ 970,000 General Motors Acceptance Corp. . 5.790% 2/25/00 $ 961,420
1,505,000 General Motors Acceptance Corp. . 6.030% 3/10/00 1,487,606
------------
34,866,914
------------
BANKING--9.3%
2,000,000 UBS Finance Delaware, Inc. ...... 4.000% 1/3/00 1,999,556
3,000,000 Bank Of Nova Scotia.............. 5.720% 1/7/00 2,997,140
2,000,000 Bank Of Nova Scotia.............. 5.960% 1/11/00 1,996,689
6,000,000 Bank Of Nova Scotia.............. 6.500% 1/13/00 5,987,000
1,000,000 Citicorp......................... 5.750% 1/19/00 997,125
1,000,000 Svenska Handelsbanken............ 6.000% 2/3/00 994,500
4,000,000 Wells Fargo & Co. ............... 5.990% 2/8/00 3,974,709
4,520,000 Wells Fargo & Co. ............... 6.000% 2/10/00 4,489,867
1,475,000 Wells Fargo & Co. ............... 5.760% 2/22/00 1,462,728
1,870,000 Wells Fargo & Co. ............... 5.750% 2/29/00 1,852,378
2,000,000 Wells Fargo & Co. ............... 6.000% 2/29/00 1,980,333
------------
28,732,025
------------
BIOTECHNOLOGY--4.2%
1,000,000 Monsanto Co. .................... 5.750% 1/24/00 996,326
10,000,000 Monsanto Co. .................... 6.000% 3/21/00 9,866,667
890,000 Monsanto Co. .................... 6.100% 3/21/00 877,936
1,035,000 Monsanto Co. .................... 6.000% 3/24/00 1,020,682
------------
12,761,611
------------
DIVERSIFIED CONGLOMERATES--1.0%
3,000,000 USAA Capital Corp. .............. 5.750% 1/21/00 2,990,417
------------
FINANCE--22.2%
5,680,000 Dresdner U.S. Finance Corp. ..... 5.890% 1/6/00 5,675,353
2,000,000 Dresdner U.S. Finance Corp. ..... 6.270% 1/7/00 1,997,910
2,835,000 Household Finance Corp. ......... 6.000% 1/11/00 2,830,275
3,000,000 Household Finance Corp. ......... 6.000% 1/13/00 2,994,000
1,430,000 Dresdner U.S. Finance Corp. ..... 5.820% 1/18/00 1,426,070
4,000,000 CIT Group Holdings, Inc. ........ 6.010% 1/21/00 3,986,644
5,000,000 Associates Corp North America.... 6.000% 1/24/00 4,980,833
2,000,000 General Electric Capital Corp. .. 6.000% 1/24/00 1,992,333
1,000,000 General Electric Capital Corp. .. 5.970% 1/25/00 996,020
1,055,000 General Electric Capital Corp. .. 6.040% 1/26/00 1,050,575
140,000 General Electric Capital Corp. .. 6.010% 1/27/00 139,392
2,000,000 General Electric Capital Corp. .. 5.780% 1/28/00 1,991,330
2,000,000 General Electric Capital Corp. .. 5.970% 1/28/00 1,991,045
1,000,000 Household Finance Corp. ......... 6.030% 1/28/00 995,478
1,000,000 American Express Credit Corp. ... 5.970% 2/1/00 994,859
2,300,000 Transamerica Finance Corp. ...... 5.800% 2/3/00 2,287,772
3,000,000 Household Finance Corp. ......... 5.950% 2/7/00 2,981,654
1,965,000 American Express Credit Corp. ... 5.850% 2/11/00 1,951,908
2,000,000 Household Finance Corp. ......... 5.940% 2/11/00 1,986,470
3,065,000 Transamerica Finance Corp. ...... 5.850% 2/16/00 3,042,089
500,000 General Electric Capital Corp. .. 6.280% 2/17/00 495,901
1,500,000 General Electric Capital Corp. .. 5.780% 2/23/00 1,487,236
1,640,000 General Electric Capital Corp. .. 5.850% 2/23/00 1,625,876
2,000,000 General Electric Capital Corp. .. 6.200% 2/23/00 1,981,744
4,390,000 American Express Credit Corp. ... 5.790% 2/24/00 4,351,873
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
INVESTMENTS--(CONTINUED)
<TABLE>
<CAPTION>
FACE INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1A)
<C> <S> <C> <C> <C>
FINANCE--(CONTINUED)
$ 2,900,000 Associates Corp North America.... 5.900% 2/24/00 $ 2,874,335
205,000 General Electric Capital Corp. .. 5.950% 2/28/00 203,035
700,000 Transamerica Finance Corp. ...... 5.900% 3/8/00 692,314
4,600,000 Transamerica Finance Corp. ...... 6.200% 3/20/00 4,537,415
3,945,000 Transamerica Finance Corp. ...... 5.750% 4/12/00 3,880,729
------------
68,422,468
------------
INSURANCE--6.7%
2,000,000 Prudential Funding Corp. ........ 5.730% 1/24/00 1,992,678
800,000 Prudential Funding Corp. ........ 6.020% 1/27/00 796,522
1,000,000 Prudential Funding Corp. ........ 6.000% 1/31/00 995,000
2,250,000 Prudential Funding Corp. ........ 5.850% 1/31/00 2,239,031
1,000,000 Prudential Funding Corp. ........ 5.790% 2/1/00 995,014
3,715,000 American General Corp. .......... 5.960% 2/16/00 3,686,708
4,590,000 American General Corp. .......... 5.840% 2/17/00 4,555,004
3,500,000 American General Corp. .......... 6.000% 2/17/00 3,472,583
2,000,000 American General Corp. .......... 5.910% 3/10/00 1,977,345
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20,709,885
------------
PHARMACEUTICAL--2.7%
2,720,000 American Home Products Corp...... 5.720% 1/13/00 2,714,814
1,885,000 American Home Products Corp...... 5.720% 1/31/00 1,876,015
2,060,000 American Home Products Corp...... 5.850% 2/15/00 2,044,936
1,580,000 American Home Products Corp...... 6.150% 3/6/00 1,562,455
------------
8,198,220
------------
SECURITIES--12.4%
3,000,000 Morgan J P & Co Inc.............. 6.000% 1/14/00 2,993,500
2,000,000 Morgan J P & Co Inc.............. 5.400% 1/18/00 1,994,900
3,000,000 Morgan J P & Co Inc.............. 5.970% 1/19/00 2,991,045
2,605,000 Morgan J P & Co Inc.............. 5.970% 1/20/00 2,596,792
2,555,000 Goldman Sachs Group Lp........... 5.990% 1/25/00 2,544,797
2,350,000 Goldman Sachs Group Lp........... 5.760% 1/26/00 2,340,600
2,000,000 Goldman Sachs Group Lp........... 5.980% 1/26/00 1,991,694
2,000,000 Goldman Sachs Group Lp........... 5.980% 1/27/00 1,991,362
2,000,000 Goldman Sachs Group Lp........... 6.400% 1/31/00 1,989,333
1,000,000 Merrill Lynch & Co Inc........... 6.150% 2/2/00 994,533
2,280,000 Merrill Lynch & Co Inc........... 5.870% 2/3/00 2,267,732
3,000,000 Merrill Lynch & Co Inc........... 6.150% 2/3/00 2,983,088
1,000,000 Goldman Sachs Group Lp........... 6.000% 2/4/00 994,333
4,350,000 Merrill Lynch & Co Inc........... 5.930% 2/4/00 4,325,638
1,445,000 Merrill Lynch & Co Inc........... 5.850% 2/9/00 1,435,842
2,000,000 Goldman Sachs Group Lp........... 5.980% 2/10/00 1,986,711
1,500,000 Merrill Lynch & Co Inc........... 5.930% 2/11/00 1,489,870
195,000 Merrill Lynch & Co Inc........... 6.050% 2/11/00 193,656
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38,105,426
------------
Total Commercial Paper (Cost
$226,436,545)................... 226,436,545
------------
Total Investments--99.4% (Cost
$305,920,355)(a)................ 305,920,355
Other assets less liabilities.... 1,792,101
------------
TOTAL NET ASSETS--100%........... $307,712,456
============
</TABLE>
(a) The aggregate cost for federal income tax purposes was $305,920,355.
See accompanying notes to financial statements.
4
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................. $305,920,355
Cash................................................. 4,465
Receivable for:
Fund shares sold..................................... 1,456,952
Accrued interest..................................... 2,491,956
------------
Total Assets........................................ 309,873,728
LIABILITIES
Payable for:
Fund shares redeemed................................. $1,976,286
Dividends declared................................... 40,220
Accrued expenses:
Management fees...................................... 84,555
Deferred trustees fees............................... 35,944
Other expenses....................................... 24,267
----------
Total Liabilities................................... 2,161,272
------------
NET ASSETS............................................ $307,712,456
============
Net assets consist of:
Capital paid in...................................... $307,712,456
------------
NET ASSETS............................................ $307,712,456
============
Computation of offering price:
Net asset value and redemption price per share
($307,712,456 divided by 3,077,124 shares of
beneficial interest)................................. $ 100.00
============
Identified cost of investments........................ $305,920,355
============
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest................................................. $12,034,598
-----------
EXPENSES
Management fees.......................................... $796,250
Trustees' fees and expenses.............................. 16,842
Custodian................................................ 53,350
Audit and tax services................................... 10,246
Legal.................................................... 10,287
Printing................................................. 24,260
Insurance................................................ 4,022
Miscellaneous............................................ 3,589
--------
Total Expenses.......................................... 918,846
-----------
NET INVESTMENT INCOME..................................... 11,115,752
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS..... $11,115,752
===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income........................... $ 11,115,752 $ 6,811,539
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS..................................... 11,115,752 6,811,539
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income........................... (11,115,752) (6,811,539)
------------- -------------
TOTAL DISTRIBUTIONS............................. (11,115,752) (6,811,539)
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares.................... 563,690,635 490,854,641
Reinvestment of distributions................... 11,794,242 6,569,907
Cost of shares redeemed......................... (471,369,435) (404,836,059)
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS............................. 104,115,442 92,588,489
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS......... 104,115,442 92,588,489
NET ASSETS
Beginning of the year........................... 203,597,014 111,008,525
------------- -------------
End of the year................................. $ 307,712,456 $ 203,597,014
============= =============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................. 5,636,906 4,908,547
Issued in reinvestment of distributions......... 117,942 65,699
Redeemed........................................ (4,713,694) (4,048,361)
------------- -------------
Net Change...................................... 1,041,154 925,885
============= =============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year.................. $ 100.00 $ 100.00 $ 100.00 $ 100.00 $100.00
-------- -------- -------- -------- -------
Income From Investment
Operations
Net Investment Income.... 4.85 5.13 5.08 4.99 5.50
-------- -------- -------- -------- -------
Total From Investment
operations.............. 4.85 5.13 5.08 4.99 5.50
-------- -------- -------- -------- -------
Less Distributions
Distributions From Net
Investment Income....... (4.85) (5.13) (5.08) (4.99) (5.50)
-------- -------- -------- -------- -------
Total Distributions...... (4.85) (5.13) (5.08) (4.99) (5.50)
-------- -------- -------- -------- -------
Net Asset Value, End of
Year..................... $ 100.00 $ 100.00 $ 100.00 $ 100.00 $100.00
======== ======== ======== ======== =======
TOTAL RETURN (%).......... 5.0 5.3 5.3 5.1 5.6
Ratio of Operating
Expenses to Average Net
Assets (%)............... 0.40 0.45 0.45 0.50 0.50
Ratio of Net Investment
Income to Average Net
Assets (%)............... 4.89 5.15 5.21 4.99 5.50
Net Assets, End of Year
(000).................... $307,712 $203,597 $111,009 $116,999 $90,148
The Ratios of operating
expenses to average net
assets without giving
effect to a voluntary
expense agreement would
have been (%)............ -- -- -- 0.50 0.51
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
BACK BAY ADVISORS BOND INCOME SERIES
PORTFOLIO MANAGER: PETER W. PALFREY, CFA
BACK BAY ADVISORS, L.P.
[PHOTO OF PETER PALFREY]
Q. HOW DID THE SERIES PERFORM DURING THE PAST TWELVE MONTHS RELATIVE TO ITS
INDEX AND RELATIVE TO ITS PEERS?
A. The Series performed very well on a relative basis, significantly
outperforming its Lipper peer group average. For the year ending December 31,
1999 the Series returned -0.5% versus -2.0% for the Lipper Variable Products
A-Rated Corporate Bond Fund Average./6/ The Series lagged the Lehman Brothers
Intermediate Gov./Corp. Bond Index/5/ but outperformed the Lehman Brothers Ag-
gregate Bond Index/2/ which returned 0.4% and -0.8%, respectively. This solid
performance places the Series in the top decile on a 1, 3, and 5-year basis
among its Lipper peers. Nevertheless, 1999 clearly was a disappointing year
for fixed income investors on an absolute return basis, especially when com-
pared to the strong performance of the broad equity market.
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST
TWELVE MONTHS.
A. As liquidity returned to the fixed income credit markets late in 1998, the
"flight to quality" dissipated, causing Treasury bond yields to rise sharply
through year-end 1998 and into 1999. Mitigating the negative effect of this
sharp rise in interest rates in the government market was a significant shift
in investor appetite back towards non-Treasury assets. This translated into a
significant tightening of spread product during the first five months of 1999,
as investors sold U.S. Treasuries in favor of corporates, mortgages and Yan-
kees (dollar-denominated bonds issued by foreign domiciled entities). The rel-
ative outperformance of spread products during this period pushed the Series'
performance well ahead of the Lehman benchmark, despite the Series' relatively
longer duration in a period of rising U.S. Treasury yields.
However, market conditions subsequently deteriorated. As it became clear that
most overseas economies and the U.S. had weathered the Russian default-in-
spired liquidity crisis of last fall (and were well on their way towards a
sustainable rebound), investor attention shifted to the threat of tighter Fed-
eral Reserve monetary policy. Rising commodity prices, tight U.S. labor mar-
kets, sustained consumer spending, and lofty equity market valuations subse-
quently prompted the Federal Reserve to raise short-term interest rates on
three separate occasions, in a preemptive effort to keep consumer prices in
check. Additionally, record new corporate bond and U.S. Agency issuance, as
well as heavy issuance in the mortgage market, took its toll on spread prod-
ucts. Yield spreads on non-government securities surpassed the levels posted
during the heat of the liquidity crisis of last fall. The supply problem was
compounded as corporations raced to bring offerings to market well before
year-end 1999, despite reduced liquidity from the investment community.
By September, the spread, or difference in yields between Treasuries and
corporates, mortgages, and Agencies had peaked at nearly double that of May's
levels, reflecting investors' desire to hold only the most liquid and secure
obligations available prior to year-end. However, as we entered the fourth
quarter, new issuance in the corporate, Agency and mortgage markets began to
wind down, and investor demand started to return, dramatically improving
spread market sentiment and liquidity in the final quarter of 1999. The re-
bound in the spread sector during November and December allowed the Series to
more than offset its relative underperformance recorded during the summer
months.
Q. GIVEN THIS ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY? WHAT CHANGES DID
YOU MAKE SINCE THE START OF THE YEAR?
A. Coming into 1999, we maintained the Series' relatively full commitment to
bonds of high quality, non-cyclical companies, to take advantage of very at-
tractive yield spreads and acceptable market liquidity. We also selectively
added to holdings in more economically sensitive industries, including energy,
manufacturing and forest products, to participate in the re-inflation of the
U.S. and global economies.
For diversification purposes, we added to exposure in Canadian dollar denomi-
nated issues, to take advantage of the anticipated strengthening of the Cana-
dian dollar (driven largely by improving commodity prices). We expanded the
Series' non-dollar exposure in the Euro currency (third quarter) and in the
Australian dollar (fourth quarter) holdings, in order to further diversify in-
ternationally and be better positioned to participate in the global economic
rebound.
Late in the fourth quarter, we modestly reduced our corporate exposure to is-
sues in which we believed we had limited incremental upside, in favor of in-
creased exposure to the mortgage and Treasury markets. However, we have main-
tained a signifi-
7
<PAGE>
cant exposure to longer duration corporate and Yankee securities, which we be-
lieve hold considerable spread tightening potential as liquidity returns to
the market in the year 2000.
Q: WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE (ON BOTH AN
ABSOLUTE AND RELATIVE BASIS) DURING THE TWELVE MONTHS? WHAT INVESTMENT
DECISIONS WERE MOST EFFECTIVE AND WHICH ONES WERE LEAST EFFECTIVE?
A: The significant rise in interest rates during 1999 overshadowed virtually
every other aspect of the fixed income market during the year. Rates rose by
as much as 180 basis points in the middle of the yield curve, with the U.S.
Treasury benchmark 10-year Note yield rising from approximately 4.6% to 6.4%
by the end of 1999. This translated to a total return of -8.4% on the 10-year
Treasury during 1999. While we maintained a longer than index duration through
1999, a significant portion of the duration contribution was concentrated in
spread product that tightened relative to U.S. Treasuries during the year.
This helped mitigate the negative effect of higher U.S. Treasury interest
rates on the Series' market value.
Our holdings in lower credit quality Yankee securities, many of which are
large exporters of energy products, as well as our direct holdings in the en-
ergy sector were the best performers in 1999. These sectors benefited from im-
proving economic conditions world-wide, which in turn provided a strong de-
mand-pull increase in energy prices though the year. Occidental Petroleum, Gulf
Canada, and YPF, the Argentine oil producer, all contributed. Holdings in for-
est products companies, including Abitibi, Jefferson Smurfit, and Kappa, a Dutch
packaging company, also helped performance. This industry has turned around
after a two-year slump, with stronger demand and reduced global capacity in
certain paper grades firming prices and thereby improving profits.
At the end of 1999, the Series' average credit quality was high "A", unchanged
from twelve months ago.
Q: WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT SIX
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO THE WAY YOU MANAGE YOUR
PORTFOLIO?
A: We believe that economic activity in the U.S. will be stronger in the first
half of 2000 than in the second half. With the U.S. economy currently showing
no sign of moderating, and year-end/Y2K related concerns now behind us, the
Federal Reserve is likely to tighten policy in February and perhaps again in
March, as necessary, in its desire to rein in U.S. economic growth closer to
its long term potential of 3-3 1/2 percent. Because monetary tightening works
with a lagged effect, a sustainable slowdown in U.S. economic activity is
likely to become more evident later in the year. We will continue to emphasize
yield, remaining overweight to the spread sector, including corporates, Yan-
kees, and mortgages, while maintaining an underweight position to U.S. Trea-
suries.
8
<PAGE>
A $10,000 Investment corpored to the Lehman Brothers Intermediate
Government Corporate Bond Index over the past ten yers
[GRAPH]
Back Bay Bond Lehman Intermediate
Income Series Government/Corp.
12/31/89 10,000 10,000
12/90 10,809 10,916
12/91 12,746 12,512
12/92 13,789 13,409
12/93 15,526 14,588
12/94 15,004 14,306
12/95 18,185 16,500
12/96 19,021 17,167
12/97 21,092 18,518
12/98 23,000 20,081
12/31/99 22,894 20,158
Average Annual Total Return
Lipper Variable
Lehman Intermediate A-Rated Corp.
Bond Income: Government Corp. Bond Avg.
1 Year -0.5% 0.4% -2.0%
3 Years 6.4 5.5 5.1
5 Years 8.8 7.1 7.2
10 years 8.6 7.3 7.5
Since Inception 9.6 8.9 n/a
[checkmark] FUND FACTS BACK BAY ADVISORS BOND INCOME SERIES
GOAL: A high level of current income consistent with the protection of capital.
START DATE: August 26, 1983
SIZE: $284 million as of December 31, 1999
MANAGER: Peter Palfrey has managed the Series since October 1999. He has also
served as portfolio manager of Back Bay Managed Series since 1994. He joined
Back Bay Advisors in April 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.
9
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
BONDS & NOTES--97.7% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
AEROSPACE & DEFENSE--0.7%
$ 890,000 Lockheed Martin Corp., 8.500%, 12/1/29............. $ 890,841
1,110,000 Lockheed Martin Corp., 8.200%, 12/1/09............. 1,107,634
------------
1,998,475
------------
AUTOMOBILES--0.7%
2,000,000 DaimlerChrysler AG, 7.200%, 9/01/09................ 1,967,069
------------
BUILDING MATERIALS--0.5%
1,500,000 Cemex SA, 9.625%, 10/1/09, 144A.................... 1,515,000
------------
BUSINESS SERVICES--0.9%
3,000,000 Equifax, Inc., 6.900%, 7/1/28...................... 2,637,633
------------
CONTAINERS--0.8%
2,533,000 Owens-Illinois, Inc., 8.100%, 5/15/07.............. 2,427,430
------------
ELECTRIC UTILITIES--5.8%
6,500,000 BVPS II Funding Corp., 8.890%, 6/1/17.............. 6,634,324
1,000,000 BVPS II Funding Corp., 8.680%, 6/1/17.............. 1,010,204
2,807,000 EIP Funding Corp., 10.250%, 10/1/12................ 3,119,745
5,800,000 PVNGS II Funding Corp., 8.000%, 12/30/15........... 5,656,288
------------
16,420,561
------------
FEDERAL AGENCIES--6.9%
6,596 Federal Home Loan Mortgage, 9.000%, 5/1/01......... 6,533
3,186 Federal Home Loan Mortgage, 9.000%, 9/1/01......... 3,183
1,798,008 Government National Mortgage Association, 6.500%,
11/15/28.......................................... 1,687,305
2,000,001 Government National Mortgage Association, 6.500%,
3/15/29........................................... 1,876,861
2,000,001 Government National Mortgage Association, 6.500%,
3/15/29........................................... 1,876,861
3,013,745 Government National Mortgage Association, 7.000%,
2/15/24........................................... 2,928,968
1,807,724 Government National Mortgage Association, 7.000%,
9/15/25........................................... 1,752,353
2,600,000 Government National Mortgage Association, 7.000%,
TBA............................................... 2,572,375
2,094,296 Government National Mortgage Association, 7.500%,
7/15/23........................................... 2,081,207
1,278,570 Government National Mortgage Association, 7.500%,
10/15/25.......................................... 1,266,180
1,000,000 Government National Mortgage Association, 7.500%,
12/29/29.......................................... 966,563
</TABLE>
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
FEDERAL AGENCIES--(CONTINUED)
$ 1,798,857 Government National Mortgage Association, 8.000%,
11/15/29.......................................... $ 1,816,846
812,462 Government National Mortgage Association, 8.500%,
with various maturities to 2022................... 839,889
100,552 Government National Mortgage Association, 9.000%,
10/15/16.......................................... 106,082
------------
19,781,206
------------
FINANCE & BANKING--17.5%
7,180,000 American General Financing Corp., 8.450%, 10/15/09. 7,553,924
960,000 Associates Corp of North America, 8.550%, 7/15/09.. 1,021,672
2,500,000 Associates Corp of North America, 7.950%, 2/15/10.. 2,560,654
3,700,000 Bank of America Corp., 5.875%, 2/15/09............. 3,301,126
2,500,000 Bank of America Corp., 6.625%, 6/15/04............. 2,444,150
2,500,000 BB&T Corp., 7.250%, 6/15/07........................ 2,446,627
5,945,000 BB&T Corp., 6.375%, 6/30/05........................ 5,600,294
4,500,000 Ford Motor Credit Co., 6.446%, 7/16/02(b).......... 4,508,435
7,450,000 Merita Bank, Ltd.,
7.500%, 12/29/49, 144A............................ 7,075,489
4,800,000 NCNB Corp., 9.375%, 9/15/09........................ 5,355,112
6,000,000 PDVSA Finance, Ltd.,
8.750%, 2/15/04, 144A............................. 5,854,610
1,800,000 Pitney Bowes Credit Corp., 8.550%, 9/15/09......... 1,938,520
------------
49,660,613
------------
FOREIGN--6.2%
3,600,000 Government of Canada, 7.250%, 6/1/07 (CAD)......... 2,637,589
9,225,000 Government of Canada, 7.500%, 12/1/03 (CAD)........ 6,668,713
1,100,000 Kappa Beheer BV, 10.625%, 7/20/09, 144A (EUR)...... 1,166,259
4,500,000 Province of British Columbia, 7.750%, 6/16/03
(CAD)............................................. 3,245,268
1,000,000 Province of Manitoba,
5.650%, 7/15/04 (CAD)............................. 672,698
4,875,000 World Bank, 5.500%, 5/14/03 (AUD).................. 3,075,621
------------
17,466,148
------------
INSURANCE--0.6%
1,550,000 Conseco, Inc., 9.000%, 10/15/06.................... 1,589,755
------------
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
MEDIA & ENTERTAINMENT--9.0%
$ 6,100,000 Continental Cablevision, Inc., 9.500%, 8/1/13...... $ 6,752,926
2,000,000 CSC Holdings, Inc., 7.875%, 12/15/07............... 1,976,149
2,000,000 CSC Holdings, Inc., 7.625%, 7/15/18................ 1,859,098
675,000 Metromedia Fiber Network, Inc., 10.000%, 12/15/09.. 695,250
1,800,000 News Amer Holdings, Inc., 7.750%, 2/1/24........... 1,695,611
6,000,000 TCI Communications, Inc., 8.750%, 8/1/15........... 6,530,935
500,000 Tele Communications, Inc., 9.800%, 2/1/12.......... 585,428
2,935,000 Tele Communications, Inc., 9.250%, 1/15/23......... 3,055,361
400,000 Tele Communications, Inc., 8.750%, 2/15/23......... 400,172
2,150,000 USA Networks, Inc., 6.750%, 11/15/05............... 2,056,765
------------
25,607,695
------------
OIL & GAS--1.1%
600,000 Gulf Canada Resources, Ltd., 8.350%, 8/1/06........ 582,909
2,400,000 Pioneer Natural Resources Co., 6.500%, 1/15/08..... 2,040,115
500,000 Union Pacific Resources Group, Inc., 7.300%,
4/15/09........................................... 477,921
------------
3,100,945
------------
PAPER--0.8%
1,500,000 Abitibi-Consolidated, Inc., 6.950%, 4/1/08......... 1,369,761
1,000,000 Pope and Talbot, Inc.,
8.375%, 6/1/13.................................... 875,957
------------
2,245,718
------------
RETAIL--0.5%
1,180,000 Rite Aid Corp., 7.125%, 1/15/07.................... 873,200
630,000 Rite Aid Corp., 7.700%, 2/15/27.................... 453,600
------------
1,326,800
------------
TELECOMMUNICATIONS--12.3%
4,300,000 AT & T Corp., 8.350%, 1/15/25...................... 4,264,164
5,000,000 AT & T Corp., 8.625%, 12/1/31...................... 5,051,124
1,000,000 Global Crossings Holdings, Ltd., 9.625%, 5/15/08... 997,500
1,200,000 GTE Corp., 7.510%, 4/1/09.......................... 1,201,373
4,800,000 GTE Corp., 7.900%, 2/1/27.......................... 4,633,770
1,000,000 GTE Corp., 9.100%, 6/1/03.......................... 1,055,753
</TABLE>
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
TELECOMMUNICATIONS--(CONTINUED)
$ 4,500,000 LCI International, Inc., 7.250%, 6/15/07........... $ 4,334,967
6,900,000 MCI Worldcom, Inc., 8.875%, 1/15/06................ 7,195,207
3,000,000 McLeodUSA, Inc., 8.125%, 2/15/09................... 2,805,000
1,186,000 Qwest Communications International, Inc., 10.875%,
4/1/07............................................ 1,316,460
2,000,000 Qwest Communications International, Inc., 7.500%,
11/1/08........................................... 1,948,290
------------
34,803,608
------------
U.S. GOVERNMENT--14.9%
7,000,000 U.S. Treasury Notes, 4.250%, 11/15/03.............. 6,504,884
14,500,000 U.S. Treasury Notes, 5.625%, 5/15/08............... 13,638,990
6,000,000 U.S. Treasury Notes, 5.750%, 4/30/03............... 5,893,011
3,000,000 U.S. Treasury Notes, 5.750%, 8/15/03............... 2,939,561
2,000,000 U.S. Treasury Notes, 6.625%, 3/31/02............... 2,015,201
8,400,000 U.S. Treasury Notes, 6.000%, 8/15/09............... 8,137,500
1,300,000 U.S. Treasury Bonds, 5.250%, 2/15/29............... 1,074,931
2,400,000 U.S. Treasury Bonds, 5.500%, 8/15/28............... 2,046,744
------------
42,250,822
------------
YANKEE--18.5%
1,100,000 Bridas Corp., 12.500%, 6/10/03..................... 1,171,500
3,800,000 Empresa Nacional De Chile, 8.500%, 4/1/09.......... 3,765,757
1,150,000 Endesa-Chile Overseas, 7.200%, 4/1/06.............. 1,083,174
5,600,000 Freeport Terminal Malta, Plc., 7.250%, 5/15/28,
144A.............................................. 4,837,454
8,000,000 Hydro Quebec, 8.050%, 7/7/24....................... 8,351,781
900,000 Kappa Beheer BV,
10.625%, 7/15/09, 144A............................ 941,625
615,000 Multicanal SA, 10.500%, 4/15/18.................... 485,850
3,700,000 Multicanal SA, 13.125%, 4/15/09.................... 3,663,000
3,300,000 Multicanal SA, 9.250%, 2/1/02...................... 3,085,500
2,500,000 Orange, Plc., 8.750%, 6/1/06....................... 2,665,625
2,200,000 Pemex Finance, Ltd., 8.020%, 5/15/07............... 2,112,000
1,500,000 Pemex Finance, Ltd., 9.150%, 11/15/18.............. 1,485,000
1,000,000 Pemex Finance, Ltd., 9.690%, 8/15/09............... 1,030,000
500,000 Pemex Petroleos Mexicanos, 8.625%, 12/1/23......... 437,500
1,200,000 Pemex Petroleos Mexicanos, 8.625%, 12/1/23, 144A... 1,050,000
1,000,000 Republic of Colombia, 7.250%, 2/23/04.............. 907,500
500,000 Republic of Colombia, 8.375%, 2/15/27.............. 386,875
930,000 Republic of Colombia,
8.660%, 10/7/16, 144A............................. 837,000
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
YANKEE--(CONTINUED)
$ 1,070,000 Republic of Colombia, 9.750%, 4/23/09............... $ 1,021,850
2,500,000 Republic of Korea, 8.8750%, 4/15/08................. 2,631,600
2,300,000 SK Telecom, Ltd., 7.750%, 4/29/04................... 2,259,331
3,100,000 Smurfit Capital Funding, Plc., 6.750%, 11/20/05..... 2,952,720
2,600,000 YPF Sociedad Anonima, 7.250%, 3/15/03............... 2,524,999
3,050,000 YPF Sociedad Anonima, 7.750%, 8/27/07............... 2,919,510
------------
52,607,151
------------
Total Bonds & Notes
(Identified Cost $289,975,297)..................... 277,406,629
------------
</TABLE>
SHORT-TERM INVESTMENT--1.7%
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
2,355,000 Household Finance Corp., 4.000%, 1/3/00............ 2,354,477
2,525,000 Household Finance Corp., 6.300%, 1/25/00........... 2,514,395
------------
Total Short-Term Investment
(Identified Cost $4,868,872)...................... 4,868,872
------------
Total Investments--99.4%
(Identified Cost $294,844,169)(a)................. 282,275,501
Other assets less liabilities...................... 1,580,291
------------
TOTAL NET ASSETS--100%............................. $283,855,792
============
(a) Federal Tax Information:
At December 31, 1999 the net unrealized depreciation on investments based on
cost of $295,044,819 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.............. $ 1,157,382
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value.............. (13,926,700)
------------
Net unrealized depreciation................................... $(12,769,318)
============
</TABLE>
For Federal income tax purposes, the Series has a capital loss carryforward
at December 31, 1999 of approximately $1,476,000 which will expire in 2007.
Accordingly, no capital gain distributions are expected to be paid to
shareholders until net gains have been realized in excess of such amount.
(b) Variable or floating rate security. Rate disclosed is as of December 31,
1999.
Key to Abbreviations:
AUD--Australian Dollar
CAD--Canadian Dollar
EUR--Euro Currency
144A--Securities 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. At the period
end, the value of these securities amounted to $23,277,437 or 8.2% of
net assets.
See accompanying notes to financial statements.
12
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................ $282,275,501
Cash................................................ 2,312
Receivable for:
Fund shares sold.................................... 511,068
Accrued interest.................................... 5,123,163
------------
Total Assets....................................... 287,912,044
LIABILITIES
Payable for:
Fund shares redeemed................................ $ 370,890
Securities purchased................................ 3,514,563
Accrued expenses:
Management fees..................................... 96,639
Deferred trustees fees.............................. 44,169
Other expenses...................................... 29,991
----------
Total Liabilities.................................. 4,056,252
------------
NET ASSETS........................................... $283,855,792
============
Net assets consist of:
Capital paid in..................................... $298,658,730
Overdistributed net investment income............... (3,668)
Accumulated net realized gains (losses)............. (2,230,970)
Unrealized appreciation (depreciation) on
investments and foreign currency................... (12,568,300)
------------
NET ASSETS........................................... $283,855,792
============
Computation of offering price:
Net asset value and redemption price per share
($283,855,792 divided by 2,799,337 shares of
beneficial interest)................................ $ 101.40
============
Identified cost of investments....................... $294,844,169
============
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest......................................... $ 21,297,878
------------
EXPENSES
Management fees.................................. $ 1,121,515
Trustees' fees and expenses...................... 16,871
Custodian........................................ 94,409
Audit and tax services........................... 14,516
Legal............................................ 15,958
Printing......................................... 58,304
Insurance........................................ 6,219
Miscellaneous.................................... 4,235
------------
Total Expenses.................................. 1,332,027
------------
NET INVESTMENT INCOME............................. 19,965,851
------------
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net................................. (2,135,536)
Foreign currency transactions--net............... 156,830 (1,978,706)
------------
Unrealized appreciation (depreciation) on:
Investments--net................................. (19,271,112)
Foreign currency translation--net................ 368 (19,270,744)
------------ ------------
Net gain (loss)................................... (21,249,450)
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS....................................... $ (1,283,599)
============
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................. $ 19,965,851 $ 15,272,855
Net realized gain (loss).......................... (1,978,706) 3,843,514
Unrealized appreciation (depreciation)............ (19,270,744) 978,516
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS. (1,283,599) 20,094,885
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income............................. (20,098,991) (14,982,245)
Net realized gain................................. (428,181) (3,901,599)
Distributions in excess of net realized gain...... (252,955) 0
------------ ------------
TOTAL DISTRIBUTIONS............................... (20,780,127) (18,883,844)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares...................... 111,246,990 107,261,482
Reinvestment of distributions..................... 20,780,127 18,883,844
Cost of shares redeemed........................... (93,898,120) (62,453,829)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS............................... 38,128,997 63,691,497
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........... 16,065,271 64,902,538
NET ASSETS
Beginning of the year............................. 267,790,521 202,887,983
------------ ------------
End of the year................................... $283,855,792 $267,790,521
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT
INCOME
End of the year................................... $ (3,668) $ 122,796
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 1,020,882 947,129
Issued in reinvestment of distributions........... 204,310 172,542
Redeemed.......................................... (862,791) (552,385)
------------ ------------
Net Change........................................ 362,401 567,286
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year........................ $ 109.89 $ 108.52 $ 105.63 $ 108.67 $ 95.53
-------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment Income....... 7.67 6.76 7.43 7.72 7.34
Net Realized and Unrealized
Gain (Loss) on Investments. (8.18) 3.00 4.05 (2.70) 12.85
-------- -------- -------- -------- --------
Total From Investment
operations................. (0.51) 9.76 11.48 5.02 20.19
-------- -------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income.......... (7.72) (6.64) (7.51) (7.74) (7.05)
Distributions From Net
Realized Capital Gains..... (0.16) (1.75) (1.08) (0.32) 0.00
In Excess of Net Realized
Gain....................... (0.10) 0.00 0.00 0.00 0.00
-------- -------- -------- -------- --------
Total Distributions......... (7.98) (8.39) (8.59) (8.06) (7.05)
-------- -------- -------- -------- --------
Net Asset Value, End of Year. $ 101.40 $ 109.89 $ 108.52 $ 105.63 $ 108.67
======== ======== ======== ======== ========
TOTAL RETURN (%)............. (0.5) 9.0 10.9 4.6 21.2
Ratio of Operating Expenses
to Average Net Assets (%)... 0.48 0.48 0.52 0.52 0.55
Ratio of Net Investment
Income to Average Net Assets
(%)......................... 7.12 6.66 6.97 7.22 7.22
Portfolio Turnover Rate (%).. 77 82 40 98 73
Net Assets, End of Year
(000)......................... $283,856 $267,791 $202,888 $180,359 $167,712
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES
PORTFOLIO MANAGERS: ROGER LAVAN, PETER WILBY AND DAVID SCOTT SALOMON BROTHERS
ASSET MANAGEMENT INC
[PHOTO OF ROGER LAVAN]
[PHOTO OF PETER WILBY]
[PHOTO OF DAVID SCOTT]
Q. HOW DID THE SERIES PERFORM DURING THE PAST 12 MONTHS RELATIVE TO ITS INDEX
AND RELATIVE TO ITS PEERS?
A. The Salomon Brothers Strategic Bond Opportunities Series returned 1.4% for
the year ending December 31, 1999 versus the Lehman Brothers Aggregate Bond
Index,/2/ which returned -0.8%, and the Lipper Variable Product General Bond
Fund Average,/9/ which returned 0.8%.
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST 12
MONTHS.
A. The investment grade bond market started off 1999 strong, benefiting from
stable Treasury rates, declining volatility and a reduction in liquidity pre-
miums. Away from investment grade, performance for High Yield bonds and Emerg-
ing Market Debt had a stellar start, as the financial markets shrugged off
Brazil's currency problems. As the year progressed, however, the bond market
encountered some difficulties. Fears of an overheating economy coupled with
mounting investor fear of inflation and Y2K concerns conspired against the
fixed income sector. The mounting inflation concerns forced a proactive Fed-
eral Reserve to raise the federal funds rate three times from 4.75% to 5.50%.
Salomon Brothers Asset Management believes there is a very strong case for
further Fed tightening in the first half of 2000 given a continued tight labor
market and persistent strong consumer demand. This tightening will likely do
more to flatten the yield curve than move the overall bond market to signifi-
cantly higher levels. If the Fed is successful in offsetting rising inflation,
then long-term interest rates should start to fall toward the end of 2000 and
going into 2001. We remain optimistic on the outlook for emerging market debt
and high yield paper. Emerging Market Debt should perform well as the strength
in the global economy keeps commodity prices well supported in 2000. We expect
high yield bonds to benefit from declining default rates, strong merger and
acquisition activity, wide spreads, and solid growth coupled with low to mod-
erate inflation here in the States.
Q. GIVEN THIS INVESTMENT ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY? WHAT
CHANGES DID YOU MAKE SINCE THE START OF THE YEAR?
A. Given the aforementioned 1999 fixed income backdrop, we focused on high
quality issues and remained overweight in spread products, though we have
trimmed our overall allocation in those areas. The portfolio is constantly un-
dergoing evaluation and making the appropriate changes to maintain our simul-
taneous focus on quality and opportunities in the market.
Q. WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE DURING THE PAST
12 MONTHS?
A. The Salomon Brothers Strategic Bond Opportunities Series outperformed rela-
tive to the benchmark due to strong performance in the Emerging Market Debt,
the highest returning sector in the bond market. The Salomon Smith Barney
Brady Bond Index returned 4.8% for the fourth quarter bringing the return for
the entire year to 20.9%. The second largest contributor to the Series' per-
formance was its exposure to high yield bonds. The High Yield Market Index
posted a 1.7% return for the quarter bringing its return for the year to 1.7%.
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT 6
MONTHS? WHAT CHANGES, IF ANY WILL YOU MAKE TO THE WAY YOU MANAGE YOUR
PORTFOLIO?
A. In our judgement, the challenge remains for Fed policymakers to slow the
economy to a more sustainable pace of growth. We believe there is a case for
another 50 basis points of Fed tightening over the first part of 2000 given a
continued tight labor market. This tightening will likely do more to flatten
the yield curve than to move the overall bond market to higher levels. If the
Fed is successful in offsetting rising inflation, then long-term interest
rates should start to fall before year-end 2000 and into 2001. We will focus
on these ideas throughout the year in the management of the portfolio.
15
<PAGE>
A $10,000 Investment compared to the Lehman Brothers Aggregate Bond Index
since the Series' Inception
[GRAPH]
Salomon Brothers Strategic Lehman Aggregate
10/31/94 10,000 10,000
12/94 9,860 10,047
12/95 11,771 11,903
12/96 13,461 12,335
12/97 14,953 13,526
12/98 15,259 14,701
12/31/99 15,482 14,580
Average Annual Return
Lipper Variable
Strategic Bond Lehman General Bond
Opp. Series Aggregate Bond Fund Average
1 Year 1.4% -0.8% 0.8%
3 Years 4.8 5.7 4.9
5 Years 9.4 7.7 7.9
Since Inception 8.8 7.6 n/a
[checkmark] FUND FACTS
GOAL: A high level of total return consistent with the preservation of capital.
START DATE: October 31, 1994
SIZE: $95 million as of December 31, 1999
MANAGERS: Peter Wilby and David Scott have co-managed the Series since its
inception in October 1994. Mr. Lavan began co-managing the Series in June 1998.
Mr. Wilby and Mr. Scott have also managed the Salomon Brothers Investment
Series--Strategic Bond Fund since March 1995 and the North American Strategic
Income Fund since March 1995. Mr. Wilby has also managed the Salomon Brothers
Investment Series--High Yield Bond Fund since March 1995. Mr. Lavan has also
managed the Salomon Brothers Investment Series--U.S. Government Income Fund and
North American U.S. Government Securities Fund since January 1992 and the
Salomon Brothers U.S. Government Series since 1994. He joined Salomon Brothers
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.
16
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
BONDS & NOTES--98.1% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
APPAREL & TEXTILES--0.3%
$ 250,000 Collins & Aikman Floorcovering, 10.000%, 1/15/07.. $ 245,625
------------
AUTOMOTIVE--1.0%
150,000 American Axle and Manufacturing, Inc., 9.750%,
3/1/09........................................... 151,875
250,000 Breed Technologies, Inc., 9.250%, 4/15/08,
144A(f).......................................... 7,500
250,000 Foamex L.P./Foamex Capital Corp., 9.875%, 6/15/07. 210,625
250,000 Hayes Lemmerz International, Inc., 8.250%,
12/15/08......................................... 230,000
250,000 Key Plastics, Inc., Series B 10.250%, 3/15/07..... 117,500
250,000 Lear Corp., 8.110%, 5/15/09, 144A................. 235,263
------------
952,763
------------
BANKS--3.1%
350,000 Bangkok Sentral NG, 8.600%, 6/15/27............... 268,590
325,000 Bankamerica Corp., 6.625%, 6/15/04................ 317,740
1,250,000 Commerzbank Overseas Finance N.V., 10.250%,
4/28/00 (AUD).................................... 830,886
1,500,000 Eurofima,
17.000%, 3/4/05 (PLN)............................ 429,323
300,000 European Investment Bank, 7.500%, 3/23/00 (CAD)... 208,562
1,000,000 International Finance Corp., 20.250%, 5/5/00
(PLN)............................................ 242,443
600,000 Nordiska Investeringsbanken, 17.750%, 4/15/02
(PLN)............................................ 154,462
3,100,000 Vnesheconombank, 6.906%, 12/15/15(c).............. 515,375
------------
2,967,381
------------
CABLE & OTHER MEDIA--2.6%
250,000 Adelphia Communications Corp., Series B, 10.500%,
7/15/04.......................................... 261,563
500,000 Avalon Cable, 0/11.125%, 12/01/08(b).............. 326,250
250,000 Capstar Broadcasting, 9.250%, 7/01/07............. 253,438
375,000 Century Communications Corp., Zero Coupon,
1/15/08.......................................... 166,875
500,000 Charter Communications Holdings Corp., 0/9.920%,
4/01/11(b)....................................... 295,000
150,000 CSC Holdings, Inc., 10.500%, 5/15/16.............. 167,250
150,000 Diamond Cable Communications, 0/11.750%,
12/15/05(b)...................................... 142,500
</TABLE>
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$ 250,000 Falcon Holdings Group LP, Series B, 8.375%,
4/15/10........................................ $ 252,500
500,000 LIN Holdings Corp., 0/10.000%, 3/01/08(b)....... 341,250
250,000 Telewest Communication Plc., 0/11.000%,
10/01/07(b).................................... 234,375
------------
2,441,001
------------
CAPITAL GOODS/BUILDING PRODUCTS--2.4%
225,000 Alvey Systems, Inc., 11.375% 1/31/03............ 232,875
250,000 Cabot Safety Corp., 12.500%, 7/15/05............ 258,750
200,000 High Voltage Engineering Corp., 10.500%,
8/15/04........................................ 177,000
250,000 Jordan Industries, Inc., Series B, 0/11.750%,
4/01/09(b)..................................... 170,000
250,000 Motors & Gears, Inc., Series D, 10.750%,
11/15/06....................................... 240,313
250,000 Neenah Corp., Series D, 11.125%, 5/01/07........ 232,500
250,000 Packard Biosciences Co., Series B, 9.375%,
3/01/07........................................ 218,125
250,000 Panolam Industries International, 11.500%,
2/15/09........................................ 256,875
500,000 Praxair, Inc., 6.150%, 4/15/03.................. 477,849
------------
2,264,287
------------
CHEMICALS--0.4%
250,000 Lyondell Chemical Co., 9.875%, 5/1/07........... 256,250
125,000 Philipp Brothers Chemicals, Inc., 9.875%,
6/1/08......................................... 111,875
------------
368,125
------------
CONSUMER PRODUCTS--1.6%
250,000 American Safety Razor, Series B, 9.875%,
8/01/05........................................ 246,250
125,000 Anchor Advanced Products, Inc. 11.750%, 4/01/04. 107,500
250,000 Indesco International, Inc., 9.750%, 4/15/08.... 112,500
250,000 North Atlantic Trading, Inc., Series B, 11.000%,
6/15/04........................................ 228,750
100,000 Pierce Leahy Command Co., 8.125%, 5/15/08....... 92,500
50,000 Revlon Worldwide,
8.625%, 2/1/08................................. 24,500
250,000 Simmons Co.,
10.250%, 3/15/09............................... 242,500
375,000 United Industries Corp., 9.875%, 4/01/09........ 343,125
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
CONSUMER PRODUCTS--(CONTINUED)
$ 125,000 Windmere-Durable Holdings, Inc., 10.000%, 7/31/08. $ 123,750
------------
1,521,375
------------
CONTAINERS/PACKAGING--0.9%
250,000 Huntsman Corp.,
9.500%, 7/01/07 144A............................. 238,750
250,000 Huntsman Packaging Corp., 9.125%, 10/01/07........ 242,500
150,000 Norampac, Inc., 9.500%, 2/1/08.................... 153,375
200,000 Radnor Holdings Corp., 10.000%, 12/01/03.......... 200,500
------------
835,125
------------
DEFENSE & AEROSPACE--0.4%
250,000 Raytheon Co., 6.150%, 11/01/08.................... 221,381
250,000 Stellex Industries, Inc., 9.500%, 11/01/07........ 180,312
------------
401,693
------------
ELECTRONICS--0.3%
250,000 Amphenol Corp., 9.875%, 5/15/07................... 256,250
------------
ENERGY--1.2%
250,000 Belco Oil & Gas Corp., 8.875%, 9/15/07............ 234,375
250,000 Bellwether Exploration Co., 10.875%, 4/01/07...... 227,188
150,000 Benton Oil & Gas Co., 11.625%, 5/01/03............ 109,500
250,000 Continental Resources, Inc., 10.250%, 8/1/08...... 220,314
250,000 Frontier Oil Corp. 9.125%, 2/15/06................ 226,250
250,000 United Refining Co. Series B, 10.750%, 6/15/07.... 162,500
------------
1,180,127
------------
FINANCE--4.8%
750,000 Ford Motor Credit Co., 5.800%, 1/12/09............ 742,427
370,000 General Electric Capital Corp., 5.875%, 7/7/00
(AUD)............................................ 242,747
620,000 KFW International Finance, 16.300%, 6/24/03 (PLN). 162,684
141,000,000 KFW International Finance, 2.050%, 9/21/09 (JPY).. 1,423,801
310,000 Merrill Lynch & Co., Inc. 6.000%, 11/15/04........ 293,600
</TABLE>
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$ 1,380,000 Merrill Lynch & Co., Inc., 5.970%, 9/11/00 (CAD).. $ 956,976
450,000 Paine Webber Group, Inc., 7.750%, 9/01/02......... 453,901
300,000 TPSA Finance BV,
7.750%, 12/10/08 144A............................ 280,238
------------
4,556,374
------------
FINANCIAL/LEASING--1.2%
250,000 Airplanes Pass Through Trust, 10.875%, 03/15/19... 216,404
250,000 ContiFinancial Corp. 8.125%, 4/01/08.............. 30,000
600,000 Countrywide Funding Corp., 6.250%, 4/15/09........ 541,542
250,000 Navistar International Corp. Series B, 8.000%,
2/01/08.......................................... 240,625
125,000 Williams Scotsman, Inc., 9.875%, 6/01/07.......... 120,938
------------
1,149,509
------------
FOOD & BEVERAGES--0.5%
250,000 Delta Beverage Group, Inc. 9.750%, 12/15/03....... 247,500
250,000 Imperial Holly Corp., 9.750%, 12/15/07............ 181,250
350,000 NEBCO Evans Holdings Co., 0/12.375%, 7/15/07(b)... 45,500
------------
474,250
------------
FOREIGN--1.8%
990,000 Algeria Tranche, 6.750%, 3/04/10 ................. 710,325
700,000 European Bank For Reconstruction & Development
10.500%, 1/25/01 (PLN)........................... 160,357
100,000 Morocco Loan Tranche 6.843%, 1/01/09.............. 90,250
655,953 Morocco Loan Tranche, 6.062%, 1/01/09............. 591,998
550,000 Sudwest Landes Bank, 17.500%, 5/05/03 (PLN)....... 147,243
------------
1,700,173
------------
FOREIGN GOVERNMENT--27.4%
1,667,000 Federal Republic of Brazil, 14.500%, 10/15/09..... 1,850,370
376,000 Federal Republic of Brazil, 6.937%, 4/15/06(c).... 331,554
3,221,073 Federal Republic of Brazil, 8.000%, 4/15/14(c).... 2,388,425
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
FOREIGN GOVERNMENT--(CONTINUED)
$ 470,000 Federal Republic of Germany, 4.000%, 6/16/00 (EUR). $ 474,531
700,000 Federal Republic of Germany, 5.625%, 1/4/28 (EUR).. 671,650
600,000 Federal Republic of Germany, 5.875%, 5/15/00 (EUR). 609,638
230,000 Government of Spain 6.000%, 1/31/08 (EUR).......... 239,220
270,000 Government of Spain 6.150%, 1/31/13 (EUR).......... 279,981
2,100,000 Ivory Coast, 2.000%, 3/29/18(c).................... 451,500
3,100,000 Kingdom of Sweden, 10.250%, 5/05/03 (SEK).......... 418,021
1,800,000 Ministry Finance of Russia, 12.750%, 6/24/28....... 1,209,690
175,000 Ministry Finance of Russia, 9.250%, 11/27/01....... 138,688
950,000 National Republic of Bulgaria, 2.750%, 7/28/12(c).. 684,000
750,000 National Republic of Bulgaria, 6.500%, 7/28/11(c).. 590,625
4,000,000 Norwegian Treasury Bills, 5.250%, 3/15/00 (NOK).... 499,007
1,600,000 Republic of Argentina 11.000%, 12/04/05............ 1,568,000
675,000 Republic of Argentina, 11.375%, 1/30/17............ 658,564
1,425,000 Republic of Colombia, 10.875%, 3/09/04............. 1,458,915
891,216 Republic of Croatia 6.456%, 7/31/06(c)............. 819,919
1,000,000 Republic of Ecuador 4.000%, 2/28/25(c)............. 342,500
82,900,000 Republic of Greece, 11.000%, 2/25/00 (GRD)(c)...... 256,137
206,000,000 Republic of Greece,
6.600%, 1/15/04 (GRD)............................. 631,641
101,000,000 Republic of Greece,
7.600%, 1/22/02 (GRD)............................. 312,524
496,400,000 Republic of Greece,
8.900%, 4/01/03 (GRD)............................. 1,617,806
140,000 Republic of Italy,
5.250%, 11/1/29 (EUR)............................. 125,784
1,050,000 Republic of Panama 4.250%, 7/17/14(c).............. 821,625
1,400,000 Republic of Peru, 4.500%, 3/07/17(c)............... 969,500
300,000 Republic of Philippines, 9.875%, 1/15/19........... 296,250
370,000 Republic of Slovenia, 5.375%, 5/27/05 (EUR)........ 368,135
</TABLE>
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$ 380,951 Republic of Venezuela 7.000%, 12/18/07(c)......... $ 301,985
1,750,000 Republic of Venezuela, 13.625%, 8/15/18........... 1,557,500
175,000 Russian Federation, 11.750%, 6/10/03 144A......... 131,687
350,000 United Mexican States, 10.375%, 2/17/09........... 371,618
1,500,000 United Mexican States, 6.25%, 12/31/19............ 1,181,250
400,000 United Mexican States, 6.25%, 12/31/19............ 315,000
1,000,000 United Mexican States, 9.875%, 1/15/07............ 1,041,500
------------
25,984,740
------------
GOVERNMENT AGENCIES--19.5%
104,811 Federal Home Loan Mortgage, 10.000%, 05/15/20..... 111,993
1,459 Federal Home Loan Mortgage, 1156.500%,
06/15/21(d)...................................... 40,238
8,424,828 Federal National Mortgage Association, 0.531%,
10/17/36(d)...................................... 211,430
3,418,159 Federal National Mortgage Association, 0.580%,
03/17/20(d)...................................... 78,184
9,854,637 Federal National Mortgage Association, 1.044%,
06/25/38(d)...................................... 554,057
4,653,810 Federal National Mortgage Association, 1.670%,
02/25/35(d)...................................... 326,753
45,757 Federal National Mortgage Association, 10.400%,
04/25/19......................................... 47,629
10,656 Federal National Mortgage Association, 13.000%,
11/15/15......................................... 12,008
6,000,000 Federal National Mortgage Association, 6.000%,
TBA.............................................. 5,488,080
737,937 Federal National Mortgage Association, 6.500%,
3/1/26........................................... 699,889
87,830 Federal National Mortgage Association, 7.000%,
5/1/26........................................... 85,140
3,500,000 Federal National Mortgage Association, 7.000%,
TBA.............................................. 3,384,045
506,228 Federal National Mortgage Association, 7.387%,
08/17/03......................................... 507,531
7,000,000 Federal National Mortgage Association, 7.500%,
TBA.............................................. 6,921,250
------------
18,468,227
------------
HOTEL/LODGING--0.2%
250,000 HMH Properties, Inc. Series B, 7.875%, 8/01/08.... 223,750
------------
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
HOUSING RELATED--0.2%
$ 250,000 CB Richards Ellis Services, Inc. 8.875%, 6/01/06.. $ 226,250
------------
LEISURE TIME--1.4%
250,000 Empress Entertainment, Inc. 8.125%, 7/01/06....... 248,438
250,000 Harrah's Operating Co., Inc. 7.875%, 12/15/05..... 241,250
250,000 Horseshoe Gaming 9.375%, 6/15/07.................. 250,000
150,000 Mohegan Tribal Gaming, 8.750%, 1/01/09............ 149,625
250,000 Sun International Hotels, 8.625%, 12/15/07........ 235,000
244,000 Waterford Gaming,
9.500%, 3/15/10 144A............................. 244,000
------------
1,368,313
------------
METALS/MINING/STEEL--0.5%
250,000 Murrin Murrin Holdings Property, Ltd. 9.375%,
8/31/07.......................................... 226,250
250,000 P&L Coal Holdings Corp., 9.625%, 5/15/08.......... 243,750
------------
470,000
------------
MORTGAGE--12.5%
1,800,000 Commercial Mortgage Asset Trust 7.350%, 08/17/13.. 1,675,539
900,000 ContiMortgage Home Equity Loans, 7.000%, 12/25/01. 673,313
897,923 Countrywide Mortgage Backed Securities Corp.,
7.750%, 06/25/24................................. 881,199
9,642,335 DLJ Commercial Mortgage Corp. 0.892%, 05/10/23(d). 397,746
8,897,075 DLJ Commercial Mortgage Corp. 1.068%, 11/12/31(d). 447,639
244,081 First Union Residential Securitization, 7.000%,
08/25/28......................................... 211,130
987,659 GE Capital Mortgage Services, Inc. 6.750%,
11/25/28......................................... 893,831
1,596,601 Green Tree Financial Corp., 7.070%, 01/15/29...... 1,545,702
1,250,000 LB Commercial Conduit Mortgage Trust, 6.780%,
4/15/09.......................................... 1,192,594
1,381,935 Mid State Trust VI, 7.340%, 07/01/35.............. 1,343,062
344,568 PNC Mortgage Securities Corp. 6.750%, 05/25/28.... 286,853
</TABLE>
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$ 744,077 PNC Mortgage Securities Corp. 6.772%, 03/25/29.... $ 677,110
643,027 PNC Mortgage Securities Corp. 6.904%, 04/25/29.... 542,554
441,074 PNC Mortgage Securities Corp., 6.735%, 02/25/28... 370,502
467,354 PNC Mortgage Securities Corp., 6.838%, 05/25/28... 398,711
375,000 RG Receivables Co., 9.600%, 2/28/05............... 303,750
------------
11,841,235
------------
PAPER--0.3%
250,000 Repap New Brunswick, Inc., 10.625%, 4/15/05....... 232,500
------------
REAL ESTATE--0.1%
150,000 Spieker Properties LP, 7.250%, 5/1/09............. 139,716
------------
RETAIL--1.9%
400,000 Archibald Candy Corp. 10.250%, 7/01/04............ 389,000
250,000 Cole National Group, Inc. 9.875%, 12/31/06........ 190,000
250,000 Finlay Fine Jewelry Corp., 8.375%, 5/01/08........ 231,250
321,000 Guitar Center Management Co., Inc. 11.000%,
7/01/06.......................................... 318,191
250,000 Musicland Group, Inc. Series B, 9.875%, 3/15/08... 228,750
125,000 Pueblo Xtra International, 9.500%, 8/01/03........ 76,250
400,000 Staples, Inc., 7.125%, 8/15/07.................... 384,010
------------
1,817,451
------------
SERVICES--2.9%
125,000 Allied Waste North America, Inc. 10.000%, 8/1/09,
144A............................................. 111,563
450,000 Comdisco, Inc., 6.000%, 1/30/02................... 435,589
250,000 Integrated Electric Services, Inc., 9.375%,
2/01/09.......................................... 245,313
250,000 Intertek Finance Plc, Series B, 10.250%, 11/01/06. 233,750
250,000 Iron Mountain, Inc., 10.125%, 10/01/06............ 256,250
125,000 Iron Mountain, Inc., 8.750%, 9/30/09.............. 120,000
250,000 Loomis Fargo & Co., 10.000%, 1/15/04.............. 248,437
250,000 Marsulex, Inc., 9.625%, 7/01/08................... 240,000
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
SERVICES--(CONTINUED)
$ 250,000 Primark Corp.,
9.250%, 12/15/08 144A............................ $ 234,063
225,000 Protection One Alarm, Inc., 8.125%, 1/15/09 144A.. 108,563
250,000 Safety Kleen Services, 9.250%, 6/01/08............ 248,124
400,000 Service Corporation International, 6.000%,
12/15/05......................................... 280,180
------------
2,761,832
------------
STEEL--0.2%
250,000 Algoma Steel, Inc. 12.375%, 7/15/05............... 236,250
------------
TELECOMMUNICATIONS--2.3%
250,000 Centennial Cellular Corp., 10.750%, 12/15/08...... 269,374
200,000 GTE Corp. 6.940%, 4/15/28......................... 180,658
275,000 ICG Holdings, Inc., 0/13.500%, 9/15/05(b)......... 237,875
175,000 Intermedia Communications, Inc., 8.600%, 6/01/08.. 161,875
350,000 International Cabletel, Inc., 0/11.500%,
2/01/06(b)....................................... 316,750
500,000 Nextel Communications, Inc., 0/9.950%, 2/15/08(b). 353,750
400,000 Sprint Capital Corp., 6.500%, 11/15/01............ 396,583
400,000 United International Holdings Series B, 0/10.750%,
2/15/08(b)....................................... 253,000
------------
2,169,865
------------
TRANSPORTATION--1.0%
250,000 Atlantic Express Transportation Corp. 10.75%,
2/01/04.......................................... 243,750
150,000 Enterprises Shipholding Corp. 8.875%, 5/01/08..... 90,000
200,000 Holt Group, Inc., 9.750%, 1/15/06................. 135,000
250,000 Stena AB, 10.500%, 12/15/05....................... 230,625
400,000 TFM, SA, 0/11.750%, 6/15/09(b).................... 258,000
------------
957,375
------------
U.S. GOVERNMENT--5.2%
2,000,000 United States Treasury Bonds, 5.250%, 11/15/28.... 1,649,094
1,000,000 United States Treasury Bonds, 5.250%, 2/15/29..... 826,870
910,000 United States Treasury Bonds, 5.500%, 8/15/28..... 776,762
200,000 United States Treasury Bonds, 6.125%, 11/15/27.... 186,264
</TABLE>
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$ 1,500,000 United States Treasury
Notes, 5.25%, 5/31/01............................ $ 1,480,785
------------
4,919,775
------------
Total Bonds & Notes
(Identified Cost
$96,194,317)..................................... 93,131,337
------------
PREFERRED STOCKS--0.0%
<CAPTION>
SHARES
<C> <S> <C>
840 TCR Holdings, Class B ............................ 8
462 TCR Holdings, Class C............................. 6
1,219 TCR Holdings, Class D............................. 12
2,521 TCR Holdings, Class E............................. 25
------------
Total Preferred Stocks
(Identified Cost $300)........................... 51
------------
WARRANTS--0.1%
200 In Flight Phone Corp.(e).......................... --
554 United Mexico States.............................. 48,475
------------
Total Warrants
(Identified Cost
$19,016)......................................... 48,475
------------
OPTIONS--0.0%
130 Hong Kong Dollar Put/U.S.
Dollar Call 7.8165,
January 2000 .................................... --
65 Hong Kong Dollar Put/U.S.
Dollar Call 7.8025,
January 2000 .................................... --
------------
Total Options
(Identified Cost
$176,497)........................................ --
------------
SHORT-TERM INVESTMENTS--15.7%
<CAPTION>
FACE
AMOUNT
<C> <S> <C>
$ 3,000,000 Consolidated Coal Co.
6.520%, 1/19/00.................................. 2,990,220
3,000,000 GATX Capital Corp.,
6.470%, 1/19/00.................................. 2,990,295
3,000,000 Tennessee Gas Pipeline
Co., 6.400%, 1/19/00............................. 2,990,400
3,000,000 Tyco International, Inc.,
6.520%, 1/19/00.................................. 2,990,220
3,000,000 USEC, Inc., 6.520%,
1/19/00.......................................... 2,990,220
------------
Total Short-Term
Investments
(Identified Cost
$14,951,355)...................................... 14,951,355
------------
Total Investments--113.9%
(Identified Cost
$111,341,485)(a).................................. 108,131,218
Other assets less
liabilities...................................... (13,220,858)
------------
TOTAL NET ASSETS--100%............................. $ 94,910,360
============
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
FORWARD CONTRACTS OUTSTANDING AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
LOCAL AGGREGATE UNREALIZED
CURRENCY DELIVERY CURRENCY FACE TOTAL APPRECIATION/
CONTRACT DATE AMOUNT VALUE VALUE (DEPRECIATION)
<S> <C> <C> <C> <C> <C>
Canadian Dollar
(bought) 1/28/2000 453,391 $ 308,986 $ 314,298 $ 5,312
Euro Currency
(bought) 1/18/2000 384,002 404,914 387,336 (17,578)
Euro Currency
(bought) 1/28/2000 2,531,722 2,688,778 2,555,588 (133,190)
Euro Currency
(sold) 1/28/2000 3,006,619 3,060,983 3,034,963 26,020
Pound Sterling
(bought) 1/18/2000 540,719 886,276 873,502 (12,774)
Pound Sterling
(bought) 1/28/2000 544,538 896,212 879,716 (16,496)
Pound Sterling
(sold) 1/28/2000 1,111,217 1,838,342 1,795,201 43,141
Greek Drachma
(sold) 1/28/2000 386,588,189 1,228,942 1,176,782 52,160
Greek Drachma
(bought) 1/28/2000 321,991,500 982,625 980,149 (2,476)
Japanese Yen (sold) 1/28/2000 143,135,954 1,393,051 1,407,554 (14,503)
Japanese Yen
(bought) 1/28/2000 94,203,000 902,674 926,363 23,689
Swedish Krona
(sold) 1/28/2000 7,400,000 901,525 871,300 30,225
Swedish Krona
(bought) 1/28/2000 4,772,582 568,097 561,939 (6,158)
---------
Net unrealized depreciation on Forward Currency contracts...... $ (22,628)
=========
</TABLE>
(a) Federal Tax Information:
At December 31, 1999 the net unrealized depreciation on investments based on
cost of $111,854,816 for federal income tax purposes was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost............... $ 2,450,389
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value............... (6,173,987)
-----------
Net unrealized depreciation.................................... $(3,723,598)
===========
</TABLE>
For Federal income tax purposes, the Series has a capital loss carryforward
at December 31, 1999 of approximately $5,762,000 which will expire in 2007.
Accordingly, no capital gain distributions are expected to be paid to
shareholders until net gains have been realized in excess of such amount.
(b) Step Bond: Coupon rate is zero or below market for an initial period and
then increased to a higher coupon rate at a specified date.
(c) Variable or floating rate security. Rate disclosed is as of December 31,
1999.
(d) Interest only certificate. This security receives monthly interest
payments but is not entitled to principal payments.
(e) Non-Income producing security.
(f) Non-Income producing; issuer filed petition under Chapter 11 of the
Federal Bankruptcy Code.
Key to abbreviations:
AUD--Australian Dollar
CAD--Canadian Dollar
EUR--Euro Currency
GRD--Greek Drachma
JPY--Japanese Yen
NOK--Norwegian Krone
PLN--Polish Zloty
SEK--Swedish Krona
144A--Securities 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.
At the period end, the value of
these securities amounted to
$1,591,627 or 1.7% of net
assets.
See accompanying notes to financial statements.
22
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value............................... $108,131,218
Cash............................................... 840,575
Receivable for:
Fund shares sold................................... 187,144
Accrued interest................................... 2,091,006
Foreign taxes...................................... 324
Miscellaneous...................................... 8,441
------------
Total Assets...................................... 111,258,708
LIABILITIES
Payable for:
Fund shares redeemed............................... $ 156,476
Securities purchased............................... 16,075,069
Open forward currency
contracts--net.................................... 22,628
Withholding taxes.................................. 2,253
Due to subcustodian banks.......................... 2,234
Miscellaneous...................................... 157
Accrued expenses:
Management fees.................................... 52,198
Deferred trustees fees............................. 4,635
Other expenses..................................... 32,698
-----------
Total Liabilities................................. 16,348,348
------------
NET ASSETS.......................................... $ 94,910,360
============
Net assets consist of:
Capital paid in.................................... $104,495,187
Overdistributed net investment income.............. (62,769)
Accumulated net realized gains (losses)............ (6,275,333)
Unrealized appreciation (depreciation) on
investments and foreign currency.................. (3,246,725)
------------
NET ASSETS.......................................... $ 94,910,360
============
Computation of offering price:
Net asset value and redemption price per share
($94,910,360 divided by 8,897,436 shares of
beneficial interest)............................... $ 10.67
============
Identified cost of investments...................... $111,341,485
============
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest......................................... $ 8,522,109(a)
-----------
EXPENSES
Management fees.................................. $ 618,506
Deferred expense reimbursement................... 12,296
Trustees' fees and expenses...................... 11,279
Custodian........................................ 83,293
Audit and tax services........................... 18,778
Legal............................................ 4,825
Printing......................................... 14,791
Amortization of organization expense............. 1,678
Insurance........................................ 1,968
Miscellaneous.................................... 3,492
-----------
Total Expenses.................................. 770,906
-----------
NET INVESTMENT INCOME............................. 7,751,203
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net................................. (3,714,519)
Foreign currency transactions--net............... (205,133) (3,919,652)
-----------
Unrealized appreciation (depreciation) on:
Investments--net................................. (2,425,932)
Foreign currency translation--net................ (38,571) (2,464,503)
----------- -----------
Net gain (loss)................................... (6,384,155)
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS....................................... $ 1,367,048
===========
</TABLE>
(a) Net of foreign taxes of $15,197
See accompanying notes to financial statements.
23
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................. $ 7,751,203 $ 6,207,055
Net realized gain (loss).......................... (3,919,652) (2,493,823)
Unrealized appreciation (depreciation)............ (2,464,503) (2,329,435)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS. 1,367,048 1,383,797
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income............................. (7,574,436) (6,162,469)
Net realized gain................................. 0 (87,409)
In excess of net realized gain.................... 0 (137,672)
------------ ------------
TOTAL DISTRIBUTIONS............................... (7,574,436) (6,387,550)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares...................... 29,507,364 48,659,454
Reinvestment of distributions..................... 7,574,436 6,387,550
Cost of shares redeemed........................... (31,413,923) (25,795,325)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS............................... 5,667,877 29,251,679
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........... (539,511) 24,247,926
NET ASSETS
Beginning of the year............................. 95,449,871 71,201,945
------------ ------------
End of the year................................... $ 94,910,360 $ 95,449,871
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT
INCOME
End of the year................................... $ (62,769) $ (45,647)
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 2,585,620 3,992,202
Issued in reinvestment of distributions........... 709,882 558,777
Redeemed.......................................... (2,751,781) (2,123,814)
------------ ------------
Net Change........................................ 543,721 2,427,165
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year. $ 11.43 $ 12.01 $ 11.62 $ 10.85 $ 9.74
------- ------- ------- ------- ------
Income From Investment Operations
Net Investment Income............. 0.95 0.80 0.75 0.51 0.58
Net Realized and Unrealized Gain
(Loss) on Investments............ (0.78) (0.56) 0.54 1.05 1.30
------- ------- ------- ------- ------
Total From Investment operations.. 0.17 0.24 1.29 1.56 1.88
------- ------- ------- ------- ------
Less Distributions
Distributions From Net Investment
Income........................... (0.93) (0.79) (0.76) (0.60) (0.55)
Distributions From Net Realized
Capital Gains.................... 0.00 (0.02) (0.14) (0.19) (0.22)
Distributions in Excess of Net
Realized Capital Gains........... 0.00 (0.01) 0.00 0.00 0.00
------- ------- ------- ------- ------
Total Distributions............... (0.93) (0.82) (0.90) (0.79) (0.77)
------- ------- ------- ------- ------
Net Asset Value, End of Year....... $ 10.67 $ 11.43 $ 12.01 $ 11.62 $10.85
======= ======= ======= ======= ======
TOTAL RETURN (%)................... 1.4 2.0 11.1 14.4 19.4
Ratio of Operating Expenses to
Average Net Assets (%)............ 0.81 0.85 0.85 0.85 0.85
Ratio of Net Investment Income to
Average Net Assets (%)............ 8.15 7.20 7.32 7.79 8.39
Portfolio Turnover Rate (%)........ 224 283 258 176 202
Net Assets, End of Year (000) ..... $94,910 $95,450 $71,202 $35,808 $9,484
The Ratios of operating expenses to
average net assets without giving
effect to the voluntary expense
agreement described in Note 4 to
the Financial Statements would
have been (%)..................... -- -- 0.87 1.19 2.44
</TABLE>
See accompanying notes to financial statements.
24
<PAGE>
SALOMON BROTHERS U.S. GOVERNMENT SERIES
PORTFOLIO MANAGER: ROGER LAVAN SALOMON BROTHERS ASSET MANAGEMENT INC
[PHOTO APPEARS HERE]
Q. HOW DID THE SERIES PERFORM DURING THE PAST 12 MONTHS RELATIVE TO ITS INDEX
AND RELATIVE TO ITS PEERS?
A. The Salomon Brothers U.S. Government Series returned 0.2% for the year end-
ing December 31, 1999 versus 0.5% return of the Lehman Brothers Intermediate
Government Index/4/ and a 0.4% return of the Lipper Variable Product GNMA/US
Mortgage Fund Average./17/
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST 12
MONTHS.
A. The investment grade bond market started off 1999 strong, benefiting from
stable Treasury rates, declining volatility and a reduction in liquidity pre-
miums. Away from investment grade, performance for High Yield bonds and Emerg-
ing Market Debt had a stellar start, as the financial markets shrugged off
Brazil's currency problems. As the year progressed, however, the bond market
encountered some difficulties. Fears of an overheating economy coupled with
mounting investor fear of inflation and Y2K concerns conspired against the
fixed income sector. The mounting inflation concerns forced a proactive Fed-
eral Reserve to raise the federal funds rate three times from 4.75% to 5.50%.
Salomon Brothers Asset Management believes there is a very strong case for
further Fed tightening in the first half of 2000 given a continued tight labor
market and persistent strong consumer demand. This tightening will likely do
more to flatten the yield curve than move the overall bond market to signifi-
cantly higher levels. If the Fed is successful in offsetting rising inflation,
then long-term interest rates should start to fall toward the end of 2000 and
going into 2001. We remain optimistic on the outlook for emerging market debt
and high yield paper. Emerging Market Debt should perform well as the strength
in the global economy keeps commodity prices well supported in 2000. We expect
high yield bonds to benefit from declining default rates, strong merger and
acquisition activity, wide spreads, and solid growth coupled with low to mod-
erate inflation here in the States.
Q. GIVEN THIS INVESTMENT ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY? WHAT
CHANGES DID YOU MAKE SINCE THE START OF THE YEAR?
A. Given the aforementioned 1999 fixed income backdrop, we focused on high
quality issues and remained overweight in spread products, though we have
trimmed our overall allocation in those areas. The portfolio is constantly un-
dergoing evaluation and making the appropriate changes to maintain our simul-
taneous focus on quality and opportunities in the market.
Q. WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE DURING THE PAST
12 MONTHS?
A. The Series underperformed due to a slightly longer duration than its
benchmark.
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT 6
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO THE WAY YOU MANAGE YOUR
PORTFOLIO?
A. In our judgement, the challenge remains for Fed policymakers to slow the
economy to a more sustainable pace of growth. We believe there is a case for
another 50 basis points of Fed tightening over the first part of 2000 given a
continued tight labor market. This tightening will likely do more to flatten
the yield curve than move the overall bond market to higher levels. If the Fed
is successful in offsetting rising inflation, then long-term interest rates
should start to fall before year-end 2000 and into 2001. We will focus on
these ideas throughout the year in the management of the portfolio.
25
<PAGE>
A $10,00 investment compared to the Lehman Intermediate Government Index
since the Series' Inception
[GRAPH]
Salomon Brothers U.S. Lehman Intermediate
Government Securities Government Index
10/31/94 10,000 10,000
12/31/94 10,060 9,988
6/30/95 11,571 11,427
6/30/96 11,954 11,891
6/30/97 12,967 12,810
6/30/98 13,954 13,897
6/30/99 13,978 13,964
Average Annual Total Return
Lipper Variable
US Government Lehman Intermediate US Mortgage
Series US Government and GNMA
1 Year 0.2% 0.5% 0.4%
3 Years 5.4 5.5 5.5
5 Years 6.8 6.9 7.2
Since Inception 6.7 6.7 n/a
[checkmark] 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: $51 million as of December 31, 1999
MANAGERS: Roger Lavan has managed the Series since its inception in 1994. Mr.
Lavan has managed the Salomon Brothers Investment Series--U.S. Government
Income Fund and the North American U.S. Government Securities Fund since
January 1992. He joined Salomon Brothers Asset Management Inc in 1990. Mr.
Lavan has also co-managed the Strategic Bond Opportunities Series since June
1998.
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.
26
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS U.S. GOVERNMENT SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
BONDS & NOTES--83.1% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
FEDERAL AGENCY--76.2%
$ 300,000 Federal Home Loan Banks, 5.940%, 6/13/00............... $ 299,480
1,000,000 Federal Home Loan Banks, 5.800%, 9/02/08............... 921,690
11,006 Federal Home Loan Mortgage Corp., 6.000%, 10/1/10...... 10,463
1,266,134 Federal Home Loan Mortgage Corp., 6.000%, 10/1/28...... 1,158,906
1,069,676 Federal Home Loan Mortgage Corp., 6.000%, 11/1/28...... 979,086
900,000 Federal Home Loan Mortgage Corp., 6.247%, 3/25/21...... 855,563
410,632 Federal Home Loan Mortgage Corp., 6.500%, 8/1/13....... 398,313
194,709 Federal Home Loan Mortgage Corp., 6.500%, 3/1/26....... 183,756
48,615 Federal Home Loan Mortgage Corp., 6.500%, 5/1/26....... 45,881
44,111 Federal Home Loan Mortgage Corp., 6.500%, 6/1/26....... 41,629
659,912 Federal Home Loan Mortgage Corp., 6.500%, 7/1/26....... 622,791
233,194 Federal Home Loan Mortgage Corp., 7.000%, 7/1/11....... 230,790
162,786 Federal Home Loan Mortgage Corp., 7.000%, 4/15/21...... 162,176
146,312 Federal Home Loan Mortgage Corp., 7.500%, 5/1/07....... 147,467
208,596 Federal Home Loan Mortgage Corp., 8.000%, 12/1/19...... 210,747
517,651 Federal Home Loan Mortgage Corp., 8.000%, 7/1/20....... 521,047
141,484 Federal Home Loan Mortgage Corp., 8.250%, 4/1/17....... 144,880
103,358 Federal Home Loan Mortgage Corp., 9.000%, 10/1/17...... 107,156
497,803 Federal Home Loan Mortgage Corp., 10.000%, 3/1/16...... 530,031
219,338 Federal Home Loan Mortgage Corp., 10.500%, 6/1/20...... 234,347
44,379 Federal Home Loan Mortgage Corp., 11.750%, 1/1/12...... 50,052
2,000,000 Federal National Mortgage Association, 6.000%, TBA..... 1,829,360
150,549 Federal National Mortgage Association, 6.500%, 6/1/08.. 147,141
50,296 Federal National Mortgage Association, 6.500%, 12/1/10. 48,965
29,995 Federal National Mortgage Association, 6.500%, 4/1/13.. 29,095
144,658 Federal National Mortgage Association, 6.500%, 4/1/13.. 140,408
627,133 Federal National Mortgage Association, 6.500%, 4/1/13.. 608,319
</TABLE>
<TABLE>
<CAPTION>
FACE VALUE (NOTE
AMOUNT 1A)
<C> <S> <C>
$ 552,317 Federal National Mortgage Association, 6.500%,
7/1/13.............................................. $ 535,748
284,506 Federal National Mortgage Association, 6.500%,
3/1/26.............................................. 269,837
1,448,667 Federal National Mortgage Association, 6.500%,
4/1/29.............................................. 1,364,905
5,900,000 Federal National Mortgage Association, 6.500%, TBA... 5,558,862
1,255,000 Federal National Mortgage Association, 6.527%,
5/25/30............................................. 1,174,522
1,152,696 Federal National Mortgage Association, 6.654%,
12/28/28............................................ 1,118,115
125,418 Federal National Mortgage Association, 7.000%,
11/1/23............................................. 121,969
130,244 Federal National Mortgage Association, 7.000%,
7/1/26.............................................. 126,255
616,531 Federal National Mortgage Association, 7.000%,
2/1/28.............................................. 597,067
673,583 Federal National Mortgage Association, 7.000%,
10/1/28............................................. 651,268
468,619 Federal National Mortgage Association, 7.000%,
11/1/28............................................. 453,094
699,122 Federal National Mortgage Association, 7.000%,
2/1/29.............................................. 677,051
120,216 Federal National Mortgage Association, 7.000%,
2/1/29.............................................. 116,233
1,400,000 Federal National Mortgage Association, 7.000%, TBA... 1,383,802
6,000,000 Federal National Mortgage Association, 7.000%, TBA... 5,801,220
2,000,000 Federal National Mortgage Association, 7.500%, TBA... 1,977,500
11,590 Federal National Mortgage Association, 11.500%,
9/1/19.............................................. 12,785
346,124 Federal National Mortgage Association, 12.000%,
10/1/15............................................. 384,215
19,980 Federal National Mortgage Association, 12.000%,
1/1/16.............................................. 22,228
39,064 Federal National Mortgage Association, 12.500%,
9/1/15.............................................. 43,861
186,490 Federal National Mortgage Association, 12.500%,
1/1/16.............................................. 208,472
35,011 Federal National Mortgage Association, 13.000%,
11/1/14............................................. 39,456
12,117 Federal National Mortgage Association, 14.500%,
11/1/14............................................. 13,988
5,000,000 Government National Mortgage Association 7.500%, TBA. 4,943,750
109,180 Government National Mortgage Association 9.000%,
10/20/16............................................ 114,503
177,513 Government National Mortgage Association 9.000%,
12/15/16............................................ 185,455
300,000 Student Loan Marketing Association, 7.500%, 3/8/00... 300,688
-----------
38,856,388
-----------
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS U.S. GOVERNMENT SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
U.S. GOVERNMENT--6.9%
$ 600,000 U. S. Treasury Notes,
4.750%, 2/15/04..................................... $ 565,968
1,500,000 U. S. Treasury Notes,
5.250%, 5/15/04..................................... 1,437,272
1,500,000 U. S. Treasury Notes,
5.500%, 5/15/09..................................... 1,397,580
100,000 U. S. Treasury Bonds,
6.375%, 8/15/27..................................... 96,047
-----------
3,496,867
-----------
Total Bonds & Notes (Identified Cost $43,614,937)...... 42,353,255
-----------
</TABLE>
SHORT-TERM INVESTMENTS--59.2%
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$ 3,500,000 Consolidation Coal Co. 6.520%, 1/19/00............ $ 3,488,590
1,900,000 GATX Capital Corp., 6.470%, 1/19/00............... 1,893,854
2,100,000 Tennessee Gas Pipeline Co., 6.400%, 1/19/00....... 2,093,280
3,500,000 Tyco International, Inc., 6.520%, 1/19/00......... 3,488,590
3,500,000 USEC, Inc., 6.520%, 1/19/00....................... 3,488,590
11,000,000 Repurchase Agreement with J.P. Morgan & Co. dated
12/31/2000 at 2.9% to be repurchased at
$11,002,658 on 1/3/2000, collateralized by
$9,067,000 U.S. Treasury Bonds,9.000% due
11/15/2018 with a value of $11,219,959........... 11,000,000
4,740,000 Repurchase Agreement with State Street Corp. dated
12/31/1999 at 3.0% to be repurchased at
$4,741,185 on 1/3/2000, collateralized by
$3,890,000 U.S. Treasury Bonds, 8.875% due
8/15/17 with a value of $4,838,188............... 4,740,000
------------
Total Short-Term Investments (Identified Cost
$30,192,904)..................................... 30,192,904
------------
Total Investments--142.3%
(Identified Cost $73,807,841)(a)................. 72,546,159
Other assets less liabilities..................... (21,578,672)
------------
TOTAL NET ASSETS--100%............................ $ 50,967,487
============
</TABLE>
(a) Federal Tax Information:
At December 31, 1999 the net unrealized depreciation on investments based on
cost of $73,815,231 for federal income tax purposes was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost............... $ 1,667
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value............... (1,270,739)
-----------
Net unrealized depreciation.................................... $(1,269,072)
===========
</TABLE>
For Federal income tax purposes, the Series has a capital loss carryforward
at December 31, 1999 of approximately $1,110,000 which will expire in 2007.
Accordingly, no capital gain distributions are expected to be paid to
shareholders until net gains have been realized in excess of such amount.
See accompanying notes to financial statements.
28
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS U.S. GOVERNMENT SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................. $56,806,159
Investments in repurchase agreements at cost......... 15,740,000
-----------
Total investments.................................... 72,546,159
Cash................................................. 625
Receivable for:
Fund shares sold..................................... 273,935
Accrued interest..................................... 270,248
-----------
Total Assets......................................... 73,090,967
LIABILITIES
Payable for:
Fund shares redeemed................................. $ 202,104
Securities purchased................................. 21,864,897
Accrued expenses:
Management fees...................................... 27,542
Deferred trustees fees............................... 4,108
Other expenses....................................... 24,829
-----------
Total Liabilities.................................... 22,123,480
-----------
NET ASSETS............................................ $50,967,487
===========
Net assets consist of:
Capital paid in...................................... $53,370,933
Overdistributed net investment income................ (2,294)
Accumulated net realized gains (losses).............. (1,139,470)
Unrealized appreciation (depreciation) on investments
and foreign currency................................ (1,261,682)
-----------
NET ASSETS............................................ $50,967,487
===========
Computation of offering price:
Net asset value and redemption price per share
($50,967,487 divided by 4,716,576 shares of
beneficial interest)................................. $ 10.81
-----------
Identified cost of investments....................... $73,807,841
===========
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest............................................... $ 3,241,603(a)
-----------
EXPENSES
Management fees........................................ $270,607
Trustees' fees and expenses............................ 9,613
Custodian.............................................. 39,405
Audit and tax services................................. 18,084
Legal.................................................. 2,606
Printing............................................... 5,545
Amortization of organization expense................... 1,678
Insurance.............................................. 1,018
Miscellaneous.......................................... 3,452
--------
Total expenses....................................... 352,008
Less expenses assumed by the investment adviser...... (7,595) 344,413
-------- -----------
NET INVESTMENT INCOME................................... 2,897,190
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net....................................... (1,147,477)
Unrealized appreciation (depreciation) on:
Investments--net....................................... (1,664,506)
-----------
Net gain (loss)......................................... (2,811,983)
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS... $ 85,207
===========
</TABLE>
(a) Net of interest expense of $6,150.
See accompanying notes to financial statements.
29
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS U.S. GOVERNMENT SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................... $ 2,897,190 $ 1,753,711
Net realized gain (loss)............................ (1,147,477) 273,855
Unrealized appreciation (depreciation).............. (1,664,506) 196,244
----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS... 85,207 2,223,810
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income............................... (2,904,887) (1,671,941)
Net realized gain................................... (109,221) (240,092)
----------- -----------
TOTAL DISTRIBUTIONS................................. (3,014,108) (1,912,033)
----------- -----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares........................ 25,884,708 35,229,571
Reinvestment of distributions....................... 3,014,108 1,912,033
Cost of shares redeemed............................. (20,808,995) (13,790,161)
----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS....................................... 8,089,821 23,351,443
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS............. 5,160,920 23,663,220
NET ASSETS
Beginning of the year............................... 45,806,567 22,143,347
----------- -----------
End of the year..................................... $50,967,487 $45,806,567
=========== ===========
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME
End of the year..................................... $ (2,294) $ 16,486
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares...................... 2,268,282 3,026,984
Issued in reinvestment of distributions............. 277,968 167,118
Redeemed............................................ (1,822,836) (1,189,557)
----------- -----------
Net Change.......................................... 723,414 2,004,545
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year. $ 11.47 $ 11.14 $ 10.83 $ 11.04 $ 9.96
------- ------- ------- ------- ------
Income From Investment Operations
Net Investment Income............. 0.65 0.47 0.53 0.58 0.33
Net Realized and Unrealized Gain
(Loss) on Investments............ (0.62) 0.37 0.40 (0.21) 1.16
------- ------- ------- ------- ------
Total From Investment operations.. 0.03 0.84 0.93 0.37 1.49
------- ------- ------- ------- ------
Less Distributions
Distributions From Net Investment
Income........................... (0.66) (0.45) (0.53) (0.56) (0.33)
Distributions From Net Realized
Capital Gains.................... (0.03) (0.06) (0.05) (0.02) (0.08)
Distributions in Excess of Net
Realized Capital Gains........... 0.00 0.00 (0.04) 0.00 0.00
------- ------- ------- ------- ------
Total Distributions............... (0.69) (0.51) (0.62) (0.58) (0.41)
------- ------- ------- ------- ------
Net Asset Value, End of Year....... $ 10.81 $ 11.47 $ 11.14 $ 10.83 $11.04
======= ======= ======= ======= ======
TOTAL RETURN (%)................... 0.2 7.5 8.6 3.3 15.0
Ratio of Operating Expenses to
Average Net Assets (%)............ 0.70 0.70 0.70 0.70 0.70
Ratio of Net Investment Income to
Average Net Assets (%)............ 5.89 5.70 6.42 6.13 5.62
Portfolio Turnover Rate (%)........ 530 496 572 388 415
Net Assets, End of Year (000)...... $50,967 $45,807 $22,143 $13,211 $7,542
The ratios of operating expenses to
average net assets without giving
effect to the voluntary expense
agreement described in Note 4 to
the Financial Statements would
have been (%)..................... 0.72 0.77 0.98 1.37 2.90
</TABLE>
See accompanying notes to financial statements.
30
<PAGE>
BACK BAY ADVISORS MANAGED SERIES
PORTFOLIO MANAGER: PETER W. PALFREY, CFA BACK BAY ADVISORS, L.P.
[PHOTO OF PETER PALFREY APPEARS HERE]
Q. HOW DID THE SERIES PERFORM DURING THE PAST TWELVE MONTHS RELATIVE TO ITS
INDEX AND RELATIVE TO ITS PEERS?
A. The Series performed below its peer group average for the year ending Decem-
ber 31, 1999, returning 10.0% versus 12.0% for the Lipper Variable Product
Flexible Fund Average,/8/ placing the Series in the 55th percentile. The Series
also underperformed compared to an unmanaged index of 65% S&P 500 Index and 35%
Lehman Government/Corporate Bond Index,/3/ which returned 12.5%. This
underperformance reflected the significant underperformance of the stock por-
tion of the portfolio relative to the S&P 500 Index./25/ In particular, the low
P/E holdings, which comprise 20% of the stock portfolio, were only marginally
positive for the year, in marked contrast to the 20% plus returns recorded in
the broader market, as investors continued to shun "value" situations and favor
"growth" situations. However, the Series remains well ahead of its peers on a
3-year and 5-year basis, with annualized returns of 18.5% and 20.3%, respec-
tively, versus 15.3% and 17.1%, respectively, for its peer group.
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST TWELVE
MONTHS.
A. As liquidity returned to the fixed income and equity markets late in 1998,
the "flight to quality" dissipated, causing Treasury bond yields to rise
sharply through year-end 1998 and into 1999. Mitigating the negative effect of
this sharp rise in interest rates in the government market was a significant
shift in investor appetite back towards "riskier" assets, including equities
and fixed income spread products. This translated into robust equity returns
and a significant tightening of fixed income spread products during the first
five months of 1999.
However, market conditions subsequently deteriorated. As it became clear that
most overseas economies and the U.S. had weathered the Russian default-inspired
liquidity crisis of last fall (and were well on their way towards a sustainable
rebound), investor attention shifted to the threat of tighter Federal Reserve
monetary policy. Rising commodity prices, tight U.S. labor markets, sustained
consumer spending, and lofty equity market valuations subsequently prompted the
Federal Reserve to raise short-term interest rates on three separate occasions
in a preemptive bid to keep consumer prices in check. Equity markets corrected
sharply through mid-October, mirroring the precipitous decline in bond values.
As liquidity and Y2K concerns started to abate in late fall, investors rushed
back to U.S. (and global) equity markets, pushing the averages sharply higher
as it neared year-end. While fixed income spread markets managed to recover a
portion of the ground lost during the summer months, U.S. Treasury yields con-
tinued their ascent later in the year, as investors debated the likelihood of
additional Federal Reserve monetary tightening in response to the increased
threat of inflation.
Q. GIVEN THIS ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY? WHAT CHANGES DID
YOU MAKE SINCE THE START OF THE YEAR?
A. The stock/bond allocation was managed within plus or minus 2% of the Series'
neutral allocation of 65% stocks/35% bonds throughout 1999. While stocks re-
mained "fully" valued by most historical measures, including P/E's versus pro-
jected earnings growth, price to book, and E/P to the 10-yr bond yield, funda-
mentals remained strong with year-over-year S&P 500 Index earnings growth esti-
mated above 15% for 2000 and 2001. Market technicals also remained strong, with
investors favoring equity assets over fixed income assets by significant mar-
gins--a trend precipitated by the last bond bear market in 1994. 80% of the
stock portfolio was managed to substantially replicate the S&P 500, with the
remaining 20% of the stock portfolio managed under a low P/E strategy.
The bond portfolio was managed with a heavy emphasis on spread product over
Treasuries, including corporates, Yankees, and non-dollar securities. In par-
ticular, the portfolio included significant allocations to sectors that would
benefit from a strong U.S. and global economy. Allocations to cable, telecom,
energy, and forest product companies, as well as to commodity-rich (more cycli-
cal) countries like Canada and Australia were central to the "global re-infla-
tion" theme of the fixed income strategy. This allowed the fixed income portfo-
lio to significantly outperform the broader bond market, despite being long du-
ration in a rising rate environment.
Q. WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE (ON BOTH AN
ABSOLUTE AND RELATIVE BASIS) DURING THE TWELVE MONTHS? WHAT INVESTMENT
DECISIONS WERE MOST EFFECTIVE AND WHICH ONES WERE LEAST EFFECTIVE?
A. The portfolio's equity core holdings performed in line with the broader mar-
ket. However, the portfolio's low P/E holdings
31
<PAGE>
significantly underperformed the broader market, negatively impacting overall
performance. The Series 65% weighting to equities was a modest positive (ver-
sus the average balanced fund allocation of 60%) given the 10% outperformance
of the stock versus bond portfolio for the year. Within the fixed income port-
folio, the fund's non-dollar and emerging market holdings were a significant
boost to performance, turning in a strong relative and absolute performance
for the year. The bond portfolio's longer than Index duration was a positive,
despite upward trending U.S. Treasury rates, as other long duration spread
product held tightened more than benchmark Treasury rates increased.
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT SIX
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO THE WAY YOU MANAGE YOUR
PORTFOLIO?
A. We believe that economic activity in the U.S. will be stronger in the first
half of 2000 than in the second half. With the U.S. economy currently showing
no sign of moderating, and year-end/Y2K related concerns now behind us, the
Federal Reserve is likely to tighten policy in February and perhaps again in
March, as necessary, in its bid to rein in U.S. economic growth closer to its
long term potential of 3-3 1/2 percent. Because monetary tightening works with
a lagged effect, a sustainable slowdown in U.S. economic activity is likely to
take some time to manifest itself, becoming more evident later in the year of
2000.
During the first half of 2000, equity markets will likely play a tug of war
between strong earnings growth expectations, and the increasing threat of ad-
ditional Federal Reserve tightening and higher interest rates. We are main-
taining a neutral allocation to equities, but remain ready to decrease the al-
location to stocks, should signs of declining U.S. economic activity start to
materialize. Similarly, the bond portfolio will remain overweight to the
spread sector, but will increase Treasury and Mortgage exposure should the
U.S. economy come under significant downward economic pressure.
A $10,000 Investment Compared to the S&P 500 and Lehman Brothers
Government/Corporate Indices for the past 10 years
[GRAPH]
Managed Series Lehman Government Corp. S&P 500
12/31/89 10,000 10,000 10,000
12/90 10,322 10,828 9,682
12/91 12,404 12,575 12,642
12/92 13,236 13,528 13,614
12/93 14,647 15,020 14,974
12/94 14,485 14,493 15,166
12/95 19,017 17,282 20,851
12/96 21,875 17,784 25,663
12/97 27,681 19,519 34,191
12/98 33,128 21,368 44,021
12/31/99 36,426 20,909 53,256
Average Annual Total Returns
Lipper Variable
Lehman Flexible Portfolio
Managed Series S&P 500 Government/Corp. Fund Average
1 year 10.0% 21.0% -2.2% 12.0%
3 years 18.5 27.6 5.5 15.3
5 years 20.3 28.6 7.6 17.1
10 years 13.8 18.2 7.7 13.0
Since Inception 13.0 16.8 8.0 n/a
[checkmark] FUND FACTS
GOAL: A favorable total return through investment in a diversified portfolio.
The Series' portfolio is expected to include a mix of common stocks and fixed
income securities.
START DATE: March 30, 1987
SIZE: $219 million as of December 31, 1999
MANAGER: Peter Palfrey has managed the Series since January 1994 and joined
Back Bay Advisors in 1993. Mr. Palfrey also manages Bond Income Series and
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.
32
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--65.1% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
AEROSPACE--0.4%
11,276 Boeing Co. .............................................. $ 468,659
10,800 Lockheed Martin Corp. ................................... 236,250
1,900 Rockwell International Corp. ............................ 90,963
------------
795,872
------------
AIR TRANSPORTATION--0.3%
4,700 AMR Corp.(b)............................................. 314,900
10,400 FDX Corp.(b)............................................. 425,750
------------
740,650
------------
AUTOMOBILE & RELATED--1.0%
16,300 Cooper Tire & Rubber Co. ................................ 253,669
4,892 Delphi Automotive Systems Corp. ......................... 77,049
21,500 Ford Motor Co. .......................................... 1,148,906
7,000 General Motors Corp. .................................... 508,812
------------
1,988,436
------------
BANKS--4.8%
12,900 AmSouth Bancorporation................................... 249,131
25,589 Bank of America Corp. ................................... 1,284,248
15,100 Bank of New York Co., Inc. .............................. 604,000
12,440 Bank One Corp. .......................................... 398,858
9,000 Chase Manhattan Corp. ................................... 699,188
35,466 Citigroup, Inc. ......................................... 1,970,580
5,000 Comerica, Inc. .......................................... 233,437
10,500 First Union Corp. ....................................... 344,531
19,400 FleetBoston Financial Corp. ............................. 675,362
8,400 Golden West Financial Corp. ............................. 281,400
4,800 J.P. Morgan & Co., Inc. ................................. 607,800
8,500 KeyCorp.................................................. 188,062
16,000 National City Corp. ..................................... 379,000
5,500 PNC Bank Corp. .......................................... 244,750
5,000 Republic New York Corp. ................................. 360,000
7,100 Summit Bancorp........................................... 217,438
15,900 U.S. Bancorp............................................. 378,619
23,000 Washington Mutual, Inc. ................................. 598,000
17,200 Wells Fargo & Co. ....................................... 695,525
------------
10,409,929
------------
BUSINESS MACHINES--2.5%
26,838 Compaq Computer Corp. ................................... 726,303
31,000 Dell Computer Corp.(b)................................... 1,581,000
29,700 International Business Machines Corp..................... 3,207,600
------------
5,514,903
------------
BUSINESS SERVICES--0.9%
19,400 America Online, Inc.(b).................................. 1,463,488
9,200 Ceridian Corp.(b)........................................ 198,375
9,200 H & R Block, Inc. ....................................... 402,500
------------
2,064,363
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
CHEMICALS--1.2%
15,100 E.I. Du Pont de Nemours & Co. ........................... $ 994,712
5,500 Great Lakes Chemical Corp. .............................. 210,031
15,200 Pitney Bowes, Inc. ...................................... 734,350
11,600 Monsanto Co. ............................................ 413,250
5,100 Union Carbide Corp. ..................................... 340,425
------------
2,692,768
------------
COMMUNICATION--7.0%
42,076 AT&T Corp. .............................................. 2,135,357
22,424 Bell Atlantic Corp. ..................................... 1,380,478
18,800 BellSouth Corp. ......................................... 880,075
14,400 GTE Corp. ............................................... 1,016,100
32,550 MCI Worldcom, Inc.(b).................................... 1,727,184
32,960 SBC Communications, Inc. ................................ 1,606,800
8,600 Sprint Corp. ............................................ 578,888
7,100 U S West, Inc. .......................................... 511,200
35,336 Lucent Technologies, Inc. ............................... 2,643,575
13,200 Nortel Networks Corp. ................................... 1,333,200
8,800 Qualcomm, Inc.(b)........................................ 1,549,900
------------
15,362,757
------------
COMPUTERS & BUSINESS EQUIPMENT--2.8%
4,900 Adobe Systems, Inc. ..................................... 329,525
32,400 Cisco Systems, Inc.(b)................................... 3,470,850
10,600 EMC Corp.(b)............................................. 1,158,050
16,000 Sun Microsystems, Inc.(b)................................ 1,239,000
------------
6,197,425
------------
CONGLOMERATES--0.2%
6,200 Minnesota Mining & Manufactoring Co. .................... 606,825
------------
CONSTRUCTION--1.0%
27,000 Home Depot, Inc. ........................................ 1,851,187
10,900 Masco Corp. ............................................. 276,588
------------
2,127,775
------------
CONSUMER DURABLES--2.4%
30,800 General Electric Co. .................................... 4,766,300
6,900 Whirlpool Corp. ......................................... 448,931
------------
5,215,231
------------
CONTAINERS--0.1%
8,000 Bemis Co. ............................................... 279,000
------------
CONTAINERS & PACKAGING--0.0%
6,200 Pactiv Corp.(b).......................................... 65,875
------------
</TABLE>
See accompanying notes to financial statements.
33
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
DATA PROCESSING--5.3%
12,900 Automatic Data Processing, Inc........................... $ 694,988
39,900 Intel Corp. ............................................. 3,284,269
50,800 Microsoft Corp.(b)....................................... 5,930,900
15,525 Oracle Corp.(b).......................................... 1,739,770
------------
11,649,927
------------
DOMESTIC OIL--1.1%
4,300 Amerada Hess Corp. ...................................... 244,025
5,400 Atlantic Richfield Co. .................................. 467,100
10,300 Chevron Corp. ........................................... 892,238
7,200 Halliburton Co. ......................................... 289,800
15,600 Unocal Corp. ............................................ 523,575
------------
2,416,738
------------
DRUGS & MEDICINE--4.1%
17,600 Abbott Laboratories...................................... 639,100
16,100 American Home Products Corp. ............................ 634,944
12,800 Bausch & Lomb, Inc. ..................................... 876,000
7,600 Baxter International, Inc. .............................. 477,375
9,600 Becton, Dickinson & Co. ................................. 256,800
8,500 C.R. Bard, Inc. ......................................... 450,500
15,800 Eli Lilly & Co. ......................................... 1,050,700
27,400 Merck & Co., Inc ........................................ 1,837,513
41,400 Pfizer, Inc. ............................................ 1,342,913
18,400 Schering-Plough Corp. ................................... 776,250
8,700 Warner-Lambert Co. ...................................... 712,856
------------
9,054,951
------------
ELECTRONICS--3.6%
6,100 Applied Materials, Inc.(b)............................... 772,794
9,200 Emerson Electric Co. .................................... 527,850
15,600 Hewlett-Packard Co. ..................................... 1,777,425
4,500 Honeywell International, Inc. ........................... 259,594
8,000 Motorola, Inc. .......................................... 1,178,000
20,900 PerkinElmer, Inc. ....................................... 871,269
15,400 Raytheon Co., Class B.................................... 409,063
10,200 Scientific-Atlanta, Inc. ................................ 567,375
14,400 Tektronix, Inc. ......................................... 559,800
10,800 Texas Instruments, Inc. ................................. 1,046,250
------------
7,969,420
------------
ENERGY & UTILITIES--1.3%
11,700 Consolidated Edison, Inc. ............................... 403,650
19,200 Edison International..................................... 502,800
8,000 GPU, Inc. ............................................... 239,500
10,700 PECO Energy Co. ......................................... 371,825
22,000 PG&E Corp. .............................................. 451,000
7,700 Public Service Enterprise Group, Inc. ................... 268,056
8,900 Texas Utilities Co. ..................................... 316,506
10,600 Unicom Corp. ............................................ 355,100
------------
2,908,437
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
ENERGY RAW MATERIALS--0.3%
27,200 Occidental Petroleum Corp. .............................. $ 588,200
------------
FINANCE--2.2%
4,800 American Express Co. .................................... 798,000
6,405 Bear Stearns Companies, Inc. ............................ 273,814
13,600 Charles Schwab Corp. .................................... 521,900
6,900 Countrywide Credit Industries, Inc. ..................... 174,225
9,000 Federal Home Loan Mortgage Corp. ........................ 423,562
11,000 Federal National Mortgage Association.................... 686,812
4,700 Lehman Brothers Holdings, Inc. .......................... 398,031
6,500 Merrill Lynch & Co., Inc. ............................... 542,750
6,100 Morgan Stanley Dean Witter & Co. ........................ 870,775
6,300 SLM Holding Corp. ....................................... 266,175
------------
4,956,044
------------
FOOD & AGRICULTURE--2.1%
26,200 Coca-Cola Co. ........................................... 1,526,150
20,450 H.J. Heinz Co. .......................................... 814,166
15,600 PepsiCo, Inc. ........................................... 549,900
10,200 Ralston Purina Co. ...................................... 284,325
32,000 Sara Lee Corp. .......................................... 706,000
30,400 Supervalu, Inc. ......................................... 608,000
------------
4,488,541
------------
GAS UTILITIES--0.4%
7,100 Eastern Enterprises...................................... 407,806
14,500 Enron Corp. ............................................. 643,437
------------
1,051,243
------------
HEALTH CARE--0.2%
15,464 Tyco International, Ltd. ................................ 601,163
------------
HOTELS & RESTAURANTS--0.3%
18,200 Hilton Hotels Corp. ..................................... 175,175
14,200 McDonald's Corp. ........................................ 572,438
------------
747,613
------------
HOUSEHOLD PRODUCTS--0.1%
8,000 American Greetings Corp. ................................ 189,000
------------
INDUSTRIAL PARTS & MACHINERY--0.6%
11,100 Caterpillar, Inc. ....................................... 522,394
13,600 Crane Co. ............................................... 270,300
8,500 Deere & Co. ............................................. 368,687
8,800 National Service Industries, Inc. ....................... 259,600
------------
1,420,981
------------
</TABLE>
See accompanying notes to financial statements.
34
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
INSURANCE--2.0%
17,200 Allstate Corp. .......................................... $ 412,800
14,400 American General Corp. .................................. 1,092,600
18,191 American International Group, Inc. ...................... 1,966,902
8,100 CIGNA Corp. ............................................. 652,556
4,600 Loews Corp. ............................................. 279,162
------------
4,404,020
------------
INTERNATIONAL OIL--2.3%
40,857 Exxon Mobil Corp. ....................................... 3,291,542
22,800 Royal Dutch Petroleum Co. (ADR).......................... 1,377,975
9,600 Texaco, Inc. ............................................ 521,400
------------
5,190,917
------------
INTERNET SERVICES--0.4%
2,500 Yahoo!, Inc.(b).......................................... 1,081,719
------------
LEISURE--0.5%
22,200 Brunswick Corp. ......................................... 493,950
13,600 Carnival Corp. .......................................... 650,250
------------
1,144,200
------------
LIQUOR--0.2%
6,600 Anheuser-Busch Companies, Inc. .......................... 467,775
------------
MEDIA--1.7%
13,800 CBS Corp.(b)............................................. 882,338
6,000 Gannett Company, Inc. ................................... 489,375
9,700 MediaOne Group, Inc.(b).................................. 745,081
13,100 Time Warner, Inc. ....................................... 948,931
12,400 Viacom, Inc., Class B(b)................................. 749,425
------------
3,815,150
------------
MISCELLANEOUS--1.0%
20,000 IMS Health, Inc. ........................................ 543,750
10,600 Milacron, Inc. .......................................... 162,975
7,600 Nacco Industries, Inc. .................................. 422,275
------------
1,129,000
------------
NON-FERROUS METALS--1.0%
7,926 Newmont Mining Corp. .................................... 194,187
13,800 Alcoa, Inc. ............................................. 1,145,400
------------
1,339,587
------------
OFFICE EQUIPMENT--0.1%
16,800 Xerox Corp. ............................................. 381,150
------------
OPTICAL PHOTO EQUIPMENT--0.2%
7,600 Eastman Kodak Co. ....................................... 503,500
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
PAPER & FOREST PRODUCTS--1.0%
14,200 Georgia Pacific Corp. ................................... $ 720,650
9,100 Kimberly-Clark Corp. .................................... 593,775
8,400 Westvaco Corp. .......................................... 274,050
------------
1,588,475
------------
POLLUTION CONTROL--0.1%
6,887 Waste Management, Inc. .................................. 118,370
------------
PUBLISHING--0.1%
6,000 Knight-Ridder, Inc. ..................................... 357,000
------------
RAILROADS & SHIPPING--0.3%
9,900 Burlington Northern Santa Fe............................. 240,075
5,100 CSX Corp. ............................................... 160,012
13,500 Norfolk Southern Corp. .................................. 276,750
------------
676,837
------------
RETAIL--3.6%
19,000 Albertson's, Inc. ....................................... 612,750
12,100 Gap, Inc. ............................................... 556,600
12,200 J.C. Penney Co., Inc. ................................... 243,238
38,900 Kmart Corp. ............................................. 391,431
7,100 Limited, Inc. ........................................... 307,519
8,100 Longs Drug Stores Corp. ................................. 209,081
26,400 Mattel, Inc. ............................................ 346,500
26,900 May Department Stores Co. ............................... 867,525
15,900 Sears, Roebuck & Co. .................................... 483,956
30,000 Walgreen Co. ............................................ 877,500
44,300 Wal-Mart Stores, Inc. ................................... 3,062,238
------------
7,958,338
------------
SOAPS & COSMETICS--3.2%
20,100 Alberto-Culver Co., Class B.............................. 518,831
39,240 Bristol-Myers Squibb Co. ................................ 2,518,718
18,000 Gillete Co. ............................................. 741,375
6,600 International Flavours & Fragrances, Inc. ............... 249,150
16,500 Johnson & Johnson........................................ 1,536,562
14,100 Procter & Gamble Co. .................................... 1,544,831
------------
7,109,467
------------
STEEL--0.1%
11,520 USX-U.S. Steel Group..................................... 380,160
------------
TELECOMMUNICATIONS--0.5%
22,755 Global Crossing, Ltd.(b)................................. 1,137,750
------------
TOBACCO--0.4%
25,900 Philip Morris Companies, Inc. ........................... 600,557
10,000 UST, Inc. ............................................... 251,875
------------
852,432
------------
</TABLE>
See accompanying notes to financial statements.
35
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
TRAVEL & RECREATION--0.2%
21,805 The Walt Disney Co. ............................... $ 637,796
------------
Total Common Stocks
(Identified Cost $79,534,433)..................... 142,377,710
------------
BONDS & NOTES--33.7%
<CAPTION>
FACE
AMOUNT
<C> <S> <C>
AEROSPACE/DEFENSE--0.2%
$ 280,000 Lockheed Martin Corp., 8.200%, 12/1/09............. 279,403
220,000 Lockheed Martin Corp., 8.500%, 12/1/29............. 220,208
------------
499,611
------------
BUILDING MATERIALS--0.5%
1,000,000 Cemex SA, 9.625%, 10/1/09, 144A.................... 1,010,000
------------
ELECTRIC UTILITIES--0.1%
250,000 CE Generation, Llc., 7.416%, 12/15/18, 144A........ 230,382
------------
FEDERAL AGENCIES--0.2%
174,682 Government National Mortgage Association, 11.500%,
with various maturities to 2013................... 192,944
164,856 Government National Mortgage Association, 10.000%,
9/15/2018......................................... 177,643
------------
370,587
------------
FOREIGN--9.1%
6,000,000 European Investment Bank, 6.00%, 7/15/05 (AUD)..... 3,750,716
5,000,000 Government of Canada, Zero Coupon, 3/15/21 (CAD)... 894,008
15,000,000 Government of Canada, Zero Coupon, 6/1/25 (CAD).... 2,168,895
1,300,000 Kappa Beheer BV, 10.625%, 7/20/09 144A (EUR)....... 1,378,306
3,000,000 Province of Ontario, 8.100%, 9/8/23 (CAD).......... 2,405,528
30,000,000 Province of Ontario, Zero Coupon, 9/8/23 (CAD)..... 4,323,034
15,000,000 Province of Quebec Stripped, Zero Coupon, 1/16/23
(CAD)............................................. 2,129,927
3,600,000 Province of Quebec, 8.500%, 4/1/26 (CAD)........... 2,968,585
------------
20,018,999
------------
</TABLE>
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
MEDIA & ENTERTAINMENT--1.8%
$ 1,000,000 CSC Holdings, Inc., 7.875%, 12/15/07............... $ 988,074
2,000,000 CSC Holdings, Inc., 7.875%, 12/15/18............... 1,906,445
1,000,000 News America Holdings, Inc., 10.125%, 10/15/12..... 1,098,521
------------
3,993,040
------------
RETAIL--2.1%
4,285,000 Great Atlantic & Pacific Tea, Inc., 7.750%,
4/15/07........................................... 3,921,563
Rite Aid Corp.,
550,000 7.125%, 1/15/07................................... 407,000
Rite Aid Corp.,
300,000 7.700%, 2/15/27................................... 216,000
------------
4,544,563
------------
TELECOMMUNICATIONS--2.7%
1,000,000 KPNQwest BV,
7.125%, 6/1/09 (EUR).............................. 980,655
5,000,000 MCI Communications Corp., 7.125%, 6/15/27.......... 4,998,942
------------
5,979,597
------------
TRANSPORTATION--1.2%
2,750,000 Norfolk Southern Corp., 7.050%, 5/1/37............. 2,703,628
------------
U.S. GOVERNMENT--0.8%
2,000,000 U.S. Treasury Bonds,
5.25%, 2/15/29.................................... 1,653,740
------------
YANKEE--15.0%
2,000,000 Endesa SA,
8.500%, 4/1/09.................................... 1,981,978
1,700,000 Kappa Beheer BV, 10.625%, 7/15/09, 144A............ 1,778,625
3,000,000 Kimberly-Clark de Mexico, SA, 8.875%, 8/1/09, 144A. 3,056,645
2,000,000 Multicanal SA,
13.125%, 4/15/09.................................. 1,980,000
3,250,000 NatSteel Electronics, Ltd., 1.500%, 6/30/04, 144A.. 3,904,063
500,000 PDVSA Finance, Ltd., 6.650%, 2/15/06............... 425,101
1,250,000 PDVSA Finance, Ltd., 8.875%, 2/15/04, 144A......... 1,219,710
1,500,000 Pemex Finance, Ltd., 9.150%, 11/15/18.............. 1,485,000
2,000,000 Pemex Petroleos Mexicanos, 9.500%, 9/15/27......... 1,965,000
</TABLE>
See accompanying notes to financial statements.
36
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
YANKEE--(CONTINUED)
$ 925,000 Pindo Deli Finance Mauritius, Ltd., 10.750%,
10/1/07........................................... $ 675,250
2,000,000 Republic of Colombia, 9.750%, 4/23/09.............. 1,910,000
3,000,000 Republic of Korea,
8.875%, 4/15/08................................... 3,157,921
6,008,000 Republic of Panama, 8.875%, 9/30/27................ 5,076,760
500,000 Republic of Panama,
9.375%, 4/1/29.................................... 473,125
2,000,000 Total Access Communication Public,
8.375%, 11/4/06, 144A............................. 1,537,914
2,000,000 YPF Sociadad Anonima, 9.125%, 2/24/09.............. 2,068,970
------------
32,696,062
------------
Total Bonds & Notes (Identified Cost $73,676,225).. 73,700,209
------------
WARRANTS--0.0%
<CAPTION>
SHARES
<C> <S> <C>
RIGHTS/WARRANTS
5,500 Republic of Argentina.............................. $ 742
1,550 Republic of Argentina.............................. 21,118
------------
21,860
------------
Total Warrants (Identified Cost $166,344).......... 21,860
------------
</TABLE>
SHORT-TERM INVESTMENT--1.0%
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$2,270,000 Household Finance Corp., 4.000%, 1/3/00............ $ 2,269,496
------------
Total Short-Term Investment
(Identified Cost $2,269,496)........................ 2,269,496
------------
Total Investments--99.8%
(Identified Cost $155,646,498)(a)................... 218,369,275
Other assets less liabilities...................... 511,470
------------
TOTAL NET ASSETS--100%............................. $218,880,745
============
(a) Federal Tax Information:
At December 31, 1999 the net unrealized appreciation on investments based on
cost of $155,646,498 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.......... $ 71,735,140
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value.......... (9,012,363)
------------
Net unrealized appreciation.................................. $ 62,722,777
============
</TABLE>
(b) Non-income producing security.
Key to Abbreviations:
AUD-- Australian Dollar
CAD-- Canadian Dollar
EUR-- Euro Currency
144A--Securities 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. At the period
end, the value of these securities amounted to $14,115,645 or 6.4% of
net assets.
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the
right to receive securities of the foreign issuer described. The
value of ADRs and GDRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
See accompanying notes to financial statements.
37
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................ $218,369,275
Cash................................................ 964,146
Receivable for:
Fund shares sold.................................... 209,807
Dividends and interest.............................. 1,524,753
------------
Total Assets....................................... 221,067,981
LIABILITIES
Payable for:
Fund shares redeemed................................ $ 289,871
Securities purchased................................ 1,704,606
Withholding taxes................................... 10,627
Accrued expenses:
Management fees..................................... 91,468
Deferred trustees fees.............................. 61,478
Other expenses...................................... 29,186
----------
Total Liabilities.................................. 2,187,236
------------
NET ASSETS........................................... $218,880,745
============
Net assets consist of:
Capital paid in..................................... $151,674,503
Overdistributed net investment income............... (7,473)
Accumulated net realized gains (losses)............. 4,488,574
Unrealized appreciation (depreciation) on
investments and foreign currency................... 62,725,141
------------
NET ASSETS........................................... $218,880,745
============
Computation of offering price:
Net asset value and redemption price per share
($218,880,745 divided by 1,112,100 shares of
beneficial interest)................................ $ 196.82
============
Identified cost of investments....................... $155,646,498
============
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends...................................... $ 2,077,629(a)
Interest....................................... 6,028,695
------------
8,106,324
EXPENSES
Management fees................................ $ 1,083,736
Trustees' fees and expenses.................... 19,744
Custodian...................................... 92,612
Audit and tax services......................... 15,543
Legal.......................................... 12,507
Printing....................................... 34,098
Insurance...................................... 4,977
Miscellaneous.................................. 3,994
------------
Total Expenses................................ 1,267,211
------------
NET INVESTMENT INCOME........................... 6,839,113
------------
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net............................... 24,765,358
Foreign currency transactions--net............. (220,409) 24,544,949
------------
Unrealized appreciation (depreciation) on:
Investments--net............................... (10,965,559)
Foreign currency translation--net.............. 2,364 (10,963,195)
------------ ------------
Net gain (loss)................................. 13,581,754
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS..................................... $ 20,420,867
============
</TABLE>
(a) Net of foreign taxes of $28,674
See accompanying notes to financial statements.
38
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................. $ 6,839,113 $ 6,318,249
Net realized gain (loss).......................... 24,544,949 11,371,308
Unrealized appreciation (depreciation)............ (10,963,195) 18,240,693
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS. 20,420,867 35,930,250
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income............................. (6,667,691) (6,267,551)
Net realized gain................................. (24,078,071) (12,208,852)
------------ ------------
TOTAL DISTRIBUTIONS............................... (30,745,762) (18,476,403)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares...................... 35,751,814 28,307,821
Reinvestment of distributions..................... 30,745,762 18,476,403
Cost of shares redeemed........................... (50,931,129) (39,381,579)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS............................... 15,566,447 7,402,645
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........... 5,241,552 24,856,492
NET ASSETS
Beginning of the year............................. 213,639,193 188,782,701
------------ ------------
End of the year................................... $218,880,745 $213,639,193
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT
INCOME
End of the year................................... $ (7,473) $ 9,035
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 165,739 137,877
Issued in reinvestment of distributions........... 155,035 88,585
Redeemed.......................................... (236,987) (192,507)
------------ ------------
Net Change........................................ 83,787 33,955
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year........................ $ 207.76 $ 189.85 $ 170.37 $ 163.52 $ 130.30
-------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment Income....... 6.98 6.56 6.38 6.43 6.34
Net Realized and Unrealized
Gain (Loss) on Investments. 13.48 30.50 38.47 18.21 34.33
-------- -------- -------- -------- --------
Total From Investment
Operations................. 20.46 37.06 44.85 24.64 40.67
-------- -------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income.......... (6.83) (6.51) (6.42) (6.34) (6.34)
Distributions in Excess of
Net Investment Income...... 0.00 0.00 0.00 0.00 (0.23)
Distributions From Net
Realized Capital Gains..... (24.57) (12.64) (18.95) (11.45) (0.88)
-------- -------- -------- -------- --------
Total Distributions......... (31.40) (19.15) (25.37) (17.79) (7.45)
-------- -------- -------- -------- --------
Net Asset Value, End of Year. $ 196.82 $ 207.76 $ 189.85 $ 170.37 $ 163.52
======== ======== ======== ======== ========
TOTAL RETURN (%)............. 10.0 19.7 26.6 15.0 31.3
Ratio of Operating Expenses
to Average Net Assets (%)... 0.58 0.58 0.61 0.62 0.64
Ratio of Net Investment
Income to Average Net Assets
(%)......................... 3.16 3.15 3.20 3.64 4.06
Portfolio Turnover Rate (%).. 49 25 65 72 51
Net Assets, End of Year
(000)....................... $218,881 $213,639 $188,783 $160,888 $147,536
</TABLE>
See accompanying notes to financial statements.
39
<PAGE>
LOOMIS SAYLES BALANCED SERIES
PORTFOLIO MANAGERS: TRICIA H. MILLS, TOM KOLEFAS AND JOHN HYLL
LOOMIS, SAYLES & COMPANY, L.P.
(PHOTO OF TRICIA MILLS APPEARS HERE)
(PHOTO OF TOM KOLEFAS APPEARS HERE)
(PHOTO OF JOHN HYLL APPEARS HERE)
Q. HOW DID THE SERIES PERFORM DURING THE PAST TWELVE MONTHS RELATIVE TO ITS
INDEX AND RELATIVE TO ITS PEER GROUP?
The Loomis Sayles Balanced Series underperformed its peers and the fixed-income
and equity benchmarks for each of its components. This came in an environment
of overall weakness for the value style and the bond market. The Series
returned -5.1% for the year compared to the 8.7% average return of the Lipper
Variable Product Balanced Fund./7/
The equity portion of the Balanced Series had a total return of -5.0% in 1999,
versus a +7.35% return for the Russell 1000 Value Index. The median Growth and
Income equity fund in the Lipper universe was up 6.81% in this same time
period. The fixed income portion of the Series returned -2.9% and
underperformed the Lehman Brothers Government/Corporate Index/3/ return of -
2.2% and its peer group during the year. Our longer duration during the first
half of the year and bulleted yield curve structure hurt performance.
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST TWELVE
MONTHS?
A. Interest rates rose in 1999 as the Federal Reserve Open Market Committee in-
creased the Fed Funds rate three times in 25 basis point increments, taking
away all of the easing they initiated in 1998. However, despite the rate on the
30-year Treasury moving from just over 5% to nearly 6.5% during 1999, the eq-
uity market still moved sharply ahead, with the S&P 500 Index finishing the
year with a total return of 21%. An estimated average operating earnings gain
of 15% for companies in the Index helped propel it upward. Enthusiasm for tech-
nology stocks in the final quarter of 1999 and their substantial weighting in
the S&P 500 Index (currently 29%) was also a factor in the market's strong
showing.
Leadership in the equity markets remained very narrow in 1999 and could be
characterized as technology-related, rather than large-cap and/or growth-
related as was the case in 1998. For example, of the top ten contributors to
the S&P 500 Index returns for the year, only three were NOT technology stocks
(Wal-Mart, General Electric and Home Depot).
In distant second place, well off the blistering pace set by technology and
internet-related stocks, was the Basic Materials sector, which likely
outperformed due to strong U.S. economic activity and the revival of many Asian
economies, which tended to firm up the prices and supply of several
commodities. Energy, Communication Services, and Capital Goods round out the
sectors that showed relative strength in the year. Given that the combined
weight of these stronger sectors amounts to less that 50% of the S&P 500 Index,
it is clear that many well-diversified portfolios had a high probability of
underperforming the benchmark. In fact, the median company in the smallest 450
stocks in the index actually declined 1.9% for the year.
For fixed income securities the story was that not only did the yield on the 30
year U.S. Treasury rise to 6.48% on 12/31/99 from 5.09% on 12/31/98, but that
the 10 year U.S. Treasury performed even worse, rising in yield by 1.78%.
During the year corporate securities generally outperformed Treasury securities
and mortgage securities performed the best. Lower quality corporates generally
performed better than higher quality issues.
Q. GIVEN THIS INVESTMENT ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY? WHAT
CHANGES DID YOU MAKE SINCE THE START OF THE YEAR?
A. The overall investment strategy of the Series remains little changed. We be-
lieve that value is present in both the fixed income markets and among specific
value stocks. Our equity investment strategy continues to focus on quality
value names where we believe the improving earnings outlook is not reflected in
the below-average valuation of the stock. Given evidence that the global econ-
omy had bottomed in the first quarter, earnings momentum for many of the Basic
Materials companies in our universe turned positive, while their stock prices
still appeared to reflect recessionary conditions. As a result, we added Dow
Chemical, Alcoa, International Paper, and Willamette to the Basic Materials ex-
posure in the Series; a similar rationale underlined our purchase of such Capi-
tal Goods stocks
40
<PAGE>
as Boeing, Emerson Electric, Caterpillar, and 3M. We took advantage of de-
pressed stock prices in the Energy area in the second quarter to add to the Se-
ries' weighting in anticipation of rising oil prices in an environment of ris-
ing global activity.
In the latter part of the year, the Series' commitment to Consumer Staples was
increased by the addition of Sara Lee, Kimberly Clark, and McDonald's to the
portfolio. It appeared to us that their stock prices failed to reflect their
likely near-term earnings improvement for company-specific reasons. In
addition, our confidence in their earnings growth outlook increased with the
mounting evidence of an economic recovery in Europe and Southeast Asia. We also
added Disney to the portfolio as the economics of their media properties
appeared to be improving with the current strength in national advertising
revenues.
Funds for increased exposure in the sectors just mentioned came predominantly
from the Consumer Cyclical sector. In light of rising interest rates and the
Federal Reserve Board's intention to slow the domestic economy, we believe
there is increased risk to the earnings outlook for 2000 for many of the
consumer companies in the portfolio. We pared back some holdings where the
valuations are still attractive though the upside has been reined in (e.g. Dana
Corp) and eliminated others (Masco, Dillards). Another source of funds was the
portfolio's insurance holdings where a combination of declining premium growth,
poor underwriting results, and rising interest rates has depressed the near-
term outlook for the industry. Here we eliminated Everest Re and reduced our
weighting in Ace Limited and Reliastar. There were also opportunistic sales
elsewhere in the portfolio where we believed the stock was at or close to fair
value (e.g. Kroger, AT & T), or where the fundamentals appeared to be
deteriorating (e.g. Raytheon).
For the year as a whole, there was little change in the Series' weighting in
Communication Services, Utilities, and Healthcare, which are in line with the
benchmark, or its overweighting in Technology.
On the fixed income portion of the portfolio, our intermediate focus in
maturity was not additive to performance. Our overweighing in corporates at
approximately 53% was mixed as some credits performed well and other had
difficulty, in particular the REIT sector. Mortgages, which was the best
performing sector, comprised approximately 18% of the portfolio. Since the
beginning of the year, we added to our corporate and mortgage holdings. In our
corporate securities holdings, we added holdings in the energy sector, which
performed well given the increase in oil prices. We continue to maintain a
bulleted maturity structure with approximately 61% of the portfolio positioned
in the 5-10 years area of the yield curve.
Q: WHAT WERE THE PRINCIPAL FACTORS AFFECTING OUR PERFORMANCE (ON BOTH AN
ABSOLUTE AND RELATIVE BASIS) DURING THE PAST TWELVE MONTHS? WHAT INVESTMENT
DECISIONS WERE MOST EFFECTIVE AND WHICH ONES WERE THE LEAST EFFECTIVE?
A: Relative to the Russell 1000 Value Index, the greatest positive contribution
to the Series' equity performance during the year came from its overweighting
in the Technology sector, the strongest sector by far in the Index (+52% on the
year). Most of the Series' holdings in this sector performed exceptionally
well: Apple Computer, First Data, Hewlett Packard, Intel, IBM, and Motorola.
However, earnings disappointments in Xerox (-63%) and Raytheon (-49%) detracted
substantially from the sector's overall contribution to the Series' perfor-
mance.
The Series' Energy holdings had the largest overall positive return, +11.7% in
the aggregate for the year. The Series was overweighted here relative to the
benchmark, which further enhanced the positive contribution from this sector.
However, as the overall results make plain, poor stock selection across the
portfolio was the principal factor negatively affecting the Series' performance
both on an absolute and relative basis. The dynamics of the value spectrum of
the market in 1999 posed a real challenge for value investors. We were
presented with a choice of buying either a higher Price to Earnings (P/E) value
stock with better fundamentals or a cheaper value stock with more modest
fundamentals. Like many other good value investors, we gravitated toward the
lower (P/E) stock. But, as the record now shows, even within the value category
higher P/E stocks ended up being the better choice. Upward earnings momentum
overwhelmed low valuation as an engine for price appreciation; conversely, loss
of earnings momentum often resulted in a severe price decline regardless of
valuation. Xerox is a case in point--it is now selling at a 50% discount to the
S&P 500, down from a 15% discount at the beginning of 1999.
Following a most challenging third quarter, we made some enhancements to our
investment process. We are using more sophisticated techniques in appraising
the level of expectations incorporated into the price of a particular security
and in determining its intrinsic value. We are also looking to strike a better
balance between valuation and the "cheapness" of a stock and its earnings
growth. These changes enhanced the Series' fourth quarter returns, and more
importantly positioned the portfolio for a solid 2000, in what is likely to be
a year that rewards the disciplined value investor.
41
<PAGE>
On the fixed-income side, the main factor affecting our performance during the
past year was our longer duration earlier in the year and bulleted yield curve
structure, which did not help performance. Our mortgage holdings were additive
both on an absolute and relative basis as was our purchase of U.S. Agency
debentures later in the year. The decision to underweight U.S. Treasuries was
also positive. Corporates were mixed as energy and cyclicals performed well.
Our REIT holdings as well as manufactured housing did not perform up to
expectation and hurt performance.
Q: WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT SIX
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO THE WAY YOU MANAGE THE
PORTFOLIO?
A: Looking out six months, our expectation is that an improving global economy
and rising inflation will sustain investor interest in traditional value sec-
tors such as Basic Materials and Capital Goods. Furthermore, we believe that
improving fundamentals and attractive valuations in many other non-technology
sectors are already sufficient catalysts to reward value investors in 2000.
However, we acknowledge that what has been most surprising about the perfor-
mance disparity between growth and value is its longevity. Thus we cannot pre-
dict when value stocks will regain favor, but we strongly believe it makes no
sense to abandon our quality-value approach now. In the last few weeks of 1999,
it appeared that most investors do not care about valuations. However, when the
herd cares the least, the wise shepherd cares the most.
On the fixed income side, we expect the Federal Reserve may raise interest
rates again one or two more times. Inflation continues to remain under control
and with significant productivity continuing in the economy, inflation should
remain contained. With rates continuing to rise into 2000, we may be getting
near the peak and we will be looking for a point to increase our duration. We
do not intend to make any major changes to the portfolio and will continue with
our emphasis in the corporate area as valuations continue to look attractive.
A $10,000 Investment compared to the S&P 500 and
Lehman Brothers Gov't/Corp. Indices
since the Serires Inception
[GRAPH]
Loomis Sayles
Balanced Series Lehman Government/Corp S&P 500
10/31/94 10,000 10,000 10,000
12/31/94 9,990 10,048 9,774
12/31/95 12,466 11,981 13,437
12/31/96 14,575 12,329 16,538
12/31/97 16,934 13,532 22,034
12/31/98 18,475 14,814 28,368
12/31/99 17,535 14,496 34,319
Average Annual Total Return
Lipper Variable
Balanced Lehman Balanced Fund
Series Government/Corp. S&P 500 Average
1 year -5.1% -2.2% 21.0% 8.7%
3 years 6.4 5.5 27.6 14.5
5 years 11.9 7.6 28.6 16.3
Since Inception 11.5 7.5 27.0 n/a
[checkmark] 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: $193 million as of December 31, 1999
MANAGERS: Tricia Mills, John Hyll and Tom Kolefas serve as portfolio managers
of Loomis Sayles Balanced Series. Ms. Mills, and Mr. Hyll have served as
portfolio managers since the Series inception. Mr. Kolefas joined the
management of the Series in September 1998.
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
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--61.2% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
AEROSPACE/DEFENSE--0.6%
14,300 Boeing Co. .............................................. $ 594,344
11,900 Northrop Grumman Corp. .................................. 643,344
------------
1,237,688
------------
AIRLINES--0.3%
15,100 Continental Airlines, Inc.(b)............................ 670,063
------------
AUTO & RELATED--1.6%
21,900 Dana Corp. .............................................. 655,631
35,400 General Motors Corp. .................................... 2,573,137
------------
3,228,768
------------
BANKS & THRIFTS--8.7%
39,400 Chase Manhattan Corp. ................................... 3,060,888
61,550 Citigroup, Inc. ......................................... 3,419,872
43,200 Comerica, Inc. .......................................... 2,016,900
69,500 FleetBoston Financial Corp. ............................. 2,419,469
85,800 KeyCorp.................................................. 1,898,325
52,600 PNC Bank Corp. .......................................... 2,340,700
37,900 Wells Fargo & Co. ....................................... 1,532,581
------------
16,688,735
------------
BROADCAST--TV/RADIO/CABLE--0.7%
18,100 MediaOne Group, Inc.(b).................................. 1,390,306
------------
BUILDING & RELATED--0.9%
34,800 Black & Decker Corp. .................................... 1,818,300
------------
BUSINESS SERVICES--0.3%
21,100 The Dun & Bradstreet Corp. .............................. 622,450
------------
CHEMICALS--MAJOR--1.0%
13,100 Dow Chemical Co. ........................................ 1,750,488
------------
CHEMICALS--SPECIALTY--1.0%
15,100 Rohm and Haas Co. ....................................... 614,381
74,300 W.R. Grace & Co.(b)...................................... 1,030,912
------------
1,645,293
------------
COMMUNICATION SERVICES--1.8%
21,650 AT & T Corp. ............................................ 1,098,738
43,650 MCI WorldCom, Inc.(b).................................... 2,316,178
------------
3,414,916
------------
COMMUNICATIONS EQUIPMENT--1.0%
12,800 Motorola, Inc. .......................................... 1,884,800
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
COMPUTERS HARDWARE--2.9%
7,900 Apple Computer, Inc.(b)................................. $ 812,219
53,600 Compaq Computer Corp. .................................. 1,450,550
20,100 Hewlett-Packard Co. .................................... 2,290,144
9,900 International Business Machines Corp. .................. 1,069,200
------------
5,622,113
------------
CONTAINERS--METAL/GLASS--0.6%
45,200 Owens Illinois, Inc.(b)................................. 1,132,825
------------
ELECTRIC COMPANIES--2.4%
35,900 DQE, Inc. .............................................. 1,243,038
49,200 Texas Utilities Co. .................................... 1,749,675
49,900 Unicom Corp. ........................................... 1,671,650
------------
4,664,363
------------
ELECTRICAL EQUIPMENT--0.6%
21,300 Emerson Electric Co. ................................... 1,222,088
------------
ELECTRONICS--1.9%
14,600 Intel Corp. ............................................ 1,201,762
18,800 Koninklijke Philips Electronics N.V. (ADR).............. 2,538,000
------------
3,739,762
------------
ENTERTAINMENT--0.7%
45,900 The Walt Disney Co. .................................... 1,342,575
------------
FINANCIAL--CONSUMER DIVERSIFIED--2.9%
49,300 Associates First Capital Corp. ......................... 1,352,669
48,500 CIT Group, Inc. ........................................ 1,024,563
31,500 Federal National Mortgage Association................... 1,966,781
36,900 FINOVA Group, Inc. ..................................... 1,309,950
------------
5,653,963
------------
FOODS--0.9%
79,500 Sara Lee Corp. ......................................... 1,753,969
------------
FREIGHT TRANSPORTATION--0.5%
30,000 CNF Transportation, Inc. ............................... 1,035,000
------------
HEALTH CARE--DRUGS--1.1%
15,900 Bristol-Myers Squibb Co. ............................... 1,020,581
22,900 Pharmacia & Upjohn, Inc. ............................... 1,030,500
------------
2,051,081
------------
HEALTH CARE--SERVICES--1.2%
101,800 Tenet Healthcare Corp.(b)............................... 2,392,300
------------
</TABLE>
See accompanying notes to financial statements.
43
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
HOUSEHOLD PRODUCTS--PERSONAL CARE--1.2%
34,100 Kimberly-Clark Corp. .................................... $ 2,225,025
------------
HOUSEWARES--0.3%
21,400 Newell Rubbermaid, Inc. ................................. 620,600
------------
INSURANCE--3.2%
82,500 ACE, Ltd. ............................................... 1,376,719
44,000 Allstate Corp. .......................................... 1,056,000
14,200 American International Group, Inc. ...................... 1,535,375
25,400 Aon, Corp. .............................................. 1,016,000
32,300 ReliaStar Financial Corp. ............................... 1,265,756
------------
6,249,850
------------
INVESTMENT BANKING/BROKER/
MANAGEMENT--1.6%
15,750 Bear Stearns Companies, Inc. ............................ 673,313
16,800 Morgan Stanley Dean Witter & Co. ........................ 2,398,200
------------
3,071,513
------------
LEISURE TIME--PRODUCTS--0.9%
86,150 Hasbro, Inc. ............................................ 1,642,234
------------
MACHINERY--0.3%
10,600 Caterpillar, Inc. ....................................... 498,863
------------
MANUFACTORING--DIVERSIFIED--1.4%
21,100 Eaton Corp. ............................................. 1,532,388
12,700 Minnesota Mining & Manufactoring Co. .................... 1,243,012
------------
2,775,400
------------
METALS & MINING--0.4%
10,200 Alcoa, Inc. ............................................. 846,600
------------
NATURAL GAS--1.1%
16,100 Columbia Energy Group.................................... 1,018,325
28,600 El Paso Energy Corp. .................................... 1,110,038
------------
2,128,363
------------
OIL & GAS--DRILLING & EQUIPMENT--1.2%
45,800 Baker Hughes, Inc. ...................................... 964,663
37,200 Transocean Sedco Forex, Inc. ............................ 1,253,175
------------
2,217,838
------------
OIL & GAS--MAJOR INTEGRATED--4.9%
46,700 Conoco, Inc. Class A..................................... 1,155,825
12,407 Conoco, Inc. Class B..................................... 308,624
56,800 Exxon Mobil Corp. ....................................... 4,575,950
37,500 Texaco, Inc. ............................................ 2,036,719
56,600 USX-Marathon Group....................................... 1,397,312
------------
9,474,430
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
PAPER/FOREST PRODUCTS--1.0%
28,600 Willamette Industries, Inc. ............................. $ 1,328,112
11,300 International Paper Co. ................................. 637,744
------------
1,965,856
------------
PUBLISHING--0.5%
19,000 The New York Times Company............................... 933,375
------------
RESTAURANTS--0.6%
28,300 McDonald's Corp. ........................................ 1,140,844
------------
RETAIL--FOOD CHAINS--0.4%
43,900 Kroger Co.(b)............................................ 828,612
------------
RETAIL--GENERAL MERCHANDISE--1.0%
38,200 Federated Department Stores, Inc.(b)..................... 1,931,488
------------
RETAIL--SPECIALTY--0.8%
72,800 TJX Companies, Inc. ..................................... 1,487,850
------------
SERVICES--COMPUTER/DATA
PROCESSING--0.7%
28,200 First Data Corp. ........................................ 1,390,612
------------
TELEPHONE--5.4%
75,500 BellSouth Corp. ......................................... 3,534,344
45,300 GTE Corp. ............................................... 3,196,481
73,696 SBC Communications, Inc. ................................ 3,592,680
------------
10,323,505
------------
TOBACCO--0.5%
38,000 Philip Morris Companies, Inc. ........................... 881,125
------------
WASTE MANAGEMENT--0.2%
19,100 Waste Management, Inc. .................................. 328,281
------------
Total Common Stocks
(Identified Cost $115,456,363).......................... 117,924,110
------------
</TABLE>
See accompanying notes to financial statements.
44
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
MEDIUM & LONG TERM BONDS & NOTES--36.1%
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
BANKS--1.7%
$ 1,280,000 Mellon Bank N.A.
7.000%, 3/15/06................................... $ 1,255,411
50,000 Norwest Corp. 7.650%, 3/15/05...................... 50,723
2,100,000 Wells Fargo & Co.
6.625%, 7/15/04................................... 2,054,764
------------
3,360,898
------------
CONSUMER--3.0%
1,325,000 Amerco, Inc. 7.850%, 5/15/03....................... 1,264,209
1,995,000 Coca-Cola Enterprises, Inc. 6.750%, 1/15/38........ 1,722,682
880,000 Dell Computer Corp. 6.550%, 4/15/08................ 819,315
1,100,000 Dillard's, Inc. 6.430%, 8/1/04..................... 1,037,253
950,000 FMC Corp. 7.125%, 11/25/02......................... 934,062
------------
5,777,521
------------
ELECTRIC UTILITIES--1.1%
1,000,000 Calpine Corp. 7.625%, 4/15/06...................... 944,550
1,250,000 Occidental Petroleum Corp. 6.400%, 4/1/03.......... 1,210,918
------------
2,155,468
------------
ENERGY--2.0%
125,000 Coastal Corp. 8.125%, 9/15/02...................... 127,192
1,040,000 Kerr-McGee Corp.
6.625%, 10/15/07.................................. 971,922
940,000 Nabors Industries, Inc. 6.800%, 4/15/04............ 908,877
1,230,000 Tosco Corp. 7.625%, 5/15/06........................ 1,214,969
740,000 USX-Marathon Group
8.500%, 3/1/23.................................... 768,224
------------
3,991,184
------------
EQUIPMENT TRUST--0.0%
25,000 American Airlines
10.180%, 1/2/13................................... 27,808
------------
FEDERAL AGENCIES--12.3%
1,195,735 Federal Home Loan Mortgage
6.000%, 12/1/27................................... 1,097,458
1,883,343 Federal National Mortgage Association 5.500%,
1/1/14............................................ 1,747,366
5,280,000 Federal National Mortgage Association 5.625%,
5/14/04........................................... 5,045,674
620,000 Federal National Mortgage Association 6.000%,
2/25/24........................................... 555,608
1,075,331 Federal National Mortgage Association 6.000%,
3/1/28............................................ 983,584
2,073,267 Federal National Mortgage Association 6.000%,
4/1/28............................................ 1,896,376
</TABLE>
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
FEDERAL AGENCIES--(CONTINUED)
$ 6,130,000 Federal National Mortgage Association 6.375%,
6/15/09........................................... $ 5,851,784
7,013,864 Government National Mortgage
Association 6.500%, 4/15/29....................... 6,590,857
------------
23,768,707
------------
FINANCE--3.4%
225,000 Bankers Trust N.Y. Corp. 7.625%, 8/15/05........... 224,820
1,040,000 Bear Sterns Companies, Inc. 6.750%, 12/15/07....... 975,967
260,000 Dean Witter Discover & Co. 6.750%, 1/1/16.......... 236,457
200,000 Donaldson Lufkin & Jenrette, Inc. 6.875%, 11/1/05.. 193,332
1,180,000 Household Finance Corp. 6.500%, 11/15/08........... 1,092,810
200,000 Lehman Brothers Holdings, Inc.
7.360%, 12/15/03.................................. 198,016
440,000 National Health Investors, Inc.
7.300%, 7/16/07................................... 371,161
280,000 Oasis Residential, Inc. 7.000%, 11/15/03........... 267,170
840,000 Prologis Trust 7.050%, 7/15/06..................... 791,440
1,130,000 Provident Companies, Inc. 6.375%, 7/15/05.......... 1,071,296
480,000 Salomon, Inc. 7.000%, 3/15/04...................... 473,736
145,000 Salomon, Inc. 7.500%, 2/1/03....................... 146,132
520,000 Sears Roebuck Acceptance Corp. 6.950%, 5/15/02..... 512,496
------------
6,554,833
------------
LEISURE TIME--1.3%
1,100,000 Carnival Corp. 7.050%, 5/15/05..................... 1,071,532
960,000 Royal Caribbean Cruises, Ltd.
7.000%, 10/15/07.................................. 903,264
760,000 Royal Caribbean Cruises, Ltd.
7.500%, 10/15/27.................................. 681,059
------------
2,655,855
------------
MACHINERY--1.0%
1,400,000 Deere & Co. 6.550%, 7/15/04........................ 1,362,494
------------
MANUFACTURING--1.0%
260,000 Koninklijke Philips Electronics N.V. 7.250%,
8/15/13........................................... 242,164
1,370,000 Oakwood Homes Corp.
8.125%, 3/1/09.................................... 712,400
670,000 Raytheon Co. 6.300%, 3/15/05....................... 632,172
200,000 Tektronix, Inc. 7.625%, 8/15/02.................... 198,238
------------
1,784,974
------------
</TABLE>
See accompanying notes to financial statements.
45
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
MEDIUM & LONG TERM BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
REAL ESTATE--0.3%
$ 790,000 Liberty Property L.P.
6.950%, 12/1/06.................................... $ 708,116
------------
SERVICE--3.1%
2,000,000 Duke Capital Corp.
7.500%, 10/1/09.................................... 1,986,062
300,000 La Quinta Inns, Inc.
7.400%, 9/15/05.................................... 250,101
1,070,000 Nielsen Media Research, Inc.
7.600%, 6/15/09.................................... 1,022,952
100,000 Secured Finance, Inc. 9.050%, 12/15/04.............. 104,446
1,375,000 TransCanada Pipelines, Ltd. 7.150%, 6/15/06......... 1,338,404
1,500,000 Tricon Global Restaurants, Inc.
7.450%, 5/15/05.................................... 1,427,040
------------
6,129,005
------------
TELEPHONE--1.0%
950,000 Sprint Spectrum L.P., 0/12.500% 8/15/06(c)......... 888,231
680,000 U.S. West Capital Funding, Inc.
6.250%, 7/15/05.................................... 643,538
------------
1,531,769
------------
TRANSPORTATION--1.1%
100,000 AMR Corp.
10.290%, 3/8/21.................................... 116,787
1,261,619 Federal Express Corp. 7.020%, 1/15/16............... 1,132,404
460,000 Norfolk Southern Corp. 7.050%, 5/1/37............... 452,243
600,000 Northwest Airlines Corp. 8.375%, 4/3/15............. 567,564
------------
2,268,998
------------
U.S. GOVERNMENT--3.8%
3,200,000 United States Treasury Bonds
6.125%, 11/15/27................................... 2,977,984
500,000 United States Treasury Notes
5.625%, 2/15/06.................................... 478,360
3,000,000 United States Treasury Notes
6.500%, 10/15/06................................... 2,992,020
1,000,000 United States Treasury Notes
6.250%, 10/31/01................................... 1,000,160
------------
7,448,524
------------
Total Bonds & Notes
(Identified Cost $73,447,643)...................... 69,526,154
------------
</TABLE>
SHORT-TERM INVESTMENT--2.4%
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$ 4,530,039 Associates First Capital Corp.
4.000%, 1/03/00................................... $ 4,530,039
------------
Total Short-Term Investment (Identified Cost
$4,530,039)....................................... 4,530,039
------------
Total Investments--99.7%
(Identified Cost $193,434,045)(a)................. 191,980,303
Other assets less liabilities...................... 686,022
------------
TOTAL NET ASSETS--100%............................. $192,666,325
============
</TABLE>
(a) Federal Tax Information: At December 31, 1999 the net unrealized
depreciation on investments based on cost of $193,434,045 for federal
income tax purposes was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost........ $ 12,767,918
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value........ (14,221,660)
--------------
Net unrealized depreciation................................ $ (1,453,742)
==============
</TABLE>
(b) Non-income producing security.
(c) Step Bond: Coupon rate is zero or below market for an initial period and
then increased to a higher coupon rate at a specified date.
Key to Abbreviations:
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the
right to receive securities of the foreign issuer described. The value
of ADRs and GDRs are significantly influenced by trading on exchanges
not located in the United States or Canada.
See accompanying notes to financial statements.
46
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................... $191,980,303
Receivable for:
Fund shares sold....................................... 594,517
Dividends and interest................................. 1,158,871
------------
Total Assets.......................................... 193,733,691
LIABILITIES
Payable for:
Fund shares redeemed................................... $384,609
Securities purchased................................... 531,855
Accrued expenses:
Management fees........................................ 114,719
Deferred trustees fees................................. 5,950
Other expenses......................................... 30,233
--------
Total Liabilities..................................... 1,067,366
------------
NET ASSETS.............................................. $192,666,325
============
Net assets consist of:
Capital paid in........................................ $196,551,619
Overdistributed net investment income.................. (3,654)
Accumulated net realized gains (losses)................ (2,427,898)
Unrealized appreciation (depreciation) on investments
and foreign currency.................................. (1,453,742)
------------
NET ASSETS.............................................. $192,666,325
============
Computation of offering price:
Net asset value and redemption price per share
($192,666,325 divided by 13,906,867 shares of
beneficial interest)................................... $ 13.85
============
Identified cost of investments.......................... $193,434,045
============
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends......................................... $ 2,233,647(a)
Interest.......................................... 4,907,986
------------
7,141,633
EXPENSES
Management fees................................... $1,386,037
Trustees' fees and expenses....................... 14,048
Custodian......................................... 58,482
Audit and tax services............................ 20,475
Legal............................................. 10,540
Printing.......................................... 32,882
Amortization of organization expense.............. 1,670
Insurance......................................... 4,428
Miscellaneous..................................... 4,148
----------
Total Expenses................................... 1,532,710
------------
NET INVESTMENT INCOME.............................. 5,608,923
------------
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net.................................. 2,710,748
Unrealized appreciation (depreciation) on:
Investments--net.................................. (18,598,573)
------------
Net gain (loss).................................... (15,887,825)
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS........................................ $(10,278,902)
============
</TABLE>
(a) Net of foreign taxes of $18,177
See accompanying notes to financial statements.
47
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................. $ 5,608,923 $ 4,446,775
Net realized gain (loss).......................... 2,710,748 3,801,920
Unrealized appreciation (depreciation)............ (18,598,573) 6,024,365
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS. (10,278,902) 14,273,060
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................. (5,625,861) (4,483,422)
Net realized gain................................. (3,435,942) (3,664,526)
In excess of net investment income................ (17,602) 0
In excess of net realized capital gains........... (2,415,620) 0
------------ ------------
TOTAL DISTRIBUTIONS............................... (11,495,025) (8,147,948)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares...................... 75,541,409 85,422,334
Reinvestment of distributions..................... 11,495,025 8,147,948
Cost of shares redeemed........................... (63,173,242) (46,561,460)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS............................... 23,863,192 47,008,822
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........... 2,089,265 53,133,934
NET ASSETS
Beginning of the year............................. 190,577,060 137,443,126
------------ ------------
End of the year................................... $192,666,325 $190,577,060
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT
INCOME
End of the year................................... $ (3,654) $ 16,934
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 4,946,396 5,541,834
Issued in reinvestment of distributions........... 825,719 527,948
Redeemed.......................................... (4,152,208) (3,032,615)
------------ ------------
Net Change........................................ 1,619,907 3,037,176
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year......................... $ 15.51 $ 14.86 $ 13.55 $ 11.95 $ 9.94
-------- -------- -------- ------- -------
Income From Investment
Operations
Net Investment Income........ 0.43 0.38 0.28 0.27 0.26
Net Realized and Unrealized
Gain (Loss) on Investments.. (1.21) 0.97 1.90 1.73 2.20
-------- -------- -------- ------- -------
Total From Investment
Operations.................. (0.78) 1.35 2.18 2.00 2.46
-------- -------- -------- ------- -------
Less Distributions
Distributions From Net
Investment Income........... (0.43) (0.38) (0.27) (0.27) (0.26)
Distributions From Net
Realized Capital Gains...... (0.26) (0.32) (0.60) (0.13) (0.19)
Distributions in excess of
net realized capital gains.. (0.19) 0.00 0.00 0.00 0.00
-------- -------- -------- ------- -------
Total Distributions.......... (0.88) (0.70) (0.87) (0.40) (0.45)
-------- -------- -------- ------- -------
Net Asset Value, End of Year.. $ 13.85 $ 15.51 $ 14.86 $ 13.55 $ 11.95
======== ======== ======== ======= =======
TOTAL RETURN (%).............. (5.1) 9.1 16.2 16.9 24.8
Ratio of Operating Expenses to
Average Net Assets (%)....... 0.77 0.82 0.85 0.85 0.85
Ratio of Net Investment Income
to Average Net Assets (%).... 2.83 2.72 2.79 3.08 4.03
Portfolio Turnover Rate (%)... 63 72 60 59 72
Net Assets, End of Year (000.. $192,666 $190,577 $137,443 $58,525 $18,823
The ratios of operating
expenses to average net
assets without giving effect
to the voluntary expense
agreement described in Note 4
to the Financial Statements
would have been (%).......... -- -- 0.86 0.99 1.85
</TABLE>
See accompanying notes to financial statements.
48
<PAGE>
ALGER EQUITY GROWTH SERIES
PORTFOLIO MANAGERS: DAVID D. ALGER (PICTURED) AND RON TARTAROFRED ALGER
MANAGEMENT, INC.
[photo appears here]
Q: HOW DID THE SERIES PERFORM DURING THE PAST TWELVE MONTHS RELATIVE TO ITS
INDEX AND RELATIVE TO ITS PEERS?
A: For the year ending December 31, 1999, the S&P 500Index/25/ returned 21.0%
and the Lipper Variable Products Growth Fund Average/10/ returned 31.7%. Mean-
while, the Alger Equity Growth Series outperformed both benchmarks, posting an
annual return of 34.1%.
Q: BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST
TWELVE MONTHS.
A: 1999 was yet another very good year for most equity investors. During the
first half of the year, large-cap stocks marched forward with nary a setback,
while their smaller counterparts struggled mightily. Large inflows of overseas
capital sought refuge in the largest, most liquid corporate names. This, com-
bined with the growing popularity of S&P 500 index funds, allowed large-cap
stocks to see large gains and reach record valuation levels. All of the major
large-cap indices continuously set new highs, and the Dow Jones Industrial Av-
erage closed over 10,000 for the first time on March 29, 1999.
After a volatile April, May and June saw consolidation and profit-taking in
the equity markets. An ongoing fear of rising interest rates was realized on
June 30 when the Fed "took back" one of three previous interest rate cuts by
hiking the Fed Funds Rate to 5%. Nonetheless, the market shrugged off the rate
hike and took solace in the Fed's return to a "neutral bias." Large-cap stocks
continued to rally, and the S&P 500 reached an intra-day high of 1420.33 on
July 19. During the last stages of this surge, however, the breadth of the
rally narrowed considerably, as small cap and value stocks continued to
languish.
The following few months were marked by extreme market volatility, an overall
downward trend, and ultimately, a dramatic rebound. The market slipped stead-
ily downward from its mid-July peak before attempting to rally in August. The
rally failed, partially due to another Fed rate hike on August 24th. The S&P
500 struggled to find direction and failed to match its previous highs during
August and September. In October, mounting fears of rising interest rates, an
upward spike in the price of gold, and a series of dubious economic reports
forced the yield on the long bond to 6.4%. Equity markets reacted strongly.
The Dow Jones dropped more than 1,000 points in less than a month, briefly
dipping below the 10,000 level on October 18th. As is so often the case, how-
ever, the market recovered when it appeared to be at its weakest. As inflation
jitters and interest rate fears subsided with the release of benign economic
data, the final two weeks of October saw dramatic gains throughout both the
bond and equity markets. The long bond once again approached 6%, and the Dow
Jones neared 11,000.
The market's strength continued throughout November and December. When the Fed
raised both the Fed Funds and the discount rate 1/4 of a point on November
16th, the shift back to a "neutral" bias psychologically outweighed the actual
rate hike. While certain segments of the market struggled--most notably, value
stocks--most equity indices climbed steadily higher. Small cap growth stocks
were particularly strong, reversing an ongoing trend of small cap
underperformance. However, growth stocks and technology stocks across all mar-
ket capitalizations appreciated strongly at year-end. The Fed's December 21st
inaction matched market expectations and allowed nearly all major market indi-
ces to reach all-time highs during the final week of the year.
Q: GIVEN THIS INVESTMENT ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY? WHAT
CHANGES DID YOU MAKE SINCE THE START OF THE YEAR?
A: The management of the Series remained unchanged: a research intensive, bot-
tom-up approach focusing on rapidly grow-
49
<PAGE>
ing stocks. Management's growth stock philosophy was of great benefit during a
year in which value style stocks severely underperformed growth style stocks.
Strong positive cash inflows for the year helped fuel investment opportunities
and precluded the selling of core holdings in order to satisfy redemptions.
Q: WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE (ON BOTH AN
ABSOLUTE AND RELATIVE BASIS) DURING THE PAST TWELVE MONTHS? WHAT INVESTMENT
DECISIONS WERE MOST EFFECTIVE AND WHICH ONES WERE LEAST EFFECTIVE?
A: Fortunately, the Series was heavily weighted in technology companies
throughout the year. Technology stocks were the clear market leaders in 1999,
thus making the Series extremely well positioned for the strong bull market.
Stocks such as Yahoo!, Microsoft, and America Online fueled much of the gain of
the Series.
Maintaining an ongoing overweighting in technology-oriented growth stocks was
clearly management's most effective decision, as these stocks were largely re-
sponsible for the Series' superb performance. Management's least effective de-
cisions relate to company specific situations (i.e., Abercrombie & Fitch and
Tyco International), whereby certain holdings struggled for much of the year.
Q: WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT SIX
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO THE WAY YOU MANAGE YOUR
PORTFOLIO?
A: The economy of 2000 is likely to resemble the economy of 1999, but it will
not be growing as rapidly. This is an inevitable by-product of higher interest
rates. Despite this, there are factors that should keep the economy moving
along at a decent rate: a) low unemployment; b) good wage gains; and c) posi-
tive psychology. Inflation should remain subdued as a result of continually in-
creasing productivity and the slowing of economic growth. The flattening of oil
prices and the impact of the Internet on pricing should also help subdue infla-
tion. However, corporate earnings will probably not be as strong in 2000 as
they were in 1999. The top-down forecast for S&P earnings is an increase of
10%, which is lower than the 14% estimated for 1999. It would be logical to as-
sume that the market will rise less vigorously as well. As such, a target of
12,500-13,000 on the Dow might be appropriate.
Looking ahead, we will continue to seek out and invest in companies that we be-
lieve will grow their earnings rapidly and consistently. Regardless of market
conditions, we feel that the only way we are able to sustain superior long-term
performance is through an uncompromising commitment to a consistent approach.
50
<PAGE>
A $10,000 Investment compared to the S&P Index since the Series' Inception
[GRAPH]
Alger Equity Growth Series S&P 500
10/31/94 10,000 10,000
12/31/94 9,581 9,774
12/31/95 14,247 13,437
12/31/96 16,124 16,538
12/31/97 20,257 22,034
12/31/98 29,935 28,368
12/31/99 40,147 34,319
Average Annual Return
Equity Growth Lipper Variable Growth
Series S&P 500 Fund Average
1 year 34.1% 21.0% 31.7%
3 years 35.5 27.6 26.9
5 years 33.2 28.6 26.9
Since Inception 30.9 27.0 n/a
[checkmark] FUND FACTS
GOAL: Long-term capital appreciation.
START DATE: October 31, 1994
SIZE: $841 million as of December 31, 1999
MANAGERS: David D. Alger and Ron Tartaro have managed the Alger Equity Growth
Series since its inception in 1994. Mr. Alger is President and Chief Executive
Officer of Fred Alger Management, Inc., and has been portfolio manager of The
Alger Growth Portfolio since 1986, The Alger American Fund Growth Portfolio
since 1989 and the Alger Retirement Fund since 1993. Mr. Tartaro has been
employed by Alger since 1990 and has been a Senior Vice President since 1995.
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.
51
<PAGE>
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--90.0% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
AEROSPACE & DEFENSE--3.6%
241,200 Honeywell International, Inc. ........................... $13,914,225
248,800 United Technologies Corp. ............................... 16,172,000
-----------
30,086,225
-----------
AUTOMOTIVE--1.1%
142,400 Harley-Davidson, Inc. ................................... 9,122,500
-----------
BANKS--4.8%
281,180 Bank of America Corp. ................................... 14,111,721
440,700 Citigroup, Inc. ......................................... 24,486,394
98,277 Firstar Corp. ........................................... 2,076,101
-----------
40,674,216
-----------
BROADCASTING--1.9%
45,300 Clear Channel Communications, Inc.(b).................... 4,043,025
152,500 MediaOne Group, Inc.(b).................................. 11,713,906
-----------
15,756,931
-----------
BUSINESS SERVICE--0.5%
41,100 Omnicom Group, Inc. ..................................... 4,110,000
-----------
COMMUNICATIONS--2.0%
199,200 Comcast Corp. ........................................... 10,072,050
69,500 EchoStar Communications Corp.(b)......................... 6,776,250
-----------
16,848,300
-----------
COMPUTER RELATED & BUSINESS EQUIPMENT--11.0%
208,300 Altera Corp.(b).......................................... 10,323,869
301,150 Cisco Systems, Inc.(b)................................... 32,260,694
455,400 Dell Computer Corp.(b)................................... 23,225,400
196,100 Intel Corp. ............................................. 16,141,481
147,600 Linear Technology Corp. ................................. 10,562,625
-----------
92,514,069
-----------
COMPUTER SOFTWARE--5.5%
127,200 Intuit, Inc.(b).......................................... 7,624,050
331,100 Microsoft Corp.(b)....................................... 38,655,925
-----------
46,279,975
-----------
CONSUMER PRODUCTS--3.3%
194,500 Corning, Inc. ........................................... 25,078,344
99,600 Masco Corp. ............................................. 2,527,350
-----------
27,605,694
-----------
ELECTRONICS--4.0%
133,500 Motorola, Inc. .......................................... 19,657,875
153,000 Teradyne Inc.(b)......................................... 10,098,000
38,000 Texas Instruments, Inc. ................................. 3,681,250
-----------
33,437,125
-----------
FINANCIAL SERVICES--5.5%
33,500 American Express Co. .................................... 5,569,375
208,800 Household International, Inc. ........................... 7,777,800
47,200 Merrill Lynch & Co., Inc. ............................... 3,941,200
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
FINANCIAL SERVICES--(CONTINUED)
201,200 Morgan Stanley Dean Witter & Co. ........................ $28,721,300
-----------
46,009,675
-----------
HEALTH CARE--0.9%
293,000 IMS Health, Inc. ........................................ 7,965,937
-----------
INSURANCE--2.4%
188,075 American International Group, Inc. ...................... 20,335,609
-----------
INTERNET SERVICES--10.9%
426,400 America Online, Inc.(b).................................. 32,166,550
219,644 At Home Corp.(b)......................................... 9,417,237
167,900 eBay, Inc.(b)............................................ 21,018,981
67,182 Yahoo!, Inc. ............................................ 29,068,812
-----------
91,671,580
-----------
CASINOS & RESORTS--0.4%
76,500 Carnival Corp. .......................................... 3,657,656
-----------
OIL SERVICES--2.5%
523,350 Halliburton Co. ......................................... 21,064,837
-----------
PHARMACEUTICALS--9.5%
444,600 Amgen, Inc.(b)........................................... 26,703,788
39,600 Biogen, Inc.(b).......................................... 3,346,200
234,400 Bristol-Myers Squibb Co. ................................ 15,045,550
314,950 Pfizer, Inc. ............................................ 10,216,191
302,100 Warner-Lambert Co. ...................................... 24,753,319
-----------
80,065,048
-----------
RAILROADS--1.2%
132,200 Kansas City Southern Industries, Inc. ................... 9,865,425
-----------
RETAIL--7.6%
151,400 Amazon.com, Inc.(b)...................................... 11,525,325
135,200 Best Buy Co., Inc. ...................................... 6,785,350
74,800 Costco Wholesale Corp.(b)................................ 6,825,500
381,225 Home Depot, Inc. ........................................ 26,137,739
181,600 Wal-Mart Stores, Inc. ................................... 12,553,100
-----------
63,827,014
-----------
SEMI-CONDUCTORS--3.2%
215,400 Applied Materials, Inc.(b)............................... 27,288,488
-----------
TELECOM NETWORKS--5.7%
227,000 AT&T Corp................................................ 12,882,250
127,800 Cox Communications, Inc.(b).............................. 6,581,700
139,200 MCI Worldcom, Inc.(b).................................... 7,386,300
25,100 Nokia Corp. (ADR)........................................ 4,769,000
38,000 QUALCOMM, Inc.(b)........................................ 6,692,750
142,300 Sprint Corp. ............................................ 9,578,569
-----------
47,890,569
-----------
TRANSPORTATION SERVICES--2.5%
303,700 United Parcel Service, Inc.(b)............................. 20,955,300
-----------
Total Common Stocks
(Identified Cost $549,671,986)............................ 757,032,173
-----------
</TABLE>
See accompanying notes to financial statements.
52
<PAGE>
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
SHORT-TERM INVESTMENTS--11.4%
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$10,000,000 AES Hawaii, Inc.,
6.600%, 1/12/00................................... $ 9,979,833
10,000,000 Bell Atlantic Network Funding,
6.280%, 1/05/00................................... 9,993,022
10,000,000 General Electric Capital Corp.,
6.390%, 1/14/00................................... 9,976,925
10,000,000 Household Finance Corp.,
6.400%, 1/07/00................................... 9,989,333
10,000,000 Merrill Lynch & Co., Inc.,
5.550%, 1/27/00................................... 9,959,917
8,000,000 Petrofina Delaware, Inc.,
6.250%, 1/10/00................................... 7,987,500
10,000,000 7-Eleven, Inc.,
6.500%, 1/14/00................................... 9,976,528
9,953,882 State Street Global Advisors, Money Market Fund.... 9,953,882
10,000,000 Standard Life Funding,
6.450%, 1/12/00................................... 9,980,292
8,000,000 Toronto Dominion Holdings,
5.940%, 1/27/00................................... 7,965,680
------------
Total Short-Term Investments
(Identified Cost $95,762,912)..................... 95,762,912
------------
Total Investments--101.4%
(Identified Cost $645,434,898)(a)................. 852,795,085
Other assets less liabilities...................... (11,742,159)
------------
TOTAL NET ASSETS--100%............................. $841,052,926
============
</TABLE>
(a) Federal Tax Information:
At December 31, 1999 the net unrealized appreciation on investments based on
cost of $645,434,898 for federal income tax purposes was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost............................................... $226,931,841
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value.......... (19,571,654)
------------
Net unrealized appreciation.................................. $207,360,187
============
</TABLE>
(b) Non-income producing security.
Key to Abbreviations:
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the
right to receive securities of the foreign issuer described. The
values of ADRs and GDRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
See accompanying notes to financial statements.
53
<PAGE>
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................ $852,795,085
Receivable for:
Fund shares sold.................................... 1,950,197
Dividends and interest.............................. 128,243
Foreign taxes....................................... 1,708
------------
Total Assets........................................ 854,875,233
LIABILITIES
Payable for:
Fund shares redeemed................................ $ 625,776
Securities purchased................................ 12,644,577
Accrued expenses:
Management fees..................................... 503,918
Deferred trustees fees.............................. 13,630
Other expenses...................................... 34,406
-----------
Total Liabilities................................... 13,822,307
------------
NET ASSETS.......................................... $841,052,926
============
Net Assets consist of:
Capital paid in..................................... $625,729,342
Overdistributed net investment income............... (5,387)
Accumulated net realized gains (losses)............. 7,968,784
Unrealized appreciation (depreciation) on
investments........................................ 207,360,187
------------
NET ASSETS........................................... $841,052,926
============
Computation of offering price:
Net asset value and redemption price per share
($841,052,926 divided by 28,664,292 shares of
beneficial interest)................................ $ 29.34
============
Identified cost of investments....................... $645,434,898
============
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends......................................... $ 2,294,193(a)
Interest.......................................... 2,245,595
------------
4,539,788
EXPENSES
Management fees................................... $4,418,196
Trustees' fees and expenses....................... 27,584
Custodian......................................... 91,552
Audit and tax services............................ 17,031
Legal............................................. 36,368
Printing.......................................... 115,010
Amortization of organization expense.............. 1,670
Insurance......................................... 11,040
Miscellaneous..................................... 3,905
----------
Total expenses.................................... 4,722,356
------------
NET INVESTMENT LOSS................................ (182,568)
------------
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net.................................. 85,117,053
Unrealized appreciation (depreciation) on:
Investments--net.................................. 100,091,250
------------
Net gain (loss) ................................... 185,208,303
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS........................................ $185,025,735
============
</TABLE>
(a)Net of foreign taxes of: $12,260
See accompanying notes to financial statements.
54
<PAGE>
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss)...................... $ (182,568) $ 547,361
Net realized gain (loss) ......................... 85,117,053 37,574,347
Unrealized appreciation (depreciation)............ 100,091,250 78,578,213
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS. 185,025,735 116,699,921
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................. (607) (608,527)
In excess of net investment income ............... (285,867) 0
Net realized gain................................. (100,705,836) (13,814,120)
------------ ------------
TOTAL DISTRIBUTIONS............................... (100,992,310) (14,422,647)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares...................... 383,773,208 151,770,313
Reinvestment of distributions..................... 100,992,310 14,422,647
Cost of shares redeemed........................... (138,471,646) (63,063,040)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS............................... 346,293,872 103,129,920
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........... 430,327,297 205,407,194
NET ASSETS
Beginning of the year............................. 410,725,629 205,318,435
------------ ------------
End of the year................................... $841,052,926 $410,725,629
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT
INCOME
End of the year................................... $ (5,387) $ 607
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 13,791,435 7,106,627
Issued in reinvestment of distributions........... 3,524,303 576,135
Redeemed.......................................... (5,005,319) (2,982,315)
------------ ------------
Net change........................................ 12,310,419 4,700,447
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year........................ $ 25.11 $ 17.62 $ 15.58 $ 13.80 $ 9.56
-------- -------- -------- -------- -------
Income From Investment
Operations
Net Investment Income
(Loss)..................... (0.01) 0.04 0.02 0.04 0.01
Net Realized and Unrealized
Gain (Loss) on Investments. 8.34 8.37 3.92 1.78 4.65
-------- -------- -------- -------- -------
Total From Investment
Operations................. 8.33 8.41 3.94 1.82 4.66
-------- -------- -------- -------- -------
Less Distributions
Distributions From Net
Investment Income.......... 0.00 (0.04) (0.02) (0.04) (0.01)
Distributions in excess of
Net Investment Income ..... (0.01) 0.00 0.00 0.00 0.00
Distributions From Net
Realized Capital Gains..... (4.09) (0.88) (1.88) 0.00 (0.41)
-------- -------- -------- -------- -------
Total Distributions......... (4.10) (0.92) (1.90) (0.04) (0.42)
-------- -------- -------- -------- -------
Net Asset Value, End of Year. $ 29.34 $ 25.11 $ 17.62 $ 15.58 $ 13.80
======== ======== ======== ======== =======
TOTAL RETURN (%)............. 34.1 47.8 25.6 13.2 48.8
Ratio of Operating Expenses
to Average Net Assets (%)... 0.80 0.83 0.87 0.90 0.85
Ratio of Net Investment
Income to Average Net Assets
(%)......................... (0.03) 0.19 0.12 0.24 0.14
Portfolio Turnover Rate (%).. 128 119 137 78 107
Net Assets, End of Year
(000)....................... $841,053 $410,726 $205,318 $120,456 $46,386
The ratios of operating
expenses to average net
assets without giving effect
to the voluntary expense
agreement described in Note
4 to the Financial
Statements would have been
(%)......................... -- -- -- 0.90 2.45
</TABLE>
See accompanying notes to financial statements.
55
<PAGE>
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 DURING THE PAST TWELVE MONTHS
RELATIVE TO ITS INDEX AND RELATIVE TO ITS PEERS?
A. For the year ending December 31, 1999, the Series had a return of 15.7%,
which lagged the Lipper Variable Products Growth Fund Average/10/ return of
31.7% and the S&P 500/25/return of 21.0%.
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST
TWELVE MONTHS.
A. Throughout the year, economic growth in the U.S. was strong. Looking
abroad, we saw Asian economies rebound, led by South Korea and Japan. In Eu-
rope, economic growth strengthened during the year. This across-the-board
global economic expansion created an environment that was more conducive to
inflation than the backdrop we witnessed in 1998 when foreign economic weak-
ness helped suppress prices in the U.S. domestic economy. As a result, inter-
est rates rose in the U.S., prodded by the Federal Reserve Board, which raised
key short-term interest rates three times during 1999.
Q. GIVEN THIS INVESTMENT ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY? WHAT
CHANGES DID YOU MAKE SINCE THE START OF THE YEAR?
A. We started the year with a portfolio that reflected our expectation of
minimal inflation, including substantial concentration in financial stocks
such as banks and insurance companies. As the year progressed, we saw evidence
that continuing economic strength, both inside and outside of the U.S., would
increase the risk of inflationary pressures. Therefore, we eliminated the
Series' positions in banks and insurance companies. Early in the year, we also
established a modest position in real estate investment trusts (REITs),
reflecting the strong fundamentals of the real estate industry and the
proclivity for real estate to benefit from a strong pricing environment.
To that end, upon liquidation of the finance position, we selected other in-
vestments that would benefit from an improved pricing backdrop, such as in the
steel and aluminum industries. Further, we believe the economic expansion in
the U.S. is much closer to maturity than in Europe, Asia, and Latin America.
Consequently, we sought to invest (through American Depositary Receipts or
ADRs) in companies located in countries where the duration of the business cy-
cle was much less of an issue. Two examples would be Telefonos de Mexico, the
Mexican telephone company, and Philips Electronics, an international conglom-
erate domiciled in the Netherlands. Finally, throughout the year we maintained
a major position in the technology sector, with an emphasis on companies with
global operations, such as Texas Instruments, Applied Materials, Teradyne, and
Computer Sciences.
Q. WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE (ON BOTH AN
ABSOLUTE AND RELATIVE BASIS) DURING THE PAST TWELVE MONTHS? WHAT INVESTMENT
DECISIONS WERE THE MOST EFFECTIVE AND WHICH ONES WERE LEAST EFFECTIVE?
A. The Fund's best performing stocks were its technology holdings, with the
greatest gains coming from Texas Instruments, Nokia, Applied Materials,
Philips, and Teradyne. Several of these investments benefited from the explo-
sive growth in wireless communications. For example, Finnish company Nokia is
the global leader in wireless handsets and Texas Instruments is the leading
producer of specialized semiconductor chips, a key wireless handset component.
On the downside, Volkswagen, Unum, Philip Morris, McKesson, and HBOC all suf-
fered from company-specific problems. In addition, our investment in REITS was
disappointing, despite the fact that these companies enjoyed strong fundamen-
tals throughout the year. We continue to maintain this position in the expec-
tation investors will come to recognize the positive prospects this industry
offers.
56
<PAGE>
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT SIX
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO THE WAY YOU MANAGE YOUR
PORTFOLIO?
A. As we look out into the year 2000, we see continued growth around the
world. In the U.S., we think the Federal Reserve, which has already raised
rates three times in 1999, will continue to attempt to engineer a slowdown in
order to minimize any inflationary side effects emerging from the continued
growth of the domestic economy. For our part, we are focused on companies with
exposure to foreign and global markets that may experience better growth than
the U.S. In addition, we are seeking out companies that would benefit from any
trend toward rising prices that might emerge.
A $10,000 investment compared to the S&P 500 Index over the past 10 years.
[GRAPH]
Capital Growth Series S&P 500
12/31/89 10,000 10,000
12/31/90 9,653 9,682
12/31/91 14,866 12,642
12/31/92 13,968 13,614
12/31/93 16,059 14,974
12/31/94 14,925 15,166
12/31/95 20,602 20,851
12/31/96 24,942 25,663
12/31/97 30,798 34,191
12/31/98 41,292 44,021
12/31/99 47,771 53,256
Average Annual Total Returns
Capital Growth Lipper Variable Growth
Series S&P 500 Fund Average
1 year 15.7% 21.0% 31.7%
3 years 24.2 27.6 26.9
5 years 26.2 28.6 26.9
10 years 16.9 18.2 18.2
Since Inception 23.3 17.8 n/a
[checkmark] FUND FACTS
GOAL: Long-term growth of capital through investment primarily in equity
securities of companies whose earnings are expected to grow at a faster rate
than the United States economy.
START DATE: August 26, 1983
SIZE: $2.1 billion as of December 31, 1999
MANAGER: G. Kenneth Heebner has managed the Capital Growth Series since its
inception in 1983. He has also been 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; CGM Focus
Fund since September 1997.
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.
57
<PAGE>
NEW ENGLAND ZENITH FUND
(CAPITAL GROWTH SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--99.7% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
ALUMINUM--8.3%
850,000 Alcan Aluminium, Ltd................................ $ 35,009,375
1,630,000 Alcoa, Inc.......................................... 135,290,000
--------------
170,299,375
--------------
BEVERAGES--4.9%
1,437,000 Anheuser-Busch Companies, Inc....................... 101,847,375
--------------
COMPUTER SOFTWARE & SERVICES--2.9%
645,000 Computer Sciences Corp.(b).......................... 61,033,125
--------------
ELECTRONIC COMPONENTS--15.2%
1,039,044 Koninklijke Philips Electronics N.V. (ADR).......... 140,270,940
1,520,000 Micron Technology, Inc.(b).......................... 118,180,000
570,000 Texas Instruments, Inc.............................. 55,218,750
--------------
313,669,690
--------------
ELECTRONICS & COMMUNICATION EQUIPMENT--4.4%
475,000 Nokia Corp. (ADR)................................... 90,250,000
--------------
HOTELS & RESTAURANTS--6.2%
840,000 McDonald's Corp..................................... 33,862,500
2,460,000 Tricon Global Restaurants, Inc.(b).................. 95,017,500
--------------
128,880,000
--------------
INSURANCE--4.3%
1,870,000 Aflac, Inc. ........................................ 88,240,625
--------------
LEISURE--3.6%
4,890,000 Mirage Resorts, Inc.(b)............................. 74,878,125
--------------
LIGHT CAPITAL GOODS--7.3%
735,000 Applied Materials, Inc.(b).......................... 93,115,313
860,000 Teradyne, Inc.(b)................................... 56,760,000
--------------
149,875,313
--------------
MACHINERY--2.4%
1,140,000 Deere & Co.......................................... 49,447,500
--------------
METALS & MINING--4.9% ..............................
4,320,000 Inco, Ltd.(b)....................................... 101,520,000
--------------
MICROCOMPUTERS--5.5% ...............................
1,110,000 Apple Computer, Inc.(b)............................. 114,121,875
--------------
OIL--MAJOR INTEGRATED--2.0% ........................
590,000 TotalFina S.A. (ADR)................................ 40,857,500
--------------
REAL ESTATE INVESTMENT TRUSTS--8.9%
1,202,500 Apartment Investment and Management Co. ............ 47,874,531
1,465,000 Boston Properties, Inc. ............................ 45,598,125
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
REAL ESTATE INVESTMENT TRUSTS--(CONTINUED)
1,765,000 General Growth Properties, Inc. ................... $ 49,420,000
1,245,000 Vornado Realty Trust............................... 40,462,500
--------------
183,355,156
--------------
RETAIL--3.6%
1,840,000 CVS Corp. ......................................... 73,485,000
--------------
RETAIL--FOOD--2.6%
1,118,000 Hershey Foods Corp. ............................... 53,105,000
--------------
STEEL--5.0%
2,970,900 Pohang Iron & Steel Company, Ltd. (ADR)............ 103,981,500
--------------
TELEPHONE--7.7%
363,000 Telecomunicacoes Brasileiras S.A. (ADR)............ 46,645,500
1,000,000 Telefonos de Mexico, S.A. (ADR).................... 112,500,000
--------------
159,145,500
--------------
Total Common Stocks
(Identified Cost $1,731,996,326).................. 2,057,992,659
--------------
</TABLE>
SHORT-TERM INVESTMENT--0.5%
<TABLE>
<CAPTION>
FACE
AMOUNT
<C> <S> <C>
$10,705,000 American Express Credit Corp., 4.25%, 1/03/00.... 10,705,000
--------------
Total Short-Term Investments (Identified Cost
$10,705,000).................................... 10,705,000
--------------
Total Investments--100.2% (Identified Cost
$1,742,701,326)(a).............................. 2,068,697,659
Other assets less liabilities.................... (4,681,644)
--------------
TOTAL NET ASSETS--100%........................... $2,064,016,015
==============
</TABLE>
(a) Federal Tax Information:
At December 31, 1999 the net unrealized appreciation on investments based on
cost of $1,756,258,820 for federal income tax purposes was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost......... $ 370,407,264
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value......... (57,968,425)
-------------
Net unrealized appreciation................................. $ 312,438,839
=============
</TABLE>
(b) Non-income producing security.
Key to abbreviations:
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the right
to receive securities of the foreign issuer described. The value of ADRs
and GDRs are significantly influenced by trading on exchanges not
located in the United States or Canada.
See accompanying notes to financial statements.
58
<PAGE>
NEW ENGLAND ZENITH FUND
(CAPITAL GROWTH SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value............................... $2,068,697,659
Cash............................................... 3,442
Receivable for:
Securities sold.................................... 55,122,737
Fund shares sold................................... 491,568
Dividends and interest............................. 1,806,768
--------------
Total Assets...................................... 2,126,122,174
--------------
LIABILITIES
Payable for:
Fund shares redeemed............................... $1,076,935
Securities purchased............................... 59,690,215
Withholding taxes.................................. 148,293
Accrued expenses:
Management fees.................................... 1,029,676
Deferred trustees fees............................. 115,648
Other expenses..................................... 45,392
----------
Total Liabilities.................................. 62,106,159
--------------
NET ASSETS.......................................... $2,064,016,015
==============
Net assets consist of:
Capital paid in.................................... $1,740,166,685
Undistributed net investment income................ 120,155
Accumulated net realized gains (losses)............ (2,267,158)
Unrealized appreciation (depreciation) on
investments....................................... 325,996,333
--------------
NET ASSETS.......................................... $2,064,016,015
==============
Computation of offering price:
Net asset value and redemption price per share
($2,064,016,015 divided by 4,747,697 shares of
beneficial interest)............................... $ 434.74
==============
Identified cost of investments...................... $1,742,701,326
==============
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends........................................ $ 25,055,247(a)
Interest......................................... 452,544
------------
25,507,791
EXPENSES
Management fees.................................. $11,792,608
Trustees' fees and expenses...................... 83,029
Custodian........................................ 230,348
Audit and tax services........................... 15,743
Legal............................................ 99,059
Printing......................................... 397,286
Insurance........................................ 44,529
Miscellaneous.................................... 14,210
-----------
Total Expenses................................... 12,676,812
------------
NET INVESTMENT INCOME............................. 12,830,979
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net................................. 387,005,362
Unrealized appreciation (depreciation) on:
Investments--net................................. (115,634,353)
------------
Net gain (loss)................................... 271,371,009
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS....................................... $284,201,988
============
</TABLE>
(a)Net of foreign taxes of $404,037.
See accompanying notes to financial statements.
59
<PAGE>
NEW ENGLAND ZENITH FUND
(CAPITAL GROWTH SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
-------------- --------------
<S> <C> <C>
FROM OPERATIONS
Net investment income......................... $ 12,830,979 $ 19,464,166
Net realized gain (loss)...................... 387,005,362 169,787,977
Unrealized appreciation (depreciation)........ (115,634,353) 294,106,307
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS................................... 284,201,988 483,358,450
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income......................... (12,714,702) (19,530,694)
Net realized gain............................. (387,005,362) (224,364,814)
In excess of net realized gain................ (1,467,043) (800,115)
-------------- --------------
TOTAL DISTRIBUTIONS........................... (401,187,107) (244,695,623)
-------------- --------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares.................. 300,316,607 326,247,422
Reinvestment of distributions................. 401,187,107 244,695,623
Cost of shares redeemed....................... (416,251,052) (339,576,488)
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS........................... 285,252,662 231,366,557
-------------- --------------
TOTAL INCREASE (DECREASE) IN NET ASSETS....... 168,267,543 470,029,384
NET ASSETS
Beginning of the year......................... 1,895,748,472 1,425,719,088
-------------- --------------
End of the year............................... $2,064,016,015 $1,895,748,472
============== ==============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT
INCOME
End of the year............................... $ 120,155 $ 3,878
============== ==============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares................ 625,092 711,259
Issued in reinvestment of distributions....... 938,111 512,754
Redeemed...................................... (865,998) (741,374)
-------------- --------------
Net Change.................................... 697,205 482,639
============== ==============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Begin-
ning of Year........... $ 468.03 $ 399.60 $ 427.08 $ 374.62 $ 312.30
---------- ---------- ---------- ---------- --------
Income From Investment
Operations
Net Investment Income.. 3.35 5.29 2.52 3.08 3.47
Net Realized and
Unrealized Gain (Loss)
on Investments........ 68.25 130.40 95.67 74.80 114.91
---------- ---------- ---------- ---------- --------
Total From Investment
operations............ 71.60 135.69 98.19 77.88 118.38
---------- ---------- ---------- ---------- --------
Less Distributions
Distributions From Net
Investment Income..... (3.33) (5.31) (2.52) (3.08) (3.48)
Distributions From Net
Realized Capital
Gains................. (101.18) (61.73) (123.15) (22.34) (52.58)
Distributions in Excess
of Net Realized
Capital Gains......... (0.38) (0.22) 0.00 0.00 0.00
---------- ---------- ---------- ---------- --------
Total Distributions.... (104.89) (67.26) (125.67) (25.42) (56.06)
---------- ---------- ---------- ---------- --------
Net Asset Value, End of
Year................... $ 434.74 $ 468.03 $ 399.60 $ 427.08 $ 374.62
========== ========== ========== ========== ========
TOTAL RETURN (%)........ 15.7 34.1 23.5 21.1 38.0
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.66 0.66 0.67 0.69 0.71
Ratio of Net Investment
Income to Average Net
Assets (%)............. 0.67 1.18 0.52 0.79 0.92
Portfolio Turnover Rate
(%).................... 206 204 214 207 242
Net Assets, End of Year
(000) ................. $2,064,016 $1,895,748 $1,425,719 $1,142,660 $921,444
</TABLE>
See accompanying notes to financial statements.
60
<PAGE>
DAVIS VENTURE VALUE SERIES
PORTFOLIO MANAGERS: CHRISTOPHER C. DAVIS AND KENNETH C. FEINBERG
DAVIS SELECTED ADVISERS, L.P.
[Photo appear here]
Q. HOW DID THE SERIES PERFORM DURING THE PAST TWELVE MONTHS RELATIVE TO ITS
INDEX AND RELATIVE TO ITS PEERS?
A. The Davis Venture Value Series returned 17.5% for the year ending December
31, 1999. The S&P 500 Index/25/, now dominated by a handful of high-multiple,
ultra-cap stocks, finished the year with a return of 21.0%. The average return
of funds within the Lipper Variable Products Growth Fund/10/ universe was
31.7%. However, our discipline of buying growing companies at value prices
succeeded in outperforming the 7.4% return of the Russell 1000 Value Index.
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST TWELVE
MONTHS?
A. The U.S. stock market continued to be led by a select group of large tech-
nology companies in 1999, including Microsoft, Lucent Technologies, Cisco Sys-
tems, and America Online. This is because investor exuberance and optimism re-
mained strong for the future prospects of these companies, despite what some
may consider excessive valuations on each of these stocks. Many of these market
leaders are currently "priced to perfection," which we believe indicates a high
degree of investment risk. In contrast, notable and important industries such
as financial services companies and banks had a very mediocre year. Only the
highest quality firms, many of which we own in our portfolio, posted strong re-
turns.
The economic environment for the U.S. remains robust, with a strong pace of
Gross Domestic Product (GDP) growth, continued consumer confidence and
spending, and very low levels of inflation and unemployment. However, the
Federal Reserve Board moved to proactively curb economic growth several times
over the past year by raising short-term interest rates. As yields increased,
the U.S. moved from a liquidity driven market, marked by broad and rapid
expansion of price-to-earnings ratios, to more of a "growth" driven market in
which investors are highly focused on recent quarterly earnings performance of
companies.
Q. GIVEN THIS INVESTMENT ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY? WHAT
CHANGES DID YOU MAKE SINCE THE START OF THE YEAR?
A. Our investment strategy remains consistent throughout any market environ-
ment. We actively seek out high quality, well-managed companies with strong
growth prospects, but we attempt to buy them at value prices. Our research team
spends a great deal of time getting to know company management and investigat-
ing company fundamentals. Once we feel we have found an attractive business,
and can purchase an investment in this company, we will hold for the long-term
(5-7 years on average). We will never change our investment discipline out of
reaction to market momentum or investor "fads," as we strongly believe our
method is the best way to achieve long-term growth and preservation of wealth.
Q. WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE (ON BOTH AN
ABSOLUTE AND RELATIVE BASIS) DURING THE PAST TWELVE MONTHS? WHAT INVESTMENT
DECISIONS WERE MOST EFFECTIVE AND WHICH ONES WERE LEAST EFFECTIVE?
A. Our price discipline prevented us from buying high multiple, high growth
stocks that led the S&P 500 Index to another year of 20%+ returns. On the other
hand, our performance above our peers in the value category was due to our de-
cision to avoid "traditional" value plays such as cyclical stocks, high divi-
dend stocks, and low price-to-book value stocks. Such companies normally carry
limited future growth prospects.
On an absolute basis, our solid performance for the year was due to stock
selection. Although investments in the broad financial sector rendered mediocre
results for the year, our top positions of American Express, Citigroup, and
Morgan Stanley Dean Witter performed strongly. This was because investors were
"paid" to invest in quality throughout 1999. We did have some notable
disappointments during the year, including an investment in insurance companies
like Progressive, Allstate, and Chubb. Changing economics in this industry has
caused their earnings to disappoint Wall Street. Thankfully, we properly scaled
our investments in these situations and did not carry major positions in these
companies.
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT SIX
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO THE WAY YOU MANAGE YOUR
PORTFOLIO?
A. The U.S. economy continues to grow at an impressive pace today with little
inflationary pressures and low unemployment.
61
<PAGE>
Many market pundits continue to forecast strong returns among U.S. stocks in
the coming years. Indeed, many positive forces continue to benefit U.S.
businesses. First, U.S. companies have a strong lead on their European and
Japanese peers in terms of restructuring. Many foreign firms are only now
beginning the long and painful process of streamlining their operations and
investing for future growth. In the past five years, U.S. firms have emerged
as global leaders in industries where they could not compete only a decade
ago, such as semi-conductor manufacturing, and investment banking.
Furthermore, the U.S. has taken an important lead on Internet development. Not
only has this revolutionized U.S. companies in recent years, but it has also
lent an important level of experience to U.S. professionals that will become a
highly valuable resource as the next era of global "e-competition" develops.
However, investors should carefully consider how and where they invest their
money today. The twenty-first century is beginning at a high level of stock
market valuations. The Federal Reserve Board proactively moved to curb
liquidity and slow the pace of economic growth by raising short-term interest
rates several times during 1999. If the economy continues to rapidly expand,
the Fed may remain biased to tighten credit, which would dampen the potential
for continued expansion of company valuations. Additionally, earnings growth
is becoming harder and harder for companies to achieve. Increased investor
focus on quarterly earnings performance may cause the aggregate quality of
earnings to erode as company management struggles to meet Wall Street analyst
expectations. Renowned investor Warren Buffett recently reminded investors
that it is unrealistic to expect the long-term performance of the stock market
to exceed the long-term rate of growth of corporate profits. Unless investors
expect corporate earnings to grow at double-digit returns in the coming years,
they may have to temper their expectations for continued double-digit returns
in the stock market.
A $10,000 Investment compared to the S&P 500
since the Series' Inception
Davis Venture Value S&P 500
10/31/94 10,000 10,000
12/31/94 9,650 9,774
12/31/95 13,441 13,437
12/31/96 16,914 16,538
12/31/97 22,580 22,034
12/31/98 25,839 28,368
12/31/99 30,366 34,319
Average Annual Total Return
Venture Value Lipper Variable
Series S&P 500 Growth Fund Average
1 year 17.5% 21.0% 31.7%
3 years 21.5 27.6 26.9
5 years 25.8 28.6 26.9
Since Inception 24.0 27.0 n/a
FUND FACTS
GOAL: Growth of capital.
START DATE: October 31, 1994
SIZE: $656 million as of December 31, 1999
MANAGER: Christopher C. Davis has been the manager of the Series since
February 1997. Previously, he co-managed the Series with Shelby M.C. Davis
from October 1995 to February 1997.
Kenneth C. Feinberg has co-managed the Series since April 1999. Mr. Feinberg
has co-managed other equity funds for Davis Selected since May 1998.
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.
62
<PAGE>
NEW ENGLAND ZENITH FUND
(DAVIS VENTURE VALUE SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--92.5% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
BANKS AND SAVINGS & LOAN--10.9%
859 Bank of America Corp.................................... $ 43,111
513,880 Citigroup, Inc. ........................................ 28,552,458
1,000 First Union Corp........................................ 32,813
248,000 Golden West Financial Corp. ............................ 8,308,000
31,400 State Street Corp....................................... 2,294,162
169,100 U.S. Bancorp............................................ 4,026,694
705,300 Wells Fargo & Co. ...................................... 28,520,569
------------
71,777,807
------------
BUILDING MATERIALS--4.4%
142,700 Martin Marietta Materials, Inc.......................... 5,850,700
422,500 Masco Corp.............................................. 10,720,938
314,200 Tyco International, Ltd................................. 12,214,525
------------
28,786,163
------------
BUSINESS SERVICES--0.1%
33 ACNielson Corp.(b)...................................... 813
100 Dun & Bradstreet Corp. ................................. 2,950
26 Gartner Group, Inc. Class B............................. 359
6,800 WPP Group, Plc. (ADR)................................... 565,250
------------
569,372
------------
CHEMICALS--1.3%
200 Dow Chemical Co. ....................................... 26,725
44,100 Monsanto Co. ........................................... 1,571,063
176,500 Vulcan Materials Co..................................... 7,048,969
------------
8,646,757
------------
COMMUNICATIONS--2.6%
118,200 MediaOne Group, Inc.(b)................................. 9,079,238
205,100 Novell, Inc.(b)......................................... 8,191,181
------------
17,270,419
------------
COMPUTERS & PERIPHERALS--16.9%
344,000 Hewlett-Packard Co. .................................... 39,194,500
180,600 Intel Corp.............................................. 14,865,638
220,000 International Business Machines Corp.................... 23,760,000
101,700 Lexmark International Group, Inc.(b).................... 9,203,850
139,400 Oracle Corp.(b)......................................... 15,621,513
137,200 SAP AG (ADR)............................................ 7,142,975
37,000 Unisys Corp.(b)......................................... 1,181,688
------------
110,970,164
------------
CONSUMER PRODUCTS & SERVICES--1.8%
3,200 Coca-Cola Co............................................ 186,400
42,500 Colgate-Palmolive Co. .................................. 2,762,500
900 Fortune Brands, Inc..................................... 29,756
900 Gallaher Group, Plc. (ADR).............................. 13,838
3,100 General Electric Co. ................................... 479,725
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
63,100 Gillette Co. ........................................... $ 2,598,931
800 Maytag Corp. ........................................... 38,400
240,800 Philip Morris Companies, Inc. .......................... 5,583,550
------------
11,693,100
------------
DIVERSIFIED FINANCIAL SERVICES--13.2%
263,900 American Express Co. ................................... 43,873,375
12,400 Boardwalk Equities, Inc. (CAD).......................... 106,519
123,900 Donaldson, Lufkin & Jenrette, Inc....................... 5,993,663
107,100 Federal Home Loan Mortgage Corp......................... 5,040,394
537,100 Household International, Inc............................ 20,006,975
129,400 Providian Financial Corp................................ 11,783,487
------------
86,804,413
------------
DRILLING--0.1%
10,400 Transocean Sedco Forex, Inc. ........................... 350,350
------------
ELECTRONICS--6.6%
15,800 Agilent Technologies, Inc.(b)........................... 1,221,537
20,300 Koninklijke Philips Electronics NV (ADR)................ 2,740,500
92,387 Molex, Inc. ............................................ 5,237,188
353,100 Texas Instruments, Inc. ................................ 34,206,562
------------
43,405,787
------------
ENERGY--1.1%
400 Amerada Hess Corp....................................... 22,700
1,000 Atlantic Richfield Co................................... 86,500
200 Burlington Resources, Inc............................... 6,613
2,000 Chevron Corp............................................ 173,250
95,558 Devon Energy Corp. ..................................... 3,141,469
500 El Paso Energy Corp. ................................... 19,406
6,992 Exxon Mobil Corp. ...................................... 563,293
52,000 Schlumberger, Ltd. ..................................... 2,925,000
100 Sempra Energy........................................... 1,738
------------
6,939,969
------------
HOTELS & RESTAURANTS--4.4%
159,400 Marriott International, Inc............................. 5,031,063
589,900 McDonald's Corp......................................... 23,780,344
------------
28,811,407
------------
INDUSTRIAL PARTS & EQUIPMENT--1.0%
148,300 Dover Corp. ............................................ 6,729,113
------------
INVESTMENT FIRMS--2.9%
800 J.P. Morgan & Co., Inc.................................. 101,300
131,555 Morgan Stanley Dean Witter & Co. ....................... 18,779,476
------------
18,880,776
------------
</TABLE>
See accompanying notes to financial statements.
63
<PAGE>
NEW ENGLAND ZENITH FUND
(DAVIS VENTURE VALUE SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
PACKAGING--1.2%
146,800 Sealed Air Corp.(b)....................................... $7,606,075
----------
PAPER PRODUCTS--0.0%
894 International Paper Co.................................... 50,455
----------
PHARMACEUTICALS & HEALTH CARE--4.6%
314,900 American Home Products Corp............................... 12,418,869
92,400 Bristol-Myers Squibb Co................................... 5,930,925
200 IMS Health, Inc........................................... 5,438
1,500 Johnson & Johnson......................................... 139,688
35,500 Merck & Co., Inc.......................................... 2,380,719
36,300 Pfizer, Inc............................................... 1,177,481
128,500 Smithkline Beecham, Plc. (ADR)............................ 8,280,219
----------
30,333,339
----------
PROPERTY & CASUALTY INSURANCE--8.9%
137,838 American International Group, Inc......................... 14,903,734
328 Berkshire Hathaway, Inc. Class A(b)....................... 18,400,800
27 Berkshire Hathaway, Inc. Class B(b)....................... 49,410
64,500 Chubb Corp................................................ 3,632,156
98,000 Progressive Corp.......................................... 7,166,250
132,150 Transatlantic Holdings, Inc............................... 10,315,959
130,231 UnumProvident Corp........................................ 4,175,531
----------
58,643,840
----------
PUBLISHING--1.7%
29,900 Dow Jones & Company, Inc.................................. 2,033,200
65,000 Gannett Company, Inc...................................... 5,301,562
20 R.H. Donnelley Corp....................................... 377
62,900 Tribune Co................................................ 3,463,431
----------
10,798,570
----------
REAL ESTATE INVESTMENT TRUSTS--1.3%
14,200 Centerpoint Properties Trust.............................. 509,425
112,700 Crescent Real Estate Equities Co.......................... 2,070,862
20,600 Equity Residential Properties Trust....................... 879,362
92,400 General Growth Properties, Inc............................ 2,587,200
30,500 Mack-Cali Realty Corp..................................... 794,906
5,400 Public Storage, Inc....................................... 122,512
42,200 Vornado Realty Trust...................................... 1,371,500
----------
8,335,767
----------
RETAIL--0.3%
32,900 Harcourt General, Inc..................................... 1,324,225
33,293 Neiman Marcus Group, Inc.(b).............................. 896,830
----------
2,221,055
----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
SEMICONDUCTORS--2.8%
146,200 Applied Materials, Inc.(b)............................. $ 18,521,712
------------
TELECOMMUNICATIONS--3.9%
16,500 AT & T Corp............................................ 837,375
117,704 Globalstar Telecommunications, Ltd.(b)................. 5,178,976
221,000 Loral Space & Communications, Ltd.(b).................. 5,373,062
97,000 Motorola, Inc.......................................... 14,283,250
600 SBC Communications, Inc................................ 29,250
------------
25,701,913
------------
UTILITIES--ELECTRIC--0.0%
300 Carolina Power & Light Co.............................. 9,131
300 Duke Energy Corp....................................... 15,037
200 Edison International................................... 5,237
200 New England Electric System............................ 10,350
600 Southern Co............................................ 14,100
200 Wisconsin Energy Corp.................................. 3,850
------------
57,705
------------
WASTE MANAGEMENT--0.5%
172,390 Waste Management, Inc.................................. 2,962,953
------------
Total Common Stocks (Identified Cost $433,034,017)..... 606,868,981
------------
PREFERRED STOCKS--0.3%
79,900 General Growth Properties, 7.25%....................... 1,598,000
5,100 Rouse Co. Series B, $3.00.............................. 166,387
2,000 Vornado Realty Trust, 6.50%............................ 93,250
------------
Total Preferred Stocks (Identified Cost $2,336,107).... 1,857,637
------------
</TABLE>
See accompanying notes to financial statements.
64
<PAGE>
NEW ENGLAND ZENITH FUND
(DAVIS VENTURE VALUE SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
SHORT TERM INVESTMENT--7.2%
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$47,127,000 Repurchase Agreement with State Street Corp. dated
12/31/1999 at 2.75% to be repurchased at
$47,137,800 on 1/3/2000, collateralized by
$48,665,000 Federal National Mortgage
Association, 5.00% due 1/18/2000 with a value of
$48,533,605...................................... $ 47,127,000
------------
Total Short-Term Investments (Identified Cost
$47,127,000)..................................... 47,127,000
------------
Total Investments--100.0% (Identified Cost
$482,497,124)(a)................................. 655,853,618
Other assets less liabilities..................... (254,303)
------------
TOTAL NET ASSETS--100%............................ $655,599,315
============
</TABLE>
(a) Federal Tax Information:
At December 31, 1999 the net unrealized appreciation on investments based on
cost of $482,712,858 for federal income tax purposes was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all
investments in which there is an excess of
value over tax cost $199,734,727
Aggregate gross unrealized depreciation for all
investments in which there is an excess of
tax cost over value.......................................... (26,593,967)
------------
Net unrealized appreciation................................... $173,140,760
============
</TABLE>
(b) Non-income producing security.
Key to Abbreviations:
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the
right to receive securities of the foreign issuer described. The value
of ADRs and GDRs are significantly influenced by trading on exchanges
not located in the United States or Canada.
CAD-- Security is denominated in Canadian Dollars.
See accompanying notes to financial statements.
65
<PAGE>
NEW ENGLAND ZENITH FUND
(DAVIS VENTURE VALUE SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................... $655,853,618
Cash................................................... 1,995
Receivable for:
Fund shares sold....................................... 1,468,035
Dividends and interest................................. 416,230
Foreign taxes.......................................... 361
------------
Total Assets.......................................... 657,740,239
LIABILITIES
Payable for:
Fund shares redeemed................................... $697,453
Securities purchased................................... 997,237
Withholding taxes...................................... 3,214
Accrued expenses:
Management fees........................................ 399,154
Deferred trustees fees................................. 11,031
Other expenses......................................... 32,835
--------
Total Liabilities...................................... 2,140,924
------------
NET ASSETS.............................................. $655,599,315
============
Net assets consist of:
Capital paid in........................................ $484,193,489
Undistributed net investment income.................... 141,370
Accumulated net realized gains (losses)................ (2,092,058)
Unrealized appreciation (depreciation) on investments
and foreign currency.................................. 173,356,514
------------
NET ASSETS.............................................. $655,599,315
============
Computation of offering price:
Net asset value and redemption price per share
($655,599,315 divided by 24,585,395 shares of
beneficial interest)................................... $ 26.67
------------
Identified cost of investments.......................... $482,497,124
============
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends......................................... $ 5,942,479(a)
Interest.......................................... 1,334,159
-----------
7,276,638
EXPENSES
Management fees................................... $4,032,970
Trustees' fees and expenses....................... 25,192
Custodian......................................... 90,535
Audit and tax services............................ 18,003
Legal............................................. 31,041
Printing.......................................... 119,689
Amortization of organization expense.............. 1,670
Insurance......................................... 10,852
Miscellaneous..................................... 10,115
----------
Total Expenses.................................... 4,340,067
-----------
NET INVESTMENT INCOME.............................. 2,936,571
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net.................................. 4,916,013
Foreign currency transactions--net................ (23) 4,915,990
----------
Unrealized appreciation (depreciation) on:
Investments--net.................................. 78,394,742
Foreign currency translation--net................. (58) 78,394,684
---------- -----------
Net gain (loss).................................... 83,310,674
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS........................................ $86,247,245
===========
</TABLE>
(a) Net of foreign taxes of $34,700.
See accompanying notes to financial statements.
66
<PAGE>
NEW ENGLAND ZENITH FUND
(DAVIS VENTURE VALUE SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................. $ 2,936,571 $ 2,965,810
Net realized gain (loss).......................... 4,915,990 11,066,435
Unrealized appreciation (depreciation)............ 78,394,684 35,305,436
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS. 86,247,245 49,337,681
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................. (2,768,802) (2,955,699)
Net realized gain................................. (7,489,451) (8,942,796)
In excess of realized gain ....................... (2,132,319) 0
------------ ------------
TOTAL DISTRIBUTIONS............................... (12,390,572) (11,898,495)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares...................... 256,605,757 198,875,194
Reinvestment of distributions..................... 12,390,572 11,898,495
Cost of shares redeemed........................... (127,604,594) (88,310,045)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS............................... 141,391,735 122,463,644
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........... 215,248,408 159,902,830
NET ASSETS
Beginning of the year............................. 440,350,907 280,448,077
------------ ------------
End of the year................................... $655,599,315 $440,350,907
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT
INCOME
End of the year................................... $ 141,370 $ 12,192
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 10,192,408 9,098,582
Issued in reinvestment of distributions........... 471,756 515,015
Redeemed.......................................... (5,101,465) (4,074,457)
------------ ------------
Net Change........................................ 5,562,699 5,539,140
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year........................ $ 23.15 $ 20.80 $ 16.09 $ 13.10 $ 9.62
-------- -------- -------- -------- -------
Income From Investment
Operations
Net Investment Income....... 0.12 0.16 0.18 0.13 0.10
Net Realized and Unrealized
Gain (Loss) on Investments. 3.93 2.84 5.20 3.26 3.68
-------- -------- -------- -------- -------
Total From Investment
operations................. 4.05 3.00 5.38 3.39 3.78
-------- -------- -------- -------- -------
Less Distributions
Distributions From Net
Investment Income.......... (0.12) (0.16) (0.14) (0.13) (0.10)
Distributions From Net
Realized Capital Gains..... (0.32) (0.49) (0.53) (0.27) (0.20)
Distribution in excess of
Net Realized Capital Gain . (0.09) 0.00 0.00 0.00 0.00
-------- -------- -------- -------- -------
Total Distributions......... (0.53) (0.65) (0.67) (0.40) (0.30)
-------- -------- -------- -------- -------
Net Asset Value, End of Year. $ 26.67 $ 23.15 $ 20.80 $ 16.09 $ 13.10
======== ======== ======== ======== =======
TOTAL RETURN (%)............. 17.5 14.4 33.5 25.8 39.3
Ratio of Operating Expenses
to Average Net Assets (%)... 0.81 0.83 0.90 0.90 0.90
Ratio of Net Investment
Income to Average Net Assets
(%)......................... 0.55 0.82 0.94 1.25 1.39
Portfolio Turnover Rate (%).. 22 25 17 18 20
Net Assets, End of Year
(000)....................... $655,599 $440,351 $280,448 $108,189 $35,045
The Ratios of operating
expenses to average net
assets without giving effect
to the voluntary expense
agreement described in Note
4 to the Financial
Statements would have been
(%)......................... -- -- 0.90 0.96 1.51
</TABLE>
See accompanying notes to financial statements.
67
<PAGE>
GOLDMAN SACHS MIDCAP VALUE SERIES
PORTFOLIO MANAGERS: EILEEN ROMINGER; EILEEN A. APTMAN; MATTHEW B. MCLENNON &
KARMA WILSON
GOLDMAN SACHS ASSET MANAGEMENT
Q: HOW DID THE SERIES PERFORM DURING THE PAST TWELVE MONTHS RELATIVE TO ITS
INDEX AND RELATIVE TO ITS PEERS?
A. For the year ending December 31, 1999, the Goldman Sachs Midcap Value Series
("Series") returned 0.3%, under-performing the Russell Midcap Index/22/ return
of 18.2% over the same time period, but outperforming the Russell Midcap Value
Index return of -0.1%. The average return of all funds within the Lipper Vari-
able Products Midcap Fund/14/ universe was 44.5%.
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST TWELVE
MONTHS?
A. 1999 ended on a positive note, as interest rate concerns dissipated and Y2K-
related liquidity fears proved unsubstantiated and the marketplace evaded any
actual trading volume declines or grand-scale increases in cash levels. During
the year, restrained inflation, solid growth in corporate profits, and gains by
a few lead sectors drove U.S. indexes to record levels; the S&P 500 Index, Rus-
sell Midcap Index and Russell 2000 Index gained 21.0%, 18.2% and 21.3%, respec-
tively. These gains, while substantial, were primarily driven by a narrow band
of technology and telecommunications stocks.
Across all capitalization ranges, the disparity between growth and value in-
vestment styles continued to be extremely wide, with the Russell Midcap Value
Index underperforming the Russell Midcap Growth Index by 51.4% for the year (-
0.1% versus +51.3%).
Q: WHAT CHANGES DID YOU MAKE SINCE THE START OF THE YEAR?
A: Effective December 1 and going forward, we have implemented a benchmark
change for the Series, and we will be reporting and evaluating our risk profile
against the Russell Midcap Value Index. We believe that over a complete busi-
ness cycle, either a growth or value style will offer competitive returns
within the mid-cap market. Over shorter time periods, however, we believe it is
important to view our performance versus a value benchmark such as the Russell
Midcap Value Index, for it more accurately captures our style of investing and
the universe in which we search for investment ideas.
Q. WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE (ON BOTH AN
ABSOLUTE AND RELATIVE BASIS) DURING THE PAST TWELVE MONTHS? WHAT INVESTMENT
DECISIONS WERE MOST EFFECTIVE AND WHICH ONES WERE LEAST EFFECTIVE?
A. Positive stock selection helped performance among electric utilities, steel,
electric equipment and banks. Specifically, within the utilities industry, CMP
Group Inc. (1.6% of the total Series) sold its generation assets, boasted at-
tractive cash reserves and became the acquisition target of Energy East Corp.
Steel producer Ispat International (1.3% of the total Series) also drove posi-
tive performance. Ispat International is an extremely well-managed steel com-
pany that has grown primarily through acquisitions of poorly managed assets at
discounted prices over time. As it revamps these facilities and assets, Ispat
International takes its place at the low end of the cost curve and earns a
strong return on equity. In electric equipment, Vishay Intertechnology, Inc.
(1.3% of the total Series) was the biggest contributor to positive performance.
Electronic component maker Vishay benefited from improved supply and demand dy-
namics for the semiconductor equipment industry. Finally, among banks, Republic
New York Corp. (2.1% of the total Series), acquisition target of HSBC and
Unionbancal Corp. (1.2% of the total Series) were our top performers, leading
our investments to outperform the benchmark bank holdings.
On an industry level, detractors from performance included our tobacco posi-
tion, which suffered due to litigation concerns. We have reduced this over-
weight. On a relative basis, our underweights in highly valued industries such
as wireless communications and computer software hurt the portfolio, as these
industry groups both rose more than one hundred percent in the year. Several
specific stocks also detracted from performance; fundamental deterioration led
us to sell apparel company Fruit of The Loom, Inc., auto parts supplier Feder-
al- Mogul Corp., and InaCom Corp., which was hampered by poor management deci-
sions after its acquisition of Vanstar. We also sold our position in
Healthsouth Corp. While some of our health care and hospital holdings suffered
due to concerns over reimbursement policies, several holdings benefited. For
example, Health Management Associates was one of our best performers for the
year; HMA rebounded as investor focus shifted from reimbursement concerns to
the company's solid management track record and growth prospects.) We remain
68
<PAGE>
invested in Bergen Brunswig Corp. (1.1% of the total Series), which fell due
to challenges integrating recently acquired operations; the company is re-
structuring management and working to reduce costs associated with the acqui-
sition. In addition, its core drug distribution business is experiencing
strong revenue growth. The company has rebounded in early 2000.
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT SIX
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO THE WAY YOU MANAGE YOUR
PORTFOLIO?
A. Over the last four months, under new management, we have taken additional
steps in terms of personnel, investment strategy, and portfolio construction
to position the products appropriately relative to shareholder expectations.
We have implemented a more robust, quality-oriented value investment
philosophy. The basic tenets of this philosophy are that 1) quality of
business is the first criterion for selecting investments; 2) low cost alone
seems an inadequate investment thesis; 3) we must acknowledge long-term
changes in our economy driven by technology and information-based tools; and
4) a long-term approach to value will help us meet client objectives.
A $10,000 Investment Compared to the S&P 500 and Russell Midcap Index
Since the Series' Inception
[GRAPH]
Midcap Value Russell Midcap S&P 500
4/30/93 10,000 10,000 10,000
12/31/93 11,474 11,136 10,812
12/31/94 11,437 10,903 10,951
12/31/95 14,909 14,659 15,056
12/31/96 17,534 17,444 18,531
12/31/97 20,571 22,505 24,689
12/31/98 19,447 24,777 31,787
12/31/99 19,515 29,294 38,455
Average Annual Total Return
Lipper Variable
Russell Midcap Fund
Midcap Value Midcap S&P 500 Average
1 year 0.3% 18.2% 21.0% 44.5%
3 years 3.6 18.9 27.6 27.4
5 years 11.3 21.9 28.6 23.0
Since Inception 10.6 17.5 22.4 n/a
[checkmark] FUND FACTS
GOAL: Long-term capital appreciation.
START DATE: April 30, 1993
SIZE: $109 million as of December 31, 1999
MANAGERS: Eileen Rominger, Eileen A. Aptman, Matthew B. McLennan and Karma
Wilson. Msses. Aptman and Wilson and Mr. McLennan are Vice Presidents of Goldman
Sachs and have managed the Goldman Sachs Midcap Value Series since September
1998. Ms. Rominger has managed the Series since November 1999.
Performance numbers are net of all Series expenses but do not include any in-
surance, 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.
69
<PAGE>
NEW ENGLAND ZENITH FUND
(GOLDMAN SACHS MIDCAP VALUE SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--96.8% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
AEROSPACE & DEFENSE--1.6%
31,700 Northrop Grumman Corp................................... $ 1,713,781
------------
AUTO SUPPLIERS--1.2%
39,700 AutoZone, Inc.(b)....................................... 1,282,806
------------
BANKS--9.5%
26,900 Comerica, Inc........................................... 1,255,894
46,100 GreenPoint Financial Corp............................... 1,097,756
167,300 Pacific Century Financial Corp.......................... 3,126,419
31,700 Republic New York Corp.................................. 2,282,400
181,100 Sovereign Bancorp, Inc.................................. 1,349,761
32,100 UnionBanCal Corp........................................ 1,265,944
------------
10,378,174
------------
BUSINESS SERVICES--0.5%
17,500 Dun & Bradstreet Corp................................... 516,250
------------
COMMERCIAL PRODUCTS--2.2%
44,700 Herman Miller, Inc...................................... 1,028,100
106,800 UNOVA, Inc.(b).......................................... 1,388,400
------------
2,416,500
------------
COMMERCIAL SERVICES--0.9%
71,600 Modis Professional Services, Inc.(b).................... 1,020,300
------------
COMMODITY CHEMICALS--4.4%
76,000 IMC Global, Inc. ....................................... 1,244,500
107,300 Millennium Chemicals, Inc............................... 2,119,175
30,600 Potash Corporation of Saskatchewan, 1,474,538
Inc. .................................................
------------
4,838,213
------------
COMPUTER SOFTWARE & SERVICES--1.0%
86,500 Mentor Graphics Corp.(b)................................ 1,140,719
------------
DEPARTMENT STORES--2.1%
49,700 Dillard's, Inc. ........................................ 1,003,319
24,600 Federated Department Stores, Inc.(b).................... 1,243,838
------------
2,247,157
------------
ELECTRIC UTILITIES--11.2%
61,900 CMP Group, Inc. ........................................ 1,706,119
39,800 DTE Energy Co. ......................................... 1,248,725
48,900 Entergy Corp. .......................................... 1,259,175
13,200 FPL Group, Inc. ........................................ 565,125
46,400 LG&E Energy Corp. ...................................... 809,100
98,700 Northeast Utilities..................................... 2,029,519
126,100 Public Service Company of New Mexico.................... 2,049,125
64,000 SCANA Corp.............................................. 1,720,000
26,600 Unicom Corp. ........................................... 891,100
------------
12,277,988
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
ENERGY--2.4%
47,100 Tosco Corp.............................................. $ 1,280,531
67,100 Valero Energy Corp...................................... 1,333,612
------------
2,614,143
------------
ENVIRONMENTAL SERVICES--1.3%
97,300 Republic Services, Inc.(b).............................. 1,398,687
------------
FOOD & BEVERAGES--2.5%
114,770 Archer Daniels Midland Co............................... 1,398,759
46,300 International Home Foods, Inc.(b)....................... 804,462
44,600 Nabisco Group Holdings Corp............................. 473,875
------------
2,677,096
------------
FOREST PRODUCTS--0.9%
40,800 Georgia-Pacific Corp.(b)................................ 1,004,700
------------
HEALTHCARE MANAGEMENT--8.0%
39,200 Aetna, Inc. ............................................ 2,187,850
125,100 HCR Manor Care, Inc.(b)................................. 2,001,600
143,500 Health Management Associates, Inc.(b)................... 1,919,313
32,300 Quest Diagnostics, Inc.(b).............................. 987,169
69,000 Tenet Healthcare Corp.(b)............................... 1,621,500
------------
8,717,432
------------
INDUSTRIAL PARTS & MACHINERY--1.5%
125,400 AGCO Corp. ............................................. 1,685,063
------------
INSURANCE BROKERS & OTHER
INSURANCE--4.7%
20,400 Loews Corp.............................................. 1,238,025
119,100 Old Republic International Corp......................... 1,622,738
18,900 Radian Group, Inc....................................... 902,475
26,000 XL Capital, Ltd. ....................................... 1,348,750
------------
5,111,988
------------
INVESTMENT BROKERS &
MANAGERS--3.3%
49,070 Bear Stearns Companies, Inc............................. 2,097,743
59,434 Waddell & Reed Financial, Inc........................... 1,493,279
------------
3,591,022
------------
MEDIA CONTENT--3.8%
61,800 A.H. Belo Corp.......................................... 1,178,063
36,800 Media General, Inc...................................... 1,913,600
16,600 Times Mirror Co. ....................................... 1,112,200
------------
4,203,863
------------
METALS & MINING--1.5%
12,000 Parker Hannifin Corp.................................... 615,750
14,900 Phelps Dodge Corp....................................... 1,000,163
------------
1,615,913
------------
</TABLE>
See accompanying notes to financial statements.
70
<PAGE>
NEW ENGLAND ZENITH FUND
(GOLDMAN SACHS MIDCAP VALUE SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
OIL & GAS--0.7%
11,000 Helmerich & Payne, Inc.................................. $ 239,937
44,400 Union Pacific Resources Group, Inc...................... 566,100
------------
806,037
------------
PHARMACEUTICALS--1.1%
144,200 Bergen Brunswig Corp.................................... 1,198,663
------------
PRINTING--0.7%
31,000 R.R. Donnelley & Sons Co................................ 769,188
------------
PROPERTY & CASUALTY INSURANCE--1.7%
81,000 Everest Reinsurance Holdings, Inc....................... 1,807,313
------------
RAILROADS--1.1%
58,100 Canadian Pacific, Ltd................................... 1,252,781
------------
REAL ESTATE--1.3%
82,300 TrizecHahn Corp......................................... 1,388,812
------------
REAL ESTATE INVESTMENT TRUSTS--3.8%
14,400 AvalonBay Communities, Inc.............................. 494,100
39,900 Equity Office Properties Trust.......................... 982,537
22,600 Equity Residential Properties Trust..................... 964,737
28,700 Public Storage, Inc..................................... 651,131
29,300 Spieker Properties, Inc................................. 1,067,619
------------
4,160,124
------------
RESTAURANTS & HOTELS--3.1%
129,300 CBRL Group, Inc......................................... 1,254,614
91,700 Starwood Hotels & Resorts Worldwide, Inc................ 2,154,950
------------
3,409,564
------------
RETAIL--3.5%
104,300 Ingram Micro, Inc.(b)................................... 1,368,937
93,400 Reebok International, Ltd.(b)........................... 764,712
93,100 Ross Stores, Inc........................................ 1,669,981
------------
3,803,630
------------
SEMICONDUCTORS--5.1%
42,500 Avnet, Inc. ............................................ 2,571,250
58,000 Tech Data Corp.(b)...................................... 1,573,250
45,156 Vishay Intertechnology, Inc.(b)......................... 1,428,058
------------
5,572,558
------------
STEEL--4.9%
62,984 AK Steel Holding Corp................................... 1,188,823
86,300 Ispat International N.V................................. 1,391,587
156,100 UCAR International, Inc.(b)............................. 2,780,531
------------
5,360,941
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
SUPERMARKETS--1.2%
132,400 Fleming Companies, Inc... $ 1,357,100
------------
TOBACCO--2.3%
51,466 R.J. Reynolds Tobacco
Holdings, Inc........... 907,088
64,100 UST, Inc................. 1,614,519
------------
2,521,607
------------
TRANSPORTATION--
AIRFREIGHT,
TRUCK & OTHER--1.8%
23,200 CNF Transportation, Inc.. 800,400
34,500 Ryder System, Inc........ 843,094
8,700 Tidewater, Inc........... 313,200
------------
1,956,694
------------
Total Common Stocks
(Identified Cost
$111,460,168)........... 105,816,807
------------
SHORT-TERM INVESTMENT--1.7%
<CAPTION>
FACE
AMOUNT
<C> <S> <C>
$1,881,000 Repurchase Agreement with
State Street Corp. dated
12/31/1999 at 2.8% to be
repurchased at
$1,881,439 on 1/3/2000,
collateralized by
$2,045,000 U.S. Treasury
Bonds, 6.000% due
2/15/26 with a value of
$1,919,744.............. 1,881,000
------------
Total Short-Term
Investments
(Identified Cost
$1,881,000)............... 1,881,000
------------
Total Investments--98.5%
(Identified Cost
$113,341,168)(a).......... 107,697,807
Other assets less
liabilities............... 1,582,101
------------
TOTAL NET ASSETS--100%..... $109,279,908
============
</TABLE>
(a) Federal Tax Information:
At December 31, 1999 the net unrealized depreciation on investments based on
cost of $113,938,198 for federal income tax purposes was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized
appreciation for all investments
in which there is an excess of
value over tax cost.................. $ 5,955,899
Aggregate gross unrealized
depreciation for all investments
in which there is an excess of
tax cost over value.................. (12,196,290)
------------
Net unrealized depreciation........... $ (6,240,391)
============
</TABLE>
For Federal income tax purposes, the Series has a capital loss carryforward
at December 31, 1999 of approximately $4,979,000 which will expire in 2007.
Accordingly, no capital gain distributions are expected to be paid to
shareholders until net gains have been realized in excess of such amount.
(b) Non-income producing security.
See accompanying notes to financial statements.
71
<PAGE>
NEW ENGLAND ZENITH FUND
(GOLDMAN SACHS MIDCAP VALUE SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................. $107,697,807
Cash................................................. 77
Receivable for:
Securities sold...................................... 5,718,065
Fund shares sold..................................... 290,020
Dividends and interest............................... 201,767
Foreign taxes........................................ 1,691
------------
113,909,427
LIABILITIES
Payable for:
Fund shares redeemed................................. $ 259,590
Securities purchased................................. 4,274,061
Withholding taxes.................................... 825
Accrued expenses:
Management fees...................................... 68,196
Deferred trustees fees............................... 6,015
Other expenses....................................... 20,832
----------
4,629,519
------------
NET ASSETS............................................ $109,279,908
============
Net Assets consist of:
Capital paid in...................................... $123,022,642
Overdistributed net investment income................ (2,588)
Accumulated net realized gains (losses).............. (8,096,785)
Unrealized appreciation (depreciation) on
investments......................................... (5,643,361)
------------
NET ASSETS............................................ $109,279,908
============
Computation of offering price:
Net asset value and redemption price per share
($109,279,908 divided by 897,879 shares of beneficial
interest)............................................ $ 121.71
============
Identified cost of investments........................ $113,341,168
============
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends......................................... $1,700,319(a)
Interest.......................................... 485,960
----------
2,186,279
EXPENSES
Management fees................................... $ 834,843
Deferred expense reimbursement.................... 4,535
Trustees' fees and expenses....................... 11,571
Custodian......................................... 60,822
Audit and tax services............................ 11,177
Legal............................................. 6,817
Printing.......................................... 44,904
Insurance......................................... 2,467
Miscellaneous..................................... 3,315
-----------
Total expenses................................... 980,451
----------
NET INVESTMENT INCOME.............................. 1,205,828
----------
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net.................................. (8,040,878)
Options--net...................................... 122,746 (7,918,132)
-----------
Unrealized appreciation (depreciation) on:
Investments--net.................................. 6,689,577
----------
Net gain (loss).................................... (1,228,555)
----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS........................................ ($22,727)
==========
</TABLE>
(a)Net of foreign taxes of $10,172
See accompanying notes to financial statements.
72
<PAGE>
NEW ENGLAND ZENITH FUND
(GOLDMAN SACHS MIDCAP VALUE SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income.............................. $ 1,205,828 $ 773,045
Net realized gain (loss)........................... (7,918,132) 24,005,683
Unrealized appreciation (depreciation)............. 6,689,577 (31,637,944)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS.. (22,727) (6,859,216)
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income.............................. (1,205,828) (774,037)
In excess of net investment income................. (155,136) 0
Net realized gain.................................. 0 (25,623,971)
In excess of net realized gain..................... 0 (178,608)
------------ ------------
TOTAL DISTRIBUTIONS................................ (1,360,964) (26,576,616)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares....................... 40,923,689 39,367,155
Reinvestment of distributions...................... 1,360,964 26,576,616
Cost of shares redeemed............................ (44,618,082) (34,127,490)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS................................ (2,333,429) 31,816,281
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS............ (3,717,120) (1,619,551)
NET ASSETS
Beginning of the year.............................. 112,997,028 114,616,579
------------ ------------
End of the year.................................... $109,279,908 $112,997,028
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT
INCOME
End of the year.................................... $ (2,588) $ (992)
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares..................... 322,118 235,104
Issued in reinvestment of distributions............ 11,333 219,133
Redeemed........................................... (355,388) (206,302)
------------ ------------
Net Change......................................... (21,937) 247,935
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year.......................... $ 122.85 $ 170.59 $ 157.88 $142.44 $112.77
-------- -------- -------- ------- -------
Income From Investment
Operations
Net Investment Income......... 1.36 1.09 0.00 0.11 0.42
Net Realized and Unrealized
Gain (Loss) on Investments... (0.97) (11.41) 27.12 24.88 33.80
-------- -------- -------- ------- -------
Total From Investment
operations................... 0.39 (10.32) 27.12 24.99 34.22
-------- -------- -------- ------- -------
Less Distributions
Distributions From Net
Investment Income............ (1.36) (1.09) 0.00 (0.13) (0.40)
Distributions in excess of
net investment income........ (0.17) 0.00 0.00 0.00 0.00
Distributions From Net
Realized Capital Gains....... 0.00 (36.08) (14.41) (9.42) (4.15)
Distributions in Excess of
Net Realized Capital Gains... 0.00 (0.25) 0.00 0.00 0.00
-------- -------- -------- ------- -------
Total Distributions........... (1.53) (37.42) (14.41) (9.55) (4.55)
-------- -------- -------- ------- -------
Net Asset Value, End of Year... $ 121.71 $ 122.85 $ 170.59 $157.88 $142.44
======== ======== ======== ======= =======
Total Return (%)............... 0.3 (5.5) 17.4 17.6 30.4
Ratio of Operating Expenses to
Average Net Assets (%)........ 0.88 0.88 0.85 0.85 0.85
Ratio of Net Investment Income
to Average Net Assets (%)..... 1.08 0.66 (0.16) 0.08 0.37
Portfolio Turnover Rate (%).... 119 171 49 65 58
Net Assets, End of Year (000).. $109,280 $112,997 $114,617 $82,667 $48,832
The Ratios of operating
expenses to average net
assets without giving effect
to the voluntary expense
agreement described in Note 4
to the Financial Statements
would have been (%)........... -- 0.90 0.86 0.92 1.06
</TABLE>
See accompanying notes to financial statements.
73
<PAGE>
LOOMIS SAYLES SMALL CAP SERIES
LEAD PORTFOLIO MANAGERS (PICTURED): CHRIS R. ELY AND JEFFREY C. PETHERICK
PORTFOLIO MANAGERS: MARY C. CHAMPAGNE, PHILIP C. FINE AND DAVID L. SMITH
LOOMIS, SAYLES & COMPANY, L.P. (A)
(photos of Jeffrey Petherick and Chris Ely appear here)
Q. HOW DID THE SERIES PERFORM DURING THE PAST TWELVE MONTHS RELATIVE TO ITS
INDEX AND RELATIVE TO ITS PEERS?
A. In May 1999, the Loomis Sayles Small Cap Series changed its investment
strategy to include both a growth and value investing style. The Series bene-
fited from this shift as growth stocks exhibited strong performance, particu-
larly in the 4th quarter.
For the 4th quarter, both sides performed well compared to their style
benchmarks leading to a 29.2% quarterly return for the overall fund. For the
full year ending December 31, 1999, the fund was up 31.8%, which compares
favorably to the Russell 2000 Small Cap Index/23/ return of 21.3%. The 38.4%
average return of the Lipper Variable Products Small Cap Fund/15/ was skewed
higher because of a few technology laden funds with very high returns. The
Median return for the same group was only 28.0%.
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST TWELVE
MONTHS.
A. The 4th quarter provided a fitting finale to an unusual 1999 in which major
market indexes posted double digit returns, while on the New York Stock ex-
change there were nearly twice as many losing issues as gainers for the year.
Perhaps more remarkable is that a strategy of buying the 200 companies in the
Russell 2000 index with the highest reported losses would have out-performed
the index by a wide margin. It was also a year in which growth out-performed
value in the small cap arena by more than 40 percentage points. The market sus-
tained this overwhelming preference for growth despite developments that his-
torically have suggested better relative performance by many of the value sec-
tors and industries. These included a sequence of three discount rate hikes by
the Federal Reserve, accelerating economic growth on a global basis, an up-tick
in inflation, and the resumption of solid earnings comparisons in the second
half. Nonetheless, investors discounted or ignored these factors, instead fo-
cusing on the low absolute rate of inflation and a belief that the burgeoning
Internet, Telecommunications, and Biotechnology markets afforded several years
of earnings hyper-growth. In sum, the market in 1999 was unprecedented both for
the spectacular returns afforded certain sectors, its departure from historical
valuation norms, and the narrowness of its breadth.
Q. GIVEN THIS INVESTMENT ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY? WHAT
CHANGES DID YOU MAKE SINCE THE START OF THE YEAR?
A. In a difficult environment for the value portion of the Series, we did not
change our investment strategy but did attempt to recognize the dynamic forces
in the economy and the market that have resulted in the unusual results noted
above. While maintaining our discipline of focusing on key value attributes and
the catalysts necessary for superior share price performance, we identified
ways to participate in broader market trends that were consistent with our in-
vestment process. In particular, we were able to enjoy some success in the
software and computer services industry, semiconductors and electronic compo-
nents, certain basic materials stocks, and in the energy sector.
In 1999's strong environment for growth stocks, the growth portion of the Se-
ries maintained significant investments in a variety of technology issues in-
cluding telecommunications equipment, electronics, and software. This over-
weight position has been maintained since the growth portion was introduced on
May 1, 1999.
Q. WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE (ON BOTH AN
ABSOLUTE AND RELATIVE BASIS) DURING THE PAST TWELVE MONTHS? WHAT INVESTMENT
DECISIONS WERE MOST EFFECTIVE AND WHICH ONES WERE LEAST EFFECTIVE?
A. The value portion of the Series lagged the Russell 2000 Index due to a his-
toric disparity in the performance of growth sectors and industries compared to
value sectors and industries. In the 4th quarter alone, the Russell 2000 Growth
Index appreciated 33.4%, more than 30 full percentage points better than the
value index. A major a driver of returns in 1999 was technology, which in the
Russell 2000 Index was up more than 100% for the year. However, the tech or
"new economy" phenomenon also impacted returns in other Russell sectors. For
example, both utilities and producer durables generated strong returns in 1999,
virtually entirely on the strength of Competitive Local Exchange Carriers
(CLECs) and wireless stocks in the first case, and semiconductor equipment in
the latter. The technology exposure within the value segment was up more than
90%. It was its best performing sector for the year on an absolute basis, fol-
lowed by energy and materials and processing materials and
74
<PAGE>
processing was the best performing sector in the value segment for the year on
a relative basis. The worst absolute performance on the value side came in
consumer staples and health care, while on a relative basis the poorest per-
forming sectors were health care and producer durables. Among the most effec-
tive investment decisions for the value segment was stock selection in the ma-
terials and processing sector, maintaining a modestly over-weight position in
energy, and increasing exposure to computer software and services late in the
year. Hurting performance, our stock selection process discipline resulted in
under-weight positions in strong performing groups such as Internet-related
companies and telecommunications equipment and components. Otherwise, perfor-
mance was also hurt by an over-weight position in consumer staples and health
care.
For the growth portion, its overweight position in technology issues was the
principal factor for its strong performance in 1999. Despite some significant
volatility, particularly in the second and third quarters, our focus on a
broad array of high quality, small cap tech issues proved to be an effective
strategy. The growth portion's performance was also aided by the addition of
several biotech stocks, which began to capture investor interest as the year
drew to a close. The poorest performing sectors included financial services,
due in large measure to rising interest rates, and retail, a surprise to us
given the strong economy and high levels of employment.
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT SIX
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO WAY YOU MANAGE YOUR PORTFOLIO?
A. On the value side, we anticipate no changes to our overall investment
strategy or to our stock selection process. We continue to believe that atten-
tion to fundamental business analysis and attractive valuation metrics is the
best way to deliver superior results. In 1999, the market sustained an over-
whelming preference for growth despite developments, such as rising interest
rates, an up-tick in inflation, and accelerating economic activity that have
historically suggested better performance by value sectors and industries. The
new year begins with that environment intact, and with valuations for the
growth sectors that are less attractive than a year ago. Over the next six
months, we expect a gradual adjustment in market valuations that will be more
favorable to a value-oriented investment style and stock selection process.
On the growth side, given the strong finish to 1999 and the uncertainties sur-
rounding Fed policy, the pace of economic growth, the outcome of the Presiden-
tial election, and unprecedented valuation levels, we would expect to experi-
ence volatility in small cap growth stock returns. While we recognize these
risks, we also believe this volatility will create opportunities to add to po-
sitions of rapidly growing companies at attractive prices. We also believe
that there will be a better balance between growth and value stocks in 2000. A
broadening of the small cap stock market would be a welcome and healthy event,
allowing small cap stocks to continue to outperform large cap issues in 2000.
75
<PAGE>
A $10,000 Investment compared to the Russell 2000 Index
since the Series' Inception
[CHART]
Loomis Sayles
Small Cap Series Russell 2000
5/2/94 10,000 10,000
12/31/94 9,676 10,027
12/31/95 12,467 12,879
12/31/96 16,292 15,004
12/31/97 20,342 18,359
12/31/98 19,995 17,892
12/31/99 26,347 21,695
Average Annual Return
Small Cap Lipper Variable Small
Series Russell 2000 Company Fund Average
1 year 31.8% 21.3% 38.4%
3 years 17.4 13.1 18.9
5 years 22.2 16.7 21.1
Since Inception 18.6 14.7 n/a
[CHECKMARK] FUND FACTS
GOAL: Long-term capital growth from investment in common stocks or their
equivalents.
START DATE: May 2, 1994
SIZE: $322 million as of December 31, 1999
MANAGERS: Chris Ely, Jeffrey Petherick, Mary Champagne, Philip Fine and David
Smith. 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 Fund and the Maxim Series--Small Cap Fund. Mr. Petherick
joined Loomis Sayles in 1990. Ms. Champagne joined Loomis Sayles in 1993. Mr.
Ely, Mr. Fine, and Mr. Smith began co-managing The Series in April 1999. Mr.
Ely has also managed the Loomis Sayles portion of the New England Star Small
Cap Fund since December 1996. He also manages the Loomis Sayles Aggressive Fund
and the Loomis Sayles Small Cap Growth Fund, series of the Loomis Sayles Funds,
and the Loomis Sayles Small Company Growth Fund, a series of Loomis Sayles
investment Trust. Mr. Ely joined Loomis Sayles in 1996.
Performance numbers are net of all Series expenses but do not include any in-
surance, 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.
(a) Joseph R. Gatz has replaced Jeffrey C. Petherick as a lead Portfolio Man-
ager of the Series and Dawn Alston Paige has replaced Mary C. Champagne as a
Portfolio Manager of the Series.
Mr. Gatz, Vice President of Loomis Sayles, joined Loomis Sayles as a Portfolio
Manager in 1999. From 1993 until he joined Loomis Sayles, Mr. Gatz was a Port-
folio Manager at Banc One Investment Advisers Corporation and certain of its
corporate predecessors.
Ms. Paige has been a Portfolio Manager at Loomis Sayles since 1998. She has
been employed by Loomis Sayles since 1992.
76
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--95.0% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
AEROSPACE/DEFENSE--0.5%
12,500 Alliant Techsystems, Inc.(b)............................... $ 778,906
29,300 Newport News Shipbuilding, Inc............................. 805,750
----------
1,584,656
----------
AUTO & RELATED--0.3%
21,800 Oshkosh Truck Corp......................................... 639,012
27,900 Tower Automotive, Inc.(b).................................. 430,706
----------
1,069,718
----------
BANKS & THRIFTS--2.6%
36,600 Bay View Capital Corp...................................... 519,263
24,000 Chittenden Corp............................................ 711,000
28,000 City National Corp. ....................................... 922,250
46,900 Colonial BancGroup, Inc.................................... 486,588
11,900 Commerce Bancorp, Inc...................................... 481,206
39,012 Commercial Federal Corp.................................... 694,901
35,500 Community First Bankshares, Inc............................ 559,125
14,100 First Midwest Bancorp, Inc................................. 373,650
26,900 FirstMerit Corp............................................ 618,700
36,290 Hudson United Bancorp...................................... 927,663
47,100 Local Financial Corp.(b)................................... 488,662
70,400 Staten Island Bancorp, Inc................................. 1,267,200
7,200 Wilmington Trust Corp...................................... 347,400
----------
8,397,608
----------
BEVERAGES--0.2%
33,900 The Pepsi Bottling Group, Inc.............................. 561,469
----------
BROADCAST--T.V./RADIO/CABLE--6.1%
38,700 ACME Communications, Inc.(b)............................... 1,286,775
56,200 Citadel Communications Corp.(b)............................ 3,645,975
72,900 Cumulus Media, Inc.(b)..................................... 3,699,675
42,700 Entercom Communications Corp.(b)........................... 2,818,200
25,800 Radio One, Inc.(b)......................................... 2,373,600
50,800 Radio Unica Communications Corp.(b)........................ 1,466,850
59,200 Westwood One, Inc.(b)...................................... 4,499,200
----------
19,790,275
----------
BUILDING & RELATED--0.3%
39,600 Furniture Brands International, Inc.(b).................... 871,200
----------
CHEMICALS--SPECIALTY--1.6%
31,900 CUNO, Inc.(b).............................................. 660,430
33,700 Cytec Industries, Inc.(b).................................. 779,313
14,200 Dexter Corp................................................ 564,450
28,100 Ferro Corp................................................. 618,200
12,800 Great Lakes Chemical Corp.................................. 488,800
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
CHEMICALS--SPECIALTY--(CONTINUED)
26,600 Olin Corp................................................. $ 527,012
24,900 OM Group, Inc............................................. 857,494
12,100 The Scotts Co.(b)......................................... 487,025
----------
4,982,724
----------
COMMUNICATIONS EQUIPMENT--11.8%
14,100 Ditech Communications Corp.(b)............................ 1,318,350
14,700 DSL.net, Inc.(b).......................................... 212,231
17,700 Finisar Corp.(b).......................................... 1,590,788
6,600 Foundry Networks(TM), Inc.(b)............................. 1,991,138
40,500 Inter-Tel, Inc............................................ 1,012,500
21,500 Optical Coating Laboratory, Inc........................... 6,364,000
34,800 Packeteer, Inc.(b)........................................ 2,470,800
83,800 PairGain Technologies, Inc.(b)............................ 1,188,912
106,300 P-Com Inc.(b)............................................. 940,091
59,600 Polycom(R) Inc.(b)........................................ 3,795,775
39,400 Powerwave Technologies, Inc.(b)........................... 2,299,975
66,400 Sawtek, Inc.(b)........................................... 4,419,750
31,050 SDL, Inc.(b).............................................. 6,768,900
38,900 Tekelec(b)................................................ 875,250
14,800 VeriSign, Inc.(b)......................................... 2,825,875
----------
38,074,335
----------
COMPUTERS--HARDWARE--0.6%
12,500 CacheFlow(R), Inc.(b)..................................... 1,633,594
20,100 Hutchinson Technology, Inc.(b)............................ 427,125
----------
2,060,719
----------
COMPUTERS--SOFTWARE/SERVICES--11.6%
55,100 Acclaim Entertainment, Inc.(b)............................ 282,388
11,000 Ask Jeeves, Inc.(b)....................................... 1,242,313
27,600 Breakaway Solutions, Inc.(b).............................. 2,014,800
24,350 Clarify, Inc.(b).......................................... 3,068,100
23,400 Complete Busines Solutions, Inc.(b)....................... 587,925
23,100 Computer Horizons Corp.(b)................................ 373,931
22,100 Cysive, Inc.(b)........................................... 1,592,581
28,200 Davox Corp.(b)............................................ 553,425
117,875 Dendrite International, Inc.(b)........................... 3,993,016
9,300 E.piphany, Inc.(b)........................................ 2,075,063
42,500 FileNET Corp.(b).......................................... 1,083,750
34,500 Hyperion Solutions Corp.(b)............................... 1,500,750
77,800 Informix(R) Corp.(b)...................................... 889,838
29,600 J.D. Edwards & Company(b)................................. 884,300
50,300 Macromedia, Inc.(b)....................................... 3,678,187
8,400 Manugistics Group, Inc.(b)................................ 271,425
47,600 Mercury Interactive Corp.(b).............................. 5,137,825
35,200 Netegrity, Inc.(b)........................................ 2,004,200
38,900 NOVA Corp.(b)............................................. 1,227,781
16,400 Policy Management Systems Corp.(b)........................ 419,225
37,300 Sanchez Computer Associates, Inc.(b)...................... 1,536,294
7,900 Segue Software, Inc.(b)................................... 197,500
</TABLE>
See accompanying notes to financial statements.
77
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
COMPUTERS--SOFTWARE/SERVICES--(CONTINUED)
16,400 Silknet Software, Inc.(b)............................ $ 2,718,300
10,400 The 3DO Company...................................... 94,575
-----------
37,427,492
-----------
CONSUMER--JEWERLY/NOVELTIES/GIFTS--0.1%
10,300 Jostens, Inc......................................... 250,419
-----------
DISTRIBUTORS--FOOD/HEALTH--0.3%
44,800 Supervalu, Inc....................................... 896,000
-----------
ELECTRIC COMPANIES--0.3%
22,900 NSTAR................................................ 927,450
-----------
ELECTRICAL EQUIPMENT--1.1%
11,400 Applied Power, Inc................................... 418,950
19,200 Etec Systems, Inc.(b)................................ 861,600
13,500 Hadco Corp.(b)....................................... 688,500
8,900 SCI Systems, Inc.(b)................................. 731,469
21,700 Sensormatic Electronics Corp.(b)..................... 378,394
18,350 Vishay Intertechnology, Inc.(b)...................... 580,319
-----------
3,659,232
-----------
ELECTRONICS--12.6%
46,200 Actel Corp.(b)....................................... 1,108,800
78,600 Advanced Energy Industries, Inc.(b).................. 3,871,050
35,400 Applied Micro Circuits Corp.(b)...................... 4,504,650
20,200 Beckman Coulter, Inc................................. 1,027,675
10,600 C-COR.net Corp.(b)................................... 812,225
44,000 Credence Systems Corp.(b)............................ 3,806,000
57,000 Cree Research, Inc.(b)............................... 4,866,375
9,500 DuPont Photomasks, Inc.(b)........................... 458,375
51,600 Emulex Corp.(b)...................................... 5,805,000
25,800 International Rectifier Corp.(b)..................... 670,800
23,700 Litton Industries, Inc.(b)........................... 1,182,037
66,600 Power Integrations, Inc.(b).......................... 3,192,637
62,200 PRI Automation, Inc.(b).............................. 4,175,175
29,500 REMEC, Inc.(b)....................................... 752,250
14,600 Tektronix, Inc....................................... 567,575
32,700 TranSwitch Corp.(b).................................. 2,372,794
39,200 UNOVA, Inc.(b)....................................... 509,600
31,600 Varian Medical Systems, Inc.......................... 942,075
-----------
40,625,093
-----------
ENTERTAINMENT--0.8%
37,750 Sportsline.com, Inc.(b).............................. 1,892,219
26,750 CEC Entertainment, Inc.(b)........................... 759,031
-----------
2,651,250
-----------
FINANCIAL--CONSUMER/DIVERSIFIED--2.4%
22,700 AmeriCredit Corp.(b)................................. 419,950
100,300 Anthracite Capital, Inc.............................. 639,413
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
FINANCIAL--CONSUMER/DIVERSIFIED (CONTINUED)
45,000 Brandywine Realty Trust............................... $ 736,875
66,200 Capital Automotive REIT............................... 806,812
22,700 GATX Corp............................................. 766,125
56,599 Healthcare Realty Trust, Inc.......................... 884,359
132,000 Imperial Credit Industries, Inc.(b)................... 825,000
36,200 Liberty Property Trust................................ 877,850
41,100 Pacific Gulf Properties, Inc.......................... 832,275
24,800 Sun Communities, Inc.................................. 798,250
----------
7,586,909
----------
FOODS--1.0%
21,800 Corn Products International, Inc...................... 713,950
47,000 International Multifoods Corp......................... 622,750
58,400 Michael Foods, Inc.................................... 1,438,100
19,900 The Earthgrains Co.................................... 320,888
----------
3,095,688
----------
FREIGHT TRANSPORTATION--0.4%
24,400 CNF Transportation, Inc............................... 841,800
22,200 Wisconsin Central Transportation Corp.(b)............. 298,312
----------
1,140,112
----------
HEALTH CARE--BIOTECHNOLOGY--5.7%
26,150 Abgenix, Inc.(b)...................................... 3,464,875
45,300 Alkermes, Inc.(b)..................................... 2,225,363
38,000 Enzon, Inc.(b)........................................ 1,648,250
23,400 ICOS Corp.(b)......................................... 684,450
51,000 IDEC Pharmaceuticals Corp.(b)......................... 5,010,750
27,000 Medicis Pharmaceutical Corp.(b)....................... 1,149,187
16,700 MedImmune, Inc.(b).................................... 2,770,112
31,950 Pharmacyclics, Inc.(b)................................ 1,317,937
----------
18,270,924
----------
HEALTH CARE--DRUGS--0.8%
34,100 Covance, Inc.(b)...................................... 368,706
17,900 Dura Pharmaceuticals, Inc.(b)......................... 249,481
23,300 PAREXEL International Corp.(b)........................ 275,231
54,850 Tularik, Inc.(b)...................................... 1,775,769
----------
2,669,187
----------
HEALTH CARE--MEDICAL PRODUCT/SUPPLY--2.3%
36,950 Arthrocare Corp.(b)................................... 2,253,950
49,100 CONMED Corp.(b)....................................... 1,270,463
30,400 DVI, Inc.(b).......................................... 461,700
91,200 Endosonics Corp.(b)................................... 410,400
20,800 IDEXX Laboratories, Inc.(b)........................... 335,400
63,700 Respironics, Inc.(b).................................. 507,609
54,300 Theragenics Corp.(b).................................. 492,094
27,600 Invitrogen Corp.(b)................................... 1,656,000
----------
7,387,616
----------
</TABLE>
See accompanying notes to financial statements.
78
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
HEALTH CARE--SERVICES--1.0%
20,600 First Health Group Corp.(b)................................ $ 553,625
62,800 Health Management Associates, Inc.(b)...................... 839,950
39,900 Lincare Holdings, Inc.(b).................................. 1,384,031
39,100 Per-Se Technologies, Inc.(b)............................... 328,684
----------
3,106,290
----------
HOUSEHOLD PRODUCTS--PERSONAL--0.3%
33,600 Dial Corp.................................................. 816,900
----------
INSURANCE--2.4%
20,800 AmerUs Life Holdings, Inc.................................. 478,400
58,000 Annuity And Life Re Holdings, Ltd.(b)...................... 1,515,250
9,400 Arthur J. Gallagher & Co................................... 608,650
66,100 CNA Surety Corp............................................ 859,300
18,300 Liberty Financial Companies, Inc........................... 419,756
27,100 Protective Life Corp....................................... 862,119
13,300 Radian Group, Inc.......................................... 635,075
29,000 Reinsurance Group of America, Inc.......................... 804,750
29,700 StanCorp Financial Group, Inc.............................. 748,069
24,700 Trigon Healthcare, Inc.(b)................................. 728,650
----------
7,660,019
----------
INVESTMENT BANKING/BROKER/
MANAGEMENT--0.4%
41,200 Federated Investors, Inc................................... 826,575
10,100 Investment Technology Group, Inc.(b)....................... 290,375
7,600 Affiliated Managers Group, Inc.(b)......................... 307,325
----------
1,424,275
----------
LEISURE TIME--PRODUCTS--0.4%
24,800 Harman International Industries, Inc....................... 1,391,900
----------
LODGING/HOTELS--0.2%
46,485 MeriStar Hospitality Corp.................................. 743,760
----------
MACHINERY--0.2%
47,300 Milacron, Inc.............................................. 727,237
----------
MANUFACTURING--DIVERSIFIED--1.1%
17,050 A.O. Smith Corp............................................ 372,969
22,300 Cordant Technologies, Inc.................................. 735,900
19,400 Crane Co................................................... 385,575
24,000 National Service Industries, Inc........................... 708,000
24,100 Pentair, Inc............................................... 927,850
4,900 SPX Corp.(b)............................................... 395,981
----------
3,526,275
----------
MANUFACTURING--SPECIALIZED--0.5%
20,200 Diebold, Inc............................................... 474,700
34,400 Federal Signal Corp........................................ 552,550
21,400 Hussmann International, Inc................................ 322,338
16,900 Regal-Beloit Corp.(b)...................................... 348,562
----------
1,698,150
----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
METALS & MINING--0.6%
29,500 Harsco Corp............................................... $ 936,625
54,300 Worthington Industries, Inc............................... 899,344
----------
1,835,969
----------
NATURAL GAS--0.9%
18,100 AGL Resources, Inc........................................ 307,700
19,300 MCN Energy Group, Inc..................................... 458,375
12,600 New Jersey Resources Corp................................. 492,187
33,400 Public Service Company of North Carolina, Inc............. 1,079,237
23,800 Washington Gas Light Co................................... 654,500
----------
2,991,999
----------
OFFICE EQUIPMENT & SUPPLIES--0.3%
23,100 Hon Industries, Inc....................................... 506,756
9,600 National Computer Systems, Inc............................ 361,200
----------
867,956
----------
OIL & GAS--DRILLING & EQUIPMENT--2.9%
59,900 Atwood Oceanics, Inc.(b).................................. 2,313,638
14,700 Cooper Cameron Corp.(b)................................... 719,381
173,600 Marine Drilling Companies, Inc.(b)........................ 3,895,150
19,000 Maverick Tube Corp.(b).................................... 469,062
57,400 Patterson Energy, Inc.(b)................................. 746,200
24,000 Santa Fe International Corp............................... 621,000
12,300 Tidewater, Inc............................................ 442,800
----------
9,207,231
----------
OIL & GAS--EXPLORATION/
PRODUCTION--0.5%
39,200 Newfield Exploration Co.(b)............................... 1,048,600
41,700 Plains Resources, Inc.(b)................................. 521,250
----------
1,569,850
----------
OIL & GAS--REFINING & MARKETING--0.2%
27,400 Valero Energy Corp........................................ 544,575
----------
PAPER/FOREST PRODUCTS--0.3%
8,000 Chesapeake Corp........................................... 244,000
26,700 Consolidated Papers, Inc.................................. 849,394
----------
1,093,394
----------
PUBLISHING--0.2%
16,500 Houghton Mifflin Company.................................. 696,094
----------
RESTAURANTS--0.6%
26,500 Brinker International, Inc.(b)............................ 636,000
42,800 Ruby Tuesday, Inc......................................... 778,425
28,600 Wendy's International, Inc................................ 589,875
----------
2,004,300
----------
RETAIL--DRUG STORES--0.2%
20,300 Sonic Corp.(b)............................................ 578,550
----------
</TABLE>
See accompanying notes to financial statements.
79
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
RETAIL--FOOD CHAINS--0.1%
5,100 Hannaford Bros. Co....................................... $ 353,494
-----------
RETAIL--GENERAL MERCHANDISE--0.6%
9,000 Ames Department Stores, Inc.(b).......................... 259,313
44,000 Family Dollar Stores, Inc................................ 717,750
27,100 Saks, Inc.(b)............................................ 421,744
31,000 ShopNow.com, Inc.(b)..................................... 587,062
-----------
1,985,869
-----------
RETAIL--SPECIALTY--4.6%
79,200 Ann Taylor Stores Corp.(b)............................... 2,727,450
22,000 Barnes & Noble, Inc.(b).................................. 453,750
42,000 Burlington Coat Factory Warehouse Corp................... 582,750
75,700 Charming Shoppes, Inc.(b)................................ 501,513
46,500 CompUSA, Inc.(b)......................................... 238,313
88,950 Cost Plus, Inc.(b)....................................... 3,168,844
80,350 Linens N Things, Inc.(b)................................. 2,380,369
15,000 Michaels Stores, Inc.(b)................................. 427,500
104,250 Pacific Sunwear Of California, Inc.(b)................... 3,322,969
33,900 The Men's Wearhouse, Inc.(b)............................. 995,812
-----------
14,799,270
-----------
SERVICES--8.9%
48,700 ACNielson Corp.(b)....................................... 1,199,238
19,400 ADVO, Inc.(b)............................................ 460,750
45,400 Burns International Services Corp.(b).................... 490,888
35,300 Cheap Tickets, Inc.(b)................................... 483,169
48,100 Concentric Network Corp.(b).............................. 1,482,081
43,600 Daisytek International Corp.(b).......................... 1,016,425
48,900 Diamond Technology Partners, Inc.(b)..................... 4,202,344
9,685 DoubleClick, Inc.(b)..................................... 2,450,910
44,800 HotJobs.com, Ltd.(b)..................................... 1,957,200
66,100 Information Resources, Inc.(b)........................... 611,425
15,000 Interim Services, Inc.(b)................................ 371,250
51,800 Macrovision Corp.(b)..................................... 3,833,200
18,500 Manpower, Inc.(b)........................................ 696,062
30,600 Modis Professional Services, Inc.(b)..................... 436,050
5,400 NetRatings, Inc.(b)...................................... 259,875
16,300 OneMain.com, Inc.(b)..................................... 244,500
45,800 Proxicom, Inc.(b)........................................ 5,693,512
81,600 R.H. Donnelley Corp...................................... 1,540,200
13,400 United Stationers, Inc................................... 382,737
32,500 Viad Corp................................................ 905,937
-----------
28,717,753
-----------
SERVICES--COMPUTER/DATA
PROCESSING--1.3%
29,300 CIBER, Inc.(b)........................................... 805,750
30,000 S1 Corp.(b).............................................. 2,343,750
41,200 SunGard Data Systems, Inc.(b)............................ 978,500
-----------
4,128,000
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
SERVICES--FACILITIES/ENVIRONMENT--0.5%
23,100 American States Water Co.................................. $ 831,600
43,875 Tetra Tech, Inc.(b)....................................... 674,578
-----------
1,506,178
-----------
SPECIAL PRINTING--0.2%
21,500 Deluxe Corp............................................... 589,906
-----------
TELECOM/LONG DISTANCE--0.9%
51,700 Adelphia Business Solutions, Inc.(b)...................... 2,481,600
28,100 Talk.com, Inc.(b)......................................... 498,775
-----------
2,980,375
-----------
TELEPHONE--0.5%
66,900 ITC DeltaCom, Inc.(b)..................................... 1,848,113
-----------
TEXTILES/APPAREL--0.6%
28,600 Liz Claiborne, Inc........................................ 1,076,075
77,900 Burlington Industries, Inc.(b)............................ 311,600
9,100 Russell Corp. ............................................ 152,425
14,800 Springs Industries, Inc. ................................. 591,075
-----------
2,131,175
-----------
WASTE MANAGEMENT--0.2%
35,300 Republic Sevices, Inc.(b)................................. 507,437
25,100 Safety-Kleen Corp.(b)..................................... 283,944
-----------
791,381
-----------
Total Common Stocks (Identified Cost $222,972,811)........ 306,296,314
-----------
</TABLE>
See accompanying notes to financial statements.
80
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
SHORT-TERM INVESTMENTS--5.3%
<TABLE>
<CAPTION>
VALUE
FACE AMOUNT (NOTE 1A)
<C> <S> <C>
$15,143,994 Associates First Capital Corp., 4.000%, 1/3/00..... $ 15,143,994
2,000,000 Chevron Corp. 3.500%, 1/3/00....................... 2,000,000
------------
Total Short-Term Investment
(Identified Cost $17,143,994)..................... 17,143,994
------------
Total Investments--100.3%
(Identified Cost $240,116,805)(a)................. 323,440,308
Other assets less liabilities...................... (1,122,380)
------------
TOTAL NET ASSETS--100%............................. $322,317,928
============
</TABLE>
<TABLE>
<C> <S> <C>
(a)Federal Tax Information:
At December, 31 1999 the net unrealized appreciation on
investments based on cost of $240,698,938 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...................................................... $ 95,699,860
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost over
value..................................................... (12,958,490)
------------
Net unrealized appreciation............................... $ 82,741,370
============
</TABLE>
(b)Non-income producing security.
See accompanying notes to financial statements.
81
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................. $323,440,308
Receivable for:
Securities sold...................................... 460,399
Fund shares sold..................................... 671,248
Dividends and interest............................... 191,826
------------
Total Assets......................................... 324,763,781
LIABILITIES
Payable for:
Fund shares redeemed................................. $ 300,075
Securities purchased................................. 1,871,985
Accrued expenses:
Management fees...................................... 236,623
Deferred trustees fees............................... 8,488
Other expenses....................................... 28,682
----------
Total Liabilities.................................... 2,445,853
------------
NET ASSETS............................................ $322,317,928
============
Net Assets consist of:
Capital paid in...................................... $237,792,266
Undistributed net investment income.................. 3,259
Accumulated net realized gains (losses).............. 1,198,900
Unrealized appreciation (depreciation) on
investments......................................... 83,323,503
------------
NET ASSETS............................................ $322,317,928
============
Computation of offering price:
Net asset value and redemption price per share
($322,317,928 divided by 1,597,793 shares of
beneficial interest)................................. $ 201.73
============
Identified cost of investments........................ $240,116,805
============
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends............................................. $ 2,422,435
Interest.............................................. 758,186
-----------
3,180,621
EXPENSES
Management fees....................................... $2,368,856
Trustees' fees and expenses........................... 17,296
Custodian............................................. 112,816
Audit and tax services................................ 11,891
Legal................................................. 13,484
Printing.............................................. 80,027
Insurance............................................. 5,266
Miscellaneous......................................... 5,436
----------
Total expenses........................................ 2,615,072
Less expenses assumed by the investment adviser....... (246,217) 2,368,855
---------- -----------
NET INVESTMENT INCOME.................................. 811,766
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net...................................... 8,092,335
Unrealized appreciation
(depreciation) on:
Investments--net...................................... 66,235,876
-----------
Net gain (loss)........................................ 74,328,211
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS.. $75,139,977
===========
</TABLE>
See accompanying notes to financial statements.
82
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................. $ 811,766 $ 1,909,702
Net realized gain (loss) ......................... 8,092,335 (6,792,530)
Unrealized appreciation (depreciation) ........... 66,235,876 899,887
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS....................................... 75,139,977 (3,982,941)
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................. (839,651) (1,908,277)
Net realized gain ................................ 0 (1,896,046)
In excess of net realized gain ................... 0 (106,613)
------------ ------------
TOTAL DISTRIBUTIONS............................... (839,651) (3,910,936)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares...................... 93,092,709 108,988,919
Reinvestment of distributions..................... 839,651 3,910,936
Cost of shares redeemed........................... (84,504,213) (66,521,977)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS............................... 9,428,147 46,377,878
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........... 83,728,473 38,484,001
NET ASSETS
Beginning of the year............................. 238,589,455 200,105,454
------------ ------------
End of the year................................... $322,317,928 $238,589,455
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT
INCOME
End of the year................................... $ 3,259 $ 31,144
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 599,062 707,174
Issued in reinvestment of distributions........... 4,296 25,977
Redeemed.......................................... (559,646) (438,200)
------------ ------------
Net Change........................................ 43,712 294,951
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year.................. $ 153.52 $ 158.92 $ 144.29 $118.80 $ 96.61
-------- -------- -------- ------- -------
Income From Investment Op-
erations
Net Investment Income.... 0.51 1.24 1.22 1.05 0.85
Net Realized and
Unrealized Gain (Loss)
on Investments.......... 48.23 (4.01) 34.11 35.03 26.93
-------- -------- -------- ------- -------
Total From Investment
operations.............. 48.74 (2.77) 35.33 36.08 27.78
-------- -------- -------- ------- -------
Less Distributions
Distributions From Net
Investment Income....... (0.53) (1.24) (1.21) (1.03) (0.78)
Distributions From Net
Realized Capital Gains.. 0.00 (1.32) (19.49) (9.56) (4.81)
Distributions in Excess
of Net Realized Capital
Gains................... 0.00 (0.07) 0.00 0.00 0.00
-------- -------- -------- ------- -------
Total Distributions...... (0.53) (2.63) (20.70) (10.59) (5.59)
-------- -------- -------- ------- -------
Net Asset Value, End of
Year..................... $ 201.73 $ 153.52 $ 158.92 $144.29 $118.80
======== ======== ======== ======= =======
TOTAL RETURN (%).......... 31.8 (1.7) 24.9 30.7 28.9
Ratio of Operating
Expenses to Average Net
Assets (%)............... 1.00 1.00 1.00 1.00 1.00
Ratio of Net Investment
Income to Average Net
Assets (%)............... 0.34 0.88 0.97 1.15 1.26
Portfolio Turnover Rate
(%)...................... 146 111 87 62 98
Net Assets End of Year
(000).................... $322,318 $238,589 $200,105 $89,194 $27,741
The ratios of operating
expenses to average net
assets without giving
effect to the voluntary
expense agreement
described in Note 4 to
the Financial Statements
would have
been (%)................. 1.10 1.10 1.14 1.29 1.91
</TABLE>
See accompanying notes to financial statements.
83
<PAGE>
MFS INVESTORS SERIES
PORTFOLIO MANAGERS: JOHN D. LAUPHEIMER AND MITCHELL D. DYNAN
MASSACHUSETTS FINANCIAL SERVICES COMPANY
(Photo of John Laupheimer Appears Here)
(Photo of Mitch Dynan Appears Here)
Q. HOW DID THE SERIES PERFORM DURING THE PAST TWELVE MONTHS RELATIVE TO ITS
INDEX AND RELATIVE TO ITS PEERS?
A. From the inception of the Series on April 30, 1999 through December 31,
1999, the MFS Investors Series provided a total return of 2.9%. This compares
to an 11.1% return for the Standard & Poor's 500 Composite Index/25/ (the S&P
500).
Q. WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE (ON BOTH AN
ABSOLUTE AND RELATIVE BASIS) DURING THE PAST TWELVE MONTHS? WHAT INVESTMENT
DECISIONS WERE MOST EFFECTIVE AND WHICH ONES WERE LEAST EFFECTIVE?
A. The Series lagged the index primarily due to its underweighting in
technology stocks, which drove the narrow strength of the market. If we look at
the performance of the S&P 500, the top-25 performers accounted for most of the
total return of the index over the past year. In an extremely narrow market
like we've just experienced, it is very difficult for a diversified growth and
income Series with a lower risk profile than its index to outperform its
benchmark over the short term.
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST TWELVE
MONTHS. GIVEN THIS INVESTMENT ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY?
WHAT CHANGES DID YOU MAKE SINCE THE START OF THE YEAR?
A. While we increased the Series' exposure to technology stocks during the
period, we did not abandon our focus on blue-chip companies with strong, long-
term fundamentals and reasonable valuations. As a result, the Series remained
underweighted in technology stocks versus the S&P 500 because they looked very
expensive and risky relative to their long-term earnings prospects. On the
other hand, as the index's weighting in technology increased with the
appreciation of these stocks, we made the decision to look more closely at the
Series' relative risk versus its absolute risk compared to the market. As a
result, we decided it was prudent to gradually increase the Series' weighting
in technology and telecommunications, while at the same time keeping a close
eye on relative valuations and the fundamental business outlooks for these
companies.
Some of the technology names that met our investment criteria and provided a
strong boost to performance were companies such as Intel, Oracle, Cisco and
Motorola. In telecommunica- tions, the Series benefited from a major position
in Mannesmann, the German wireless telecommunication provider. Sprint, Bell
Atlantic, and Nippon Telephone & Telegraph also produced strong results due to
the huge growth in Internet usage and demand for data and voice services. Other
stocks that worked well for the Series and benefited from the rapid
acceleration of advertising spending by Internet companies were media holdings
such as Tribune, the New York Times, and General Electric, which owns NBC.
While investors remained focused on technology and telecommunications stocks,
the Series managed to locate strong performers from a wide range of industries,
including energy, industrial goods & services, consumer staples, retailing, and
financial services. Stocks such as BP Amoco, United Technologies, Procter &
Gamble, Wal-Mart, and American International Group produced solid gains for the
Series. The success of these stocks and the broadly diversified structure of
the Series highlights precisely what this growth with income portfolio is
trying to accomplish--to provide growth of capital, with less risk or price
volatility than the S&P 500 index.
On the negative side, there were a few holdings that hurt the Series' relative
performance. Some detractors that stand out are Service Corp., Xerox, Kroger,
and Safeway. We maintained our positions in supermarket operators Kroger and
Safeway because we believe they possess strong business prospects and favorable
growth and earnings outlooks. We sold off our positions in Service Corp. and
Xerox because the long-term outlooks for these companies deteriorated. Service
Corp. looked like it had the potential to continue its run of accelerating
growth, but it ran into financial problems due to rapid expansion and the
holding hurt performance. Xerox looked like a classic turnaround story, but as
competition increased, its business plan stumbled and investors ran for the
exits.
On a more positive note, we continue to believe the Series is well positioned
to take advantage of a number of opportunities in the market. Our well-balanced
exposure to market leaders in technology, telecommunications, financial
services, retailing and industrial goods provides diversification in the Series
and could help the Series outperform if market strength continues to broaden.
84
<PAGE>
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT SIX
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO THE WAY YOU MANAGE YOUR
PORTFOLIO?
A. We'll continue to look for opportunities in areas such as pharmaceutical
companies, and drugstore operators such as CVS, which have been beaten down
due to concerns over Medicare reform and potential government price controls.
While the risks remain high in this area during an election year, at some
point stock valuations may become very compelling. Many pharmaceutical
companies and drugstore chains demonstrate promising long-term growth
prospects and reliable cash flow.
[GRAPH]
MFS Investors Series S&P 500
4/30/99 10,000 10,000
12/31/99 10,285 11,106
Average Annual Total Returns
Investors
Series S&P 500
Since Inception 2.9% 11.1%
[CHECKMARK] FUND FACTS
GOAL: Reasonable current income and long-term growth of capital and income.
START DATE: April 30, 1999
SIZE: $7 million as of December 31, 1999
MANAGER: John Laupheimer and Mitchell Dynan. Mr. Laupheimer and Mr. Dynan have
managed the Series since its inception.
Performance numbers are net of all Series expenses but do not include any in-
surance, 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.
85
<PAGE>
NEW ENGLAND ZENITH FUND
(MFS INVESTORS SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--93.5% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
AEROSPACE & DEFENSE--3.6%
290 Boeing Co. ................................................. $ 12,053
840 General Dynamics Corp....................................... 44,310
690 Honeywell International, Inc................................ 39,804
380 TRW, Inc. .................................................. 19,736
2,020 United Technologies Corp.................................... 131,300
---------
247,203
---------
AUTOMOTIVE--0.5%
340 Federal Mogul Corp. ........................................ 6,843
480 Ford Motor Co. ............................................. 25,650
---------
32,493
---------
BANKS & CREDIT COMPANIES--4.8%
890 Bank America Corp. ......................................... 44,667
2,850 Bank Of Ireland (EUR)....................................... 22,680
800 Bank One Corp............................................... 25,650
230 Capital One Financial Corp.................................. 11,083
110 Chase Manhattan Corp........................................ 8,546
250 Comerica, Inc............................................... 11,672
1,000 Northern Trust Corp. ....................................... 53,000
250 Providian Financial Corp.................................... 22,766
1,860 U.S. Bancorp................................................ 44,291
2,150 Wells Fargo & Co. .......................................... 86,941
---------
331,296
---------
BIOTECHNOLOGY--0.3%
380 Guidant Corp.(b)............................................ 17,860
---------
BUSINESS MACHINES--7.7%
500 Computer Sciences Corp.(b).................................. 47,312
110 Dell Computer Corp.(b)...................................... 5,610
390 DST Systems, Inc.(b)........................................ 29,762
1,140 First Data Corp............................................. 56,216
840 Hewlett Packard Co. ........................................ 95,708
870 International Business Machines Corp........................ 93,960
860 Motorola, Inc............................................... 126,635
1,000 Sun Microsystems, Inc.(b)................................... 77,438
---------
532,641
---------
CELLULAR PHONES--0.5%
360 Sprint Corp.(b)............................................. 36,900
---------
CHEMICALS--0.8%
460 Akzo Nobel N.V. (EUR)....................................... 23,076
130 E.I. Du Pont de Nemours & Co................................ 8,564
230 Rohm & Haas Co.............................................. 9,358
110 The Dow Chemical Company.................................... 14,699
---------
55,697
---------
COMMUNICATIONS SERVICES--7.2%
460 ALLTEL Corp. ............................................... 38,036
800 AT&T Corp................................................... 40,600
1,890 Bell Atlantic Corp.......................................... 116,353
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
COMMUNICATIONS SERVICES--(CONTINUED)
380 BellSouth Corp.............................................. $ 17,789
680 Broadwing, Inc.............................................. 25,075
1,515 MCI Worldcom, Inc.(b)....................................... 80,390
2,083 SBC Communications, Inc..................................... 101,546
1,150 Sprint Corp................................................. 77,409
---------
497,198
---------
COMPUTER SOFTWARE--PC--4.6%
2,710 Microsoft Corp.(b).......................................... 316,393
---------
COMPUTER SOFTWARE--SYSTEMS--2.6%
250 BMC Software, Inc.(b)....................................... 19,984
1,020 Computer Associates International, Inc. .................... 71,336
790 Oracle Corp.(b)............................................. 88,529
---------
179,849
---------
CONGLOMERATES--0.9%
1,520 Tyco International, Ltd..................................... 59,090
---------
CONSUMER GOODS & SERVICES--2.4%
390 Clorox Co. ................................................. 19,646
680 Colgate-Palmolive Co. ...................................... 44,200
180 Gillette Co. ............................................... 7,414
890 Procter & Gamble Co......................................... 97,511
---------
168,771
---------
ELECTRICAL EQUIPMENT--4.9%
630 Emerson Electric Co. ....................................... 36,146
1,720 General Electric Co......................................... 266,170
600 National Semiconductor Corp.(b)............................. 25,688
250 W.W. Grainger, Inc.......................................... 11,953
---------
339,957
---------
ELECTRONICS--3.1%
110 Agilent Technologies, Inc.(b)............................... 8,504
2,000 Hitachi, Ltd. (JPY)......................................... 32,103
1,870 Intel Corp.................................................. 153,924
130 STMicroelectronics N.V. (ADR)............................... 19,687
---------
214,218
---------
ENTERTAINMENT--1.5%
250 Carnival Corp............................................... 11,953
1,270 Time Warner, Inc............................................ 91,996
---------
103,949
---------
FINANCIAL INSTITUTIONS--3.0%
250 American Express Co. ....................................... 41,562
310 Associates First Capital Corp. ............................. 8,506
760 Citigroup, Inc. ............................................ 42,227
1,020 Federal Home Loan Mortgage Corp............................. 48,004
890 State Street Corp........................................... 65,026
---------
205,325
---------
</TABLE>
See accompanying notes to financial statements.
86
<PAGE>
NEW ENGLAND ZENITH FUND
(MFS INVESTORS SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
FOOD & BEVERAGES--2.2%
840 Anheuser-Busch Companies, Inc............................... $ 59,535
460 Bestfoods................................................... 24,179
50 Coca-Cola Co................................................ 2,912
500 Nabisco Holdings Corp....................................... 15,813
250 PepsiCo, Inc................................................ 8,813
630 Quaker Oats Co.............................................. 41,344
---------
152,596
---------
FOREST & PAPER PRODUCTS--0.1%
120 Weyerhaeuser Company........................................ 8,618
---------
INSURANCE--4.6%
630 American International Group, Inc........................... 68,119
130 Axa (EUR)................................................... 18,124
500 Axa Financial, Inc.......................................... 16,937
350 CIGNA Corp.................................................. 28,197
1,890 Hartford Financial Services Group........................... 89,539
1,020 Lincoln National Corp., Inc ................................ 40,800
250 Marsh & Mclennan Companies, Inc............................. 23,922
260 MBIA, Inc................................................... 13,731
400 Torchmark Corp.............................................. 11,625
---------
310,994
---------
MACHINERY--1.5%
230 Ingersoll-Rand Co........................................... 12,664
380 Mannesmann AG (EUR)......................................... 91,679
---------
104,343
---------
MEDICAL & HEALTH PRODUCTS--5.1%
800 American Home Products Corp................................. 31,550
500 AstraZeneca PLC (GBP)....................................... 20,773
250 Bausch & Lomb, Inc.......................................... 17,109
1,270 Bristol-Myers Squibb Co. ................................... 81,518
380 Johnson & Johnson........................................... 35,388
1,710 Pfizer, Inc................................................. 55,468
1,140 Pharmacia & Upjohn, Inc..................................... 51,300
640 Schering-Plough Corp........................................ 27,000
380 Warner-Lambert Co. ......................................... 31,136
---------
351,242
---------
MEDICAL & HEALTH TECHNOLOGY &
SERVICES--1.7%
2,420 Medtronic, Inc.............................................. 88,179
570 United Healthcare Corp...................................... 30,281
---------
118,460
---------
NON-FERROUS METALS--0.0%
20 Alcoa, Inc. ................................................ 1,660
---------
OILS--5.8%
2,020 Bp Amoco, Plc.(ADR)......................................... 119,811
250 Chevron Corp................................................ 21,656
760 Coastal Corp. .............................................. 26,932
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
OILS--(CONTINUED)
1,640 Conoco, Inc. ............................................... $ 40,795
1,966 Exxon Mobil Corp. .......................................... 158,386
340 Halliburton Co.............................................. 13,685
500 Unocal Corp................................................. 16,781
20 USX-Marathon Group.......................................... 494
---------
398,540
---------
PRINTING & PUBLISHING--4.2%
950 Gannett Company, Inc........................................ 77,484
680 Infinity Broadcasting Corp.(b).............................. 24,608
1,210 New York Times Co........................................... 59,441
250 Reuters Group, Plc.(ADR).................................... 20,203
1,870 Tribune Co.................................................. 102,967
---------
284,703
---------
SPECIAL PRODUCTS & SERVICES--1.0%
380 Cintas Corp. ............................................... 20,188
120 Illinois Tool Works, Inc. .................................. 8,108
940 McDonalds Corp.............................................. 37,894
---------
66,190
---------
STORES--5.2%
110 Costco Whosale Corp.(b)..................................... 10,038
1,280 CVS Corp.................................................... 51,120
750 Dayton Hudson Corp. ........................................ 55,078
765 Home Depot, Inc............................................. 52,450
230 Lowe's Companies, Inc. ..................................... 13,743
1,740 TJX Companies, Inc.......................................... 35,561
2,020 Wal-Mart Stores, Inc........................................ 139,633
---------
357,623
---------
SUPERMARKETS--2.3%
3,410 Kroger Co.(b)............................................... 64,364
2,550 Safeway, Inc.(b)............................................ 90,684
---------
155,048
---------
TELECOMMUNICATIONS--8.0%
1,320 Cisco Systems, Inc.(b)...................................... 141,405
810 Corning, Inc................................................ 104,439
230 General Instrument Corp.(b)................................. 19,550
340 Koninklijke KPN N.V.(EUR)................................... 33,188
820 Lucent Technologies, Inc.................................... 61,346
405 Nippon Telephone & Telegraph Corp. (ADR).................... 34,881
230 Nokia Corp.(ADR)............................................ 43,700
740 Nortel Networks Corp........................................ 74,740
---------
513,249
---------
TRANSPORTATION--0.6%
1,258 Canadian National Railway Co................................ 33,101
140 United Parcel Service, Inc.(b).............................. 9,660
---------
42,761
---------
</TABLE>
See accompanying notes to financial statements.
87
<PAGE>
NEW ENGLAND ZENITH FUND
(MFS INVESTORS SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--CONTINUED
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
UTILITIES--ELECTRIC--2.3%
460 CMS Energy Corp............................................ $ 14,346
640 Duke Energy Corp........................................... 32,080
760 NiSource, Inc.............................................. 13,585
1,140 PECO Energy Co............................................. 39,615
290 Pinnacle West Capital Corp................................. 8,863
1,160 Texas Utilities Co......................................... 41,253
230 Unicom Corp................................................ 7,705
----------
157,447
----------
UTILITIES--GAS--0.5%
230 Enron Corp................................................. 10,206
630 FirstEnergy Corp........................................... 14,293
340 The Williams Companies, Inc................................ 10,391
----------
34,890
----------
Total Common Stocks
(Identified Cost $5,964,540).............................. 6,397,204
</TABLE>
BONDS & NOTES--0.5%
<TABLE>
<CAPTION>
FACE
AMOUNT
<C> <S> <C>
CONVERTIBLE BOND--0.5%
$ 8,000 Bell Atlantic Financial Services, Inc.
4.250%, 9/15/05 144A..................................... 9,840
22,000 NTL, Inc., 5.750%, 12/15/09 144A.......................... 23,568
----------
33,408
----------
Total Bonds & Notes
(Identified Cost $31,132)................................ 33,408
----------
</TABLE>
SHORT TERM INVESTMENT--5.6%
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$380,000 Federal Home Loan Mortgage Corp.,
1.500%, 1/03/00......................................... $ 379,968
----------
Total Short-Term Investment
(Identified Cost $379,968).............................. 379,968
----------
Total Investments--99.6%
(Identified Cost $6,375,640)(a)......................... 6,810,580
Other assets less liabilities............................ 30,651
----------
TOTAL NET ASSETS--100%................................... $6,841,231
==========
</TABLE>
<TABLE>
<S> <C>
(a)Federal Tax Information:
At December 31, 1999 the net unrealized appreciation on
investments based on cost of $6,375,640 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.......... $ 765,435
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value.......... (330,495)
----------
Net unrealized appreciation................................. $ 434,940
==========
</TABLE>
For Federal income tax purposes, the Series has a capital loss carryforward
at December 31, 1999 of approximately $168,000 which will expire in 2007.
Accordingly, no capital gain distributions are expected to be paid to
shareholders until net gains have been realized in excess of such amount.
(b) Non-income producing security.
Key to Abbreviations:
EUR--Euro Currency
GBP--Pound Sterling
JPY--Japanese Yen
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the
right to receive securities of the foreign issuer described. The
value of ADRs and GDRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
144A-- Securities 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. At the period
end, the value of these securities amounted to $33,408 or 0.5% of net
assets.
See accompanying notes to financial statements.
88
<PAGE>
NEW ENGLAND ZENITH FUND
(MFS INVESTORS SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value...................................... $6,810,580
Foreign cash at value
(Identified cost $17,832)................................ 17,849
Receivable for:
Fund shares sold.......................................... 33,674
Dividends and interest.................................... 4,347
Due from Investment Adviser............................... 7,571
----------
Total Assets............................................. 6,874,021
LIABILITIES
Payable for:
Fund shares redeemed...................................... $ 2,370
Securities purchased...................................... 6,469
Due to custodian bank..................................... 6,861
Accrued expenses:
Management fees........................................... 2,100
Deferred trustees' fees................................... 321
Other expenses............................................ 14,669
-------
Total Liabilities........................................ 32,790
----------
NET ASSETS................................................. $6,841,231
==========
Net assets consist of:
Capital paid in........................................... $6,652,503
Overdistributed net investment income..................... (1,934)
Accumulated net realized gains (losses)................... (244,295)
Unrealized appreciation (depreciation) on investments and
foreign currency......................................... 434,957
----------
NET ASSETS................................................. $6,841,231
==========
Computation of offering price:
Net asset value and redemption price, per share ($6,841,231
divided by 667,006 shares of beneficial interest)......... $ 10.26
==========
Identified cost of investments............................. $6,375,640
==========
</TABLE>
STATEMENT OF OPERATIONS
FOR THE PERIOD APRIL 30, 1999 (A)
THROUGH DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends........................................... $ 39,744 (b)
Interest............................................ 6,905
---------
46,649
EXPENSES
Management fees..................................... $ 25,852
Trustees' fees and expenses......................... 2,711
Custodian........................................... 29,308
Audit and tax services.............................. 6,000
Legal............................................... 5,168
Printing............................................ 70
Miscellaneous....................................... 866
---------
Total expenses..................................... 69,975
Less expenses assumed by the investment adviser.... (38,953) 31,022
--------- ---------
NET INVESTMENT INCOME................................ 15,627
---------
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net.................................... (244,294)
Foreign currency transactions--net.................. (1,234) (245,528)
---------
Unrealized appreciation (depreciation) on:
Investments--net.................................... 434,940
Foreign currency translation--net................... 17 434,957
--------- ---------
Net gain (loss)..................................... 189,429
---------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS.......................................... $ 205,056
=========
</TABLE>
(a)Commencement of operations.
(b)Net of foreign taxes of $279.
See accompanying notes to financial statements.
89
<PAGE>
NEW ENGLAND ZENITH FUND
(MFS INVESTORS SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
APRIL 30, 1999(A)
THROUGH
DECEMBER 31,
1999
-----------------
<S> <C>
FROM OPERATIONS
Net investment income ...................................... $ 15,627
Net realized gain (loss) ................................... (245,528)
Unrealized appreciation (depreciation) ..................... 434,957
-----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS........... 205,056
-----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income....................................... (16,328)
-----------
Total distributions......................................... (16,328)
-----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares................................ 12,577,724
Reinvestment of distributions............................... 16,328
Cost of shares redeemed..................................... (5,941,549)
-----------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS............................................... 6,652,503
-----------
TOTAL INCREASE (DECREASE) IN NET ASSETS..................... 6,841,231
NET ASSETS
Beginning of the period..................................... 0
-----------
End of the period........................................... $ 6,841,231
===========
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME
End of the period........................................... $ (1,934)
===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.............................. 1,274,088
Issued in reinvestment of distributions..................... 1,602
Redeemed.................................................... (608,684)
-----------
Net Change.................................................. 667,006
===========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
APRIL 30, 1999(A)
THROUGH
DECEMBER 31,
1999
-----------------
<S> <C>
Net Asset Value, Beginning of Period......................... $10.00
------
Income From Investment
Operations
Net Investment Income....................................... 0.02
Net Realized and Unrealized Gain (Loss)
on Investments............................................. 0.26
------
Total From Investment operations............................ 0.28
------
Less Distributions
Distributions From Net Investment Income.................... (0.02)
------
Total Distributions......................................... (0.02)
------
Net Asset Value, End of Period............................... $10.26
======
TOTAL RETURN (%)............................................. 2.9 (b)
Ratio of Operating Expenses to Average Net
Assets (%).................................................. 0.90 (c)
Ratio of Net Investment Income to Average Net
Assets (%).................................................. 0.45 (c)
Portfolio Turnover Rate (%).................................. 60
Net Assets, End of Period
(000)....................................................... $6,841
The Ratios of operating expenses to average net assets
without giving ef-fect to the voluntary expense agreement
described in Note 4 to the Financial Statements would have
been (%).................................................... 2.03 (c)
</TABLE>
(a)Commencement of operations.
(b)Not computed on an annualized basis.
(c)Computed on an annualized basis.
See accompanying notes to financial statements.
90
<PAGE>
MFS RESEARCH MANAGERS SERIES
PORTFOLIO MANAGERS: MANAGED BY A COMMITTEE OF MFS EQUITY RESEARCH ANALYSTS
OVERSEEN BY ALEC MURRAY, ASSOCIATE DIRECTOR OF EQUITY RESEARCH (PICTURED)
MASSACHUSETTS FINANCIAL SERVICES COMPANY
(Photo of Alec Murray Appears Here)
Q. HOW DID THE SERIES PERFORM DURING THE PAST TWELVE MONTHS RELATIVE TO ITS
INDEX AND RELATIVE TO ITS PEERS?
A. From the inception of the Series on April 30, 1999 through December 31,
1999, the MFS Research Managers Series provided a total return of 19.8%. This
compares to an 11.1% return for the Standard & Poor's 500 Composite Index/25/
(the S&P 500).
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST TWELVE
MONTHS.
A. During the past year, the equity market has been extremely narrow with only
twenty-five large-cap growth stocks outperforming the rest of the stocks in the
S&P 500. While market leadership has started to show signs of broadening, which
has helped the performance of this Series, we believe the long-term
opportunities for small- and mid-cap stocks are attractive primarily because
they are selling at much cheaper prices relative to earnings and expected
growth rates compared to large-cap growth stocks. In addition, we believe our
exposure to stocks with lower prices relative to earnings should make the
Series less vulnerable to negative events such as earnings disappointments or a
broad market downturn.
The current bull market is one of the most unusual in recent memory. There are
widespread indications of immense speculation and entrenched optimism toward
equities. Yet, if we exclude technology and communications, the equity market
has been in a downtrend since April of 1999. As a result, we expect market
strength to broaden into other sectors of the market, which could create
opportunities for the Series. Of course, much of the bull market's fate rests
on corporate earnings and the performance of the economy. While opinions range
from total conviction in a new era of trouble free prosperity, to a view that
inflation is just around the corner and the market is in a classic asset bubble
waiting to burst, the truth most likely lies somewhere in the middle. Given
this uncertain environment, however, we continue to focus our energy on finding
what we believe are top-quality companies that should provide favorable long-
term performance regardless of short-term market volatility.
Q. GIVEN THIS INVESTMENT ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY? WHAT
CHANGES DID YOU MAKE SINCE THE START OF THE YEAR?
A. The Series maintained significant exposure to large-cap telecommunications
and technology stocks, which added considerably to total return. Despite our
overweighting in technology stocks we avoided Internet companies with expensive
valuations, weak business models, or unproven track records. At the same time,
we recognized early on that the growth in Internet services and data traffic is
likely to continue for some time. Consequently, we invested in a number of
technology and communications stocks in the networking and telecommunications
equipment industries. Some examples that met our strict investment criteria
include, Cisco, Nortel, Ericsson and Motorola. These companies represent the
nuts and bolts of Internet and telecommunications infrastructure and helped the
Series outpace its benchmark.
The Series also maintained considerable exposure to software stocks, such as
Microsoft, Oracle and Veritas. Our software holdings hurt performance in the
first quarter of this past year, but we stuck to our guns and held on to these
positions. Over the past six months they've come roaring back to provide a
significant boost to performance due to increased demand for data storage and
software products.
Q. WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE (ON BOTH AN
ABSOLUTE AND RELATIVE BASIS) DURING THE PAST TWELVE MONTHS? WHAT INVESTMENT
DECISIONS WERE MOST EFFECTIVE AND WHICH ONES WERE LEAST EFFECTIVE?
A. Leading contributors to performance included semiconductor companies, such
as LSI Logic and Analog Devices. The semiconductor industry was hurt in 1998 by
the Asian economic slowdown and by a build up in supply in some market
segments, which lowered prices. Now, demand is beginning to catch up with
supply as a result of economic strength in the U.S. and the Asian recovery. If
this scenario persists, we believe semiconductor stocks should continue to
benefit.
Outside the technology and telecommunications sectors, the Series benefited
from a number of stocks in the financial services, media and energy sectors.
Gains in financial services
91
<PAGE>
came primarily from brokerage and investment banking stocks, such as Citigroup
and Morgan Stanley Dean Witter, both of which are well managed industry
leaders. Media holdings such as Infinity Broadcasting, Echostar Communications
and CBS benefited from the tremendous growth in advertising spending due to
the highly competitive business environment, especially among Internet
companies.
While the Series maintained a slightly underweighted position in health care
stocks versus the index, in general this group hurt performance. Nursing
homes, hospitals, HMOs, and pharmaceutical companies all were hurt by fears of
Medicare reform and potential government price controls. Despite this
generally negative environment, we found good opportunities in the medical
device area. While our medical device holdings produced mixed results, in our
view, companies such as Guidant and Medtronic have a number of new products in
their pipelines that could drive revenues and earnings growth higher.
Other detractors to performance included Nabisco, Safeway, and CVS. Despite
solid fundamental business and growth
A $10,000 Investment compared to the S&P 500 Since the Series' Inception
[GRAPH]
MFS Research Managers Series S&P 500
4/30/99 10,000 10,000
12/31/99 11,981 11,106
Average Annual Total Return
Research Managers
Series S&P 500
Since Inception 19.8% 11.1%
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.
prospects, these companies suffered from generally downbeat industry outlooks
and weak investor sentiment. In the consumer goods and services sector,
electronics equipment conglomerate Tyco International was a major
disappointment for the Series. Despite no evidence of irregular accounting
methods, its shares plunged during the period after an analyst raised
suspicions regarding the company's accounting of recent acquisitions. We've
met with management a number of times and we continue to believe that its
business fundamentals are strong. As a result, we decided to maintain our
holding in the Series.
[CHECKMARK] FUND FACTS
GOAL: Long-term growth of capital.
START DATE: April 30, 1999
SIZE: $7 million as of December 31, 1999
MANAGER: A committee of MFS equity research analysts overseen by Alec Murray.
Mr. Murray is the Associate Director of MFS Equity Research. The committee has
managed the Series since its inception.
92
<PAGE>
NEW ENGLAND ZENITH FUND
(MFS RESEARCH MANAGERS SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--92.0% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
AEROSPACE & DEFENSE--1.7%
980 General Dynamics Corp.................................... $ 51,695
980 United Technologies Corp................................. 63,700
------------
115,395
------------
AUTOMOTIVE--0.3%
980 Federal-Mogul Corp....................................... 19,723
------------
BANKS & CREDIT COMPANIES--3.7%
650 Bank America Corp........................................ 32,622
5,310 Bank Of Ireland (EUR).................................... 42,257
760 Bank One Corp............................................ 24,368
650 Capital One Financial Corp............................... 31,322
430 Chase Manhattan Corp..................................... 33,406
430 Providian Financial Corp................................. 39,157
1,180 U.S. Bancorp............................................. 28,099
540 Wells Fargo & Co......................................... 21,836
------------
253,067
------------
BIOTECHNOLOGY--0.7%
1,080 Guidant Corp.(b)......................................... 50,760
------------
BUSINESS MACHINES--6.2%
330 Hewlett Packard Co....................................... 37,599
550 International Business Machines Corp..................... 59,400
980 Motorola, Inc. .......................................... 144,305
2,380 Sun Microsystems, Inc.(b)................................ 184,301
------------
425,605
------------
BUSINESS SERVICES--0.9%
210 Cendant Corp.(b)......................................... 5,578
650 First Data Corp.......................................... 32,053
450 VISX, Inc.(b)............................................ 23,287
------------
60,918
------------
CELLULAR PHONES--2.2%
1,500 Sprint Corp.(b).......................................... 153,750
------------
CHEMICALS--0.9%
1,080 AstraZeneca PLC (GBP).................................... 44,869
550 Cambrex Corp. ........................................... 18,941
------------
63,810
------------
COMMUNICATIONS SERVICES--4.8%
50 Ancor Communications, Inc.(b)............................ 3,394
1,630 Bell Atlantic Corp. ..................................... 100,347
220 GTE Corp. ............................................... 15,524
2,115 MCI Worldcom, Inc.(b).................................... 112,227
860 SBC Communications, Inc. ................................ 41,925
860 Sprint Corp. ............................................ 57,889
------------
331,306
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
COMPUTER SOFTWARE--1.3%
1,410 Compuware Corp.(b)....................................... $ 52,523
100 Liberate Technologies, Inc.(b)........................... 25,700
245 Trintech Group Plc.(b) (ADR)............................. 12,127
------------
90,350
------------
COMPUTER SOFTWARE--PC--3.2%
100 Macromedia, Inc.(b)...................................... 7,312
1,840 Microsoft Corp.(b)....................................... 214,820
------------
222,132
------------
COMPUTER SOFTWARE--SYSTEMS--7.9%
100 Bea Systems, Inc.(b)..................................... 6,994
100 BMC Software, Inc.(b).................................... 7,994
330 Citrix Systems, Inc.(b).................................. 40,590
550 Computer Associates International, Inc................... 38,466
970 EMC Corp.(b)............................................. 105,973
1,520 Oracle Corp.(b).......................................... 170,335
860 Seagate Technology, Inc.(b).............................. 40,044
110 Synopsys, Inc.(b)........................................ 7,342
887 Veritas Software Corp.(b)................................ 126,952
------------
544,690
------------
COMSUMER GOODS & SERVICES--3.1%
1,080 Clorox Co................................................ 54,405
1,080 Colgate-Palmolive Co..................................... 70,200
1,630 Dial Corp. .............................................. 39,629
430 Procter & Gamble Co...................................... 47,112
------------
211,346
------------
CONGLOMERATES--1.8%
3,240 Tyco International, Ltd.................................. 125,955
------------
CONTAINERS--0.5%
1,300 Owens Illinois, Inc.(b).................................. 32,581
------------
ELECTRICAL EQUIPMENT--0.8%
330 General Electric Co...................................... 51,068
------------
ELECTRONICS--7.8%
1,960 Analog Devices, Inc.(b).................................. 182,280
20 Digimarc Corp.(b)........................................ 1,000
860 Flextronics International, Ltd.(b)....................... 39,560
3,000 Hitachi, Ltd. (JPY)...................................... 48,155
330 Intel Corp. ............................................. 27,163
2,160 LSI Logic Corp.(b)....................................... 145,800
330 Micron Technology, Inc.(b)............................... 25,657
430 Oak Industries, Inc.(b).................................. 45,634
100 SCI Systems, Inc.(b)..................................... 8,219
220 The Dii Group, Inc.(b)................................... 15,613
------------
539,081
------------
</TABLE>
See accompanying notes to financial statements.
93
<PAGE>
NEW ENGLAND ZENITH FUND
(MFS RESEARCH MANAGERS SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
ENTERTAINMENT--4.1%
760 Carnival Corp. .......................................... $ 36,337
760 Comcast Corp.(b) ........................................ 38,428
1,680 Infinity Broadcasting Corp.(b)........................... 60,795
1,300 Time Warner, Inc. ....................................... 94,169
760 CBS Corp.(b)............................................. 48,592
------------
278,321
------------
FINANCIAL INSTITUTIONS--3.4%
1,100 Associates First Capital Corp............................ 30,181
1,300 Citigroup, Inc........................................... 72,231
860 Federal Home Loan Mortgage Corp. ........................ 40,474
210 Merrill Lynch & Co., Inc................................. 17,535
330 Morgan Stanley Dean Witter & Co.......................... 47,107
100 Orix Corp. (JPY)......................................... 22,531
------------
230,059
------------
FOOD & BEVERAGE PRODUCTS--2.0%
1,080 Anheuser-Busch Companies, Inc............................ 76,545
550 Nabisco Holdings Corp. .................................. 17,394
650 Quaker Oats Co........................................... 42,656
------------
136,595
------------
FOREST & PAPER PRODUCTS--0.5%
550 Bowater, Inc............................................. 29,872
------------
INSURANCE--5.0%
702 American International Group, Inc. ...................... 75,904
230 Aon Corp. ............................................... 9,200
1,390 Axa Financial, Inc....................................... 47,086
925 CIGNA Corp............................................... 74,520
860 Hartford Financial Services Group........................ 40,742
1,080 Lincoln National Corp., Inc.............................. 43,200
230 Marsh & Mclennan Companies, Inc. ........................ 22,008
760 ReliaStar Financial Corp................................. 29,782
------------
342,442
------------
INTERNET SERVICES--0.7%
430 America Online, Inc.(b).................................. 32,438
100 Ariba, Inc.(b)........................................... 17,738
------------
50,176
------------
MACHINERY--1.7%
760 Danaher Corp. ........................................... 36,670
310 Deere & Co............................................... 13,446
110 Ingersoll-Rand Co. ...................................... 6,057
220 Mannesmann AG (EUR)...................................... 53,077
100 SPX Corp.(b)............................................. 8,081
------------
117,331
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
MEDICAL & HEALTH PRODUCTS--4.3%
2,280 American Home Products Corp......................... $ 89,918
980 Boston Scientific Corp.(b).......................... 21,437
1,080 Bristol-Myers Squibb Co. ........................... 69,322
1,510 Pharmacia & Upjohn, Inc............................. 67,950
1,190 Sanofi-Synthelabo S.A. (EUR)........................ 49,556
------------
298,183
------------
MEDICAL & HEALTH TECHNOLOGY & SERVICES--0.6%
110 McKesson HBOC, Inc.................................. 2,482
220 Medtronic, Inc...................................... 8,016
540 United Healthcare Corp.............................. 28,687
------------
39,185
------------
OIL SERVICES--0.2%
330 Cooper Cameron Corp.(b)............................. 16,149
------------
OILS--5.4%
220 Atlantic Richfield Co............................... 19,030
870 Bp Amoco, Plc.(ADR)................................. 51,602
3,020 Conoco, Inc......................................... 75,123
220 Devon Energy Corp. ................................. 7,233
860 EOG Resources, Inc.................................. 15,104
1,324 Exxon Mobil Corp.................................... 106,665
650 Noble Drilling Corp.(b)............................. 21,287
100 Total Fina S.A. (ADR)............................... 6,925
330 Total Fina S.A. (EUR)............................... 44,046
750 Transocean Sedco Forex, Inc. ....................... 25,266
------------
372,281
------------
PHOTOGRAPHIC PRODUCTS--0.2%
650 Polaroid Corp....................................... 12,228
------------
PRINTING & PUBLISHING--0.8%
980 Tribune Co.......................................... 53,961
------------
SPECIAL PRODUCTS & SERVICES--1.4%
530 Abitibi-Consolidated, Inc........................... 6,294
470 VeriSign, Inc.(b)................................... 89,741
------------
96,035
------------
STORES--4.4%
430 Costco Wholesale Corp.(b)........................... 39,238
1,630 CVS Corp. .......................................... 65,098
530 Gap, Inc. .......................................... 24,380
2,050 Office Depot, Inc.(b)............................... 22,422
320 Tandy Corp. ........................................ 15,740
1,080 TJX Companies, Inc. ................................ 22,072
1,680 Wal-Mart Stores, Inc. .............................. 116,130
------------
305,080
------------
</TABLE>
See accompanying notes to financial statements.
94
<PAGE>
NEW ENGLAND ZENITH FUND
(MFS RESEARCH MANAGERS SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
SUPERMARKETS--1.6%
1,570 Kroger Co.(b)............................................ $ 29,634
2,280 Safeway, Inc.(b)......................................... 81,082
------------
110,716
------------
TELECOMMUNICATIONS--6.6%
1,950 Cisco Systems, Inc.(b)................................... 208,894
330 Corning, Inc............................................. 42,549
220 EchoStar Communications Corp.(b)......................... 21,450
100 General Instrument Corp.(b).............................. 8,500
540 LM Ericsson Telephone Co.(SEK)........................... 34,714
3 Nippon Telephone & Telegraph Corp. (JPY)................. 51,385
860 Nortel Networks Corp. ................................... 86,860
------------
454,352
------------
UTILITIES--ELECTRIC--1.0%
650 CMS Energy Corp.......................................... 20,272
650 Texas Utilities Co....................................... 23,116
330 The AES Corp.(b)......................................... 24,668
------------
68,056
------------
UTILITIES--GAS--0.3%
330 Columbia Energy Group.................................... 20,873
------------
Total Common Stocks
(Identified Cost $5,267,483)............................ 6,323,432
------------
</TABLE>
SHORT-TERM INVESTMENT--6.9%
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$475,000 Federal Home Loan Mortgage Discount Notes, 1.500%,
1/03/00.............................................. $ 474,960
------------
Total Short-Term Investment
(Identified Cost $474,960)........................... 474,960
------------
Total Investments--98.9%
(Identified Cost $5,742,443)(a)...................... 6,798,392
Other assets less liabilities......................... 73,660
------------
TOTAL NET ASSETS--100%................................ $ 6,872,052
============
</TABLE>
(a) Federal Tax Information:
At December 31, 1999 the net unrealized appreciation on investments based on
cost of $5,742,443 for federal income tax purposes was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost....................................................... $1,397,965
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value............. (342,016)
----------
Net unrealized appreciation..................................... $1,055,949
==========
</TABLE>
For Federal income tax purposes, the Series has a capital loss carryforward
at December 31, 1999 of approximately $16,000 which will expire in 2007.
Accordingly, no capital gain distributions are expected to be paid to
shareholders until net gains have been realized in excess of such amount.
(b) Non-income producing security.
Key to Abbreviations:
EUR-- Euro Currency
GBP-- Pound Sterling
JPY-- Japanese Yen
SEK-- Swedish Krona
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the
right to receive securities of the foreign issuer described. The
value of ADRs and GDRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
See accompanying notes to financial statements.
95
<PAGE>
NEW ENGLAND ZENITH FUND
(MFS RESEARCH MANAGERS SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value...................................... $6,798,392
Cash...................................................... 2,652
Receivable for:
Securities sold........................................... 34,978
Fund shares sold.......................................... 82,955
Dividends and interest.................................... 2,582
Due from Investment Adviser............................... 7,077
----------
Total Assets.............................................. 6,928,636
LIABILITIES
Payable for:
Fund shares redeemed...................................... $ 3,508
Securities purchased...................................... 31,561
Due to subcustodian banks................................. 4,855
Accrued expenses:
Management fees........................................... 2,017
Deferred trustees fees.................................... 339
Other expenses............................................ 14,304
-------
Total Liabilities......................................... 56,584
----------
NET ASSETS................................................. $6,872,052
==========
Net assets consist of:
Capital paid in........................................... $5,845,517
Accumulated net investment loss........................... (5,988)
Accumulated net realized gains (losses)................... (23,419)
Unrealized appreciation (depreciation) on investments and
foreign currency......................................... 1,055,942
----------
NET ASSETS................................................. $6,872,052
==========
Computation of offering price:
Net asset value and redemption price per share ($6,872,052
divided by 573,730 shares of beneficial interest)........ $ 11.98
==========
Identified cost of investments............................ $5,742,443
==========
</TABLE>
STATEMENT OF OPERATIONS
FOR THE PERIOD APRIL 30, 1999(A)
THROUGH DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends........................................... $ 25,606(b)
Interest............................................ 3,919
----------
29,525
EXPENSES
Management fees..................................... 26,299
Trustees' fees and expenses......................... 2,731
Custodian........................................... 30,121
Audit and tax services.............................. 6,000
Legal............................................... 5,172
Printing............................................ 76
Miscellaneous....................................... 866
---------
Total expenses..................................... 71,265
Less expenses assumed by the investment adviser.... (39,708) 31,557
--------- ----------
NET INVESTMENT INCOME................................ (2,032)
----------
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net................................... (23,419)
Foreign currency transactions--net................. (3,956) (27,375)
---------
Unrealized appreciation (depreciation) on:
Investments--net 1,055,950
Foreign currency translation--net.................. (8) 1,055,942
--------- ----------
Net gain (loss)..................................... 1,028,567
----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS.......................................... $1,026,535
==========
</TABLE>
(a)Commencement of operations.
(b)Net of foreign taxes of $268
See accompanying notes to financial statements.
96
<PAGE>
NEW ENGLAND ZENITH FUND
(MFS RESEARCH MANAGERS SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
APRIL 30, 1999(A)
THROUGH
DECEMBER 31,
1999
-----------------
<S> <C>
FROM OPERATIONS
Net investment income (loss) ............................... $ (2,032)
Net realized gain (loss).................................... (27,375)
Unrealized appreciation (depreciation)...................... 1,055,942
----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS........... 1,026,535
----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares................................ 11,362,688
Cost of shares redeemed..................................... (5,517,171)
----------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS............................................... 5,845,517
----------
TOTAL INCREASE (DECREASE) IN NET ASSETS..................... 6,872,052
NET ASSETS
Beginning of the period..................................... 0
----------
End of the period........................................... $6,872,052
==========
UNDISTRIBUTED NET INVESTMENT LOSS
End of the period........................................... $ (5,988)
==========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.............................. 1,103,624
Redeemed.................................................... (529,894)
----------
Net Change.................................................. 573,730
==========
</TABLE>
(a)Commencement of operations.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
APRIL 30, 1999(A)
THROUGH
DECEMBER 31,
1999
-----------------
<S> <C>
Net Asset Value, Beginning of Period......................... $10.00
------
Income From Investment Operations
Net Investment Income....................................... 0.00
Net Realized and Unrealized Gain (Loss) on Investments...... 1.98
------
Total From Investment operations............................ 1.98
------
Net Asset Value, End of Period............................... $11.98
======
TOTAL RETURN (%)............................................. 19.8 (b)
Ratio of Operating Expenses to Average Net Assets (%)........ 0.90 (c)
Ratio of Net Investment Income to Average Net Assets (%)..... (0.06)(c)
Portfolio Turnover Rate (%).................................. 84
Net Assets, End of Period (000).............................. $6,872
The Ratios of operating expenses to average net assets
without giving effect to the voluntary expense agreement
described in Note 4 to the Financial Statements would have
been (%).................................................... 2.03 (c)
</TABLE>
(a)Commencement of operations.
(b)Not computed on an annualized basis.
(c)Computed on an annualized basis.
See accompanying notes to financial statements.
97
<PAGE>
WESTPEAK GROWTH AND INCOME
PORTFOLIO MANAGER: GERALD H. SCRIVER AND PHILIP J. COOPER WESTPEAK INVESTMENT
ADVISORS, L.P.
[Photos appear here]
Q. HOW DID THE SERIES PERFORM DURING THE PAST TWELVE MONTHS RELATIVE TO ITS
INDEX AND RELATIVE TO ITS PEERS?
A. The Westpeak Growth and Income Series returned 9.4% for the year ending
December 31, 1999 versus a return of 21.0% for the Standard & Poor's 500
Index./25/ The Lipper Variable Products Growth and Income Fund Average/11/
returned 14.8% over the same time period.
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST TWELVE
MONTHS.
A. There was no clear leader last year in terms of market capitalization. The
core Russell 1000 Index, Russell Midcap Index and Russell 2000 Index all posted
returns in the 18.0% to 21.0% range. A large disparity did occur, however, be-
tween the growth and value components of each index. The spread between the two
styles' annual return averaged 40.6% across each index. Although it appears
that "growth" drove performance in 1999, our research reveals that a relatively
small group of stocks exhibiting high volatility actually led the market. Half
of last year's gain in the S&P 500 can be attributed to just eight technology
stocks. Coincidentally, these same highly volatile stocks also embody growth
attributes, explaining why growth indices outperformed. Many reasonably priced,
stable growth companies did not participate in the astronomical performance of
this narrow group, but are poised to perform well in the coming months.
Q. GIVEN THIS INVESTMENT ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY? WHAT
CHANGES DID YOU MAKE SINCE THE START OF THE YEAR?
A. The portfolio continues to maintain a bias toward attractively priced stocks
with strong earnings growth rates. The Series' 23.4 Price to Earnings (PE) ra-
tio compares favorably to the S&P 500's 34.2. In addition, a Price to Book ra-
tio of 3.7 versus 5.8 for the S&P 500 also reflects our value orientation. The
portfolio's earnings are growing at a rate of 16.7%, almost equal to the S&P
500's 17.0% pace. Our P/E to Growth ratio of 1.4 versus 2.0 for the S&P con-
firms that we are not over-paying for growth. There were no material changes in
the Series over the course of the year.
Q. WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE (ON BOTH AN
ABSOLUTE AND RELATIVE BASIS) DURING THE PAST TWELVE MONTHS? WHAT INVESTMENT
DECISIONS WERE MOST EFFECTIVE AND WHICH ONES WERE LEAST EFFECTIVE?
A. A value slant was added to the portfolio in 1999 through our moderate under-
exposure to growth characteristics. When observing widely recognized style av-
erages like the Russell Growth and Value indexes, it appears that growth domi-
nated in 1999. We have found that it was actually other characteristics of com-
panies classified as growth that drove performance in 1999; namely, volatility,
momentum, and liquidity. Performance was penalized for owning companies with an
average market capitalization less than the benchmark. A predominance of low
P/E stocks also resulted in a drag on our 1999 relative return. An
underweighted posture in Consumer Staples made it the largest sector contribu-
tor to our relative performance. Sectors that detracted from relative perfor-
mance included an underweight in Technology and an overweight in Financials.
Securities that contributed most to relative performance during the past two
quarters were overweights in US Cellular, Lehman Brothers, Wal-Mart, Alcoa, and
Lexmark Int'l. The largest penalties to performance came from underweighting
General Electric, Oracle, and Cisco Systems and overweights in Nabisco and
Litton Industries.
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT SIX
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO THE WAY YOU MANAGE YOUR
PORTFOLIO?
A. The decade of the 1990s ended on a very positive note for both the economy
and the equity market. However, as we enter the new year, there are no signs
that the economy is slowing. The economy is reaching an over-extended phase and
the Technology/Internet stocks are approaching a classic bubble. While Technol-
ogy will continue to be an important part of the world economy, the group's re-
cent move has created an opportunity for those, like Westpeak, who remain com-
mitted to an investment philosophy emphasizing traditional measures of funda-
mental value. Inflationary forces will incite the Fed to raise interest rates
in 2000, spurring a correction primarily in technology and Internet companies.
Stocks with below average P/Es, above-average growth, and the potential for
positive earnings surprises will likely be the new market leaders as we enter
the year 2000. We do not anticipate significant changes in the management of
the portfolio over the next several quarters.
98
<PAGE>
A $10,000 Investment Compared to the S&P 500 Index
since the Series' Inception
[GRAPH]
Westpeak Growth
and Income Series S&P 500
4/30/93 10,000 10,000
12/31/93 11,424 10,812
12/31/94 11,310 10,951
12/31/95 15,435 15,056
12/31/96 18,229 18,531
12/31/97 24,327 24,689
12/31/98 30,276 31,787
12/31/99 33,102 38,455
Average Annual Returns
Growth & Lipper Variable Products Growth
Income Series S&P 500 and Income Average
1 year 9.4% 21.0% 14.8%
3 years 22.0 27.6 19.3
5 years 24.0 28.6 22.2
Since Inception 19.7 22.4 n/a
[checkmark] FUND FACTS
GOAL: Long-term total return through investment in equity securities.
START DATE: April 30, 1993
SIZE: $418 million as of December 31, 1999
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, New England Growth and Income Fund since
May 1995 and New England Capital Growth Fund since February 1998. 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.
99
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK GROWTH AND INCOME SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--98.0% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
AEROSPACE & DEFENSE--2.5%
57,100 General Dynamics Corp................................... $ 3,012,025
46,000 Litton Industries, Inc.(b).............................. 2,294,250
81,400 Northrop Grumman Corp................................... 4,400,687
18,800 Rockwell International Corp.(b)......................... 900,050
------------
10,607,012
------------
AIRLINES--0.6%
47,500 Delta Air Lines, Inc.................................... 2,366,094
------------
AUTOMOTIVE--2.0%
80,300 Ford Motor Co........................................... 4,291,031
57,200 General Motors Corp..................................... 4,157,725
------------
8,448,756
------------
BANKS--8.1%
87,900 BB&T Corp............................................... 2,406,263
93,500 Chase Manhattan Corp.................................... 7,263,781
133,700 Citigroup, Inc.......................................... 7,428,706
64,000 FleetBoston Financial Corp.............................. 2,228,000
28,500 J.P. Morgan & Company, Inc. ............................ 3,608,812
36,200 SouthTrust Corp......................................... 1,368,812
35,500 SunTrust Banks, Inc..................................... 2,442,844
156,400 UnionBanCal Corp........................................ 6,168,025
33,400 Washington Mutual, Inc.................................. 868,400
------------
33,783,643
------------
BUSINESS SERVICES--1.5%
65,400 Electronic Data Systems Corp............................ 4,377,713
13,800 SABRE Group Holdings, Inc.(b)........................... 707,250
21,100 Zebra Technologies Corp.(b)............................. 1,234,350
------------
6,319,313
------------
CABLE & OTHER MEDIA--0.9%
76,400 Cox Communications, Inc.(b)............................. 3,934,600
------------
CHEMICALS--1.7%
54,400 Dow Chemical Co. ....................................... 7,269,200
------------
COMPUTER SOFTWARE & SERVICES--8.3%
35,300 Adobe Systems, Inc...................................... 2,373,925
52,900 America Online, Inc.(b)................................. 3,990,644
105,300 Computer Associates International, Inc.................. 7,364,419
7,500 Comverse Technology, Inc.(b)............................ 1,085,625
21,000 Eletronics for Imaging, Inc.(b)......................... 1,220,625
144,700 Microsoft Corp.(b)...................................... 16,893,725
45,400 National Instruments Corp.(b)........................... 1,736,550
------------
34,665,513
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
COMPUTERS & BUSINESS EQUIPMENT--6.7%
31,400 Adaptec, Inc.(b)........................................ $ 1,566,075
189,100 Cisco Systems, Inc.(b).................................. 20,257,338
18,000 Gateway, Inc.(b)........................................ 1,297,125
25,400 Lexmark International Group, Inc.(b).................... 2,298,700
57,800 Pitney Bowes, Inc....................................... 2,792,462
------------
28,211,700
------------
CONSTRUCTION--0.9%
38,700 Lafarge Corp............................................ 1,069,087
61,600 USG Corp. .............................................. 2,902,900
------------
3,971,987
------------
CONSUMER GOODS & SERVICES--0.7%
28,600 Minnesota Mining & Manufactoring Co..................... 2,799,225
------------
DRUGS--6.7%
56,100 Allergan, Inc........................................... 2,790,975
166,800 Bristol-Myers Squibb Co................................. 10,706,475
30,800 Forest Laboratories, Inc.(b)............................ 1,892,275
40,500 IVAX Corp.(b)........................................... 1,042,875
359,400 Pfizer, Inc............................................. 11,658,037
------------
28,090,637
------------
ELECTRIC UTILITIES--4.1%
115,800 DTE Energy Co. ......................................... 3,633,225
73,800 Energy East Corp........................................ 1,535,963
116,700 Entergy Corp............................................ 3,005,025
57,300 GPU, Inc. .............................................. 1,715,419
204,100 Public Service Enterprise Group, Inc.................... 7,105,231
------------
16,994,863
------------
ELECTRONICS--2.2%
81,500 Lucent Technologies, Inc................................ 6,097,219
57,300 Vishay Intertechnology, Inc.(b)......................... 1,812,112
24,000 Xilinx, Inc.(b)......................................... 1,091,250
------------
9,000,581
------------
ENERGY RESERVES--5.1%
25,700 Chevron Corp............................................ 2,226,263
33,400 Coastal Corp............................................ 1,183,613
66,500 Exxon Mobil Corp. ...................................... 5,357,406
44,800 Phillips Petroleum Co................................... 2,105,600
100,500 Royal Dutch Petroleum Co.(ADR).......................... 6,073,969
61,400 Texaco, Inc............................................. 3,334,787
20,500 Vastar Resources, Inc................................... 1,209,500
------------
21,491,138
------------
</TABLE>
See accompanying notes to financial statements.
100
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK GROWTH AND INCOME SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
FINANCIAL SERVICES--2.5%
49,300 Federal Home Loan Mortgage Corp......................... $ 2,320,181
67,300 Federal National Mortgage Association................... 4,202,044
41,800 Marsh & McLennan Companies, Inc......................... 3,999,737
------------
10,521,962
------------
FOOD & BEVERAGES--3.4%
20,700 Hormel Foods Corp....................................... 840,938
234,500 IBP, Inc................................................ 4,221,000
214,300 Nabisco Group Holdings Corp............................. 2,276,937
33,900 Quaker Oats Co. ........................................ 2,224,688
225,700 Supervalu, Inc.......................................... 4,514,000
------------
14,077,563
------------
GAS & PIPELINE UTILITIES--0.5%
51,700 El Paso Energy Corp..................................... 2,006,606
------------
HEALTH CARE--PRODUCTS--5.0%
68,100 Abbott Laboratories..................................... 2,472,881
164,800 Tyco International, Ltd................................. 6,406,600
129,700 Johnson & Johnson....................................... 12,078,313
------------
20,957,794
------------
HEALTH CARE--SERVICES--0.6%
17,300 PacifiCare Health Systems, Inc.......................... 916,900
29,900 United Healthcare Corp.................................. 1,588,437
------------
2,505,337
------------
HOUSEHOLD PRODUCTS--1.1%
54,800 Kimberly-Clark Corp..................................... 3,575,700
16,300 Whirlpool Corp.......................................... 1,060,519
------------
4,636,219
------------
INDUSTRIAL PARTS & MACHINERY--2.0%
28,900 Cummins Engine, Inc..................................... 1,396,231
33,700 Dover Corp.............................................. 1,529,138
18,200 Eaton Corp.............................................. 1,321,775
45,400 Ingersoll-Rand Co....................................... 2,499,838
34,500 Parker Hannifin Corp.................................... 1,770,281
------------
8,517,263
------------
INSURANCE--OTHER--0.9%
70,900 Ambac Financial Group, Inc.............................. 3,700,094
------------
LIFE INSURANCE--1.4%
29,800 Aetna, Inc.............................................. 1,663,213
99,600 Lincoln National Corp., Inc............................. 3,984,000
------------
5,647,213
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
MEDIA & ENTERTAINMENT--0.7%
24,600 AT&T Corp. - Liberty Media Group........................ $ 1,396,050
27,100 Tribune Co.............................................. 1,492,194
------------
2,888,244
------------
METALS & MINING--1.0%
73,100 Alcan Aluminium, Ltd.................................... 3,010,806
14,400 Alcoa, Inc.............................................. 1,195,200
------------
4,206,006
------------
PAPER & FOREST PRODUCTS--0.7%
44,900 Temple-Inland, Inc...................................... 2,960,594
------------
PROPERTY & CASUALTY INSURANCE--1.4%
70,000 Allmerica Financial Corp................................ 3,893,750
59,800 St. Paul Companies, Inc................................. 2,014,512
------------
5,908,262
------------
PUBLISHING--1.9%
64,700 Gannett Company, Inc. .................................. 5,277,094
4,500 Washington Post Co...................................... 2,501,437
------------
7,778,531
------------
RAILROADS & EQUIPMENT--0.7%
67,600 Union Pacific Corp...................................... 2,949,050
------------
RETAIL--DEPARTMENT STORE--3.6%
21,500 Dayton Hudson Corp...................................... 1,578,906
44,300 Federated Department Stores, Inc.(b).................... 2,239,919
161,800 Wal-Mart Stores, Inc.................................... 11,184,425
------------
15,003,250
------------
RETAIL--SPECIALTY--0.5%
27,750 Home Depot, Inc. ....................................... 1,902,609
------------
SECURITIES & ASSET MANAGEMENT--2.9%
130,371 Bear Stearns Companies, Inc. ........................... 5,573,360
19,900 Lehman Brothers Holdings, Inc........................... 1,685,281
14,200 Morgan Stanley Dean Witter & Co......................... 2,027,050
72,700 PaineWebber Group, Inc.................................. 2,821,669
------------
12,107,360
------------
SEMICONDUCTORS--4.4%
46,200 Applied Materials, Inc.(b).............................. 5,852,963
15,900 LSI Logic Corp.(b)...................................... 1,073,250
12,100 STMicroelectronics N.V. (ADR)........................... 1,832,394
97,100 Texas Instruments, Inc. ................................ 9,406,562
------------
18,165,169
------------
TELECOMMUNICATION--10.1%
20,600 ALLTEL Corp. ........................................... 1,703,363
157,500 AT & T Corp............................................. 7,993,125
</TABLE>
See accompanying notes to financial statements.
101
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK GROWTH AND INCOME SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
TELECOMMUNICATION--(CONTINUED)
215,300 BellSouth Corp.......................................... 10,078,731
112,050 MCI Worldcom, Inc.(b)................................... 5,945,653
47,400 Motorola, Inc........................................... 6,979,650
11,800 Nortel Networks Corp.................................... 1,191,800
98,036 SBC Communications, Inc................................. 4,779,255
32,400 United States Cellular Corp.(b)......................... 3,270,375
------------
41,941,952
------------
THRIFTS--0.7%
89,200 Golden West Financial Corp.............................. 2,988,200
------------
Total Common Stocks
(Identified Cost $386,762,611)......................... 409,323,540
------------
</TABLE>
SHORT-TERM INVESTMENT--1.9%
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$7,738,000 Repurchase Agreement with State Street Corp. dated
12/31/1999 at 2.5% to be repurchased at $7,739,612
on 1/3/2000, collateralized by $7,655,000 U.S.
Treasury Bonds, 6.750% due 8/15/2026 with a value
of $7,894,219...................................... $ 7,738,000
------------
Total Short-Term Investments
(Identified Cost $7,738,000)....................... 7,738,000
------------
Total Investments--99.9%
(Identified Cost $394,500,611)(a).................. 417,061,540
Other assets less liabilities....................... 478,261
------------
TOTAL NET ASSETS--100%.............................. $417,539,801
============
</TABLE>
(a) Federal Tax Information:
At December 31, 1999 the net unrealized appreciation on investments based on
cost of $394,531,073 for federal income tax purposes was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost............... $48,633,714
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value............... (26,103,247)
------------
Net unrealized appreciation.................................... $ 22,530,467
============
</TABLE>
(b) Non-income producing security.
Key to abbreviations:
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the right
to receive securities of the foreign issuer described. The value of ADRs
and GDRs are significantly influenced by trading on exchanges not
located in the United States or Canada.
See accompanying notes to financial statements.
102
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK GROWTH AND INCOME SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value.................................... $417,061,540
Cash.................................................... 828
Receivable for:
Fund shares sold........................................ 850,958
Dividends and interest.................................. 412,963
------------
Total Assets............................................ 418,326,289
LIABILITIES
Payable for:
Fund shares redeemed.................................... $521,020
Accrued expenses:
Management fees......................................... 231,576
Deferred trustees fees.................................. 9,747
Other expenses.......................................... 24,145
--------
Total Liabilities....................................... 786,488
------------
NET ASSETS............................................... $417,539,801
============
Net assets consist of:
Capital paid in......................................... $385,651,488
Undistributed net investment income..................... 6,957
Accumulated net realized gains (losses)................. 9,320,427
Unrealized appreciation (depreciation) on investments
and foreign currency................................... 22,560,929
------------
NET ASSETS............................................... $417,539,801
============
Computation of offering price:
Net asset value and redemption price per share
($417,539,801 divided by 2,103,612 shares of beneficial
interest)............................................... $ 198.49
============
Identified cost of investments........................... $394,500,611
============
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends.......................................... $ 5,547,321(a)
Interest........................................... 410,900
-----------
5,958,221
-----------
EXPENSES
Management fees.................................... $2,410,327
Trustees' fees and expenses........................ 19,116
Custodian.......................................... 77,936
Audit and tax services............................. 11,891
Legal.............................................. 22,588
Printing........................................... 74,088
Insurance.......................................... 7,186
Miscellaneous...................................... 5,355
----------
Total Expenses..................................... 2,628,487
-----------
NET INVESTMENT INCOME............................... 3,329,734
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net................................... 52,016,715
Unrealized appreciation
(depreciation) on:
Investments--net................................... (24,538,317)
-----------
Net gain (loss)..................................... 27,478,398
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS......................................... $30,808,132
===========
</TABLE>
(a) Net of foreign taxes of $104,037
See accompanying notes to financial statements.
103
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK GROWTH AND INCOME SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................. $ 3,329,734 $ 1,668,044
Net realized gain (loss).......................... 52,016,715 19,998,285
Unrealized appreciation (depreciation)............ (24,538,317) 24,191,543
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS....................................... 30,808,132 45,857,872
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income............................. (3,333,829) (1,671,571)
Net realized gain................................. (50,277,567) (17,136,182)
------------ ------------
Total distributions............................... (53,611,396) (18,807,753)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares...................... 186,369,857 131,989,323
Reinvestment of distributions..................... 53,611,396 18,807,753
Cost of shares redeemed........................... (81,195,387) (49,028,374)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS............................... 158,785,866 101,768,702
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........... 135,982,602 128,818,821
NET ASSETS
Beginning of the year............................. 281,557,199 152,738,378
------------ ------------
End of the year................................... $417,539,801 $281,557,199
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT
INCOME
End of the year................................... $ 6,957 $ 11,052
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 860,143 660,083
Issued in reinvestment of distributions........... 267,460 90,448
Redeemed.......................................... (375,398) (247,768)
------------ ------------
Net Change........................................ 752,205 502,763
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year.......................... $ 208.34 $ 179.98 $ 151.77 $141.31 $109.03
-------- -------- -------- ------- -------
Income From Investment
Operations
Net Investment Income.......... 1.78 1.30 1.37 1.78 1.77
Net Realized and Unrealized
Gain (Loss) on Investments.... 17.51 42.44 48.76 23.69 37.91
-------- -------- -------- ------- -------
Total From Investment
operations.................... 19.29 43.74 50.13 25.47 39.68
-------- -------- -------- ------- -------
Less Distributions
Distributions From Net
Investment Income............ (1.78) (1.31) (1.35) (1.82) (1.71)
Distributions From Net
Realized Capital Gains....... (27.36) (14.07) (20.57) (13.19) (5.69)
-------- -------- -------- ------- -------
Total Distributions............ (29.14) (15.38) (21.92) (15.01) (7.40)
-------- -------- -------- ------- -------
Net Asset Value, End of Year... $ 198.49 $ 208.34 $ 179.98 $151.77 $141.31
======== ======== ======== ======= =======
TOTAL RETURN (%)............... 9.4 24.4 33.5 18.1 36.5
Ratio of Operating Expenses to
Average Net Assets (%)........ 0.74 0.78 0.82 0.85 0.85
Ratio of Net Investment Income
to Average Net Assets (%)..... 0.94 0.80 0.91 1.40 1.63
Portfolio Turnover Rate (%).... 115 100 93 104 92
Net Assets, End of Year (000) $417,540 $281,557 $152,738 $82,330 $48,129
The Ratios of operating
expenses to average net assets
without giving effect to a
voluntary expense agreement
would have been (%)........... -- -- -- 0.91 1.06
</TABLE>
See accompanying notes to financial statements.
104
<PAGE>
WESTPEAK STOCK INDEX SERIES
PORTFOLIO MANAGERS: GERALD H. SCRIVER AND PHILIP J. COOPER
WESTPEAK INVESTMENT ADVISORS, L.P.
[PHOTO APPEARS HERE]
[PHOTO APPEARS HERE]
Q. HOW DID THE SERIES PERFORM DURING THE PAST TWELVE MONTHS RELATIVE TO ITS
INDEX AND RELATIVE TO ITS PEERS?
A. The Westpeak Stock Index Series returned 20.4% for the year ending December
31, 1999 versus a return of 21.0% for the Standard & Poor's 500 Index/25/. The
Series remained fully invested in stocks that make up the S&P 500 Index. It is
our strategy to weight the allocation of the Series virtually in the same pro-
portion as the S&P 500 Index as a means to duplicate the performance of the In-
dex.
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST TWELVE
MONTHS.
A. There was no clear leader last year in terms of market capitalization. The
core Russell 1000 Index, Russell Midcap Index and Russell 2000 Index all posted
returns in the 18.0% to 21.0% range. A large disparity did occur, however, be-
tween the growth and value components of each index. The spread between the two
styles' annual return averaged 40.6% across each index. Although it appears
that "growth" drove performance in 1999, our research reveals that a relatively
small group of stocks exhibiting high volatility actually led the market. Half
of last year's gain in the S&P 500 can be attributed to just eight technology
stocks. Coincidentally, these same highly volatile stocks also embody growth
attributes, explaining why growth indices outperformed. Many reasonably priced,
stable growth companies did not participate in the astronomical performance of
this narrow group, but are poised to perform well in the coming months.
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT SIX
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO THE WAY YOU MANAGE YOUR
PORTFOLIO?
A. The decade of the 1990s ended on a very positive note for both the economy
and the equity market. However, as we enter the new year, there are no signs
that the economy is slowing. The economy is reaching an over-extended phase and
the Technology/Internet stocks are approaching a classic bubble. While Technol-
ogy will continue to be an important part of the world economy, the group's re-
cent move has created an opportunity for those, like Westpeak, who remain com-
mitted to an investment philosophy emphasizing traditional measures of funda-
mental value. Inflationary forces will incite the Fed to raise interest rates
in 2000, spurring a correction primarily in technology and Internet companies.
Stocks with below average P/Es, above-average growth, and the potential for
positive earnings surprises will likely be the new market leaders as we enter
the year 2000. We do not anticipate significant changes in the management of
the portfolio over the next several quarters.
105
<PAGE>
A $10,000 Investment Compared to the S&P 500 Index
over the past 10 years
[GRAPH]
Westpeak Stock
Index Series S&P 500
12/31/89 10,000 10,000
12/31/90 9,587 9,682
12/31/91 12,504 12,642
12/31/92 13,418 13,614
12/31/93 14,720 14,974
12/31/94 14,885 15,166
12/31/95 20,377 20,851
12/31/96 24,959 25,663
12/31/97 33,072 34,191
12/31/98 42,305 44,021
12/31/99 50,937 53,256
Average Annual Returns
Stock Index Lipper Variable Products
Series S&P 500 S&P 500 Fund Index Average
1 year 20.4% 21.0% 20.5%
3 years 26.8 27.6 27.1
5 years 27.9 28.6 28.1
10 years 17.7 18.2 17.7
Since Inception 16.3 16.8 n/a
[CHECKMARK] FUND FACTS
GOAL: Investment results that correspond to the composite price and yield
performance of United States publicly traded common stocks.
START DATE: March 30, 1987
SIZE: $270 million as of December 31, 1999
MANAGERS: Gerald H. Scriver and Philip J. Cooper. Mr. Scriver and Mr. Cooper
have managed the Series since 1993; they have also managed Westpeak Growth and
Income Series since August 1993, New England Growth and Income Fund since May
1995 and New England Capital Growth Fund since February 1998. 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.
106
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--98.1% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
AEROSPACE & DEFENSE--1.0%
2,200 B.F. Goodrich Co. ....................................... $ 60,500
20,754 Boeing Co................................................ 862,588
4,300 General Dynamics Corp.................................... 226,825
8,630 Lockheed Martin Corp..................................... 188,781
1,400 Northrop Grumman Corp. .................................. 75,687
1,000 PerkinElmer, Inc......................................... 41,687
7,200 Raytheon Co., Class B.................................... 191,250
3,300 Textron, Inc. ........................................... 253,069
2,500 TRW, Inc................................................. 129,844
10,400 United Technologies Corp. ............................... 676,000
------------
2,706,231
------------
AIRLINES--0.2%
3,300 AMR Corp.(b)............................................. 221,100
2,900 Delta Air Lines, Inc. ................................... 144,456
10,700 Southwest Airlines Co.................................... 173,206
1,500 U.S. Airways Group, Inc.(b).............................. 48,094
------------
586,856
------------
APPAREL & TEXTILES--0.2%
1,200 Liz Claiborne, Inc....................................... 45,150
6,000 NIKE, Inc., Class B...................................... 297,375
1,100 Reebok International, Ltd.(b)............................ 9,006
600 Russell Corp............................................. 10,050
300 Springs Industries, Inc.................................. 11,981
2,500 VF Corp.................................................. 75,000
------------
448,562
------------
AUTOMOTIVE--1.1%
1,600 Cooper Tire & Rubber Co.................................. 24,900
3,422 Dana Corp................................................ 102,446
12,125 Delphi Automotive Systems Corp........................... 190,969
26,200 Ford Motor Co. .......................................... 1,400,063
13,900 General Motors Corp...................................... 1,010,356
3,400 Goodyear Tire & Rubber Co. .............................. 95,838
1,900 ITT Industries, Inc...................................... 63,531
1,320 Navistar International Corp., Inc.(b).................... 62,535
1,590 PACCAR, Inc. ............................................ 70,457
------------
3,021,095
------------
BANKS--5.3%
8,350 AmSouth Bancorporation................................... 161,259
37,424 Bank of America Corp. ................................... 1,878,217
6,900 BB&T Corp................................................ 188,888
18,040 Chase Manhattan Corp..................................... 1,401,483
73,179 Citigroup, Inc........................................... 4,066,008
3,400 Comerica, Inc............................................ 158,738
6,500 Fifth Third Bancorp...................................... 476,938
20,570 First Union Corp. ....................................... 674,953
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
19,985 FleetBoston Financial Corp............................... $ 695,728
4,974 Huntington Bancshares, Inc. ............................. 118,754
3,800 J.P. Morgan & Co., Inc................................... 481,175
9,500 KeyCorp.................................................. 210,188
11,000 Mellon Financial Corp. .................................. 374,687
13,400 National City Corp. ..................................... 317,412
2,600 Old Kent Financial Corp.................................. 91,975
6,600 PNC Bank Corp. .......................................... 293,700
4,800 Regions Financial Corp................................... 120,600
3,600 SouthTrust Corp.......................................... 136,125
3,800 Summit Bancorp........................................... 116,375
7,000 Sun Trust Banks, Inc..................................... 481,687
5,750 Synovus Financial Corp................................... 114,281
3,000 Union Planters Corp...................................... 118,313
4,400 Wachovia Corp. .......................................... 299,200
35,730 Wells Fargo & Co......................................... 1,444,832
------------
14,421,516
------------
BANKS & THRIFTS--1.0%
15,800 Bank of New York Co., Inc................................ 632,000
25,392 Bank One Corp............................................ 814,131
21,209 Firstar Corp. ........................................... 448,040
4,800 Northern Trust Corp...................................... 254,400
3,500 State Street Corp........................................ 255,719
15,808 U.S. Bancorp............................................. 376,428
------------
2,780,718
------------
BROADCASTING--0.7%
16,100 Comcast Corp.(b)......................................... 814,056
13,100 MediaOne Group, Inc.(b).................................. 1,006,244
------------
1,820,300
------------
BUSINESS SERVICES--1.2%
13,300 Automatic Data Processing, Inc........................... 716,538
3,100 Ceridian Corp.(b)........................................ 66,844
3,500 Computer Sciences Corp.(b)............................... 331,188
10,700 Electronic Data Systems Corp............................. 716,231
6,740 IMS Health, Inc.......................................... 183,244
3,200 Network Appliance, Inc.(b)............................... 265,800
3,800 Omnicom Group, Inc....................................... 380,000
5,300 Paychex, Inc............................................. 212,000
2,500 Quintiles Transnational Corp.(b)......................... 46,719
500 Shared Medical Systems Corp.............................. 25,469
6,200 The Interpublic Group of Companies, Inc.................. 357,663
------------
3,301,696
------------
CHEMICALS--2.0%
5,000 Air Products & Chemicals, Inc............................ 167,813
1,600 Ashland, Inc............................................. 52,700
2,500 Avery Dennison Corp...................................... 182,188
</TABLE>
See accompanying notes to financial statements.
107
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
CHEMICALS--(CONTINUED)
4,750 Dow Chemical Co. ....................................... $ 634,719
22,077 E.I. Du Pont de Nemours & Co............................ 1,454,323
1,600 Eastman Chemical Co..................................... 76,300
2,800 Ecolab, Inc............................................. 109,550
2,925 Engelhard Corp.......................................... 55,209
1,200 Great Lakes Chemical Corp............................... 45,825
2,100 Hercules, Inc........................................... 58,538
8,700 Minnesota Mining & Manufactoring Co. ................... 851,512
13,700 Monsanto Co. ........................................... 488,063
7,400 Occidental Petroleum Corp............................... 160,025
3,800 PPG Industries, Inc..................................... 237,737
3,400 Praxair, Inc............................................ 171,062
4,685 Rohm & Haas Co.......................................... 190,621
1,696 Sealed Air Corp.(b)..................................... 87,874
3,700 Sherwin-Williams Co..................................... 77,700
2,900 Union Carbide Corp...................................... 193,575
2,100 Vulcan Materials Co..................................... 83,869
1,400 W.R. Grace & Co.(b)..................................... 19,425
2,075 Westvaco Corp........................................... 67,697
------------
5,466,325
------------
COMPUTER HARDWARE--1.1%
3,700 Analog Devices, Inc.(b)................................. 344,100
33,600 Sun Microsystems, Inc.(b)............................... 2,601,900
------------
2,946,000
------------
COMPUTER SOFTWARE & SERVICES--9.7%
2,600 Adobe Systems, Inc. .................................... 174,850
48,000 America Online, Inc.(b)................................. 3,621,000
1,100 Autodesk, Inc. ......................................... 37,125
5,200 BMC Software, Inc.(b)................................... 415,675
15,648 Cendant Corp.(b)........................................ 415,650
11,600 Computer Associates International, Inc. ................ 811,275
7,700 Compuware Corp.(b)...................................... 286,825
1,500 Comverse Technology, Inc.(b)............................ 217,125
9,300 First Data Corp. ....................................... 458,606
110,500 Microsoft Corp.(b)...................................... 12,900,875
7,500 Novell, Inc.(b)......................................... 299,531
31,205 Oracle Corp.(b)......................................... 3,496,910
5,800 Parametric Technology Corp.(b).......................... 156,962
5,200 Peoplesoft, Inc.(b)..................................... 110,825
6,600 Unisys Corp.(b)......................................... 210,787
5,720 Yahoo!, Inc.(b)......................................... 2,474,973
------------
26,088,994
------------
COMPUTERS & BUSINESS EQUIPMENT--8.6%
7,700 3Com Corp.(b)........................................... 361,900
2,200 Adaptec, Inc............................................ 109,725
3,500 Apple Computer, Inc.(b)................................. 359,844
3,800 Cabletron Systems, Inc.(b).............................. 98,800
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
70,350 Cisco Systems, Inc.(b)................................... $ 7,536,244
1,900 Citrix Systems, Inc.(b).................................. 233,700
36,847 Compaq Computer Corp..................................... 997,172
55,000 Dell Computer Corp....................................... 2,805,000
21,981 EMC Corp.(b)............................................. 2,401,424
6,800 Gateway, Inc.(b)......................................... 490,025
21,900 Hewlett-Packard Co. ..................................... 2,495,231
2,800 IKON Office Solutions, Inc. ............................. 19,075
39,200 International Business Machines Corp. ................... 4,233,600
2,800 Lexmark International Group, Inc.(b)..................... 253,400
5,800 Pitney Bowes, Inc. ...................................... 280,212
4,500 Seagate Technology, Inc.(b).............................. 209,531
3,500 Silicon Graphics, Inc.(b)................................ 34,344
14,300 Xerox Corp. ............................................. 324,431
------------
23,243,658
------------
CONSTRUCTION--0.2%
800 Armstrong World Industries, Inc. ........................ 26,700
1,100 Centex Corp. ............................................ 27,156
700 Fleetwood Enterprises, Inc............................... 14,438
1,500 Fluor Corp............................................... 68,813
311 Huttig Building Products, Inc.(b)........................ 1,536
900 Kaufman & Broad Home Corp................................ 21,769
9,500 Masco Corp............................................... 241,063
1,000 Owens Corning............................................ 19,312
800 Pulte Corp............................................... 18,000
------------
438,787
------------
CONSUMER GOODS & SERVICES--0.2%
1,800 Black & Decker Corp...................................... 94,050
1,800 Maytag Corp.............................................. 86,400
5,923 McKesson HBOC, Inc....................................... 133,638
1,600 Whirlpool Corp........................................... 104,100
------------
418,188
------------
DRUGS--5.7%
2,800 Allergan, Inc. .......................................... 139,300
2,100 ALZA Corp.(b)............................................ 72,713
28,300 American Home Products Corp.............................. 1,116,081
22,000 Amgen, Inc.(b)........................................... 1,321,375
42,960 Bristol-Myers Squibb Co. ................................ 2,757,495
5,800 Cardinal Health, Inc..................................... 277,675
23,700 Eli Lilly & Co. ......................................... 1,576,050
50,800 Merck & Co., Inc. ....................................... 3,406,775
83,900 Pfizer, Inc. ............................................ 2,721,506
10,980 Pharmacia & Upjohn, Inc. ................................ 494,100
31,800 Schering-Plough Corp..................................... 1,341,562
2,000 Sigma-Aldrich Corp....................................... 60,125
2,100 Watson Pharmaceuticals, Inc.(b).......................... 75,206
------------
15,359,963
------------
</TABLE>
See accompanying notes to financial statements.
108
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
ELECTRIC UTILITIES--1.6%
4,500 AES Corp.(b)............................................. $ 336,375
2,900 Ameren Corp.............................................. 94,975
4,200 American Electric Power, Inc. .......................... 134,925
3,400 Carolina Power & Light Co................................ 103,488
4,400 Central & South West Corp................................ 88,000
3,411 Cinergy Corp............................................. 82,290
2,600 CMS Energy Corp.......................................... 81,088
4,700 Consolidated Edison, Inc................................. 162,150
3,100 Constellation Energy Group............................... 89,900
4,050 Dominion Resources, Inc.................................. 158,963
3,100 DTE Energy Co............................................ 97,263
7,827 Duke Energy Co........................................... 392,328
7,500 Edison International..................................... 196,406
5,300 Entergy Corp............................................. 136,475
5,100 FirstEnergy Corp......................................... 115,706
2,000 Florida Progress Corp.................................... 84,625
3,900 FPL Group, Inc. ........................................ 166,969
2,700 GPU, Inc................................................. 80,831
2,500 New Century Energies, Inc................................ 75,937
4,000 Niagara Mohawk Holdings, Inc.(b)......................... 55,750
3,100 Northern States Power Co................................. 60,450
4,000 PECO Energy Co........................................... 139,000
8,400 PG&E Corp. .............................................. 172,200
1,800 Pinnacle West Capital Corp............................... 55,012
3,400 PP&L Resources, Inc...................................... 77,775
4,700 Public Service Enterprise Group, Inc..................... 163,619
6,548 Reliant Energy, Inc...................................... 149,785
14,800 Southern Co.............................................. 347,800
6,025 Texas Utilities Co....................................... 214,264
4,700 Unicom Corp. ........................................... 157,450
------------
4,271,799
------------
ELECTRONICS--3.8%
1,530 Andrew Corp.............................................. 28,974
2,000 Cooper Industries, Inc................................... 80,875
5,300 Corning, Inc............................................. 683,369
1,600 Eaton Corp............................................... 116,200
9,400 Emerson Electric Co...................................... 539,325
800 Foster Wheeler Corp. .................................... 7,100
3,800 General Instrument Corp.(b).............................. 323,000
11,900 Honeywell International, Inc............................. 686,481
1,800 Johnson Controls, Inc.................................... 102,375
66,384 Lucent Technologies, Inc. ............................... 4,966,353
1,000 Millipore Corp........................................... 38,625
3,300 Molex, Inc............................................... 187,069
2,200 PE Corp.................................................. 264,687
4,100 Rockwell Intl Corp New................................... 196,287
1,600 Scientific-Atlanta, Inc.................................. 89,000
5,800 Solectron Corp.(b)....................................... 551,725
950 Tektronix, Inc. ......................................... 36,931
8,500 Tellabs, Inc.(b)......................................... 545,594
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
3,700 Teradyne, Inc.(b)........................................ $ 244,200
3,100 Thermo Electron Corp.(b)................................. 46,500
1,200 Thomas & Betts Corp. .................................... 38,250
1,900 W.W.Grainger, Inc........................................ 90,844
6,800 Xilinx, Inc.(b).......................................... 309,187
------------
10,172,951
------------
ENERGY RESERVES--4.8%
2,000 Amerada Hess Corp........................................ 113,500
2,800 Anadarko Petroleum Corp.................................. 95,550
2,400 Apache Corp.............................................. 88,650
7,000 Atlantic Richfield Co. .................................. 605,500
3,862 Burlington Resources, Inc................................ 127,687
14,200 Chevron Corp............................................. 1,230,075
4,500 Coastal Corp. ........................................... 159,469
13,400 Conoco, Inc., Class B.................................... 333,325
75,042 Exxon Mobil Corp......................................... 6,045,571
5,400 Phillips Petroleum Co. .................................. 253,800
46,400 Royal Dutch Petroleum Co.(ADR)........................... 2,804,300
12,000 Texaco, Inc.............................................. 651,750
4,580 Transocean Sedco Forex, Inc.............................. 154,289
5,164 Union Pacific Resources Group, Inc....................... 65,841
5,200 Unocal Corp.............................................. 174,525
------------
12,903,832
------------
ENVIRONMENTAL SERVICES--0.1%
3,900 Allied Waste Industries, Inc.(b)......................... 34,369
13,300 Waste Management, Inc.................................... 228,594
------------
262,963
------------
FINANCIAL SERVICES--6.6%
9,700 American Express Co...................................... 1,612,625
5,500 Aon Corp................................................. 220,000
15,702 Associates First Capital Corp............................ 430,824
4,200 Capital One Financial Corp............................... 202,388
2,300 Countrywide Credit Industries, Inc....................... 58,075
3,320 Dun & Bradstreet Corp.................................... 97,940
2,900 Equifax, Inc. ........................................... 68,331
15,100 Federal Home Loan Mortgage Corp.......................... 710,644
22,200 Federal National Mortgage Association.................... 1,386,113
71,000 General Electric Co...................................... 10,987,250
2,000 H & R Block, Inc......................................... 87,500
10,253 Household International, Inc............................. 381,924
5,700 Marsh & McLennan Companies, Inc.......................... 545,419
17,270 MBNA Corp................................................ 470,608
3,050 Providian Financial Corp................................. 277,740
3,500 SLM Holding Corp......................................... 147,875
------------
17,685,256
------------
</TABLE>
See accompanying notes to financial statements.
109
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
FOOD & BEVERAGES--3.1%
13,765 Archer-Daniels-Midland Co................................ $ 167,761
5,900 Bestfoods................................................ 310,119
9,300 Campbell Soup Co......................................... 359,794
9,100 Coca Cola Enterprises, Inc............................... 183,138
53,500 Coca-Cola Co............................................. 3,116,375
10,400 ConAgra, Inc............................................. 234,650
6,600 General Mills, Inc....................................... 235,950
7,700 H. J. Heinz Co........................................... 306,556
2,900 Hershey Foods Corp....................................... 137,750
8,800 Kellogg Co............................................... 271,150
6,700 Nabisco Group Holdings Corp.............................. 71,188
31,700 PepsiCo, Inc............................................. 1,117,425
2,900 Quaker Oats Co........................................... 190,312
19,600 Sara Lee Corp............................................ 432,425
2,900 Supervalu, Inc........................................... 58,000
7,200 Sysco Corp............................................... 284,850
12,328 Unilever N.V.(ADR)....................................... 671,105
2,500 William Wrigley Jr. Co................................... 207,343
------------
8,355,891
------------
FREIGHT TRANSPORTATION--0.1%
6,360 FDX Corp.(b)............................................. 260,363
------------
GAS & PIPELINE UTILITIES--0.2%
1,800 Columbia Energy Group.................................... 113,850
2,100 Consolidated Natural Gas Co.............................. 136,369
4,800 El Paso Energy Corp...................................... 186,300
900 Nicor, Inc............................................... 29,250
600 ONEOK, Inc............................................... 15,075
800 Peoples Energy Corp. .................................... 26,800
4,855 Sempra Energy............................................ 84,355
------------
591,999
------------
HEALTH CARE--PRODUCTS--3.4%
32,900 Abbott Laboratories...................................... 1,194,681
1,100 Bausch & Lomb, Inc....................................... 75,281
6,300 Baxter International, Inc................................ 395,719
5,300 Becton, Dickinson & Co................................... 141,775
2,400 Biomet, Inc.............................................. 96,000
8,900 Boston Scientific Corp.(b)............................... 194,688
1,000 C.R. Bard, Inc........................................... 53,000
6,500 Guidant Corp.(b)......................................... 305,500
29,100 Johnson & Johnson........................................ 2,709,938
1,500 Mallinckrodt, Inc........................................ 47,719
25,400 Medtronic, Inc........................................... 925,512
1,600 St. Jude Medical, Inc.(b)................................ 49,100
36,256 Tyco International, Ltd.................................. 1,409,452
18,500 Warner-Lambert Co........................................ 1,515,843
------------
9,114,208
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
HEALTH CARE--SERVICES--0.4%
12,086 Columbia/HCA Healthcare Corp............................. $ 354,271
2,200 HCR Manor Care, Inc.(b).................................. 35,200
8,700 HEALTHSOUTH Corp.(b)..................................... 46,763
3,100 Humana, Inc.(b).......................................... 25,381
5,500 Service Corporation International........................ 38,156
6,700 Tenet Healthcare Corp.(b)................................ 157,450
3,800 United Healthcare Corp................................... 201,875
1,400 WellPoint Health Networks, Inc.(b)....................... 92,312
------------
951,408
------------
HOTELS & RESTAURANTS--0.6%
2,600 Darden Restaurants, Inc.................................. 47,125
2,750 Harrah's Entertainment, Inc.(b).......................... 72,703
5,000 Hilton Hotels Corp....................................... 48,125
5,300 Marriott International, Inc.............................. 167,281
29,300 McDonald's Corp.......................................... 1,181,156
4,000 Mirage Resorts, Inc.(b).................................. 61,250
3,320 Tricon Global Restaurants, Inc.(b)....................... 128,235
2,600 Wendy's International, Inc............................... 53,625
------------
1,759,500
------------
HOUSEHOLD PRODUCTS--2.6%
1,200 Alberto-Culver Co., Class B.............................. 30,975
1,300 American Greetings Corp. ................................ 30,713
5,600 Avon Products, Inc....................................... 184,800
1,500 Brown-Forman Corp., Class B.............................. 85,875
23,500 Gillette Co.............................................. 967,906
2,200 International Flavours & Fragrances, Inc................. 83,050
11,512 Kimberly-Clark Corp...................................... 751,158
4,200 Leggett & Platt, Inc..................................... 90,038
5,000 Clorox Co................................................ 251,875
12,500 Colgate-Palmolive Co..................................... 812,500
3,600 Fortune Brands, Inc...................................... 119,025
600 Jostens, Inc............................................. 14,588
6,007 Newell Rubbermaid, Inc. ................................. 174,203
28,720 Procter & Gamble Co...................................... 3,146,635
6,900 Ralston Purina Co........................................ 192,337
1,100 Tupperware Corp.......................................... 18,631
------------
6,954,309
------------
INDUSTRIAL PARTS & MACHINERY--0.7%
500 Briggs & Stratton Corp................................... 26,813
7,600 Caterpillar, Inc......................................... 357,675
1,400 Crane Co................................................. 27,825
900 Cummins Engine, Inc. .................................... 43,481
3,100 Danaher Corp............................................. 149,575
5,100 Deere & Co............................................... 221,213
4,500 Dover Corp. ............................................. 204,188
3,700 Genuine Parts Co......................................... 91,806
5,400 Illinois Tool Works, Inc................................. 364,838
</TABLE>
See accompanying notes to financial statements.
110
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
INDUSTRIAL PARTS & MACHINERY--(CONTINUED)
3,600 Ingersoll-Rand Co. ...................................... $ 198,225
1,100 McDermott International, Inc. ........................... 9,969
700 Milacron, Inc. .......................................... 10,762
200 Nacco Industries, Inc. .................................. 11,112
800 National Service Industries, Inc......................... 23,600
2,700 Pall Corp................................................ 58,219
2,250 Parker Hannifin Corp..................................... 115,453
1,350 Snap-On, Inc. ........................................... 35,859
1,800 Stanley Works............................................ 54,225
1,100 Timken Co................................................ 22,481
------------
2,027,319
------------
INDUSTRIAL SERVICES--0.0%
1,400 Ryder Systems, Inc....................................... 34,213
------------
LEISURE--0.5%
1,800 Brunswick Corp........................................... 40,050
13,300 Carnival Corp............................................ 635,906
6,850 Eastman Kodak Co. ....................................... 453,813
4,175 Hasbro, Inc. ............................................ 79,586
8,850 Mattel, Inc.............................................. 116,156
800 Polaroid Corp............................................ 15,050
------------
1,340,561
------------
LIFE INSURANCE--0.6%
3,283 Aetna, Inc. ............................................. 183,232
5,700 Aflac Inc. .............................................. 268,969
5,398 American General Corp. .................................. 409,573
4,000 CIGNA Corp. ............................................. 322,250
7,307 Conseco, Inc............................................. 130,613
2,237 Jefferson-Pilot Corp..................................... 152,675
4,200 Lincoln National Corp., Inc. ............................ 168,000
2,800 Torchmark Corp........................................... 81,375
------------
1,716,687
------------
LIQUOR--0.4%
800 Adolph Coors Co., Class B................................ 42,000
10,100 Anheuser-Busch Companies, Inc............................ 715,838
9,300 Seagram Company, Ltd..................................... 417,919
------------
1,175,757
------------
MEDIA & ENTERTAINMENT--2.3%
16,415 CBS Corp.(b)............................................. 1,049,534
7,300 Clear Channel Communications(b).......................... 651,525
44,694 The Walt Disney Co....................................... 1,307,300
28,000 Time Warner, Inc......................................... 2,028,250
5,000 Tribune Co............................................... 275,312
15,014 Viacom, Inc. Class B(b).................................. 907,408
------------
6,219,329
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
METALS & MINING--0.6%
4,800 Alcan Aluminum, Ltd...................................... $ 197,700
7,900 Alcoa, Inc .............................................. 655,700
1,966 Allegheny Technologies, Inc. ............................ 44,112
600 Ball Corp. .............................................. 23,625
2,400 Bethlehem Steel Corp.(b)................................. 20,100
2,500 Crown Cork & Seal Company, Inc. ......................... 55,938
4,100 Inco, Ltd. .............................................. 96,350
1,800 Nucor Corp. ............................................. 98,662
1,647 Phelps Dodge Corp. ...................................... 110,555
1,400 Reynolds Metals Co. ..................................... 107,275
1,820 USX-U.S. Steel Group..................................... 60,060
1,700 Worthington Industries, Inc. ............................ 28,156
------------
1,498,233
------------
NATURAL GAS--0.0%
600 Eastern Enterprises...................................... 34,463
------------
OIL SERVICES--0.5%
7,000 Baker Hughes, Inc. ...................................... 147,438
700 FMC Corp.(b)............................................. 40,119
9,600 Halliburton Co. ......................................... 386,400
1,600 Rowan Companies, Inc.(b)................................. 34,700
11,900 Schlumberger, Ltd. ...................................... 669,375
------------
1,278,032
------------
OIL--FOREIGN--0.0%
1,838 Kerr-Mcgee Corp. ........................................ 113,956
------------
OIL--REFINING & DISTRIBUTION--0.5%
15,500 Enron Corp. ............................................. 687,813
1,900 Sunoco, Inc. ............................................ 44,650
3,200 Tosco Corp. ............................................. 87,000
6,600 USX-Marathon Group....................................... 162,937
9,400 Williams Companies, Inc. ................................ 287,287
------------
1,269,687
------------
PACKAGING--0.0%
3,400 Owens-Illinois, Inc.(b).................................. 85,212
3,500 Pactiv Corp.(b).......................................... 37,187
------------
122,399
------------
PAPER & FOREST PRODUCTS--0.6%
1,000 Bemis Co. ............................................... 34,875
1,233 Boise Cascade Corp. ..................................... 49,937
2,100 Champion International Corp. ............................ 130,069
8,989 International Paper Co. ................................. 507,317
2,100 Mead Corp. .............................................. 91,219
1,200 Temple-Inland, Inc. ..................................... 79,125
4,800 Fort James Corp. ........................................ 131,400
</TABLE>
See accompanying notes to financial statements.
111
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
PAPER & FOREST PRODUCTS--(CONTINUED)
3,600 Georgia-Pacific Corp. ................................... $ 182,700
2,000 Louisiana-Pacific Corp. ................................. 28,500
600 Potlatch Corp. .......................................... 26,775
5,100 Weyerhaeuser Co. ........................................ 366,244
2,400 Willamette Industries, Inc. ............................. 111,450
------------
1,739,611
------------
PRECIOUS METAL--0.2%
3,300 Freeport McMoran Copper & Gold, Class B.................. 69,713
3,641 Newmont Mining Corp. .................................... 89,204
8,400 Barrick Gold Corp. ...................................... 148,575
5,300 Homestake Mining Co. .................................... 41,406
6,700 Placer Dome, Inc. ....................................... 72,025
------------
420,923
------------
PROPERTY & CASUALTY INSURANCE--2.0%
17,172 Allstate Corp. .......................................... 412,128
33,482 American International Group, Inc........................ 3,620,241
3,700 Chubb Corp............................................... 208,356
3,500 Cincinnati Financial Corp................................ 109,156
4,800 Hartford Financial Services Group........................ 227,400
2,300 Loews Corp. ............................................. 139,581
2,200 MBIA, Inc................................................ 116,188
2,300 MGIC Investment Corp..................................... 138,431
1,600 Progressive Corp......................................... 117,000
2,800 Safeco Corp.............................................. 69,650
4,770 St. Paul Companies, Inc.................................. 160,689
5,171 UnumProvident Corp....................................... 165,795
------------
5,484,615
------------
PUBLISHING--0.5%
1,500 Deluxe Corp.............................................. 41,156
1,500 Harcourt General, Inc.................................... 60,375
2,700 R.R. Donnelley & Sons Co................................. 66,994
2,000 Dow Jones & Company, Inc................................. 136,000
6,100 Gannett Company, Inc..................................... 497,531
1,800 Knight-Ridder, Inc....................................... 107,100
4,300 McGraw Hill Companies, Inc............................... 264,987
1,000 Meredith Corp............................................ 41,687
3,700 New York Times Co........................................ 181,762
1,300 Times Mirror Co.......................................... 87,100
------------
1,484,692
------------
RAILROADS & EQUIPMENT--0.4%
10,166 Burlington Northern Santa Fe............................. 246,526
4,800 CSX Corp................................................. 150,600
2,400 Kansas City Southern Industries, Inc..................... 179,100
8,100 Norfolk Southern Corp.................................... 166,050
5,300 Union Pacific Corp....................................... 231,212
------------
973,488
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
RETAIL--CLOTHING--0.5%
18,612 Gap, Inc................................................. $ 856,152
4,558 Limited, Inc............................................. 197,418
2,800 Nordstrom, Inc. ......................................... 73,325
6,900 TJX Companies, Inc. ..................................... 141,018
------------
1,267,913
------------
RETAIL--DEPARTMENT STORE--3.3%
4,739 Costco Companies, Inc.(b)................................ 432,434
9,600 Dayton Hudson Corp....................................... 705,000
2,100 Dillard's, Inc........................................... 42,394
4,500 Federated Department Stores, Inc.(b)..................... 227,531
5,600 J.C. Penney Co., Inc..................................... 111,650
10,500 Kmart Corp............................................... 105,656
3,500 Kohl's Corp.(b).......................................... 252,656
7,200 May Department Stores Co. ............................... 232,200
8,100 Sears, Roebuck & Co...................................... 246,544
96,400 Wal-Mart Stores, Inc..................................... 6,663,650
------------
9,019,715
------------
RETAIL--FOOD & DRUG--0.4%
9,028 Albertson's, Inc......................................... 291,153
700 Great Atlantic & Pacific Tea Co. ........................ 19,513
18,000 Kroger Co.(b)............................................ 339,750
11,000 Safeway, Inc.(b)......................................... 391,187
3,000 Winn-Dixie Stores, Inc................................... 71,813
------------
1,113,416
------------
RETAIL--SPECIALTY--2.3%
3,000 Autozone, Inc.(b)........................................ 96,938
2,900 Bed Bath & Beyond, Inc................................... 100,775
4,400 Best Buy Co., Inc.(b).................................... 220,825
4,400 Circuit City Stores, Inc................................. 198,275
2,200 Consolidated Stores Corp.(b)............................. 35,750
8,500 CVS Corp................................................. 339,469
4,812 Dollar General Corp...................................... 109,473
48,219 Home Depot, Inc.......................................... 3,306,015
700 Longs Drug Stores Corp................................... 18,069
8,200 Lowe's Companies, Inc.................................... 489,950
8,100 Office Depot, Inc.(b).................................... 88,594
1,200 Pep Boys-Manny, Moe & Jack............................... 10,950
5,300 Rite Aid Corp............................................ 59,294
10,050 Staples, Inc.(b)......................................... 208,537
4,200 Tandy Corp. ............................................. 206,587
451 The Neiman Marcus Group, Inc.(b)......................... 12,149
5,075 Toys 'R' Us, Inc.(b)..................................... 72,636
21,600 Walgreen Co.............................................. 631,800
------------
6,206,086
------------
</TABLE>
See accompanying notes to financial statements.
112
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
SECURITIES & ASSET MANAGEMENT--1.4%
2,630 Bear Stearns Companies, Inc.............................. $ 112,433
17,750 Charles Schwab Corp...................................... 681,156
5,400 Franklin Resources, Inc.................................. 173,138
2,600 Lehman Brothers Holdings, Inc. .......................... 220,188
8,000 Merrill Lynch & Co., Inc................................. 668,000
12,399 Morgan Stanley Dean Witter & Co.......................... 1,769,957
3,100 Paine Webber Group, Inc.................................. 120,319
2,600 T. Rowe Price Associates, Inc............................ 96,037
------------
3,841,228
------------
SEMI-CONDUCTORS--4.3%
3,000 Advanced Micro Devices, Inc.(b).......................... 86,813
8,100 Applied Materials, Inc.(b)............................... 1,026,169
71,600 Intel Corp............................................... 5,893,575
1,900 KLA-Tencor Corp.(b)...................................... 211,613
3,200 LSI Logic Corp.(b)....................................... 216,000
5,400 Micron Technology, Inc.(b)............................... 419,850
13,100 Motorola, Inc. .......................................... 1,928,975
3,600 National Semiconductor Corp.(b).......................... 154,125
17,000 Texas Instruments, Inc................................... 1,646,875
------------
11,583,995
------------
TELECOMMUNICATION--9.9%
3,200 ADC Telecommunications, Inc.(b).......................... 232,200
6,600 ALLTEL Corp.............................................. 545,738
69,153 AT & T Corp.............................................. 3,509,515
33,652 Bell Atlantic Corp....................................... 2,071,701
40,800 BellSouth Corp........................................... 1,909,950
3,000 Centurytel, Inc.......................................... 142,125
16,685 Global Crossing, Ltd..................................... 834,250
21,200 GTE Corp................................................. 1,495,925
60,855 MCI Worldcom, Inc.(b).................................... 3,229,118
7,800 Nextel Communications, Inc.(b)........................... 804,375
28,700 Nortel Networks Corp..................................... 2,898,700
14,000 QUALCOMM, Inc.(b)........................................ 2,465,750
73,973 SBC Communications, Inc. ................................ 3,606,184
18,800 Sprint Corp.............................................. 1,265,475
9,500 Sprint Corp.(b).......................................... 973,750
10,892 U S West, Inc............................................ 784,224
------------
26,768,980
------------
THRIFTS--0.2%
3,600 Golden West Financial Corp............................... 120,600
12,413 Washington Mutual, Inc................................... 322,738
------------
443,338
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
TOBACCO--0.5%
51,800 Philip Morris Companies, Inc........................ $ 1,201,112
3,800 UST, Inc............................................ 95,712
------------
1,296,824
------------
Total Common Stocks (Identified Cost $139,468,003).. 264,808,828
------------
SHORT-TERM INVESTMENT--1.8%
<CAPTION>
FACE
AMOUNT
<C> <S> <C>
$4,753,000 Repurchase Agreement with State Street Corp. dated
12/31/1999 at 2.5% to be repurchased at $4,753,990
on 1/3/2000, collateralized by $4,705,000 U.S.
Treasury Bonds, 6.750% due 8/15/2026 with a value
of $4,852,031...................................... 4,753,000
------------
Total Short-Term Investments (Identified Cost
$4,753,000)........................................ 4,753,000
------------
Total Investments--99.9%
(Identified Cost $144,221,003)(a).................. 269,561,828
Other assets less liabilities....................... 189,463
------------
TOTAL NET ASSETS--100%.............................. $269,751,291
============
</TABLE>
(a) Federal Tax Information:
At December 31, 1999 the net unrealized appreciation on investments based on
cost of $144,364,225 for federal income tax purposes was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost.............. $131,176,723
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value.............. (5,979,120)
------------
Net unrealized appreciation................................... $125,197,603
============
</TABLE>
(b) Non-income producing security.
Key to abbreviations:
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the
right to receive securities of the foreign issuer described. The
value of ADRs and GDRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
See accompanying notes to financial statements.
113
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................... $269,561,828
Cash................................................... 166,763
Receivable for:
Fund shares sold....................................... 481,105
Dividends and interest................................. 236,698
Foreign taxes.......................................... 289
------------
Total Assets.......................................... 270,446,683
LIABILITIES
Payable for:
Fund shares redeemed................................... $529,188
Accrued expenses:
Management fees........................................ 55,178
Deferred trustees fees................................. 84,994
Other expenses......................................... 26,032
--------
Total Liabilities..................................... 695,392
------------
NET ASSETS.............................................. $269,751,291
============
Net assets consist of:
Capital paid in........................................ $144,359,940
Overdistributed net investment
income................................................ (9,886)
Accumulated net realized gains (losses)................ 60,412
Unrealized appreciation (depreciation) on investments
and foreign currency.................................. 125,340,825
------------
NET ASSETS.............................................. $269,751,291
============
Computation of offering price:
Net asset value and redemption price per share
($269,751,291 divided by 1,168,540 shares of beneficial
interest).............................................. $ 230.84
============
Identified cost of investments.......................... $144,221,003
============
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends............................................. $ 2,847,940(a)
Interest.............................................. 147,696
-----------
2,995,636
EXPENSES
Management fees....................................... $560,987
Trustees' fees and expenses........................... 28,853
Custodian............................................. 105,104
Audit and tax services................................ 11,891
Legal................................................. 14,106
Printing.............................................. 54,760
Insurance............................................. 4,670
Miscellaneous......................................... 3,861
--------
Total Expenses....................................... 784,232
-----------
NET INVESTMENT INCOME ................................ 2,211,404
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net...................................... 3,248,314
Unrealized appreciation (depreciation) on:
Investments--net...................................... 37,018,278
-----------
Net gain (loss)........................................ 40,266,592
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS.. $42,477,996
===========
</TABLE>
(a)Net of foreign taxes of $27,869
See accompanying notes to financial statements.
114
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................. $ 2,211,404 $ 1,772,323
Net realized gain (loss).......................... 3,248,314 1,822,491
Unrealized appreciation (depreciation)............ 37,018,278 34,683,663
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS. 42,477,996 38,278,477
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income............................. (2,211,406) (1,781,029)
In excess of net investment income................ (16,846) 0
Net realized gain................................. (3,918,766) (965,891)
------------ ------------
Total distributions............................... (6,147,018) (2,746,920)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares...................... 98,861,454 63,090,085
Reinvestment of distributions..................... 6,147,018 2,746,920
Cost of shares redeemed........................... (57,866,390) (41,673,859)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS............................... 47,142,082 24,163,146
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........... 83,473,060 59,694,703
NET ASSETS
Beginning of the year............................. 186,278,231 126,583,528
------------ ------------
End of the year................................... $269,751,291 $186,278,231
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT
INCOME
End of the year................................... ($9,886) ($1,334)
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 465,233 362,065
Issued in reinvestment of distributions........... 27,019 13,886
Redeemed.......................................... (272,517) (239,835)
------------ ------------
Net Change........................................ 219,735 136,116
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year.......................... $ 196.33 $ 155.76 $ 119.62 $100.09 $ 75.35
-------- -------- -------- ------- -------
Income From Investment
Operations
Net Investment Income......... 1.94 1.92 1.86 1.91 1.88
Net Realized and Unrealized
Gain (Loss) on Investments... 38.00 41.60 36.95 20.58 25.89
-------- -------- -------- ------- -------
Total From Investment
operations................... 39.94 43.52 38.81 22.49 27.77
-------- -------- -------- ------- -------
Less Distributions
Distributions From Net
Investment Income............ (1.94) (1.91) (1.86) (1.93) (1.85)
Distributions in excess of net
investment income............ (0.01) 0.00 0.00 0.00 0.00
Distributions From Net
Realized Capital Gains....... (3.48) (1.04) (0.67) (1.03) (1.18)
Distributions in Excess of Net
Realized Capital Gains....... 0.00 0.00 (0.14) 0.00 0.00
-------- -------- -------- ------- -------
Total Distributions........... (5.43) (2.95) (2.67) (2.96) (3.03)
-------- -------- -------- ------- -------
Net Asset Value, End of Year... $ 230.84 $ 196.33 $ 155.76 $119.62 $100.09
======== ======== ======== ======= =======
TOTAL RETURN (%)............... 20.4 27.9 32.5 22.5 36.9
Ratio of Operating Expenses to
Average Net Assets (%)........ 0.35 0.37 0.40 0.40 0.40
Ratio of Net Investment Income
to Average Net Assets (%)..... 0.99 1.16 1.41 1.84 2.20
Portfolio Turnover Rate (%).... 3 3 3 4 5
Net Assets, End of Year (000) . $269,751 $186,278 $126,584 $80,764 $58,671
The Ratios of operating
expenses to average net assets
without giving effect to a
voluntary expense agreement
would have been (%)........... -- -- 0.43 0.50 0.54
</TABLE>
See accompanying notes to financial statements.
115
<PAGE>
MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES
PORTFOLIO MANAGER: FRANCINE J. BOVICH MORGAN STANLEY ASSET MANAGEMENT
Q. HOW DID THE SERIES PERFORM DURING THE PAST TWELVE MONTHS RELATIVE TO ITS
INDEX AND RELATIVE TO ITS PEERS?
[Photo appears here]
A. For the year ending December 31, 1999 the International Magnum Equity Series
returned 24.6% compared to the benchmark MSCI EAFE Index/18/ return of 27.0%.
The Lipper Variable Products International Fund Average,/12/ which unlike the
Series includes funds that invest in non-EAFE emerging market countries, re-
turned 43.2% over the same time period.
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET CONDITIONS DURING THE PAST TWELVE
MONTHS:
A. The theme for 1999 was global recovery, with the fourth quarter being the
main driver of performance for EAFE markets as 2/3 of EAFE's 27% appreciation
was gained during that period. However, the strong returns of the 4th quarter
came from a narrow market with "new economy" companies in the technology and
telecommunications sectors enjoying superior returns while traditional cyclical
and defensive names languished. The commencement of global economic healing
after a turbulent 1998, as well as numerous interest rate cuts, helped to boost
most international developed markets in the first half of the year. Although
central banks reversed policy, taking back these decreases in response to
faster than expected growth during the second half; this did not have an
appreciable effect on markets. International markets surpassed the results of
the US market for the first time since 1994 as strong global growth propelled
these markets, which are earlier in their economic cycles relative to the U.S.
Japan enjoyed spectacular performance during the year thanks to continued
economic recovery, corporate restructuring and supportive fiscal policies. The
market saw record buying by foreign as well as domestic retail investors,
particularly during the fourth quarter. The release of 2nd quarter GDP (up
0.9%) in September after an impressive first quarter rise of 8.0% was an
important catalyst for many international investors to deploy assets into the
region as underweight Japan global accounts scrambled to increase their
positions given the increasing momentum in the economy. Much of 1999 was the
year of the exporter with companies such as Sony, Nintendo and Hitachi enjoying
record appreciation. The exporters were seemingly invulnerable, rising in the
face of the yen's 14% appreciation relative to the U.S. dollar during the year.
The fourth quarter saw the market's narrow focus on technology/telecom/Internet
in lockstep with the global phenomenon. Seldom have so many mega-cap stocks
produced such outsized gains as they have during most of 1999.
For European markets the year proved to be one of extremes with the first and
fourth quarters dominated by the strength of large cap growth names, while the
middle of the year saw value's reemergence. Europe's newly introduced single
currency, the euro, weakened 15%, reaching a level below parity before
finishing the year at 1.01 to the U.S. dollar. All of the gains seen in Europe
during 1999 took place during the fourth quarter as the surge of telecoms and
technology gave way to a narrow market driven by companies such as Nokia,
Ericsson, Vodafone and Mannesmann. Despite a strong 4th quarter, Europe lagged
all other developed market regions for the year as the core economies in that
region struggled with sluggish growth, unemployment, and weakening currencies
relative to the U.S. dollar. The less-than-dramatic European recovery witnessed
during the first half of the year gave way to stronger results during the
second half as supportive fiscal policies, continued global healing and
accelerated export growth, driven by a falling Euro helped Europe enjoy
stronger earnings growth. The continuation of Mergers and Acquisition (M&A)
activity in 1999 added fuel to markets as deals reached an unprecedented level,
surpassing the $1 trillion mark.
The markets of non-Japan Asia enjoyed solid returns for the year fuelled by
economic revival, plentiful liquidity, positive current account balances, and
low interest rates. Hong Kong and Singapore benefited from an increase in
exports due to competitive currencies vis-a-vis the Japanese yen, while the
rise of oil prices benefited Australia and New Zealand. The MSCI Pacific ex-
Japan Index appreciated 42.6% in U.S. dollar terms (+38.7% in local currency
terms) during 1999.
Q: GIVEN THIS INVESTMENT ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY? WHAT
CHANGES DID YOU MAKE SINCE THE START OF THE YEAR?
A. The International Magnum portfolio began the year underweight versus the in-
dex in all regions: (Europe 71% vs. 73%, Japan 19% vs. 21%, Asia 4% vs. 6%).
Early in the year we steadily increased our allocation to Japan from under-
weight to neutral and then to overweight, while decreasing our exposure to
116
<PAGE>
Europe. We also increased exposure to Asia ex-Japan beginning in the second
quarter to put the portfolio in a neutral stance, and again in the fourth
quarter to be overweight relative to the index. As of year-end we maintained
the following positions: Europe 58.5% vs. 66.6%, Japan 29.3% vs. 27.4%, Asia
6.9% vs. 6.0%. These strategies proved to be successful as Japan and Asia were
the relative outperformers, gaining 61.5% and 42.6% respectively, while Europe
underperformed, appreciating 15.9% as compared to the MSCI EAFE Index rise of
27.0%.
Q. WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE (ON BOTH AN
ABSOLUTE AND RELATIVE BASIS) DURING THE PAST TWELVE MONTHS? WHAT INVESTMENT
DECISIONS WERE MOST EFFECTIVE AND WHICH ONES WERE LEAST EFFECTIVE?
A. During the first three quarters of the year, European stock selection was
strong. Our overweight to the consumer goods and capital equipment industries,
both of which surged on signs of economic recovery, contributed to portfolio
results. However, this strategy negatively impacted the portfolio during the
fourth quarter when growth stocks rose at the expense of value stocks. The
portfolio's underperformance is attributable primarily to results seen during
the fourth quarter, which was characterized by a narrow market favoring the
technology and telecom sectors, especially within Europe. Our attention to
valuation caused us to be underweight in these sectors. Not owning "new econo-
my" companies such as telecom giants Nokia, Ericsson, and Siemens, which had
extraordinary appreciation, significantly impacted results. Simultaneously,
the portfolio's overweight to Beverages & Tobacco, as well as Food & Household
products, also detracted from returns. Specific consumer staples that de-
tracted from results included Great Universal Stores, which suffered due to
the trend toward internet shopping as well as difficulty in competing with
discount stores, and Nestle and Diageo, which suffered from disappointing
earnings.
Additionally, our avoidance of Japanese bank stocks impacted overall results
as this sector surged in response to several merger announcements in October.
Since the Series' inception, we have not held Japanese banks given their high
level of non-performing loans. We have, however, seen signs of recovery in
this sector and will begin selectively adding Japanese banks to the portfolio.
Factors contributing to performance during the year included the portfolio's
overweight to global franchise Blue Chip Japanese exporters such as Sony,
Kyocera, and Fujitsu, which benefited first from the yen's weakness, and later
from the rise of technology-oriented companies. Additionally, UK media
oriented companies (WPP, Capital Radio) benefited from the continued growth of
the internet, adding to performance, while our telecom names (British Telecom,
Deutsche Telekom, Telefonica) rode the wave of the telecommunication mania.
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT SIX
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO THE WAY YOU MANAGE YOUR
PORTFOLIO?
A. We believe that international equities will continue the trend seen in the
fourth quarter, and will outperform the U.S. during the next six months. Econ-
omies within the EAFE universe should continue to strengthen and earnings
growth is expected to accelerate as these markets are behind the U.S. in their
economic cycle. In the long term, we look to Japan to lead international mar-
kets, as the cyclical recovery seen during 1999 seems to be turning into a
secular recovery for 2000. Europe looks poised to benefit from the continua-
tion of supportive fiscal policies, the M&A trend as well as a broadening of
the market. Asia ex-Japan should see a transition from the liquidity driven
rally seen over the past year, into an earnings-driven phase as corporate re-
structuring and government reform continue and the consumer begins to play an
increasingly active role thanks to hefty stock market gains from the past
year, falling unemployment and low inflation and interest rates.
In 2000 Europe looks poised to post the sixth consecutive year of double-digit
returns, with growth surpassing the U.S., which is later in the economic
cycle. Interest rates in Europe, though expected to rise, should remain
supportive. Drivers of European GDP growth include deregulation, declining tax
rates, and increased capital investment. The European macro backdrop is
favorable to value-style investing as core economies are firmly in a recovery,
and restructuring continues due to global competition. Managements' desire to
steer companies in a global direction should drive the M&A trend. This should
be further aided by the entrenchment of a single European market with barriers
such as governments' defense of local companies from outside predators
decreasing. As these obstacles disappear, cross border deals will likely
increase aided by the move toward a pan-European stock exchange. Additionally,
as the European equity culture evolves, corporate leaders are forced to
respond to shareholder demands of higher returns by aggressively pursuing
mergers, downsizing, and restructuring in an attempt to gain profitability
through core competencies.
We expect to see a broadening of market leadership beyond the technology and
telecom sectors in 2000. Valuations have become extended to an unprecedented
level, and the companies in these sectors would have to deliver exceptional
revenue growth to justify their current valuations. We recognize that
technological innovations and their impact on economies are not passing
trends, and plan to capitalize on their growth. We are exploring opportunities
in reasonably valued companies that will benefit from the continued prominence
of technology industries. These include media companies engaged in Internet
advertising, infrastructure companies, ISPs and e-commerce enablers.
117
<PAGE>
We expect Japan to outperform other EAFE regions in the coming year. During
the last six months, evidence of a secular recovery in the Japanese economy
has begun to mount, with low inventory levels and improvement in retail sales.
An additional supplementary budget amounting to 3% of GDP was announced in
November and will take effect in April, further boosting the economy.
Continued recovery in Asia will benefit Japan as over 40% of its exports go to
Asia. We are finding remarkable value in leading Japanese companies which have
been restructured, have highly focused management and where real earnings
momentum is beginning to show significant promise on a sustainable basis.
While most of 1999's recovery was based on a cyclical upturn, we believe our
assumptions of a secular recovery will likely reward domestic and economic
sensitive stocks, which are at highly attractive valuations relative to the
"new economy" companies. If this forecast is correct, the current portfolio is
highly geared to perform, particularly if the appreciation of the yen
subsides.
The Japanese market should benefit from over $400 billion in bonds maturing
over the next 12-15 months that will be available for reinvestment. The
consumer will play an increasingly important economic role in 2000 as
stabilizing unemployment, improving consumer spending (which accounts for 60%
of GDP) and a high savings rate help drive domestic investors into the market.
Foreign buyers should also continue to enter Japan thanks to cheap valuations
relative to other developed markets. Japan is poised to benefit from the
digital revolution with companies like Sony and Nintendo enjoying market
leadership in the DVD and digital Internet connectivity industries.
We remain optimistic about developed Asian markets as we begin the new
millennium. The liquidity driven rally seen in 1999 should transition into an
earnings-driven phase of the bull market. Asia's earnings revision and
industrial activity growth seem to be mapping to a "V" shaped recovery, with
top line growth increasing while restructuring activity continues. Moreover,
positive current account balances are providing some measure of defense
against rising U.S. rates, and in turn, rising local rates. The baton of
growth should now pass to consumers who have been fattened by hefty stock
market gains, a high savings rate, falling unemployment, and low inflation and
interest rates. In fact, there have already been signs that locals have begun
to drive the market with the MSCI Singapore index returning 99% versus the
Singapore Free index (securities open to foreign investors) rising 60% for the
year. Export sectors should also benefit from global healing as well as from
more competitive currencies vis-a-vis the yen, increased intra-Asian trade,
and the rise of global electronics demand.
A $10,000 Investment compared to the MSCI EAFE Index
since the Series' Inception
[GRAPH]
International Magnum
Equity Series EAFE
10/31/94 10,000 10,000
12/31/94 10,260 9,579
12/31/95 10,899 10,653
12/31/96 11,626 11,297
12/31/97 11,476 11,498
12/31/98 12,309 13,797
12/31/99 15,340 17,517
Average Annual Returns
International Magnum Lipper Variable Products
Equity Series MSCI EAFE International Funds Average
1 year 24.6% 27.0% 43.2%
3 years 9.7 15.7 19.4
5 years 8.4 12.8 17.7
Since Inception 8.6 11.5 n/a
[CHECKMARK] FUND FACTS
GOAL: long-term capital appreciation through investment primarily in
international equity securities.
START DATE: October 31, 1994
SIZE: $99 million as of December 31, 1999
MANAGER: Francine Bovich has managed the Morgan Stanley International Magnum
Equity Series since May 1997. Ms. Bovich is also a Managing Director of Morgan
Stanley Dean Witter Investment Management Inc.
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.
118
<PAGE>
NEW ENGLAND ZENITH FUND
(MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--86.9% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
AUSTRALIA--2.1%
5,100 AMP Limited............................................. $ 56,349
3,000 Brambles Industries, Ltd................................ 82,961
13,350 Broken Hill Proprietary Company, Ltd.................... 175,294
16,850 Coca-Cola Amatil, Ltd................................... 46,018
11,950 Commonwealth Bank Of Australia.......................... 205,779
48,000 Fosters Brewing Group, Ltd.............................. 137,708
6,741 Lend Lease Corporation, Ltd............................. 94,440
58,000 Macquarie Corporate Telecommunications Holdings,
Ltd.(b)................................................ 94,431
14,550 National Australia Bank, Ltd............................ 222,564
23,250 News Corporation, Ltd. ................................. 225,749
137,500 Normandy Mining, Ltd. .................................. 97,490
25,500 Qantas Airways, Ltd..................................... 63,615
10,800 Rio Tinto, Ltd.......................................... 231,998
44,100 Telstra Corporation, Ltd................................ 239,720
23,200 Westpac Banking Corporation, Ltd........................ 160,030
-----------
2,134,146
-----------
DENMARK--0.3%
2,430 Novo Nordisk A/S, "B' shares............................ 322,294
-----------
FINLAND--1.5%
7,350 Kone OYJ, 'B' shares.................................... 362,057
5,876 KCI Konecranes International, Plc....................... 225,995
70,090 Merita OYJ, Ltd......................................... 412,334
13,510 Sampo Insurance Co., Ltd. .............................. 472,242
-----------
1,472,628
-----------
FRANCE--8.8%
2,010 Alcatel................................................. 461,648
23,706 Aventis SA.............................................. 1,377,871
3,980 Axa SA.................................................. 554,881
4,020 Banque Nationale de Paris............................... 370,938
27,191 CNP Assurances.......................................... 1,001,409
1,551 Compagnie de Saint Gobain............................... 291,700
5,310 France Telecom SA....................................... 702,327
2,080 Groupe Danone SA........................................ 490,297
10,830 Michelin CGDE, 'B' shares............................... 425,474
9,260 Pernod Ricard........................................... 529,834
10,340 Schneider Electric SA................................... 811,927
13,120 Total Fina SA........................................... 1,751,177
-----------
8,769,483
-----------
GERMANY--5.5%
4,800 Adidas-Salomon AG....................................... 360,228
11,435 BASF AG................................................. 587,471
4,520 Bayerische HypoVereinsbank.............................. 308,708
14,310 Deutsche Telekom AG..................................... 1,019,153
4,977 Fresenius Medical Care AG, Preferred.................... 912,472
12,471 Henkel KGaA, Preferred.................................. 822,854
2,330 Mannesmann AG........................................... 562,136
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
4,330 Schering AG................................................. $ 523,419
6,220 Volkswagen AG............................................... 350,567
---------
5,447,008
---------
HONG KONG--1.6%
25,000 Asia Satellite Telecommunications Holdings, Ltd............. 78,954
52,800 Cable & Wireless HKT........................................ 152,487
39,100 Cathay Pacific Airways, Ltd................................. 69,664
17,800 Cheung Kong Holdings, Ltd................................... 225,549
30,100 China Telecom............................................... 187,798
54,000 HongKong and China Gas Company, Ltd......................... 73,982
5,300 HSBC Holdings, Plc.......................................... 74,317
24,000 Hutchison Whampoa, Ltd...................................... 348,878
30,600 Li and Fung, Ltd. .......................................... 76,761
9,600 Smartone Telecommunications Holding, Ltd. .................. 46,311
15,200 Sun Hung Kai Properties, Ltd................................ 158,384
6,800 Swire Pacific, Ltd.......................................... 40,152
10,100 Television Broadcasts, Ltd.................................. 68,862
---------
1,602,099
---------
ITALY--3.8%
33,605 Banca Popolare di Bergamo Credito
Varesino Scrl.............................................. 777,242
33,900 Enel Spa.................................................... 142,060
40,550 Marzotto & Figli Spa........................................ 290,021
67,550 Mediaset Spa................................................ 1,050,637
44,510 Telecom Italia Mobile Spa................................... 497,244
47,970 Telecom Italia Spa.......................................... 676,516
65,400 Unicredito Italiano Spa..................................... 321,498
---------
3,755,218
---------
JAPAN--27.2%
8,900 Aiwa Co., Ltd............................................... 184,673
29,000 Amada Co., Ltd. ............................................ 158,667
9,000 Bank of Tokyo-Mitsubishi, Ltd............................... 125,438
23,000 Canon, Inc.................................................. 913,967
33,000 Casio Computer Co., Ltd..................................... 274,542
21,000 Dai Nippon Printng Co., Ltd. ............................... 335,030
57,000 Daicel Chemical Industries, Ltd............................. 159,000
39,000 Daifuku Co., Ltd............................................ 225,213
37,000 Daikin Industries, Ltd...................................... 503,377
6,600 FamilyMart Co., Ltd. ....................................... 439,268
10,900 Fuji Machine Manufacturing Co., Ltd......................... 879,084
18,000 Fuji Photo Film Co., Ltd.................................... 657,140
22,000 Fujitec Co., Ltd............................................ 220,711
29,000 Fujitsu, Ltd................................................ 1,322,697
28,000 Furukawa Electric Co., Ltd.................................. 424,782
20,000 Hitachi Credit Corp......................................... 406,186
57,000 Hitachi, Ltd. .............................................. 914,946
5,000 House Foods Corp............................................ 75,854
44,000 Kaneka Corp................................................. 562,866
14,000 Kurita Water Industries, Ltd................................ 222,531
</TABLE>
See accompanying notes to financial statements.
119
<PAGE>
NEW ENGLAND ZENITH FUND
(MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
JAPAN--(CONTINUED)
5,300 Kyocera Corp............................................. $ 1,374,670
17,000 Kyudenko Corp............................................ 59,900
20,000 Lintec Corp.............................................. 217,285
33,000 Matsushita Electric Industrial Co., Ltd.................. 914,065
25,000 Minebea Co., Ltd. ....................................... 428,942
48,000 Mitsubishi Chemical Corp................................. 169,130
25,000 Mitsubishi Estate Co., Ltd. ............................. 243,956
99,000 Mitsubishi Heavy Industries, Ltd......................... 330,420
4,000 Mitsubishi Logistics Corp................................ 25,526
22,000 Mitsumi Electric Co., Ltd................................ 689,048
49,000 NEC Corp................................................. 1,167,809
21,000 Nifco Inc................................................ 250,759
5,900 Nintendo Co., Ltd........................................ 980,542
4,000 Nippon Meat Packers, Inc................................. 51,874
89,000 Nissan Motor Co., Ltd.(b)................................ 350,181
10,000 Nissei Sangyo Co., Ltd................................... 138,005
15,000 Nissha Printing Co., Ltd. ............................... 89,557
63 NTT Corp. ............................................... 1,079,084
12,000 Ono Pharmaceutical Co., Ltd.............................. 321,816
51,000 Ricoh Co., Ltd........................................... 961,398
7,600 Rinnai Corp.............................................. 141,333
2,000 Rohm Co., Ltd............................................ 822,159
10,000 Ryosan Co., Ltd. ........................................ 248,605
6,000 Sangetsu Co., Ltd. ...................................... 126,260
24,000 Sankyo Co., Ltd. ........................................ 493,295
45,000 Sanwa Shutter Corp....................................... 167,368
48,000 Sekisui Chemical Co., Ltd................................ 212,822
34,000 Sekisui House, Ltd....................................... 301,165
37,000 Shin-Etsu Polymer Co., Ltd............................... 217,285
6,200 Sony Corp................................................ 1,838,700
24,000 Suzuki Motor Corp........................................ 350,240
6,000 TDK Corp. ............................................... 828,619
10,000 Tokyo Electric Power Company............................. 268,180
89,000 Toshiba Corp............................................. 679,456
13,000 Toyota Motor Corp. ...................................... 629,832
44,000 Tsubakimoto Chain Company................................ 161,496
26,000 Yamaha Corp.............................................. 168,973
15,000 Yamanouchi Pharmaceutical Co., Ltd....................... 524,126
------------
27,029,853
------------
NETHERLANDS--3.6%
18,940 Akzo Nobel NV............................................ 950,144
15,108 Ing Groep NV............................................. 912,229
3,655 Koninklijke KPN NV....................................... 356,773
5,704 Koninklijke Philips Electronics NV....................... 775,700
30,780 Laurus NV................................................ 555,011
------------
3,549,857
------------
NEW ZEALAND--0.1%
18,500 Telecom Corporation Of New Zealand, Ltd.................. 86,996
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
PORTUGAL--1.5%
57,000 Banco Commercial Portugues SA............................ $ 316,378
41,900 Electricidade de Portugal SA............................. 731,465
28,270 Telecel Comunicacoes Pessoais, SA........................ 492,950
-----------
1,540,793
-----------
SINGAPORE--2.0%
6,000 Chartered Semiconductor Manufacturing, Ltd.(b)........... 32,783
18,000 City Developments, Ltd................................... 105,374
25,586 DBS Group Holdings....................................... 419,392
37,000 Natsteel Electronics, Ltd................................ 195,497
56,000 Neptune Orient Lines, Ltd.(b)............................ 74,980
17,850 Overseas Chinese Banking Corp., Ltd...................... 163,978
12,562 Overseas Union Bank, Ltd................................. 73,539
18,000 Sembcorp Logistics, Ltd.................................. 72,951
17,000 Singapore Airlines, Ltd. ................................ 192,915
10,000 Singapore Press Holdings, Ltd............................ 216,752
64,000 Singapore Telecommunications, Ltd. ...................... 132,188
17,952 United Overseas Bank, Ltd................................ 158,448
16,000 Venture Manufacturing, Ltd............................... 183,488
-----------
2,022,285
-----------
SPAIN--2.3%
4,750 Banco Popular Espanol SA................................. 309,823
30,550 Banco Santander Central Hispano SA....................... 345,906
31,880 Endesa SA................................................ 632,973
40,694 Telefonica SA............................................ 1,016,628
-----------
2,305,330
-----------
SWEDEN--2.9%
18,400 Autoliv, Inc............................................. 538,442
40,920 ForeningsSparbanken AB................................... 601,128
33,880 Nordbanken Holding AB.................................... 199,083
12,410 Scandic Hotels AB........................................ 115,218
28,330 Svedala Industries AB.................................... 519,389
9,200 Svenska Cellulosa AB, 'B' shares......................... 272,464
53,070 Svenska Handelsbanken AB................................. 667,352
-----------
2,913,076
-----------
SWITZERLAND--5.9%
543 Compagnie Financiere Richemont AG........................ 1,295,861
518 Holderbank Financiere Glarus AG.......................... 709,188
1,190 Nestle S.A............................................... 2,180,011
595 Novartis AG.............................................. 873,648
210 Schindler Holding AG..................................... 336,306
1,614 UBS AG................................................... 435,860
-----------
5,830,874
-----------
UNITED KINGDOM--17.8%
121,800 Allied Domecq, Plc....................................... 602,035
51,500 Allied Zurich, Plc....................................... 607,272
15,115 Astrazeneca, Plc......................................... 627,961
</TABLE>
See accompanying notes to financial statements.
120
<PAGE>
NEW ENGLAND ZENITH FUND
(MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
(NOTE 1A)
SHARES
<C> <S> <C>
UNITED KINGDOM--(CONTINUED)
29,800 BAA, Plc. ............................................... $ 207,947
77,142 Bank of Ireland.......................................... 613,897
55,078 Bank of Scotland......................................... 639,676
15,730 Barclays, Plc............................................ 452,020
84,629 BG Group, Plc............................................ 546,461
71,100 Blue Circle Industries, Plc.............................. 415,749
28,529 BOC Group, Plc........................................... 615,207
49,700 British Telecom, Plc..................................... 1,204,206
18,695 Burmah Castrol, Plc...................................... 330,367
86,600 Cadbury Schweppes, Plc................................... 521,771
27,850 Capital Radio............................................ 674,792
88,640 Centrica, Plc............................................ 257,366
71,700 Diageo, Plc.............................................. 572,136
9,200 Glaxo Wellcome, Plc...................................... 260,658
46,000 Granada Group, Plc....................................... 464,399
106,160 Great Universal Stores, Plc.............................. 617,329
172,600 Halma, Plc............................................... 326,197
53,100 Imperial Tobacco Group................................... 437,439
64,600 J Sainsbury, Plc......................................... 364,958
37,960 Lloyds TSB Group, Plc.................................... 471,526
13,800 National Westminster Bank................................ 296,472
48,619 Prudential Corp., Plc.................................... 948,694
132,988 Reckitt Benckiser, Plc................................... 1,258,819
82,700 Scottish & Southern Energy, Plc.......................... 657,908
120,045 Shell Transport & Trading Co............................. 997,660
36,700 Smith & Nephew, Plc...................................... 123,306
48,180 SSL International, Plc................................... 610,344
60,500 WPP Group, Plc........................................... 947,939
-----------
17,672,511
-----------
UNITED STATES--0.0%
300 Chartered Semiconductor
Manufacturing, Ltd. (ADR)(b)........................... 21,900
-----------
Total Common Stocks
(Identified Cost $68,762,925)........................... 86,476,351
-----------
</TABLE>
BONDS & NOTES--0.1%
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$ 12,000 BG Transco Holdings,
7.000%, 12/16/2024(GBP).............................. $ 18,833
12,000 BG Transco Holdings,
4.187%,
12/14/2022(GBP)(c)................................... 19,335
12,000 BG Transco Holdings,
7.057%,
12/14/2009(GBP)(c)................................... 19,503
-----------
57,671
-----------
Total Bonds and Notes
(Identified Cost
$58,124)............................................. 57,671
-----------
SHORT-TERM INVESTMENT--6.6%
6,586,000 Repurchase Agreement with
State Street Corp. dated
12/31/1999 at 2.5% to be
repurchased at
$6,587,372 on 1/3/2000,
collateralized by
$5,145,000 U.S. Treasury
Bonds, 9.875% due
11/15/2015 with a value
of $6,720,656.......................................... 6,586,000
-----------
Total Short-Term
Investment
(Identified Cost
$6,586,000) 6,586,000
-----------
Total Investments--93.6%
(Identified Cost
$75,407,049)(a)......................................... 93,120,022
Other assets less
liabilities............................................. 6,340,273
-----------
TOTAL NET ASSETS--100% $99,460,295
===========
</TABLE>
FUTURES CONTRACTS-LONG(D)
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION UNREALIZED APPRECIATION/
CONTRACTS DATE (DEPRECIATION)
- --------- ---------- ------------------------
<S> <C> <C> <C>
12 CAC-40 10 Euro Index Futures(EUR) March 31, 2000 $ 81,635
5 DAX Index Futures(EUR) March 17, 2000 110,668
2 MIB 30 Index Futures(EUR) March 17, 2000 62,440
13 FTSE 100 Index Futures(GBP) March 17, 2000 46,711
8 Hang Seng Stock Index Futures(HKD) January 28, 2000 30,393
9 Topix Index Futures(JPY) March 9, 2000 79,386
--------
Net Unrealized appreciation of futures contracts............. $411,233
========
</TABLE>
See accompanying notes to financial statements.
121
<PAGE>
NEW ENGLAND ZENITH FUND
(MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
FORWARD CONTRACTS OUTSTANDING AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
LOCAL AGGREGATE UNREALIZED
CURRENCY DELIVERY CURRENCY FACE TOTAL APPRECIATION/
CONTRACT DATE AMOUNT VALUE VALUE (DEPRECIATION)
<S> <C> <C> <C> <C> <C>
Euro Currency
(Bought).......... 2/16/2000 1,702,000 $1,760,317 $1,720,652 $(39,665)
Pound Sterling
(Bought).......... 2/16/2000 842,500 1,365,842 1,360,985 (4,857)
Japanese Yen
(Bought).......... 2/16/2000 143,320,000 1,396,561 1,413,604 17,043
--------
Net Unrealized depreciation of forward currency contracts...... $(27,479)
========
</TABLE>
TEN LARGEST INDUSTRY HOLDINGS AT DECEMBER 31, 1999 (UNAUDITED)
<TABLE>
<C> <S> <C>
1 Banking 10.6%
2 Telecommunications 10.0%
3 Health & Personal Care 8.1%
4 Electronic Components 5.3%
5 Machinery & Engineering 5.2%
6 Electrical 4.7%
Food & Household
7 Products 4.7%
8 Chemicals 4.5%
9 Household Durables 4.5%
10 Insurance 4.1%
</TABLE>
(a) Federal Tax Information:
At December 31,1999 the net unrealized appreciation on investments based on
cost of $75,845,936 for federal income tax purposes was as follows:
<TABLE>
<C> <S> <C>
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost........ $21,204,522
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value........ (3,930,436)
-----------
Net unrealized appreciation................................ $17,274,086
===========
</TABLE>
(b) Non-income producing security.
(c) Variable or floating rate security. Rate disclosed is as of December 31,
1999.
(d) The Series used international stock index futures in conjunction with
currency forwards to replicate the exposure one would achieve by investing
in equities. As of December 31, 1999, 5.9% of total net assets was
invested in stock index futures. See Note E in Notes to Financial
Statements.
See accompanying notes to financial statements.
122
<PAGE>
NEW ENGLAND ZENITH FUND
(MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value.................................... $93,120,022
Cash.................................................... 5,239,488
Foreign cash at value (Identified cost $58,717)......... 58,831
Receivable for:
Fund shares sold........................................ 467,398
Dividends and interest.................................. 102,271
Foreign taxes........................................... 82,399
Futures margin.......................................... 780,758
-----------
Total Assets............................................ 99,851,167
LIABILITIES
Payable for:
Fund shares redeemed.................................... $189,604
Open forward currencey contracts--net................... 27,479
Withholding taxes....................................... 11,259
Accrued expenses:
Management fees......................................... 88,398
Deferred trustees fees.................................. 7,860
Other expenses.......................................... 66,272
--------
Total Liabilities....................................... 390,872
-----------
NET ASSETS............................................... $99,460,295
===========
Net assets consist of:
Capital paid in......................................... $80,259,710
Overdistributed net investment income................... (167,353)
Accumulated net realized gains (losses)................. 1,274,588
Unrealized appreciation (depreciation) on investments
and foreign currency................................... 18,093,350
-----------
NET ASSETS............................................... $99,460,295
===========
Computation of offering price:
Net asset value and redemption price per share
($99,460,295 divided by 7,030,701 shares of beneficial
interest)............................................... $ 14.15
===========
Identified cost of investments........................... $75,407,049
===========
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends......................................... $ 1,394,100(a)
Interest.......................................... 250,767
-----------
1,644,867
EXPENSES
Management fees................................... $ 691,945
Trustees' fees and expenses....................... 11,911
Custodian......................................... 240,527
Audit and tax services............................ 21,248
Legal............................................. 4,275
Printing.......................................... 23,630
Amortization of organization expense.............. 1,664
Insurance......................................... 1,453
Miscellaneous..................................... 3,724
----------
Total expenses.................................... 1,000,377
Less expenses assumed by the investment adviser... (901) 999,476
---------- -----------
NET INVESTMENT INCOME.............................. 645,391
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net.................................. 1,342,104
Futures contracts--net............................ 377,159
Foreign currency transactions--net................ (409,550) 1,309,713
----------
Unrealized appreciation (depreciation) on:
Investments--net.................................. 15,774,693
Futures contracts--net............................ 411,233
Foreign currency translation--net................. 180,268 16,366,194
---------- -----------
Net gain (loss).................................... 17,675,907
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS........................................ $18,321,298
===========
</TABLE>
(a) Net of foreign taxes of $185,162
See accompanying notes to financial statements.
123
<PAGE>
NEW ENGLAND ZENITH FUND
(MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................... $ 645,391 $ 674,909
Net realized gain (loss)............................ 1,309,713 698,188
Unrealized appreciation (depreciation).............. 16,366,194 1,803,620
----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS... 18,321,298 3,176,717
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income............................... (321,404) (674,909)
Net realized gain................................... 0 (658,590)
In excess of net investment income.................. 0 (146,749)
----------- -----------
Total distributions................................. (321,404) (1,480,248)
----------- -----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares........................ 36,063,101 31,156,503
Reinvestment of distributions....................... 321,404 1,480,248
Cost of shares redeemed............................. (23,092,748) (19,199,129)
----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS....................................... 13,291,757 13,437,622
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS............. 31,291,651 15,134,091
NET ASSETS
Beginning of the year............................... 68,168,644 53,034,553
----------- -----------
End of the year..................................... $99,460,295 $68,168,644
=========== ===========
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME
End of the year..................................... $ (167,353) $ (179,114)
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares...................... 2,934,750 2,622,460
Issued in reinvestment of distributions............. 25,290 125,847
Redeemed............................................ (1,907,495) (1,655,274)
----------- -----------
Net Change.......................................... 1,052,545 1,093,033
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year............................ $ 11.40 $ 10.86 $ 11.29 $ 10.73 $ 10.23
------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income........... 0.10 0.14 0.08 0.06 0.09
Net Realized and Unrealized Gain
(Loss) on Investments.......... 2.70 0.66 (0.23) 0.68 0.53
------- ------- ------- ------- -------
Total From Investment
operations..................... 2.80 0.80 (0.15) 0.74 0.62
------- ------- ------- ------- -------
Less Distributions
Distributions From Net
Investment Income.............. (0.05) (0.12) (0.09) (0.02) (0.09)
Distributions in Excess of Net
Investment Income.............. 0.00 (0.03) 0.00 0.00 (0.03)
Distributions From Net Realized
Capital Gains.................. 0.00 (0.11) (0.08) (0.16) 0.00
Distributions in Excess of Net
Realized Capital Gains......... 0.00 0.00 (0.11) 0.00 0.00
------- ------- ------- ------- -------
Total Distributions............. (0.05) (0.26) (0.28) (0.18) (0.12)
------- ------- ------- ------- -------
Net Asset Value, End of Year..... $ 14.15 $ 11.40 $ 10.86 $ 11.29 $ 10.73
======= ======= ======= ======= =======
TOTAL RETURN (%)................. 24.6 7.3 (1.3) 6.9 6.0
Ratio of Operating Expenses to
Average Net Assets (%).......... 1.30 1.30 1.30 1.30 1.30
Ratio of Net Investment Income to
Average Net Assets (%).......... 0.84 1.07 0.96 0.67 1.29
Portfolio Turnover Rate (%)...... 59 40 115 64 89
Net Assets, End of Year (000).... $99,460 $68,169 $53,035 $39,392 $16,268
The Ratios of operating expenses
to average net assets without
giving effect to the voluntary
expense agreement described in
Note 4 to the Financial
Statements would have been (%).. 1.30 1.40 1.59 1.66 3.12
</TABLE>
See accompanying notes to financial statements.
124
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1999
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 as amended. 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 ("the 1940 Act"), as a diversified, open-end management
investment company.
Shares in the Fund are not offered directly to the general public and are
currently available only to separate accounts established by Metropolitan Life
Insurance Company ("MetLife") and New England Life Insurance Company
("NELICO"), an indirect subsidiary of MetLife, as an investment vehicle for
variable life insurance or variable annuity products, although not all Series
are available to all such separate accounts.
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 (each a "Series"), with shares of each Series representing interests in
a separate portfolio of assets.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of the Financial Statements of each 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
As permitted under Rule 2a-7 of the 1940 Act, and subject to certain
conditions therein, the Back Bay Advisors Money Market Series employs the
amortized cost method of security valuation which, the Fund's Board of
Trustees (the "Board") has determined, approximates the fair market net
asset value per share of the Series. 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.
Debt securities (other than short term obligations with a remaining
maturity of sixty days or less) are valued on the basis of valuations
furnished by independent pricing services selected by the relevant adviser
or subadviser pursuant to authorization of the Board. Short term
obligations with a remaining maturity of sixty days or less are stated at
amortized cost value which approximates fair market value. Equity
securities traded on a national securities exchange or exchanges or the
NASDAQ National Market System are valued at their last sale price on the
principal trading market. Equity securities traded on a national securities
exchange or exchanges or on the NASDAQ National Market System for which
there is no reported sale during the day, and equity securities not so
traded are valued at the last reported bid price. Equity securities traded
over-the-counter are valued at the last reported bid price or at the
average of the last reported bid and asked price, according to the
subadviser's valuation policies. Other equity securities for which current
market quotations are not readily available (including restricted
securities, if any) and all other assets are valued at fair value as
determined in good faith by the Series' adviser or subadviser acting under
the supervision of the Board of Trustees, although the actual calculations
may be made by a pricing service selected by the Series' adviser or
subadviser and approved by the Board. Such valuations are determined by
using methods based on market transactions for comparable securities and on
various relationships between securities that are generally recognized by
institutional traders.
Securities traded primarily on an exchange outside of the United States
which closes before the close of the New York Stock Exchange generally will
be valued at the last sales price on that non-U.S. exchange, except when an
occurrence after closing of that exchange is likely to have materially
changed such security's value as determined by a Series'
125
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1999--(CONTINUED)
subadviser under the direction of the adviser. The adviser or subadviser
may value the security in good faith, acting under the supervision of the
Board, although the actual calculations may be made by a pricing service
selected by the relevant adviser or subadviser and approved by the Board.
B. FOREIGN CURRENCY TRANSLATION--The books and records of the Fund are
maintained in U.S. dollars. The values of securities, currencies and other
assets and liabilities denominated in currencies other than U.S. dollars
are translated into U.S. dollars based upon foreign exchange rates
prevailing at the end of the period. Purchases and sales of investment
securities, income and expenses are translated on the respective dates of
such transactions. Since the values of investment securities are presented
at the foreign exchange rates prevailing at the end of the period, it is
not practical to isolate that portion of the results of operations arising
from changes in exchange rates from that portion of the results of
operations reflecting fluctuations arising from changes in market prices of
the investment securities. Such fluctuations are included with the net
realized and unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign
currency, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded by
each Series and the U.S. dollar equivalent of the amounts actually received
or paid by each Series. Net unrealized foreign exchange gains and losses
arise from changes in the value of assets and liabilities, other than
investment securities, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY CONTRACTS--Certain Series may use foreign currency
contracts to facilitate transactions in foreign securities and to manage
the Series' currency exposure. Contracts to buy generally are used to
acquire exposure to foreign currencies, while contracts to sell generally
are used to hedge the Series' 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 Series' Statements of Assets and Liabilities. The U.S.
dollar value of the currencies the Series has committed to buy or sell is
shown in the Schedules of Investments under the caption "Forward Contracts
Outstanding." This amount represents the aggregate exposure to each
currency the Series 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.
All contracts are "marked-to-market" daily at the applicable translation
rates, and any gains or losses are recorded for financial statement
purposes as unrealized until settlement date. Risks may arise upon entering
into these contracts from the potential inability of counterparties to meet
the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar.
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME--Security transactions
are accounted for on the trade date. 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. OPTIONS--Certain Series may use options to hedge against changes in values
of securities the Series owns or expects to purchase. Writing puts and
buying calls tends to increase the Series' exposure to the underlying
instrument and writing calls or buying puts tends to decrease the Series'
exposure to the underlying instrument, or hedge other Series investments.
For options purchased to hedge the Series' investments, the potential risk
to the Series is that the change in value of options contracts may not
correspond to the change in value of the hedged instruments. In addition,
losses may arise from changes in the value of the underlying instruments,
if there is an illiquid secondary market, or if the counterparty is unable
to perform. The maximum loss for purchased options is limited to the
premium initially paid for the option. For options written by the Series,
the maximum loss is not limited to the premium initially received for the
option.
Exchange traded options are valued at the last sale price, or if no sales
are reported, the last bid price for purchased options and the last ask
price for written options. Options traded over the counter are valued using
prices supplied by dealers.
126
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1999--(CONTINUED)
E. FUTURES CONTRACTS--The Morgan Stanley International Magnum Equity Series
uses international stock index futures contracts with the objective of
maintaining full exposure to the stock market, enhancing returns,
maintaining liquidity, and minimizing transaction costs. The Series may
seek to enhance returns by using futures contracts instead of the
underlying securities when futures are believed to be priced more
attractively than the underlying securities. The primary risks associated
with the use of futures contracts are imperfect correlation between changes
in market values of stocks held by the series and the prices of futures
contracts, and the possibility of an illiquid market. Futures contracts are
valued at their quoted daily settlement prices. The aggregate principal
amounts of the contracts are not recorded in the financial statements.
Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (liability) and in the Statement of
Operations as unrealized appreciation (depreciation) until the contracts
are closed, when they are recorded as realized gains (losses) on futures
contracts.
F. REPURCHASE AGREEMENTS--Each Series, through the custodian or subcustodian,
receives delivery of the underlying securities collateralizing repurchase
agreements. It is the Fund's policy that the market value of the collateral
be at least equal to 100% of the repurchase price in the case of a
repurchase agreement of one day duration and 102% on all other repurchase
agreements. Each Series' adviser or subadviser 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.
G. REVERSE REPURCHASE AGREEMENTS--The Salomon Brothers U.S. Government and
Salomon Brothers Strategic Bond Opportunities Series may enter into reverse
repurchase agreements with qualified, third party broker-dealers as
determined by and under the direction of the Board. At the time a Series
enters into a reverse repurchase agreement, it will establish and maintain
a segregated account at the custodian or a subcustodian, the value of which
at least equals the principal amount of the reverse repurchase transactions
including accrued interest. At December 31, 1999, there were no open
reverse repurchase agreements for the Salomon Brothers Strategic Bond
Opportunities Series or Salomon Brothers U.S. Government Series.
H. FEDERAL TAXES--Each Series, which is a separate taxable entity, intends to
meet the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute to its shareholders all of its
taxable income and any net realized capital gains at least annually.
Accordingly, no provision for federal income tax has been made.
I. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS--Back Bay Advisors 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 between under/over distributed net investment income,
accumulated net realized gains/losses and paid in capital. These
differences primarily relate to tax equalization, investments in mortgage
backed securities and investments in foreign securities.
2. At December 31, 1999, MetLife held 28,600,506 shares of the Fund in
separate accounts funding annuity contracts issued by MetLife. NELICO held the
remaining 77,945,582 shares of the Fund then outstanding in separate accounts
funding variable life insurance and variable 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 in the 1940 Act) of the Fund.
127
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1999--(CONTINUED)
3. For the year ended December 31, 1999, purchases and sales of securities
(excluding short-term investments) for each of the Series were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------------------------ ------------------------------
SERIES U.S. GOVERNMENT OTHER U.S. GOVERNMENT OTHER
------ --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Back Bay Advisors Bond
Income Series.......... $ 84,687,570 $ 189,976,257 $ 74,038,973 $ 135,322,903
Salomon Brothers
Strategic Bond
Opportunities Series... 117,776,265 92,147,764 116,126,478 83,946,514
Salomon Brothers U.S.
Government Series...... 243,640,296 -- 239,928,630 --
Back Bay Advisors
Managed Series......... 8,039,625 96,926,233 6,421,937 115,973,736
Loomis Sayles Balanced
Series................. 32,964,328 106,390,646 31,446,526 88,766,050
Alger Equity Growth
Series................. -- 914,624,336 -- 700,482,268
Capital Growth Series... -- 3,916,033,920 -- 4,018,082,659
Davis Venture Value
Series................. -- 226,297,701 -- 112,292,157
Goldman Sachs Midcap
Value Series........... -- 130,755,828 -- 120,497,799
Loomis Sayles Small Cap
Series................. -- 338,660,291 -- 329,370,479
MFS Investors Series
(April 30, 1999 through
December 31, 1999)..... -- 8,274,326 -- 2,033,520
MFS Research Managers
Series (April 30, 1999
through December 31,
1999).................. -- 8,201,156 -- 2,907,894
Westpeak Growth and
Income Series.......... -- 504,036,390 -- 397,839,435
Westpeak Stock Index
Series................. -- 45,990,418 -- 5,906,589
Morgan Stanley
International Magnum
Equity Series.......... -- 48,951,748 -- 42,506,684
</TABLE>
Purchases and sales (maturities) of short-term obligations for the Back Bay
Advisors Money Market Series aggregated $1,300,623,024 and $1,203,582,524,
respectively.
128
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1999--(CONTINUED)
4. New England Investment Management, Inc. ("NEIM") (formerly TNE Advisers,
Inc.) acts as adviser to all of the Series except the Capital Growth Series,
for which Capital Growth Management Limited Partnership ("CGM") serves as
adviser. Separate advisory agreements for each Series provide for management
fees payable by the Series as set forth below:
<TABLE>
<CAPTION>
MANAGEMENT
FEES EARNED ANNUAL
BY NEIM FOR PERCENTAGE BASED ON
THE YEAR ENDED RATES PAID TO SERIES AVERAGE DAILY NET ASSET
SERIES DECEMBER 31, 1999 ADVISER VALUE LEVELS
------ ----------------- ------------- ------------------------------------
<S> <C> <C> <C>
Back Bay Advisors Money
Market Series (a)...... $ 796,250 0.35% of the first $500 million
0.30% of the next $500 million
0.25% of amounts in excess of $1 billion
Back Bay Advisors Bond
Income Series (b)...... 1,121,515 0.40% of the first $400 million
0.35% of the next $300 million
0.30% of the next $300 million
0.25% of amounts in excess of $1 billion
Salomon Brothers
Strategic Bond
Opportunities Series... 618,506 0.65% of all assets
Salomon Brothers U.S.
Government Series...... 270,607 0.55% of all assets
Back Bay Advisors
Managed Series......... 1,083,736 0.50% of all assets
Loomis Sayles Balanced
Series................. 1,386,037 0.70% of all assets
Alger Equity Growth
Series................. 4,418,196 0.75% of all assets
Davis Venture Value
Series................. 4,032,970 0.75% of all assets
Goldman Sachs Midcap
Value Series........... 834,843 0.75% of all assets
Loomis Sayles Small Cap
Series (c)............. 2,368,856 1.00% of all assets
MFS Investors Series
(April 30, 1999 through
December 31, 1999)..... 25,852 0.75% of all assets
MFS Research Managers
Series (April 30, 1999
through December 31,
1999).................. 26,299 0.75% of all assets
Westpeak Growth and
Income Series (d)...... 2,410,327 0.70% of the first $200 million
0.65% of the next $300 million
0.60% of amounts in excess of $500 million
Westpeak Stock Index
Series................. 560,987 0.25% of all assets
Morgan Stanley
International Magnum
Equity Series.......... 691,945 0.90% of all assets
</TABLE>
(a) Effective January 1, 2000, the management fee payable by the Money Market
Series is at the annual rate of 0.35% on the first $1 billion of average
daily net assets; 0.30% of the next $1 billion of such assets; and 0.25%
of such assets in excess of $2 billion.
(b) Effective January 1, 2000, the management fee payable by the Bond Income
Series is at the annual rate of 0.40% on the first $1 billion of average
daily net assets; 0.35% of the next $1 billion of such assets; 0.30% of
the next $1 billion of such assets; and 0.25% of such assets in excess of
$3 billion.
(c) Effective January 1, 2000, the management fee payable by the Small Cap
Series is at the annual rate of 0.90% of the first $500 million of average
daily net assets; and 0.85% of such assets in excess of $500 million.
(d) Effective January 1, 2000, the management fee payable by the Growth and
Income Series is 0.70% of the first $200 million of average daily net
assets; 0.65% of the next $1.3 billion of such assets; and 0.60% of such
assets in excess of $1.5 billion.
129
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1999--(CONTINUED)
The Capital Growth Series pays its adviser, CGM, an advisory fee at an
annual rate of 0.70% of the first $200 million of average daily net assets,
0.65% of the next $300 million of such assets, 0.60% of the next $1.5 billion
of such assets and 0.55% of such assets in excess of $2 billion. For advisory
services rendered during the year ended December 31, 1999, CGM was paid at an
average annual rate of 0.62% of the Capital Growth Series' average net assets,
totaling $11,792,608.
SUB-ADVISORY FEES. NEIM has sub-contracted day-to-day portfolio management
responsibilities for the Series it advises to each of the following sub-
advisers: Back Bay Advisors, L.P. ("Back Bay Advisors") for the Back Bay
Advisors Managed, Back Bay Advisors Bond Income and Back Bay Advisors Money
Market Series; Salomon Brothers Asset Management Inc for the Salomon Brothers
Strategic Bond Opportunities and Salomon Brothers U.S. Government Series;
Loomis, Sayles & Company, L.P. ("Loomis Sayles") for the Loomis Sayles Small
Cap and Loomis Sayles Balanced Series; Fred Alger Management, Inc. ("Alger")
for the Alger Equity Growth Series; Davis Selected Advisers, L.P. ("Davis")
for the Davis Venture Value Series; Goldman Sachs Asset Management ("GSAM")
for the Goldman Sachs Midcap Value Series; Massachusetts Financial Services
Company for MFS Investors Series and MFS Research Managers Series; Westpeak
Investment Advisors, L.P. ("Westpeak") for the Westpeak Growth and Income and
Westpeak Stock Index Series; and Morgan Stanley Asset Management ("MSAM") for
the Morgan Stanley International Magnum Equity Series. NEIM, which acts as
adviser to each Series except the Capital Growth Series, is an indirect wholly
owned subsidiary of NELICO, an indirect wholly owned subsidiary of MetLife, a
mutual life insurance company. Loomis Sayles, Westpeak and Back Bay Advisors
are each independently operated subsidiaries, and CGM is an independently
operated affiliate, of Nvest, L.P. and Nvest Companies, L.P. ("Nvest
Companies"). Nvest Companies owns the entire limited partnership interest in
each of Loomis Sayles, Westpeak and Back Bay Advisors. The general partners of
each of Loomis Sayles, Westpeak and Back Bay Advisors are special purpose
corporations which are indirect wholly-owned subsidiaries of Nvest Companies.
Nvest Companies' managing general partner and Nvest, L.P.'s general partner,
Nvest Corporation, is an indirect wholly-owned subsidiary of MetLife New
England Holdings, Inc. which in turn is a wholly owned subsidiary of MetLife.
MetLife owns directly 46% (and in the aggregate, directly and indirectly, 47%)
of the limited partnership interests in Nvest Companies. Nvest Companies'
advising general partner, Nvest, L.P., is a publicly traded company listed on
the New York Stock Exchange. Nvest Companies 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 seven Series of the Fund are currently wholly-owned subsidiaries
of Nvest Companies and an additional Series is advised by a majority-owned
subsidiary (CGM) of Nvest Companies. The sub-advisers of the remaining six
Series are not affiliated with MetLife, Nvest, L.P. or Nvest Companies. NEIM
paid each sub-adviser as shown below for providing sub-advisory services to
the Series:
<TABLE>
<CAPTION>
FEES EARNED
BY SUB-ADVISERS FOR
THE YEAR ENDED
SERIES DECEMBER 31, 1999
------ -------------------
<S> <C>
Back Bay Advisors Money Market Series...................... $ 277,500
Back Bay Advisors Bond Income Series....................... 570,569
Salomon Brothers Strategic Bond Opportunities Series....... 310,464
Salomon Brothers U.S. Government Series.................... 110,702
Back Bay Advisors Managed Series........................... 458,497
Loomis Sayles Balanced Series.............................. 719,017
Alger Equity Growth Series................................. 2,356,293
Davis Venture Value Series................................. 2,176,500
Goldman Sachs Midcap Value Series.......................... 495,250
Loomis Sayles Small Cap Series............................. 1,110,043
MFS Investors Series (April 30, 1999 through December 31,
1999)..................................................... 13,788
MFS Research Managers Series (April 30, 1999 through
December 31, 1999)........................................ 14,025
Westpeak Growth and Income Series.......................... 1,241,303
Westpeak Stock Index Series................................ 224,395
Morgan Stanley International Magnum Equity Series.......... 495,170
</TABLE>
130
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1999--(CONTINUED)
VOLUNTARY EXPENSE LIMITATION. Pursuant to the voluntary expense agreement
relating to Small Cap, NEIM bears all the operating expenses (does not include
amortization of expenses, brokerage costs, interest, taxes or extraordinary
expenses) of the Series in excess of 1.00% of the Series' average daily net
assets. NEIM may terminate this expense agreement at any time.
EXPENSE DEFERRAL AGREEMENT. Pursuant to an Expense Deferral Agreement, which
has been in effect since November 1, 1994 with respect to the Morgan Stanley
International Magnum Equity Series, Alger Equity Growth Series, Davis Venture
Value Series, Loomis Sayles Balanced Series, Salomon Brothers Strategic Bond
Opportunities Series and Salomon Brothers U.S. Government Series, since May 1,
1998 for the Goldman Sachs Midcap Value Series and since April 30, 1999 for
the MFS Investors Series and the MFS Research Managers Series. Under this
Agreement, NEIM has agreed to pay expenses of each Series' operations
(exclusive of any brokerage costs, interest, taxes or extraordinary expenses)
in excess of the annual percentages of each Series' net assets set forth
below, subject to the obligation of each Series to repay NEIM such expenses in
future years, if any, when the Series' expenses fall below that percentage;
however, no Series is obligated to repay any expenses paid by NEIM more than
two years after the end of the fiscal year in which such expenses were
incurred (three years for the MFS Investors Series and MFS Research Managers
Series). The percentage applicable to each Series is shown below:
NEIM may terminate these expense arrangements at any time. If these expense
arrangements were terminated, some of the Series would have higher expense
ratios. For the year ended December 31, 1999, (i) the maximum expense ratio
for each Series after giving effect to the foregoing arrangements; (ii) the
amounts of expenses assumed by NEIM for each Series to which the Voluntary
Expense Limitation applies; and (iii) the amounts of expenses deferred for
each Series to which the Expense Deferral Agreement applies, are as follows
<TABLE>
<CAPTION>
MAXIMUM EXPENSE
RATIO UNDER
CURRENT EXPENSES ASSUMED
VOLUNTARY EXPENSE BY NEIM AS A EXPENSES DEFERRED IN EXPENSES DEFERRED IN
LIMITATION OR RESULT OF THE SERIES 1998 (SUBJECT TO 1999 (SUBJECT TO
EXPENSE DEFERRAL EXCEEDING THE REPAYMENT UNTIL REPAYMENT UNTIL
SERIES AGREEMENT VOLUNTARY EXPENSE LIMIT DECEMBER 31, 2000) DECEMBER 31, 2001)
------ ----------------- ----------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Loomis Sayles Small Cap
Series................. 1.00% $246,217 not applicable not applicable
Goldman Sachs Midcap
Value Series........... 0.90% not applicable --
Alger Equity Growth
Series................. 0.90% not applicable -- --
Davis Venture Value
Series................. 0.90% not applicable -- --
Loomis Sayles Balanced
Series................. 0.85% not applicable -- --
Morgan Stanley
International Magnum
Equity Series.......... 1.30% not applicable $ 62,316 $ 901
MFS Investors Series.... 0.90% not applicable -- 38,953(a)
MFS Research Managers
Series................. 0.90% not applicable -- 39,708(a)
Salomon Brothers
Strategic Bond
Opportunities Series... 0.85% not applicable -- --
Salomon Brothers U.S.
Government Series...... 0.70% not applicable 21,784 7,595
</TABLE>
(a) Subject to repayment until December 31, 2002.
131
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1999--(CONTINUED)
For the year ended December 31, 1999 the amount of deferred expense recovered
by NEIM from each Series subject to the Expense Deferral Agreement is set
forth below:
<TABLE>
<CAPTION>
DEFERRED EXPENSES DEFERRED EXPENSES
RECOVERED BY RECOVERED BY
SERIES NEIM FROM 1997 NEIM FROM 1998
------ ----------------- -----------------
<S> <C> <C>
Goldman Sachs Midcap Value Series.... None $4,535
MFS Investors Series................. None None
MFS Research Managers Series......... None None
Morgan Stanley International Magnum
Equity Series....................... None None
Salomon Brothers Strategic Bond
Opportunities Series................ $12,296 None
Salomon Brothers U.S. Government
Series.............................. None None
</TABLE>
5. The Fund does not pay any compensation to its officers or to any trustees
who are directors, officers or employees of MetLife, NELICO, NEIM or their
affiliates, other than affiliated registered investment companies. Each other
trustee receives a retainer fee at the annual rate of $20,000 and meeting fees
of $2,500 for each meeting of the Board of Trustees attended. The chairmen of
the Contract Review Committee and the Audit Committee receive an additional
annual retainer fee of $6,000 and $4,000, respectively. These fees are
allocated to the various Series and the New England Variable Annuity Fund I
based upon a formula that takes into account among other factors, the relative
net assets of each Series. Each trustee is also a manager of New England
Variable Annuity Fund I. A deferred compensation plan is available to the
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 Series on the normal payment
date. Deferred amounts remain in the Series until distributed in accordance
with the plan.
6. Shareholder Meeting (Unaudited)
At a Special Meeting of Shareholders held on October 15, 1999 such
shareholders voted for the following proposals:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN TOTAL
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
1. That with respect to all Series
the following trustees are hereby
elected:
John J. Arena...................... 89,021,827 711 4,071,887 93,094,425
Edward A. Benjamin................. 88,981,983 711 4,111,731 93,094,425
Mary Ann Brown..................... 88,984,233 711 4,109,482 93,094,426
Joseph W. Flynn.................... 88,980,774 711 4,112,940 93,094,425
Anne M. Goggin..................... 89,016,789 711 4,076,925 93,094,425
Nancy Hawthorne.................... 89,019,437 711 4,074,277 93,094,425
Joseph M. Hinchey.................. 88,950,855 711 4,142,859 93,094,425
Robert B. Kittredge................ 88,893,991 711 4,199,723 93,094,425
John T. Ludes...................... 89,025,375 711 4,068,339 93,094,425
Dale R. Marshall................... 89,018,770 711 4,074,944 93,094,425
2a. That with respect to the Money
Market Series the new proposed
Advisory Agreement between NEIM
and the Trust is hereby
approved........................ 2,029,297 164,372 74,698 2,268,367
2b. That with respect to the Bond
Income Series, the new proposed
Advisory Agreement between NEIM
and the Trust is hereby
approved........................ 2,409,028 111,559 101,552 2,622,139
2c. That with respect to the Growth
and Income Series, the new
proposed Advisory Agreement
between NEIM and the Trust is
hereby approved................. 1,585,875 64,278 69,767 1,719,920
3. That the proposal to replace the
fundamental investment objective
of the Money Market, Bond Income,
Managed, Capital Growth, Small
Cap, Growth and Income, and
Midcap Value Series with an
otherwise identical non-
fundamental investment objective
is hereby approved............... 12,869,447 730,801 591,629 14,191,877
4. That the proposal to grant
authority for the Money Market,
Bond Income, Managed, Balanced,
Equity Growth, Venture Value,
Small Cap, Investors, Research
Managers, Growth and Income,
Stock Index, and International
Magnum Equity Series whereby each
such Series may from time to
time, to the extent permitted by
an exemption or exemptions from
the Securities and Exchange
Commission, permit NEIM to enter
into new or amended agreements
with subadvisers with respect to
the Series without obtaining
shareholder approval of such
agreements, and to permit such
subadvisers to manage the assets
of the Series pursuant to such
subadvisory agreements is hereby
approved ........................ 69,183,900 3,273,146 3,081,893 75,538,939
5. That the following proposals to
adopt Standardized Investment
Restrictions for the Series are
hereby approved:
5a. That with respect to the Money
Market, Bond Income, Managed,
Capital Growth, and Stock Index
Series to eliminate the
restrictions relating to
investments in a single issuer.. 9,994,309 544,555 414,267 10,953,131
5b. That with respect to the Money
Market, Bond Income, Managed,
Capital Growth, and Stock Index
Series to eliminate the
restrictions relating to short
sales and purchasing securities
on margin....................... 9,799,175 731,724 422,232 10,953,131
</TABLE>
132
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1999--(CONTINUED)
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN TOTAL
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
5c. That with respect to all Series
to revise the restrictions
relating to concentrations of
investments in one industry.... 85,801,339 3,740,186 3,552,900 93,094,425
5d. That with respect to all Series
to revise the restrictions
relating to borrowings......... 85,142,143 4,467,632 3,484,650 93,094,425
5e. That with respect to the Money
Market, Bond Income, Managed,
Capital Growth, and Stock Index
Series to eliminate the
restrictions relating to
investments in businesses less
than three years old........... 9,979,014 585,980 388,137 10,953,131
5f. That with respect to the Money
Market, Bond Income, Managed,
Capital Growth, and Stock Index
Series to eliminate the
restrictions relating to
issuers whose shares are
beneficially owned by Trustees
and officers of the Trust or
directors and officers of
certain affiliates of the
Trust.......................... 9,838,478 706,217 408,436 10,953,131
5g. That with respect to all Series
to revise the restrictions
relating to underwriting of
securities..................... 85,813,170 3,457,557 3,823,698 93,094,425
5h. That with respect to the Money
Market, Bond Income, Managed,
Capital Growth, and Stock Index
Series to eliminate the
restrictions relating to the
purchase of restricted
securities and illiquid
securities..................... 9,812,801 709,941 430,389 10,953,131
5i. That with respect to the Money
Market, Bond Income, Managed,
Capital Growth, and Stock Index
Series to eliminate the
restrictions relating to
investments made for the
purpose of exercising control
or management.................. 9,829,766 683,782 439,583 10,953,131
5j. That with respect to the Money
Market, Bond Income, Managed,
Capital Growth, and Stock Index
Series to eliminate the
restrictions relating to joint
trading of securities.......... 9,939,276 565,449 448,406 10,953,131
5k. That with respect to the Money
Market, Bond Income, Managed,
Capital Growth, and Stock Index
Series to eliminate the
restrictions relating to
investments in other investment
companies...................... 10,006,906 546,267 399,958 10,953,131
5l. That with respect to all Series
to revise the restrictions
relating to investments in
commodities and real estate.... 85,694,164 3,874,396 3,525,865 93,094,425
5m. That with respect to the Money
Market, Bond Income, Managed,
Capital Growth, and Stock Index
Series to eliminate the
restrictions relating to
pledging assets................ 9,740,140 773,975 439,016 10,953,131
5n. That with respect to all Series
to revise the restrictions
relating to making loans....... 84,954,167 4,589,068 3,551,190 93,094,425
5o. That with respect to the Money
Market, Bond Income, Managed,
Capital Growth, and Stock Index
Series to eliminate the
restrictions relating to the
purchase and/or writing of
options........................ 9,832,550 699,831 420,750 10,953,131
5p. That with respect to the
Strategic Bond Opportunities,
U.S. Government, Balanced,
Equity Growth, Venture Value,
Midcap Value, Small Cap,
Investors, Research Managers,
Growth and Income, and
International Magnum Equity
Series to revise the
restrictions relating to the
issuance of senior securities.. 78,875,840 2,937,791 3,327,664 82,141,295
</TABLE>
133
<PAGE>
NEW ENGLAND ZENITH FUND
REPORT OF INDEPENDENT AUDITORS
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 (the "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,
Goldman Sachs Midcap Value Series, Westpeak Growth and Income Series, Loomis
Sayles Small Cap Series, Loomis Sayles Balanced Series, Morgan Stanley
International Magnum Equity Series, Salomon Brothers U.S. Government Series,
Salomon Brothers Strategic Bond Opportunities Series, Davis Venture Value
Series, Alger Equity Growth Series, MFS Investors Series and MFS Research
Managers Series--the "Series"), including the portfolios of investments, as of
December 31, 1999, and the related statements of operations for the year then
ended, changes in net assets for each of the two years then ended and
financial highlights for each of the three years then ended. These financial
statements and financial highlight 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. The financial
highlights for other periods indicated herein were audited by other auditors
whose report dated February 14, 1997 expressed an unqualified opinion on these
statements.
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, 1999, by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. 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, 1999, the results of their operations for the year then ended, the changes
in their net assets for each of the two years then ended and the financial
highlights for each of the three years then ended, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 4, 2000
134
<PAGE>
FOOTNOTES TO PORTFOLIO MANAGER COMMENTARY
(1) Lipper Variable Products Money Market 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.
(2) Lehman Brothers Aggregate Bond Index includes most obligations of the
U.S. Treasury, agencies and quasi-federal corporations, most publicly
issued investment grade corporate bonds, and most bonds backed by
mortgage pools of GNMA, FNMA and FHLMC. The index has not been adjusted
for ongoing management, distribution and operating expenses and sales
charges applicable to mutual fund investments.
(3) Lehman Brothers Government/Corporate Bond Index is an unmanaged index of
the market value of approximately 5,300 bonds with a face value currently
in excess of $1.3 trillion. To be included in the Lehman Brothers
Government/Corporate Bond Index, an issue must have amounts outstanding
in excess of $25 million, have at least one year to maturity and be rated
"Baa" or higher ("investment grade") by a nationally recognized rating
agency. The index has not been adjusted for ongoing management,
distribution and operating expenses and sales charges applicable to
mutual fund investments.
(4) Lehman Brothers Intermediate Government Bond Index includes most
obligations of the U.S. Treasury, agencies and quasi-federal corporations
having maturities of 1 to 10 years. The index has not been adjusted for
ongoing management, distribution and operating expenses and sales charges
applicable to mutual fund investments.
(5) 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 has not been adjusted for ongoing management, distributions and
operating expenses and sales charges applicable to mutual fund
investments.
(6) Lipper Variable Products 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, on independent mutual fund ranking service.
(7) Lipper Variable Products 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.
(8) Lipper Variable Products 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.
(9) Lipper Variable Products 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.
(10) Lipper Variable Products 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.
(11) Lipper Variable Products 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.
(12) Lipper Variable Products International 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 Products 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.
(14) Lipper Variable Products Midcap 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.
135
<PAGE>
(15) Lipper Variable Products 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 Products 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 Products 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) Morgan Stanley Capital International Europe, Australasia, Far East (EAFE)
index is an arithmetical average (weighted by market value) of the
performance (in U.S. dollars) of companies representing the stock markets
of Europe, Australia and the Far East. The index has not been adjusted
for ongoing management, distribution and operating expenses and sales
charges applicable to mutual funds.
(19) Morgan Stanley Capital International Europe Index is an arithmetical
average (weighted by market value) of the performance (in U.S. dollars)
of companies representing the stock markets of Austria, Belgium, Czech
Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland,
Italy, Netherlands, Norway, Poland, Portugal, Russia, Spain, Sweden,
Switzerland, Turkey and United Kingdom. The Index performance has not
been adjusted for ongoing management, distribution and operating expenses
and sales charges applicable to mutual funds.
(20) Morgan Stanley Capital International Japan Index is an arithmetical
average (weighted by market value) of the performance (in U.S. Dollars)
of companies representing the stock markets of Japan. The Index
performance has not been adjusted for ongoing management, distribution
and operating expenses and sales charges applicable to mutual funds.
(21) Morgan Stanley Capital International Pacific Free ex-Japan Index is an
arithmetical average (weighted by market value) of their performance (in
U.S. dollars) of companies representing the stock markets of Australia,
China Free, Hong Kong, Indonesia, Korea, Malaysia, New Zealand,
Philippines, Singapore, Taiwan and Thailand. The Index performance has
not been adjusted for ongoing management, distribution and operating
expenses and sales charges applicable to mutual funds.
(22) Russell Midcap Index consists of 800 mid-capitalization stocks having an
average market capitalization of $3.7 billion as of December 31, 1998.
The index has not been adjusted for ongoing management, distribution and
operating expenses and sales charges applicable to mutual fund
investments.
(23) Russell 2000 Index consists of 2000 small market capitalization stocks
having an average market capitalization of $592 million as of December
31, 1998. The index performance has not been adjusted for ongoing
management, distribution and operating expenses and sales charges
applicable to mutual fund investments.
(24) Salomon Brothers High Yield Market Index measurers the performance of
cash pay and deferred interest bonds.
(25) Standard & Poor's 500 Index(R) (S&P 500(R)) 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.
136
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE
COMPANY
REPORT OF INDEPENDENT AUDITORS
To the Policy Owners and Board of Directors of New England Life Insurance
Company:
We have audited the accompanying statement of assets and liabilities of the
New England Variable Life Separate Account (comprised of the following Sub-
Accounts: Capital Growth, Bond Income, Money Market, Stock Index, Managed,
Midcap Value (formerly Avanti Growth), Growth and Income (formerly Value
Growth), Small Cap, U.S. Government, Balanced, Equity Growth, International
Magnum Equity (formerly International Equity), Venture Value, Bond
Opportunities, Investors, Research Managers, Equity-Income, Overseas, High
Income and Asset Manager) of New England Life Insurance Company (the
"Company") as of December 31, 1999, and the related statements of operations
and changes in net assets for each of the three years in the period then ended
for all Sub-Accounts. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements 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 are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 referred to above present fairly, in
all material respects, the financial position of the respective aforementioned
Sub-Accounts comprising the New England Variable Life Separate Account of New
England Life Insurance Company as of December 31, 1999, and the results of
their operations and the changes in their net assets for each of the three
years in the period then ended, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 4, 2000
137
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
------------------------------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK MIDCAP AND SMALL
GROWTH INCOME MARKET INDEX MANAGED VALUE INCOME CAP
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
--------------- ----------- ------------ ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in New England
Zenith Fund, Variable
Insurance Products Fund, and
Variable Insurance Products
Fund II at value (Note 2)... $1,230,974,235 $74,838,213 $148,173,522 $183,798,637 $70,090,490 $36,996,243 $94,643,283 $99,681,359
<CAPTION>
SHARES COST
--------- --------------
<S> <C> <C>
Capital Growth
Series......... 2,831,583 $1,086,202,933
Back Bay
Advisors Bond
Income Series.. 738,049 79,337,797
Back Bay
Advisors Money
Market Series.. 1,481,735 148,173,522
Westpeak Stock
Index Series... 796,217 120,113,367
Back Bay
Advisors
Managed Series. 356,133 60,490,121
Goldman Sachs
Midcap Value
Series......... 303,945 41,326,387
Westpeak Growth
and Income
Series......... 476,840 86,077,139
Loomis Sayles
Small Cap
Series......... 494,133 72,214,392
Salomon Brothers
U.S. Government
Series......... 72,858 844,414
Loomis Sayles
Balanced
Series......... 1,214,912 18,213,928
Alger Equity
Growth Series.. 7,670,932 172,788,088
Morgan Stanley
International
Magnum Equity
Series......... 1,284,810 14,534,170
Davis Venture
Value Series... 6,183,625 126,513,387
Salomon Brothers
Bond
Opportunities
Series......... 104,337 1,267,848
MFS Investors
Series......... 77,411 773,570
MFS Research
Managers
Series......... 78,902 806,954
VIP Equity-
Income
Portfolio...... 6,551,702 126,034,149
VIP Overseas
Portfolio...... 5,064,896 87,116,523
VIP High Income
Portfolio...... 1,322,300 15,875,113
VIP II Asset
Manager
Portfolio...... 707,988 11,460,518
--------------
Total........... $2,270,164,320
==============
Amount due and accrued
(payable) from policy-
related transactions, net... (136,071) 21,370 560,723 49,113 (11,519) 39,928 7,685 84,454
Dividends receivable......... -- -- -- -- -- -- -- --
--------------- ----------- ------------ ------------ ------------ ----------- ----------- -----------
Total Assets 1,230,838,164 74,859,583 148,734,245 183,847,750 70,078,971 37,036,171 94,650,968 99,765,813
LIABILITIES
Due to New England Life
Insurance Company........... 84,134,782 6,819,176 11,964,362 19,325,681 5,908,740 3,542,818 9,540,656 10,713,149
--------------- ----------- ------------ ------------ ------------ ----------- ----------- -----------
NET ASSETS FOR VARIABLE LIFE
INSURANCE POLICIES.......... $1,146,703,382 $68,040,407 $136,769,883 $164,522,069 $64,170,231 $33,493,353 $85,110,312 $89,052,664
=============== =========== ============ ============ ============ =========== =========== ===========
</TABLE>
See Notes to Financial Statements
138
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
INTERNATIONAL
U.S. EQUITY MAGNUM VENTURE BOND RESEARCH
GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INVESTORS MANAGERS
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ---------- ----------- ------------ ------------- ------------ ------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$787,592 $16,826,533 $225,065,146 $18,180,067 $164,917,275 $1,113,279 $794,240 $945,245
10,965 157,461 236,677 96,973 124,826 5,544 (2,239) (2,139)
-- -- -- -- -- -- -- --
-------- ----------- ------------ ----------- ------------ ---------- -------- --------
798,557 16,983,994 225,301,823 18,277,040 165,042,101 1,118,823 792,001 943,106
41,247 1,694,626 26,656,245 2,058,494 18,572,069 57,789 99,163 154,903
-------- ----------- ------------ ----------- ------------ ---------- -------- --------
$757,310 $15,289,368 $198,645,578 $16,218,546 $146,470,032 $1,061,034 $692,838 $788,203
======== =========== ============ =========== ============ ========== ======== ========
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- --------------------------------------- ---------- --------------
EQUITY- HIGH ASSET
INCOME OVERSEAS INCOME MANAGER
SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT TOTAL
- ------------- ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C>
$168,444,262 $138,980,751 $14,955,213 $13,218,146 $2,703,423,731
(5,066) 101,197 2,344 592 1,342,818
-- -- -- -- --
- ------------ ------------ ----------- ----------- --------------
168,439,196 139,081,948 14,957,557 13,218,738 2,704,766,549
16,380,286 12,743,559 1,476,634 1,448,557 233,332,936
- ------------ ------------ ----------- ----------- --------------
$152,058,910 $126,338,389 $13,480,923 $11,770,181 $2,471,433,613
============ ============ =========== =========== ==============
</TABLE>
See Notes to Financial Statements
139
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
--------------------------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK MIDCAP AND SMALL
GROWTH INCOME MARKET INDEX MANAGED VALUE INCOME CAP
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------ ---------- ---------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME
Dividends.............. $239,049,928 $5,475,221 $5,083,165 $ 4,154,533 $9,783,326 $ 459,624 $12,174,462 $ 260,319
EXPENSE
Mortality and expense
risk charge (Note 3)... 6,723,595 471,818 638,578 1,013,735 421,255 330,436 578,297 538,571
------------ ---------- ---------- ----------- ---------- ---------- ----------- -----------
Net investment income
(loss)................. 232,326,333 5,003,403 4,444,587 3,140,798 9,362,071 129,188 11,596,165 (278,252)
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of period... 215,969,495 1,209,273 -- 39,965,167 13,285,666 (3,807,527) 13,616,695 3,516,783
End of period......... 144,771,302 (4,499,584) -- 63,685,270 9,600,369 (4,330,144) 8,566,144 27,466,967
------------ ---------- ---------- ----------- ---------- ---------- ----------- -----------
Net change in
unrealized appreciation
(depreciation)......... (71,198,193) (5,708,857) -- 23,720,103 (3,685,297) (522,617) (5,050,551) 23,950,184
Net realized gain
(loss) on investments.. (572,298) 1,487 -- (52,322) (65,614) (9,202) (33,403) 2,146
------------ ---------- ---------- ----------- ---------- ---------- ----------- -----------
Net realized and
unrealized gain (loss)
on investments......... (71,770,491) (5,707,370) -- 23,667,781 (3,750,911) (531,819) (5,083,954) 23,952,330
------------ ---------- ---------- ----------- ---------- ---------- ----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $160,555,842 $ (703,967) $4,444,587 $26,808,579 $5,611,160 $ (402,631) $ 6,512,211 $23,674,078
============ ========== ========== =========== ========== ========== =========== ===========
</TABLE>
* For the period April 30, 1999 (Commencement of Operations) through December
31, 1999.
See Notes to Financial Statements
140
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
INTERNATIONAL
U.S. EQUITY MAGNUM VENTURE BOND RESEARCH
GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INVESTORS* MANAGERS*
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ---------- ----------- ----------- ------------- ----------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 46,383 $ 998,875 $26,651,028 $ 60,426 $ 3,101,039 $ 90,809 $ 1,921 $ --
10,668 126,629 1,069,420 119,372 961,922 24,177 533 1,540
-------- ----------- ----------- ---------- ----------- -------- ------- --------
35,715 872,246 25,581,608 (58,946) 2,139,117 66,632 1,388 (1,540)
15,209 1,036,991 30,707,168 194,954 20,008,648 (46,594) -- --
(56,822) (1,387,395) 52,277,058 3,645,897 38,403,888 (154,569) 20,670 138,291
-------- ----------- ----------- ---------- ----------- -------- ------- --------
(72,031) (2,424,386) 21,569,890 3,450,943 18,395,240 (107,975) 20,670 138,291
(1,634) (14,874) (116,438) (4,634) (47,139) 1,097 8,670 (34,566)
-------- ----------- ----------- ---------- ----------- -------- ------- --------
(73,665) (2,439,260) 21,453,452 3,446,309 18,348,101 (106,878) 29,340 103,725
-------- ----------- ----------- ---------- ----------- -------- ------- --------
$(37,950) $(1,567,014) $47,035,060 $3,387,363 $20,487,218 $(40,246) $30,728 $102,185
======== =========== =========== ========== =========== ======== ======= ========
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- ------------------------------------- ----------- -------------
EQUITY- HIGH ASSET
INCOME OVERSEAS INCOME MANAGER
SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT TOTAL
- ----------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
$ 7,478,140 $ 3,746,050 $1,147,254 $ 713,060 $320,475,563
1,005,310 681,381 87,077 74,260 14,878,574
- ----------- ----------- ---------- ---------- ------------
6,472,830 3,064,669 1,060,177 638,800 305,596,989
39,593,709 14,768,529 (611,552) 1,247,559 390,670,173
42,410,113 51,864,228 (919,900) 1,757,628 433,259,411
- ----------- ----------- ---------- ---------- ------------
2,816,404 37,095,699 (308,348) 510,069 42,589,238
(592,373) (370,244) 48,706 (3,669) (1,856,304)
- ----------- ----------- ---------- ---------- ------------
2,224,031 36,725,455 (259,642) 506,400 40,732,934
- ----------- ----------- ---------- ---------- ------------
$ 8,696,861 $39,790,124 $ 800,535 $1,145,200 $346,329,923
=========== =========== ========== ========== ============
</TABLE>
See Notes to Financial Statements
141
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
------------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK MIDCAP AND
GROWTH INCOME MARKET INDEX MANAGED VALUE INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------ ---------- ---------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME
Dividends.............. $136,031,595 $4,500,888 $2,243,738 $ 1,665,717 $ 4,920,327 $ 8,522,091 $ 4,438,526
EXPENSE
Mortality and expense
risk charge (Note 3).. 5,675,180 329,452 281,233 574,859 295,717 213,136 321,673
------------ ---------- ---------- ----------- ----------- ------------ -----------
Net investment income
(loss)................ 130,356,415 4,171,436 1,962,505 1,090,858 4,624,610 8,308,955 4,116,853
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of period.... 91,366,363 892,059 -- 19,889,059 9,447,437 6,964,381 6,858,665
End of period.......... 215,969,495 1,209,273 -- 39,965,167 13,285,666 (3,807,527) 13,616,695
------------ ---------- ---------- ----------- ----------- ------------ -----------
Net change in
unrealized
appreciation
(depreciation)........ 124,603,132 317,214 -- 20,076,109 3,838,229 (10,771,908) 6,758,031
Net realized gain on
investments........... 5,610,899 1,800 -- 190,803 163,910 236,891 14,655
------------ ---------- ---------- ----------- ----------- ------------ -----------
Net realized and
unrealized gain (loss)
on investments........ 130,214,031 319,014 -- 20,266,912 4,002,139 (10,535,017) 6,772,686
------------ ---------- ---------- ----------- ----------- ------------ -----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $260,570,446 $4,490,449 $1,962,505 $21,357,770 $ 8,626,750 $ (2,226,063) $10,889,538
============ ========== ========== =========== =========== ============ ===========
</TABLE>
See Notes to Financial Statements
142
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
- --------------------------------------------------------------------------------------- ----------------------------------
INTERNATIONAL
SMALL U.S. EQUITY MAGNUM VENTURE BOND EQUITY- HIGH
CAP GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ----------- ---------- ---------- ----------- ------------- ----------- ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,148,975 $32,331 $ 607,129 $ 3,598,904 $ 251,292 $ 2,912,129 $ 81,480 $ 8,088,940 $6,093,523 $ 1,064,286
380,727 (2,318) 52,939 452,661 48,632 512,333 (9,440) 902,569 550,070 67,547
- ----------- ------- ---------- ----------- --------- ----------- -------- ----------- ---------- -----------
768,248 34,649 554,190 3,146,243 202,660 2,399,796 90,920 7,186,371 5,543,453 996,739
5,422,058 (1,916) 642,612 5,391,267 (155,005) 10,716,783 (2,256) 32,699,163 11,137,299 964,520
3,516,783 15,209 1,036,991 30,707,168 194,954 20,008,648 (46,594) 39,593,709 14,768,529 (611,552)
- ----------- ------- ---------- ----------- --------- ----------- -------- ----------- ---------- -----------
(1,905,274) 17,125 394,379 25,315,901 349,959 9,291,865 (44,337) 6,894,545 3,631,231 (1,576,072)
20,862 11 6,840 56,142 5,897 22,521 493 561,003 333,272 20,913
- ----------- ------- ---------- ----------- --------- ----------- -------- ----------- ---------- -----------
(1,884,412) 17,136 401,219 25,372,043 355,856 9,314,386 (43,844) 7,455,548 3,964,503 (1,555,159)
- ----------- ------- ---------- ----------- --------- ----------- -------- ----------- ---------- -----------
$(1,116,164) $51,785 $ 955,409 $28,518,286 $ 558,517 $11,714,181 $ 47,076 $14,641,919 $9,507,956 $ (558,420)
=========== ======= ========== =========== ========= =========== ======== =========== ========== ===========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- ---------- ------------
ASSET
MANAGER
SUB-
ACCOUNT TOTAL
- ---------- ------------
<S> <C>
$ 835,511 $187,037,382
50,140 10,697,110
- ---------- ------------
785,371 176,340,272
971,097 203,203,584
1,247,559 390,670,172
- ---------- ------------
276,461 187,466,588
4,137 7,251,049
- ---------- ------------
280,598 194,717,637
- ---------- ------------
$1,065,969 $371,057,909
========== ============
</TABLE>
See Notes to Financial Statements
143
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
--------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK MIDCAP AND
GROWTH INCOME MARKET INDEX MANAGED VALUE INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------ ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME
Dividends.............. $184,229,729 $3,419,409 $1,852,865 $ 1,082,727 $5,025,764 $2,781,138 $3,928,553
EXPENSE
Mortality and expense
risk charge (Note 3).. 4,170,905 253,374 241,048 333,771 229,423 207,451 190,264
------------ ---------- ---------- ----------- ---------- ---------- ----------
Net investment income
(loss)................ 180,058,824 3,166,035 1,611,817 748,956 4,796,341 2,573,687 3,738,289
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of year...... 138,009,405 40,519 -- 7,633,013 6,137,629 4,823,316 3,107,090
End of year............ 91,366,363 892,059 -- 19,889,059 9,447,437 6,964,381 6,858,664
------------ ---------- ---------- ----------- ---------- ---------- ----------
Net change in
unrealized
appreciation
(depreciation)........ (46,643,042) 851,540 -- 12,256,046 3,309,808 2,141,065 3,751,574
Net realized gain on
investments........... 1,699,829 15,488 -- 35,165 242,079 87,159 17,721
------------ ---------- ---------- ----------- ---------- ---------- ----------
Net realized and
unrealized gain (loss)
on investments........ (44,943,213) 867,028 -- 12,291,211 3,551,887 2,228,224 3,769,295
------------ ---------- ---------- ----------- ---------- ---------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $135,115,611 $4,033,063 $1,611,817 $13,040,167 $8,348,228 $4,801,911 $7,507,584
============ ========== ========== =========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements
144
<PAGE>
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- ---------------------------------------------------------------------------------- ------------------------------- ---------
INTERNATIONAL
SMALL U.S. EQUITY MAGNUM VENTURE BOND EQUITY- HIGH ASSET
CAP GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME MANAGER
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ---------- ---------- -------- ---------- ------------- ----------- ------------- ----------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$6,279,206 $9,089 $438,430 $4,721,050 $ 209,389 $ 1,822,395 $43,914 $ 8,872,794 $5,434,055 $393,295 $528,401
275,141 2,290 50,941 265,599 51,702 276,055 9,400 676,059 447,597 41,502 33,135
- ---------- ------ -------- ---------- --------- ----------- ------- ----------- ---------- -------- --------
6,004,065 6,799 387,489 4,455,451 157,687 1,546,340 34,514 8,196,735 4,986,458 351,793 495,266
3,059,565 (819) 236,625 2,084,389 136,191 2,398,023 (1,153) 16,409,989 9,502,216 362,600 547,647
5,422,058 (1,916) 642,612 5,391,267 (155,006) 10,716,783 (2,256) 32,699,163 11,137,299 964,520 971,097
- ---------- ------ -------- ---------- --------- ----------- ------- ----------- ---------- -------- --------
2,362,493 (1,097) 405,987 3,306,878 (291,197) 8,318,760 (1,103) 16,289,174 1,635,083 601,920 423,450
20,956 1 55,231 75,802 8,303 21,718 201 126,489 67,905 12,234 5,368
- ---------- ------ -------- ---------- --------- ----------- ------- ----------- ---------- -------- --------
2,383,449 (1,096) 461,218 3,382,680 (282,894) 8,340,478 (902) 16,415,663 1,702,988 614,154 428,818
- ---------- ------ -------- ---------- --------- ----------- ------- ----------- ---------- -------- --------
$8,387,514 $5,703 $848,707 $7,838,131 $(125,207) $ 9,886,818 $33,612 $24,612,398 $6,689,446 $965,947 $924,084
========== ====== ======== ========== ========= =========== ======= =========== ========== ======== ========
<CAPTION>
- ------------
TOTAL
- ------------
<S>
$231,072,203
7,755,657
- ------------
223,316,546
194,486,245
203,203,584
- ------------
8,717,339
2,491,649
- ------------
11,208,988
- ------------
$234,525,534
============
</TABLE>
See Notes to Financial Statements
145
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
CAPITAL BOND MONEY STOCK MIDCAP
GROWTH INCOME MARKET INDEX MANAGED VALUE
SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
-------------- ----------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATING
ACTIVITIES
Net investment
income (loss)... $ 232,326,333 $ 5,003,403 $ 4,444,587 $ 3,140,798 $ 9,362,071 $ 129,188
Net realized and
unrealized gain
(loss) on
investments..... (71,770,491) (5,707,370) -- 23,667,781 (3,750,911) (531,819)
-------------- ----------- ------------- ------------ ----------- -----------
Net Increase
(decrease) in
net assets
resulting from
operations..... 160,555,842 (703,967) 4,444,587 26,808,579 5,611,160 (402,631)
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred from
New England Life
Insurance
Company (Note
4).............. 142,211,177 13,805,688 214,469,972 29,988,746 10,115,433 7,098,841
Net transfers
(to) from other
sub-accounts.... (3,426,057) 5,993,183 (132,180,032) 28,975,401 3,130,211 (1,928,318)
Net transfers
(to) from New
England Life
Insurance
Company......... (127,342,172) (8,870,541) (35,295,568) (21,960,448) (7,936,560) (3,985,601)
-------------- ----------- ------------- ------------ ----------- -----------
Net Increase in
net assets
resulting from
policy related
transactions... 11,442,948 10,928,330 46,994,372 37,003,699 5,309,084 1,184,922
-------------- ----------- ------------- ------------ ----------- -----------
Net increase
(decrease) in
net assets...... 171,998,790 10,224,363 51,438,959 63,812,278 10,920,244 782,291
NET ASSETS, AT
BEGINNING OF THE
PERIOD.......... 974,704,592 57,816,044 85,330,924 100,709,791 53,249,987 32,711,062
-------------- ----------- ------------- ------------ ----------- -----------
NET ASSETS, AT
END OF THE
PERIOD.......... $1,146,703,382 $68,040,407 $ 136,769,883 $164,522,069 $64,170,231 $33,493,353
============== =========== ============= ============ =========== ===========
<CAPTION>
NEW ENGLAND ZENITH FUND
--------------------------------------
GROWTH
AND SMALL U.S.
INCOME CAP GOVERNMENT
SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT
------------- ------------- ----------
<S> <C> <C> <C>
FROM OPERATING
ACTIVITIES
Net investment
income (loss)... $ 11,596,165 $ (278,252) $ 35,715
Net realized and
unrealized gain
(loss) on
investments..... (5,083,954) 23,952,330 (73,665)
------------ ------------ --------
Net Increase
(decrease) in
net assets
resulting from
operations..... 6,512,211 23,674,078 (37,950)
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred from
New England Life
Insurance
Company (Note
4).............. 15,769,644 16,994,060 --
Net transfers
(to) from other
sub-accounts.... 14,513,514 (3,433,209) 79,255
Net transfers
(to) from New
England Life
Insurance
Company......... (10,636,850) (11,981,152) 24,393
------------ ------------ --------
Net Increase in
net assets
resulting from
policy related
transactions... 19,646,308 1,579,699 103,648
------------ ------------ --------
Net increase
(decrease) in
net assets...... 26,158,519 25,253,777 65,698
NET ASSETS, AT
BEGINNING OF THE
PERIOD.......... 58,951,793 63,798,887 691,612
------------ ------------ --------
NET ASSETS, AT
END OF THE
PERIOD.......... $ 85,110,312 $ 89,052,664 $757,310
============ ============ ========
</TABLE>
* For the period April 30, 1999 (Commencement of Operations) through December
31, 1999.
See Notes to Financial Statements
146
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
INTERNATIONAL
EQUITY MAGNUM VENTURE BOND RESEARCH
BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INVESTORS* MANAGERS*
SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ----------- ------------ ------------- ------------ ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 872,246 $ 25,581,608 $ (58,946) $ 2,139,117 $ 66,632 $ 1,388 $ (1,540)
(2,439,260) 21,453,452 3,446,309 18,348,101 (106,878) 29,340 103,725
- ----------- ------------ ----------- ------------ ---------- -------- --------
(1,567,014) 47,035,060 3,387,363 20,487,218 (40,246) 30,728 102,185
4,093,455 31,646,457 3,430,299 32,031,496 -- 75,935 86,667
1,865,860 59,949,102 1,463,742 22,546,367 1,100 684,756 763,549
(1,579,581) (30,858,890) (2,381,414) (23,867,517) 9,526 (98,581) (164,198)
- ----------- ------------ ----------- ------------ ---------- -------- --------
4,379,734 60,736,669 2,512,627 30,710,346 10,626 662,110 686,018
- ----------- ------------ ----------- ------------ ---------- -------- --------
2,812,720 107,771,729 5,899,990 51,197,564 (29,620) 692,838 788,203
12,476,648 90,873,849 10,318,556 95,272,468 1,090,654 -- --
- ----------- ------------ ----------- ------------ ---------- -------- --------
$15,289,368 $198,645,578 $16,218,546 $146,470,032 $1,061,034 $692,838 $788,203
=========== ============ =========== ============ ========== ======== ========
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- --------------------------------------- ----------- --------------
EQUITY- HIGH ASSET
INCOME OVERSEAS INCOME MANAGER
SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT TOTAL
- ------------ ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C>
$ 6,472,830 $ 3,064,669 $ 1,060,177 $ 638,800 $ 305,596,989
2,224,031 36,725,455 (259,642) 506,400 40,732,934
- ------------ ------------ ----------- ----------- --------------
8,696,861 39,790,124 800,535 1,145,200 346,329,923
26,649,674 17,254,614 3,727,099 2,393,210 571,842,467
(2,823,843) 1,086,949 1,354,057 1,384,413 --
(19,017,183) (16,067,097) (2,389,723) (1,339,833) (325,738,990)
- ------------ ------------ ----------- ----------- --------------
4,808,648 2,274,466 2,691,433 2,437,790 246,103,477
- ------------ ------------ ----------- ----------- --------------
13,505,509 42,064,590 3,491,968 3,582,990 592,433,400
138,553,401 84,273,799 9,988,955 8,187,191 1,879,000,213
- ------------ ------------ ----------- ----------- --------------
$152,058,910 $126,338,389 $13,480,923 $11,770,181 $2,471,433,613
============ ============ =========== =========== ==============
</TABLE>
See Notes to Financial Statements
147
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
------------------------------------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK MIDCAP AND SMALL
GROWTH INCOME MARKET INDEX MANAGED VALUE INCOME CAP
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATING
ACTIVITIES
Net investment
income (loss).. $ 130,356,415 $ 4,171,436 $ 1,962,505 $ 1,090,858 $ 4,624,610 $ 8,308,955 $ 4,116,853 $ 768,248
Net realized and
unrealized gain
(loss) on
investments.... 130,214,031 319,014 -- 20,266,912 4,002,139 (10,535,017) 6,772,686 (1,884,412)
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
Net Increase
(decrease) in
net assets
resulting from
operations..... 260,570,446 4,490,449 1,962,505 21,357,770 8,626,750 (2,226,063) 10,889,538 (1,116,164)
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred
from New
England Life
Insurance
Company
(Note 4)....... 130,346,621 10,522,040 221,378,611 15,997,005 6,508,238 8,067,127 10,034,046 16,979,803
Net transfers
(to) from other
sub-accounts... 28,412,166 9,220,311 (149,270,654) 22,094,429 6,317,021 (102,089) 15,004,643 9,499,585
Net transfers to
New England
Life Insurance
Company........ (136,266,249) (7,932,456) (21,844,962) (16,290,249) (6,742,406) (4,094,516) (8,744,105) (9,074,771)
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
Net Increase in
net assets
resulting from
policy related
transactions... 22,492,538 11,809,895 50,262,995 21,801,185 6,082,853 3,870,522 16,294,584 17,404,617
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
Net increase in
net assets..... 283,062,984 16,300,344 52,225,500 43,158,955 14,709,603 1,644,459 27,184,123 16,288,452
NET ASSETS, AT
BEGINNING OF THE
PERIOD.......... 691,641,608 41,515,700 33,105,424 57,550,836 38,540,384 31,066,603 31,767,670 47,510,435
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
NET ASSETS, AT
END OF THE
PERIOD.......... $ 974,704,592 $57,816,044 $ 85,330,924 $100,709,791 $53,249,987 $ 32,711,062 $58,951,793 $63,798,887
============= =========== ============= ============ =========== ============ =========== ===========
</TABLE>
See Notes to Financial Statements
148
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
--------------------------------------------------------------------------------- ---------------------------------------
INTERNATIONAL
U.S. EQUITY MAGNUM VENTURE BOND EQUITY- HIGH
GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
---------- ----------- ------------ ------------- ------------ ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 34,649 $ 554,190 $ 3,146,243 $ 202,660 $ 2,399,796 $ 90,920 $ 7,186,371 $ 5,543,453 $ 996,739
17,136 401,219 25,372,043 355,856 9,314,386 (43,844) 7,455,548 3,964,503 (1,555,159)
--------- ----------- ------------ ----------- ------------ ---------- ------------ ------------ -----------
51,785 955,409 28,518,286 558,517 11,714,181 47,076 14,641,919 9,507,956 (558,420)
-- 3,185,034 18,566,913 3,131,225 24,165,947 -- 26,170,240 17,386,996 2,434,923
590,096 3,794,185 16,305,214 999,735 23,584,994 612,788 8,474,098 342,473 2,823,884
(111,452) (2,333,228) (14,453,624) (1,503,958) (15,609,387) (156,947) (18,064,178) (10,788,946) (1,891,706)
--------- ----------- ------------ ----------- ------------ ---------- ------------ ------------ -----------
478,644 4,645,991 20,418,503 2,627,002 32,141,554 455,841 16,580,160 6,940,523 3,367,101
--------- ----------- ------------ ----------- ------------ ---------- ------------ ------------ -----------
530,429 5,601,400 48,936,789 3,185,519 43,855,735 502,917 31,222,080 16,448,479 2,808,682
161,183 6,875,248 41,937,060 7,133,037 51,416,733 587,737 107,331,321 67,825,320 7,180,273
--------- ----------- ------------ ----------- ------------ ---------- ------------ ------------ -----------
$ 691,612 $12,476,648 $ 90,873,849 $10,318,556 $ 95,272,468 $1,090,654 $138,553,401 $ 84,273,799 $ 9,988,955
========= =========== ============ =========== ============ ========== ============ ============ ===========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- ----------- --------------
ASSET
MANAGER
SUB-
ACCOUNT TOTAL
- ----------- --------------
<S> <C>
$ 785,371 $ 176,340,272
280,598 194,717,637
- ----------- --------------
1,065,969 371,057,909
1,626,307 516,501,076
1,297,121 --
(1,251,084) (277,154,223)
- ----------- --------------
1,672,344 239,346,853
- ----------- --------------
2,738,313 610,404,762
5,448,878 1,268,595,450
- ----------- --------------
$ 8,187,191 $1,879,000,212
=========== ==============
</TABLE>
See Notes to Financial Statements
149
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
-----------------------------------------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK MIDCAP SMALL
GROWTH INCOME MARKET INDEX MANAGED VALUE GROWTH AND CAP
SUB- SUB- SUB- SUB- SUB- SUB- INCOME SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATING
ACTIVITIES
Net investment
income (loss).. $ 180,058,824 $ 3,166,035 $ 1,611,817 $ 748,956 $ 4,796,341 $ 2,573,687 $ 3,738,289 $ 6,004,065
Net realized and
unrealized gain
(loss) on
investments.... (44,943,213) 867,028 -- 12,291,211 3,551,887 2,228,224 3,769,295 2,383,449
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
Net increase
(decrease) in
net assets
resulting from
operations..... 135,115,611 4,033,063 1,611,817 13,040,167 8,348,228 4,801,911 7,507,584 8,387,514
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred
from New
England Life
Insurance
Company
(Note 4)....... 115,563,292 9,916,442 112,790,933 11,030,326 6,066,893 8,052,822 6,483,236 12,931,007
Net transfers
(to) from other
sub-
accounts....... 19,184,703 2,250,884 (100,492,346) 13,670,086 2,168,458 728,467 6,112,407 13,551,252
Net transfers to
New England
Life Insurance
Company........ (103,221,618) (7,435,545) (10,617,259) (11,516,905) (6,628,199) (5,007,957) (5,507,253) (8,882,069)
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
Net increase in
net assets
resulting from
policy related
transactions... 31,526,377 4,731,781 1,681,328 13,183,507 1,607,152 3,773,332 7,088,390 17,600,190
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
Net increase in
net assets..... 166,641,988 8,764,844 3,293,145 26,223,674 9,955,380 8,575,243 14,595,974 25,987,704
NET ASSETS, AT
BEGINNING OF THE
YEAR............ 524,999,620 32,750,856 29,812,279 31,327,162 28,585,004 22,491,360 17,171,696 21,522,731
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
NET ASSETS, AT
END OF THE YEAR. $ 691,641,608 $41,515,700 $ 33,105,424 $ 57,550,836 $38,540,384 $31,066,603 $31,767,670 $47,510,435
============= =========== ============= ============ =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
150
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
- ------------------------------------------------------------------------------- --------------------------------------
INTERNATIONAL
U.S. EQUITY MAGNUM VENTURE BOND EQUITY- HIGH
GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ---------- ----------- ----------- ------------- ------------ ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 6,799 $ 387,489 $ 4,455,451 $ 157,687 $ 1,546,340 $ 34,514 $ 8,196,735 $ 4,986,458 $ 351,793
(1,096) 461,218 3,382,680 (282,894) 8,340,478 (902) 16,415,663 1,702,988 614,154
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
5,703 848,707 7,838,131 (125,207) 9,886,818 33,612 24,612,398 6,689,446 965,947
-- 2,146,406 14,606,449 3,056,999 13,157,429 -- 23,866,781 17,551,475 2,042,291
118,925 2,461,028 6,194,266 1,537,466 22,596,463 563,357 5,377,892 1,724,137 1,829,771
(9,482) (1,814,302) (8,772,068) (1,574,196) (10,885,947) (36,000) (18,885,322) (9,549,079) (1,756,377)
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
109,443 2,793,132 12,028,647 3,020,269 24,867,945 527,357 10,359,351 9,726,533 2,115,685
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
115,146 3,641,839 19,866,778 2,895,062 34,754,763 560,969 34,971,749 16,415,979 3,081,632
46,037 3,233,409 22,070,282 4,237,975 16,661,970 26,768 72,359,572 51,409,341 4,098,641
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
$161,183 $ 6,875,248 $41,937,060 $ 7,133,037 $ 51,416,733 $587,737 $107,331,321 $67,825,320 $ 7,180,273
======== =========== =========== =========== ============ ======== ============ =========== ===========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- ---------- --------------
ASSET
MANAGER
SUB-
ACCOUNT TOTAL
- ---------- --------------
<S> <C>
$ 495,266 $ 223,316,546
428,818 11,208,988
- ---------- --------------
924,084 234,525,534
1,403,144 360,665,925
422,784 --
(881,229) (212,980,807)
- ---------- --------------
944,699 147,685,118
- ---------- --------------
1,868,783 382,210,652
3,580,095 886,384,798
- ---------- --------------
$5,448,878 $1,268,595,450
========== ==============
</TABLE>
See Notes to Financial Statements
151
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS. New England Variable Life Separate Account (the
"Account") of New England Life Insurance Company ("NELICO") was established by
NELICO's Board of Directors on January 31, 1983 in accordance with the
regulations of the Delaware Insurance Department and is now operating in
accordance with the regulations of the Commonwealth of Massachusetts Division
of Insurance. The Account is registered as a unit investment trust under the
Investment Company Act of 1940. The assets of the Account are owned by NELICO.
The net assets of the Account are restricted from use in the ordinary business
of NELICO. NELICO is an indirect wholly-owned subsidiary of Metropolitan Life
Insurance Company.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. SUB-ACCOUNTS. The Account has twenty investment sub-accounts each of which
invest in the shares of one portfolio of the New England Zenith Fund ("Zenith
Fund"), the Variable Insurance Products Fund or the Variable Insurance
Products Fund II. The portfolios of the Zenith Fund, the Variable Insurance
Products Fund and the Variable Insurance Products Fund II in which the sub-
accounts invest are referred to herein as the "Eligible Funds". The Zenith
Fund, the Variable Insurance Products Fund and the Variable Insurance Products
Fund II are diversified, open-end management investment companies. The Account
purchases or redeems shares of the twenty Eligible Funds based on the amount
of net premiums invested in the Account, transfers among the sub-accounts,
policy loans, surrender payments, and death benefit payments. The values of
the shares of the Eligible Funds are determined as of the close of the New
York Stock Exchange (the "Exchange") (normally 4:00 p.m. EST) on each day the
Exchange is open for trading. Realized gains and losses on the sale of
Eligible Funds' shares are computed on the basis of identified cost on the
trade date. Income from dividends is recorded on the ex-dividend date. Charges
for investment advisory fees and other expenses are reflected in the carrying
value of the assets of the Eligible Funds.
3. MORTALITY AND EXPENSE RISK CHARGES. NELICO charges the Account for the
mortality and expense risk NELICO assumes. The mortality risk assumed by
NELICO is the risk that insureds may live for shorter periods of time than
NELICO estimated when setting its cost of insurance charges. The expense risk
assumed by NELICO is the risk that the deductions for sales and administrative
charges may prove insufficient to cover actual cost. If these deductions are
insufficient to cover the cost of the mortality and expense risk assumed by
NELICO, NELICO absorbs the resulting losses and makes sufficient transfers to
the Fund from its general assets. Conversely, if those deductions are more
than sufficient after the establishment of any contingency reserves deemed
prudent or required by law, the excess is retained by NELICO. Currently, the
charges are made daily at an annual rate of .35% of the Account assets
attributable to fixed premium ("Zenith Life") variable policies, .45% of the
Account assets attributable to single premium ("Zenith Life One") variable
life policies, .60% of the Account assets attributable to variable ordinary
("Zenith Life Plus" , "Zenith Life Plus II" and "Zenith Variable Whole Life")
life policies and limited payment ("Zenith Life Executive 65") variable life
policies, .90% and .75% of the Account assets attributable to variable
survivorship ("Zenith Survivorship Life") life policies, and .75% and .60% of
the Account assets attributable to flexible premium ("Zenith Flexible Life")
variable life policies. For the modified single premium ("American Gateway")
and flexible premium ("Zenith Executive Advantage Plus") variable life
policies mortality and expense risk charges are not charged daily against the
sub-account assets but are deducted from the policy cash values monthly at an
annual rate of .90% and a maximum annual rate of .75%, respectively
4. NET PREMIUM TRANSFERS AND DEDUCTIONS FROM CASH VALUE. Certain deductions
are made from each premium payment paid to NELICO to arrive at a net premium
that is transferred to the Account. Certain deductions are made from cash
value in the sub-accounts. These deductions, depending on the policy, could
include sales load, administrative charges, premium tax charges, risk charges,
cost of insurance charges, and charges for rider benefits and special risk
charges.
152
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. FEDERAL INCOME TAXES. For federal income tax purposes the Account's
operations are included with those of NELICO. NELICO intends to make
appropriate charges against the Account in the future if and when tax
liabilities arise.
6. INVESTMENT ADVISERS. The adviser and sub-adviser for each series of the
Zenith Fund are listed in the chart below. New England Investment Management,
Inc. (formerly, TNE Advisers, Inc.), which is an indirect subsidiary of
NELICO, Capital Growth Management Limited Partnership ("CGM"), and each of the
sub-advisers are registered with the Securities and Exchange Commission as
investment advisers under the Investment Advisers Act of 1940.
<TABLE>
<CAPTION>
SERIES ADVISER SUB-ADVISER
------ --------------------------------------- ------------------------------------
<S> <C> <C>
Capital Growth.......... CGM* --
Back Bay Advisors Money
Market................. New England Investment Management, Inc. Back Bay Advisors, L.P. *
Back Bay Advisors Bond
Income................. New England Investment Management, Inc. Back Bay Advisors, L.P. *
Back Bay Advisors
Managed................ New England Investment Management, Inc. Back Bay Advisors, L.P. *
Westpeak Stock Index.... New England Investment Management, Inc. Westpeak Investment Advisors, L.P. *
Westpeak Growth and
Income................. New England Investment Management, Inc. Westpeak Investment Advisors, L.P. *
Goldman Sachs Midcap
Value.................. New England Investment Management, Inc. Goldman Sachs Asset Management
Loomis Sayles Small Cap. New England Investment Management, Inc. Loomis, Sayles & Company, L.P. *
Loomis Sayles Balanced.. New England Investment Management, Inc. Loomis, Sayles & Company, L.P. *
Morgan Stanley
International Magnum
Equity................. New England Investment Management, Inc. Morgan Stanley Dean Witter
Investment Management Inc.
Davis Venture Value..... New England Investment Management, Inc. Davis Selected Advisers, L.P.
Alger Equity Growth..... New England Investment Management, Inc. Fred Alger Management, Inc.
Salomon Brothers U.S.
Government............. New England Investment Management, Inc. Salomon Brothers Asset
Management Inc
Salomon Brothers
Strategic Bond
Opportunities.......... New England Investment Management, Inc. Salomon Brothers Asset
Management Inc
MFS Investors........... New England Investment Management, Inc. Massachusetts Financial
Services Company
MFS Research Managers... New England Investment Management, Inc. Massachusetts Financial
Services Company
</TABLE>
*An affiliate of NELICO
Effective May 1, 1997 the Draycott International Equity Series was renamed the
Morgan Stanley International Magnum Equity Series and Morgan Stanley Dean
Witter Investment Management Inc. became the sub-adviser of the Series,
succeeding Draycott Partners, Ltd.
Effective May 1, 1998 Goldman Sachs Asset Management ("Goldman Sachs") became
the sub-adviser of the Loomis Sayles Avanti Growth Series, succeeding Loomis
Sayles & Company, L.P., and the name of the Series was changed to the "Goldman
Sachs Midcap Value Series". Goldman Sachs is a separate operating division of
Goldman, Sachs & Co., a privately-owned global financial services company.
153
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. INVESTMENT PURCHASES AND SALES. The following table shows the aggregate
cost of Eligible Fund shares purchased and proceeds from the sales of Eligible
Fund shares for each sub-account for the year ended December 31, 1999:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Capital Growth Series............................. $242,198,370 $241,707,039
Back Bay Advisors Money Market Series............. 327,644,952 277,923,925
Back Bay Advisors Bond Income Series.............. 36,178,905 24,991,981
Back Bay Advisors Managed Series.................. 24,394,855 18,680,924
Westpeak Stock Index Series....................... 81,767,015 38,818,677
Westpeak Growth and Income Series................. 43,834,304 22,733,178
Goldman Sachs Midcap Value Series................. 14,632,125 14,003,124
Loomis Sayles Small Cap Series.................... 32,520,472 28,114,874
Loomis Sayles Balanced Series..................... 11,121,785 7,665,490
Morgan Stanley International Magnum Equity Series. 8,500,269 5,336,590
Davis Venture Value Series........................ 74,752,030 39,161,371
Alger Equity Growth Series........................ 112,530,144 37,977,904
Salomon Bothers U.S. Government Series............ 728,153 711,346
Salomon Bothers Strategic Bond Opportunities
Series........................................... 504,155 619,331
MFS Investors Series *............................ 853,017 92,276
MFS Research Managers Series *.................... 869,163 29,781
VIP Equity-Income Portfolio....................... 48,322,887 44,032,962
VIP Overseas Portfolio............................ 36,474,794 30,947,930
VIP High Income Portfolio......................... 10,500,033 7,853,618
VIP II Asset Manager Portfolio.................... 6,412,123 3,587,782
</TABLE>
*For the period April 30, 1999 (Commencement of Operations) to December 31,
1999.
8. NET INVESTMENT RETURNS. The following table shows the net investment return
of the Sub-Account for each type of variable life insurance policy investing
in the Account. The net investment return reflects the appropriate mortality
and expense risk charge against sub-account assets, where applicable, for each
type of variable life insurance policy shown (in the case of American Gateway
Series, and Zenith Executive Advantage Plus, the mortality and expense risk
charge is deducted monthly from the cash values rather than daily from sub-
account assets and, therefore, does not impact sub-account net investment
returns). These figures do not reflect charges deducted from premiums and the
cash values of the policies. Such charges will affect the actual cash values
and benefits of the policies. Certain amounts have been restated to conform
with the current calculation of net investment return to provide greater
comparability with industry convention.
154
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FIXED PREMIUM ("ZENITH LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (3.82)% 53.45% (6.38)% 14.57% (7.39)% 37.55% 20.65% 23.05 % 33.63 % 15.30 %
Bond Income............. 7.71 % 17.55% 7.80 % 12.22% (3.70)% 20.78% 4.24% 10.50 % 8.66 % (0.81)%
Money Market............ 7.81 % 5.84% 3.43 % 2.61% 3.61 % 5.33% 4.76% 4.97 % 4.90 % 4.60 %
<CAPTION>
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.48)% 29.98% 6.92 % 9.34% 0.76 % 36.44% 22.04% 32.03 % 27.49 % 19.96 %
Managed................. 2.85 % 19.75% 6.33 % 10.26% (1.46)% 30.81% 14.62% 26.12 % 19.24 % 9.59 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value....................................... 14.47% (0.62)% 29.90% 17.20% 16.91 % (5.79)% 0.00 %
Growth and Income.................................. 13.97% (1.55)% 35.99% 17.68% 33.01 % 24.02 % 8.97 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income...................................... 9.29% 6.69 % 34.62% 13.88% 27.66 % 11.24 % 5.96 %
Overseas........................................... 14.57% 1.37 % 9.30% 12.82% 11.17 % 12.36 % 42.13 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.45)% 28.40% 30.22% 24.42 % (2.04)% 31.29 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (0.58)% 20.18% 13.63% 17.26 % (4.66)% 7.78 %
Asset Manager............................................... (4.41)% 16.55% 14.20% 20.23 % 14.65 % 10.70 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 24.84% 12.78% 25.19 % 47.27 % 33.66 %
Balanced............................................................. 13.75% 16.50% 15.77 % 8.73 % (5.39)%
International Magnum Equity.......................................... 3.85% 6.30% (1.64)% 6.90 % 24.18 %
Venture Value........................................................ 21.64% 25.40% 33.03 % 14.02 % 17.11 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.61 %
Research Managers........................................................................................ 19.52 %
</TABLE>
155
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SINGLE PREMIUM ("ZENITH LIFE ONE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (3.91)% 53.29% (6.47)% 14.46% (7.38)% 37.41% 20.53% 22.92 % 33.49 % 15.18 %
Bond Income............. 7.60 % 17.43% 7.69 % 12.10% (3.80)% 20.66% 4.14% 10.39 % 8.55 % (0.91)%
Money Market............ 7.71 % 5.74% 3.33 % 2.51% 3.35 % 5.23% 4.65% 4.87 % 4.79 % 4.49 %
<CAPTION>
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.58)% 29.85% 6.81 % 9.23% 0.66 % 36.30% 21.91% 31.90 % 27.36 % 19.84 %
Managed................. 2.75 % 19.63% 6.22 % 10.15% (1.56)% 30.67% 14.51% 25.99 % 19.12 % 9.48 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value....................................... 14.39% (0.72)% 29.77% 17.08% 16.80 % (5.88)% (0.10)%
Growth and Income.................................. 13.90% (1.65)% 38.85% 17.56% 32.87 % 23.89 % 8.86 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Income...................................... 9.22% 6.59 % 34.49% 13.77% 27.53 % 11.13 % 5.85 %
Overseas........................................... 14.49% 1.27 % 9.19% 12.70% 11.05 % 12.24 % 41.99 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.52)% 28.27% 30.09% 24.29 % (2.14)% 31.16 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (0.61)% 20.06% 13.52% 17.14 % (4.76)% 7.67 %
Asset Manager............................................... (4.45)% 16.43% 14.09% 20.11 % 14.53 % 10.59 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 24.76% 12.66% 25.06 % 47.12 % 33.53 %
Balanced............................................................. 13.67% 16.39% 15.66 % 8.62 % (5.49)%
International Magnum Equity.......................................... 3.79% 6.19% (1.74)% 6.79 % 24.05 %
Venture Value........................................................ 21.56% 25.27% 32.90 % 13.90 % 16.99 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.54 %
Research Managers........................................................................................ 19.44 %
</TABLE>
156
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
VARIABLE ORDINARY ("ZENITH LIFE PLUS", "ZENITH LIFE PLUS II" AND "ZENITH
VARIABLE WHOLE LIFE") AND LIMITED PAYMENT ("ZENITH LIFE EXECUTIVE 65") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (4.06)% 53.06% (6.61)% 14.28% (7.62)% 37.21% 20.34% 22.74 % 33.29 % 15.01 %
Bond Income............. 7.44 % 17.25% 7.53 % 11.94% (3.94)% 20.47% 3.98% 10.23 % 8.39 % (1.06)%
Money Market............ 7.54 % 5.58% 3.18 % 2.36% 3.35 % 5.07% 4.50% 4.71 % 4.63 % 4.34 %
<CAPTION>
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.72)% 29.65% 6.65 % 9.07% 0.51 % 36.10% 21.73% 31.70 % 27.17 % 19.66 %
Managed................. 2.59 % 19.45% 6.06 % 9.99% (1.70)% 30.48% 14.34% 25.81 % 18.94 % 9.31 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value....................................... 14.28% (0.87)% 29.57% 16.90% 16.62 % (6.03)% (0.25)%
Growth and Income.................................. 13.78% (1.80)% 35.65% 17.38% 32.67 % 23.71 % 8.70 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income...................................... 9.11% 6.43 % 34.29% 13.59% 27.34 % 10.96 % 5.69 %
Overseas........................................... 14.38% 1.12 % 9.02% 12.53% 10.89 % 12.08 % 41.77 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.61)% 28.08% 29.90% 24.11 % (2.28)% 30.96 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (0.66)% 19.88% 13.35% 16.96 % (4.90)% 7.51 %
Asset Manager............................................... (4.49)% 16.26% 13.91% 19.93 % 14.36 % 10.43 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 24.64% 12.49% 24.88 % 46.90 % 33.33 %
Balanced............................................................. 13.56% 16.21% 15.48 % 8.46 % (5.63)%
International Magnum Equity.......................................... 3.68% 6.03% (1.89)% 6.63 % 23.87 %
Venture Value........................................................ 21.44% 25.08% 32.70 % 13.73 % 16.81 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.44 %
Research Managers........................................................................................ 19.32 %
</TABLE>
157
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
VARIABLE SURVIVORSHIP ("ZENITH SURVIVORSHIP LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS*
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (4.35)% 52.61% (6.90)% 13.94% (7.90)% 36.80% 19.98% 22.37% 32.89 % 14.67 %
Bond Income............. 7.11 % 16.90% 7.21 % 11.60% (4.23)% 20.12% 3.67% 9.90% 8.07 % (1.36)%
Money Market............ 7.22 % 5.26% 2.87 % 2.05% 3.04 % 4.75% 4.18% 4.39% 4.32 % 4.03 %
<CAPTION>
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (5.01)% 29.27% 6.33 % 8.74% 0.21 % 35.69% 21.36% 31.31% 26.79 % 19.30 %
Managed................. 2.28 % 19.10% 5.74 % 9.69% (2.00)% 30.09% 13.99% 25.43% 18.58 % 8.98 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value....................................... 14.05% (1.16)% 29.19% 16.55% 16.27% (6.31)% (0.55)%
Growth and Income.................................. 13.55% (2.09)% 35.25% 17.03% 32.28% 23.34 % 8.37 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income...................................... 8.89% 6.11 % 33.89% 13.25% 26.96% 10.63 % 5.38 %
Overseas........................................... 14.15% 0.82 % 8.70% 12.19% 10.56% 11.74 % 41.35 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.80)% 27.69% 29.50% 23.73% (2.58)% 30.57 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (0.76)% 19.53% 13.00% 16.61% (5.19)% 7.19 %
Asset Manager............................................... (4.59)% 15.91% 13.57% 19.57% 14.02 % 10.10 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 24.39% 12.15% 24.50 % 46.46 % 32.93 %
Balanced............................................................. 13.33% 15.86% 15.14 % 8.13 % (5.91)%
International Magnum Equity.......................................... 3.48% 5.71% (2.18)% 6.31 % 23.50 %
Venture Value........................................................ 21.20% 24.71% 32.30 % 13.39 % 16.47 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.23 %
Research Managers........................................................................................ 19.08 %
</TABLE>
* Based on a mortality and expense risk charge at an annual rate of .90%.
Certain Zenith Survivorship Life Policies currently have a mortality and
expense risk charge at an annual rate of .75%.
158
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FLEXIBLE PREMIUM ("ZENITH FLEXIBLE LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS*
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (5.73)% 52.83% (6.75)% 14.11% (7.76)% 37.00% 20.16% 22.56 % 33.09 % 14.84 %
Bond Income............. 7.28 % 17.08% 7.37 % 11.77% (4.08)% 20.29% 3.82% 10.06 % 8.23 % (1.21)%
Money Market............ 7.38 % 5.42% 3.02 % 2.20% 3.20 % 4.91% 4.34% 4.55 % 4.48 % 4.18 %
<CAPTION>
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.86)% 29.46% 6.49 % 8.90% 0.36 % 35.90% 21.55% 31.51 % 26.98 % 19.48 %
Managed................. 2.44 % 19.28% 5.90 % 9.82% (1.85)% 30.28% 14.16% 25.62 % 18.76 % 9.15 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value....................................... 14.16% (1.01)% 29.38% 16.72% 16.45 % (6.17)% (0.40)%
Growth and Income.................................. 13.67% (1.94)% 35.45% 17.21% 32.47 % 23.52 % 8.53 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income...................................... 9.00% 6.27 % 34.09% 13.42% 27.15 % 10.79 % 5.54 %
Overseas........................................... 14.26% 0.97 % 8.86% 12.36% 10.72 % 11.91 % 41.56 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.71)% 27.88% 29.70% 23.92 % (2.43)% 30.77 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (0.71)% 19.71% 13.17% 16.79 % (5.04)% 7.35 %
Asset Manager............................................... (4.54)% 16.08% 13.74% 19.75 % 14.19 % 10.26 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 24.51% 12.32% 24.69 % 46.68 % 33.13 %
Balanced............................................................. 13.44% 16.03% 15.31 % 8.29 % (5.77)%
International Magnum Equity.......................................... 3.58% 5.87% (2.04)% 6.47 % 23.68 %
Venture Value........................................................ 21.32% 24.89% 32.50 % 13.56 % 16.64 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.34 %
Research Managers........................................................................................ 19.20 %
</TABLE>
* Based on a mortality and expense risk charge at an annual rate of .75%.
Certain Zenith Flexible Life Policies currently have a mortality and expense
risk charge at an annual rate of .60%.
159
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FLEXIBLE PREMIUM ("ZENITH EXECUTIVE ADVANTAGE PLUS") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (3.48)% 53.98% (6.05)% 14.97% (7.07)% 38.03% 21.07% 23.48 % 34.09 % 15.70 %
Bond Income............. 8.09 % 17.96% 8.18 % 12.61% (3.36)% 21.20% 4.61% 10.89 % 9.04 % (0.47)%
Money Market............ 8.19 % 6.21% 3.80 % 2.97% 3.97 % 5.70% 5.13% 5.34 % 5.26 % 4.97 %
<CAPTION>
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.14)% 30.43% 7.30 % 9.72% 1.12 % 36.92% 22.47% 32.50 % 27.93 % 20.38 %
Managed................. 3.21 % 20.17% 6.70 % 10.65% (1.11)% 31.26% 15.03% 26.56 % 19.65 % 9.97 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value....................................... 14.74% (0.27)% 30.35% 17.61% 17.32 % (5.46)% 0.35 %
Growth and Income.................................. 14.24% (1.21)% 36.47% 18.10% 33.47 % 24.45 % 9.35 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income...................................... 9.55% 6.93 % 35.90% 13.75% 28.11 % 11.63 % 6.33 %
Overseas........................................... 14.84% 1.21 % 11.02% 12.43% 11.56 % 12.75 % 42.63 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.23)% 28.84% 30.68% 24.85 % (1.69)% 31.75 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (.37)% 20.79% 13.75% 17.67 % (4.33)% 8.15 %
Asset Manager............................................... (4.65)% 17.68% 14.31% 20.65 % 15.05 % 11.09 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 25.13% 13.17% 25.63 % 47.78 % 34.13 %
Balanced............................................................. 14.01% 16.91% 16.18 % 9.11 % (5.06)%
International Magnum Equity.......................................... 4.01% 6.67% (1.30)% 7.27 % 24.61 %
Venture Value........................................................ 21.92% 25.84% 33.50 % 14.41 % 17.52 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.85 %
Research Managers........................................................................................ 19.80 %
</TABLE>
160
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MODIFIED SINGLE PREMIUM ("AMERICAN GATEWAY") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bond Income............. 8.09 % 17.96% 8.18% 12.61% (3.36)% 21.20% 4.61% 10.89 % 9.04 % (0.47)%
Money Market............ 8.19 % 6.21% 3.80% 2.97% 3.97 % 5.70% 5.13% 5.34 % 5.26 % 4.97 %
<CAPTION>
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.14)% 30.43% 7.30% 9.72% 1.12 % 36.92% 22.47% 32.50 % 27.93 % 20.38 %
Managed................. 3.21 % 20.17% 6.70% 10.65% (1.11)% 31.26% 15.03% 26.56 % 19.65 % 9.97 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value....................................... 14.74% (0.27)% 30.35% 17.61% 17.32 % (5.46)% 0.35 %
Growth and Income.................................. 14.24% (1.21)% 36.47% 18.10% 33.47 % 24.45 % 9.35 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.23)% 28.84% 30.68% 24.85 % (1.69)% 31.75 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 25.13% 13.17% 25.63 % 47.78 % 34.13 %
Balanced............................................................. 14.01% 16.91% 16.18 % 9.11 % (5.06)%
International Magnum Equity.......................................... 4.01% 6.67% (1.30)% 7.27 % 24.61 %
Venture Value........................................................ 21.92% 25.84% 33.50 % 14.41 % 17.52 %
<CAPTION>
6/28/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government............................................................... 4.55% 8.47 % 7.61 % 0.17 %
Strategic Bond Opportunities.................................................. 8.46% 11.07 % 2.04 % 1.44 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.85 %
Research Managers........................................................................................ 19.80 %
</TABLE>
The net investment return of a sub-account is calculated by taking the
difference between the sub-account's ending value and the beginning value for
the period and dividing it by the beginning value for the period.
161
FIDELITY(REGISTERED TRADEMARK) VARIABLE INSURANCE PRODUCTS:
HIGH INCOME PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 1999
(2_FIDELITY_LOGOS)(registered trademark)
CONTENTS
MARKET ENVIRONMENT 3 A review of what happened in
world markets during the
past 12 months.
PERFORMANCE AND INVESTMENT 4 How the fund has done over
SUMMARY time, and an overview of the
fund's investments at the
end of the period.
FUND TALK 5 The manager's review of fund
performance, strategy and
outlook.
INVESTMENTS 6 A complete list of the fund's
investments with their
market values.
FINANCIAL STATEMENTS 16 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.
NOTES 19 Notes to the financial
statements.
REPORT OF INDEPENDENT 22 The auditors' opinion.
ACCOUNTANTS
DISTRIBUTIONS 23
Standard & Poor's, S&P and S&P 500 are registered service marks of The
McGraw-Hill Companies, Inc. and have been licensed for use by
Fidelity Distributors Corporation.
Third party marks appearing herein are the property of their
respective owners.
All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.
This report is printed on recycled paper using soy-based inks.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE FUND'S
PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS
STATED ON THE COVER AND DO NOT NECESSARILY REPRESENT THE VIEWS OF
FIDELITY OR ANY OTHER PERSON IN THE FIDELITY ORGANIZATION. ANY SUCH
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER
CONDITIONS AND FIDELITY DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH
VIEWS. THESE VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND,
BECAUSE INVESTMENT DECISIONS FOR A FIDELITY FUND ARE BASED ON NUMEROUS
FACTORS, MAY NOT BE RELIED ON AS AN INDICATION OF TRADING INTENT ON
BEHALF OF ANY FIDELITY FUND.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND.
THIS REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR
ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT
INSURED BY THE FDIC, FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND
ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
MARKET ENVIRONMENT
Entering the final year of the 20th century, popular U.S. equity
market indexes had just posted an unprecedented four consecutive years
of double-digit annual returns, while domestic bonds also enjoyed
relatively strong increases. The international story entering 1999,
however, was less positive. In general - with the exception of
European issues - international equities and bonds were greatly
disappointing. Asian and Russian economies had fallen into disarray,
Japan was struggling to implement banking reforms, and emerging
markets were plagued by a host of currency devaluations, loan defaults
and dismal credit outlooks. So who would have thought, just one year
later, that Japan, Russia and emerging markets would be three of
1999's best-performing investments? U.S. equities also continued to
chug along in 1999, extending their indexes' streak of consecutive
double-digit annual increases to five. The stock market was not
without its problems, however. Extremely narrow market breadth,
soaring valuations and rising interest rates - not to mention Y2K -
left many investors unsettled about the prospects for equities
entering the new millennium. Domestic fixed-income alternatives,
meanwhile, fared poorly in 1999 relative to the year prior.
U.S. STOCK MARKETS
In a word, technology was the primary driver of equity market
performance in 1999. While telecommunications, particularly the
wireless segment of the industry, also performed well, nothing
dominated like technology. This incredibly narrow market breadth was
illustrated by the technology-laden NASDAQ Index. Its return of 86.12%
for the one-year period ending December 31, 1999, was the all-time
highest annual return for any major U.S. stock index. Broader indexes,
such as the Standard & Poor's 500SM, generated much lower returns, but
were still significantly affected by tech's presence. For example,
technology was responsible for approximately 70% of the S&P 500's
12-month return of 21.04%, the index's fifth consecutive annual gain
above 20%. The top 50 stocks in the S&P 500 - the so-called "Nifty
50," many of which were technology shares - accounted for 115% of its
total return. Meanwhile, the remaining 450 stocks fell 3.13%. The Dow
Jones Industrial Average - an index of 30 blue-chip stocks - posted a
27.13% return during the period, its fifth consecutive double-digit
annual return. Despite the strong numbers of these indexes, more
stocks fell than rose in 1999. Growth stocks continued to hammer their
value-oriented peers. But in a turnaround from previous years, mid-
and small-cap growth stocks performed better than their large-cap
brethren did. Conversely, mid-and small-cap value issues posted
negative overall returns in 1999.
FOREIGN STOCK MARKETS
Similar to the domestic equity markets, technology and - perhaps to an
even greater degree than in the U.S. - telecommunications led the
charge in the vastly improved international equity markets. The
recovery of the Japanese stock market in 1999 was nothing short of
remarkable. A renewed emphasis on corporate restructuring and
shareholder value - combined with the Japanese government's
willingness to create more of a free-enterprise market system - proved
wildly successful. For the period, the Morgan Stanley Capital
International Japan Index returned 61.53% and Japan's TOPIX Index was
up 75.89%. While Canadian equity markets didn't get nearly the
attention of their U.S. neighbors, their performance was a great deal
better than the broader American indexes, as the Toronto Stock
Exchange (TSE) 300 returned 39.34% for the 12-month period ending
December 31, 1999. Despite a strong surge in December, European
markets offered mixed results over the past 12 months. In that time,
the Morgan Stanley Capital International Europe Index posted a
relatively tame - at least, in comparison to other developed nations'
stock markets - one-year return of 16.16%.
U.S. BOND MARKETS
Fueled by robust economic growth and a tighter monetary policy,
interest rates moved sharply higher, causing most domestic bonds to
struggle throughout the 12-month period ending December 31, 1999. The
Lehman Brothers Aggregate Bond Index, a popular measure of
taxable-bond performance, fell 0.82% during the period. Treasury
prices had the toughest time of it, falling in response to three
quarter-point interest-rate hikes levied by the Federal Reserve Board,
which erased all of 1998's rate cuts. The Lehman Brothers Long-Term
Treasury Index plunged 8.74% in 1999. Nor were corporate bonds, as
measured by the Lehman Brothers Corporate Bond Index, immune from the
fixed-income fade during the year, falling 1.96%. Government agency
securities also fell into negative territory for the year, as the
Lehman Brothers U.S. Agency Index fell 0.94%. There were a few bright
spots, however. The high-yield market, as measured by the Merrill
Lynch High Yield Master II Index, returned 2.51% during the 12-month
period, while the Lehman Brothers Mortgage-Backed Securities Index was
up 1.86%.
FOREIGN BOND MARKETS
Emerging markets stood as one of the best-performing asset classes in
1999. For the 12-month period ending December 31, 1999, the JP Morgan
Emerging Markets Bond Index Plus was up 25.97%. A year ago, that same
index closed 1998 with a negative 14.35% annual return. A variety of
factors sparked their recovery, including rising commodity prices,
particularly oil; the continuation of a strong U.S. economy;
stable-to-lower interest rates; tame inflation; and greater political
stability. Russia was perhaps the year's biggest comeback story.
Devastated by its devaluation of the ruble and loan defaults in 1998,
Russia steadily demonstrated strong technical improvements that made
it the best-performing country in the index in 1999. Both Brazil and
Mexico enjoyed relatively low inflation and improved economies. Turkey
was the best-performing emerging-market country in December, as the
government's reform plans, IMF financial support, and the announcement
that it would be accepted in the European Union all boosted the
country's prospects. Elsewhere, outside of positive performing
Canadian and Japanese issues - beneficiaries of strong local
currencies - higher rates proved insurmountable for most non-U.S.
developed markets, which produced negative returns in local currency
terms. A markedly weak euro, coupled with firming supply pressures,
felled bond prices in Germany, France and Italy. The Salomon Brothers
Non-U.S. World Government Bond Index fell 5.07% in 1999.
FIDELITY VARIABLE INSURANCE PRODUCTS: HIGH INCOME PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). If Fidelity had not reimbursed certain fund
expenses, the past 10 year total returns would have been lower.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
1999
FIDELITY VIP: HIGH INCOME - 8.25% 10.90% 12.44%
"INITIAL CLASS"
ML High Yield Master II 2.51% 9.89% 11.21%
ML High Yield Master 1.57% 9.61% 10.79%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's returns to the performance of the Merrill
Lynch High Yield Master II Index - a market value-weighted index of
all domestic and yankee high-yield bonds, including deferred interest
bonds and payment-in-kind securities. You can also compare the fund's
returns to the performance of the Merrill Lynch High Yield Master
Index - a market value-weighted index of all domestic and yankee
high-yield bonds. Issues included in both benchmarks have maturities
of one year or more and have a credit rating lower than BBB-/Baa3, but
are not in default. These benchmarks reflect the reinvestment of
dividends and capital gains, if any.
Figures for more than one year assume a steady compounded rate of
return and are not the fund's year-by-year results, which fluctuated
over the periods shown.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S
SEPARATE ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF
THESE ADDITIONAL CHARGES, THE TOTAL RETURNS WOULD HAVE BEEN LOWER.
Past performance is no guarantee of future results. Principal and
investment return will vary and you may have a gain or loss when you
withdraw your money. The fund includes high yielding, lower-rated
securities which are subject to greater price volatility and may
involve greater risk of default. The market for these securities may
be less liquid.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of
how it will do tomorrow. Bond prices, for
example, generally move in the opposite direction
of interest rates. In turn, the share price, return and
yield of a fund that invests in bonds will vary.
That means if you sell your shares during a
market downturn, you might lose money. But if
you can ride out the market's ups and downs,
you may have a gain.
$10,000 OVER 10 YEARS
VIP HIGH INCOME ML HIGH YIELD MASTER II
00152 ML012
1989/12/31 10000.00 10000.00
1990/01/31 9778.95 9729.76
1990/02/28 9628.38 9582.73
1990/03/31 9526.79 9756.91
1990/04/30 9555.01 9824.08
1990/05/31 9751.34 9988.09
1990/06/30 9904.94 10241.74
1990/07/31 10057.94 10496.10
1990/08/31 9889.68 10016.04
1990/09/30 9655.18 9597.18
1990/10/31 9420.89 9322.82
1990/11/30 9641.86 9420.70
1990/12/31 9776.69 9563.84
1991/01/31 9984.11 9759.61
1991/02/28 10537.25 10606.29
1991/03/31 10910.62 11121.60
1991/04/30 11297.81 11515.92
1991/05/31 11463.75 11560.78
1991/06/30 11712.67 11816.17
1991/07/31 12155.18 12140.47
1991/08/31 12321.12 12416.66
1991/09/30 12597.68 12595.60
1991/10/31 13026.37 13023.03
1991/11/30 13136.99 13160.21
1991/12/31 13206.13 13310.10
1992/01/31 13911.38 13759.68
1992/02/29 14416.48 14103.59
1992/03/31 14882.50 14305.95
1992/04/30 14987.73 14380.10
1992/05/31 15168.12 14584.44
1992/06/30 15333.48 14760.84
1992/07/31 15634.14 15047.75
1992/08/31 15964.86 15239.40
1992/09/30 16130.22 15400.95
1992/10/31 15889.69 15198.59
1992/11/30 16085.12 15435.41
1992/12/31 16265.52 15631.89
1993/01/31 16701.47 15995.57
1993/02/28 16986.36 16281.69
1993/03/31 17378.35 16567.40
1993/04/30 17492.68 16681.09
1993/05/31 17754.01 16884.56
1993/06/30 18211.34 17213.15
1993/07/31 18391.00 17381.37
1993/08/31 18587.00 17544.91
1993/09/30 18652.33 17622.79
1993/10/31 19093.32 17949.08
1993/11/30 19272.99 18051.73
1993/12/31 19583.31 18241.55
1994/01/31 20236.63 18635.87
1994/02/28 20212.37 18506.39
1994/03/31 19531.46 17908.27
1994/04/30 19334.35 17685.51
1994/05/31 19370.19 17646.85
1994/06/30 19298.52 17727.51
1994/07/31 19370.19 17834.52
1994/08/31 19370.19 17975.91
1994/09/30 19513.54 17972.34
1994/10/31 19334.35 18019.74
1994/11/30 19173.08 17864.69
1994/12/31 19262.68 18052.92
1995/01/31 19477.70 18306.41
1995/02/28 20146.21 18893.17
1995/03/31 20397.07 19148.48
1995/04/30 20995.29 19633.62
1995/05/31 21535.61 20249.91
1995/06/30 21593.50 20386.07
1995/07/31 22114.52 20651.54
1995/08/31 22288.19 20759.91
1995/09/30 22654.84 21001.17
1995/10/31 22867.11 21178.68
1995/11/30 22982.89 21388.58
1995/12/31 23253.05 21746.94
1996/01/31 23793.37 22110.22
1996/02/29 24186.36 22177.78
1996/03/31 24122.82 22087.12
1996/04/30 24482.87 22118.08
1996/05/31 24821.73 22277.49
1996/06/30 24948.80 22366.25
1996/07/31 24864.09 22513.28
1996/08/31 25224.13 22787.88
1996/09/30 25965.39 23323.52
1996/10/31 25880.68 23525.96
1996/11/30 26156.00 23998.40
1996/12/31 26516.05 24197.90
1997/01/31 26876.09 24379.70
1997/02/28 27363.58 24754.49
1997/03/31 26513.50 24413.99
1997/04/30 26927.05 24727.02
1997/05/31 28052.84 25247.65
1997/06/30 28558.30 25637.85
1997/07/31 29592.19 26317.41
1997/08/31 29844.91 26285.73
1997/09/30 30901.78 26758.57
1997/10/31 30626.07 26895.20
1997/11/30 30855.83 27134.79
1997/12/31 31200.46 27408.05
1998/01/31 31912.69 27844.84
1998/02/28 32154.10 27957.65
1998/03/31 32827.21 28223.21
1998/04/30 32956.66 28344.43
1998/05/31 32723.66 28514.88
1998/06/30 32697.77 28662.15
1998/07/31 32878.99 28844.82
1998/08/31 28814.42 27388.76
1998/09/30 28529.64 27460.05
1998/10/31 27752.97 26867.49
1998/11/30 30031.20 28267.98
1998/12/31 29849.98 28217.33
1999/01/31 30730.20 28592.84
1999/02/28 30600.09 28403.58
1999/03/31 31370.80 28733.52
1999/04/30 32940.77 29259.23
1999/05/31 32055.88 28990.81
1999/06/30 32198.60 28918.97
1999/07/31 32084.42 28957.87
1999/08/31 31542.07 28651.91
1999/09/30 31056.81 28537.03
1999/10/31 30914.08 28382.14
1999/11/30 31570.62 28752.25
1999/12/31 32312.78 28925.80
IMATRL PRASUN SHR__CHT 19991231 20000126 132142 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Variable Insurance Products: High Income
Portfolio on December 31, 1989. As the chart shows, by December 31,
1999, the value of the investment would have grown to $32,313 - a
223.13% increase on the initial investment. For comparison, look at
how the Merrill Lynch High Yield Master II Index did over the same
period. With dividends and capital gains, if any, reinvested, the same
$10,000 investment would have grown to $28,926 - a 189.26% increase.
Going forward, the fund will compare its performance to that of the
Merrill Lynch High Yield Master II Index, rather than the Merrill
Lynch High Yield Master Index. The Merrill Lynch High Yield Master II
Index contains deferred interest bonds and payment-in-kind securities
and is therefore a better representation of the high yield bond
universe.
INVESTMENT SUMMARY
TOP FIVE HOLDINGS AS OF
DECEMBER 31, 1999
(BY ISSUER, EXCLUDING CASH % OF FUND'S NET ASSETS
EQUIVALENTS)
WinStar Communications, Inc. 4.2
Nextel Communications, Inc. 4.0
NEXTLINK Communications, Inc. 2.8
Allied Waste North America, 2.4
Inc.
CSC Holdings, Inc. 2.1
15.5
TOP FIVE MARKET SECTORS AS OF
DECEMBER 31, 1999
% OF FUND'S NET ASSETS
UTILITIES 32.2
MEDIA & LEISURE 22.3
TECHNOLOGY 7.9
BASIC INDUSTRIES 7.5
INDUSTRIAL MACHINERY & 4.6
EQUIPMENT
QUALITY DIVERSIFICATION AS OF
DECEMBER 31, 1999
(MOODY'S RATINGS) % OF FUND'S INVESTMENTS
Aaa, Aa, A 0.0
Baa 0.2
Ba 2.7
B 50.1
Caa, Ca, C 19.7
Not Rated 6.6
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS. UNRATED DEBT SECURITIES THAT ARE
EQUIVALENT TO BA AND BELOW AT DECEMBER 31, 1999 ACCOUNT FOR 6.6% OF
THE FUND'S INVESTMENTS.
PRIOR TO THIS REPORT, CERTAIN INFORMATION RELATED TO PORTFOLIO
HOLDINGS WAS STATED AS A PERCENTAGE OF THE FUND'S INVESTMENTS.
FIDELITY VARIABLE INSURANCE PRODUCTS: HIGH INCOME PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
(photograph of Barry Coffman)
An interview with
Barry Coffman,
Portfolio Manager
of High Income Portfolio
Q. HOW DID THE FUND PERFORM, BARRY?
A. For the 12-month period that ended December 31, 1999, the fund
significantly outpaced the 2.51% return of the Merrill Lynch High
Yield Master II Index.
Q. WHAT WAS THE INVESTING ENVIRONMENT LIKE DURING 1999?
A. Rising interest rates put pressure on nearly all bonds, although
high-yield securities held up reasonably well. The comparatively high
levels of income they provided helped cushion high-yield bonds against
price declines. In addition, the ongoing strength of the stock market
helped many companies with significant capital needs attract equity to
finance growth and/or de-leverage their balance sheets. That said,
this was the second year in a row that the high-yield market failed to
earn its coupon, which is unusual given how strong the economy has
been. In addition, the market was fairly volatile throughout the year,
resulting in a wide disparity of returns between the best and worst
performers. Companies that disappointed investors with
worse-than-expected results got severely punished.
Q. WHAT HELPED THE FUND TO OUTPACE THE MERRILL LYNCH HIGH YIELD MASTER
II INDEX DURING THE PAST 12 MONTHS?
A. The fund's large weighting - compared to the Merrill Lynch index -
in telecommunications companies was a major reason for its
outperformance. It was a particularly good year for companies that
provide wireless communications, including Nextel and Millicom. Nextel
continued to enjoy strong subscriber growth, raised a significant
amount of equity and received an upgrade from the rating agencies.
Millicom posted significant growth in its customer base despite
increased competition in some of the foreign markets it serves.
Elsewhere in the telecommunications industry, NEXTLINK, WinStar and
Intermedia also were strong performers. These competitive local
exchange carriers (CLECs) consistently demonstrated their ability to
add new customers at the expense of regional Bell operating companies
(RBOCs). Furthermore, NEXTLINK and WinStar attracted significant
private and public equity, which helped improve their respective
balance sheets and provided sufficient liquidity for the completion of
the build out of their networks.
Q. ASIDE FROM THE TELECOMMUNICATIONS SECTOR, WHICH OF THE FUND'S
HOLDINGS WERE STANDOUTS DURING THE PAST SIX MONTHS?
A. A wave of merger and acquisition activity helped boost the cable
sector, particularly the fund's holdings in U.K.-based companies NTL
and Telewest. As virtually the only two remaining players in the
British cable industry, both companies have added new customers by
offering an attractive combination of cable, telephony and Internet
service products.
Q. WHAT MADE NEXTEL AND WINSTAR - WHICH WERE THE FUND'S TWO LARGEST
HOLDINGS AT THE END OF THE PERIOD - SO ATTRACTIVE?
A. Nextel has a truly differentiated mobile wireless product combining
dispatch (walkie-talkie), conventional cellular and now Internet
access all in one sleek handset. In 1999, Nextel made substantial
gains in adding new subscribers. Furthermore, the company began to
generate meaningful cash flow and its credit rating was upgraded
twice. In another positive development, Nextel raised a significant
amount of capital in order to fund its growth plans. WinStar provides
voice and high-speed data services primarily to small- and mid-sized
businesses. The company received a significant investment from
Microsoft, which helped validate WinStar's business plan in the minds
of many investors.
Q. WHERE WERE THE DISAPPOINTMENTS DURING THE PAST 12 MONTHS?
A. CellNet Data, which provides wireless reading of utility meters,
was probably the biggest disappointment when the company was
unsuccessful in raising additional capital to fund its growth plans.
Another disappointment was supermarket chain Jitney-Jungle, which
filed for bankruptcy protection when it experienced increased
competitive and other pressures.
Q. WHAT FACTORS WILL SHAPE THE HIGH-YIELD MARKET'S PERFORMANCE IN
2000?
A. The strength of the economy and direction of interest rates will be
major factors in determining high-yield bond returns. I don't foresee
a U.S. recession over the near term. The future of interest rates is
less certain, although I take comfort from the fact that inflation has
remained in check so far. With an increasing percentage of the
high-yield market made up of high-growth companies, the strength of
the equity market also will be a significant factor. The default rate
- - which measures the amount of high-yield companies that are unwilling
or unable to honor their debt - rose to its highest level since the
recessionary period of 1989-90. In my view, the default rate should
decline in 2000, but the market is likely to remain volatile. As
frustrating as that may be, I believe that type of environment plays
to Fidelity's credit research strengths, providing many attractive
investment opportunities.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET OR OTHER CONDITIONS. FOR MORE INFORMATION, SEE PAGE 2.
(checkmark)FUND FACTS
GOAL: to seek high current income by investing
primarily in all types of income-producing debt
securities with an emphasis on lower-quality securities
START DATE: September 19, 1985
SIZE: as of December 31, 1999, more than
$2.5 billion
MANAGER: Barry Coffman, since 1990;
joined Fidelity in 1986
FIDELITY VARIABLE INSURANCE PRODUCTS: HIGH INCOME PORTFOLIO
INVESTMENTS DECEMBER 31, 1999
Showing Percentage of Net Assets
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS - 76.5%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
CONVERTIBLE BONDS - 0.8%
HEALTH - 0.4%
MEDICAL FACILITIES MANAGEMENT
- - 0.4%
Total Renal Care Holdings, B1 $ 14,680,000 $ 9,211,700
Inc. 7% 5/15/09 (f)
MEDIA & LEISURE - 0.4%
LODGING & GAMING - 0.4%
Signature Resorts, Inc. 5.75% Caa1 17,105,000 10,220,238
1/15/07
UTILITIES - 0.0%
TELEPHONE SERVICES - 0.0%
GST Telecommunications, Inc. - 630,000 567,000
0% 12/15/05 (d)(f)
TOTAL CONVERTIBLE BONDS 19,998,938
NONCONVERTIBLE BONDS - 75.7%
AEROSPACE & DEFENSE - 0.3%
SHIP BUILDING & REPAIR - 0.3%
Newport News Shipbuilding, B1 6,050,000 6,034,875
Inc. 9.25% 12/1/06
BASIC INDUSTRIES - 7.0%
CHEMICALS & PLASTICS - 3.9%
Acetex Corp. yankee 9.75% B3 2,000,000 1,810,000
10/1/03
General Chemical Industrial B3 5,350,000 5,296,500
Products, Inc. 10.625% 5/1/09
Huntsman Corp.:
9.5% 7/1/07 (f) B2 8,330,000 7,871,850
9.5% 7/1/07 (f) B2 34,830,000 32,914,350
Huntsman ICI Chemicals LLC B2 10,040,000 10,316,100
10.125% 7/1/09 (f)
Huntsman ICI Holdings LLC 0% B3 22,000,000 6,627,500
12/31/09 (f)
Lyondell Chemical Co.:
9.625% 5/1/07 Ba3 4,260,000 4,345,200
9.875% 5/1/07 Ba3 11,890,000 12,127,800
10.875% 5/1/09 B2 11,360,000 11,757,600
Zeneca Specialty Chemicals B2 5,260,000 5,444,100
PLC 11% 7/1/09 (f)
98,511,000
IRON & STEEL - 0.2%
Republic Tech International B3 8,370,000 5,524,200
LLC/RTI Capital Corp. 13.75%
7/15/09 unit (f)
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
METALS & MINING - 0.5%
Kaiser Aluminum & Chemical
Corp.:
9.875% 2/15/02 B1 $ 1,860,000 $ 1,836,750
12.75% 2/1/03 B3 6,398,000 6,398,000
Metals USA, Inc. 8.625% B2 4,305,000 4,035,938
2/15/08
12,270,688
PACKAGING & CONTAINERS - 1.1%
Gaylord Container Corp. Caa1 10,340,000 9,616,200
9.375% 6/15/07
Packaging Corp. of America B3 17,320,000 17,688,050
9.625% 4/1/09
27,304,250
PAPER & FOREST PRODUCTS - 1.3%
APP Finance II Mauritius Ltd. B3 10,205,000 6,735,300
12% 3/15/04
Container Corp. of America B2 1,690,000 1,740,700
gtd. 9.75% 4/1/03
Indah Kiat International Caa1 1,700,000 1,394,000
Finance Co. BV 12.5% 6/15/06
Millar Western Forest B3 13,115,000 13,115,000
Products Ltd. 9.875% 5/15/08
Repap New Brunswick, Inc. Caa1 8,970,000 8,274,825
yankee 10.625% 4/15/05
Stone Container Corp. 12.58% B2 1,150,000 1,224,750
8/1/16 (g)
32,484,575
TOTAL BASIC INDUSTRIES 176,094,713
CONSTRUCTION & REAL ESTATE -
1.7%
BUILDING MATERIALS - 0.4%
International Utility Caa1 9,200,000 7,544,000
Structures, Inc. 10.75%
2/1/08
Schuff Steel Co. 10.5% 6/1/08 B3 1,850,000 1,507,750
9,051,750
CONSTRUCTION - 0.2%
Del Webb Corp. 10.25% 2/15/10 B2 4,920,000 4,698,600
Great Lakes Dredge & Dock B3 240,000 250,800
Corp. 11.25% 8/15/08
4,949,400
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
CONSTRUCTION & REAL ESTATE -
CONTINUED
REAL ESTATE - 0.8%
LNR Property Corp.:
9.375% 3/15/08 B1 $ 14,395,000 $ 13,495,313
10.5% 1/15/09 B1 7,040,000 6,952,000
20,447,313
REAL ESTATE INVESTMENT TRUSTS
- - 0.3%
Ocwen Asset Investment Corp. - 9,880,000 8,398,000
11.5% 7/1/05
TOTAL CONSTRUCTION & REAL 42,846,463
ESTATE
DURABLES - 0.5%
AUTOS, TIRES, & ACCESSORIES -
0.4%
Tenneco, Inc. 11.625% B2 8,540,000 8,668,100
10/15/09 (f)
TEXTILES & APPAREL - 0.1%
Pillowtex Corp.:
9% 12/15/07 Ca 2,350,000 1,045,750
10% 11/15/06 Ca 1,370,000 609,650
Worldtex, Inc. 9.625% 12/15/07 B1 2,315,000 1,875,150
3,530,550
TOTAL DURABLES 12,198,650
ENERGY - 2.3%
COAL - 0.4%
P&L Coal Holdings Corp. B2 10,210,000 9,954,750
9.625% 5/15/08
ENERGY SERVICES - 0.1%
RBF Finance Co. 11.375% Ba3 3,120,000 3,354,000
3/15/09
OIL & GAS - 1.8%
Belden & Blake Corp. 9.875% Caa3 2,155,000 1,055,950
6/15/07
Chesapeake Energy Corp.:
7.875% 3/15/04 B3 1,610,000 1,420,825
8.5% 3/15/12 B3 840,000 701,400
9.125% 4/15/06 B3 2,250,000 2,047,500
9.625% 5/1/05 B3 13,256,000 12,526,920
Great Lakes Carbon Corp.:
0% 5/15/09 (d) Caa1 15,215,000 8,063,950
10.25% 5/15/08 pay-in-kind B3 10,330,000 9,710,200
Plains Resources, Inc.:
Series B 10.25% 3/15/06 B2 5,860,000 5,713,500
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Series D, 10.25% 3/15/06 B2 $ 2,770,000 $ 2,700,750
Seven Seas Petroleum, Inc. Caa1 2,130,000 852,000
12.5% 5/15/05
44,792,995
TOTAL ENERGY 58,101,745
FINANCE - 2.7%
CREDIT & OTHER FINANCE - 2.7%
Ameriserve Finance B2 15,390,000 12,619,800
Trust/Ameriserve Capital
Corp. 12% 9/15/06 (f)
AMRESCO, Inc.:
9.875% 3/15/05 Caa3 10,130,000 6,736,450
10% 3/15/04 Caa3 1,824,000 1,185,600
Arcadia Financial Ltd. 11.5% B3 2,340,000 2,433,600
3/15/07
Dobson/Sygnet Communications - 4,170,000 4,587,000
Co. 12.25% 12/15/08
Imperial Credit Capital Trust B2 4,870,000 3,798,600
I 10.25% 6/14/02
Imperial Credit Industries B3 17,470,000 12,927,800
9.875% 1/15/07
Macsaver Financial Services,
Inc.:
7.4% 2/15/02 Ba2 2,720,000 1,632,000
7.6% 8/1/07 Ba2 3,892,000 2,140,600
7.875% 8/1/03 Ba2 6,900,000 3,933,000
Metris Companies, Inc. 10% Ba3 100,000 95,000
11/1/04
MFN Financial Corp. 10% - 10,000,000 9,400,000
3/23/01
PX Escrow Corp. 0% 2/1/06 (d) B3 3,190,000 1,531,200
WinStar Equipment II Corp. CCC+ 3,370,000 3,538,500
12.5% 3/15/04
66,559,150
SECURITIES INDUSTRY - 0.0%
ECM Corp. LP 14% 6/10/02 (f) - 16,948 16,609
TOTAL FINANCE 66,575,759
HEALTH - 2.8%
DRUGS & PHARMACEUTICALS - 0.2%
Global Health Sciences, Inc. Caa1 10,080,000 6,048,000
11% 5/1/08
MEDICAL EQUIPMENT & SUPPLIES
- - 0.8%
Wright Medical Technology, Caa3 18,650,000 20,794,750
Inc. 11.75% 7/1/00 (c)(g)
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
HEALTH - CONTINUED
MEDICAL FACILITIES MANAGEMENT
- - 1.8%
Fountain View, Inc. 11.25% Caa1 $ 7,330,000 $ 5,570,800
4/15/08
Harborside Healthcare Corp. B3 10,250,000 3,280,000
0% 8/1/08 (d)
Mariner Post-Acute Network, B3 11,630,000 697,800
Inc. 9.5% 11/1/07 (c)
Oxford Health Plans, Inc. 11% Caa1 14,465,000 14,031,050
5/15/05
Tenet Healthcare Corp.:
7.875% 1/15/03 Ba1 5,040,000 4,939,200
8.125% 12/1/08 Ba3 10,710,000 9,987,075
Unilab Corp. 12.75% 10/1/09 B3 5,410,000 5,599,350
(f)
44,105,275
TOTAL HEALTH 70,948,025
INDUSTRIAL MACHINERY &
EQUIPMENT - 3.9%
ELECTRICAL EQUIPMENT - 0.5%
Motors & Gears, Inc. 10.75% B3 9,170,000 8,894,900
11/15/06
Telex Communications, Inc. B2 7,490,000 4,643,800
10.5% 5/1/07
13,538,700
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.7%
Dunlop Standard Aero Holdings B3 1,450,000 1,493,500
PLC 11.875% 5/15/09
Thermadyne Holdings Corp. 0% Caa1 11,470,000 5,218,850
6/1/08 (d)
Thermadyne Manufacturing LLC B3 4,470,000 3,710,100
9.875% 6/1/08
Tokheim Corp. 11.375% 8/1/08 B3 10,350,000 6,054,750
16,477,200
POLLUTION CONTROL - 2.7%
Allied Waste North America, B2 67,180,000 59,790,193
Inc. 10% 8/1/09 (f)
Envirosource, Inc.:
Series B, 9.75% 6/15/03 Caa3 4,900,000 3,087,000
9.75% 6/15/03 Caa3 9,496,000 5,982,480
68,859,673
TOTAL INDUSTRIAL MACHINERY & 98,875,573
EQUIPMENT
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
MEDIA & LEISURE - 18.4%
BROADCASTING - 12.9%
Adelphia Communications Corp.:
7.75% 1/15/09 B1 $ 7,000,000 $ 6,247,500
9.875% 3/1/05 B1 5,000,000 5,087,500
Ascent Entertainment Group, B3 12,445,000 9,271,525
Inc. 0% 12/15/04 (d)
Benedek Communications Corp. B3 5,000,000 4,500,000
0% 5/15/06 (d)
Century Communications Corp. B1 7,380,000 7,140,150
8.875% 1/15/07
Charter Communications
Holdings LLC/Charter
Communications Holdings
Capital Corp.:
0% 4/1/11 (d) B2 8,780,000 5,136,300
8.625% 4/1/09 B2 23,250,000 21,506,250
Diamond Cable Communications
PLC:
0% 2/15/07 (d) B3 11,561,000 9,451,118
yankee 0% 12/15/05 (d) B3 9,875,000 9,282,500
Earthwatch, Inc. 0% 7/15/07 - 16,560,000 11,592,000
unit (d)(f)
EchoStar DBS Corp. 9.375% B2 15,700,000 15,739,250
2/1/09
FrontierVision Holdings B1 210,000 184,800
LP/FrontierVision Holdings
Capital Corp. 0% 9/15/07 (d)
Golden Sky DBS, Inc. 0% Caa1 10,640,000 6,437,200
3/1/07 (d)
International Cabletel, Inc. B3 40,484,000 36,536,810
0% 2/1/06 (d)
LIN Holdings Corp. 0% 3/1/08 B3 11,678,000 7,882,650
(d)
NTL Communications Corp. B3 14,080,000 15,241,600
11.5% 10/1/08
NTL, Inc. 0% 4/1/08 (d) B3 12,185,000 8,407,650
Olympus Communications B1 7,585,000 7,926,325
LP/Olympus Capital Corp.
10.625% 11/15/06
Satelites Mexicanos SA de CV:
0% 6/30/04 (f)(g) B1 13,229,000 12,170,680
10.125% 11/1/04 B3 25,420,000 17,794,000
Spectrasite Holdings, Inc. 0% - 8,670,000 4,595,100
4/15/09 (d)
Telemundo Holdings, Inc. 0% Caa1 2,190,000 1,324,950
8/15/08 (d)
Telewest PLC 0% 10/1/07 (d) B1 31,492,000 29,130,100
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
UIH Australia/Pacific, Inc.:
Series B 0% 5/15/06 (d) B2 $ 34,210,000 $ 28,736,400
Series D 0% 5/15/06 (d) B2 5,520,000 4,636,800
United International B3 45,375,000 28,359,375
Holdings, Inc. 0% 2/15/08
(d)
United Pan-Europe B2 9,710,000 9,855,650
Communications NV 10.875%
8/1/09
324,174,183
ENTERTAINMENT - 2.1%
AMC Entertainment, Inc.:
9.5% 3/15/09 B3 4,910,000 4,333,075
9.5% 2/1/11 B3 690,000 602,025
Cinemark USA, Inc.:
8.5% 8/1/08 B2 2,000,000 1,750,000
9.625% 8/1/08 B2 7,360,000 6,771,200
Hollywood Entertainment Corp. B3 10,690,000 9,888,250
10.625% 8/15/04
Premier Parks, Inc. 0% B3 15,440,000 10,499,200
4/1/08 (d)
Regal Cinemas, Inc.:
8.875% 12/15/10 Caa1 2,660,000 1,988,350
9.5% 6/1/08 Caa1 22,040,000 17,411,600
53,243,700
LEISURE DURABLES & TOYS - 0.3%
Marvel Enterprises, Inc. 12% - 8,750,000 8,137,500
6/15/09
LODGING & GAMING - 2.3%
Florida Panthers Holdings, B2 8,750,000 8,487,500
Inc. 9.875% 4/15/09
Hollywood Casino Corp. 11.25% B3 1,210,000 1,261,425
5/1/07
Horseshoe Gaming LLC 8.625% B2 7,300,000 7,026,250
5/15/09
KSL Recreation Group, Inc. B3 8,280,000 8,114,400
10.25% 5/1/07
Signature Resorts, Inc.:
9.25% 5/15/06 B2 12,280,000 11,481,800
9.75% 10/1/07 B3 23,950,000 20,597,000
56,968,375
PUBLISHING - 0.2%
Garden State Newspapers, Inc. B1 4,000,000 3,770,000
Series B, 8.75% 10/1/09
RESTAURANTS - 0.6%
AFC Enterprises, Inc. 10.25% B3 9,890,000 9,939,450
5/15/07
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
CKE Restaurants, Inc. 9.125% B2 $ 4,250,000 $ 3,187,500
5/1/09
NE Restaurant, Inc. 10.75% B3 3,120,000 2,769,000
7/15/08
15,895,950
TOTAL MEDIA & LEISURE 462,189,708
NONDURABLES - 0.7%
FOODS - 0.3%
International Home Foods, B2 7,150,000 7,418,125
Inc. 10.375% 11/1/06
HOUSEHOLD PRODUCTS - 0.4%
AKI Holding Corp. 0% 7/1/09 Caa1 9,120,000 4,240,800
(d)
AKI, Inc. 10.5% 7/1/08 B2 6,960,000 6,264,000
10,504,800
TOTAL NONDURABLES 17,922,925
RETAIL & WHOLESALE - 1.9%
APPAREL STORES - 1.1%
Mothers Work, Inc. 12.625% B3 7,440,000 7,495,800
8/1/05
Specialty Retailers, Inc.:
8.5% 7/15/05 B1 18,870,000 13,963,800
9% 7/15/07 B3 9,850,000 5,614,500
27,074,100
GROCERY STORES - 0.8%
Ameriserve Food Distribution,
Inc.:
8.875% 10/15/06 B3 8,005,000 4,482,800
10.125% 7/15/07 Caa1 8,920,000 2,943,600
Jitney-Jungle Stores of
America, Inc.:
10.375% 9/15/07 (c) C 9,685,000 48,425
12% 3/1/06 (c) Caa3 2,590,000 621,600
Pathmark Stores, Inc. 9.625% Caa3 7,305,000 5,478,750
5/1/03
Pueblo Xtra International,
Inc.:
Series C, 9.5% 8/1/03 B3 4,590,000 2,754,000
9.5% 8/1/03 B3 6,260,000 3,756,000
20,085,175
RETAIL & WHOLESALE,
MISCELLANEOUS - 0.0%
Finlay Enterprises, Inc. 9% B2 1,000,000 920,000
5/1/08
TOTAL RETAIL & WHOLESALE 48,079,275
SERVICES - 2.5%
LEASING & RENTAL - 0.2%
Rent-A-Center, Inc. 11% B2 6,230,000 6,401,325
8/15/08
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
SERVICES - CONTINUED
PRINTING - 1.1%
Sullivan Graphics, Inc. Caa1 $ 21,340,000 $ 22,246,950
12.75% 8/1/05
World Color Press, Inc. 7.75% Baa3 5,090,000 4,848,225
2/15/09
27,095,175
SERVICES - 1.2%
AP Holdings, Inc. 0% 3/15/08 Caa2 2,470,000 988,000
(d)
Apcoa, Inc. 9.25% 3/15/08 Caa1 15,140,000 10,598,000
Medaphis Corp. 9.5% 2/15/05 Caa1 13,713,000 10,559,010
SITEL Corp. 9.25% 3/15/06 B3 2,890,000 2,716,600
Spin Cycle, Inc. 0% 5/1/05 - 25,335,000 5,067,000
(d)
29,928,610
TOTAL SERVICES 63,425,110
TECHNOLOGY - 6.9%
COMPUTER SERVICES & SOFTWARE
- - 3.2%
Concentric Network Corp. B- 12,760,000 13,398,000
12.75% 12/15/07
Covad Communications Group,
Inc.:
0% 3/15/08 (d) B3 14,660,000 9,199,150
12.5% 2/15/09 B3 10,734,000 11,109,690
DecisionOne Corp. 9.75% B3 7,220,000 27,075
8/1/07 (c)
Exodus Communications, Inc. B- 12,510,000 12,728,925
10.75% 12/15/09 (f)
PSINet, Inc.:
10% 2/15/05 B3 5,215,000 5,169,369
10.5% 12/1/06 (f) B3 6,010,000 6,085,125
11% 8/1/09 B3 9,400,000 9,658,500
11.5% 11/1/08 B3 5,500,000 5,775,000
Verio, Inc.:
10.625% 11/15/09 (f) B3 5,880,000 5,997,600
11.25% 12/1/08 B3 1,840,000 1,922,800
81,071,234
ELECTRONIC INSTRUMENTS - 0.7%
Telecommunications Techniques B3 19,385,000 17,640,350
Co. LLC 9.75% 5/15/08
ELECTRONICS - 3.0%
ChipPAC International Ltd. B3 5,670,000 5,953,500
12.75% 8/1/09 (f)
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Communications Instruments, B3 $ 3,910,000 $ 3,245,300
Inc. 10% 9/15/04
Details, Inc. 10% 11/15/05 B3 530,000 487,600
Fairchild Semiconductor Corp.:
10.125% 3/15/07 B3 1,370,000 1,383,700
10.375% 10/1/07 B3 13,050,000 13,311,000
Hadco Corp. 9.5% 6/15/08 B2 12,835,000 12,449,950
Insilco Corp. 12% 8/15/07 B3 7,380,000 7,232,400
Intersil Corp. 13.25% B3 9,470,000 10,322,300
8/15/09 (f)
Micron Technology, Inc. 6.5% B3 10,000,000 7,975,000
9/30/05 (h)
SCG Holding B2 10,590,000 11,251,875
Corp./Semiconductor
Components Industries LLC
12% 8/1/09 (f)
73,612,625
TOTAL TECHNOLOGY 172,324,209
TRANSPORTATION - 0.7%
AIR TRANSPORTATION - 0.6%
Atlas Air, Inc. 10.75% 8/1/05 B2 7,000,000 7,105,000
Kitty Hawk, Inc. 9.95% B1 8,459,000 8,353,263
11/15/04
15,458,263
SHIPPING - 0.1%
Holt Group, Inc. 9.75% 1/15/06 Caa1 3,610,000 2,346,500
TOTAL TRANSPORTATION 17,804,763
UTILITIES - 23.4%
CELLULAR - 9.3%
Cellnet Data Systems, Inc.:
0% 10/1/07 (d) - 69,670,000 7,663,700
15% 1/7/00 (h) - 2,854,000 2,854,000
Clearnet Communications, Inc. B3 2,140,000 2,102,550
yankee 0% 12/15/05 (d)
McCaw International Ltd. 0% Caa1 45,885,000 32,119,500
4/15/07 (d)
Metrocall, Inc.:
10.375% 10/1/07 B3 6,790,000 4,040,050
11% 9/15/08 B3 3,410,000 2,080,100
Millicom International Caa1 52,300,000 43,278,250
Cellular SA 0% 6/1/06 (d)
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
UTILITIES - CONTINUED
CELLULAR - CONTINUED
Nextel Communications, Inc. B1 $ 18,390,000 $ 18,091,163
9.375% 11/15/09 (f)
Nextel International, Inc. 0% Caa1 28,900,000 17,195,500
4/15/08 (d)
Orbital Imaging Corp.:
11.625% 3/1/05 CCC+ 14,975,000 10,108,125
Orion Network Systems, Inc.:
0% 1/15/07 (d) B2 12,460,000 5,793,900
11.25% 1/15/07 B2 5,350,000 4,012,500
PageMart Nationwide, Inc. 0% B3 17,880,000 15,913,200
2/1/05 (d)
PageMart Wireless, Inc. 0% Caa2 23,020,000 8,287,200
2/1/08 (d)
TeleCorp PCS, Inc. 0% B3 8,980,000 5,657,400
4/15/09 (d)
Telesystem International
Wireless, Inc.:
0% 6/30/07 (d) Caa1 18,940,000 12,121,600
0% 11/1/07 (d) Caa1 23,800,000 13,090,000
Triton PCS, Inc. 0% 5/1/08 B3 9,730,000 6,883,975
(d)
US Unwired, Inc. 0% 11/1/09 Caa1 11,400,000 6,669,000
(d)(f)
Voicestream Wireless B2 14,720,000 15,161,600
Corp./Voicestream Wireless
Holding Co. 10.375% 11/15/09
(f)
233,123,313
TELEPHONE SERVICES - 14.1%
Allegiance Telecom, Inc. 0% B3 3,030,000 2,181,600
2/15/08 (d)
Call-Net Enterprises, Inc. B2 5,000,000 4,100,000
9.375% 5/15/09
e.spire Communications, Inc.:
0% 11/1/05 (d) - 4,750,000 2,588,750
0% 4/1/06 (d) - 7,070,000 2,545,200
0% 7/1/08 (d) - 13,880,000 4,858,000
13.75% 7/15/07 - 1,420,000 994,000
Global Crossing Holdings Ltd. Ba2 10,000,000 9,887,500
9.5% 11/15/09 (f)
GST Network Funding, Inc. 0% - 15,570,000 7,629,300
5/1/08 (d)
GST Equipment Funding, Inc. - 4,300,000 4,149,500
13.25% 5/1/07
GST Telecommunications, Inc. - 18,870,000 17,737,800
12.75% 11/15/07
GST USA, Inc. 0% 12/15/05 (d) - 11,680,000 8,701,600
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
ICG Holdings, Inc. 0% B3 $ 24,020,000 $ 20,957,450
9/15/05 (d)
ICG Services, Inc.:
0% 2/15/08 (d) B3 37,500,000 19,593,750
0% 5/1/08 (d) B3 2,950,000 1,511,875
Intermedia Communications,
Inc.:
0% 3/1/09 (d) B3 24,640,000 14,722,400
8.875% 11/1/07 B2 7,255,000 6,765,288
KMC Telecom Holdings, Inc.:
0% 2/15/08 (d) Caa2 19,400,000 10,476,000
13.5% 5/15/09 Caa2 7,200,000 7,128,000
Logix Communications - 10,910,000 7,637,000
Enterprises, Inc. 12.25%
6/15/08
Metromedia Fiber Network, Inc.:
10% 11/15/08 B2 15,280,000 15,585,600
10% 12/15/09 B2 5,640,000 5,752,800
NEXTLINK Communications, Inc.:
0% 12/1/09 (d)(f) B2 3,010,000 1,760,850
10.75% 11/15/08 B3 340,000 350,200
10.75% 6/1/09 B2 10,690,000 11,010,700
Optel Communications Corp. - 13,867,500 13,000,781
15% 12/29/04 (h)
Pathnet, Inc. 12.25% 4/15/08 - 18,040,000 11,545,600
Rhythms NetConnections, Inc.:
0% 5/15/08 (d) B3 23,485,000 12,681,900
12.75% 4/15/09 B3 7,480,000 7,255,600
Teligent, Inc.:
0% 3/1/08 (d) Caa1 15,950,000 9,370,625
11.5% 12/1/07 Caa1 7,825,000 7,629,375
WinStar Communications, Inc.:
0% 10/15/05 (d) Caa1 19,660,000 18,480,400
0% 10/15/05 (d) Caa1 30,160,000 45,843,200
0% 3/15/08 (d) CCC 17,585,000 17,936,700
10% 3/15/08 CCC 14,750,000 14,160,000
15% 3/1/07 CCC 2,790,000 3,961,800
WinStar Equipment Corp. 12.5% B3 4,255,000 4,552,850
3/15/04
355,043,994
TOTAL UTILITIES 588,167,307
TOTAL NONCONVERTIBLE BONDS 1,901,589,100
TOTAL CORPORATE BONDS 1,921,588,038
(Cost $2,097,920,713)
ASSET-BACKED SECURITIES - 0.1%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Airplanes pass through trust Ba2 $ 2,920,000 $ 2,394,400
10.875% 3/15/19 (Cost
$3,231,600)
COMMERCIAL MORTGAGE
SECURITIES - 0.9%
Commercial Mortgage BB+ 4,500,000 2,680,313
Acceptance Corp. pass
through certificates Series
1998-C2 Class F, 5.44%
5/15/13 (f)(g)
Commercial Mortgage Asset Ba1 4,750,000 2,849,258
Trust pass through
certificates Series 1999-C1
Class F, 6.25% 11/17/13 (f)
LB Multifamily Mortgage Trust Caa1 2,661,665 2,129,333
Series 1991-4 Class A1,
7.1377% 4/25/21 (g)
Meritor Mortgage Security - 1,350,000 116,505
Corp. Series 1987 1 Class B,
9.4% 2/1/00 (f)(i)
Mortgage Capital Funding, Ba1 4,500,000 3,507,795
Inc. Series 1998-MC3 Class
F, 7.5008% 11/18/31 (f)(g)
Nationslink Funding Corp. BB 4,500,000 3,231,563
Commercial Mortgage pass
through certificates Series
1998-2 Class F, 7.105%
8/20/30
Nomura Depositor Trust Series - 4,000,000 3,666,250
1998-ST1A Class B1A,
8.1938% 1/15/03 (f)(g)
Structured Asset Securities
Corp.:
Series 1994-C1 Class F, 6.87% B 2,600,000 2,056,742
8/25/26
Series 1995-C1 Class F, - 2,000,000 1,546,641
7.375% 9/25/24 (f)
TOTAL COMMERCIAL MORTGAGE 21,784,400
SECURITIES
(Cost $22,131,174)
</TABLE>
COMMON STOCKS - 3.9%
SHARES
BASIC INDUSTRIES - 0.2%
CHEMICALS & PLASTICS - 0.0%
Sterling Chemicals Holdings, 340 5,100
Inc. warrants 8/15/08 (a)
SHARES VALUE (NOTE 1)
IRON & STEEL - 0.2%
AK Steel Holding Corp. 205,500 $ 3,878,813
TOTAL BASIC INDUSTRIES 3,883,913
CONSTRUCTION & REAL ESTATE -
0.3%
BUILDING MATERIALS - 0.1%
International Utility 2,500 1,925,000
Structures, Inc. unit
REAL ESTATE - 0.2%
LNR Property Corp. 287,100 5,706,113
REAL ESTATE INVESTMENT TRUSTS
- - 0.0%
Swerdlow Real Estate Group,
Inc.:
Class A (h) 79,800 11,132
Class B (h) 19,817 2,760
13,892
TOTAL CONSTRUCTION & REAL 7,645,005
ESTATE
DURABLES - 0.6%
TEXTILES & APPAREL - 0.6%
Arena Brands Holdings Corp. 48,889 1,222,225
Class B
Polymer Group, Inc. 426,300 7,779,975
WestPoint Stevens, Inc. Class 300,000 5,250,000
A
14,252,200
ENERGY - 0.4%
OIL & GAS - 0.4%
Chesapeake Energy Corp. (a) 185,400 440,325
Plains Resources, Inc. (a) 811,500 10,143,750
10,584,075
FINANCE - 0.0%
CREDIT & OTHER FINANCE - 0.0%
Arcadia Financial Ltd. 498 5
warrants 3/15/07 (a)
SECURITIES INDUSTRY - 0.0%
ECM Corp. LP (f) 3,000 264,000
TOTAL FINANCE 264,005
HEALTH - 0.3%
MEDICAL EQUIPMENT & SUPPLIES
- - 0.0%
Wright Medical Technology, 3,212 32
Inc. warrants 6/30/03 (a)
MEDICAL FACILITIES MANAGEMENT
- - 0.3%
Express Scripts, Inc. Class A 80,800 5,171,200
(a)
Oxford Health Plans, Inc. (a) 200,000 2,537,500
7,708,700
TOTAL HEALTH 7,708,732
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.7%
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.0%
Tenneco Automotive, Inc. 100,000 931,250
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
INDUSTRIAL MACHINERY &
EQUIPMENT - CONTINUED
POLLUTION CONTROL - 0.7%
Allied Waste Industries, Inc. 2,015,000 $ 17,757,188
(a)
TOTAL INDUSTRIAL MACHINERY & 18,688,438
EQUIPMENT
MEDIA & LEISURE - 0.8%
BROADCASTING - 0.1%
Benedek Communications Corp. 57,600 115,200
warrants 7/1/07 (a)
CS Wireless Systems, Inc. 1,024 10
(a)(f)
NTL, Inc. warrants 10/14/08 23,146 1,157,300
(a)
Teletrac Holdings, Inc. 3,940 4
warrants 8/1/07 (a)
UIH Australia/Pacific, Inc. 26,805 804,150
warrants 5/15/06 (a)
2,076,664
ENTERTAINMENT - 0.0%
Alliance Gaming Corp. (a)(h) 2,028 5,704
LODGING & GAMING - 0.7%
Motels of America, Inc. (a) 3,000 54,000
Sunterra Corp. (a) 1,497,400 17,220,100
17,274,100
TOTAL MEDIA & LEISURE 19,356,468
RETAIL & WHOLESALE - 0.1%
APPAREL STORES - 0.1%
Mothers Work, Inc. (a)(e) 299,100 3,477,038
Mothers Work, Inc. (a)(h) 2,952 34,317
3,511,355
SERVICES - 0.0%
Spin Cycle, Inc. warrants 25,335 253
5/1/05 (a)(f)
TECHNOLOGY - 0.1%
COMPUTERS & OFFICE EQUIPMENT
- - 0.0%
Ampex Corp. Class A (a) 11,930 64,869
ELECTRONICS - 0.1%
Insilco Corp. warrants 7,380 74
8/15/07 (a)
Intersil Holding Corp. 9,470 1,330,535
warrants 8/15/09 (a)(f)
1,330,609
TOTAL TECHNOLOGY 1,395,478
TRANSPORTATION - 0.1%
AIR TRANSPORTATION - 0.1%
Kitty Hawk, Inc. (a) 341,900 2,350,563
SHARES VALUE (NOTE 1)
UTILITIES - 0.3%
CELLULAR - 0.0%
Cellnet Data Systems, Inc. 18,000 $ 4,500
warrants 10/1/07 (a)(f)
Loral Orion Network Systems,
Inc.:
warrants 1/15/07 (CV ratio 45,930 321,510
.47) (a)
warrants 1/15/07 (CV ratio 5,585 50,265
.6) (a)
McCaw International Ltd. 42,305 95,186
warrants 4/16/07 (a)(f)
Orbital Imaging Corp. 3,685 55,275
warrants 3/1/05 (a)(f)
526,736
TELEPHONE SERVICES - 0.3%
KMC Telecom Holdings, Inc. 12,650 31,625
warrants 4/15/08 (a)(f)
Optel Communications Corp. 2,559,515 6,718,727
warrants 12/29/04 (a)(h)
Pathnet, Inc. warrants 18,040 180,400
4/15/08 (a)(f)
6,930,752
TOTAL UTILITIES 7,457,488
TOTAL COMMON STOCKS 97,097,973
(Cost $110,534,475)
PREFERRED STOCKS - 14.2%
CONVERTIBLE PREFERRED STOCKS
- - 0.4%
BASIC INDUSTRIES - 0.2%
CHEMICALS & PLASTICS - 0.2%
Sealed Air Corp. Series A, 64,000 3,232,000
$2.00
ENERGY - 0.2%
OIL & GAS - 0.2%
Chesapeake Energy Corp. $3.50 212,500 5,498,438
TOTAL CONVERTIBLE PREFERRED 8,730,438
STOCKS
NONCONVERTIBLE PREFERRED
STOCKS - 13.8%
BASIC INDUSTRIES - 0.1%
PACKAGING & CONTAINERS - 0.1%
Packaging Corp. of America 21,384 2,341,548
12.375% pay-in-kind
CONSTRUCTION & REAL ESTATE -
0.3%
BUILDING MATERIALS - 0.0%
International Utility 517 403,260
Structures, Inc. 13%
pay-in-kind (f)
REAL ESTATE INVESTMENT TRUSTS
- - 0.3%
Swerdlow Real Estate Group,
Inc.:
junior (h) 19,817 2,760
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONCONVERTIBLE PREFERRED
STOCKS - CONTINUED
CONSTRUCTION & REAL ESTATE -
CONTINUED
REAL ESTATE INVESTMENT TRUSTS
- - CONTINUED
Swerdlow Real Estate Group,
Inc.: - continued
mezzanine (h) 79,800 $ 78,520
senior (h) 79,800 7,618,828
7,700,108
TOTAL CONSTRUCTION & REAL 8,103,368
ESTATE
ENERGY - 0.5%
ENERGY SERVICES - 0.5%
R&B Falcon Corp. 13.875% 12,749 13,450,195
FINANCE - 0.3%
INSURANCE - 0.3%
American Annuity Group 8,910 7,978,528
Capital Trust II 8.875%
HEALTH - 0.5%
MEDICAL FACILITIES MANAGEMENT
- - 0.5%
Fresenius Medical Care 10,524 9,964,586
Capital Trust II 7.875%
Harborside Healthcare Corp. 4,724 1,275,480
13.50% pay-in-kind
11,240,066
MEDIA & LEISURE - 2.7%
BROADCASTING - 2.7%
Citadel Broadcasting Co. 50,962 5,682,263
Series B, 13.25% pay-in-kind
CSC Holdings, Inc.:
11.125% pay-in-kind 288,141 31,479,404
Series H, 11.75% pay-in-kind 188,805 20,768,550
Granite Broadcasting Corp. 9,902 10,100,040
12.75% pay-in-kind
68,030,257
TECHNOLOGY - 0.9%
COMPUTER SERVICES & SOFTWARE
- - 0.9%
Concentric Network Corp. 22,684 22,684,000
13.5% pay-in-kind
COMPUTERS & OFFICE EQUIPMENT
- - 0.0%
Ampex Corp. 8% non-cumulative 446 695,760
TOTAL TECHNOLOGY 23,379,760
UTILITIES - 8.5%
CELLULAR - 3.3%
Nextel Communications, Inc.:
11.125% pay-in-kind 44,665 44,888,325
Series D, 13% pay-in-kind 35,258 37,902,350
82,790,675
SHARES VALUE (NOTE 1)
TELEPHONE SERVICES - 5.2%
e.spire Communications, Inc.:
$127.50 pay-in-kind 18,043 $ 3,157,525
14.75% pay-in-kind 4,208 799,520
ICG Holdings, Inc. 14.25% 25,073 22,816,430
pay-in-kind
Intermedia Communications, 29,355 28,621,125
Inc. 13.5% pay-in-kind
IXC Communications, Inc. 9,157 10,026,915
12.5% pay-in-kind
NEXTLINK Communications, Inc. 1,050,656 56,735,424
14% pay-in-kind
WinStar Communications, Inc. 7,810 7,731,900
14.25% (a)
129,888,839
TOTAL UTILITIES 212,679,514
TOTAL NONCONVERTIBLE 347,203,236
PREFERRED STOCKS
TOTAL PREFERRED STOCKS 355,933,674
(Cost $372,357,336)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PURCHASED BANK DEBT - 0.8%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT
Lyondell Chemical Co. sr. - $ 10,905,062 11,109,533
secured Tranche E term loan
9.9788% 5/17/06 (g)
Oxford Health Plans, Inc. sr. B3 7,000,000 7,000,000
secured term loan 9.335%
5/13/03 (g)
Synthetic Industries, Inc. - 3,600,000 3,564,000
term loan 13% 12/13/00 (g)
TOTAL PURCHASED BANK DEBT 21,673,533
(Cost $21,489,519)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CASH EQUIVALENTS - 2.3%
MATURITY AMOUNT
Investments in repurchase $ 59,195,669 59,179,000
agreements (U.S. Treasury
obligations), in a joint
trading account at 3.38%,
dated 12/31/99 due 1/3/00
(Cost $59,179,000)
TOTAL INVESTMENT PORTFOLIO - 2,479,651,018
98.7%
(Cost $2,686,843,817)
NET OTHER ASSETS - 1.3% 31,930,482
NET ASSETS - 100% $ 2,511,581,500
</TABLE>
LEGEND
(a) Non-income producing
(b) S&P credit ratings are used in the absence of a rating by Moody's
Investors Service, Inc.
(c) Non-income producing - issuer filed for protection under the
Federal Bankruptcy Code or is in default of interest payment.
(d) Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date. The rate shown
is the rate at period end.
(e) Transactions during the period with companies which are or were
affiliates are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
AFFILIATE PURCHASE COST SALES COST DIVIDEND INCOME VALUE
Hat Brands, Inc. $ - $ 340,000 $ - $ -
Mothers Work, Inc. - 347,350 - 3,477,038
TOTALS $ - $ 687,350 $ - $ 3,477,038
</TABLE>
(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. At the period end, the value of these securities
amounted to $309,574,776 or 12.3% of net assets.
(g) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(h) Restricted securities - Investment in securities not registered
under the Securities Act of 1933.
Additional information on each holding is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST
Alliance Gaming Corp. 7/28/98 $ 0
Cellnet Data Systems, Inc. 11/10/99 - 12/2/99 $ 2,854,000
15% 1/7/00
Micron Technology, Inc. 6.5% 3/3/99 - 10/7/99 $ 7,794,500
9/30/05
Mothers Work, Inc. 6/18/98 $ 26,172
Optel Communications Corp. 12/31/97 $ 759,408
warrants 12/29/04
Optel Communications Corp. 12/31/97 - 6/30/99 $ 13,108,140
15% 12/29/04
Swerdlow Real Estate Group, 1/15/99 $ 11,132
Inc. Class A
Swerdlow Real Estate Group, 1/15/99 $ 2,760
Inc. Class B
Swerdlow Real Estate Group, 1/15/99 $ 2,760
Inc. junior
Swerdlow Real Estate Group, 1/15/99 $ 78,520
Inc. mezzanine
Swerdlow Real Estate Group, 1/15/99 $ 7,618,828
Inc. senior
(i) Partial interest payment received on the last interest payment
date.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $2,007,871,143 and $1,980,933,572, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company.
The commissions paid to these affiliated firms were $7,978 for the
period.
The fund invested in securities that are not registered under the
Securities Act of 1933. These securities are subject to legal or
contractual restrictions on resale. At the end of the period,
restricted securities (excluding Rule 144A issues) amounted to
$38,302,529 or 1.5% of net assets.
The fund participated in the interfund lending program as a borrower.
The average daily loan balance during the period for which loans were
outstanding amounted to $22,684,750. The weighted average interest
rate was 4.87%. Interest expense includes $12,264 paid under the
interfund lending program.
The fund participated in the interfund lending program as a lender.
The average daily loan balance during the period for which loans were
outstanding amounted to $8,702,600. The weighted average interest rate
was 5.34%. Interest earned from the interfund lending program amounted
to $12,899 and is included in interest income on the Statement of
Operations.
The fund participated in the bank borrowing program. The average daily
loan balance during the period for which loans were outstanding
amounted to $15,284,000. The weighted average interest rate was 5.23%.
Interest expense includes $13,318 paid under the bank borrowing
program.
The composition of long-term debt holdings as a percentage of total
value of investments in securities, is as follows (ratings are
unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 0.0% AAA, AA, A 0.0%
Baa 0.2% BBB 0.2%
Ba 2.5% BB 3.5%
B 49.0% B 54.2%
Caa 17.6% CCC 12.1%
Ca, C 0.1% CC, C 0.1%
D 0.1%
The percentage not rated by Moody's or S&P amounted to 6.6%. FMR has
determined that unrated debt securities that are lower quality account
for 6.6% of the total value of investment in securities.
INCOME TAX INFORMATION
At December 31, 1999, the aggregate cost of investment securities for
income tax purposes was $2,689,510,301. Net unrealized depreciation
aggregated $209,859,283, of which $76,367,804 related to appreciated
investment securities and $286,227,087 related to depreciated
investment securities.
The fund hereby designates approximately $7,536,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
At December 31, 1999, the fund had a capital loss carryforward of
approximately $78,395,000 all of which will expire on December 31,
2007, respectively.
FIDELITY VARIABLE INSURANCE PRODUCTS: HIGH INCOME PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
ASSETS
Investment in securities, at $ 2,479,651,018
value (including repurchase
agreements of $59,179,000)
(cost $2,686,843,817) - See
accompanying schedule
Cash 1,240,115
Receivable for investments 551,690
sold
Receivable for fund shares 888,171
sold
Dividends receivable 395,381
Interest receivable 37,844,297
Other receivables 396,681
TOTAL ASSETS 2,520,967,353
LIABILITIES
Payable for investments $ 1,211,750
purchased
Payable for fund shares 6,643,732
redeemed
Accrued management fee 1,221,211
Distribution fees payable 20,832
Other payables and accrued 288,328
expenses
TOTAL LIABILITIES 9,385,853
NET ASSETS $ 2,511,581,500
Net Assets consist of:
Paid in capital $ 2,570,977,193
Undistributed net investment 245,962,442
income
Accumulated undistributed net (98,165,336)
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation (207,192,799)
(depreciation) on investments
NET ASSETS $ 2,511,581,500
INITIAL CLASS: NET ASSET $11.32
VALUE, offering price and
redemption price per share
($2,257,609,664 (divided by)
199,419,721 shares)
SERVICE CLASS: NET ASSET $11.29
VALUE, offering price and
redemption price per share
($253,971,836 (divided by)
22,497,605 shares)
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
INVESTMENT INCOME $ 39,413,129
Dividends
Interest 225,409,823
TOTAL INCOME 264,822,952
EXPENSES
Management fee $ 14,638,965
Transfer agent fees 1,677,045
Distribution fees - Service 187,615
Class
Accounting and security 799,993
lending fees
Non-interested trustees' 7,430
compensation
Custodian fees and expenses 73,962
Registration fees 9,574
Audit 39,501
Legal 19,039
Interest 25,582
Miscellaneous 147,169
Total expenses before 17,625,875
reductions
Expense reductions (62,519) 17,563,356
NET INVESTMENT INCOME 247,259,596
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities (96,179,036)
(including realized loss of
$478,294 on sales of
investments in affiliated
issuers)
Foreign currency transactions (588) (96,179,624)
Change in net unrealized 55,361,896
appreciation (depreciation)
on investment securities
NET GAIN (LOSS) (40,817,728)
NET INCREASE (DECREASE) IN $ 206,441,868
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION $ 43,092
Directed brokerage
arrangements
Custodian credits 19,427
$ 62,519
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET YEAR ENDED DECEMBER 31, 1999 YEAR ENDED DECEMBER 31, 1998
ASSETS
Operations Net investment $ 247,259,596 $ 230,104,995
income
Net realized gain (loss) (96,179,624) 6,911,145
Change in net unrealized 55,361,896 (342,139,590)
appreciation (depreciation)
NET INCREASE (DECREASE) IN 206,441,868 (105,123,450)
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (232,085,602) (174,513,221)
From net investment income
From net realized gain (6,657,693) (109,261,101)
In excess of net realized (877,958) -
gain
TOTAL DISTRIBUTIONS (239,621,253) (283,774,322)
Share transactions - net 66,219,533 535,004,180
increase (decrease)
TOTAL INCREASE (DECREASE) 33,040,148 146,106,408
IN NET ASSETS
NET ASSETS
Beginning of period 2,478,541,352 2,332,434,944
End of period (including $ 2,511,581,500 $ 2,478,541,352
undistributed net investment
income of $245,962,442 and
$228,599,042, respectively)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OTHER INFORMATION:
YEAR ENDED DECEMBER 31, 1999 YEAR ENDED DECEMBER 31, 1998
SHARES DOLLARS SHARES DOLLARS
Share transactions Initial 101,971,137 $ 1,140,554,728 105,294,967 $ 1,274,568,026
Class Sold
Reinvested 20,936,841 226,536,621 22,841,432 282,776,922
Redeemed (127,141,526) (1,424,987,101) (96,026,533) (1,157,142,331)
Net increase (decrease) (4,233,548) $ (57,895,752) 32,109,866 $ 400,202,617
Service Class Sold 15,936,772 $ 177,176,136 11,710,091 $ 142,335,404
Reinvested 1,211,540 13,084,632 80,565 997,399
Redeemed (5,904,384) (66,145,483) (752,013) (8,531,240)
Net increase (decrease) 11,243,928 $ 124,115,285 11,038,643 $ 134,801,563
Distributions
From net investment income $ 219,412,458 $ 173,899,848
Initial Class
Service Class 12,673,144 613,373
Total $ 232,085,602 $ 174,513,221
From net realized gain $ 6,294,147 $ 108,877,075
Initial Class
Service Class 363,546 384,026
Total $ 6,657,693 $ 109,261,101
In excess of net realized $ 830,017 $ -
gain Initial Class
Service Class 47,941 -
Total $ 877,958 $ -
$ 239,621,253 $ 283,774,322
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
YEARS ENDED DECEMBER 31, 1999 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 11.530 $ 13.580 $ 12.520 $ 12.050 $ 10.750
period
Income from Investment
Operations
Net investment income 1.095 D 1.111 D 1.124 D .927 .856
Net realized and unrealized (.195) (1.591) .936 .643 1.224
gain (loss)
Total from investment .900 (.480) 2.060 1.570 2.080
operations
Less Distributions
From net investment income (1.075) F (.970) F (.890) (.920) (.780)
From net realized gain (.030) F (.600) F (.110) (.180) -
In excess of net realized gain (.005) F - - - -
Total distributions (1.110) (1.570) (1.000) (1.100) (.780)
Net asset value, end of period $ 11.320 $ 11.530 $ 13.580 $ 12.520 $ 12.050
TOTAL RETURN B, C 8.25% (4.33)% 17.67% 14.03% 20.72%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 2,257,610 $ 2,348,954 $ 2,329,516 $ 1,588,822 $ 1,040,000
(000 omitted)
Ratio of expenses to average .69% .70% .71% .71% .71%
net assets
Ratio of net investment 9.80% 9.14% 8.88% 9.09% 9.32%
income to average net assets
Portfolio turnover rate 82% 92% 118% 123% 132%
</TABLE>
FINANCIAL HIGHLIGHTS - SERVICE CLASS
YEARS ENDED DECEMBER 31, 1999 1998 1997 E
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 11.520 $ 13.570 $ 13.380
period
Income from Investment
Operations
Net investment income D 1.074 1.082 .203
Net realized and unrealized (.194) (1.562) (.013)
gain (loss)
Total from investment .880 (.480) .190
operations
Less Distributions
From net investment income (1.075) F (.970) F -
From net realized gain (.030) F (.600) F -
In excess of net realized gain (.005) F - -
Total distributions (1.110) (1.570) -
Net asset value, end of period $ 11.290 $ 11.520 $ 13.570
TOTAL RETURN B, C 8.08% (4.34)% 1.42%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 253,972 $ 129,587 $ 2,919
(000 omitted)
Ratio of expenses to average .79% .82% .81% A
net assets
Ratio of expenses to average .79% .82% .80% A, G
net assets after expense
reductions
Ratio of net investment 9.69% 9.51% 10.75% A
income to average net assets
Portfolio turnover rate 82% 92% 118%
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE
NOT ANNUALIZED AND DO NOT REFLECT CHARGES ATTRIBUTABLE
TO YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION
OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS SHOWN.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED
BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF SALE
OF SERVICE CLASS SHARES) TO DECEMBER 31, 1997.
F THE AMOUNTS SHOWN REFLECT CERTAIN RECLASSIFICATIONS
RELATED TO BOOK TO TAX DIFFERENCES.
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS
WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A
PORTION OF THE CLASS' EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES.
High Income Portfolio (the fund) is a fund of Variable Insurance
Products Fund(the trust) (referred to in this report as Fidelity
Variable Insurance Products: High Income Portfolio) and is authorized
to issue an unlimited number of shares. The trust is registered under
the Investment Company Act of 1940, as amended (the 1940 Act), as an
open-end management investment company organized as a Massachusetts
business trust. Shares of the fund may only be purchased by insurance
companies for the purpose of funding variable annuity or variable life
insurance contracts. The fund offers two classes of shares: the fund's
original class of shares (Initial Class shares) and Service Class
shares. Both classes have equal rights and voting privileges, except
for matters affecting a single class. Investment income, realized and
unrealized capital gains and losses, the common expenses of the fund,
and certain fund-level expense reductions, if any, are allocated on a
pro rata basis to each class based on the relative net assets of each
class to the total net assets of the fund. Each class of shares
differs in its respective distribution plan. On October 14, 1999, the
Board of Trustees approved the creation of Service Class 2, a new
class of shares of the fund. The Service Class 2 shares will be
subject to an annual distribution and service fee of .25% of the
class' average net assets. These shares are expected to be available
on or about January 12, 2000.
The financial statements have been prepared in conformity with
generally accepted accounting principles which require management to
make certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. Debt securities for which quotations are readily
available are valued by a pricing service at their market values as
determined by their most recent bid prices in the principal market
(sales prices if the principal market is an exchange) in which such
securities are normally traded. Equity securities for which quotations
are readily available are valued at the last sale price, or if no sale
price, at the closing bid price. Foreign equity securities are valued
based on quotations from the principal market in which such securities
are normally traded. If trading or events occurring in other markets
after the close of the principal market in which foreign securities
are traded, and before the close of the business of the fund, are
expected to materially affect the value of those securities, then they
are valued at their fair value taking this trading or these events
into account. Fair value is determined in good faith under
consistently applied procedures under the general supervision of the
Board of Trustees. Securities (including restricted securities) for
which market quotations are not readily available are valued at their
fair value. Short-term securities with remaining maturities of sixty
days or less for which quotations are not readily available are valued
at amortized cost or original cost plus accrued interest, both of
which approximate current value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
and settlement date on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or
loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of
original issue discount, is accrued as earned and dividend income is
recorded on the ex-dividend date. The fund may place a debt obligation
on non-accrual status and reduce related interest income by ceasing
current accruals and writing off interest receivables when the
collection of all or a portion of interest has become doubtful based
on consistently applied procedures, under the general supervision of
the Board of Trustees of the fund. A debt obligation is removed from
non-accrual status when the issuer resumes interest payments or when
collectibility of interest is reasonably assured.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date. Income dividends and capital gain distributions are
declared separately for each class.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for paydown gains/losses on certain securities, foreign
currency transactions, market discount, partnerships, non-taxable
dividends, capital loss carryforwards and losses deferred due to wash
sales.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions
may include temporary book and tax basis differences which will
reverse in a subsequent period. Any taxable income or gain remaining
at fiscal year end is distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with
other affiliated entities of Fidelity Management & Research Company
(FMR), may transfer uninvested cash balances into one or more joint
trading accounts. These balances are invested in one or more
repurchase agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
INTERFUND LENDING PROGRAM. Pursuant to an Exemptive Order issued by
the SEC, the fund, along with other registered investment companies
having management contracts with FMR, may participate in an interfund
lending program. This program provides an alternative credit facility
allowing the funds to borrow from, or lend money to, other
participating funds. Information regarding the fund's participation in
the program is included under the caption "Other Information" at the
end of the fund's schedule of investments.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
Information regarding restricted securities is included under the
caption "Other Information" at the end of the fund's schedule of
investments.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. The fund is permitted to
invest in loans and loan participations, trade claims or other
receivables. These investments may include standby financing
commitments that obligate the fund to supply additional cash to the
borrower on demand. Loan participations involve a risk of insolvency
of the lending bank or other financial intermediary. At the end of the
period, these investments amounted to $21,673,533 or 0.8% of net
assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Information regarding purchases and sales of securities (other than
short-term securities), is included under the caption "Other
Information" at the end of the fund's schedule of investments.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .0920% to .3700% for the
period. The annual individual fund fee rate is .45%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .58% of average net assets.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the
1940 Act, the Board of Trustees has adopted a Distribution and Service
Plan for the Service Class (the Plan) of shares. Under the Plan, the
class pays Fidelity Distributors Corporation (FDC), an affiliate of
FMR, a 12b-1 fee. This fee is based on an annual rate of .10% of
Service Class average net assets. Initial Class shares are not subject
to a 12b-1 fee.
For the period, Service Class paid FDC $187,615, all of which was
reallowed to insurance companies, for the distribution of shares and
providing shareholder support services.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc. (FIIOC), an affiliate of FMR, is the fund's transfer,
dividend disbursing and shareholder servicing agent. FIIOC receives
account fees and asset-based fees that vary according to account size
and type of account. FIIOC pays a portion of the expenses related to
the typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees of
the fund were equivalent to an annual rate of .07% of average net
assets.
4. FEES AND OTHER TRANSACTIONS WITH
AFFILIATES - CONTINUED
ACCOUNTING AND SECURITY LENDING FEES. Fidelity Service Company, Inc.
(FSC), an affiliate of FMR, maintains the fund's accounting records
and administers the security lending program. The security lending fee
is based on the number and duration of lending transactions. The
accounting fee is based on the level of average net assets for the
month plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms are shown under the caption
"Other Information" at the end of the fund's schedule of investments.
5. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or
emergency purposes to fund shareholder redemptions. The fund has
established borrowing arrangements with certain banks. The interest
rate on the borrowings is the bank's base rate, as revised from time
to time. Information regarding the fund's participation in the program
is included under the caption "Other Information" at the end of the
fund's schedule of investments.
6. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a
portion of the fund's expenses.
In addition, through an arrangement with the fund's custodian, credits
realized as a result of uninvested cash balances were used to reduce a
portion of the fund's expenses. For the period, the reductions under
these arrangements are shown under the caption "Other Information" on
the fund's Statement of Operations.
7. BENEFICIAL INTEREST.
At the end of the period, Fidelity Investments Life Insurance Company
(FILI) and its subsidiaries, affiliates of FMR, were the record owners
of approximately 11% of the outstanding shares of the fund. In
addition, two unaffiliated insurance companies were record owners of
61% of the total outstanding shares of the fund.
8. TRANSACTIONS WITH AFFILIATED COMPANIES.
An affiliated company is a company which the fund has ownership of at
least 5% of the voting securities. Information regarding transactions
with affiliated companies is included under "Legend" at the end of the
fund's schedule of investments.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Variable Insurance Products Fund and the
Shareholders of High Income Portfolio:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
High Income Portfolio (a fund of Variable Insurance Products Fund) at
December 31, 1999, and the results of its operations, the changes in
its net assets and the financial highlights for the periods indicated,
in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the High Income Portfolio's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in
the United States which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 10, 2000
DISTRIBUTIONS
A total of 4% of the dividends distributed by the Initial Class and
Service Class during the fiscal year qualifies for the
dividends-received deduction for corporate shareholders.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (U.K.) Inc.,
London, England
Fidelity Management & Research (Far East) Inc.,
Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, PRESIDENT
Robert C. Pozen, SENIOR VICE PRESIDENT
Bart A. Grenier, VICE PRESIDENT
Barry J. Coffman, VICE PRESIDENT
Eric D. Roiter, SECRETARY
Richard A. Silver, TREASURER
Matthew N. Karstetter, DEPUTY VICE PRESIDENT
John H. Costello, ASSISTANT TREASURER
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
Ned C. Lautenbach
* INDEPENDENT TRUSTEES
VIPHI-ANN-0200 88627
1.540029.102
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER SERVICING AGENT
Fidelity Investments Institutional
Operations Co., Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
(2_FIDELITY_LOGOS)(registered trademark)
FIDELITY(REGISTERED TRADEMARK)
VARIABLE INSURANCE PRODUCTS:
ASSET MANAGER SM PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 1999
CONTENTS
MARKET ENVIRONMENT 3 A review of what happened in
world markets during the
past 12 months.
PERFORMANCE AND INVESTMENT 4 How the fund has done over
SUMMARY time, and an overview of the
fund's investments at the
end of the period.
FUND TALK 5 The manager's review of fund
performance, strategy and
outlook.
INVESTMENTS 6 A complete list of the fund's
investments with their
market values.
FINANCIAL STATEMENTS 22 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.
NOTES 25 Notes to the financial
statements.
INDEPENDENT AUDITORS' REPORT 28 The auditors' opinion.
DISTRIBUTIONS 29
Standard & Poor's, S&P and S&P 500 are registered service marks of The
McGraw-Hill Companies, Inc. and have been licensed for use by Fidelity
Distributors Corporation.
Other third party marks appearing herein are the property of their
respective owners.
All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.
This report is printed on recycled paper using soy-based inks.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND.
THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE FUND'S
PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS
STATED ON THE COVER AND DO NOT NECESSARILY REPRESENT THE VIEWS OF
FIDELITY OR ANY OTHER PERSON IN THE FIDELITY ORGANIZATION. ANY SUCH
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER
CONDITIONS AND FIDELITY DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH
VIEWS. THESE VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND,
BECAUSE INVESTMENT DECISIONS FOR A FIDELITY FUND ARE BASED ON NUMEROUS
FACTORS, MAY NOT BE RELIED ON AS AN INDICATION OF TRADING INTENT ON
BEHALF OF ANY FIDELITY FUND.
Entering the final year of the 20th century, popular U.S. equity
market indexes had just posted an unprecedented four consecutive years
of double-digit annual returns, while domestic bonds also enjoyed
relatively strong increases. The international story entering 1999,
however, was less positive. In general - with the exception of
European issues - international equities and bonds were greatly
disappointing. Asian and Russian economies had fallen into disarray,
Japan was struggling to implement banking reforms, and emerging
markets were plagued by a host of currency devaluations, loan defaults
and dismal credit outlooks. So who would have thought, just one year
later, that Japan, Russia and emerging markets would be three of
1999's best-performing investments? U.S. equities also continued to
chug along in 1999, extending their indexes' streak of consecutive
double-digit annual increases to five. The stock market was not
without its problems, however. Extremely narrow market breadth,
soaring valuations and rising interest rates - not to mention Y2K -
left many investors unsettled about the prospects for equities
entering the new millennium. Domestic fixed-income alternatives,
meanwhile, fared poorly in 1999 relative to the year prior.
U.S. STOCK MARKETS
In a word, technology was the primary driver of equity market
performance in 1999. While telecommunications, particularly the
wireless segment of the industry, also performed well, nothing
dominated like technology. This incredibly narrow market breadth was
illustrated by the technology-laden NASDAQ Index. Its return of 86.12%
for the one-year period ending December 31, 1999, was the all-time
highest annual return for any major U.S. stock index. Broader indexes,
such as the Standard & Poor's 500 SM, generated much lower returns,
but were still significantly affected by tech's presence. For example,
technology was responsible for approximately 70% of the S&P 500's
12-month return of 21.04%, the index's fifth consecutive annual gain
above 20%. The top 50 stocks in the S&P 500 - the so-called "Nifty
50," many of which were technology shares - accounted for 115% of its
total return. Meanwhile, the remaining 450 stocks fell 3.13%. The Dow
Jones Industrial Average - an index of 30 blue-chip stocks - posted a
27.13% return during the period, its fifth consecutive double-digit
annual return. Despite the strong numbers of these indexes, more
stocks fell than rose in 1999. Growth stocks continued to hammer their
value-oriented peers. But in a turnaround from previous years, mid-
and small-cap growth stocks performed better than their large-cap
brethren did. Conversely, mid-and small-cap value issues posted
negative overall returns in 1999.
FOREIGN STOCK MARKETS
Similar to the domestic equity markets, technology and - perhaps to an
even greater degree than in the U.S. - telecommunications led the
charge in the vastly improved international equity markets. The
recovery of the Japanese stock market in 1999 was nothing short of
remarkable. A renewed emphasis on corporate restructuring and
shareholder value - combined with the Japanese government's
willingness to create more of a free-enterprise market system - proved
wildly successful. For the period, the Morgan Stanley Capital
International Japan Index returned 61.53% and Japan's TOPIX Index was
up 75.89%. While Canadian equity markets didn't get nearly the
attention of their U.S. neighbors, their performance was a great deal
better than the broader American indexes, as the Toronto Stock
Exchange (TSE) 300 returned 39.34% for the 12-month period ending
December 31, 1999. Despite a strong surge in December, European
markets offered mixed results over the past 12 months. In that time,
the Morgan Stanley Capital International Europe Index posted a
relatively tame - at least, in comparison to other developed nations'
stock markets - one-year return of 16.16%.
U.S. BOND MARKETS
Fueled by robust economic growth and a tighter monetary policy,
interest rates moved sharply higher, causing most domestic bonds to
struggle throughout the 12-month period ending December 31, 1999. The
Lehman Brothers Aggregate Bond Index, a popular measure of
taxable-bond performance, fell 0.82% during the period. Treasury
prices had the toughest time of it, falling in response to three
quarter-point interest-rate hikes levied by the Federal Reserve Board,
which erased all of 1998's rate cuts. The Lehman Brothers Long-Term
Treasury Index plunged 8.74% in 1999. Nor were corporate bonds, as
measured by the Lehman Brothers Corporate Bond Index, immune from the
fixed-income fade during the year, falling 1.96%. Government agency
securities also fell into negative territory for the year, as the
Lehman Brothers U.S. Agency Index fell 0.94%. There were a few bright
spots, however. The high-yield market, as measured by the Merrill
Lynch High Yield Master II Index, returned 2.51% during the 12-month
period, while the Lehman Brothers Mortgage-Backed Securities Index was
up 1.86%.
FOREIGN BOND MARKETS
Emerging markets stood as one of the best-performing asset classes in
1999. For the 12-month period ending December 31, 1999, the JP Morgan
Emerging Markets Bond Index Plus was up 25.97%. A year ago, that same
index closed 1998 with a negative 14.35% annual return. A variety of
factors sparked their recovery, including rising commodity prices,
particularly oil; the continuation of a strong U.S. economy;
stable-to-lower interest rates; tame inflation; and greater political
stability. Russia was perhaps the year's biggest comeback story.
Devastated by its devaluation of the ruble and loan defaults in 1998,
Russia steadily demonstrated strong technical improvements that made
it the best-performing country in the index in 1999. Both Brazil and
Mexico enjoyed relatively low inflation and improved economies. Turkey
was the best-performing emerging-market country in December, as the
government's reform plans, IMF financial support, and the announcement
that it would be accepted in the European Union all boosted the
country's prospects. Elsewhere, outside of positive performing
Canadian and Japanese issues - beneficiaries of strong local
currencies - higher rates proved insurmountable for most non-U.S.
developed markets, which produced negative returns in local currency
terms. A markedly weak euro, coupled with firming supply pressures,
felled bond prices in Germany, France and Italy. The Salomon Brothers
Non-U.S. World Government Bond Index fell 5.07% in 1999.
FIDELITY VARIABLE INSURANCE PRODUCTS: ASSET MANAGER PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). If Fidelity had not reimbursed certain fund
expenses, the past 10 years total return would have been lower.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
1999
FIDELITY VIP: ASSET MANAGER - 11.09% 15.63% 13.14%
"INITIAL CLASS"
Asset Manager Composite 10.42% 16.69% 11.96%
S&P 500 (registered trademark) 21.04% 28.56% 18.21%
LB Aggregate Bond -0.82% 7.73% 7.70%
LB 3 Month T-Bill 4.90% 5.44% 5.19%
Variable Annuity Flexible 12.07% 17.11% 12.94%
Portfolio Funds Average
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's returns to those of the Asset Manager
Composite Index, a hypothetical combination of unmanaged indices. The
composite index combines the total returns of the Standard & Poor's
500 SM Index, the Lehman Brothers Aggregate Bond Index and the Lehman
Brothers 3 Month Treasury Bill Index weighted according to the fund's
neutral mix.
You can also compare the fund's returns to the variable annuity
flexible portfolio funds average, which reflects the performance of
mutual funds with similar objectives tracked by Lipper Inc. The past
one year average represents a peer group of 84 mutual funds. The
benchmarks listed in the table above include reinvested dividends and
capital gains, if any.
UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for example,
has a history of long-term growth and short-term
volatility. In turn, the share price and return of a
fund that invests in stocks will vary. That means if
you sell your shares during a market downturn,
you might lose money. But if you can ride out the
market's ups and downs, you may have a gain.
(checkmark)
Figures for more than one year assume a steady compounded rate of
return and are not the fund's year-by-year results, which fluctuated
over the periods shown.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S
SEPARATE ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF
THESE ADDITIONAL CHARGES, THE TOTAL RETURNS WOULD HAVE BEEN LOWER.
Past performance is no guarantee of future results. Principal and
investment return will vary and you may have a gain or loss when you
withdraw your money.
$10,000 OVER 10 YEARS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
VIP II Asset Manager 50 S&P/40 LBAgg/10 LB 3Mo S&P 500 LB Aggregate Bond
00156 F0001 SP001 LB001
1989/12/31 10000.00 10000.00 10000.00 10000.00
1990/01/31 9779.34 9758.90 9329.00 9881.00
1990/02/28 9879.64 9821.55 9449.34 9912.62
1990/03/31 9959.88 9918.20 9699.75 9919.56
1990/04/30 9829.49 9826.06 9457.26 9828.30
1990/05/31 10330.99 10245.73 10379.34 10119.22
1990/06/30 10411.23 10309.87 10308.76 10282.14
1990/07/31 10391.17 10374.30 10275.77 10424.03
1990/08/31 10050.15 10053.74 9346.84 10284.35
1990/09/30 9839.52 9965.36 8891.65 10369.71
1990/10/31 9889.67 10036.52 8853.42 10501.40
1990/11/30 10371.11 10337.81 9425.35 10727.18
1990/12/31 10672.02 10510.87 9688.32 10894.53
1991/01/31 11182.69 10712.26 10110.73 11029.62
1991/02/28 11620.41 10980.81 10833.64 11123.37
1991/03/31 11808.00 11102.70 11095.82 11200.12
1991/04/30 11985.17 11176.87 11122.45 11321.08
1991/05/31 12256.14 11354.35 11602.94 11386.74
1991/06/30 12037.28 11207.20 11071.52 11381.05
1991/07/31 12339.52 11432.47 11587.46 11539.25
1991/08/31 12589.64 11636.99 11862.08 11788.50
1991/09/30 12662.60 11693.66 11663.98 12027.80
1991/10/31 12745.97 11799.49 11820.28 12161.31
1991/11/30 12537.53 11721.38 11343.92 12273.19
1991/12/31 13079.47 12301.71 12641.67 12637.71
1992/01/31 13246.22 12166.77 12406.53 12465.84
1992/02/29 13503.47 12244.15 12567.82 12546.86
1992/03/31 13470.56 12154.89 12322.74 12476.60
1992/04/30 13668.01 12307.31 12685.03 12566.43
1992/05/31 13810.61 12427.84 12747.19 12803.94
1992/06/30 13799.64 12433.93 12557.26 12980.63
1992/07/31 14030.00 12773.45 13070.85 13245.44
1992/08/31 13986.13 12724.17 12802.90 13379.22
1992/09/30 14073.88 12867.47 12953.97 13538.43
1992/10/31 14095.82 12807.50 12999.31 13358.37
1992/11/30 14402.97 12970.16 13442.58 13361.04
1992/12/31 14611.39 13123.44 13607.93 13573.48
1993/01/31 14874.66 13288.22 13722.24 13834.09
1993/02/28 15014.15 13473.22 13908.86 14076.19
1993/03/31 15439.19 13612.05 14202.33 14135.31
1993/04/30 15531.09 13529.31 13858.64 14234.26
1993/05/31 15795.30 13674.43 14230.05 14252.76
1993/06/30 15921.66 13819.92 14271.32 14510.73
1993/07/31 16116.95 13837.83 14214.23 14593.45
1993/08/31 16587.94 14178.41 14752.95 14848.83
1993/09/30 16599.43 14164.52 14639.35 14888.92
1993/10/31 17047.44 14310.13 14942.39 14944.01
1993/11/30 17024.46 14200.08 14800.44 14816.99
1993/12/31 17713.71 14299.60 14979.52 14897.00
1994/01/31 18276.60 14581.18 15488.82 15098.11
1994/02/28 17696.13 14302.92 15069.08 14835.40
1994/03/31 16864.37 13933.56 14412.07 14468.97
1994/04/30 16876.42 13968.59 14596.54 14353.22
1994/05/31 17021.08 14062.68 14835.92 14351.78
1994/06/30 16695.60 13923.74 14472.44 14320.21
1994/07/31 16984.91 14218.59 14947.14 14605.18
1994/08/31 17382.71 14463.06 15559.97 14622.70
1994/09/30 17177.68 14251.27 15178.75 14407.75
1994/10/31 17262.12 14388.19 15520.27 14394.78
1994/11/30 17008.79 14177.75 14955.03 14363.12
1994/12/31 16634.84 14311.22 15176.81 14462.22
1995/01/31 16526.28 14579.96 15570.34 14748.57
1995/02/28 16793.99 14945.53 16177.12 15099.59
1995/03/31 17015.77 15174.92 16654.51 15191.70
1995/04/30 17286.84 15448.25 17144.98 15404.38
1995/05/31 17508.62 15960.91 17830.27 16000.53
1995/06/30 17656.48 16176.16 18244.46 16117.33
1995/07/31 18284.87 16382.31 18849.45 16081.88
1995/08/31 18506.65 16490.96 18896.76 16276.47
1995/09/30 18740.76 16847.36 19694.21 16434.35
1995/10/31 18494.33 16943.39 19623.90 16647.99
1995/11/30 18974.86 17361.18 20485.39 16897.71
1995/12/31 19455.40 17613.93 20879.93 17134.28
1996/01/31 19874.32 17914.17 21590.69 17247.37
1996/02/29 19820.79 17847.93 21790.83 16947.26
1996/03/31 20031.51 17868.81 22000.68 16828.63
1996/04/30 20242.23 17943.89 22324.97 16734.39
1996/05/31 20400.27 18133.31 22900.73 16700.92
1996/06/30 20584.65 18268.91 22987.98 16924.72
1996/07/31 20242.23 17979.75 21972.37 16970.41
1996/08/31 20281.74 18133.01 22435.77 16941.56
1996/09/30 21019.26 18677.14 23698.46 17236.35
1996/10/31 21559.23 19064.36 24352.06 17618.99
1996/11/30 22626.00 19789.11 26192.83 17920.28
1996/12/31 22296.75 19568.22 25673.95 17753.62
1997/01/31 22968.41 20212.80 27278.06 17808.66
1997/02/28 23166.93 20320.13 27491.92 17853.18
1997/03/31 22285.66 19820.97 26362.28 17655.01
1997/04/30 23047.43 20541.26 27936.10 17919.83
1997/05/31 24152.75 21255.48 29636.85 18090.07
1997/06/30 24795.04 21840.43 30964.59 18305.34
1997/07/31 26228.97 22956.81 33428.44 18799.59
1997/08/31 25512.00 22246.29 31555.78 18639.79
1997/09/30 26333.52 22997.44 33284.09 18915.66
1997/10/31 25900.36 22756.66 32172.40 19189.94
1997/11/30 26497.83 23335.02 33661.66 19278.21
1997/12/31 26901.12 23639.65 34239.63 19472.92
1998/01/31 26990.74 23902.76 34618.32 19722.17
1998/02/28 28205.97 24765.89 37114.99 19706.40
1998/03/31 29024.03 25445.34 39015.65 19773.40
1998/04/30 28989.94 25637.71 39408.15 19876.22
1998/05/31 28836.55 25526.32 38730.72 20065.04
1998/06/30 29398.97 26142.35 40303.96 20235.26
1998/07/31 29211.50 26036.83 39874.73 20278.20
1998/08/31 26552.81 24336.12 34109.64 20608.26
1998/09/30 27439.04 25356.41 36294.70 21090.73
1998/10/31 28632.04 26344.03 39246.91 20979.46
1998/11/30 29722.78 27211.02 41625.67 21098.28
1998/12/31 30949.87 28038.32 44024.14 21161.72
1999/01/31 31682.72 28715.36 45865.23 21312.88
1999/02/28 30957.30 28077.19 44439.74 20940.76
1999/03/31 31233.54 28713.17 46217.77 21056.94
1999/04/30 31933.35 29315.89 48007.79 21123.69
1999/05/31 31472.95 28878.06 46874.32 20937.80
1999/06/30 32577.91 29653.73 49475.85 20870.93
1999/07/31 32025.43 29153.47 47931.21 20783.28
1999/08/31 31970.18 29087.15 47693.95 20772.72
1999/09/30 31601.86 28836.61 46386.66 21013.77
1999/10/31 32559.49 29803.58 49322.01 21091.30
1999/11/30 33001.48 30117.78 50324.73 21089.83
1999/12/31 34382.68 30960.33 53288.85 20988.14
IMATRL PRASUN SHR__CHT 19991231 20000118 144208 R00000000000123
</TABLE>
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Variable Insurance Products: Asset Manager
Portfolio on December 31, 1989. By December 31, 1999, the value of the
investment would have grown to $34,383 - a 243.83% increase. With
reinvested dividends and capital gains, if any, a $10,000 investment
in the Standard & Poor's 500 Index would have grown to $53,289 over
the same period - a 432.89% increase on the initial investment. If
$10,000 was invested in the Lehman Brothers Aggregate Bond Index, it
would have grown to $20,988 - a 109.88% increase.
You can also look at how the Asset Manager Composite Index did over
the same period. The composite index combines the cumulative total
returns of three unmanaged indexes - the S&P 500, Lehman Brothers
Aggregate Bond Index, and the Lehman Brothers 3 Month Treasury Bill
Index - according to the fund's neutral mix.* With reinvested
dividends and capital gains, if any, a $10,000 investment in the index
would have grown to $30,960 - a 209.60% increase.
* 50% STOCKS, 40% BONDS AND 10% SHORT-TERM INSTRUMENTS EFFECTIVE
JANUARY 1, 1997.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF
DECEMBER 31, 1999
% OF FUND'S NET ASSETS
Microsoft Corp. 2.4
Wal-Mart Stores, Inc. 2.2
General Electric Co. 2.2
Motorola, Inc. 1.8
Cisco Systems, Inc. 1.6
10.2
TOP FIVE BOND ISSUERS AS OF
DECEMBER 31, 1999
(WITH MATURITIES GREATER THAN % OF FUND'S NET ASSETS
ONE YEAR)
Fannie Mae 8.8
U.S. Treasury Obligations 3.6
Government National Mortgage 1.6
Association
Freddie Mac 1.0
Ford Motor Credit Co. 0.4
15.4
ASSET ALLOCATION AS OF
DECEMBER 31, 1999 *
% OF FUND'S NET ASSETS
Stocks class 57.2%
Bond class 36.2%
Short-Term class 6.6%
* FOREIGN INVESTMENTS 3.6%
Row: 1, Col: 1, Value: 57.2
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 36.2
Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 6.6
ASSET ALLOCATION IN THE PIE CHART REFLECTS THE CATEGORIZATION OF
ASSETS AS DEFINED IN THE FUND'S PROSPECTUS. FINANCIAL STATEMENT
CATEGORIZATIONS CONFORM TO ACCOUNTING STANDARDS AND WILL DIFFER FROM
THE PIE CHART.PRIOR TO THIS REPORT, CERTAIN INFORMATION RELATED TO
PORTFOLIO HOLDINGS WAS STATED AS A PERCENTAGE OF THE FUND'S
INVESTMENTS.
FIDELITY VARIABLE INSURANCE PRODUCTS: ASSET MANAGER PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
(photograph of Richard Habermann)
An interview with Richard Habermann, Portfolio Manager of Asset
Manager Portfolio
Q. HOW DID THE FUND PERFORM COMPARED TO ITS
BENCHMARK, DICK?
A. For the 12 months that ended December 31, 1999, the fund topped the
10.42% return of the Asset Manager Composite Index.
Q. WHAT ASSET ALLOCATION STRATEGIES DID YOU FOLLOW DURING
THE PERIOD?
A. The fund's neutral allocation mix calls for 50% of its assets to be
invested in stocks, 40% in bonds and 10% in short-term and money
market instruments. With stocks performing well through much of the
period, I kept the fund's average equity exposure at around 54%, and
this emphasis boosted the fund's performance. On the bond side, 1999
was not a good year for the bond market as a whole. However, the fund
had significant exposure to both the corporate and mortgage-backed
sectors, which performed fairly well relative to Treasury bonds. The
fund also benefited from its investments in high-yield securities,
which performed well relative to investment-grade bonds.
Q. HOW DID THE FUND'S EQUITY SUBPORTFOLIO PERFORM DURING THE PERIOD?
A. The fund's equities performed slightly better than the S&P 500
index, quite an accomplishment considering the narrowness of the
overall market in 1999. By that, I mean that 10 of the major stocks
within the index generated around 60% of its advance. Conversely, the
bottom 450 stocks within the S&P produced a negative aggregate return.
The technology sector led the market, and Steve Snider - who manages
the fund's stocks - was able to find enough good names to keep pace
with the tech stocks within the index. Industry leaders Cisco Systems
and Microsoft continued to perform well, as did Lexmark International.
The fund also benefited from the huge demand for wireless
communications by owning positions in Qualcomm and Motorola. Retail
stocks also performed well, with Wal-Mart being the fund's top overall
contributor during the period. Disappointments included pharmaceutical
firm Schering-Plough, as well as Fannie Mae and Freddie Mac, both of
which struggled due to less-than-favorable interest-rate conditions.
The fund no longer held equity stakes in Fannie Mae or Freddie Mac at
the end of the period.
Q. HOW DID YOU ALLOCATE INVESTMENTS WITHIN THE FUND'S BOND
SUBPORTFOLIO?
A. As far as the fund's investment-grade bond positions, rising
interest rates pressured returns through much of the period. Despite
this general move in rates, the fund was heavily weighted in corporate
and mortgage-backed securities, which performed relatively well during
the period. This subportfolio, managed by Charlie Morrison, benefited
from its investments in Seagram, Cable & Wireless and Capital One
Financial, as well as from its exposure to lower-quality, commercial
mortgage-backed securities. The fund's high-yield positions - managed
by Fred Hoff - performed nicely against the backdrop of a strong U.S.
economy and a favorable corporate earnings outlook. The best
individual high-yield performers included telecommunications names
Nextel Communications, WinStar and Teligent.
Q. HOW DID YOU POSITION THE FUND'S SHORT-TERM/MONEY MARKET
INVESTMENTS?
A. With interest rates spiking upward, John Todd - who manages this
portion of the fund - focused mainly on repurchase agreements. These
securities - commonly called repos - are short-term investments that
the seller agrees to buy back at a specified price and time. Repos
offered the fund an effective sanctuary in which to invest assets on a
temporary basis during the period. They also provided an adequate
level of liquidity, which was desirable given the rate scenario.
Q. WHAT'S YOUR OUTLOOK?
A. Despite the global economic growth we've seen recently, inflation
remains subdued. Corporate earnings appear to be on solid ground for
2000, which means there may be more market segments that are
reasonably valued. From an allocation standpoint, the direction of
interest rates will have some influence on whether I take more of a
defensive or equity-oriented approach.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET OR OTHER CONDITIONS. FOR MORE INFORMATION, SEE PAGE 2.
FUND FACTS
GOAL: high total return with reduced risk over
the long term by allocating assets among
stocks, bonds and short-term instruments
anywhere in the world
START DATE: September 6, 1989
SIZE: as of December 31, 1999, more than
$4.9 billion
MANAGER: Richard Habermann, since 1996;
joined Fidelity in 1968
(checkmark)
FIDELITY VARIABLE INSURANCE PRODUCTS: ASSET MANAGER PORTFOLIO
INVESTMENTS DECEMBER 31, 1999
Showing Percentage of Net Assets
COMMON STOCKS - 55.8%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 2.4%
AEROSPACE & DEFENSE - 2.3%
Boeing Co. 309,600 $ 12,867,750
Honeywell International, Inc. 598,388 34,519,479
Northrop Grumman Corp. 43,300 2,340,906
Rockwell International Corp. 159,300 7,626,488
Textron, Inc. 64,900 4,977,019
United Technologies Corp. 782,406 50,856,390
113,188,032
SHIP BUILDING & REPAIR - 0.1%
General Dynamics Corp. 108,300 5,712,825
TOTAL AEROSPACE & DEFENSE 118,900,857
BASIC INDUSTRIES - 2.0%
CHEMICALS & PLASTICS - 0.5%
Dow Chemical Co. 143,100 19,121,738
Engelhard Corp. 125,900 2,376,363
Praxair, Inc. 123,900 6,233,719
27,731,820
IRON & STEEL - 0.2%
Mueller Industries, Inc. (a) 51,200 1,856,000
Nucor Corp. 127,800 7,005,038
8,861,038
METALS & MINING - 1.0%
Alcoa, Inc. 594,100 49,310,300
PAPER & FOREST PRODUCTS - 0.3%
Georgia-Pacific Corp. 78,700 3,994,025
Weyerhaeuser Co. 130,100 9,342,806
13,336,831
TOTAL BASIC INDUSTRIES 99,239,989
CONSTRUCTION & REAL ESTATE -
0.2%
BUILDING MATERIALS - 0.2%
Fortune Brands, Inc. 246,300 8,143,294
DURABLES - 1.4%
AUTOS, TIRES, & ACCESSORIES -
0.7%
Ford Motor Co. 660,100 35,274,094
CONSUMER DURABLES - 0.6%
Minnesota Mining & 281,200 27,522,450
Manufacturing Co.
CONSUMER ELECTRONICS - 0.0%
Whirlpool Corp. 21,000 1,366,313
TEXTILES & APPAREL - 0.1%
Arena Brands Holdings Corp. 8,445 211,125
Class B
NIKE, Inc. Class B 86,500 4,287,156
4,498,281
TOTAL DURABLES 68,661,138
SHARES VALUE (NOTE 1)
ENERGY - 3.2%
ENERGY SERVICES - 0.2%
BJ Services Co. (a) 173,000 $ 7,233,563
OIL & GAS - 3.0%
Amerada Hess Corp. 55,000 3,121,250
Apache Corp. 151,900 5,610,806
Atlantic Richfield Co. 631,600 54,633,400
Chevron Corp. 448,200 38,825,325
Exxon Mobil Corp. 559,875 45,104,930
Tosco Corp. 129,800 3,528,938
150,824,649
TOTAL ENERGY 158,058,212
FINANCE - 7.8%
BANKS - 3.3%
Chase Manhattan Corp. 798,700 62,049,006
Comerica, Inc. 71,400 3,333,488
FleetBoston Financial Corp. 624,305 21,733,618
J. P. Morgan & Co., Inc. 351,000 44,445,375
PNC Financial Corp. 547,300 24,354,850
SouthTrust Corp. 272,300 10,296,344
166,212,681
CREDIT & OTHER FINANCE - 1.3%
American Express Co. 97,500 16,209,375
Citigroup, Inc. 715,800 39,771,638
Providian Financial Corp. 85,950 7,826,822
63,807,835
INSURANCE - 0.8%
Allmerica Financial Corp. 87,300 4,856,063
American General Corp. 60,800 4,613,200
CIGNA Corp. 60,600 4,882,088
Financial Security Assurance 37,300 1,944,263
Holdings Ltd.
Marsh & McLennan Companies, 173,600 16,611,350
Inc.
MGIC Investment Corp. 95,800 5,765,963
38,672,927
SAVINGS & LOANS - 0.3%
Golden West Financial Corp. 428,700 14,361,450
SECURITIES INDUSTRY - 2.1%
AXA Financial, Inc. 335,000 11,348,125
Kansas City Southern 293,200 21,880,050
Industries, Inc.
Lehman Brothers Holdings, 441,600 37,398,000
Inc.
Merrill Lynch & Co., Inc. 129,800 10,838,300
Morgan Stanley Dean Witter & 173,400 24,752,850
Co.
106,217,325
TOTAL FINANCE 389,272,218
HEALTH - 5.0%
DRUGS & PHARMACEUTICALS - 3.5%
Amgen, Inc. (a) 813,600 48,866,850
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
HEALTH - CONTINUED
DRUGS & PHARMACEUTICALS -
CONTINUED
Biogen, Inc. (a) 77,900 $ 6,582,550
Bristol-Myers Squibb Co. 783,000 50,258,813
Merck & Co., Inc. 346,000 23,203,625
Pfizer, Inc. 346,100 11,226,619
Schering-Plough Corp. 806,700 34,032,656
174,171,113
MEDICAL EQUIPMENT & SUPPLIES
- - 1.2%
Johnson & Johnson 650,300 60,559,188
Millipore Corp. 34,700 1,340,288
61,899,476
MEDICAL FACILITIES MANAGEMENT
- - 0.3%
United HealthCare Corp. 86,800 4,611,250
Wellpoint Health Networks, 129,900 8,565,281
Inc. (a)
13,176,531
TOTAL HEALTH 249,247,120
INDUSTRIAL MACHINERY &
EQUIPMENT - 3.2%
ELECTRICAL EQUIPMENT - 2.5%
Emerson Electric Co. 23,800 1,365,525
General Electric Co. 682,700 105,647,825
General Instrument Corp. (a) 188,900 16,056,500
123,069,850
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.7%
Ingersoll-Rand Co. 404,800 22,289,300
Parker-Hannifin Corp. 69,200 3,550,825
Tyco International Ltd. 220,600 8,575,825
34,415,950
TOTAL INDUSTRIAL MACHINERY & 157,485,800
EQUIPMENT
MEDIA & LEISURE - 1.7%
BROADCASTING - 0.0%
NTL, Inc. warrants 10/14/08 3,742 187,100
(a)
ENTERTAINMENT - 0.0%
Alliance Gaming Corp. (a)(k) 865 2,433
PUBLISHING - 1.6%
Central Newspapers, Inc. 58,000 2,283,750
Class A
Dow Jones & Co., Inc. 77,100 5,242,800
Gannet Co., Inc. 324,500 26,467,031
Knight-Ridder, Inc. 128,700 7,657,650
McGraw-Hill Companies, Inc. 56,000 3,451,000
The New York Times Co. Class A 219,200 10,768,200
Tribune Co. 441,800 24,326,613
80,197,044
SHARES VALUE (NOTE 1)
RESTAURANTS - 0.1%
Brinker International, Inc. 93,800 $ 2,251,200
(a)
Darden Restaurants, Inc. 151,600 2,747,750
4,998,950
TOTAL MEDIA & LEISURE 85,385,527
NONDURABLES - 2.7%
BEVERAGES - 1.2%
Adolph Coors Co. Class B 96,800 5,082,000
Anheuser-Busch Companies, 564,200 39,987,675
Inc.
Pepsi Bottling Group, Inc. 389,800 6,456,063
PepsiCo, Inc. 138,400 4,878,600
56,404,338
FOODS - 1.1%
Campbell Soup Co. 129,800 5,021,638
H. J. Heinz Co. 129,800 5,167,663
Kellogg Co. 303,900 9,363,919
Quaker Oats Co. 284,000 18,637,500
Ralston Purina Co. 173,000 4,822,375
Sara Lee Corp. 486,500 10,733,406
53,746,501
HOUSEHOLD PRODUCTS - 0.3%
Procter & Gamble Co. 147,200 16,127,600
TOBACCO - 0.1%
Philip Morris Companies, Inc. 291,600 6,761,475
TOTAL NONDURABLES 133,039,914
PRECIOUS METALS - 0.0%
Homestake Mining Co. 173,200 1,353,125
RETAIL & WHOLESALE - 4.4%
APPAREL STORES - 0.2%
Gap, Inc. 258,525 11,892,150
GENERAL MERCHANDISE STORES -
2.5%
Dayton Hudson Corp. 147,500 10,832,031
Sears, Roebuck & Co. 34,600 1,053,138
Wal-Mart Stores, Inc. 1,586,600 109,673,725
121,558,894
RETAIL & WHOLESALE,
MISCELLANEOUS - 1.7%
Best Buy Co., Inc. (a) 249,700 12,531,819
Circuit City Stores, Inc. - 129,900 5,853,619
Circuit City Group
Home Depot, Inc. 624,300 42,803,569
Lowe's Companies, Inc. 358,400 21,414,400
82,603,407
TOTAL RETAIL & WHOLESALE 216,054,451
SERVICES - 0.3%
LEASING & RENTAL - 0.1%
Hertz Corp. Class A 115,700 5,799,463
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
SERVICES - CONTINUED
PRINTING - 0.2%
Valassis Communications, Inc. 210,700 $ 8,902,075
(a)
TOTAL SERVICES 14,701,538
TECHNOLOGY - 16.3%
COMMUNICATIONS EQUIPMENT - 3.5%
ADC Telecommunications, Inc. 216,500 15,709,781
(a)
Cisco Systems, Inc. (a) 744,900 79,797,413
Globalstar Telecommunications 1,410 303,150
Ltd. warrants 2/15/04 (a)(f)
Lucent Technologies, Inc. 1,011,400 75,665,363
171,475,707
COMPUTER SERVICES & SOFTWARE
- - 4.7%
Adobe Systems, Inc. 390,400 26,254,400
Computer Associates 208,300 14,567,981
International, Inc.
Electronics for Imaging, Inc. 221,800 12,892,125
(a)
First Data Corp. 627,800 30,958,388
Microsoft Corp. (a) 1,037,700 121,151,475
NetScout Systems, Inc. 130,200 4,036,200
Oracle Corp. (a) 207,700 23,275,381
233,135,950
COMPUTERS & OFFICE EQUIPMENT
- - 3.5%
Adaptec, Inc. (a) 433,900 21,640,763
Comverse Technology, Inc. (a) 156,200 22,609,950
International Business 519,400 56,095,200
Machines Corp.
Lexmark International Group, 467,500 42,308,750
Inc. Class A (a)
Sun Microsystems, Inc. (a) 406,100 31,447,369
174,102,032
ELECTRONIC INSTRUMENTS - 0.6%
Agilent Technologies, Inc. 15,300 1,182,881
Applied Materials, Inc. (a) 86,800 10,996,475
Teradyne, Inc. (a) 233,800 15,430,800
27,610,156
ELECTRONICS - 4.0%
Analog Devices, Inc. (a) 4,600 427,800
Intel Corp. 173,200 14,256,525
LSI Logic Corp. (a) 151,800 10,246,500
Motorola, Inc. 605,700 89,189,325
National Semiconductor Corp. 173,000 7,406,563
(a)
Texas Instruments, Inc. 780,000 75,562,500
Vishay Intertechnology, Inc. 129,800 4,104,925
(a)
201,194,138
TOTAL TECHNOLOGY 807,517,983
TRANSPORTATION - 0.0%
TRUCKING & FREIGHT - 0.0%
United Parcel Service, Inc. 34,600 2,387,400
Class B
SHARES VALUE (NOTE 1)
UTILITIES - 5.2%
CELLULAR - 1.2%
McCaw International Ltd. 8,150 $ 18,338
warrants 4/16/07 (a)(f)
QUALCOMM, Inc. (a) 346,400 61,009,700
61,028,038
ELECTRIC UTILITY - 1.0%
DTE Energy Co. 210,000 6,588,750
Edison International 270,500 7,083,719
Energy East Corp. 654,000 13,611,375
GPU, Inc. 212,300 6,355,731
PECO Energy Co. 116,800 4,058,800
PP&L Resources, Inc. 128,500 2,939,438
Public Service Enterprise 170,100 5,921,606
Group, Inc.
Unicom Corp. 130,100 4,358,350
50,917,769
GAS - 0.3%
Enron Corp. 319,800 14,191,125
TELEPHONE SERVICES - 2.7%
AT&T Corp. 674,240 34,217,680
BellSouth Corp. 762,300 35,685,169
MCI WorldCom, Inc. (a) 324,450 17,216,128
Ono Finance PLC rights 1,740 174,000
5/31/09 (a)(f)
Pathnet, Inc. warrants 4,970 49,700
4/15/08 (a)(f)
SBC Communications, Inc. 593,794 28,947,458
Sprint Corp. - FON Group 224,900 15,138,581
131,428,716
TOTAL UTILITIES 257,565,648
TOTAL COMMON STOCKS 2,767,014,214
(Cost $1,993,683,117)
NONCONVERTIBLE PREFERRED
STOCKS - 1.5%
CONSTRUCTION & REAL ESTATE -
0.1%
REAL ESTATE INVESTMENT TRUSTS
- - 0.1%
California Federal Preferred 231,349 5,263,190
Capital Corp. $2.2812
Walden Residential 8,600 133,838
Properties, Inc. $2.30
5,397,028
FINANCE - 0.0%
INSURANCE - 0.0%
American Annuity Group 1,490 1,334,232
Capital Trust II 8.875%
SIG Capital Trust I 9.5% (a) 2,174 556,877
1,891,109
HEALTH - 0.0%
MEDICAL FACILITIES MANAGEMENT
- - 0.0%
Fresenius Medical Care 1,053 997,027
Capital Trust II 7.875%
NONCONVERTIBLE PREFERRED
STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
MEDIA & LEISURE - 0.5%
BROADCASTING - 0.3%
Adelphia Communications Corp. 15,763 $ 1,781,219
$13.00
CSC Holdings, Inc. 11.125% 100,968 11,030,754
pay-in-kind
Granite Broadcasting Corp. 374 381,480
12.75% pay-in-kind
Sinclair Capital 11.625% 28,380 2,845,095
16,038,548
PUBLISHING - 0.2%
PRIMEDIA, Inc.:
$9.20 32,995 3,101,530
8.625% 738 65,313
Series D, $10.00 31,050 3,073,950
6,240,793
TOTAL MEDIA & LEISURE 22,279,341
RETAIL & WHOLESALE - 0.0%
GROCERY STORES - 0.0%
Supermarkets General Holdings 17,231 86,155
Corp. $3.52 pay-in-kind
SERVICES - 0.1%
LEASING & RENTAL - 0.1%
Crown Castle International 1,953 2,021,355
Corp. 12.75% pay-in-kind
UTILITIES - 0.8%
CELLULAR - 0.3%
Nextel Communications, Inc.:
11.125% pay-in-kind 15,119 15,194,595
Series D, 13% pay-in-kind 276 296,700
15,491,295
TELEPHONE SERVICES - 0.5%
Adelphia Business Solution, 4,959 4,835,025
Inc. 12.875% pay-in-kind
Intermedia Communications, 4,952 4,828,200
Inc. 13.5% pay-in-kind
IXC Communications, Inc. 1,884 2,062,980
12.5% pay-in-kind
NEXTLINK Communications, Inc. 173,603 9,374,562
14% pay-in-kind
WinStar Communications, Inc. 2,981 2,951,190
14.25% (a)
24,051,957
TOTAL UTILITIES 39,543,252
TOTAL NONCONVERTIBLE 72,215,267
PREFERRED STOCKS
(Cost $72,915,380)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS - 18.4%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
CONVERTIBLE BONDS - 0.2%
HEALTH - 0.2%
MEDICAL FACILITIES MANAGEMENT
- - 0.2%
Tenet Healthcare Corp. 6% B1 $ 7,210,000 $ 5,876,150
12/1/05
Total Renal Care Holdings, B1 2,940,000 1,844,850
Inc. 7% 5/15/09 (f)
7,721,000
MEDIA & LEISURE - 0.0%
LODGING & GAMING - 0.0%
Hilton Hotels Corp. 5% Ba2 210,000 160,125
5/15/06
NONDURABLES - 0.0%
FOODS - 0.0%
Chiquita Brands B3 2,330,000 1,654,300
International, Inc. 7%
3/28/01
TOTAL CONVERTIBLE BONDS 9,535,425
NONCONVERTIBLE BONDS - 18.2%
AEROSPACE & DEFENSE - 0.2%
DEFENSE ELECTRONICS - 0.1%
Raytheon Co. 5.95% 3/15/01 Baa2 4,500,000 4,426,785
SHIP BUILDING & REPAIR - 0.1%
Newport News Shipbuilding, B1 3,830,000 3,820,425
Inc. 9.25% 12/1/06
TOTAL AEROSPACE & DEFENSE 8,247,210
BASIC INDUSTRIES - 0.5%
CHEMICALS & PLASTICS - 0.3%
Huntsman Corp. 9.5% 7/1/07 B2 2,440,000 2,305,800
(f)
Huntsman ICI Chemicals LLC B2 1,380,000 1,417,950
10.125% 7/1/09 (f)
Lyondell Chemical Co.:
9.875% 5/1/07 Ba3 5,050,000 5,151,000
10.875% 5/1/09 B2 1,500,000 1,552,500
Rohm & Haas Co. 7.4% 7/15/09 A3 1,400,000 1,384,978
Sterling Chemicals, Inc. Caa3 1,760,000 1,311,200
11.75% 8/15/06
13,123,428
IRON & STEEL - 0.0%
The LTV Corp. 11.75% Ba3 860,000 898,700
11/15/09 (f)
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
BASIC INDUSTRIES - CONTINUED
METALS & MINING - 0.0%
Kaiser Aluminum & Chemical B3 $ 1,210,000 $ 1,210,000
Corp. 12.75% 2/1/03
Metals USA, Inc. 8.625% B2 350,000 328,125
2/15/08
1,538,125
PACKAGING & CONTAINERS - 0.1%
Corning, Inc. 6.85% 3/1/29 A3 2,350,000 2,064,475
Gaylord Container Corp.:
9.375% 6/15/07 Caa1 2,825,000 2,627,250
9.75% 6/15/07 Caa1 1,770,000 1,681,500
6,373,225
PAPER & FOREST PRODUCTS - 0.1%
Potlatch Corp. 6.25% 3/15/02 Baa1 3,320,000 3,239,756
TOTAL BASIC INDUSTRIES 25,173,234
CONSTRUCTION & REAL ESTATE -
0.4%
BUILDING MATERIALS - 0.0%
American Standard Companies, Ba3 1,810,000 1,701,400
Inc. 7.375% 4/15/05
CONSTRUCTION - 0.1%
U.S. Home Corp. 8.875% B1 2,330,000 2,114,475
2/15/09
ENGINEERING - 0.0%
Anteon Corp. 12% 5/15/09 B3 1,530,000 1,430,550
REAL ESTATE - 0.1%
Duke-Weeks Realty LP 6.875% Baa2 2,950,000 2,803,503
3/15/05
LNR Property Corp.:
9.375% 3/15/08 B1 2,680,000 2,512,500
10.5% 1/15/09 B1 1,440,000 1,422,000
6,738,003
REAL ESTATE INVESTMENT TRUSTS
- - 0.2%
CenterPoint Properties Trust:
6.75% 4/1/05 Baa2 1,590,000 1,465,280
7.125% 3/15/04 Baa2 4,200,000 3,958,038
Equity Office Properties Trust:
6.375% 2/15/03 Baa1 3,600,000 3,470,904
6.75% 2/15/08 Baa1 1,590,000 1,462,307
10,356,529
TOTAL CONSTRUCTION & REAL 22,340,957
ESTATE
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
DURABLES - 0.3%
AUTOS, TIRES, & ACCESSORIES -
0.2%
Oshkosh Truck Co. 8.75% B2 $ 1,500,000 $ 1,455,000
3/1/08
Tenneco, Inc. 11.625% B2 1,300,000 1,319,500
10/15/09 (f)
TRW, Inc. 6.5% 6/1/02 Baa1 4,520,000 4,433,352
7,207,852
TEXTILES & APPAREL - 0.1%
Jones Apparel Group, Inc. Baa2 5,070,000 4,976,205
7.875% 6/15/06
Worldtex, Inc. 9.625% B1 2,000,000 1,620,000
12/15/07
6,596,205
TOTAL DURABLES 13,804,057
ENERGY - 0.8%
COAL - 0.1%
P&L Coal Holdings Corp. B2 1,870,000 1,823,250
9.625% 5/15/08
ENERGY SERVICES - 0.2%
Baker Hughes, Inc. 5.8% A2 3,980,000 3,825,576
2/15/03
R&B Falcon Corp. 6.5% 4/15/03 Ba3 1,785,000 1,628,813
RBF Finance Co.:
11% 3/15/06 Ba3 3,590,000 3,841,300
11.375% 3/15/09 Ba3 1,120,000 1,204,000
10,499,689
OIL & GAS - 0.5%
Apache Corp. 7.625% 7/1/19 Baa1 2,970,000 2,863,080
Chesapeake Energy Corp. B3 4,450,000 4,205,250
9.625% 5/1/05
Gulf Canada Resources Ltd. Ba1 800,000 786,000
8.375% 11/15/05
Occidental Petroleum Corp.:
6.39% 11/9/00 Baa3 1,000,000 995,710
10.94% 5/17/00 Baa3 2,700,000 2,740,851
Ocean Energy, Inc. 8.875% Ba3 2,010,000 2,004,975
7/15/07
Oryx Energy Co.:
8% 10/15/03 Baa1 3,055,000 3,057,750
8.125% 10/15/05 Baa1 4,935,000 5,014,454
8.375% 7/15/04 Baa1 2,335,000 2,394,823
Petro-Canada 7% 11/15/28 A3 1,980,000 1,745,152
25,808,045
TOTAL ENERGY 38,130,984
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
FINANCE - 4.5%
BANKS - 1.3%
BankBoston Corp. 6.625% A3 $ 1,700,000 $ 1,651,669
2/1/04
BanPonce Corp. 6.665% 3/5/01 A3 4,450,000 4,427,528
Barclays Bank PLC yankee A1 9,250,000 9,085,165
5.95% 7/15/01
Capital One Bank:
6.26% 5/7/01 Baa2 3,160,000 3,107,260
6.375% 2/15/03 Baa2 3,570,000 3,424,701
6.48% 6/28/02 Baa2 1,740,000 1,689,035
6.65% 3/15/04 Baa3 2,320,000 2,220,240
Capital One Financial Corp. Baa3 5,040,000 4,598,042
7.125% 8/1/08
Den Danske Bank AS 6.375% A1 8,340,000 7,745,775
6/15/08 (f)(i)
Fleet Boston Corp. 7.375% A3 1,400,000 1,370,250
12/1/09
Korea Development Bank:
6.625% 11/21/03 Baa2 4,165,000 3,996,109
7.375% 9/17/04 Baa2 615,000 602,700
yankee 6.5% 11/15/02 Baa2 665,000 641,725
National Westminster Bancorp Aa3 2,725,000 2,895,994
9.375% 11/15/03
National Westminster Bank PLC Aa3 1,975,000 1,928,588
7.375% 10/1/09
NB Capital Trust IV 8.25% Aa2 2,650,000 2,540,661
4/15/27
Popular, Inc. 6.2% 4/30/01 A3 1,840,000 1,813,633
Provident Bank 6.125% A3 1,740,000 1,724,427
12/15/00
Providian National Bank 6.7% Baa3 3,060,000 2,931,205
3/15/03
Summit Bancorp 8.625% BBB+ 1,730,000 1,781,156
12/10/02
Union Planters National Bank A3 3,500,000 3,515,470
6.81% 8/20/01
63,691,333
CREDIT & OTHER FINANCE - 2.3%
Ahmanson Capital Trust I A3 4,250,000 4,039,880
8.36% 12/1/26 (f)
AMRESCO, Inc.:
9.875% 3/15/05 Caa3 2,730,000 1,815,450
10% 3/15/04 Caa3 1,980,000 1,287,000
AT&T Capital Corp.:
6.25% 5/15/01 A1 5,200,000 5,150,236
7.5% 11/15/00 A1 3,435,000 3,459,698
BanPonce Trust I 8.327% A3 3,925,000 3,586,901
2/1/27
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Countrywide Funding Corp. A3 $ 3,950,000 $ 3,848,130
6.45% 2/27/03
Daimler-Chrysler NA Holding A1 12,500,000 12,445,000
Corp. 6.63% 9/21/01
ERP Operating LP:
6.55% 11/15/01 A3 1,500,000 1,475,970
7.1% 6/23/04 A3 3,980,000 3,888,977
Farmers Insurance Exchange A2 2,740,000 2,330,589
Capital 7.05% 7/15/28 (f)
Finova Capital Corp.:
6.11% 2/18/03 Baa1 4,320,000 4,156,229
6.12% 5/28/02 Baa1 2,000,000 1,945,860
First Security Capital I A3 1,690,000 1,574,303
8.41% 12/15/26
Ford Motor Credit Co.:
6.3563% 7/16/01 (i) A1 13,000,000 13,011,934
6.5% 2/28/02 A1 3,380,000 3,344,510
GS Escrow Corp.:
7% 8/1/03 Ba1 2,140,000 1,977,553
7.125% 8/1/05 Ba1 7,600,000 6,805,724
Heller Financial, Inc. 6% A3 5,050,000 4,795,127
3/19/04
KeyCorp Institutional Capital A1 3,600,000 3,259,368
A 7.826% 12/1/26
Macsaver Financial Services,
Inc.:
7.4% 2/15/02 Ba2 2,240,000 1,344,000
7.6% 8/1/07 Ba2 4,190,000 2,304,500
7.875% 8/1/03 Ba2 690,000 393,300
Mellon Capital I 7.72% A2 2,000,000 1,827,180
12/1/26
Newcourt Credit Group, Inc. A1 2,015,000 1,966,297
6.875% 2/16/05
PNC Funding Corp. 6.875% A3 2,020,000 1,992,084
3/1/03
Sprint Capital Corp.:
5.7% 11/15/03 Baa1 1,830,000 1,740,751
5.875% 5/1/04 Baa1 3,975,000 3,765,677
The Money Store, Inc. 7.3% A2 2,550,000 2,540,438
12/1/02
TXU Eastern Funding:
6.15% 5/15/02 Baa1 2,510,000 2,444,489
6.75% 5/15/09 Baa1 2,945,000 2,706,985
U.S. Bancorp 8.09% 11/15/26 A1 2,980,000 2,778,969
U.S. West Capital Funding, Baa1 5,180,000 5,158,244
Inc. 6.875% 8/15/01 (f)
UNICCO Service Co./UNICCO B3 2,170,000 1,996,400
Finance Corp. 9.875% 10/15/07
117,157,753
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
FINANCE - CONTINUED
SAVINGS & LOANS - 0.4%
Chevy Chase Savings Bank FSB B1 $ 1,420,000 $ 1,334,800
9.25% 12/1/08
Great Western Finance Trust A3 3,780,000 3,533,090
II 8.206% 2/1/27
Home Savings of America FSB A3 2,830,000 2,684,142
6.5% 8/15/04
Long Island Savings Bank FSB:
6.2% 4/2/01 Baa3 3,770,000 3,721,179
7% 6/13/02 Baa3 3,400,000 3,354,848
Sovereign Bancorp, Inc. Ba3 4,300,000 4,149,113
6.625% 3/15/01
18,777,172
SECURITIES INDUSTRY - 0.5%
Amvescap PLC yankee:
6.375% 5/15/03 A3 2,200,000 2,110,526
6.6% 5/15/05 A3 4,410,000 4,164,407
Goldman Sachs Group L.P. A1 12,900,000 12,920,898
6.5025% 7/27/00 (i)(k)
Morgan Stanley Dean Witter & Aa3 4,760,000 4,754,954
Co. 7.125% 1/15/03
23,950,785
TOTAL FINANCE 223,577,043
HEALTH - 0.0%
MEDICAL FACILITIES MANAGEMENT
- - 0.0%
Concentra Operating Corp. 13% B3 325,000 290,875
8/15/09 (f)
Fountain View, Inc. 11.25% Caa1 2,330,000 1,770,800
4/15/08
Tenet Healthcare Corp. 8.625% Ba3 1,090,000 1,057,300
1/15/07
3,118,975
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.6%
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.3%
Bucyrus International, Inc. B1 1,060,000 784,400
9.75% 9/15/07
Dunlop Standard Aero Holdings B3 2,490,000 2,564,700
PLC 11.875% 5/15/09
Roller Bearing Holding, Inc. - 3,550,000 1,881,500
0% 6/15/09 (d)(f)
Thermadyne Manufacturing LLC B3 335,000 278,050
9.875% 6/1/08
Tokheim Corp. 11.375% 8/1/08 B3 1,360,000 795,600
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Tyco International Group SA:
7% 6/15/28 Baa1 $ 2,540,000 $ 2,198,014
yankee:
6.125% 6/15/01 Baa1 6,860,000 6,743,929
6.375% 6/15/05 Baa1 830,000 777,527
16,023,720
POLLUTION CONTROL - 0.3%
Allied Waste North America,
Inc.:
7.375% 1/1/04 Ba3 1,290,000 1,173,900
10% 8/1/09 (f) B2 4,310,000 3,835,900
Browning-Ferris Industries, Ba3 1,220,000 976,000
Inc. 6.375% 1/15/08
Envirosource, Inc. Series B, Caa3 650,000 409,500
9.75% 6/15/03
WMX Technologies, Inc.:
6.25% 10/15/00 Ba1 2,100,000 2,057,181
7.1% 8/1/26 Ba1 4,610,000 4,271,857
12,724,338
TOTAL INDUSTRIAL MACHINERY & 28,748,058
EQUIPMENT
MEDIA & LEISURE - 4.3%
BROADCASTING - 2.9%
ACME Television LLC/ACME B3 870,000 783,000
Financial Corp. 0% 9/30/04
(d)
Adelphia Communications Corp.:
7.75% 1/15/09 B1 1,970,000 1,758,225
8.375% 2/1/08 B1 820,000 766,700
9.875% 3/1/07 B1 6,350,000 6,413,500
AMFM Operating, Inc. 12.625% - 1,523,800 1,733,323
10/31/06 pay-in-kind
Ascent Entertainment Group, B3 1,990,000 1,482,550
Inc. 0% 12/15/04 (d)
Avalon Cable Michigan, B2 1,680,000 1,696,800
Inc./Avalon Cable New
England/Avalon Cable Finance
9.375% 12/1/08
Benedek Communications Corp. B3 630,000 567,000
0% 5/15/06 (d)
Century Communications Corp.:
Series B, 0% 1/15/08 B1 2,520,000 1,102,500
8.75% 10/1/07 B1 800,000 768,000
Chancellor Media Corp. 9% B1 3,185,000 3,312,400
10/1/08
Charter Communications
Holdings LLC/Charter
Communications Holdings
Capital Corp.:
0% 4/1/11 (d) B2 1,960,000 1,146,600
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Charter Communications
Holdings LLC/Charter
Communications Holdings
Capital Corp.: - continued
8.625% 4/1/09 B2 $ 2,650,000 $ 2,451,250
Citadel Broadcasting Co. B3 840,000 886,200
10.25% 7/1/07
Clear Channel Communications,
Inc.:
6.875% 6/15/18 Baa3 3,450,000 3,065,463
7.25% 10/15/27 Baa3 4,550,000 4,104,100
Comcast UK Cable Partners B2 3,360,000 3,175,200
Ltd. 0% 11/15/07 (d)
Continental Cablevision, Inc.:
8.3% 5/15/06 Baa2 9,225,000 9,534,683
8.625% 8/15/03 Baa2 2,790,000 2,886,813
9% 9/1/08 Baa2 1,690,000 1,838,669
Cox Communications, Inc.:
6.875% 6/15/05 Baa2 2,580,000 2,518,493
7.75% 8/15/06 Baa2 1,925,000 1,943,711
CSC Holdings, Inc.:
9.25% 11/1/05 B1 1,370,000 1,404,250
9.875% 5/15/06 B1 1,600,000 1,672,000
10.5% 5/15/16 B1 1,850,000 2,044,250
Diamond Cable Communications
PLC:
0% 2/15/07 (d) B3 5,860,000 4,790,550
yankee 0% 12/15/05 (d) B3 2,460,000 2,312,400
Earthwatch, Inc. 0% 7/15/07 - 2,530,000 1,771,000
unit (d)(f)
EchoStar DBS Corp.:
9.25% 2/1/06 B2 1,150,000 1,150,000
9.375% 2/1/09 B2 1,250,000 1,253,125
Falcon Holding Group B2 11,520,000 8,409,600
LP/Falcon Funding Corp. 0%
4/15/10 (d)
FrontierVision Holdings B1 4,130,000 3,634,400
LP/FrontierVision Holdings
Capital Corp. 0% 9/15/07 (d)
FrontierVision Operating B1 1,910,000 2,043,700
Partners LP/ FrontierVision
Capital Corp. 11% 10/15/06
Golden Sky DBS, Inc. 0% Caa1 4,950,000 2,994,750
3/1/07 (d)
Golden Sky Systems, Inc. B3 950,000 1,011,750
12.375% 8/1/06
Hearst-Argyle Television, Baa3 3,260,000 3,012,859
Inc. 7.5% 11/15/27
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
International Cabletel, Inc. B3 $ 1,850,000 $ 1,669,625
0% 2/1/06 (d)
Knology Holding, Inc. 0% - 4,450,000 2,959,250
10/15/07 (d)
Lenfest Communications, Inc. B1 430,000 425,700
8.25% 2/15/08
LIN Holdings Corp. 0% 3/1/08 B3 290,000 195,750
(d)
Nielsen Media Research, Inc. Baa2 2,395,000 2,334,377
7.6% 6/15/09
NTL Communications Corp. B3 4,660,000 5,044,450
11.5% 10/1/08
NTL, Inc. 10% 2/15/07 B3 2,310,000 2,379,300
Olympus Communications B1 1,160,000 1,212,200
LP/Olympus Capital Corp.
10.625% 11/15/06
Pegasus Communications Corp. B3 1,115,000 1,126,150
9.625% 10/15/05
TCI Communications, Inc.:
8.75% 8/1/15 A2 1,970,000 2,149,211
9.25% 4/15/02 A2 3,000,000 3,148,890
9.8% 2/1/12 A2 4,550,000 5,315,947
Telewest PLC:
yankee 9.625% 10/1/06 B1 680,000 693,600
0% 10/1/07 (d) B1 9,405,000 8,699,625
Time Warner, Inc. 9.125% Baa3 5,355,000 5,864,582
1/15/13
United International B3 8,120,000 5,075,000
Holdings, Inc. 0% 2/15/08
(d)
United Pan-Europe B2 4,020,000 4,080,300
Communications NV 10.875%
8/1/09
143,813,771
ENTERTAINMENT - 0.5%
AMC Entertainment, Inc. 9.5% B3 470,000 410,075
2/1/11
Bally Total Fitness Holding B3 3,630,000 3,512,025
Corp. 9.875% 10/15/07
Capitol Records, Inc. 8.375% Baa1 5,220,000 5,180,328
8/15/09 (f)
Cinemark USA, Inc. 8.5% B2 3,255,000 2,848,125
8/1/08
Paramount Communications, Baa3 1,785,000 1,788,873
Inc. 7.5% 1/15/02
Regal Cinemas, Inc.:
8.875% 12/15/10 Caa1 3,530,000 2,638,675
9.5% 6/1/08 Caa1 3,430,000 2,709,700
United Artists Theatre Co. Caa3 1,060,000 169,600
9.75% 4/15/08
Viacom, Inc.:
6.75% 1/15/03 Baa3 4,430,000 4,358,500
7.75% 6/1/05 Baa3 2,137,000 2,150,955
25,766,856
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
MEDIA & LEISURE - CONTINUED
LODGING & GAMING - 0.3%
Circus Circus Enterprises, Ba2 $ 660,000 $ 565,125
Inc. 7.625% 7/15/13
Coast Hotels & Casinos, Inc. B3 1,150,000 1,112,625
9.5% 4/1/09
Courtyard by Marriott II B- 2,590,000 2,544,675
LP/Courtyard II Finance Co.
10.75% 2/1/08
HMH Properties, Inc.:
7.875% 8/1/05 Ba2 2,090,000 1,933,250
7.875% 8/1/08 Ba2 3,280,000 2,935,600
Hollywood Casino Corp. 11.25% B3 450,000 469,125
5/1/07
Host Marriott LP 8.375% Ba2 3,740,000 3,534,300
2/15/06
Signature Resorts, Inc. 9.75% B3 1,590,000 1,367,400
10/1/07
14,462,100
PUBLISHING - 0.3%
Garden State Newspapers, Inc. B1 4,670,000 4,401,475
Series B, 8.75% 10/1/09
News America Holdings, Inc.:
7.7% 10/30/25 Baa3 4,300,000 4,029,057
8.5% 2/15/05 Baa3 1,280,000 1,319,821
Time Warner Entertainment
Co. LP:
7.25% 9/1/08 Baa2 1,455,000 1,416,734
8.375% 3/15/23 Baa2 2,500,000 2,599,325
13,766,412
RESTAURANTS - 0.3%
CKE Restaurants, Inc. 9.125% B2 2,915,000 2,186,250
5/1/09
Domino's, Inc. 10.375% B3 5,210,000 5,014,625
1/15/09
Host Marriott Travel Plazas, Ba3 5,040,000 5,090,400
Inc. 9.5% 5/15/05
NE Restaurant, Inc. 10.75% B3 2,760,000 2,449,500
7/15/08
14,740,775
TOTAL MEDIA & LEISURE 212,549,914
NONDURABLES - 0.6%
BEVERAGES - 0.3%
Seagram JE & Sons, Inc.:
5.79% 4/15/01 Baa3 4,595,000 4,515,001
6.4% 12/15/03 Baa3 5,840,000 5,591,800
6.625% 12/15/05 Baa3 2,940,000 2,801,820
12,908,621
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
FOODS - 0.1%
ConAgra, Inc. 7.125% 10/1/26 Baa1 $ 3,200,000 $ 3,032,864
HOUSEHOLD PRODUCTS - 0.0%
Revlon Consumer Products B3 2,160,000 1,641,600
Corp. 9% 11/1/06
TOBACCO - 0.2%
Philip Morris Companies, Inc.:
6.95% 6/1/06 A2 4,420,000 4,354,142
7% 7/15/05 A2 3,710,000 3,517,414
7.25% 9/15/01 A2 1,450,000 1,439,865
RJ Reynolds Tobacco Holdings, Baa2 3,500,000 3,270,645
Inc. 7.375% 5/15/03
12,582,066
TOTAL NONDURABLES 30,165,151
RETAIL & WHOLESALE - 0.7%
DRUG STORES - 0.1%
Rite Aid Corp.:
6% 12/15/00 (f) B1 935,000 813,450
6.5% 12/15/05 (f) B1 5,775,000 4,158,000
7.125% 1/15/07 B1 1,595,000 1,196,250
6,167,700
GENERAL MERCHANDISE STORES -
0.2%
Dayton Hudson Corp. 7.5% A3 3,500,000 3,510,395
7/15/06
Federated Department Stores,
Inc.:
6.79% 7/15/27 Baa1 3,000,000 2,911,710
8.5% 6/15/03 Baa1 2,580,000 2,651,440
Kmart Corp. 12.5% 3/1/05 Ba1 2,510,000 2,836,300
11,909,845
GROCERY STORES - 0.3%
Kroger Co. 6% 7/1/00 Baa3 4,480,000 4,450,701
Pathmark Stores, Inc. 9.625% Caa3 9,150,000 6,862,500
5/1/03
Pueblo Xtra International,
Inc.:
Series C, 9.5% 8/1/03 B3 820,000 492,000
9.5% 8/1/03 B3 2,370,000 1,422,000
13,227,201
RETAIL & WHOLESALE,
MISCELLANEOUS - 0.1%
USA Networks, Inc./USANi LLC Baa3 3,350,000 3,198,647
6.75% 11/15/05
TOTAL RETAIL & WHOLESALE 34,503,393
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
SERVICES - 0.1%
PRINTING - 0.0%
Sullivan Graphics, Inc. Caa1 $ 1,430,000 $ 1,490,775
12.75% 8/1/05
SERVICES - 0.1%
La Petite Academy, Inc./La B3 2,880,000 2,116,800
Petite Academy Holding Co.
10% 5/15/08
Medaphis Corp. 9.5% 2/15/05 Caa1 1,770,000 1,362,900
3,479,700
TOTAL SERVICES 4,970,475
TECHNOLOGY - 0.7%
COMPUTER SERVICES & SOFTWARE
- - 0.3%
Concentric Network Corp. B- 595,000 624,750
12.75% 12/15/07
Covad Communications Group,
Inc.:
0% 3/15/08 (d) B3 2,370,000 1,487,175
12.5% 2/15/09 B3 1,091,000 1,129,185
Exodus Communications, Inc.:
10.75% 12/15/09 (f) B- 1,660,000 1,689,050
11.25% 7/1/08 B- 350,000 362,250
Federal Data Corp. 10.125% B3 3,720,000 2,697,000
8/1/05
PSINet, Inc.:
10.5% 12/1/06 (f) B3 5,170,000 5,234,625
11% 8/1/09 B3 2,140,000 2,198,850
Verio, Inc. 10.625% 11/15/09 B3 1,120,000 1,142,400
(f)
16,565,285
COMPUTERS & OFFICE EQUIPMENT
- - 0.2%
Comdisco, Inc. 6.375% Baa1 8,300,000 8,139,229
11/30/01
Sun Microsystems, Inc. 7% Baa1 1,380,000 1,375,170
8/15/02
9,514,399
ELECTRONICS - 0.2%
ChipPAC International Ltd. B3 3,280,000 3,444,000
12.75% 8/1/09 (f)
Details, Inc. 10% 11/15/05 B3 120,000 110,400
Fairchild Semiconductor Corp.:
10.125% 3/15/07 B3 1,415,000 1,429,150
10.375% 10/1/07 B3 1,950,000 1,989,000
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Micron Technology, Inc. 6.5% B3 $ 2,000,000 $ 1,595,000
9/30/05 (k)
SCG Holding B2 2,065,000 2,194,063
Corp./Semiconductor
Components Industries LLC
12% 8/1/09 (f)
10,761,613
TOTAL TECHNOLOGY 36,841,297
TRANSPORTATION - 1.0%
AIR TRANSPORTATION - 0.4%
Atlas Air, Inc. 9.25% 4/15/08 B2 4,520,000 4,305,300
Continental Airlines, Inc.
pass thru trust certificates:
7.434% 3/15/06 Baa1 1,110,000 1,083,804
7.73% 9/15/12 Baa1 725,000 706,875
Delta Air Lines, Inc.:
8.3% 12/15/29 (f) Baa3 4,000,000 3,880,000
9.875% 5/15/00 Baa3 1,500,000 1,515,570
Kitty Hawk, Inc. 9.95% B1 3,095,000 3,056,313
11/15/04
Qantas Airways Ltd. 7.75% Baa1 4,370,000 4,203,066
6/15/09 (f)
US Airways Group, Inc. Ba3 2,480,000 2,349,800
10.375% 3/1/13
21,100,728
RAILROADS - 0.6%
Burlington Northern Santa Fe
Corp.:
6.125% 3/15/09 Baa2 6,450,000 5,804,549
7.29% 6/1/36 Baa2 3,000,000 2,917,560
Canadian National Railway Co. Baa2 3,390,000 2,992,624
6.9% 7/15/28
CSX Corp.:
6.25% 10/15/08 Baa2 2,385,000 2,158,163
6.46% 6/22/05 Baa2 5,120,000 4,873,574
Norfolk Southern Corp. 7.05% Baa1 6,610,000 6,552,427
5/1/37
Wisconsin Central Baa2 1,810,000 1,657,146
Transportation Corp. 6.625%
4/15/08
26,956,043
SHIPPING - 0.0%
Holt Group, Inc. 9.75% Caa1 580,000 377,000
1/15/06
TOTAL TRANSPORTATION 48,433,771
UTILITIES - 3.5%
CELLULAR - 0.9%
Cable & Wireless Baa1 7,995,000 7,898,181
Communications PLC 6.375%
3/6/03
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
UTILITIES - CONTINUED
CELLULAR - CONTINUED
McCaw International Ltd. 0% Caa1 $ 7,160,000 $ 5,012,000
4/15/07 (d)
Millicom International Caa1 5,170,000 4,278,175
Cellular SA 0% 6/1/06 (d)
Nextel Communications, Inc.:
0% 10/31/07 (d) B1 18,830,000 13,651,750
12% 11/1/08 B1 1,370,000 1,530,975
Nextel International, Inc. Caa1 4,350,000 2,588,250
0% 4/15/08 (d)
Nuevo Grupo Iusacell SA de CV B1 722,000 750,880
14.25% 12/1/06 (f)
Rogers Cantel, Inc. 8.8% B2 1,200,000 1,200,000
10/1/07
Rogers Communications, Inc. B2 4,630,000 4,664,725
8.875% 7/15/07
Telesystem International Caa1 725,000 398,750
Wireless, Inc. 0% 11/1/07 (d)
Voicestream Wireless B2 4,490,000 4,624,700
Corp./Voicestream Wireless
Holding Co. 10.375% 11/15/09
(f)
46,598,386
ELECTRIC UTILITY - 0.4%
Avon Energy Partners Holdings:
6.46% 3/4/08 (f) Baa2 3,960,000 3,531,409
6.73% 12/11/02 (f) Baa2 4,910,000 4,788,281
Hydro-Quebec yankee 7.4% A2 2,620,000 2,743,926
3/28/25 (e)
Israel Electric Corp. Ltd.:
7.75% 12/15/27 (f) A3 3,920,000 3,376,374
yankee 7.875% 12/15/26 (f) A3 1,960,000 1,720,449
Texas Utilities Co. 6.375% Baa3 1,370,000 1,241,206
1/1/08
17,401,645
GAS - 0.1%
CMS Panhandle Holding Co. Baa3 2,550,000 2,416,635
6.125% 3/15/04
TELEPHONE SERVICES - 2.1%
Allegiance Telecom, Inc. 0% B3 840,000 604,800
2/15/08 (d)
e.spire Communications, Inc. - 1,550,000 1,085,000
13.75% 7/15/07
GST Network Funding, Inc. 0% - 8,900,000 4,361,000
5/1/08 (d)
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
GST Equipment Funding, Inc. - $ 1,685,000 $ 1,626,025
13.25% 5/1/07
GST Telecommunications, Inc. - 930,000 874,200
12.75% 11/15/07
GST USA, Inc. 0% 12/15/05 (d) - 335,000 249,575
GTE Corp. 6.155% 6/12/00 (i) - 7,650,000 7,647,720
Hyperion Telecommunications, Caa1 950,000 1,007,000
Inc. 12% 11/1/07
ICG Services, Inc. 0% 5/1/08 B3 5,075,000 2,600,938
(d)
Intermedia Communications,
Inc.:
0% 3/1/09 (d) B3 1,410,000 842,475
8.6% 6/1/08 B2 4,140,000 3,819,150
IXC Communications, Inc. 9% B1 2,360,000 2,383,600
4/15/08
KMC Telecom Holdings, Inc. Caa2 2,690,000 2,663,100
13.5% 5/15/09
Logix Communications - 4,730,000 3,311,000
Enterprises, Inc. 12.25%
6/15/08
MCI WorldCom, Inc. 8.875% A3 3,139,000 3,294,600
1/15/06
McLeodUSA, Inc.:
0% 3/1/07 (d) B1 1,845,000 1,494,450
9.5% 11/1/08 B1 3,140,000 3,171,400
Metromedia Fiber Network,
Inc.:
10% 11/15/08 B2 900,000 918,000
10% 12/15/09 B2 1,590,000 1,621,800
NEXTLINK Communications, Inc.:
9.625% 10/1/07 B2 4,870,000 4,760,425
10.5% 12/1/09 (f) B2 2,350,000 2,391,125
Ono Finance PLC 13% 5/1/09 Caa1 1,740,000 1,800,900
Pathnet, Inc. 12.25% 4/15/08 - 4,970,000 3,180,800
Rhythms NetConnections, Inc.:
0% 5/15/08 (d) B3 7,740,000 4,179,600
12.75% 4/15/09 B3 4,480,000 4,345,600
Telecomunicaciones de Puerto Baa2 5,540,000 5,224,220
Rico, Inc. 6.65% 5/15/06
Teleglobe Canada, Inc.:
7.2% 7/20/09 Baa1 6,886,000 6,468,158
7.7% 7/20/29 Baa1 8,610,000 7,879,872
Teligent, Inc.:
0% 3/1/08 (d) Caa1 8,295,000 4,873,313
11.5% 12/1/07 Caa1 5,040,000 4,914,000
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
WinStar Communications, Inc.:
0% 10/15/05 (d) Caa1 $ 2,410,000 $ 2,961,400
0% 3/15/08 (d) CCC 7,500,000 7,650,000
15% 3/1/07 CCC 1,200,000 1,704,000
105,909,246
TOTAL UTILITIES 172,325,912
TOTAL NONCONVERTIBLE BONDS 902,930,431
TOTAL CORPORATE BONDS 912,465,856
(Cost $953,137,023)
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 5.2%
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 1.6%
Fannie Mae:
5.625% 5/14/04 Aaa 13,840,000 13,225,781
6% 5/15/08 Aaa 12,000,000 11,235,000
6.25% 5/15/29 Aaa 14,705,000 13,087,450
6.5% 4/29/09 Aaa 6,820,000 6,382,020
Farm Credit Systems Financial Aaa 2,000,000 2,165,000
Assistance Corp. 8.8% 6/10/05
Federal Home Loan Bank:
5.195% 9/11/01 Aaa 4,500,000 4,402,980
7.59% 3/10/05 Aaa 3,850,000 3,955,259
Freddie Mac:
6.25% 7/15/04 Aaa 2,500,000 2,444,150
6.75% 8/1/05 Aaa 2,500,000 2,476,950
7.625% 9/9/09 Aaa 14,850,000 14,666,751
U.S. Department of Housing Aaa 2,825,000 2,862,629
and Urban Development
government guaranteed
participation certificates
Series 1996-A, 7.63% 8/1/14
TOTAL U.S. GOVERNMENT AGENCY 76,903,970
OBLIGATIONS
U.S. TREASURY OBLIGATIONS -
3.6%
U.S. Treasury Bonds:
5.25% 2/15/29 Aaa 750,000 620,153
6.875% 8/15/25 Aaa 53,625,000 54,621,889
7.625% 2/15/25 Aaa 17,790,000 19,716,301
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
8.875% 8/15/17 Aaa $ 4,027,000 $ 4,866,992
11.75% 2/15/10 (callable) Aaa 15,045,000 18,289,003
12% 8/15/13 Aaa 3,740,000 4,994,059
13.875% 5/15/11 (callable) Aaa 21,150,000 28,899,572
U.S. Treasury Notes:
5.875% 11/15/04 Aaa 3,855,000 3,779,712
6% 8/15/09 Aaa 26,140,000 25,323,125
6.25% 10/31/01 Aaa 820,000 820,131
6.625% 6/30/01 Aaa 15,700,000 15,788,234
7.25% 8/15/04 Aaa 1,404,000 1,447,875
TOTAL U.S. TREASURY 179,167,046
OBLIGATIONS
TOTAL U.S. GOVERNMENT AND 256,071,016
GOVERNMENT AGENCY OBLIGATIONS
(Cost $271,370,711)
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES - 10.0%
FANNIE MAE - 7.8%
6% 1/1/11 to 1/1/29 Aaa 58,934,066 55,130,174
6.5% 5/1/14 to 3/1/29 Aaa 104,437,117 98,703,785
6.5% 1/1/15 (g) Aaa 8,700,000 8,439,000
7% 8/1/13 to 12/1/29 Aaa 189,145,428 183,137,015
7.5% 7/1/16 to 9/1/29 Aaa 29,582,975 29,255,217
8% 9/1/26 to 12/1/29 Aaa 10,601,059 10,687,146
TOTAL FANNIE MAE 385,352,337
FREDDIE MAC - 0.6%
7.5% 5/1/17 to 7/1/29 Aaa 4,274,679 4,238,563
8% 7/1/17 to 12/1/29 Aaa 28,001,715 28,273,296
8.5% 7/1/21 to 6/1/23 Aaa 50,768 52,281
TOTAL FREDDIE MAC 32,564,140
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 1.6%
6% 12/15/08 to 6/15/09 Aaa 2,531,370 2,429,524
6.5% 6/15/08 to 3/15/29 Aaa 41,330,515 39,249,754
7% 7/15/28 Aaa 18,338,165 17,707,699
7.5% 9/15/22 to 9/15/29 Aaa 20,148,937 19,947,958
8% 5/15/25 Aaa 85,363 86,324
8.5% 12/15/16 Aaa 26,058 27,004
TOTAL GOVERNMENT NATIONAL 79,448,263
MORTGAGE ASSOCIATION
TOTAL U.S. GOVERNMENT AGENCY 497,364,740
- - MORTGAGE SECURITIES
(Cost $511,043,569)
ASSET-BACKED SECURITIES - 1.2%
MOODY'S RATINGS (UNAUDITED)(B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Airplanes pass through trust Ba2 $ 3,160,000 $ 2,591,200
10.875% 3/15/19
ARG Funding Corp. 5.88% Aaa 5,830,000 5,686,072
5/20/03 (f)
BankAmerica Manufacturing Aaa 3,730,000 3,642,578
Housing Contract 6.2%
4/10/09
Capita Equipment Receivables Baa2 2,950,000 2,832,384
Trust 6.48% 10/15/06
Chevy Chase Auto Receivables Aaa 1,347,469 1,333,785
Trust 5.91% 12/15/04
CIT Marine Trust 5.8% 4/15/10 Aaa 5,920,000 5,690,600
CPS Auto Grantor Trust:
6.09% 11/15/03 Aaa 1,896,713 1,902,344
6.55% 8/15/02 Aaa 899,278 897,030
CPS Auto Receivables Trust 6% Aaa 3,013,848 2,969,583
8/15/03
CSXT Trade Receivables Master Aaa 4,600,000 4,405,938
Trust 6% 7/25/04
Ford Credit Auto Owner Trust:
6.2% 12/15/02 Baa2 2,680,000 2,620,370
6.4% 12/15/02 Baa2 1,480,000 1,460,760
6.87% 11/15/04 A2 2,650,000 2,628,055
Green Tree Financial Corp.:
6.68% 1/15/29 AAA 6,680,000 6,627,762
6.8% 6/15/27 Aaa 823,337 823,593
Key Auto Finance Trust:
5.83% 1/15/07 Aaa 4,790,000 4,679,980
6.3% 10/15/03 A2 1,470,373 1,460,265
Olympic Automobile Aaa 718,515 718,505
Receivables Trust 6.7%
3/15/02
Petroleum Enhanced Trust Baa2 2,030,633 2,023,019
Receivables Offering
Petroleum Trust 6.125%
2/5/03 (f)(i)
UAF Auto Grantor Trust 6.1% Aaa 2,769,379 2,748,609
1/15/03 (f)
WFS Financial Owner Trust Aaa 4,430,000 4,403,005
6.55% 10/20/04
TOTAL ASSET-BACKED SECURITIES 62,145,437
(Cost $63,930,865)
COLLATERALIZED MORTGAGE
OBLIGATIONS - 0.1%
PRIVATE SPONSOR - 0.0%
Credit-Based Asset Servicing Ba3 1,058,734 503,892
and Securitization LLC
Series 1997-2 Class 2B,
7.1864% 12/29/25 (f)(h)(i)
MOODY'S RATINGS (UNAUDITED)(B) PRINCIPAL AMOUNT VALUE (NOTE 1)
U.S. GOVERNMENT AGENCY - 0.1%
Fannie Mae planned
amortization class:
Series 1999-54 Class PH, 6.5% Aaa $ 3,300,000 $ 2,934,938
11/18/29
Series 1999-57 Class PH, 6.5% Aaa 2,600,000 2,308,313
12/25/29
TOTAL U.S. GOVERNMENT AGENCY 5,243,251
TOTAL COLLATERALIZED 5,747,143
MORTGAGE OBLIGATIONS
(Cost $5,862,608)
COMMERCIAL MORTGAGE
SECURITIES - 2.0%
Bankers Trust REMIC Trust Baa3 1,000,000 925,000
1988-1 Series 1998-S1A Class
G, 8.3161% 11/28/02 (f)(i)
Berkeley Federal Bank & Trust - 1,900,000 1,278,938
FSB Series 1994 Class 1B
7.3368% 8/1/24 (f)(i)
BKB Commercial Mortgage Trust BBB 1,785,263 1,768,178
Series 1997-C1 Class D,
7.83% 2/25/43 (f)(i)
CBM Funding Corp.:
sequential pay Series 1996-1 AA 3,000,000 2,940,469
Class A-3PI, 7.08% 11/1/07
sequential pay Series 1996-1 A 2,320,000 2,251,306
Class B, 7.48% 2/1/08
CS First Boston Mortgage
Securities Corp.:
Series 1997-C2 Class D, 7.27% Baa2 5,730,000 5,199,975
1/17/35
Series 1998 C1 Class D, 7.17% BBB 5,050,000 4,469,250
1/17/12
Series 1998-FL1 Class E, Baa2 5,490,000 5,407,650
6.26% 1/10/13 (f)(i)
Deutsche Mortgage & Asset Baa2 4,260,000 3,724,838
Receiving Corp. Series
1998-C1 Class D, 7.231%
7/15/12
Equitable Life Assurance
Society of the United States:
sequential pay Series 174 Aaa 7,680,000 7,639,680
Class A1, 7.24% 5/15/06 (f)
Series 174:
Class B1, 7.33% 5/15/06 (f) Aa2 3,500,000 3,455,655
Class C-1, 7.52% 5/15/06 (f) A2 2,300,000 2,264,833
Class D1, 7.77% 5/15/06 (f) Baa2 2,200,000 2,148,080
COMMERCIAL MORTGAGE
SECURITIES - CONTINUED
MOODY'S RATINGS (UNAUDITED)(B) PRINCIPAL AMOUNT VALUE (NOTE 1)
First Chicago/Lennar Trust I
Series 1997-CHL1:
Class D, 8.1256% 4/13/39 (i) - $ 1,100,000 $ 875,875
Class E, 8.1256% 4/1/39 (i) - 1,600,000 1,125,000
First Union-Lehman Brothers Aa2 8,640,000 8,070,300
Commercial Mortgage Trust
sequential pay Series
1997-C2 Class B, 6.79%
11/18/29
FMAC Loan Receivables Trust:
Series 1997-A Class E, - 500,000 335,938
8.1096% 4/15/19 (f)(i)
Series 1997-B Class E, - 750,000 437,578
7.8912% 9/15/19 (f)(i)
GAFCO Franchisee Loan Trust - 1,300,000 1,040,813
Series 1998-1 Class D, 14%
6/1/16 (f)(i)
General Motors Acceptance Ba3 750,000 586,890
Corp. Commercial Mortgage
Securities, Inc. Series
1996-C1 Class F, 7.86%
10/15/28 (f)
GS Mortgage Securities Corp.
II Series 1998-GLII:
Class D, 7.1905% 4/13/31 Baa2 1,470,000 1,313,353
(f)(i)
Class E, 7.1905% 4/13/31 Baa3 4,930,000 4,164,309
(f)(i)
Host Marriot Pool Trust 6.98% Aaa 4,084,991 3,996,271
8/1/15
LTC Commercial Mortgage pass AAA 3,032,284 2,799,283
through certificates Series
1998-1 Class A, 6.029%
5/30/30 (f)
Morgan Stanley Capital I,
Inc.:
Series 1996-MBL1 Class E, - 1,741,949 1,741,949
8.5243% 5/25/21 (f)(i)
Series 1998-HF1 Class D, 7.1% BBB 5,790,000 5,379,272
2/15/30 (i)
Nomura Asset Securities Corp. Baa2 4,260,000 3,696,881
Series 1998-D6 Class A-4,
7.597% 3/17/28 (i)
Nomura Depositor Trust - 800,000 728,188
floater Series 1998-ST1A
Class B2, 9.6938% 1/15/03
(f)(i)
Penn Mutual Life Insurance
Co. (The)/Penn Insurance &
Annuity Co. Series 1996-PML:
Class K, 7.9% 11/15/26 (f) - 1,473,000 959,468
Class L, 7.9% 11/15/26 (f) - 1,133,000 600,490
MOODY'S RATINGS (UNAUDITED)(B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Resolution Trust Corp. Baa3 $ 318,186 $ 257,731
Series 1991-M2 Class A3,
6.9066% 9/25/20 (i)
Structured Asset Securities
Corp.:
Series 1995-C1 Class E, BB 1,200,000 1,060,125
7.375% 9/25/24 (f)
Series 1996 CFL Class E, BBB 2,390,000 2,345,654
7.75% 2/25/28
Series 1996-CFL Class G, B+ 1,000,000 836,563
7.75% 2/25/28 (f)
Thirteen Affiliates of
General Growth Properties,
Inc.:
sequential pay Series 1 Class Aaa 4,200,000 3,991,764
A2, 6.602% 12/15/10 (f)
Series D-2, 6.992% 12/15/10 Baa2 4,120,000 3,788,752
(f)
Series E-2, 7.224% 12/15/10 Baa3 2,450,000 2,187,391
(f)
Wells Fargo Capital Markets Aaa 2,676,825 2,633,729
Apartment Financing Trust
Series APT Class 1, 6.56%
12/29/05 (f)
TOTAL COMMERCIAL MORTGAGE 98,427,419
SECURITIES
(Cost $105,234,455)
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 0.2% (J)
Israeli State euro 6.375% A3 3,350,000 3,302,062
12/19/01
Korean Republic yankee:
8.75% 4/15/03 Baa2 1,340,000 1,379,570
8.875% 4/15/08 Baa2 1,868,000 1,957,533
Province of Newfoundland Baa1 2,000,000 2,466,000
yankee 11.625% 10/15/07
TOTAL FOREIGN GOVERNMENT AND 9,105,165
GOVERNMENT AGENCY OBLIGATIONS
(Cost $9,313,592)
SUPRANATIONAL OBLIGATIONS -
0.1%
Inter-American Development Aaa 4,750,000 4,518,058
Bank yankee 6.29% 7/16/27
(Cost $4,720,123)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CERTIFICATES OF DEPOSIT - 1.4%
Bayerische Hypo-und 13,000,000 12,938,468
Vereinsbank AG yankee
6.3825% 5/15/00 (i)
Canadian Imperial Bank of 11,000,000 10,995,999
Commerce yankee 5.63%
4/13/00 (i)
Commerzbank AG yankee 5.58% 11,600,000 11,569,621
6/12/00
CERTIFICATES OF DEPOSIT -
CONTINUED
PRINCIPAL AMOUNT VALUE (NOTE 1)
Deutsche Bank AG yankee 5.1% $ 12,000,000 $ 11,987,891
2/11/00
Fleet National Bank 6.305% 12,000,000 12,003,702
5/5/00 (i)
Societe Generale, France 12,500,000 12,484,950
yankee 5.16% 2/22/00
TOTAL CERTIFICATES OF DEPOSIT 71,980,631
(Cost $72,073,221)
COMMERCIAL PAPER - 1.8%
Asset Securitization Coop. 11,250,000 11,146,934
Corp. 5.96% 3/2/00
Citibank Credit Card Master 11,000,000 10,886,663
Trust I (Dakota Certificate
Program) 5.96% 3/9/00
Corporate Receivables Corp. 11,000,000 10,929,031
6.15% 2/14/00
CXC, Inc. 6.03% 2/18/00 11,250,000 11,169,644
Enterprise Funding Corp. 11,250,000 11,209,500
yankee 6.15% 1/27/00
Finova Capital Corp. 6.4225% 13,000,000 12,989,015
4/10/00 (i)
New Center Asset Trust 6.05% 11,000,000 10,866,056
3/21/00
Windmill Funding Corp. yankee 11,000,000 10,962,260
6.15% 1/26/00
TOTAL COMMERCIAL PAPER 90,159,103
(Cost $90,081,486)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CASH EQUIVALENTS - 2.2%
MATURITY AMOUNT
Investments in repurchase $ 30,295,212 30,286,000
agreements (U.S. Treasury
obligations), in a joint
trading account at 3.65%,
dated 12/31/99 due 1/3/00
SHARES
Taxable Central Cash Fund, 77,158,125 77,158,125
5.12% (c)
TOTAL CASH EQUIVALENTS 107,444,125
(Cost $107,444,125)
TOTAL INVESTMENT PORTFOLIO - 4,954,658,174
99.9%
(Cost $4,260,810,275)
NET OTHER ASSETS - 0.1% 5,944,708
NET ASSETS - 100% $ 4,960,602,882
</TABLE>
LEGEND
(a) Non-income producing
(b) S&P credit ratings are used in the absence of a rating by Moody's
Investors Service, Inc.
(c) The rate quoted is the annualized seven-day yield of the fund at
period end.
(d) Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date. The rate shown
is the rate at period end.
(e) Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date. The rate shown is the rate at
period end.
(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. At the period end, the value of these securities
amounted to $153,564,140 or 3.1% of net assets.
(g) Security purchased on a delayed delivery or when-issued basis.
(h) Partial interest payment received on the last interest payment
date.
(i) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(j) For foreign government obligations not individually rated by S&P
or Moody's, the ratings listed have been assigned by FMR, the fund's
investment adviser, based principally on S&P and Moody's ratings of
the sovereign credit of the issuing government.
(k) Restricted securities - Investment in securities not registered
under the Securities Act of 1933.
Additional information on each holding is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST
Alliance Gaming Corp. 7/28/98 $ 259,200
Goldman Sachs Group L.P. 1/25/99 $ 12,900,000
6.5025% 7/27/00
Micron Technology, Inc. 6.5% 7/15/99 - 11/1/99 $ 1,597,500
9/30/05
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total
value of investments in securities, is as follows (ratings are
unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 20.8% AAA, AA, A 19.2%
Baa 6.8% BBB 6.7%
Ba 1.3% BB 1.9%
B 5.3% B 5.1%
Caa 1.2% CCC 1.1%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by Moody's or S&P amounted to 0.8%. FMR has
determined that unrated debt securities that are lower quality account
for 0.8% of the total value of investment in securities.
Purchases and sales of securities, other than short-term securities,
aggregated $4,271,160,399 and $4,294,454,579, respectively, of which
long-term U.S. government and government agency obligations aggregated
$1,401,412,857 and $1,127,467,271, respectively.
The market value of futures contracts opened and closed during the
period amounted to $287,734,098 and $363,516,685, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company.
The commissions paid to these affiliated firms were $93,901 for the
period.
The fund invested in securities that are not registered under the
Securities Act of 1933. These securities are subject to legal or
contractual restrictions on resale. At the end of the period,
restricted securities (excluding Rule 144A issues) amounted to
$14,518,331 and 0.3% of net assets.
The fund participated in the bank borrowing program. The average daily
loan balance during the period for which loans were outstanding
amounted to $11,430,000. The weighted average interest rate was 5.1%.
The fund participated in the security lending program. At period end
there were no loans outstanding.
INCOME TAX INFORMATION
At December 31, 1999, the aggregate cost of investment securities for
income tax purposes was $4,262,446,958. Net unrealized appreciation
aggregated $692,211,216, of which $841,455,570 related to appreciated
investment securities and $149,244,354 related to depreciated
investment securities.
The fund hereby designates approximately $204,447,000 as a capital
gain dividend for the purpose of the dividend paid deduction.
FIDELITY VARIABLE INSURANCE PRODUCTS: ASSET MANAGER PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
ASSETS
Investment in securities, at $ 4,954,658,174
value (including repurchase
agreements of $30,286,000)
(cost $4,260,810,275) - See
accompanying schedule
Cash 16,177
Receivable for fund shares 2,613,621
sold
Dividends receivable 2,246,724
Interest receivable 27,327,397
Other receivables 124,585
TOTAL ASSETS 4,986,986,678
LIABILITIES
Payable for investments $ 9,085,898
purchased Regular delivery
Delayed delivery 8,564,848
Payable for fund shares 6,113,364
redeemed
Accrued management fee 2,143,126
Distribution fees payable 1,898
Other payables and accrued 474,662
expenses
TOTAL LIABILITIES 26,383,796
NET ASSETS $ 4,960,602,882
Net Assets consist of:
Paid in capital $ 3,744,400,943
Undistributed net investment 163,666,159
income
Accumulated undistributed net 358,686,209
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation 693,849,571
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS $ 4,960,602,882
INITIAL CLASS: NET ASSET $18.67
VALUE, offering price and
redemption price per share
($4,936,925,664 (divided
by) 264,372,263 shares)
SERVICE CLASS: NET ASSET $18.59
VALUE, offering price and
redemption price per share
($23,677,218 (divided by)
1,273,914 shares)
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
INVESTMENT INCOME $ 37,717,264
Dividends
Interest 156,178,124
Security lending 1,300
TOTAL INCOME 193,896,688
EXPENSES
Management fee $ 25,926,306
Transfer agent fees 3,226,198
Distribution fees - Service 14,423
Class
Accounting and security 938,579
lending fees
Non-interested trustees' 21,216
compensation
Custodian fees and expenses 108,798
Registration fees 19,156
Audit 46,405
Legal 32,889
Interest 1,619
Miscellaneous 272,231
Total expenses before 30,607,820
reductions
Expense reductions (377,290) 30,230,530
NET INVESTMENT INCOME 163,666,158
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities 362,588,171
Foreign currency transactions (3,601)
Futures contracts 2,722,629 365,307,199
Change in net unrealized
appreciation (depreciation)
on:
Investment securities (11,464,827)
Assets and liabilities in 21
foreign currencies
Futures contracts (3,226,917) (14,691,723)
NET GAIN (LOSS) 350,615,476
NET INCREASE (DECREASE) IN $ 514,281,634
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION $ 355,082
Expense reductions Directed
brokerage arrangements
Custodian credits 22,208
$ 377,290
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
INCREASE (DECREASE) IN NET YEAR ENDED DECEMBER 31, 1999 YEAR ENDED DECEMBER 31, 1998
ASSETS
Operations Net investment $ 163,666,158 $ 160,471,734
income
Net realized gain (loss) 365,307,199 201,707,185
Change in net unrealized (14,691,723) 287,626,860
appreciation (depreciation)
NET INCREASE (DECREASE) IN 514,281,634 649,805,779
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (161,497,855) (139,636,837)
From net investment income
From net realized gain (204,563,949) (418,910,515)
TOTAL DISTRIBUTIONS (366,061,804) (558,547,352)
Share transactions - net (98,885,126) 420,062,178
increase (decrease)
TOTAL INCREASE (DECREASE) 49,334,704 511,320,605
IN NET ASSETS
NET ASSETS
Beginning of period 4,911,268,178 4,399,947,573
End of period (including $ 4,960,602,882 $ 4,911,268,178
undistributed net investment
income of $163,666,159 and
$159,730,084, respectively)
</TABLE>
OTHER INFORMATION:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999 YEAR ENDED DECEMBER 31, 1998
SHARES DOLLARS SHARES DOLLARS
Share transactions Initial 18,326,496 $ 320,298,483 23,406,455 $ 397,953,748
Class Sold
Reinvested 21,655,706 365,548,318 34,542,119 558,546,057
Redeemed (45,749,338) (801,281,286) (32,078,907) (541,870,122)
Net increase (decrease) (5,767,136) $ (115,434,485) 25,869,667 $ 414,629,683
Service Class Sold 1,054,578 $ 18,334,058 330,869 $ 5,609,677
Reinvestment 30,528 513,486 80 1,295
Redeemed (131,705) (2,298,185) (11,004) (178,477)
Net increase (decrease) 953,401 $ 16,549,359 319,945 $ 5,432,495
Distributions From net $ 161,271,317 $ 139,636,513
investment income Initial
Class
Service Class 226,538 324
Total $ 161,497,855 $ 139,636,837
From net realized gain $ 204,277,001 $ 418,909,543
Initial Class
Service Class 286,948 972
Total $ 204,563,949 $ 418,910,515
$ 366,061,804 $ 558,547,352
</TABLE>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31, 1999 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 18.16 $ 18.01 $ 16.93 $ 15.79 $ 13.79
period
Income from Investment
Operations
Net investment income .59 D .59 D .57 D .63 .30
Net realized and unrealized 1.28 1.84 2.58 1.55 1.99
gain (loss)
Total from investment 1.87 2.43 3.15 2.18 2.29
operations
Less Distributions
From net investment income (.60) (.57) (.59) (.57) (.29)
From net realized gain (.76) (1.71) (1.48) (.47) -
Total distributions (1.36) (2.28) (2.07) (1.04) (.29)
Net asset value, end of period $ 18.67 $ 18.16 $ 18.01 $ 16.93 $ 15.79
TOTAL RETURN B, C 11.09% 15.05% 20.65% 14.60% 16.96%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 4,936,926 $ 4,905,468 $ 4,399,937 $ 3,641,194 $ 3,332,844
(000 omitted)
Ratio of expenses to average .63% .64% .65% .74% .81%
net assets
Ratio of expenses to average .62% F .63% F .64% F .73% F .79% F
net assets after expense
reductions
Ratio of net investment 3.36% 3.46% 3.43% 3.60% 3.54%
income to average net assets
Portfolio turnover 94% 113% 101% 168% 256%
</TABLE>
FINANCIAL HIGHLIGHTS - SERVICE CLASS
YEARS ENDED DECEMBER 31, 1999 1998 1997 E
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 18.10 $ 17.99 $ 17.60
period
Income from Investment
Operations
Net investment income D .56 .57 .10
Net realized and unrealized 1.29 1.82 .29
gain (loss)
Total from investment 1.85 2.39 .39
operations
Less Distributions
From net investment income (.60) (.57) -
From net realized gain (.76) (1.71) -
Total distributions (1.36) (2.28) -
Net asset value, end of period $ 18.59 $ 18.10 $ 17.99
TOTAL RETURN B, C 11.01% 14.82% 2.22%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 23,677 $ 5,801 $ 10
(000 omitted)
Ratio of expenses to average .74% .78% .75% A
net assets
Ratio of expenses to average .73% F .77% F .75% A
net assets after expense
reductions
Ratio of net investment 3.25% 3.49% 3.52% A
income to average net assets
Portfolio turnover 94% 113% 101%
A ANNUALIZED
B THE TOTAL RETURNS WOULD
HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED
DURING THE PERIODS SHOWN.
C TOTAL RETURNS FOR PERIODS
OF LESS THAN ONE YEAR ARE
NOT ANNUALIZED AND DO NOT
REFLECT CHARGES ATTRIBUTABLE
TO YOUR INSURANCE COMPANY'S
SEPARATE ACCOUNT. INCLUSION
OF THESE CHARGES WOULD
REDUCE THE TOTAL RETURNS
SHOWN.
D NET INVESTMENT INCOME PER
SHARE HAS BEEN CALCULATED
BASED ON AVERAGE SHARES
OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD NOVEMBER 3,
1997 (COMMENCEMENT OF SALE
OF SERVICE CLASS SHARES) TO
DECEMBER 31, 1997.
F FMR OR THE FUND HAS ENTERED
INTO VARYING ARRANGEMENTS
WITH THIRD PARTIES WHO
EITHER PAID OR REDUCED A
PORTION OF THE CLASS'
EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES.
Asset Manager Portfolio (the fund) is a fund of Variable Insurance
Products Fund II (the trust) (referred to in this report as Fidelity
Variable Insurance Products: Asset Manager Portfolio) and is
authorized to issue an unlimited number of shares. The trust is
registered under the Investment Company Act of 1940, as amended (the
1940 Act), as an open-end management investment company organized as a
Massachusetts business trust. Shares of the fund may only be purchased
by insurance companies for the purpose of funding variable annuity or
variable life insurance contracts. The fund offers two classes of
shares: the fund's original class of shares (Initial Class shares) and
Service Class shares. Both classes have equal rights and voting
privileges, except for matters affecting a single class. Investment
income, realized and unrealized capital gains and losses, the common
expenses of the fund, and certain fund-level expense reductions, if
any, are allocated on a pro rata basis to each class based on the
relative net assets of each class to the total net assets of the fund.
Each class of shares differs in its respective distribution plan. On
October 14, 1999, the Board of Trustees approved the creation of
Service Class 2, a new class of shares of the fund. The Service Class
2 shares will be subject to an annual distribution and service fee of
.25% of the class' average net assets. These shares are expected to be
available on or about January 12, 2000.
The financial statements have been prepared in conformity with
generally accepted accounting principles which require management to
make certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. Equity securities for which quotations are readily
available are valued at the last sale price, or if no sale price, at
the closing bid price. Foreign equity securities are valued based on
quotations from the principal market in which such securities are
normally traded. If trading or events occurring in other markets after
the close of the principal market in which foreign securities are
traded, and before the close of the business of the fund, are expected
to materially affect the value of those securities, then they are
valued at their fair value taking this trading or these events into
account. Fair value is determined in good faith under consistently
applied procedures under the general supervision of the Board of
Trustees. Debt securities for which quotations are readily available
are valued by a pricing service at their market values as determined
by their most recent bid prices in the principal market (sales prices
if the principal market is an exchange) in which such securities are
normally traded. Securities (including restricted securities) for
which market quotations are not readily available are valued at their
fair value. Short-term securities with remaining maturities of sixty
days or less for which quotations are not readily available are valued
at amortized cost or original cost plus accrued interest, both of
which approximate current value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
and settlement date on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or
loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend
date, except certain dividends from foreign securities where the
ex-dividend date may have passed, are recorded as soon as the fund is
informed of the ex-dividend date. Non-cash dividends included in
dividend income, if any, are recorded at the fair market value of the
securities received. Interest income, which includes accretion of
original issue discount, is accrued as earned. Investment income is
recorded net of foreign taxes withheld where recovery of such taxes is
uncertain.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
DEFERRED TRUSTEE COMPENSATION. Under a Deferred Compensation Plan (the
Plan) non-interested Trustees must defer receipt of a portion of, and
may elect to defer receipt of an additional portion of, their annual
compensation. Deferred amounts are treated as though equivalent dollar
amounts had been invested in a cross-section of other Fidelity funds.
Deferred amounts remain in the fund until distributed in accordance
with the Plan.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date. Income dividends and capital gain distributions are
declared separately for each class.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
may result in distribution reclassifications, are primarily due to
differing treatments for litigation proceeds, paydown gains/losses on
certain securities, futures contracts, foreign currency transactions,
non-taxable dividends, market discount and losses deferred due to wash
sales.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions
may include temporary book and tax basis differences which will
reverse in a subsequent period. Any taxable income or gain remaining
at fiscal year end is distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with
other affiliated entities of Fidelity Management & Research Company
(FMR), may transfer uninvested cash balances into one or more joint
trading accounts. These balances are invested in one or more
repurchase agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
CENTRAL CASH FUNDS. Pursuant to an Exemptive Order issued by the SEC,
the fund may invest in the Taxable Central Cash Fund and the Central
Cash Collateral Fund (the Cash Funds) managed by Fidelity Investments
Money Management, Inc., an affiliate of FMR. The Cash Funds are
open-end money market funds available only to investment companies and
other accounts managed by FMR and its affiliates. The Cash Funds seek
preservation of capital, liquidity, and current income. Income
distributions from the Cash Funds are declared daily and paid monthly
from net interest income. Income distributions earned by the fund are
recorded as either interest income or security lending income in the
accompanying financial statements.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell
securities on a delayed delivery basis. Payment and delivery may take
place after the customary settlement period for that security. The
price of the underlying securities and the date when the securities
will be delivered and paid for are fixed at the time the transaction
is negotiated. The market values of the securities purchased on a
delayed delivery basis are identified as such in the fund's schedule
of investments. The fund may receive compensation for interest forgone
in the purchase of a delayed delivery security. With respect to
purchase commitments, the fund identifies securities as segregated in
its custodial records with a value at least equal to the amount of the
commitment. Losses may arise due to changes in the market value of the
underlying securities or if the counterparty does not perform under
the contract.
FUTURES CONTRACTS. The fund may use futures contracts to manage its
exposure to the stock market. Buying futures tends to increase the
fund's exposure to the underlying instrument, while selling futures
tends to decrease the fund's exposure to the underlying instrument or
hedge other fund investments. Losses may arise from changes in the
value of the underlying instruments or if the counterparties do not
perform under the contracts' terms. Gains (losses) are realized upon
the expiration or closing of the futures contracts. Futures contracts
are valued at the settlement price established each day by the board
of trade or exchange on which they are traded.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
Information regarding restricted securities is included under the
caption "Other Information" at the end of the funds schedule of
investments.
3. PURCHASES AND SALES OF INVESTMENTS.
Information regarding purchases and sales of securities (other than
short-term securities), and the market value of futures contracts
opened and closed, is included under the caption "Other Information"
at the end of the fund's schedule of investments.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .2167% to .5200% for the
period. The annual individual fund fee rate is .25%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .53% of average net assets.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the
1940 Act, the Board of Trustees has adopted a Distribution and Service
Plan for the Service Class (the Plan) of shares. Under the Plan, the
class pays Fidelity Distributors Corporation (FDC), an affiliate of
FMR, a 12b-1 fee. This fee is based on an annual rate of .10% of
Service Class average net assets. Initial Class shares are not subject
to a 12b-1 fee.
For the period, Service Class paid FDC $14,423, all of which was
reallowed to insurance companies, for the distribution of shares and
providing shareholder support services.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc. (FIIOC), an affiliate of FMR, is the fund's transfer,
dividend disbursing and shareholder servicing agent. FIIOC receives
account fees and asset-based fees that vary according to account size
and type of account. FIIOC pays a portion of the expenses related to
the typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees of
the fund were equivalent to an annual rate of .07% of average net
assets.
ACCOUNTING AND SECURITY LENDING FEES. Fidelity Service Company, Inc.
(FSC), an affiliate of FMR, maintains the fund's accounting records
and administers the security lending program. The security lending fee
is based on the number and duration of lending transactions. The
accounting fee is based on the level of average net assets for the
month plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms are shown under the caption
"Other Information" at the end of the fund's schedule of investments.
5. SECURITY LENDING.
The fund lends portfolio securities from time to time in order to earn
additional income. The fund receives collateral in the form of U.S.
Treasury obligations, letters of credit and/or cash against the loaned
securities and maintains collateral in an amount not less than 100% of
the market value of the loaned securities during the period of the
loan. The market value of the loaned securities is determined at the
close of business of the fund and any additional required collateral
is delivered to the fund on the next business day. If the borrower
defaults on its obligation to return the securities loaned because of
insolvency or other reasons, the fund could experience delays and
costs in recovering the securities loaned or in gaining access to the
collateral. Information regarding the value of securities loaned and
the value of collateral at period end is included under the caption
"Other Information" at the end of the fund's schedule of investments.
6. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or
emergency purposes to fund shareholder redemptions. The fund has
established borrowing arrangements with certain banks. The interest
rate on the borrowings is the bank's base rate, as revised from time
to time. Information regarding the fund's participation in the program
is included under the caption "Other Information" at the end of the
fund's schedule of investments.
7. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a
portion of the fund's expenses.
In addition, through an arrangement with the fund's custodian, credits
realized as a result of uninvested cash balances were used to reduce a
portion of the fund's expenses. For the period, the reductions under
these arrangements are shown under the caption "Other Information" on
the fund's Statement of Operations.
8. BENEFICIAL INTEREST.
At the end of the period, Fidelity Investments Life Insurance Company
(FILI) and its subsidiaries, affiliates of FMR, were the record owners
of approximately 18% of the outstanding shares of the fund. In
addition, one unaffiliated insurance companies were each record owners
of 23% of the total outstanding shares of the fund.
INDEPENDENT AUDITORS' REPORT
To the Trustees of Variable Insurance Products Fund II and
Shareholders of Asset Manager Portfolio:
We have audited the accompanying statement of assets and liabilities
of Asset Manager Portfolio (the Fund), one of the funds of the
Variable Insurance Products II (the Trust) including the portfolio of
investments, as of December 31, 1999, and the related statements of
operations, changes in net assets, and financial highlights for the
year then ended. 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 audit. The statement of changes in net assets
for the year ended December 31, 1998, and the financial highlights for
each of the four years in the period then ended were audited by other
auditors whose report, dated February 12, 1999, expressed an
unqualified opinion on those statements and financial highlights.
We conducted our audit 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, 1999, by
correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Asset Manager Portfolio as of December 31, 1999,
the results of its operations, the changes in its net assets, and the
financial highlights for the year then ended, in conformity with
generally accepted accounting principles.
/s/DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 11, 2000
DISTRIBUTIONS
The Board of Trustees of Asset Manager Portfolio voted to pay to
shareholders of record at the opening of business on record date, the
following distributions per share derived from capital gains realized
from sales of portfolio securities, and dividends derived from net
investment income:
PAY DATE RECORD DATE DIVIDENDS CAPITAL GAINS
Initial Class 2/4/00 2/4/00 $0.59 $1.39
Service Class 2/4/00 2/4/00 $0.58 $1.39
Service Class 2 2/4/00 2/4/00 $0.58 $1.39
The fund hereby designates 100% of the long-term capital gain
dividends distributed during the fiscal year as 20%-rate capital gain
dividends.
A total of 10.77% of the dividends distributed during the fiscal year
was derived from interest on U.S. Government securities which is
generally exempt from state income tax.
A total of 23% of the dividends distributed by the Initial Class and
Service Class during the fiscal year qualifies for the
dividends-received deduction for corporate shareholders.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (U.K.) Inc.,
London, England
Fidelity Management & Research (Far East) Inc.,
Tokyo, Japan
Fidelity Investments Money Management, Inc.,
Merrimack, NH
OFFICERS
Edward C. Johnson 3d, PRESIDENT
Robert C. Pozen, SENIOR VICE PRESIDENT
Robert A. Lawrence, VICE PRESIDENT
Richard C. Habermann, VICE PRESIDENT
Charles S. Morrison II, VICE PRESIDENT
John Todd, VICE PRESIDENT
Steven J. Snider, VICE PRESIDENT
Eric D. Roiter, SECRETARY
Richard A. Silver, TREASURER
Matthew N. Karstetter, DEPUTY TREASURER
John H. Costello, ASSISTANT TREASURER
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
Ned C. Lautenbach
* INDEPENDENT TRUSTEES
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER SERVICING AGENT
Fidelity Investments Institutional Operations Co., Inc.
Boston, MA
CUSTODIAN
The Chase Manhattan Bank
New York, NY
FIDELITY(REGISTERED TRADEMARK) VARIABLE INSURANCE PRODUCTS:
EQUITY-INCOME PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 1999
(2_FIDELITY_LOGOS)(registered trademark)
CONTENTS
MARKET ENVIRONMENT 3 A review of what happened in
world markets during the
past 12 months.
PERFORMANCE AND INVESTMENT 4 How the fund has done over
SUMMARY time, and an overview of the
fund's investments at the
end of the period.
FUND TALK 5 The manager's review of fund
performance, strategy and
outlook.
INVESTMENTS 6 A complete list of the fund's
investments with their
market values.
FINANCIAL STATEMENTS 14 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.
NOTES 17 Notes to the financial
statements.
REPORT OF INDEPENDENT 20 The auditors' opinion.
ACCOUNTANTS
DISTRIBUTIONS 21
Standard & Poor's, S&P and S&P 500 are registered service marks of The
McGraw-Hill Companies, Inc. and have been licensed for use by Fidelity
Distributors Corporation.
Other third party marks appearing herein are the property of their
respective owners.
All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.
This report is printed on recycled paper using soy-based inks.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE FUND'S
PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS
STATED ON THE COVER AND DO NOT NECESSARILY REPRESENT THE VIEWS OF
FIDELITY OR ANY OTHER PERSON IN THE FIDELITY ORGANIZATION. ANY SUCH
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER
CONDITIONS AND FIDELITY DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH
VIEWS. THESE VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND,
BECAUSE INVESTMENT DECISIONS FOR A FIDELITY FUND ARE BASED ON NUMEROUS
FACTORS, MAY NOT BE RELIED ON AS AN INDICATION OF TRADING INTENT ON
BEHALF OF ANY FIDELITY FUND.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND.
THIS REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR
ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT
INSURED BY THE FDIC, FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND
ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
MARKET ENVIRONMENT
Entering the final year of the 20th century, popular U.S. equity
market indexes had just posted an unprecedented four consecutive years
of double-digit annual returns, while domestic bonds also enjoyed
relatively strong increases. The international story entering 1999,
however, was less positive. In general - with the exception of
European issues - international equities and bonds were greatly
disappointing. Asian and Russian economies had fallen into disarray,
Japan was struggling to implement banking reforms, and emerging
markets were plagued by a host of currency devaluations, loan defaults
and dismal credit outlooks. So who would have thought, just one year
later, that Japan, Russia and emerging markets would be three of
1999's best-performing investments? U.S. equities also continued to
chug along in 1999, extending their indexes' streak of consecutive
double-digit annual increases to five. The stock market was not
without its problems, however. Extremely narrow market breadth,
soaring valuations and rising interest rates - not to mention Y2K -
left many investors unsettled about the prospects for equities
entering the new millennium. Domestic fixed-income alternatives,
meanwhile, fared poorly in 1999 relative to the year prior.
U.S. STOCK MARKETS
In a word, technology was the primary driver of equity market
performance in 1999. While telecommunications, particularly the
wireless segment of the industry, also performed well, nothing
dominated like technology. This incredibly narrow market breadth was
illustrated by the technology-laden NASDAQ Index. Its return of 86.12%
for the one-year period ending December 31, 1999, was the all-time
highest annual return for any major U.S. stock index. Broader indexes,
such as the Standard & Poor's 500SM, generated much lower returns, but
were still significantly affected by tech's presence. For example,
technology was responsible for approximately 70% of the S&P 500's
12-month return of 21.04%, the index's fifth consecutive annual gain
above 20%. The top 50 stocks in the S&P 500 - the so-called "Nifty
50," many of which were technology shares - accounted for 115% of its
total return. Meanwhile, the remaining 450 stocks fell 3.13%. The Dow
Jones Industrial Average - an index of 30 blue-chip stocks - posted a
27.13% return during the period, its fifth consecutive double-digit
annual return. Despite the strong numbers of these indexes, more
stocks fell than rose in 1999. Growth stocks continued to hammer their
value-oriented peers. But in a turnaround from previous years, mid-
and small-cap growth stocks performed better than their large-cap
brethren did. Conversely, mid-and small-cap value issues posted
negative overall returns in 1999.
FOREIGN STOCK MARKETS
Similar to the domestic equity markets, technology and - perhaps to an
even greater degree than in the U.S. - telecommunications led the
charge in the vastly improved international equity markets. The
recovery of the Japanese stock market in 1999 was nothing short of
remarkable. A renewed emphasis on corporate restructuring and
shareholder value - combined with the Japanese government's
willingness to create more of a free-enterprise market system - proved
wildly successful. For the period, the Morgan Stanley Capital
International Japan Index returned 61.53% and Japan's TOPIX Index was
up 75.89%. While Canadian equity markets didn't get nearly the
attention of their U.S. neighbors, their performance was a great deal
better than the broader American indexes, as the Toronto Stock
Exchange (TSE) 300 returned 39.34% for the 12-month period ending
December 31, 1999. Despite a strong surge in December, European
markets offered mixed results over the past 12 months. In that time,
the Morgan Stanley Capital International Europe Index posted a
relatively tame - at least, in comparison to other developed nations'
stock markets - one-year return of 16.16%.
U.S. BOND MARKETS
Fueled by robust economic growth and a tighter monetary policy,
interest rates moved sharply higher, causing most domestic bonds to
struggle throughout the 12-month period ending December 31, 1999. The
Lehman Brothers Aggregate Bond Index, a popular measure of
taxable-bond performance, fell 0.82% during the period. Treasury
prices had the toughest time of it, falling in response to three
quarter-point interest-rate hikes levied by the Federal Reserve Board,
which erased all of 1998's rate cuts. The Lehman Brothers Long-Term
Treasury Index plunged 8.74% in 1999. Nor were corporate bonds, as
measured by the Lehman Brothers Corporate Bond Index, immune from the
fixed-income fade during the year, falling 1.96%. Government agency
securities also fell into negative territory for the year, as the
Lehman Brothers U.S. Agency Index fell 0.94%. There were a few bright
spots, however. The high-yield market, as measured by the Merrill
Lynch High Yield Master II Index, returned 2.51% during the 12-month
period, while the Lehman Brothers Mortgage-Backed Securities Index was
up 1.86%.
FOREIGN BOND MARKETS
Emerging markets stood as one of the best-performing asset classes in
1999. For the 12-month period ending December 31, 1999, the JP Morgan
Emerging Markets Bond Index Plus was up 25.97%. A year ago, that same
index closed 1998 with a negative 14.35% annual return. A variety of
factors sparked their recovery, including rising commodity prices,
particularly oil; the continuation of a strong U.S. economy;
stable-to-lower interest rates; tame inflation; and greater political
stability. Russia was perhaps the year's biggest comeback story.
Devastated by its devaluation of the ruble and loan defaults in 1998,
Russia steadily demonstrated strong technical improvements that made
it the best-performing country in the index in 1999. Both Brazil and
Mexico enjoyed relatively low inflation and improved economies. Turkey
was the best-performing emerging-market country in December, as the
government's reform plans, IMF financial support, and the announcement
that it would be accepted in the European Union all boosted the
country's prospects. Elsewhere, outside of positive performing
Canadian and Japanese issues - beneficiaries of strong local
currencies - higher rates proved insurmountable for most non-U.S.
developed markets, which produced negative returns in local currency
terms. A markedly weak euro, coupled with firming supply pressures,
felled bond prices in Germany, France and Italy. The Salomon Brothers
Non-U.S. World Government Bond Index fell 5.07% in 1999.
FIDELITY VARIABLE INSURANCE PRODUCTS: EQUITY-INCOME PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
1999
FIDELITY VIP: EQUITY-INCOME - 6.33% 18.61% 14.49%
"INITIAL CLASS"
Russell 3000 Value 6.65% 22.15% 15.31%
S&P 500 (registered trademark) 21.04% 28.56% 18.21%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's returns to the performance of the Russell
3000 Value Index - a market capitalization-weighted index of
value-oriented stocks of U.S. domiciled corporations and the
performance of the Standard & Poor's 500SM Index - a market
capitalization-weighted index of common stocks. These benchmarks
reflect the reinvestment of dividends and capital gains, if any.
Figures for more than one year assume a steady compounded rate of
return and are not the fund's year-by-year results, which fluctuated
over the periods shown.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S
SEPARATE ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF
THESE ADDITIONAL CHARGES, THE TOTAL RETURNS WOULD HAVE BEEN LOWER.
Past performance is no guarantee of future results. Principal and
investment return will vary and you may have a gain or loss when you
withdraw your money.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for
example, has a history of long-term growth and
short-term volatility. In turn, the share price and
return of a fund that invests in stocks will vary.
That means if you sell your shares during a
market downturn, you might lose money. But if
you can ride out the market's ups and downs,
you may have a gain.
$10,000 OVER 10 YEARS
VIP EQUITY-INCOME RUSSELL 3000 VALUE
00150 RS008
1989/12/31 10000.00 10000.00
1990/01/31 9324.65 9371.11
1990/02/28 9379.91 9606.92
1990/03/31 9395.38 9719.38
1990/04/30 9069.63 9342.72
1990/05/31 9669.70 10097.82
1990/06/30 9573.42 9882.72
1990/07/31 9339.29 9777.75
1990/08/31 8593.53 8899.48
1990/09/30 7926.91 8452.49
1990/10/31 7724.79 8314.32
1990/11/30 8278.44 8887.34
1990/12/31 8471.06 9115.48
1991/01/31 8925.35 9543.73
1991/02/28 9539.97 10198.50
1991/03/31 9737.86 10378.09
1991/04/30 9783.37 10455.02
1991/05/31 10320.32 10850.43
1991/06/30 9898.33 10390.76
1991/07/31 10459.48 10814.90
1991/08/31 10680.26 11020.19
1991/09/30 10606.96 10945.39
1991/10/31 10783.59 11122.83
1991/11/30 10318.78 10559.81
1991/12/31 11134.23 11431.66
1992/01/31 11284.57 11510.56
1992/02/29 11651.01 11811.17
1992/03/31 11508.24 11643.01
1992/04/30 11868.77 12096.97
1992/05/31 11963.64 12175.51
1992/06/30 11858.90 12077.51
1992/07/31 12222.32 12543.07
1992/08/31 11954.53 12170.16
1992/09/30 12078.63 12343.49
1992/10/31 12223.23 12376.52
1992/11/30 12666.66 12811.37
1992/12/31 13014.49 13135.01
1993/01/31 13402.98 13542.55
1993/02/28 13704.06 13983.83
1993/03/31 14112.45 14405.47
1993/04/30 14053.77 14207.68
1993/05/31 14308.05 14506.33
1993/06/30 14476.35 14811.05
1993/07/31 14673.31 14984.56
1993/08/31 15234.63 15529.55
1993/09/30 15176.39 15585.78
1993/10/31 15315.17 15608.81
1993/11/30 15047.52 15279.64
1993/12/31 15395.34 15584.89
1994/01/31 16073.38 16171.30
1994/02/28 15659.46 15666.29
1994/03/31 15004.35 15072.03
1994/04/30 15521.38 15347.11
1994/05/31 15669.10 15504.56
1994/06/30 15572.30 15130.22
1994/07/31 16092.43 15580.79
1994/08/31 16920.41 16045.63
1994/09/30 16643.21 15550.80
1994/10/31 16984.82 15713.95
1994/11/30 16429.70 15079.17
1994/12/31 16483.14 15281.78
1995/01/31 16740.85 15694.68
1995/02/28 17379.19 16311.25
1995/03/31 17979.28 16640.96
1995/04/30 18479.34 17163.64
1995/05/31 19036.22 17851.09
1995/06/30 19309.72 18128.85
1995/07/31 20052.85 18762.92
1995/08/31 20304.36 19057.28
1995/09/30 20978.45 19705.46
1995/10/31 20737.06 19450.90
1995/11/30 21633.67 20415.39
1995/12/31 22267.47 20940.04
1996/01/31 22914.58 21543.05
1996/02/29 22991.55 21722.27
1996/03/31 23233.56 22099.47
1996/04/30 23536.08 22232.81
1996/05/31 23790.20 22538.07
1996/06/30 23572.38 22529.14
1996/07/31 22422.81 21640.87
1996/08/31 22882.64 22293.33
1996/09/30 23862.80 23149.82
1996/10/31 24250.03 23979.01
1996/11/30 25871.54 25671.65
1996/12/31 25448.01 25461.90
1997/01/31 26440.28 26608.12
1997/02/28 26733.18 26984.95
1997/03/31 25739.58 26039.51
1997/04/30 26652.62 27061.44
1997/05/31 28304.14 28636.85
1997/06/30 29619.99 29887.64
1997/07/31 31781.74 32037.71
1997/08/31 30291.34 31054.48
1997/09/30 31956.29 32950.14
1997/10/31 30788.14 32031.70
1997/11/30 31916.01 33341.19
1997/12/31 32600.79 34329.91
1998/01/31 32520.23 33830.79
1998/02/28 34616.16 36085.61
1998/03/31 36219.56 38220.53
1998/04/30 36219.56 38469.83
1998/05/31 35632.60 37823.75
1998/06/30 36033.45 38242.68
1998/07/31 35145.85 37360.71
1998/08/31 29777.34 31776.27
1998/09/30 31523.90 33597.52
1998/10/31 33857.41 36066.02
1998/11/30 35289.01 37689.68
1998/12/31 36391.35 38964.64
1999/01/31 36276.82 39181.65
1999/02/28 35835.23 38466.55
1999/03/31 37144.62 39181.62
1999/04/30 40440.68 42835.36
1999/05/31 39341.99 42489.46
1999/06/30 41027.65 43745.15
1999/07/31 39793.51 42481.19
1999/08/31 38709.87 40908.17
1999/09/30 37445.63 39523.04
1999/10/31 38815.22 41575.47
1999/11/30 38303.51 41286.38
1999/12/31 38694.82 41556.13
IMATRL PRASUN SHR__CHT 19991231 20000126 140928 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Variable Insurance Products: Equity-Income
Portfolio on December 31, 1989. As the chart shows, by December 31,
1999, the value of the investment would have grown to $38,695 - a
286.95% increase on the initial investment. For comparison, look at
how the Russell 3000 Value Index did over the same period. With
dividends and capital gains, if any, reinvested, the same $10,000
investment would have grown to $41,556 - a 315.56% increase. Going
forward, the fund will compare its performance to that of the Russell
3000 Value Index, rather than the Standard & Poor's 500 Index. The
Russell 3000 Value Index more closely reflects the fund's investment
strategy.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF
DECEMBER 31, 1999
% OF FUND'S NET ASSETS
General Electric Co. 4.8
Citigroup, Inc. 3.5
Exxon Mobil Corp. 3.0
BP Amoco PLC sponsored ADR 2.6
American Express Co. 2.4
16.3
TOP FIVE MARKET SECTORS AS OF
DECEMBER 31, 1999
% OF FUND'S NET ASSETS
FINANCE 23.6
ENERGY 14.0
UTILITIES 10.9
INDUSTRIAL MACHINERY & 8.8
EQUIPMENT
BASIC INDUSTRIES 8.0
ASSET ALLOCATION AS OF
DECEMBER 31, 1999 *
% OF FUND'S NET ASSETS
Stocks 97.3%
Bonds 1.4%
Short-Term Investments and
Net Other Assets 1.3%
* FOREIGN INVESTMENTS 9.5%
Row: 1, Col: 1, Value: 97.3
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 1.4
Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 1.3
PRIOR TO THIS REPORT, CERTAIN INFORMATION RELATED TO PORTFOLIO
HOLDINGS WAS STATED AS A PERCENTAGE OF THE FUND'S INVESTMENTS.
FIDELITY VARIABLE INSURANCE PRODUCTS: EQUITY-INCOME PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
(photograph of Steve Petersen)
An interview with
Steve Petersen,
Portfolio Manager
of Equity-Income Portfolio
Q. HOW DID THE FUND PERFORM, STEVE?
A. The fund slightly underperformed the Russell 3000 Value Index,
which returned 6.65% for the 12-month period ending December 31, 1999.
Q. WHY DID THE FUND'S PERFORMANCE LAG THAT OF THE RUSSELL INDEX?
A. The Russell 3000 Value Index, which focuses on companies with value
characteristics, closely reflects the fund's investment strategy.
However, 7% of the index was in technology stocks - typically growth
stocks rather than dividend-paying stocks - and the fund was unable to
identify good dividend-paying candidates within this sector. A huge
push in technology performance, particularly during the fourth
quarter, helped boost the Russell index. Consequently, the fund's
underweighting in technology stocks hurt its performance relative to
the index.
Q. WHAT WAS YOUR STRATEGY WITHIN THIS CHALLENGING ENVIRONMENT?
A. I followed my long-term strategy, which emphasizes companies that
pay dividends, show signs of improvement in business fundamentals and
have good valuations. Rather than buying the high-priced growth
stocks, I looked for earnings growth, restructuring progress,
acquisition activity or share buyback programs that allowed for faster
earnings growth. Although this approach has worked well for us before,
over the past two years the market focused only on companies that had
robust internal growth, and punished companies that could not sustain
strong earnings growth.
Q. FINANCIAL STOCKS ACCOUNTED FOR A SIGNIFICANT PROPORTION OF THE
FUND'S PORTFOLIO AND THE RUSSELL INDEX. HOW DID THEY DO?
A. The biggest impact on financial stocks during 1999 was the Federal
Reserve Board's interest-rate increases. In general, rising interest
rates are not good for this sector because they tend to cause
borrowing activity to slow. We also saw a gradual narrowing between
longer-term fixed-income yields and shorter-term yields during the
year, which negatively affected many financial stocks. Lending
institutions play the spreads, borrowing short-term money - deposits -
and lending long-term money - mortgages and installment loans. When
spreads narrow, it hurts banks' profitability. Such traditional
commercial banks as Bank One, BankAmerica and savings and loan
institution Washington Mutual performed poorly. Fannie Mae also
suffered from negative investor perception of the overall sector,
even though its earnings were on track during the year. On the other
hand, financial companies that earned a higher percentage of their
revenues from transactions or asset management did well during the
year. For example, Citigroup benefited from strong equity markets
through its Salomon Smith Barney subsidiary. Fund holding Bank of New
York's custodial business helped its performance.
Q. WHICH OTHER STOCKS PERFORMED WELL?
A. GE, the fund's largest holding, contributed significantly to
overall performance. This company demonstrated consistent earnings
growth and did a good job strengthening its various business units.
Energy holdings BP Amoco and Total Fina benefited from rising oil
prices and their stocks performed very well. Alcoa demonstrated its
ability to cut costs, make successful acquisitions of second-tier
producers, integrate those acquisitions successfully, purchase
properties and streamline its operations. As a result, with aluminum
prices trending upward during 1999, Alcoa's stock performed strongly.
Wal-Mart continued to improve profitability and benefited from a
consumer trend toward value for such products as apparel.
Q. WHAT ABOUT DISAPPOINTMENTS?
A. In addition to the financial stocks I mentioned earlier, Philip
Morris performed poorly, suffering from continued litigation woes that
do not appear likely to let up in the near future. I sold much of the
fund's position in this stock. Waste Management experienced internal
accounting problems earlier in 1999, and its stock fell significantly.
I sold this stock from the fund's portfolio.
Q. WHAT'S YOUR OUTLOOK, STEVE?
A. I'm still cautious. The outlook for corporate earnings growth in
the near term looks good and, as the world economy continues its
recovery, we're seeing more good news from companies that were hurt by
the global economic downturn last year. The potentially bad news is
that the U.S. government and the Fed are still concerned about the
potential for inflation to pick up once again. They also appear to be
monitoring the valuation anomaly on the technology side of the market.
Any action to increase interest rates could be detrimental to value
stocks.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET OR OTHER CONDITIONS. FOR MORE INFORMATION, SEE PAGE 2.
(checkmark)FUND FACTS
GOAL: seeks reasonable income while
maintaining a yield that exceeds the composite
dividend yield of the S&P 500; also considers the
potential for achieving capital appreciation
START DATE: October 9, 1986
SIZE: as of December 31, 1999, more than
$11.4 billion
MANAGER: Stephen Petersen, since 1997;
joined Fidelity in 1980
FIDELITY VARIABLE INSURANCE PRODUCTS: EQUITY-INCOME PORTFOLIO
INVESTMENTS DECEMBER 31, 1999
Showing Percentage of Net Assets
COMMON STOCKS - 94.3%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 3.6%
AEROSPACE & DEFENSE - 3.3%
Boeing Co. 1,116,200 $ 46,392,063
Harsco Corp. 583,300 18,519,775
Honeywell International, Inc. 2,029,925 117,101,298
Rockwell International Corp. 313,800 15,023,175
Textron, Inc. 1,122,400 86,074,050
United Technologies Corp. 1,466,300 95,309,500
378,419,861
DEFENSE ELECTRONICS - 0.0%
Raytheon Co. Class B 33,600 892,500
SHIP BUILDING & REPAIR - 0.3%
General Dynamics Corp. 505,700 26,675,675
TOTAL AEROSPACE & DEFENSE 405,988,036
BASIC INDUSTRIES - 7.7%
CHEMICALS & PLASTICS - 3.2%
Arch Chemicals, Inc. 292,600 6,126,312
Aventis SA 368,416 21,500,108
Celanese AG (a) 49,110 892,064
CK Witco Corp. 630,951 8,438,970
Dexter Corp. 281,000 11,169,750
Dow Chemical Co. 273,400 36,533,075
E. I. du Pont de Nemours and 560,649 36,932,753
Co.
Eastman Chemical Co. 434,800 20,734,525
Engelhard Corp. 557,500 10,522,813
Great Lakes Chemical Corp. 1,060,100 40,482,569
Hercules, Inc. 856,100 23,863,788
Hercules Trust II unit 15,700 12,128,250
IMC Global, Inc. 1,626,800 26,638,850
Lyondell Chemical Co. 611,700 7,799,175
M. A. Hanna Co. 979,200 10,710,000
Millennium Chemicals, Inc. 749,200 14,796,700
Monsanto Co. 288,800 10,288,500
Praxair, Inc. 446,900 22,484,656
Solutia, Inc. 1,249,300 19,286,069
Union Carbide Corp. 376,200 25,111,350
366,440,277
IRON & STEEL - 0.8%
AK Steel Holding Corp. 980,800 18,512,600
Allegheny Technologies, Inc. 687,550 15,426,903
Dofasco, Inc. 749,800 14,771,065
Nucor Corp. 628,100 34,427,731
83,138,299
METALS & MINING - 2.1%
Alcan Aluminium Ltd. 679,500 27,899,565
Alcoa, Inc. 1,849,858 153,538,214
Olin Corp. 712,700 14,120,369
Phelps Dodge Corp. 429,800 28,850,325
Ryerson Tull, Inc. 753,323 14,642,716
239,051,189
SHARES VALUE (NOTE 1)
PACKAGING & CONTAINERS - 0.4%
American National Can Group, 501,400 $ 6,518,200
Inc.
Ball Corp. 383,152 15,086,610
Owens-Illinois, Inc. (a) 681,300 17,075,081
Tupperware Corp. 576,500 9,764,469
48,444,360
PAPER & FOREST PRODUCTS - 1.2%
Bowater, Inc. 798,600 43,373,963
Champion International Corp. 800,800 49,599,550
Georgia-Pacific Corp. 352,800 17,904,600
Pentair, Inc. 236,600 9,109,100
Smurfit-Stone Container Corp. 755,400 18,507,300
(a)
138,494,513
TOTAL BASIC INDUSTRIES 875,568,638
CONSTRUCTION & REAL ESTATE -
1.7%
BUILDING MATERIALS - 0.7%
Fortune Brands, Inc. 805,700 26,638,456
Masco Corp. 2,090,800 53,054,050
Water Pik Technologies, Inc. 54,895 524,933
(a)
80,217,439
ENGINEERING - 0.2%
PerkinElmer, Inc. 587,500 24,491,406
REAL ESTATE INVESTMENT TRUSTS
- - 0.8%
Alexandria Real Estate 109,600 3,486,650
Equities, Inc.
Crescent Real Estate Equities 853,600 15,684,900
Co.
Duke-Weeks Realty Corp. 495,722 9,666,579
Equity Office Properties Trust 524,500 12,915,813
Equity Residential Properties 548,700 23,422,631
Trust (SBI)
Public Storage, Inc. 609,700 13,832,569
Reckson Associates Realty 125,800 2,578,900
Corp.
Spieker Properties, Inc. 277,000 10,093,188
91,681,230
TOTAL CONSTRUCTION & REAL 196,390,075
ESTATE
DURABLES - 2.4%
AUTOS, TIRES, & ACCESSORIES -
1.5%
Eaton Corp. 465,900 33,835,988
Federal-Mogul Corp. 503,700 10,136,963
Ford Motor Co. 906,100 48,419,719
Meritor Automotive, Inc. 629,900 12,204,313
Navistar International Corp. 324,800 15,387,400
(a)
Pep Boys-Manny, Moe & Jack 662,100 6,041,663
TRW, Inc. 852,300 44,266,331
170,292,377
CONSUMER DURABLES - 0.5%
Minnesota Mining & 350,200 34,275,825
Manufacturing Co.
Snap-On, Inc. 1,102,000 29,271,875
63,547,700
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
DURABLES - CONTINUED
HOME FURNISHINGS - 0.4%
Newell Rubbermaid, Inc. 1,442,367 $ 41,828,643
TOTAL DURABLES 275,668,720
ENERGY - 13.9%
ENERGY SERVICES - 1.6%
Baker Hughes, Inc. 1,771,100 37,303,794
Halliburton Co. 2,407,900 96,917,975
Schlumberger Ltd. 724,300 40,741,875
Transocean Sedco Forex, Inc. 140,224 4,723,796
179,687,440
OIL & GAS - 12.3%
Amerada Hess Corp. 709,400 40,258,450
Anadarko Petroleum Corp. 587,900 20,062,088
Atlantic Richfield Co. 183,600 15,881,400
BP Amoco PLC sponsored ADR 4,967,238 294,619,304
Burlington Resources, Inc. 1,131,400 37,406,913
Chevron Corp. 1,280,171 110,894,813
Conoco, Inc.:
Class A 721,200 17,849,700
Class B 1,112,415 27,671,323
Exxon Mobil Corp. 4,255,118 342,802,944
Kerr-McGee Corp. 156,000 9,672,000
Occidental Petroleum Corp. 1,854,000 40,092,750
Royal Dutch Petroleum Co. 2,218,600 134,086,638
(NY Registry Gilder 1.25)
Santa Fe Snyder Corp. (a) 1,336,203 10,689,624
Tosco Corp. 449,800 12,228,938
Total Fina SA:
Class B 448,000 62,047,998
sponsored ADR 2,183,396 151,200,173
Ultramar Diamond Shamrock 713,600 16,189,800
Corp.
Union Pacific Resources 645,500 8,230,125
Group, Inc.
Unocal Corp. 463,983 15,572,429
USX - Marathon Group 1,621,100 40,020,906
1,407,478,316
TOTAL ENERGY 1,587,165,756
FINANCE - 23.1%
BANKS - 9.3%
Bank of America Corp. 3,004,190 150,772,786
Bank of New York Co., Inc. 4,618,300 184,732,000
Bank One Corp. 1,439,038 46,139,156
Chase Manhattan Corp. 2,012,500 156,346,094
Comerica, Inc. 1,443,200 67,379,400
FleetBoston Financial Corp. 2,365,200 82,338,525
Mellon Financial Corp. 1,917,200 65,304,625
National Bank of Canada 2,476,636 31,670,537
SHARES VALUE (NOTE 1)
Toronto Dominion Bank 584,700 $ 15,661,246
U.S. Bancorp 2,928,094 69,725,238
Wachovia Corp. 442,500 30,090,000
Wells Fargo & Co. 3,967,200 160,423,650
1,060,583,257
CREDIT & OTHER FINANCE - 7.6%
American Express Co. 1,610,972 267,824,095
Associates First Capital 3,787,456 103,918,324
Corp. Class A
Citigroup, Inc. 7,215,398 400,905,551
Household International, Inc. 2,527,647 94,154,851
866,802,821
FEDERAL SPONSORED CREDIT - 2.5%
Fannie Mae 3,901,500 243,599,906
Freddie Mac 548,400 25,809,075
SLM Holding Corp. 412,700 17,436,575
286,845,556
INSURANCE - 1.9%
ACE Ltd. 1,474,100 24,599,044
Conseco, Inc. 244,600 4,372,225
Financial Security Assurance 417,871 21,781,526
Holdings Ltd.
Hartford Financial Services 1,691,600 80,139,550
Group, Inc.
Highlands Insurance Group, 371,100 3,525,450
Inc. (a)
Marsh & McLennan Companies, 94,800 9,071,175
Inc.
PMI Group, Inc. 189,700 9,259,731
Reliastar Financial Corp. 267,601 10,486,614
Torchmark Corp. 550,340 15,994,256
Travelers Property Casualty 620,000 21,235,000
Corp. Class A
UnumProvident Corp. 463,700 14,867,381
215,331,952
SAVINGS & LOANS - 0.7%
TCF Financial Corp. 442,100 10,997,238
Washington Mutual, Inc. 2,898,482 75,360,532
86,357,770
SECURITIES INDUSTRY - 1.1%
Franklin Resources, Inc. 590,900 18,945,731
Lehman Brothers Holdings, 449,800 38,092,438
Inc.
Morgan Stanley Dean Witter & 205,300 29,306,575
Co.
Nomura Securities Co. Ltd. 1,561,000 28,180,480
Waddell & Reed Financial, Inc.:
Class A 394,416 10,698,534
Class B 182,132 4,576,066
129,799,824
TOTAL FINANCE 2,645,721,180
HEALTH - 5.8%
DRUGS & PHARMACEUTICALS - 3.8%
Bristol-Myers Squibb Co. 1,792,400 115,049,675
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
HEALTH - CONTINUED
DRUGS & PHARMACEUTICALS -
CONTINUED
Eli Lilly & Co. 1,773,400 $ 117,931,100
Merck & Co., Inc. 1,710,700 114,723,819
Schering-Plough Corp. 2,129,530 89,839,547
437,544,141
MEDICAL EQUIPMENT & SUPPLIES
- - 1.3%
Abbott Laboratories 1,514,100 54,980,756
Becton, Dickinson & Co. 925,800 24,765,150
Cardinal Health, Inc. 289,700 13,869,388
Johnson & Johnson 607,800 56,601,375
150,216,669
MEDICAL FACILITIES MANAGEMENT
- - 0.7%
Beverly Enterprises, Inc. (a) 1,722,000 7,533,750
Columbia/HCA Healthcare Corp. 2,259,150 66,221,334
73,755,084
TOTAL HEALTH 661,515,894
INDUSTRIAL MACHINERY &
EQUIPMENT - 8.5%
ELECTRICAL EQUIPMENT - 5.9%
Emerson Electric Co. 340,100 19,513,238
General Electric Co. 3,588,100 555,258,458
Loral Space & Communications 298,700 7,262,144
Ltd. (a)
Siemens AG 671,400 85,809,251
Teledyne Technologies, Inc. 156,842 1,480,196
(a)
669,323,287
INDUSTRIAL MACHINERY &
EQUIPMENT - 2.5%
Caterpillar, Inc. 490,100 23,065,331
Deere & Co. 1,297,000 56,257,375
Ingersoll-Rand Co. 643,800 35,449,238
Kennametal, Inc. 493,737 16,601,907
Parker-Hannifin Corp. 525,000 26,939,062
Tyco International Ltd. 3,389,046 131,749,163
290,062,076
POLLUTION CONTROL - 0.1%
Allied Waste Industries, Inc. 592,200 5,218,763
(a)
Republic Services, Inc. Class 588,200 8,455,375
A (a)
13,674,138
TOTAL INDUSTRIAL MACHINERY & 973,059,501
EQUIPMENT
MEDIA & LEISURE - 5.5%
BROADCASTING - 2.5%
CBS Corp. (a) 1,586,100 101,411,269
MediaOne Group, Inc. (a) 741,110 56,926,512
Time Warner, Inc. 1,711,380 123,968,089
282,305,870
ENTERTAINMENT - 1.5%
Fox Entertainment Group, Inc. 164,000 4,089,750
Class A
SHARES VALUE (NOTE 1)
Mandalay Resort Group (a) 464,400 $ 9,346,050
Viacom, Inc. Class B 1,904,300 115,091,131
(non-vtg.) (a)
Walt Disney Co. 1,559,000 45,600,750
174,127,681
LEISURE DURABLES & TOYS - 0.1%
Brunswick Corp. 569,800 12,678,050
LODGING & GAMING - 0.4%
Mirage Resorts, Inc. (a) 1,046,900 16,030,656
Starwood Hotels & Resorts 1,465,981 34,450,554
Worldwide, Inc. unit
50,481,210
PUBLISHING - 0.4%
Harcourt General, Inc. 564,000 22,701,000
Reader's Digest Association, 873,100 25,538,175
Inc. Class A (non-vtg.)
48,239,175
RESTAURANTS - 0.6%
McDonald's Corp. 1,562,400 62,984,250
TOTAL MEDIA & LEISURE 630,816,236
NONDURABLES - 3.6%
BEVERAGES - 0.1%
Brown-Forman Corp. Class B 147,800 8,461,550
FOODS - 0.7%
Corn Products International, 401,625 13,153,219
Inc.
H. J. Heinz Co. 336,200 13,384,963
Hershey Foods Corp. 394,900 18,757,750
Nabisco Group Holdings Corp. 967,700 10,281,813
Nabisco Holdings Corp. Class A 779,200 24,642,200
80,219,945
HOUSEHOLD PRODUCTS - 1.9%
Avon Products, Inc. 837,400 27,634,200
Clorox Co. 742,300 37,393,363
Gillette Co. 921,500 37,954,281
Procter & Gamble Co. 307,200 33,657,600
Unilever NV 11,071 610,989
Unilever NV (NY Shares) 714,285 38,883,890
Unilever PLC 6,090,714 46,156,160
222,290,483
TOBACCO - 0.9%
Philip Morris Companies, Inc. 4,374,000 101,422,125
TOTAL NONDURABLES 412,394,103
PRECIOUS METALS - 0.1%
Newmont Mining Corp. 605,600 14,837,200
RETAIL & WHOLESALE - 2.9%
APPAREL STORES - 0.9%
Charming Shoppes, Inc. (a) 612,800 4,059,800
Footstar, Inc. (a) 551,800 16,829,900
Payless ShoeSource, Inc. (a) 385,000 18,095,000
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE - CONTINUED
APPAREL STORES - CONTINUED
The Limited, Inc. 1,317,700 $ 57,072,881
TJX Companies, Inc. 350,200 7,157,213
103,214,794
GENERAL MERCHANDISE STORES -
2.0%
Consolidated Stores Corp. (a) 2,020,156 32,827,539
Dayton Hudson Corp. 920,700 67,613,906
Federated Department Stores, 1,104,400 55,841,225
Inc. (a)
Hudson's Bay Co. (d) 302,500 3,575,551
Wal-Mart Stores, Inc. 1,062,300 73,431,488
233,289,709
TOTAL RETAIL & WHOLESALE 336,504,503
SERVICES - 1.5%
LEASING & RENTAL - 0.2%
Ryder System, Inc. 877,400 21,441,463
PRINTING - 0.1%
New England Business Service, 200,000 4,887,500
Inc.
R. R. Donnelley & Sons Co. 568,400 14,103,425
18,990,925
SERVICES - 1.2%
ACNielsen Corp. (a) 859,800 21,172,575
Cendant Corp. (a) 928,791 24,671,011
Edperbrascan Corp. Class A 2,699,800 35,644,004
(ltd. vtg.)
H&R Block, Inc. 673,000 29,443,750
Modis Professional Services, 165,600 2,359,800
Inc. (a)
Viad Corp. 775,800 21,625,425
134,916,565
TOTAL SERVICES 175,348,953
TECHNOLOGY - 2.8%
COMPUTER SERVICES & SOFTWARE
- - 0.9%
Litton Industries, Inc. (a) 642,500 32,044,688
NCR Corp. (a) 247,900 9,389,213
Unisys Corp. (a) 2,059,717 65,782,212
107,216,113
COMPUTERS & OFFICE EQUIPMENT
- - 1.7%
Compaq Computer Corp. 1,951,500 52,812,469
International Business 635,000 68,580,000
Machines Corp.
Pitney Bowes, Inc. 1,582,000 76,430,375
Xerox Corp. 20 454
197,823,298
ELECTRONIC INSTRUMENTS - 0.2%
Beckman Coulter, Inc. 209,000 10,632,875
Thermo Electron Corp. (a) 614,900 9,223,500
19,856,375
TOTAL TECHNOLOGY 324,895,786
SHARES VALUE (NOTE 1)
TRANSPORTATION - 1.2%
AIR TRANSPORTATION - 0.2%
AMR Corp. (a) 336,700 $ 22,558,900
RAILROADS - 1.0%
Burlington Northern Santa Fe 2,998,700 72,718,475
Corp.
CSX Corp. 880,000 27,610,000
Union Pacific Corp. 409,400 17,860,075
118,188,550
TOTAL TRANSPORTATION 140,747,450
UTILITIES - 10.0%
CELLULAR - 0.4%
ALLTEL Corp. 506,600 41,889,488
ELECTRIC UTILITY - 2.4%
Allegheny Energy, Inc. 1,148,700 30,943,106
American Electric Power Co., 997,100 32,031,838
Inc.
Central & South West Corp. 444,000 8,880,000
Cinergy Corp. 415,000 10,011,875
CMS Energy Corp. 379,200 11,826,300
Consolidated Edison, Inc. 473,450 16,334,025
DPL, Inc. 1,358,750 23,523,359
Entergy Corp. 3,187,300 82,072,975
Niagara Mohawk Holdings, Inc. 1,434,200 19,989,163
(a)
PG&E Corp. 1,551,878 31,813,499
Pinnacle West Capital Corp. 72,100 2,203,556
269,629,696
GAS - 0.1%
Sempra Energy 688,284 11,958,934
TELEPHONE SERVICES - 7.1%
AT&T Corp. 4,262,300 216,311,725
Bell Atlantic Corp. 1,352,440 83,259,587
BellSouth Corp. 2,124,399 99,448,428
CenturyTel, Inc. 467,300 22,138,338
GTE Corp. 1,087,100 76,708,494
MCI WorldCom, Inc. (a) 1,616,816 85,792,272
Pathnet, Inc. warrants 520 5,200
4/15/08 (a)(d)
SBC Communications, Inc. 4,829,993 235,462,159
819,126,203
TOTAL UTILITIES 1,142,604,321
TOTAL COMMON STOCKS 10,799,226,352
(Cost $8,107,467,117)
PREFERRED STOCKS - 3.0%
CONVERTIBLE PREFERRED STOCKS
- - 3.0%
BASIC INDUSTRIES - 0.3%
CHEMICALS & PLASTICS - 0.1%
Monsanto Co. $1.625 ACES 460,000 14,720,000
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
CONVERTIBLE PREFERRED STOCKS
- - CONTINUED
BASIC INDUSTRIES - CONTINUED
PAPER & FOREST PRODUCTS - 0.2%
Georgia-Pacific Corp. $3.75 314,100 $ 15,940,575
PEPS
TOTAL BASIC INDUSTRIES 30,660,575
DURABLES - 0.0%
AUTOS, TIRES, & ACCESSORIES -
0.0%
Automatic Common Exchangeable 219,200 2,096,100
Securities Trust II
(Republic Industries, Inc.)
$1.55 ACES
ENERGY - 0.1%
OIL & GAS - 0.1%
Apache Corp. $2.015 ACES 183,100 6,316,950
The Coastal Corp. $1.20 PRIDES 368,900 7,239,663
13,556,613
FINANCE - 0.5%
CREDIT & OTHER FINANCE - 0.4%
Federal-Mogul Financing Trust 490,300 16,425,050
$3.50
Union Pacific Capital Trust:
$3.125 403,200 16,430,400
$3.125 TIDES (d) 384,500 15,668,375
48,523,825
INSURANCE - 0.1%
Conseco, Inc. $3.50 PRIDES 240,400 5,619,350
SECURITIES INDUSTRY - 0.0%
Merrill Lynch & Co., Inc. 77,600 1,387,100
(IMC Global, Inc.) $2.39
STRYPES
TOTAL FINANCE 55,530,275
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.3%
ELECTRICAL EQUIPMENT - 0.2%
Loral Space & Communications
Ltd. Series C:
$3.00 (d) 183,200 11,289,700
$3.00 208,700 12,861,138
24,150,838
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.1%
Ingersoll Rand Co./Ingersoll 530,100 13,517,550
Rand Finance $1.68 Growth
PRIDES
TOTAL INDUSTRIAL MACHINERY & 37,668,388
EQUIPMENT
MEDIA & LEISURE - 0.9%
BROADCASTING - 0.7%
Cox Communications, Inc.:
$2.27 PRIDES 224,900 14,000,025
$6.858 PRIZES 146,400 14,200,800
SHARES VALUE (NOTE 1)
MediaOne Group, Inc.:
$3.04 448,600 $ 21,420,650
(Vodafone AirTouch PLC) $3.63 249,900 26,989,200
PIES
76,610,675
ENTERTAINMENT - 0.1%
Premier Parks, Inc. $4.05 PIES 273,300 14,758,200
PUBLISHING - 0.1%
Readers Digest Automatic 464,700 12,546,900
Common Exchange Trust $1.93
TRACES
Tribune Co. (The Learning 102,300 1,739,100
Co., Inc.) $1.75 DECS
14,286,000
TOTAL MEDIA & LEISURE 105,654,875
NONDURABLES - 0.2%
BEVERAGES - 0.2%
Seagram Co. Ltd. $3.76 ACES 473,400 21,095,888
RETAIL & WHOLESALE - 0.1%
GENERAL MERCHANDISE STORES -
0.1%
K mart Financing I $3.875 100,000 4,375,000
UTILITIES - 0.6%
ELECTRIC UTILITY - 0.5%
Houston Industries, Inc. 285,500 34,402,750
(Time Warner, Inc.) $3.216
ACES
NiSource, Inc. $3.875 PIES 299,300 10,774,800
Texas Utilities Co. $3.90 398,400 15,202,944
growth PRIDES
60,380,494
GAS - 0.1%
Enron Corp. (EOG Resources, 484,900 8,819,119
Inc.) $1.5575 ACES
TOTAL UTILITIES 69,199,613
TOTAL CONVERTIBLE PREFERRED 339,837,327
STOCKS
NONCONVERTIBLE PREFERRED
STOCKS - 0.0%
CONSTRUCTION & REAL ESTATE -
0.0%
REAL ESTATE INVESTMENT TRUSTS
- - 0.0%
California Federal Preferred 31,590 718,673
Capital Corp. $2.2812
MEDIA & LEISURE - 0.0%
BROADCASTING - 0.0%
CSC Holdings, Inc. 11.125% 22,360 2,442,830
pay-in-kind
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONCONVERTIBLE PREFERRED
STOCKS - CONTINUED
MEDIA & LEISURE - CONTINUED
PUBLISHING - 0.0%
PRIMEDIA, Inc. 8.625% 6,123 $ 541,886
TOTAL MEDIA & LEISURE 2,984,716
TOTAL NONCONVERTIBLE 3,703,389
PREFERRED STOCKS
TOTAL PREFERRED STOCKS 343,540,716
(Cost $341,105,704)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS - 1.4%
MOODY'S RATINGS (UNAUDITED) (E) PRINCIPAL AMOUNT
CONVERTIBLE BONDS - 1.0%
CONSTRUCTION & REAL ESTATE -
0.3%
REAL ESTATE INVESTMENT TRUSTS
- - 0.3%
Liberty Property LP 8.3% Ba2 $ 27,985,000 34,578,966
7/1/01
DURABLES - 0.1%
CONSUMER ELECTRONICS - 0.1%
Sunbeam Corp. 0% 3/25/18 (d) Caa2 60,290,000 8,968,138
FINANCE - 0.0%
INSURANCE - 0.0%
Loews Corp. 3.125% 9/15/07 A2 4,320,000 3,520,800
MEDIA & LEISURE - 0.3%
BROADCASTING - 0.0%
Jacor Communications, Inc. Ba3 3,370,000 2,266,965
liquid yield option notes 0%
2/9/18
PUBLISHING - 0.3%
News America Holdings, Inc. Baa3 48,470,000 37,806,600
liquid yield option notes 0%
3/11/13
TOTAL MEDIA & LEISURE 40,073,565
NONDURABLES - 0.0%
FOODS - 0.0%
Chiquita Brands B3 820,000 582,200
International, Inc. 7%
3/28/01
TECHNOLOGY - 0.2%
COMPUTER SERVICES & SOFTWARE
- - 0.0%
Softkey International, Inc. - 1,340,000 1,306,500
5.5% 11/1/00 (d)
MOODY'S RATINGS (UNAUDITED) (E) PRINCIPAL AMOUNT VALUE (NOTE 1)
COMPUTERS & OFFICE EQUIPMENT
- - 0.1%
Quantum Corp. 7% 8/1/04 B2 $ 7,730,000 $ 5,555,938
ELECTRONICS - 0.1%
Micron Technology, Inc. 7% B2 9,683,000 12,442,655
7/1/04
TOTAL TECHNOLOGY 19,305,093
UTILITIES - 0.1%
TELEPHONE SERVICES - 0.1%
Telefonos de Mexico SA de CV BB 9,430,000 12,282,575
4.25% 6/15/04
TOTAL CONVERTIBLE BONDS 119,311,337
NONCONVERTIBLE BONDS - 0.4%
BASIC INDUSTRIES - 0.0%
CHEMICALS & PLASTICS - 0.0%
Lyondell Chemical Co. 9.875% Ba3 1,340,000 1,366,800
5/1/07
ENERGY - 0.0%
ENERGY SERVICES - 0.0%
RBF Finance Co. 11.375% Ba3 1,520,000 1,634,000
3/15/09
FINANCE - 0.0%
CREDIT & OTHER FINANCE - 0.0%
Macsaver Financial Services, Ba2 1,000,000 570,000
Inc. 7.875% 8/1/03
HEALTH - 0.0%
MEDICAL FACILITIES MANAGEMENT
- - 0.0%
Tenet Healthcare Corp. 8.125% Ba3 2,220,000 2,070,150
12/1/08
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.0%
POLLUTION CONTROL - 0.0%
Allied Waste North America, B2 1,030,000 916,700
Inc. 10% 8/1/09 (d)
MEDIA & LEISURE - 0.2%
BROADCASTING - 0.2%
Adelphia Communications Corp.:
7.75% 1/15/09 B1 1,065,000 950,513
9.875% 3/1/07 B1 2,425,000 2,449,250
Century Communications Corp. B1 440,000 192,500
Series B, 0% 1/15/08
Charter Communications B2 1,340,000 1,239,500
Holdings LLC/Charter
Communications Holdings
Capital Corp. 8.625% 4/1/09
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (E) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Falcon Holding Group B2 $ 1,840,000 $ 1,343,200
LP/Falcon Funding Corp. 0%
4/15/10 (c)
NTL Communications Corp. B3 6,470,000 7,003,775
11.5% 10/1/08
Telewest PLC 0% 10/1/07 (c) B1 1,780,000 1,646,500
14,825,238
ENTERTAINMENT - 0.0%
Regal Cinemas, Inc. 8.875% Caa1 2,340,000 1,749,150
12/15/10
LODGING & GAMING - 0.0%
HMH Properties, Inc. 7.875% Ba2 860,000 769,700
8/1/08
RESTAURANTS - 0.0%
Domino's, Inc. 10.375% 1/15/09 B3 1,020,000 981,750
TOTAL MEDIA & LEISURE 18,325,838
NONDURABLES - 0.0%
HOUSEHOLD PRODUCTS - 0.0%
Revlon Consumer Products B3 1,390,000 1,056,400
Corp. 9% 11/1/06
UTILITIES - 0.2%
CELLULAR - 0.1%
Nextel Communications, Inc.:
0% 10/31/07 (c) B1 4,635,000 3,360,375
12% 11/1/08 B1 2,090,000 2,335,575
5,695,950
TELEPHONE SERVICES - 0.1%
GST Network Funding, Inc. 0% - 1,620,000 793,800
5/1/08 (c)
ICG Services, Inc. 0% 5/1/08 B3 1,395,000 714,938
(c)
Intermedia Communications, B2 770,000 710,325
Inc. 8.6% 6/1/08
McLeodUSA, Inc. 9.5% 11/1/08 B1 990,000 999,900
NEXTLINK Communications, Inc. B2 2,780,000 2,717,450
9.625% 10/1/07
Pathnet, Inc. 12.25% 4/15/08 - 520,000 332,800
Rhythms NetConnections, Inc. B3 1,670,000 1,619,900
12.75% 4/15/09
Teligent, Inc. 0% 3/1/08 (c) Caa1 3,160,000 1,856,500
MOODY'S RATINGS (UNAUDITED) (E) PRINCIPAL AMOUNT VALUE (NOTE 1)
WinStar Communications, Inc.:
0% 10/15/05 (c) Caa1 $ 660,000 $ 620,400
15% 3/1/07 CCC 840,000 1,192,800
11,558,813
TOTAL UTILITIES 17,254,763
TOTAL NONCONVERTIBLE BONDS 43,194,651
TOTAL CORPORATE BONDS 162,505,988
(Cost $156,035,259)
CASH EQUIVALENTS - 0.7%
SHARES
Central Cash Collateral Fund, 2,271,170 2,271,170
4.97% (b)
Taxable Central Cash Fund, 70,952,473 70,952,473
5.12% (b)
TOTAL CASH EQUIVALENTS 73,223,643
(Cost $73,223,643)
TOTAL INVESTMENT PORTFOLIO - 11,378,496,699
99.4%
(Cost $8,677,831,723)
NET OTHER ASSETS - 0.6% 73,126,371
NET ASSETS - 100% $ 11,451,623,070
</TABLE>
SECURITY TYPE ABBREVIATIONS
ACES - Automatic Common Exchange
Securities
DECS - Dividend Enhanced Convertible
Stock/Debt Exchangeable for
Common Stock
PIES - Premium Income Equity
Securities
PEPS - Participating Equity
Preferred Shares/Premium
Exchangeable Participating
Shares
PRIDES - Preferred Redeemable
Increased Dividend Equity
Securities
PRIZES - Participating Redeemable
Indexed Zero-Premium
Exchangeable Securities
STRYPES - Structured Yield Product
Exchangeable for Common Stock
TIDES - Term Income Deferred Equity
Securities
TRACES - Trust Automatic Common
Exchange Securities
LEGEND
(a) Non-income producing
(b) The rate quoted is the annualized seven-day yield of the fund at
period end.
(c) Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date. The rate shown
is the rate at period end.
(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.
At the period end, the value of these securities amounted to
$41,730,164 or 0.4% of net assets.
(e) Standard & Poor's credit ratings are used in absence of a rating
by Moody's Investors Service, Inc.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $3,130,810,154 and $3,702,654,756, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company.
The commissions paid to these affiliated firms were $357,904 for the
period.
The fund participated in the security lending program. At period end,
the value of securities loaned amounted to $2,161,728. The fund
received cash collateral of $2,271,170 which was invested in cash
equivalents.
INCOME TAX INFORMATION
At December 31, 1999, the aggregate cost of investment securities for
income tax purposes was $8,683,660,234. Net unrealized appreciation
aggregated $2,694,836,465, of which $3,429,361,965 related to
appreciated investment securities and $734,525,500 related to
depreciated investment securities.
The fund hereby designates approximately $377,295,000 as a capital
gain dividend for the purpose of the dividend paid deduction.
FIDELITY VARIABLE INSURANCE PRODUCTS: EQUITY-INCOME PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
ASSETS
Investment in securities, at $ 11,378,496,699
value (cost $8,677,831,723)
- - See accompanying schedule
Receivable for investments 90,046,143
sold
Receivable for fund shares 5,505,560
sold
Dividends receivable 16,959,938
Interest receivable 2,863,561
Other receivables 1,050,496
TOTAL ASSETS 11,494,922,397
LIABILITIES
Payable for investments $ 27,476,104
purchased
Payable for fund shares 8,190,160
redeemed
Accrued management fee 4,525,611
Distribution fees payable 35,366
Other payables and accrued 800,916
expenses
Collateral on securities 2,271,170
loaned, at value
TOTAL LIABILITIES 43,299,327
NET ASSETS $ 11,451,623,070
Net Assets consist of:
Paid in capital $ 7,876,429,434
Undistributed net investment 185,982,649
income
Accumulated undistributed 688,542,254
net realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation 2,700,668,733
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS $ 11,451,623,070
INITIAL CLASS: NET ASSET $25.71
VALUE, offering price and
redemption price per share
($11,014,291,174 (divided
by) 428,356,122 shares)
SERVICE CLASS: NET ASSET $25.66
VALUE, offering price and
redemption price per share
($437,331,896 (divided by)
17,043,776 shares)
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
INVESTMENT INCOME $ 237,494,123
Dividends
Interest 19,670,450
Security lending 164,973
257,329,546
Less foreign taxes withheld (5,121,217)
TOTAL INCOME 252,208,329
EXPENSES
Management fee $ 56,916,465
Transfer agent fees 7,747,895
Distribution fees - Service 335,256
Class
Accounting and security 1,001,302
lending fees
Non-interested trustees' 47,939
compensation
Custodian fees and expenses 321,914
Registration fees 28,786
Audit 85,493
Legal 72,821
Miscellaneous 786,528
Total expenses before 67,344,399
reductions
Expense reductions (1,041,650) 66,302,749
NET INVESTMENT INCOME 185,905,580
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities 697,929,742
Foreign currency transactions (331,079) 697,598,663
Change in net unrealized
appreciation (depreciation)
on:
Investment securities (178,760,100)
Assets and liabilities in (100,181) (178,860,281)
foreign currencies
NET GAIN (LOSS) 518,738,382
NET INCREASE (DECREASE) IN $ 704,643,962
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION $ 1,041,650
Expense reductions Directed
brokerage arrangements
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET YEAR ENDED DECEMBER 31, 1999 YEAR ENDED DECEMBER 31, 1998
ASSETS
Operations Net investment $ 185,905,580 $ 175,118,232
income
Net realized gain (loss) 697,598,663 377,421,064
Change in net unrealized (178,860,281) 617,114,451
appreciation (depreciation)
NET INCREASE (DECREASE) IN 704,643,962 1,169,653,747
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (170,985,891) (143,408,236)
From net investment income
From net realized gain (377,968,784) (510,364,604)
TOTAL DISTRIBUTIONS (548,954,675) (653,772,840)
Share transactions - net (339,122,770) 1,007,105,749
increase (decrease)
TOTAL INCREASE (DECREASE) (183,433,483) 1,522,986,656
IN NET ASSETS
NET ASSETS
Beginning of period 11,635,056,553 10,112,069,897
End of period (including $ 11,451,623,070 $ 11,635,056,553
undistributed net investment
income of $185,982,649 and
$172,284,861, respectively)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OTHER INFORMATION:
YEAR ENDED DECEMBER 31, 1999 YEAR ENDED DECEMBER 31, 1998
SHARES DOLLARS SHARES DOLLARS
Share transactions Initial 41,506,315 $ 1,076,558,536 64,328,671 $ 1,568,020,907
Class Sold
Reinvested 22,601,688 537,468,103 27,884,679 652,780,343
Redeemed (84,630,671) (2,163,179,248) (59,592,607) (1,424,580,460)
Net increase (decrease) (20,522,668) $ (549,152,609) 32,620,743 $ 796,220,790
Service Class Sold 8,201,124 211,555,674 8,703,524 212,310,778
Reinvested 483,645 11,486,572 42,396 992,496
Redeemed (507,589) (13,012,407) (98,817) (2,418,315)
Net increase (decrease) 8,177,180 $ 210,029,839 8,647,103 $ 210,884,959
Distributions From net $ 167,408,106 $ 143,190,527
investment income Initial
Class
Service Class 3,577,785 217,709
Total $ 170,985,891 $ 143,408,236
From net realized gain $ 370,059,997 $ 509,589,817
Initial Class
Service Class 7,908,787 774,787
Total $ 377,968,784 $ 510,364,604
$ 548,954,675 $ 653,772,840
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
YEARS ENDED DECEMBER 31, 1999 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 25.42 $ 24.28 $ 21.03 $ 19.27 $ 15.35
period
Income from Investment
Operations
Net investment income .41 C .38 C .36 C .35 .41
Net realized and unrealized 1.10 2.31 5.06 2.30 4.69
gain (loss)
Total from investment 1.51 2.69 5.42 2.65 5.10
operations
Less Distributions
From net investment income (.38) (.34) (.36) (.03) (.40)
From net realized gain (.84) (1.21) (1.81) (.86) (.78)
Total distributions (1.22) (1.55) (2.17) (.89) (1.18)
Net asset value, end of period $ 25.71 $ 25.42 $ 24.28 $ 21.03 $ 19.27
TOTAL RETURN B, F 6.33% 11.63% 28.11% 14.28% 35.09%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 11,014,291 $ 11,409,912 $ 10,106,742 $ 6,961,090 $ 4,879,435
(000 omitted)
Ratio of expenses to average .57% .58% .58% .58% .61%
net assets
Ratio of expenses to average .56% E .57% E .57% E .56% E .61%
net assets after expense
reductions
Ratio of net investment 1.57% 1.58% 1.65% 1.97% 2.56%
income to average net assets
Portfolio turnover 27% 28% 44% 186% 87%
</TABLE>
FINANCIAL HIGHLIGHTS - SERVICE CLASS
YEARS ENDED DECEMBER 31, 1999 1998 1997 D
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 25.39 $ 24.27 $ 23.44
period
Income from Investment
Operations
Net investment income C .38 .36 .05
Net realized and unrealized 1.11 2.31 .78
gain (loss)
Total from investment 1.49 2.67 .83
operations
Less Distributions
From net investment income (.38) (.34) -
From net realized gain (.84) (1.21) -
Total distributions (1.22) (1.55) -
Net asset value, end of period $ 25.66 $ 25.39 $ 24.27
TOTAL RETURN B, F 6.25% 11.54% 3.54%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 437,332 $ 225,145 $ 5,328
(000 omitted)
Ratio of expenses to average .67% .68% .68% A
net assets
Ratio of expenses to average .66% E .67% E .65% A, E
net assets after expense
reductions
Ratio of net investment 1.47% 1.51% 1.63% A
income to average net assets
Portfolio turnover 27% 28% 44%
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED
BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
D FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF SALE
OF SERVICE CLASS SHARES) TO DECEMBER 31, 1997.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS
WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A
PORTION OF THE CLASS' EXPENSES.
F TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE
NOT ANNUALIZED AND DO NOT REFLECT CHARGES ATTRIBUTABLE
TO YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION
OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS SHOWN.
NOTES TO FINANCIAL STATEMENTS
For the period ended December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES.
Equity-Income Portfolio (the fund) is a fund of Variable Insurance
Products Fund(the trust) (referred to in this report as Fidelity
Variable Insurance Products: Equity-Income Portfolio) and is
authorized to issue an unlimited number of shares. The trust is
registered under the Investment Company Act of 1940, as amended (the
1940 Act), as an open-end management investment company organized as a
Massachusetts business trust. Shares of the fund may only be purchased
by insurance companies for the purpose of funding variable annuity or
variable life insurance contracts. The fund offers two classes of
shares: the fund's original class of shares (Initial Class shares) and
Service Class shares. Both classes have equal rights and voting
privileges, except for matters affecting a single class. Investment
income, realized and unrealized capital gains and losses, the common
expenses of the fund, and certain fund-level expense reductions, if
any, are allocated on a pro rata basis to each class based on the
relative net assets of each class to the total net assets of the fund.
Each class of shares differs in its respective distribution plan. On
October 14, 1999, the Board of Trustees approved the creation of
Service Class 2, a new class of shares of the fund. The Service Class
2 shares will be subject to an annual distribution and service fee of
.25% of the class' average net assets. These shares are expected to be
available on or about January 12, 2000.
The financial statements have been prepared in conformity with
generally accepted accounting principles which require management to
make certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. Securities for which exchange quotations are
readily available are valued at the last sale price, or if no sale
price, at the closing bid price. Foreign securities are valued based
on quotations from the principal market in which such securities are
normally traded. If trading or events occurring in other markets after
the close of the principal market in which foreign securities are
traded, and before the close of the business of the fund, are expected
to materially affect the value of those securities, then they are
valued at their fair value taking this trading or these events into
account. Fair value is determined in good faith under consistently
applied procedures under the general supervision of the Board of
Trustees. Securities (including restricted securities) for which
exchange quotations are not readily available (and in certain cases
debt securities which trade on an exchange) are valued primarily using
dealer-supplied valuations or at their fair value. Short-term
securities with remaining maturities of sixty days or less for which
quotations are not readily available are valued at amortized cost or
original cost plus accrued interest, both of which approximate current
value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
and settlement date on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or
loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend
date, except certain dividends from foreign securities where the
ex-dividend date may have passed, are recorded as soon as the fund is
informed of the ex-dividend date. Non-cash dividends included in
dividend income, if any, are recorded at the fair market value of the
securities received. Interest income, which includes accretion of
original issue discount, is accrued as earned. Investment income is
recorded net of foreign taxes withheld where recovery of such taxes is
uncertain.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
DEFERRED TRUSTEE COMPENSATION. Under a Deferred Compensation Plan (the
Plan) non-interested Trustees must defer receipt of a portion of, and
may elect to defer receipt of an additional portion of, their annual
compensation. Deferred amounts are treated as though equivalent dollar
amounts had been invested in a cross-section of other Fidelity funds.
Deferred amounts remain in the fund until distributed in accordance
with the Plan.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date. Income dividends and capital gain distributions are
declared separately for each class.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for market discount, litigation proceeds, foreign currency
transactions, non-taxable dividends and losses deferred due to wash
sales.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions
may include temporary book and tax basis differences which will
reverse in a subsequent period Any taxable income or gain remaining at
fiscal year end is distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with
other affiliated entities of Fidelity Management & Research Company
(FMR), may transfer uninvested cash balances into one or more joint
trading accounts. These balances are invested in one or more
repurchase agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
CENTRAL CASH FUNDS. Pursuant to an Exemptive Order issued by the SEC,
the fund may invest in the Taxable Central Cash Fund and the Central
Cash Collateral Fund (the Cash Funds) managed by Fidelity Investments
Money Management, Inc., an affiliate of FMR. The Cash Funds are
open-end money market funds available only to investment companies and
other accounts managed by FMR and its affiliates. The Cash Funds seek
preservation of capital, liquidity, and current income. Income
distributions from the Cash Funds are declared daily and paid monthly
from net interest income. Income distributions earned by the fund are
recorded as either interest income or security lending income in the
accompanying financial statements.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period the fund had no investments in restricted
securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Information regarding purchases and sales of securities (other than
short-term securities), is included under the caption "Other
Information" at the end of the fund's schedule of investments.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .2167% to .5200% for the
period. The annual individual fund fee rate is .20%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .48% of average net assets.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the
1940 Act, the Board of Trustees has adopted a Distribution and Service
Plan for the Service Class (the Plan) of shares. Under the Plan, the
class pays Fidelity Distributors Corporation (FDC), an affiliate of
FMR, a 12b-1 fee. This fee is based on an annual rate of .10% of
Service Class average net assets. Initial Class shares are not subject
to a 12b-1 fee.
For the period, Service Class paid FDC $335,256, all of which was
reallowed to insurance companies, for the distribution of shares and
providing shareholder support services.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc. (FIIOC), an affiliate of FMR, is the fund's transfer,
dividend disbursing and shareholder servicing agent. FIIOC receives
account fees and asset-based fees that vary according to account size
and type of account. FIIOC pays a portion of the expenses related to
the typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees of
the fund were equivalent to an annual rate of .07% of average net
assets.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
ACCOUNTING AND SECURITY LENDING FEES. Fidelity Service Company, Inc.
(FSC), an affiliate of FMR, maintains the fund's accounting records
and administers the security lending program. The security lending fee
is based on the number and duration of lending transactions. The
accounting fee is based on the level of average net assets for the
month plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms are shown under the caption
"Other Information" at the end of the fund's schedule of investments.
5. SECURITY LENDING.
The fund lends portfolio securities from time to time in order to earn
additional income. The fund receives collateral in the form of U.S.
Treasury obligations, letters of credit, and/or cash against the
loaned securities, and maintains collateral in an amount not less than
100% of the market value of the loaned securities during the period of
the loan. The market value of the loaned securities is determined at
the close of business of the fund and any additional required
collateral is delivered to the fund on the next business day. If the
borrower defaults on its obligation to return the securities loaned
because of insolvency or other reasons, the fund could experience
delays and costs in recovering the securities loaned or in gaining
access to the collateral. Information regarding the value of
securities loaned and the value of collateral at period end is
included under the caption "Other Information" at the end of the
fund's schedule of investments.
6. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a
portion of the fund's expenses.
For the period, the reduction under this arrangement is shown under
the caption "Other Information" on the fund's Statement of Operations.
7. BENEFICIAL INTEREST.
At the end of the period, Fidelity Investments Life Insurance Company
(FILI) and its subsidiaries, affiliates of FMR, were the record owners
of approximately 13% of the outstanding shares of the fund. In
addition, one unaffiliated insurance company was record owner of 29%
of the total outstanding shares of the fund.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Variable Insurance Products Fund and the
Shareholders of Equity-Income Portfolio:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Equity-Income Portfolio (a fund of Variable Insurance Products Fund)
at December 31, 1999, and the results of its operations, the changes
in its net assets and the financial highlights for the periods
indicated, in conformity with accounting principles generally accepted
in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Equity-Income Portfolio's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in
the United States which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 10, 2000
DISTRIBUTIONS
The Board of Trustees of Equity-Income Portfolio voted to pay to
shareholders of record at the opening of business on record date, the
following distributions derived from capital gains realized from sales
of portfolio securities, and dividends derived from net investment
income:
PAY DATE RECORD DATE DIVIDENDS CAPITAL GAINS
Initial Class 2/4/00 2/4/00 $.43 $1.62
Service Class 2/4/00 2/4/00 $.42 $1.62
Service Class 2 2/4/00 2/4/00 $.42 $1.62
The fund hereby designates 100% of the long-term capital gain
dividends distributed during the fiscal year as 20%-rate capital gain
dividends.
A total of 99% of the dividends distributed by the Initial Class and
Service Class during the fiscal year qualifies for the
dividends-received deduction for corporate shareholders.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, PRESIDENT
Robert C. Pozen, SENIOR VICE PRESIDENT
Richard A. Spillane, Jr., VICE PRESIDENT
Stephen R. Petersen, VICE PRESIDENT
Eric D. Roiter, SECRETARY
Richard A. Silver, TREASURER
Matthew N. Karstetter, DEPUTY TREASURER
John H. Costello, ASSISTANT TREASURER
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
Ned C. Lautenbach
* INDEPENDENT TRUSTEES
VIPEI-ANN-0200 88619
1.540027.102
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER SERVICING AGENT
Fidelity Investments Institutional Operations Company, Inc.
Boston, MA
CUSTODIAN
The Chase Manhattan Bank
New York, NY
FIDELITY(REGISTERED TRADEMARK) VARIABLE INSURANCE PRODUCTS:
OVERSEAS PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 1999
(2_FIDELITY_LOGOS)(registered trademark)
CONTENTS
MARKET ENVIRONMENT 3 A review of what happened in
world markets during the
past 12 months.
PERFORMANCE AND INVESTMENT 4 How the fund has done over
SUMMARY time, and an overview of the
fund's investments at the
end of the period.
FUND TALK 5 The manager's review of fund
performance, strategy and
outlook.
INVESTMENTS 6 A complete list of the fund's
investments with their
market values.
FINANCIAL STATEMENTS 11 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.
NOTES 14 Notes to the financial
statements.
REPORT OF INDEPENDENT 17 The auditors' opinion.
ACCOUNTANTS
DISTRIBUTIONS 18
Standard & Poor's, S&P and S&P 500 are registered service marks of The
McGraw-Hill Companies, Inc. and have been licensed for use by
Fidelity Distributors Corporation.
Third party marks appearing herein are the property of their
respective owners.
All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.
This report is printed on recycled paper using soy-based inks.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE FUND'S
PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS
STATED ON THE COVER AND DO NOT NECESSARILY REPRESENT THE VIEWS OF
FIDELITY OR ANY OTHER PERSON IN THE FIDELITY ORGANIZATION. ANY SUCH
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER
CONDITIONS AND FIDELITY DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH
VIEWS. THESE VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND,
BECAUSE INVESTMENT DECISIONS FOR A FIDELITY FUND ARE BASED ON NUMEROUS
FACTORS, MAY NOT BE RELIED ON AS AN INDICATION OF TRADING INTENT ON
BEHALF OF ANY FIDELITY FUND.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND.
THIS REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR
ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT
INSURED BY THE FDIC, FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND
ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
MARKET ENVIRONMENT
Entering the final year of the 20th century, popular U.S. equity
market indexes had just posted an unprecedented four consecutive years
of double-digit annual returns, while domestic bonds also enjoyed
relatively strong increases. The international story entering 1999,
however, was less positive. In general - with the exception of
European issues - international equities and bonds were greatly
disappointing. Asian and Russian economies had fallen into disarray,
Japan was struggling to implement banking reforms, and emerging
markets were plagued by a host of currency devaluations, loan defaults
and dismal credit outlooks. So who would have thought, just one year
later, that Japan, Russia and emerging markets would be three of
1999's best-performing investments? U.S. equities also continued to
chug along in 1999, extending their indexes' streak of consecutive
double-digit annual increases to five. The stock market was not
without its problems, however. Extremely narrow market breadth,
soaring valuations and rising interest rates - not to mention Y2K -
left many investors unsettled about the prospects for equities
entering the new millennium. Domestic fixed-income alternatives,
meanwhile, fared poorly in 1999 relative to the year prior.
U.S. STOCK MARKETS
In a word, technology was the primary driver of equity market
performance in 1999. While telecommunications, particularly the
wireless segment of the industry, also performed well, nothing
dominated like technology. This incredibly narrow market breadth was
illustrated by the technology-laden NASDAQ Index. Its return of 86.12%
for the one-year period ending December 31, 1999, was the all-time
highest annual return for any major U.S. stock index. Broader indexes,
such as the Standard & Poor's 500SM, generated much lower returns, but
were still significantly affected by tech's presence. For example,
technology was responsible for approximately 70% of the S&P 500's
12-month return of 21.04%, the index's fifth consecutive annual gain
above 20%. The top 50 stocks in the S&P 500 - the so-called "Nifty
50," many of which were technology shares - accounted for 115% of its
total return. Meanwhile, the remaining 450 stocks fell 3.13%. The Dow
Jones Industrial Average - an index of 30 blue-chip stocks - posted a
27.13% return during the period, its fifth consecutive double-digit
annual return. Despite the strong numbers of these indexes, more
stocks fell than rose in 1999. Growth stocks continued to hammer their
value-oriented peers. But in a turnaround from previous years, mid-
and small-cap growth stocks performed better than their large-cap
brethren did. Conversely, mid-and small-cap value issues posted
negative overall returns in 1999.
FOREIGN STOCK MARKETS
Similar to the domestic equity markets, technology and - perhaps to an
even greater degree than in the U.S. - telecommunications led the
charge in the vastly improved international equity markets. The
recovery of the Japanese stock market in 1999 was nothing short of
remarkable. A renewed emphasis on corporate restructuring and
shareholder value - combined with the Japanese government's
willingness to create more of a free-enterprise market system - proved
wildly successful. For the period, the Morgan Stanley Capital
International Japan Index returned 61.53% and Japan's TOPIX Index was
up 75.89%. While Canadian equity markets didn't get nearly the
attention of their U.S. neighbors, their performance was a great deal
better than the broader American indexes, as the Toronto Stock
Exchange (TSE) 300 returned 39.34% for the 12-month period ending
December 31, 1999. Despite a strong surge in December, European
markets offered mixed results over the past 12 months. In that time,
the Morgan Stanley Capital International Europe Index posted a
relatively tame - at least, in comparison to other developed nations'
stock markets - one-year return of 16.16%.
U.S. BOND MARKETS
Fueled by robust economic growth and a tighter monetary policy,
interest rates moved sharply higher, causing most domestic bonds to
struggle throughout the 12-month period ending December 31, 1999. The
Lehman Brothers Aggregate Bond Index, a popular measure of
taxable-bond performance, fell 0.82% during the period. Treasury
prices had the toughest time of it, falling in response to three
quarter-point interest-rate hikes levied by the Federal Reserve Board,
which erased all of 1998's rate cuts. The Lehman Brothers Long-Term
Treasury Index plunged 8.74% in 1999. Nor were corporate bonds, as
measured by the Lehman Brothers Corporate Bond Index, immune from the
fixed-income fade during the year, falling 1.96%. Government agency
securities also fell into negative territory for the year, as the
Lehman Brothers U.S. Agency Index fell 0.94%. There were a few bright
spots, however. The high-yield market, as measured by the Merrill
Lynch High Yield Master II Index, returned 2.51% during the 12-month
period, while the Lehman Brothers Mortgage-Backed Securities Index was
up 1.86%.
FOREIGN BOND MARKETS
Emerging markets stood as one of the best-performing asset classes in
1999. For the 12-month period ending December 31, 1999, the JP Morgan
Emerging Markets Bond Index Plus was up 25.97%. A year ago, that same
index closed 1998 with a negative 14.35% annual return. A variety of
factors sparked their recovery, including rising commodity prices,
particularly oil; the continuation of a strong U.S. economy;
stable-to-lower interest rates; tame inflation; and greater political
stability. Russia was perhaps the year's biggest comeback story.
Devastated by its devaluation of the ruble and loan defaults in 1998,
Russia steadily demonstrated strong technical improvements that made
it the best-performing country in the index in 1999. Both Brazil and
Mexico enjoyed relatively low inflation and improved economies. Turkey
was the best-performing emerging-market country in December, as the
government's reform plans, IMF financial support, and the announcement
that it would be accepted in the European Union all boosted the
country's prospects. Elsewhere, outside of positive performing
Canadian and Japanese issues - beneficiaries of strong local
currencies - higher rates proved insurmountable for most non-U.S.
developed markets, which produced negative returns in local currency
terms. A markedly weak euro, coupled with firming supply pressures,
felled bond prices in Germany, France and Italy. The Salomon Brothers
Non-U.S. World Government Bond Index fell 5.07% in 1999.
FIDELITY VARIABLE INSURANCE PRODUCTS: OVERSEAS PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
1999
FIDELITY VIP: OVERSEAS - 42.55% 17.37% 11.43%
"INITIAL CLASS"
MSCI EAFE 27.22% 12.98% 7.08%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's returns to the performance of the Morgan
Stanley Capital International Europe, Australasia, Far East (EAFE)
Index - a market capitalization-weighted index that is designed to
represent the performance of developed stock markets outside the
United States and Canada. As of December 31, 1999, the index included
over 1,000 equity securities of companies domiciled in 21 countries.
Figures for more than one year assume a steady compounded rate of
return and are not the fund's year-by-year results, which fluctuated
over the periods shown.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S
SEPARATE ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF
THESE ADDITIONAL CHARGES, THE TOTAL RETURNS WOULD HAVE BEEN LOWER.
Past performance is no guarantee of future results. Principal and
investment return will vary and you may have a gain or loss when you
withdraw your money. Foreign investments involve greater risks and
potential rewards than U.S. investments. These risks include political
and economic uncertainties of foreign countries, as well as the risk
of currency fluctuations.
(checkmark)UNDERSTANDING PERFORMANCE
Many markets around the globe offer the
potential for significant growth over time;
however, investing in foreign markets means
assuming greater risks than investing in the
United States. Factors like changes in a country's
financial markets, its local political and
economic climate, and the fluctuating value of
its currency create these risks. For these reasons
an international fund's performance may be
more volatile than a fund that invests exclusively
in the United States.
$10,000 OVER 10 YEARS
VIP OVERSEAS MS EAFE (NET MA TAX)
00154 MS001
1989/12/31 10000.00 10000.00
1990/01/31 9865.82 9627.92
1990/02/28 9635.55 8955.94
1990/03/31 9999.75 8022.94
1990/04/30 10055.17 7959.28
1990/05/31 10712.32 8867.44
1990/06/30 10949.85 8789.34
1990/07/31 11504.07 8913.14
1990/08/31 10332.29 8047.60
1990/09/30 9350.52 6926.05
1990/10/31 10221.44 8005.26
1990/11/30 9904.74 7533.04
1990/12/31 9833.49 7655.08
1991/01/31 9928.49 7902.68
1991/02/28 10262.98 8749.84
1991/03/31 9962.80 8224.56
1991/04/30 10181.85 8305.33
1991/05/31 10206.19 8391.99
1991/06/30 9646.39 7775.34
1991/07/31 10125.06 8157.36
1991/08/31 10157.51 7991.70
1991/09/30 10571.28 8442.10
1991/10/31 10644.30 8561.78
1991/11/30 10262.98 8162.07
1991/12/31 10619.96 8583.59
1992/01/31 10749.77 8400.25
1992/02/29 10525.75 8099.58
1992/03/31 10311.95 7564.88
1992/04/30 10953.36 7600.84
1992/05/31 11430.31 8109.61
1992/06/30 11216.51 7724.95
1992/07/31 10501.08 7527.24
1992/08/31 10410.63 7999.36
1992/09/30 9991.24 7841.39
1992/10/31 9308.71 7430.08
1992/11/30 9259.37 7499.99
1992/12/31 9481.40 7538.79
1993/01/31 9752.77 7537.86
1993/02/28 9943.80 7765.55
1993/03/31 10633.64 8442.44
1993/04/30 11340.30 9243.65
1993/05/31 11584.27 9438.88
1993/06/30 11298.24 9291.61
1993/07/31 11744.11 9616.86
1993/08/31 12375.07 10136.01
1993/09/30 12307.76 9907.86
1993/10/31 12753.64 10213.19
1993/11/30 12215.22 9320.45
1993/12/31 13022.84 9993.46
1994/01/31 13872.52 10838.36
1994/02/28 13627.85 10808.34
1994/03/31 13289.69 10342.81
1994/04/30 13729.30 10781.64
1994/05/31 13560.22 10719.74
1994/06/30 13416.50 10871.23
1994/07/31 13771.57 10975.78
1994/08/31 13932.20 11235.64
1994/09/30 13568.68 10881.76
1994/10/31 13847.66 11244.13
1994/11/30 13323.51 10703.73
1994/12/31 13247.42 10770.75
1995/01/31 12697.91 10356.99
1995/02/28 12731.32 10327.27
1995/03/31 13123.32 10971.39
1995/04/30 13498.27 11384.01
1995/05/31 13685.75 11248.31
1995/06/30 13813.57 11051.05
1995/07/31 14427.13 11739.04
1995/08/31 14026.61 11291.24
1995/09/30 14231.13 11511.76
1995/10/31 13949.92 11202.32
1995/11/30 14111.83 11514.01
1995/12/31 14537.91 11977.92
1996/01/31 14810.60 12027.09
1996/02/29 14843.22 12067.75
1996/03/31 15070.24 12324.02
1996/04/30 15489.34 12682.32
1996/05/31 15498.07 12448.94
1996/06/30 15611.58 12519.01
1996/07/31 15148.82 12153.11
1996/08/31 15262.32 12179.74
1996/09/30 15707.62 12503.30
1996/10/31 15550.46 12375.36
1996/11/30 16362.47 12867.75
1996/12/31 16449.78 12702.22
1997/01/31 16449.78 12260.18
1997/02/28 16830.90 12463.70
1997/03/31 16983.82 12511.07
1997/04/30 17127.19 12579.88
1997/05/31 18197.64 13400.96
1997/06/30 19153.39 14142.04
1997/07/31 19803.31 14372.84
1997/08/31 18312.33 13301.35
1997/09/30 19659.95 14048.48
1997/10/31 18283.65 12972.23
1997/11/30 18197.64 12842.51
1997/12/31 18350.56 12956.93
1998/01/31 18952.68 13551.91
1998/02/28 20019.53 14423.98
1998/03/31 20927.63 14870.83
1998/04/30 21515.83 14990.99
1998/05/31 21484.87 14920.98
1998/06/30 21278.49 15036.62
1998/07/31 21443.60 15191.80
1998/08/31 17542.89 13312.42
1998/09/30 17522.25 12907.19
1998/10/31 19121.74 14255.60
1998/11/30 20246.55 14988.77
1998/12/31 20700.60 15582.92
1999/01/31 20989.55 15539.76
1999/02/28 20433.05 15172.24
1999/03/31 21261.13 15808.57
1999/04/30 22207.50 16451.66
1999/05/31 21185.85 15607.21
1999/06/30 22368.82 16218.39
1999/07/31 23003.32 16703.32
1999/08/31 23336.70 16767.12
1999/09/30 23648.57 16938.82
1999/10/31 24616.45 17576.06
1999/11/30 26423.16 18189.46
1999/12/31 29509.63 19824.69
IMATRL PRASUN SHR__CHT 19991231 20000114 110247 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Variable Insurance Products: Overseas Portfolio
on December 31, 1989. As the chart shows, by December 31, 1999, the
value of the investment would have grown to $29,510 - a 195.10%
increase on the initial investment. For comparison, look at how the
Morgan Stanley Capital International EAFE Index did over the same
period. With dividends and capital gains, if any, reinvested, the same
$10,000 investment would have grown to $19,825 - a 98.25% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF
DECEMBER 31, 1999
% OF FUND'S NET ASSETS
Kyocera Corp. (Japan) 3.1
Furukawa Electric Co. Ltd. 2.9
(Japan)
Total Fina SA Class B (France) 2.4
Nokia AB (Finland) 2.1
Deutsche Telekom AG (Germany) 1.8
12.3
TOP FIVE MARKET SECTORS AS OF
DECEMBER 31, 1999
% OF FUND'S NET ASSETS
UTILITIES 18.5
FINANCE 18.1
TECHNOLOGY 16.3
BASIC INDUSTRIES 6.5
ENERGY 5.6
TOP FIVE COUNTRIES AS OF
DECEMBER 31, 1999
(EXCLUDING CASH EQUIVALENTS) % OF FUND'S NET ASSETS
Japan 30.1
United Kingdom 14.8
France 10.4
Germany 7.5
Netherlands 5.7
PERCENTAGES ARE ADJUSTED FOR THE EFFECT OF OPEN FUTURES CONTRACTS, IF
APPLICABLE.
PRIOR TO THIS REPORT, CERTAIN INFORMATION RELATED TO PORTFOLIO
HOLDINGS WAS STATED AS A PERCENTAGE OF THE FUND'S INVESTMENTS.
FIDELITY VARIABLE INSURANCE PRODUCTS: OVERSEAS PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
(photograph of Richard Mace)
An interview with
Richard Mace,
Portfolio Manager of Overseas Portfolio
Q. HOW DID THE FUND PERFORM, RICK?
A. For the 12 months that ended December 31, 1999, the fund easily
outpaced the 27.22% return of the Morgan Stanley Capital International
Europe, Australasia, Far East (EAFE) Index.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S STRONG SHOWING?
A. Most of the fund's outperformance can be traced to a relatively
strong commitment to the high-performing Japanese market, as well as
from good individual stock picking within that market. The fund also
benefited from the solid performance of several of its energy-related
positions.
Q. WHAT TRIGGERED THE JAPANESE MARKET'S REBOUND AND HOW DID THE FUND
TAKE ADVANTAGE?
A. The Japanese market became somewhat more "Americanized" over the
past year. The government has allowed some barriers to come down to
create more of a free-enterprise market system, and Japanese
corporations - following in the footsteps of their U.S. counterparts -
have begun to implement share buyback programs, cut unprofitable
businesses and consider effective restructuring programs. Japanese
investors, in fact, can now buy mutual funds. All of this has
translated into a more confident market and economy, and the fund took
advantage. Several of the fund's Japanese telephone utilities
positions fared well, particularly DDI Corp., which was among the
fund's top holdings through the second half of the period. Japanese
non-bank financial positions also performed well, including
brokerage-related holdings such as Daiwa Securities and Nikko
Securities.
Q. CAN YOU ELABORATE ON THE ENERGY POSITIONS YOU MENTIONED?
A. Sure. The fund's best performers in this group were the two large
French exploration firms, Elf Aquitaine and Total. Both stocks suited
my philosophy that it's better to look for energy stocks with good
long-term characteristics than focus on trying to guess the direction
of oil prices. In particular, I was attracted to Elf's growing oil
reserve base, which should kick into production growth in 2001. Total
intrigued me because of its rapid 10% production growth rate. I looked
at both stocks as a package: One had current production growth, while
the other looked promising long-term. In addition, both companies
engaged in a spirited takeover battle during the period, with each
making takeover bids for the other. Eventually, the issue was resolved
and a merger was approved. Overall, I think the merger - which makes
Total the fourth-largest oil company in the world - should be
beneficial to both companies. Elf Aquitaine is no longer a publicly
traded stock.
Q. THE FUND ALSO RECEIVED GOOD RESULTS FROM SEVERAL OF ITS
TELECOMMUNICATIONS-RELATED STOCKS, MOST NOTABLY FINLAND'S NOKIA,
SWEDEN'S ERICSSON AND THE U.K.'S VODAFONE AIRTOUCH . . .
A. These companies were beneficiaries of the worldwide wireless
communications boom. Nokia and Ericsson - both longstanding positions
in the fund - showed strong management execution during the period
and generated good financial returns in the process. Vodafone
AirTouch, meanwhile, benefited from its strong presence in the
burgeoning U.K. market as well as from its announcement that it would
merge its mobile communications business with U.S.-based Bell
Atlantic. The Vodafone-Bell Atlantic partnership is but another
example of the cross-border alliances that have fueled telecom
business around the globe.
Q. WHICH STOCKS WOULD YOU CLASSIFY AS DISAPPOINTING?
A. Rentokil - which provides a variety of industrial-related services
for corporations - detracted significantly from performance due to a
strong British pound. A slump in sales growth, particularly in Asia,
also hurt. European consumer-related stocks - such as Swiss foods
company Nestle and Anglo-Dutch household products company Unilever -
suffered from sluggish global demand. The fund's Italian positions
also proved to be a weak link. Telecom Italia Mobile struggled, as did
bank stocks Banca di Roma and San Paolo-IMI, and insurer Generali SPA.
Q. WHAT'S YOUR OUTLOOK?
A. I expect to see more of the same in terms of increased
consolidation and cross-border mergers. The euro - the uniform
currency in Europe - has made it much easier to complete such
transactions. As big companies have become bigger, many smaller firms
have jumped into the fray just to keep pace. We may also see continued
restructuring efforts in Europe and Japan. As a result, there should
be greater differentiation of stocks away from the influences of their
local markets and more towards the earnings and underlying
fundamentals of the company itself.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET OR OTHER CONDITIONS. FOR MORE INFORMATION, SEE PAGE 2.
(checkmark)FUND FACTS
GOAL: seeks long-term growth of capital
primarily by investments in foreign securities
START DATE: January 28, 1987
SIZE: as of December 31, 1999, more than
$2.8 billion
MANAGER: Richard Mace, since 1996; joined
Fidelity in 1987
FIDELITY VARIABLE INSURANCE PRODUCTS: OVERSEAS PORTFOLIO
INVESTMENTS DECEMBER 31, 1999
Showing Percentage of Net Assets
COMMON STOCKS - 91.4%
SHARES VALUE (NOTE 1)
AUSTRALIA - 1.6%
AMP Ltd. 222,400 $ 2,459,146
Australia & New Zealand 1,189,642 8,660,852
Banking Group Ltd.
Cable & Wireless Optus Ltd. 1,974,000 6,601,313
(a)
National Australia Bank Ltd. 586,000 8,970,547
News Corp. Ltd. 794,681 7,721,939
News Corp. Ltd. sponsored:
ADR 36,400 1,392,300
ADR (preferred ltd. vtg.) 124,400 4,159,625
Rio Tinto Ltd. 40,000 859,908
The Broken Hill Proprietary 291,393 3,829,095
Co. Ltd.
Westpac Banking Corp. 105,800 730,348
45,385,073
BELGIUM - 0.3%
Electrabel SA 12,900 4,219,122
Fortis B 128,700 4,639,308
8,858,430
BRAZIL - 0.0%
Brahma Cervejaria (Compagnie) 80,400 1,125,600
sponsored ADR
BRITISH VIRGIN ISLANDS - 0.0%
El Sitio, Inc. 19,900 731,325
CANADA - 0.9%
Barrick Gold Corp. 43,500 774,262
BCE, Inc. 118,000 10,697,242
Celestica, Inc. (sub. vtg.) 147,300 8,226,889
(a)
Cinar Films, Inc. Class B 136,500 3,344,250
(sub. vtg.) (a)
Inco Ltd. 123,500 2,868,321
25,910,964
DENMARK - 0.2%
Carlsberg AS Class B 58,800 2,226,008
Novo-Nordisk AS Class B 13,200 1,749,006
Unidanmark AS Class A 37,000 2,601,336
6,576,350
FINLAND - 3.1%
Asko OY Class A 32,100 568,548
Helsinki Telephone Corp. 66,950 5,571,923
Class E
Metsa-Serla Oyj Class B Free 164,200 1,908,553
Shares
Metso Oyj (a) 137,600 1,786,311
Nokia AB 324,100 61,578,999
Sampo Insurance Co. Ltd. 97,800 3,415,210
Sonera Group PLC (c) 74,500 5,101,918
UPM-Kymmene Corp. 248,400 9,999,094
89,930,556
FRANCE - 10.4%
Alcatel Alsthom Compagnie 38,750 8,718,750
Generale d'Electricite SA
(RFD)
SHARES VALUE (NOTE 1)
Aventis SA 148,172 $ 8,427,282
Aventis SA (Germany) 53,778 3,138,389
AXA SA de CV 136,726 19,043,039
Banque Nationale de Paris 198,440 18,292,529
Canal Plus SA 36,000 5,235,033
Cap Gemini SA 34,800 8,825,287
Carrefour SA 65,200 12,013,927
Castorama Dubois 4,906 1,491,020
Investissements SA
Club Mediterranee SA (a) 16,700 1,929,334
Coflexip SA sponsored ADR 83,400 3,169,200
Compagnie de St. Gobain 23,000 4,321,368
France Telecom SA 246,600 32,584,184
Groupe Danone 18,300 4,309,392
L'Oreal SA 5,000 4,007,789
Lafarge SA 29,595 3,442,907
Michelin SA (Compagnie 66,519 2,610,714
Generale des Etablissements)
Class B (a)
Rhodia SA 361,700 8,168,088
Sanofi-Synthelabo SA (a) 193,168 8,036,273
Schneider SA 33,800 2,651,440
Societe Generale, France 53,000 12,320,743
Class A
Suez Lyonnaise des Eaux 72,000 11,527,941
Television Francaise 1 SA 34,900 18,263,240
Total Fina SA Class B 503,244 69,699,292
Union Assurances Federales SA 22,763 2,671,020
Vivendi SA (a) 282,800 25,514,012
300,412,193
GERMANY - 7.1%
Allianz AG (Reg.) 65,800 22,116,755
BASF AG 191,000 9,841,298
Bayer AG 206,600 9,792,651
Deutsche Bank AG 105,900 8,924,378
Deutsche Telekom AG 725,400 51,830,447
Kali Und Salz Beteiligungs AG 494,400 6,965,552
Mannesmann AG (Reg.) 195,300 47,562,718
Munich Reinsurance AG (Reg.) 58,192 14,903,907
Primacom AG 37,300 2,402,359
RWE AG 101,200 3,951,494
Siemens AG 123,600 15,796,877
Veba AG 159,700 7,786,598
Viag AG 192,500 3,525,747
205,400,781
HONG KONG - 0.6%
Cheung Kong Holdings Ltd. 276,000 3,508,625
China Telecom (Hong Kong) 1,230,000 7,906,595
Ltd. (a)
Dah Sing Financial Holdings 534,000 2,131,050
Ltd.
Wing Hang Bank Ltd. 808,000 2,766,838
16,313,108
IRELAND - 0.3%
Bank of Ireland, Inc. 1,151,438 9,154,122
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
ITALY - 2.8%
Assicurazioni Generali Spa 283,800 $ 9,407,734
Banca di Roma 1,486,150 1,909,865
Banca Intesa Spa 1,415,846 5,739,242
Eni Spa sponsored ADR 3,030,700 16,600,850
Olivetti & Co. Spa 1,883,500 5,472,194
San Paolo-IMI Spa 479,100 6,486,742
Telecom Italia Mobile Spa 1,313,900 14,625,333
Telecom Italia Spa 1,130,524 15,827,335
Unicredito Italiano Spa 1,065,800 5,238,421
81,307,716
JAPAN - 29.5%
Aiful Corp. (c) 32,200 3,938,356
Aiwa Co. Ltd. 42,300 877,456
Asahi Bank Ltd. 671,000 4,136,301
Asahi Chemical Industry Co. 328,000 1,684,932
Ltd.
Canon, Inc. 155,000 6,287,188
CSK Corp. 175,300 28,473,386
Dai Nippon Printing Co. Ltd. 143,000 2,280,724
Dai-Ichi Kangyo Bank Ltd. 890,000 8,316,536
Daiwa Securities Co. Ltd. 1,959,000 30,650,108
DDI Corp. 1,965 26,917,809
FamilyMart Co. Ltd. 16,800 1,117,808
Fuji Bank Ltd. 902,000 8,764,051
Fuji Photo Film Co. Ltd. 188,000 6,861,448
Fujisawa Pharmaceutical Co. 182,000 4,416,438
Ltd.
Fujitsu Ltd. 463,000 21,111,351
Furukawa Electric Co. Ltd. 5,513,000 83,612,037
Hirose Electric Co. Ltd. 11,500 2,577,935
Hitachi Chemical Co. Ltd. 104,000 1,934,481
Hitachi Information Systems 19,000 1,106,164
Hitachi Ltd. 2,082,000 33,702,376
Honda Motor Co. Ltd. 149,000 5,699,250
Hoya Corp. 65,000 5,119,863
Ito-Yokado Co. Ltd. 301,000 32,691,781
Kaneka Corp. 125,000 1,598,581
Kansai Electric Power Co., 387,000 6,744,100
Inc.
Kao Corp. 124,000 3,536,791
Koa Denko Co. Ltd. 109,000 3,146,282
Kyocera Corp. 349,900 90,727,492
Matsushita Electric 534,000 14,898,600
Industrial Co. Ltd.
Minolta Co. Ltd. 394,000 1,534,364
Mitsubishi Electric Corp. 1,607,000 10,377,887
Mitsubishi Estate Co. Ltd. 646,000 6,301,977
Mitsubishi Trust & Banking 427,000 3,760,274
Corp.
Mitsui Fudosan Co. Ltd. 288,000 1,950,059
Mitsumi Electric Co. Ltd. 35,000 1,095,890
NEC Corp. 465,000 11,079,012
Nichicon Corp. 625,000 19,324,854
Nikko Securities Co. Ltd. 1,792,000 22,671,781
Nintendo Co. Ltd. 23,600 3,921,018
Nippon Computer Systems Corp. 77,000 1,597,260
SHARES VALUE (NOTE 1)
Nippon Steel Corp. 692,000 $ 1,618,278
Nippon Telegraph & Telephone 2,289 39,195,206
Corp.
Nippon Zeon Co. Ltd. 446,000 2,823,503
Nomura Securities Co. Ltd. 916,000 16,536,400
NTT Data Corp. 106 2,437,378
NTT Mobile Communication 412 15,843,053
Network, Inc.
Omron Corp. 1,415,000 32,605,920
ORIX Corp. 52,900 11,915,441
Ricoh Co. Ltd. 304,000 5,729,002
Rohm Co. Ltd. 13,000 5,342,466
Sakura Bank Ltd. 1,052,000 6,093,777
Secom Co. Ltd. 42,000 4,623,288
Sega Enterprises 148,700 4,728,718
Sharp Corp. 370,000 9,467,221
Shin-Etsu Chemical Co. Ltd. 141,000 6,070,450
Softbank Corp. 43,900 42,009,981
Sony Corp. 107,900 30,724,526
Takeda Chemical Industries 455,000 22,482,877
Ltd.
Tokai Bank Ltd. 286,000 1,802,192
Tokyo Electric Power Co. 807,000 21,635,813
Tokyo Tomin Bank Ltd. (a) 25,200 966,575
Toyota Motor Corp. 263,000 12,738,259
Trans Cosmos, Inc. 26,900 11,475,930
Yamaha Motor Co. Ltd. 210,000 1,454,795
Yamanouchi Pharmaceutical Co. 141,000 4,925,343
Ltd.
Yokogawa Electric Corp. 648,000 4,571,507
Yoshitomi Pharmaceutical 240,000 3,052,838
Industries Ltd.
849,414,738
KOREA (SOUTH) - 0.5%
Daelim Industrial Co. 107,400 1,234,319
Samsung Electronics Co. Ltd. 58,000 13,586,961
14,821,280
LUXEMBOURG - 0.0%
Stolt Comex Seaway SA (a) 45,600 504,450
MEXICO - 1.4%
Banacci SA de CV Series O (a) 1,236,000 4,957,045
Cifra SA de CV Series V (a) 2,458,000 4,934,159
Grupo Financiero Bancomer SA 10,589,000 4,403,236
de CV Series A
Grupo Televisa SA de CV 109,100 7,446,075
sponsored ADR (a)
Telefonos de Mexico SA de CV 96,500 10,856,250
Series L sponsored ADR
TV Azteca SA de CV sponsored 900,700 8,106,300
ADR
40,703,065
NETHERLANDS - 5.7%
ABN AMRO Holding NV 323,000 8,061,266
Aegon NV 89,300 8,618,251
Akzo Nobel NV 238,900 11,972,767
Equant NV (Reg.) (a) 195,700 21,918,400
Fortis Amev NV 388,400 13,973,472
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NETHERLANDS - CONTINUED
Heineken NV 94,600 $ 4,609,618
ING Groep NV 376,362 22,702,389
Koninklijke Ahold NV 227,731 6,735,515
Koninklijke KPN NV 196,500 19,161,759
Koninklijke Philips 159,396 21,655,102
Electronics NV
Nutreco Holding NV 123,833 3,819,583
Samas Groep NV 73,600 918,435
TNT Post Group NV 81,500 2,333,399
Vendex KBB NV 302,200 8,028,741
Vnu NV 106,700 5,602,960
Volker Wessels Stevin NV 58,600 958,297
Wolters Kluwer NV 75,800 2,563,053
163,633,007
NEW ZEALAND - 0.1%
Fletcher Challenge Ltd. - 870,200 1,285,141
Building Division
Lion Nathan Ltd. 495,600 1,154,978
2,440,119
NORWAY - 0.5%
Bergesen d.y. ASA:
(A Shares) 447,800 8,140,602
(B Shares) 213,200 3,636,866
DNB Holding ASA 854,800 3,501,708
Frontline Ltd. (a) 37,800 202,386
15,481,562
PORTUGAL - 0.1%
Electricidade de Portugal SA 149,600 2,609,031
SINGAPORE - 0.2%
Overseas Union Bank Ltd. 455,296 2,665,347
United Overseas Bank Ltd. 329,472 2,907,979
5,573,326
SOUTH AFRICA - 0.1%
Anglogold Ltd. 17,000 875,510
Gold Fields Ltd. 258,800 1,252,428
2,127,938
SPAIN - 2.5%
Altadis SA (France) 148,827 2,114,781
Altadis SA 96,900 1,384,717
Argentaria Caja Postal y 118,600 2,784,508
Banco Hipotecario de Espana
SA
Banco Bilbao Vizcaya SA (Reg.) 255,100 3,630,019
Banco Santander Central 1,297,668 14,678,408
Hispano SA
Endesa SA 271,900 5,393,180
Iberdrola SA 389,200 5,389,399
Telefonica SA (a) 1,452,400 36,248,244
71,623,256
SHARES VALUE (NOTE 1)
SWEDEN - 2.3%
ABB Ltd. (a) 37,263 $ 4,577,699
Atlas Copco AB Series B 39,200 1,123,808
Electrolux AB 236,400 5,993,105
Nordbanken Holding AB 532,200 3,152,358
Sandvik AB Series B 26,200 841,126
Skandinaviska Enskilda Banken 178,400 1,817,540
Class A
Svenska Handelsbanken AB (A 236,800 3,001,623
Shares)
Swedish Match Co. 1,130,700 3,978,272
Telefonaktiebolaget LM 594,000 39,018,375
Ericsson (B Shares)
Volvo AB Class B 98,000 2,554,109
66,058,015
SWITZERLAND - 4.3%
ABB Ltd. (Reg.) (a) 60,751 7,429,361
Ares Serono SA Class B 2,026 4,325,526
(Bearer)
Credit Suisse Group (Reg.) 78,054 15,512,773
Julius Baer Holding AG 1,392 4,204,408
Nestle SA (Reg.) 12,400 22,713,218
Novartis AG (Reg.) 15,400 22,609,231
Roche Holding AG 1,590 18,870,330
participation certificates
Swiss Reinsurance Co. (Reg.) 2,600 5,340,408
Swisscom AG 11,500 4,650,549
The Swatch Group AG (Reg.) 18,000 4,193,407
UBS AG 48,634 13,131,943
122,981,154
TAIWAN - 1.4%
Hon Hai Precision Industries 1,420,000 10,587,223
Co. Ltd. (a)
Ritek Corp. 919,000 5,563,486
Taiwan Semiconductor 3,185,450 16,949,822
Manufacturing Co. Ltd. (a)
United Microelectronics Corp. 1,740,000 6,209,336
39,309,867
UNITED KINGDOM - 14.8%
Allied Domecq PLC 323,200 1,598,706
Allied Zurich PLC 1,207,300 14,236,925
Amvescap PLC 626,100 7,287,053
AstraZeneca Group PLC 167,500 6,993,124
Bass PLC 23,916 297,877
BG Group PLC 371,111 2,399,604
Blue Circle Industries PLC 380,700 2,213,907
Booker PLC 1,241,700 2,348,433
Boots Co. PLC 230,700 2,245,018
BP Amoco PLC 3,206,386 31,696,456
British Aerospace PLC 1,253,912 8,310,490
British American Tobacco PLC 537,100 3,053,971
British Telecommunications PLC 1,431,500 34,069,706
BTP PLC 144,800 770,673
Cable & Wireless PLC 305,000 5,171,911
Cadbury Schweppes PLC 669,600 4,048,207
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
UNITED KINGDOM - CONTINUED
Caradon PLC 4,721,645 $ 11,830,436
Centrica PLC 753,300 2,137,080
CGU PLC 392,400 6,327,288
Courtaulds Textiles PLC 69,600 73,130
Diageo PLC 770,300 6,201,046
Glaxo Wellcome PLC 716,600 20,020,013
Granada Group PLC 139,600 1,416,038
Hanson PLC 592,500 4,970,859
Hays PLC 156,400 2,492,811
HSBC Holdings PLC:
(Reg.) 693,700 9,902,571
(Hong Kong) 139,836 1,996,159
Johnson Matthey PLC 280,200 3,125,309
Kingfisher PLC 494,310 5,489,488
Lloyds TSB Group PLC 1,473,800 18,451,670
Marconi PLC 550,100 9,741,588
Morgan Crucible Co. PLC 293,100 1,369,271
National Grid Group PLC 563,390 4,289,491
National Westminster Bank PLC 146,400 3,147,519
Pearson PLC 269,800 8,740,079
Peninsular & Oriental Steam 192,000 3,206,101
Navigation Co.
Prudential Corp. PLC 454,200 8,957,414
Rentokil Initial PLC 3,144,500 11,475,063
Reuters Group PLC 675,700 9,278,826
Rio Tinto PLC (Reg.) 197,500 4,772,918
Royal & Sun Alliance 421,280 3,210,911
Insurance Group PLC
Royal Bank of Scotland Group 292,800 5,196,957
PLC
Safeway PLC 646,000 2,213,829
Scottish & Newcastle PLC 318,300 2,216,346
Scottish & Southern Energy PLC 356,300 2,846,677
Shell Transport & Trading Co. 3,954,500 32,459,834
PLC (Reg.)
SmithKline Beecham PLC 1,959,142 25,248,438
Standard Chartered PLC 531,773 8,260,862
Tomkins PLC 279,800 904,593
Unilever PLC 1,494,910 11,328,607
Vodafone AirTouch PLC 8,429,960 41,728,284
WPP Group PLC 237,100 3,759,900
425,529,467
UNITED STATES OF AMERICA - 0.7%
Baker Hughes, Inc. 69,800 1,470,163
Halliburton Co. 65,600 2,640,400
Newmont Mining Corp. 174,100 4,265,450
Noble Drilling Corp. (a) 43,600 1,427,900
OMI Corp. (a) 443,100 913,894
Overseas Shipholding Group, 101,000 1,496,063
Inc.
SHARES VALUE (NOTE 1)
Smith International, Inc. (a) 13,300 $ 660,844
Synthes-Stratec, Inc. (a)(c) 10,800 4,943,304
Weatherford International, 39,100 1,561,556
Inc. (a)
19,379,574
TOTAL COMMON STOCKS 2,633,296,067
(Cost $1,634,214,296)
PREFERRED STOCKS - 0.6%
CONVERTIBLE PREFERRED STOCKS
- - 0.2%
AUSTRALIA - 0.2%
WBK STRYPES Trust (Westpac 174,300 5,588,581
Banking Corp.) $3.135
NONCONVERTIBLE PREFERRED
STOCKS - 0.4%
GERMANY - 0.4%
SAP AG 15,300 9,222,896
Wella AG 82,696 1,814,220
11,037,116
TOTAL PREFERRED STOCKS 16,625,697
(Cost $11,389,870)
INVESTMENT COMPANIES - 0.5%
EMERGING MARKETS - 0.2%
Asia Tigers Fund, Inc. 142,400 1,450,700
Templeton Dragon Fund, Inc. 439,500 4,312,594
5,763,294
HONG KONG - 0.0%
Asia Pacific Fund, Inc. 51,500 579,375
INDIA - 0.0%
India Fund (a) 28,800 482,400
KOREA (SOUTH) - 0.1%
Korea Fund, Inc. (The) (a) 73,300 1,246,100
MULTI-NATIONAL - 0.2%
European Warrant Fund, Inc. 189,100 3,510,169
Morgan Stanley Dean Witter 210,000 2,480,625
Asia-Pacific Fund, Inc.
5,990,794
TOTAL INVESTMENT COMPANIES 14,061,963
(Cost $13,342,629)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
GOVERNMENT OBLIGATIONS - 0.4%
MOODY'S RATINGS (UNAUDITED) PRINCIPAL AMOUNT VALUE (NOTE 1)
UNITED STATES OF AMERICA - 0.4%
U.S. Treasury Bills, yield at - $ 7,000,000 $ 6,912,710
date of purchase 5.21%
3/30/00 (d)
U.S. Treasury Bond stripped Aaa 25,350,000 4,252,970
principal 0% 11/15/27
TOTAL GOVERNMENT OBLIGATIONS 11,165,680
(Cost $11,230,254)
</TABLE>
CASH EQUIVALENTS - 6.1%
SHARES
Central Cash Collateral Fund, 5,203,934 5,203,934
4.97% (b)
Taxable Central Cash Fund, 171,429,199 171,429,199
5.12% (b)
TOTAL CASH EQUIVALENTS 176,633,133
(Cost $176,633,133)
TOTAL INVESTMENT PORTFOLIO - 2,851,782,540
99.0%
(Cost $1,846,810,182)
NET OTHER ASSETS - 1.0% 29,440,328
NET ASSETS - 100% $ 2,881,222,868
<TABLE>
<CAPTION>
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FUTURES CONTRACTS
EXPIRATION DATE UNDERLYING FACE AMOUNT UNREALIZED GAIN/(LOSS)
PURCHASED
93 Nikkei 225 Index Contracts March 2000 $ 8,788,500 $ 109,387
(Japan)
47 Topix Index Contracts March 2000 7,873,191 341,003
(Japan)
$ 16,661,691 $ 450,390
</TABLE>
THE FACE VALUE OF FUTURES PURCHASED AS A PERCENTAGE OF NET ASSETS -
0.6%
SECURITY TYPE ABBREVIATIONS
STRYPES - Structured Yield Product
Exchangeable for Common Stock
LEGEND
(a) Non-income producing
(b) The rate quoted is the annualized seven-day yield of the fund at
period end.
(c) 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. At the period end, the value of these securities
amounted to $13,983,578 or 0.5% of net assets.
(d) Security or a portion of the security was pledged to cover margin
requirements for futures contracts. At the period end, the value of
securities pledged amounted to $5,925,180.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $1,627,002,883 and $1,718,283,178, respectively.
The market value of futures contracts opened and closed during the
period amounted to $184,594,576 and $243,472,240, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company.
The commissions paid to these affiliated firms were $1,009 for the
period.
The fund participated in the security lending program. At period end,
the value of securities loaned amounted to $8,863,298. The fund
received cash collateral of $5,203,934 which was invested in cash
equivalents and U.S. Treasury Obligations valued at $4,100,800.
MARKET SECTOR DIVERSIFICATION (UNAUDITED)
As a Percentage of Net Assets
AEROSPACE & DEFENSE 0.3%
BASIC INDUSTRIES 6.5
CASH EQUIVALENTS 6.1
CONSTRUCTION & REAL ESTATE 1.5
DURABLES 3.0
ENERGY 5.6
FINANCE 18.1
GOVERNMENT OBLIGATIONS 0.4
HEALTH 5.4
INDUSTRIAL MACHINERY & 5.3
EQUIPMENT
INVESTMENT COMPANIES 0.5
MEDIA & LEISURE 3.4
NONDURABLES 2.9
PRECIOUS METALS 0.2
RETAIL & WHOLESALE 2.7
SERVICES 1.6
TECHNOLOGY 16.3
TRANSPORTATION 0.7
UTILITIES 18.5
INCOME TAX INFORMATION
At December 31, 1999, the aggregate cost of investment securities for
income tax purposes was $1,856,520,147. Net unrealized appreciation
aggregated $995,262,393, of which $1,054,796,671 related to
appreciated investment securities and $59,534,278 related to
depreciated investment securities.
The fund hereby designates approximately $51,355,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
FIDELITY VARIABLE INSURANCE PRODUCTS: OVERSEAS PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
ASSETS
Investment in securities, at $ 2,851,782,540
value (cost $1,846,810,182)
- - See accompanying schedule
Cash 764,740
Foreign currency held at 15,162,014
value (cost $15,100,848)
Receivable for investments 26,049,758
sold
Receivable for fund shares 11,770,243
sold
Dividends receivable 3,307,672
Interest receivable 604,609
Receivable for daily 40,260
variation on futures
contracts
Other receivables 92,272
TOTAL ASSETS 2,909,574,108
LIABILITIES
Payable for investments $ 16,237,310
purchased
Payable for fund shares 4,800,920
redeemed
Accrued management fee 1,619,365
Distribution fees payable 10,490
Other payables and accrued 479,221
expenses
Collateral on securities 5,203,934
loaned, at value
TOTAL LIABILITIES 28,351,240
NET ASSETS $ 2,881,222,868
Net Assets consist of:
Paid in capital $ 1,595,314,539
Undistributed net investment 10,707,600
income
Accumulated undistributed net 269,697,728
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation 1,005,503,001
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS $ 2,881,222,868
INITIAL CLASS: NET ASSET $27.44
VALUE, offering price and
redemption price per share
($2,736,851,374 (divided by)
99,741,041 shares)
SERVICE CLASS: NET ASSET $27.39
VALUE, offering price and
redemption price per share
($144,371,494 (divided by)
5,271,746 shares)
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
INVESTMENT INCOME $ 41,120,788
Dividends
Interest 7,340,013
Security lending 128,632
48,589,433
Less foreign taxes withheld (4,697,362)
TOTAL INCOME 43,892,071
EXPENSES
Management fee $ 16,245,906
Transfer agent fees 1,480,857
Distribution fees - Service 66,278
Class
Accounting and security 1,017,769
lending fees
Non-interested trustees' 9,891
compensation
Custodian fees and expenses 1,236,441
Registration fees 5,816
Audit 45,812
Legal 17,159
Miscellaneous 186,421
Total expenses before 20,312,350
reductions
Expense reductions (805,931) 19,506,419
NET INVESTMENT INCOME 24,385,652
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities 271,585,334
Foreign currency transactions (948,070)
Futures contracts 8,443,771 279,081,035
Change in net unrealized
appreciation (depreciation)
on:
Investment securities 564,585,615
Assets and liabilities in 250,997
foreign currencies
Futures contracts 3,004,028 567,840,640
NET GAIN (LOSS) 846,921,675
NET INCREASE (DECREASE) IN $ 871,307,327
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION $ 803,042
Expense reductions Directed
brokerage arrangements
Custodian credits 2,889
$ 805,931
<TABLE>
<CAPTION>
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STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET YEAR ENDED DECEMBER 31, 1999 YEAR ENDED DECEMBER 31, 1998
ASSETS
Operations Net investment $ 24,385,652 $ 24,821,303
income
Net realized gain (loss) 279,081,035 46,470,387
Change in net unrealized 567,840,640 174,010,260
appreciation (depreciation)
NET INCREASE (DECREASE) IN 871,307,327 245,301,950
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (31,839,750) (37,913,851)
From net investment income
From net realized gain (51,354,434) (111,746,087)
TOTAL DISTRIBUTIONS (83,194,184) (149,659,938)
Share transactions - net (16,452,995) 86,667,359
increase (decrease)
TOTAL INCREASE (DECREASE) 771,660,148 182,309,371
IN NET ASSETS
NET ASSETS
Beginning of period 2,109,562,720 1,927,253,349
End of period (including $ 2,881,222,868 $ 2,109,562,720
undistributed net investment
income of $10,707,600 and
$15,374,087, respectively)
</TABLE>
<TABLE>
<CAPTION>
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OTHER INFORMATION:
YEAR ENDED DECEMBER 31, 1999 YEAR ENDED DECEMBER 31, 1998
SHARES DOLLARS SHARES DOLLARS
Share transactions Initial 137,488,784 $ 2,927,082,596 83,667,719 $ 1,630,270,593
Class Sold
Reinvested 4,250,326 81,691,268 7,943,861 149,503,507
Redeemed (145,444,173) (3,101,747,139) (88,486,169) (1,726,300,500)
Net increase (decrease) (3,705,063) $ (92,973,275) 3,125,411 $ 53,473,600
Service Class Sold 18,969,271 $ 422,534,083 1,950,594 $ 38,211,430
Reinvested 78,277 1,502,916 8,320 156,588
Redeemed (15,508,477) (347,516,719) (274,725) (5,174,259)
Net increase (decrease) 3,539,071 $ 76,520,280 1,684,189 $ 33,193,759
Distributions From net $ 31,264,560 $ 37,874,182
investment income Initial
Class
Service Class 575,190 39,669
Total $ 31,839,750 $ 37,913,851
From net realized gain $ 50,426,708 $ 111,629,169
Initial Class
Service Class 927,726 116,918
Total $ 51,354,434 $ 111,746,087
$ 83,194,184 $ 149,659,938
</TABLE>
<TABLE>
<CAPTION>
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FINANCIAL HIGHLIGHTS - INITIAL CLASS
YEARS ENDED DECEMBER 31, 1999 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 20.06 $ 19.20 $ 18.84 $ 17.06 $ 15.67
period
Income from Investment
Operations
Net investment income .24 D .23 D .30 D .32 D, E .17
Net realized and unrealized 7.95 2.13 1.70 1.88 1.34
gain (loss)
Total from investment 8.19 2.36 2.00 2.20 1.51
operations
Less Distributions
From net investment income (.31) (.38) (.33) (.20) (.06)
From net realized gain (.50) (1.12) (1.31) (.22) (.02)
In excess of net realized gain - - - - (.04)
Total distributions (.81) (1.50) (1.64) (.42) (.12)
Net asset value, end of period $ 27.44 $ 20.06 $ 19.20 $ 18.84 $ 17.06
TOTAL RETURN B, C 42.55% 12.81% 11.56% 13.15% 9.74%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 2,736,851 $ 2,074,843 $ 1,926,322 $ 1,667,601 $ 1,343,134
(000 omitted)
Ratio of expenses to average .91% .91% .92% .93% .91%
net assets
Ratio of expenses to average .87% G .89% G .90% G .92% G .91%
net assets after expense
reductions
Ratio of net investment 1.10% 1.19% 1.55% 1.84% 1.88%
income to average net assets
Portfolio turnover 78% 84% 67% 92% 50%
</TABLE>
FINANCIAL HIGHLIGHTS - SERVICE CLASS
YEARS ENDED DECEMBER 31, 1999 1998 1997 F
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 20.04 $ 19.20 $ 19.36
period
Income from Investment
Operations
Net investment income D .22 .15 .01
Net realized and unrealized 7.94 2.19 (.17)
gain (loss)
Total from investment 8.16 2.34 (.16)
operations
Less Distributions
From net investment income (.31) (.38) -
From net realized gain (.50) (1.12) -
Total distributions (.81) (1.50) -
Net asset value, end of period $ 27.39 $ 20.04 $ 19.20
TOTAL RETURN B, C 42.44% 12.69% (0.83)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 144,371 $ 34,720 $ 931
(000 omitted)
Ratio of expenses to average 1.01% 1.01% 1.02% A
net assets
Ratio of expenses to average .98% G .97% G 1.01% A, G
net assets after expense
reductions
Ratio of net investment 1.00% .80% .31% A
income to average net assets
Portfolio turnover 78% 84% 67%
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE
NOT ANNUALIZED AND DO NOT REFLECT CHARGES ATTRIBUTABLE
TO YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION
OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS SHOWN.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED
BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
E INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL DIVIDEND
WHICH AMOUNTED TO $.05 PER SHARE.
F FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF SALE
OF SERVICE CLASS SHARES) TO DECEMBER 31, 1997.
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS
WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A
PORTION OF THE CLASS' EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES.
Overseas Portfolio (the fund) is a fund of Variable Insurance Products
Fund (the trust) (referred to in this report as Fidelity Variable
Insurance Products: Overseas Portfolio) and is authorized to issue an
unlimited number of shares. The trust is registered under the
Investment Company Act of 1940, as amended (the 1940 Act), as an
open-end management investment company organized as a Massachusetts
business trust. Shares of the fund may only be purchased by insurance
companies for the purpose of funding variable annuity or variable life
insurance contracts. The fund offers two classes of shares: the fund's
original class of shares (Initial Class shares) and Service Class
shares. Both classes have equal rights and voting privileges, except
for matters affecting a single class. Investment income, realized and
unrealized capital gains and losses, the common expenses of the fund,
and certain fund-level expense reductions, if any, are allocated on a
pro rata basis to each class based on the relative net assets of each
class to the total net assets of the fund. Each class of shares
differs in its respective distribution plan. On October 14, 1999, the
Board of Trustees approved the creation of Service Class 2, a new
class of shares of the fund. The Service Class 2 shares will be
subject to an annual distribution and service fee of .25% of the
class' average net assets. These shares are expected to be available
on or about January 12, 2000.
The financial statements have been prepared in conformity with
generally accepted accounting principles which require management to
make certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. Securities for which quotations are readily
available are valued at the last sale price, or if no sale price, at
the closing bid price in the principal market in which such securities
are normally traded. If trading or events occurring in other markets
after the close of the principal market in which securities are traded
are expected to materially affect the value of those securities, then
they are valued at their fair value taking this trading or these
events into account. Fair value is determined in good faith under
consistently applied procedures under the general supervision of the
Board of Trustees. Securities (including restricted securities) for
which quotations are not readily available are valued primarily using
dealer-supplied valuations or at their fair value. Short-term
securities with remaining maturities of sixty days or less for which
quotations are not readily available are valued at amortized cost or
original cost plus accrued interest, both of which approximate current
value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
and settlement date on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or
loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
U.S. federal income taxes to the extent that it distributes
substantially all of its taxable income for its fiscal year. The fund
may be subject to foreign taxes on income and gains on investments
which are accrued based upon the fund's understanding of the tax rules
and regulations that exist in the markets in which it invests. Foreign
governments may also impose taxes on other payments or transactions
with respect to foreign securities. The fund accrues such taxes as
applicable. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend
date, except certain dividends from foreign securities where the
ex-dividend date may have passed, are recorded as soon as the fund is
informed of the ex-dividend date. Non-cash dividends included in
dividend income, if any, are recorded at the fair market value of the
securities received. Interest income, which includes accretion of
original issue discount, is accrued as earned. Investment income is
recorded net of foreign taxes withheld where recovery of such taxes is
uncertain.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
DEFERRED TRUSTEE COMPENSATION. Under a Deferred Compensation Plan (the
Plan) non-interested Trustees must defer receipt of a portion of, and
may elect to defer receipt of an additional portion of, their annual
compensation. Deferred amounts are treated as though equivalent dollar
amounts had been invested in a cross-section of other Fidelity funds.
Deferred amounts remain in the fund until distributed in accordance
with the Plan.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date. Income dividends and capital gain distributions are
declared separately for each class.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
differing treatments for futures transactions, foreign currency
transactions, passive foreign investment companies (PFIC), non-taxable
dividends and losses deferred due to wash sales.
The fund also utilized earnings and profits distributed to
shareholders on redemption of shares as a part of the dividends paid
deduction for income tax purposes.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions
may include temporary book and tax basis differences which will
reverse in a subsequent period. Any taxable income or gain remaining
at fiscal year end is distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with
other affiliated entities of Fidelity Management & Research Company
(FMR), may transfer uninvested cash balances into one or more joint
trading accounts. These balances are invested in one or more
repurchase agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
CENTRAL CASH FUNDS. Pursuant to an Exemptive Order issued by the SEC,
the fund may invest in the Taxable Central Cash Fund and the Central
Cash Collateral Fund (the Cash Funds) managed by Fidelity Investments
Money Management, Inc., an affiliate of FMR. The Cash Funds are
open-end money market funds available only to investment companies and
other accounts managed by FMR and its affiliates. The Cash Funds seek
preservation of capital, liquidity, and current income. Income
distributions from the Cash Funds are declared daily and paid monthly
from net interest income. Income distributions earned by the fund are
recorded as either interest income or security lending income in the
accompanying financial statements.
FUTURES CONTRACTS. The fund may use futures contracts to manage its
exposure to the stock market and to fluctuations in currency values.
Buying futures tends to increase the fund's exposure to the underlying
instrument, while selling futures tends to decrease the fund's
exposure to the underlying instrument or hedge other fund investments.
Futures contracts involve, to varying degrees, risk of loss in excess
of the futures variation margin reflected in the Statement of Assets
and Liabilities. The underlying face amount at value of any open
futures contracts at period end is shown in the schedule of
investments under the caption "Futures Contracts." This amount
reflects each contract's exposure to the underlying instrument at
period end. Losses may arise from changes in the value of the
underlying instruments or if the counterparties do not perform under
the contracts' terms. Gains (losses) are realized upon the expiration
or closing of the futures contracts. Futures contracts are valued at
the settlement price established each day by the board of trade or
exchange on which they are traded.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
Information regarding restricted securities is included under the
caption "Legend" at the end of the fund's schedule of investments.
3. PURCHASES AND SALES OF INVESTMENTS.
Information regarding purchases and sales of securities (other than
short-term securities) and the market value of future contracts opened
and closed, is included under the caption "Other Information" at the
end of the fund's schedule of investments.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .2167% to .5200% for the
period. The annual individual fund fee rate is .45%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
implemented the above rates, as they resulted in the same or a lower
management fee. For the period, the management fee was equivalent to
an annual rate of .73% of average net assets.
SUB-ADVISER FEE. FMR, on behalf of the fund, entered into sub-advisory
agreements with Fidelity Management & Research (U.K.) Inc., Fidelity
Management & Research (Far East) Inc., and Fidelity International
Investment Advisors (FIIA). In addition, FIIA entered into a
sub-advisory agreement with its subsidiary, Fidelity International
Investment Advisors (U.K.) Limited (FIIA(U.K.)L). Under the
sub-advisory arrangements, FMR may receive investment advice and
research services and may grant the sub-advisers investment management
authority to buy and sell securities. FMR pays its sub-advisers either
a portion of its management fee or a fee based on costs incurred for
these services. FIIA pays FIIA(U.K.)L a fee based on costs incurred
for either service.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the
1940 Act, the Board of Trustees has adopted a Distribution and Service
Plan for the Service Class (the Plan) of shares. Under the Plan, the
class pays Fidelity Distributors Corporation (FDC), an affiliate of
FMR, a 12b-1 fee. This fee is based on an annual rate of .10% of
Service Class average net assets. Initial Class shares are not subject
to a 12b-1 fee.
For the period, Service Class paid FDC $66,278, all of which was
reallowed to insurance companies, for the distribution of shares and
providing shareholder support services.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc. (FIIOC), an affiliate of FMR, is the fund's transfer,
dividend disbursing and shareholder servicing agent. FIIOC receives
account fees and asset-based fees that vary according to account size
and type of account. FIIOC pays a portion of the expenses related to
the typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees of
the fund were equivalent to an annual rate of .07% of average net
assets.
ACCOUNTING AND SECURITY LENDING FEES. Fidelity Service Company, Inc.
(FSC), an affiliate of FMR, maintains the fund's accounting records
and administers the security lending program. The security lending fee
is based on the number and duration of lending transactions. The
accounting fee is based on the level of average net assets for the
month plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms are shown under the caption
"Other Information" at the end of the fund's schedule of investments.
5. SECURITY LENDING.
The fund lends portfolio securities from time to time in order to earn
additional income. The fund receives collateral in the form of U.S.
Treasury obligations, letters of credit and/or cash against the loaned
securities and maintains collateral in an amount not less than 100% of
the market value of the loaned securities during the period of the
loan. The market value of the loaned securities is determined at the
close of business of the fund and any additional required collateral
is delivered to the fund on the next business day. If the borrower
defaults on its obligation to return the securities loaned because of
insolvency or other reasons, the fund could experience delays and
costs in recovering the securities loaned or in gaining access to the
collateral. Information regarding the value of securities loaned and
the value of collateral at period end is included under the caption
"Other Information" at the end of the fund's schedule of investments.
6. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a
portion of the fund's expenses.
In addition, through an arrangement with the fund's custodian, credits
realized as a result of uninvested cash balances were used to reduce a
portion of the fund's expenses. For the period, the reductions under
these arrangements are shown under the caption "Other Information" on
the fund's Statement of Operations.
7. BENEFICIAL INTEREST.
At the end of the period, Fidelity Investments Life Insurance Company
(FILI) and its subsidiaries, affiliates of FMR, were the record owners
of approximately 14% of the outstanding shares of the fund. In
addition, one unaffiliated insurance company was record owner of 35%
of the total outstanding shares of the fund.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Variable Insurance Products Fund and the
Shareholders of Overseas Portfolio:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Overseas Portfolio (a fund of Variable Insurance Products Fund) at
December 31, 1999, and the results of its operations, the changes in
its net assets and the financial highlights for the periods indicated,
in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Overseas Portfolio's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in
the United States which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 10, 2000
DISTRIBUTIONS
The Board of Trustees of Overseas Portfolio voted to pay to
shareholders of record at the opening of business on record date, the
following
distributions per share derived from capital gains realized from sales
of portfolio securities, and dividends derived from net investment
income:
PAY DATE RECORD DATE DIVIDENDS CAPITAL GAINS
Initial Class 2/4/00 2/4/00 $0.37 $2.33
Service Class 2/4/00 2/4/00 $0.36 $2.33
Service Class 2 2/4/00 2/4/00 $0.36 $2.33
The fund hereby designates 100% of the long-term capital gain
dividends distributed during the fiscal year as 20%-rate capital gain
dividends.
A total of 6.76% of the dividends distributed during the fiscal year
was derived from interest on U.S. Government securities which is
generally exempt from state income tax.
The amounts per share which represent income derived from sources
within, and taxes paid to, foreign countries or possessions of the
United States are as follows:
INCOME TAXES
Initial Class $.352 $.042
Service Class $.352 $.042
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (U.K.) Inc.,
London, England
Fidelity Management & Research (Far East) Inc.,
Tokyo, Japan
Fidelity International Investment Advisors,
Pembroke, Bermuda
Fidelity International Investment Advisors (U.K.) Limited,
Kent, England
OFFICERS
Edward C. Johnson 3d, PRESIDENT
Robert C. Pozen, SENIOR VICE PRESIDENT
Richard A. Spillane Jr., VICE PRESIDENT
Richard R. Mace Jr., VICE PRESIDENT
Eric D. Roiter, SECRETARY
Richard A. Silver, TREASURER
Matthew N. Karstetter, DEPUTY TREASURER
John H. Costello, ASSISTANT TREASURER
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
Ned C. Lautenbach
* INDEPENDENT TRUSTEES
VIPOVRS-ANN-0200 88622
1.540205.102
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER SERVICING AGENT
Fidelity Investments Institutional Operations Co., Inc.
Boston, MA
CUSTODIAN
The Chase Manhattan Bank
New York, NY
<PAGE>
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[LOGO OF NEW ENGLAND FINANCIAL] U.S.Postage
PAID
Hudson, MA
Permit No. 19
NEW ENGLAND LIFE INSURANCE COMPANY
501 BOYLSTON STREET
BOSTON, MASSACHUSETTS 02116
EQUAL OPPORTUNITY EMPLOYER M/F
(C) 2000 NEW ENGLAND LIFE INSURANCE COMPANY
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This booklet has been prepared for variable contract owners of
New England Life Insurance Company, Boston, MA.
VL VIP
