<PAGE>
NEW ENGLAND ZENITH FUND
501 Boylston Street
Boston, Massachusetts 02116
(617) 267-6600
PROSPECTUS--MAY 1, 1996
New England Zenith Fund (the "Fund") offers fourteen investment portfolios,
nine of which are contained herein: the Loomis Sayles Small Cap Series, the
Draycott International Equity Series, the Alger Equity Growth Series, the
Loomis Sayles Avanti Growth Series, the Venture Value Series, the Westpeak
Value Growth Series, the Loomis Sayles Balanced Series, the Salomon Brothers
Strategic Bond Opportunities Series and the Salomon Brothers U.S. Government
Series (each a "Series") with the following investment objectives:
LOOMIS SAYLES SMALL CAP SERIES--long-term capital growth from investments in
common stocks or their equivalent.
DRAYCOTT INTERNATIONAL EQUITY SERIES--total return from long-term growth of
capital and dividend income, primarily through investment in international
equity securities.
ALGER EQUITY GROWTH SERIES--long-term capital appreciation.
LOOMIS SAYLES AVANTI GROWTH SERIES--long-term growth of capital.
VENTURE VALUE SERIES--growth of capital.
WESTPEAK VALUE GROWTH SERIES--long-term total return through investment in
equity securities.
LOOMIS SAYLES BALANCED SERIES--reasonable long-term investment return from a
combination of long-term capital appreciation and moderate current income.
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES--a high level of total
return consistent with preservation of capital. This Series may invest a
significant portion of its assets in lower rated bonds commonly known as junk
bonds. Investors should assess carefully the risks associated with investment
in this Series. See "Investment Objectives and Policies--Salomon Brothers
Strategic Bond Opportunities Series" and "Investment Risks--Lower Rated Fixed-
Income Securities".
SALOMON BROTHERS U.S. GOVERNMENT SERIES--a high level of current income
consistent with preservation of capital and maintenance of liquidity.
This Prospectus concisely describes the information that prospective
investors ought to know before investing. Please read this Prospectus
carefully and keep it for future reference.
A Statement of Additional Information (the "Statement") dated May 1, 1996,
is available free of charge by writing to New England Securities Corporation
("New England Securities"), 399 Boylston Street, Boston, Massachusetts 02116.
The Statement, which contains more detailed information about the Fund, has
been filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference in this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY FINANCIAL INSTITUTION, ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND
INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Highlights....................................................... 3
The Fund................................................................... 12
Investment Objectives and Policies......................................... 12
Investment Risks........................................................... 17
Performance Information.................................................... 26
Investment Restrictions.................................................... 27
Management................................................................. 29
Sale and Redemption of Shares.............................................. 35
Net Asset Values and Portfolio Valuation................................... 36
Dividends and Capital Gain Distributions................................... 36
Taxes...................................................................... 36
Organization and Capitalization of the Fund................................ 36
Transfer Agent............................................................. 37
Voting Rights.............................................................. 37
Appendix A................................................................. 38
</TABLE>
2
<PAGE>
FINANCIAL HIGHLIGHTS
These tables have been examined by Coopers & Lybrand LLP, the Fund's
independent accountants, whose reports thereon for periods after 1990
accompany the financial statements in the Statement of Additional Information.
The tables should be read in conjunction with the financial statements and
notes thereto. For further performance information about the Fund, please
refer to the Fund's annual report, which is available free of charge.
LOOMIS SAYLES SMALL CAP SERIES
<TABLE>
<CAPTION>
MAY 1(A) YEAR
TO ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Net Asset Value, Beginning of Period.... $100.00 $ 96.61
------- -------
Income From Investment Operations
Net Investment Income................... 0.14 0.85
Net Gains or Losses on Investments (both
realized and unrealized)............... (3.38) 26.93
------- -------
Total From Investment Operations.... (3.24) 27.78
------- -------
Less Distributions
Distributions From Net Investment
Income................................. (0.15) (0.78)
Distributions From Net Realized Capital
Gains.................................. 0.00 (4.81)
------- -------
Total Distributions................. (0.15) (5.59)
------- -------
Net Asset Value, End of the Period...... $ 96.61 $118.80
======= =======
Total Return (%)........................ (3.2)(b) 28.9
Ratio of Operating Expenses to Average
Net Assets (%)(d)...................... 1.00 (c) 1.00
Ratio of Net Investment Income to
Average Net Assets (%)................. 0.32 (c) 1.26
Portfolio Turnover Rate (%)(a).......... 80 (c) 98
Net Assets, End of Period (000)......... $ 3,105 $27,741
The Ratio of Expenses to Average Net
Assets without giving effect to the
voluntary expense limitation described
in Footnote (d) would have been (%).... 2.31 (c)(d) 1.91(d)
</TABLE>
- --------
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
(d) During the period presented, the Series' adviser voluntarily agreed to
reduce its fees and, if necessary, to assume expenses of the Series in
order to limit the Series' expenses to an annual rate of 1.00% of the
Series' average daily net assets.
3
<PAGE>
DRAYCOTT INTERNATIONAL EQUITY SERIES
<TABLE>
<CAPTION>
OCTOBER 31(A) YEAR
TO ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Net Asset Value, Beginning of Period...... $10.00 $ 10.23
------ -------
Income From Investment Operations
Net Investment Income..................... 0.03 .09
Net Gains or Losses on Investments (both
realized and unrealized)................. 0.23 0.53
------ -------
Total From Investment Operations.......... 0.26 0.62
------ -------
Less Distributions
Distributions From Net Investment Income.. (0.02) (0.09)
Distributions in Excess of Net Investment
Income................................... 0.00 (0.03)
Distributions From Paid-In Capital........ (0.01) 0.00
------ -------
Total Distributions................... (0.03) (0.12)
------ -------
Net Asset Value, End of the Period........ $10.23 $ 10.73
====== =======
Total Return (%).......................... 2.6 (b) 6.0
Ratio of Operating Expenses to Average Net
Assets (%)(d)............................ 1.30 (c) 1.30
Ratio of Net Investment Income to Average
Net Assets (%)........................... 2.56 (c) 1.29
Portfolio Turnover Rate (%)............... 4 (c) 89
Net Assets, End of Period (000)........... $2,989 $16,268
The Ratio of Expenses to Average Net
Assets without giving effect to the
voluntary expense limitation described in
Footnote (d) would have been (%)......... 5.38 (c)(d) 3.12 (d)
</TABLE>
- --------
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
(d) Commencing November 1, 1994, TNE Advisers has agreed to pay operating
expenses of the Series in excess of an annual expense limit of 1.30% of
average assets subject to the obligation of the Series to repay TNE
Advisers such expenses in future years, if any, when the Series' expenses
fall below this stated expense limit; such deferred expenses may be
charged to the Series in a subsequent year to the extent that the charge
does not cause the total expenses in such subsequent year to exceed the
1.30% expense limit; provided, however, that the Series is not obligated
to repay any expense paid by TNE Advisers more than two years after the
end of the fiscal year in which such expense was incurred.
4
<PAGE>
ALGER EQUITY GROWTH SERIES
<TABLE>
<CAPTION>
OCTOBER 31(A) YEAR
TO ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Net Asset Value, Beginning of Period...... $10.00 $ 9.56
------ -------
Income From Investment Operations
Net Investment Income..................... 0.02 0.01
Net Gains or Losses on Investments (both
realized and unrealized)................. (0.44) 4.65
------ -------
Total From Investment Operations.......... (0.42) 4.66
------ -------
Less Distributions
Distributions From Net Investment Income.. (0.02) (0.01)
Distributions from Net Realized Capital
Gains.................................... 0.00 (0.41)
------ -------
Total Distributions.................... (0.02) (0.42)
------ -------
Net Asset Value, End of the Period........ $ 9.56 $ 13.80
====== =======
Total Return (%).......................... (4.2)(b) 48.7
Ratio of Operating Expenses to Average Net
Assets (%)(d)............................ 0.85 (c) 0.85
Ratio of Net Investment Income to Average
Net Assets (%)........................... 1.07 (c) 0.14
Portfolio Turnover Rate (%)(a)............ 32 (c) 107
Net Assets, End of Period (000)........... $1,917 $46,386
The Ratio of Expenses to Average Net
Assets without giving effect to the
voluntary expense limitation described in
Footnote (d) would have been (%)......... 2.74 (c)(d) 2.45 (d)
</TABLE>
- --------
(a)Commencement of operations.
(b)Not computed on an annualized basis.
(c)Computed on an annualized basis.
(d)Commencing November 1, 1994, TNE Advisers has agreed to pay operating
expenses of the Series in excess of an annual expense limit of 0.85% of
average assets subject to the obligation of the Series to repay TNE Advisers
such expenses in future years, if any, when the Series' expenses fall below
this stated expense limit; such deferred expenses may be charged to the
Series in a subsequent year to the extent that the charge does not cause the
total expenses in such subsequent year to exceed the 0.85% expense limit;
provided, however, that the Series is not obligated to repay any expense
paid by TNE Advisers more than two years after the end of the fiscal year in
which such expense was incurred. Beginning January 1, 1996 the annual
expense limit was increased to 0.90% of average net assets.
5
<PAGE>
LOOMIS SAYLES AVANTI GROWTH SERIES
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 30(A) DECEMBER 31,
TO -------------------
DECEMBER 31, 1993 1994 1995
----------------- ------- -------
<S> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................ $100.00 $113.67 $112.77
------- ------- -------
Income From Investment Operations
Net Investment Income.............. 0.18 0.59 0.42
Net Gains or Losses on Investments
(both realized and unrealized).... 14.56 (0.89) 33.80
------- ------- -------
Total From Investment Operations... 14.74 (0.30) 34.22
------- ------- -------
Less Distributions
Distributions From Net Investment
Income............................ (0.18) (0.60) (0.40)
Distributions From Net Realized
Capital Gains..................... (0.67) 0.00 (4.15)
Distributions From Paid-In Capital. (0.22) 0.00 0.00
------- ------- -------
Total Distributions............. (1.07) (0.60) (4.55)
------- ------- -------
Net Asset Value, End of the Period. $113.67 $112.77 $142.44
======= ======= =======
Total Return (%)................... 14.7 (b) (0.3) 30.4
Ratio of Operating Expenses to
Average Net Assets (%)(d)......... 0.85 (c) 0.84 0.85
Ratio of Net Investment Income to
Average Net Assets (%)............ 0.46 (c) 0.67 0.37
Portfolio Turnover Rate (%)........ 21 (c) 67 58
Net Assets, End of Period (000).... $11,972 $25,622 $48,832
The Ratio of Expenses to Average
Net Assets without giving effect
to the voluntary expense
limitation described in Footnote
(d) would have been (%)........... 0.89 (c)(d) 0.84 (d) 1.06 (d)
</TABLE>
- --------
(a)Commencement of operations.
(b)Not computed on an annualized basis.
(c)Computed on an annualized basis.
(d)During the periods presented, the Series' adviser voluntarily agreed to
reduce its fees and, if necessary, to assume expenses of the Series in order
to limit the Series' expenses to an annual rate of 0.85% of the Series'
average daily net assets.
6
<PAGE>
VENTURE VALUE SERIES
<TABLE>
<CAPTION>
OCTOBER 31(A) YEAR
TO ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Net Asset Value, Beginning of Period...... $10.00 $ 9.62
------ -------
Income From Investment Operations
Net Investment Income..................... 0.03 0.10
Net Gains or Losses on Investments (both
realized and unrealized)................. (0.38) 3.68
------ -------
Total From Investment Operations.......... (0.35) 3.78
------ -------
Less Distributions
Distributions From Net Investment Income.. (0.03) (0.10)
Distributions From Net Realized Capital
Gains.................................... 0.00 (0.20)
------ -------
Total Distributions.................... (0.03) (0.30)
------ -------
Net Asset Value, End of the Period........ $ 9.62 $ 13.10
====== =======
Total Return (%).......................... (3.5)(b) 39.3
Ratio of Operating Expenses to Average Net
Assets (%)(d)............................ 0.90 (c) 0.90
Ratio of Net Investment Income to Average
Net Assets (%)........................... 2.54 (c) 1.39
Portfolio Turnover Rate (%)(a)............ 1 (c) 20
Net Assets, End of Period (000)........... $3,371 $35,045
The Ratio of Expenses to Average Net
Assets without giving effect to the
voluntary expense limitation described In
Footnote (d) would have been (%)......... 3.97 (c)(d) 1.51 (d)
</TABLE>
- --------
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
(d) Commencing November 1, 1994, TNE Advisers has agreed to pay operating
expenses of the Series in excess of an annual expense limit of 0.90% of
average assets subject to the obligation of the Series to repay TNE
Advisers such expenses in future years, if any, when the Series' expenses
fall below this stated expense limit; such deferred expenses may be
charged to the Series in a subsequent year to the extent that the charge
does not cause the total expenses in such subsequent year to exceed the
0.90% expense limit; provided, however, that the Series is not obligated
to repay any expense paid by TNE Advisers more than two years after the
end of the fiscal year in which such expense was incurred.
7
<PAGE>
WESTPEAK VALUE GROWTH SERIES
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 30(A) DECEMBER 31,
TO -------------------
DECEMBER 31, 1993 1994 1995
----------------- ------- -------
<S> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................. $100.00 $112.32 $109.03
------- ------- -------
Income From Investment Operations
Net Investment Income............... 0.92 1.90 1.77
Net Gains or Losses on Investments
(both realized and unrealized)....... 13.33 (3.25) 37.91
------- ------- -------
Total From Investment Operations.... 14.25 (1.35) 39.68
------- ------- -------
Less Distributions
Distributions From Net Investment
Income............................. (0.92) (1.92) (1.71)
Distributions From Net Realized
Capital Gains...................... (1.00) 0.00 (5.69)
Distributions In Excess of Net
Realized Capital Gains............. (0.01) 0.00 0.00
Distributions From Paid In Capital.. 0.00 (0.02) 0.00
------- ------- -------
Total Distributions.............. (1.93) (1.94) (7.40)
------- ------- -------
Net Asset Value, End of the Period.. $112.32 $109.03 $141.31
======= ======= =======
Total Return (%).................... 14.2 (b) (1.2) 36.5
Ratio of Operating Expenses to
Average Net Assets (%)(d).......... 0.85 (c) 0.85 0.85
Ratio of Net Investment Income to
Average Net Assets (%)............. 2.16 (c) 2.30 1.63
Portfolio Turnover Rate (%)......... 49 (c) 133 92
Net Assets, End of Period (000)..... $ 9,082 $22,934 $48,129
The Ratio of Expenses to Average Net
Assets without giving effect to the
voluntary expense limitation
described in Footnote (d) would
have been (%)...................... 0.94 (c)(d) 0.86 (d) 1.06 (d)
</TABLE>
- --------
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
(d) During the periods presented, the Series' adviser voluntarily agreed to
reduce its fees and, if necessary, to assume expenses of the Series in
order to limit the Series' expenses to an annual rate of 0.85% of the
Series' average daily net assets.
8
<PAGE>
LOOMIS SAYLES BALANCED SERIES
<TABLE>
<CAPTION>
OCTOBER 31(A) YEAR
TO ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Net Asset Value, Beginning of Period...... $10.00 $ 9.94
------ -------
Income From Investment Operations
Net Investment Income..................... 0.05 0.26
Net Gains or Losses on Investments (both
realized and unrealized)................. (0.06) 2.20
------ -------
Total From Investment Operations.......... (0.01) 2.46
------ -------
Less Distributions
Distributions From Net Investment Income.. (0.05) (0.26)
Distributions in Excess of Net Realized
Capital Gains............................ 0.00 (0.19)
------ -------
Total Distributions.................... (0.05) (0.45)
------ -------
Net Asset Value, End of the Period........ $ 9.94 $ 11.95
====== =======
Total Return (%).......................... (0.1)(b) 24.8
Ratio of Operating Expenses to Average Net
Assets (%)(d)............................ 0.85 (c) 0.85
Ratio of Net Investment Income to Average
Net Assets (%)........................... 4.16 (c) 4.03
Portfolio Turnover Rate (%)(a)............ 0 (c) 72
Net Assets, End of Period (000)........... $2,722 $18,823
The Ratio of Expenses to Average Net
Assets without giving effect to the
voluntary expense limitation described in
Footnote (d) would have been (%)......... 3.73 (c)(d) 1.85 (d)
</TABLE>
- --------
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
(d) Commencing November 1, 1994, TNE Advisers has agreed to pay operating
expenses of the Series in excess of an annual expense limit of 0.85% of
average assets subject to the obligation of the Series to repay TNE
Advisers such expenses in future years, if any, when the Series' expenses
fall below this stated expense limit; such deferred expenses may be
charged to the Series in a subsequent year to the extent that the charge
does not cause the total expenses in such subsequent year to exceed the
0.85% expense limit; provided, however, that the Series is not obligated
to repay any expense paid by TNE Advisers more than two years after the
end of the fiscal year in which such expense was incurred.
9
<PAGE>
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES
<TABLE>
<CAPTION>
OCTOBER 31(A) YEAR
TO ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Net Asset Value, Beginning of Period.... $10.00 $ 9.74
------ ------
Income From Investment Operations
Net Investment Income................... 0.12 0.58
Net Gains or Losses on Investments (both
realized and unrealized)............... (0.26) 1.30
------ ------
Total From Investment Operations........ (0.14) 1.88
------ ------
Less Distributions
Distributions From Net Investment
Income................................. (0.12) (0.55)
Distributions From Net Realized Capital
Gains.................................. 0.00 0.22
------ ------
Total Distributions................. (0.12) (0.77)
------ ------
Net Asset Value, End of the Period...... $ 9.74 $10.85
====== ======
Total Return (%)........................ (1.4)(b) 19.4
Ratio of Operating Expenses to Average
Net Assets (%)(d)...................... 0.85 (c) 0.85
Ratio of Net Investment Income to
Average Net Assets (%)................. 7.05 (c) 8.39
Portfolio Turnover Rate (%)(a).......... 403 (c) 202
Net Assets, End of Period (000)......... $3,450 $9,484
The Ratio of Expenses to Average Net
Assets without giving effect to the
voluntary expense limitation described
in Footnote (d) would have been (%).... 2.01 (c)(d) 2.44 (d)
</TABLE>
- --------
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
(d) Commencing November 1, 1994, TNE Advisers has agreed to pay operating
expenses of the Series in excess of an annual expense limit of 0.85% of
average assets subject to the obligation of the Series to repay TNE
Advisers such expenses in future years, if any, when the Series' expenses
fall below this stated expense limit; such deferred expenses may be
charged to the Series in a subsequent year to the extent that the charge
does not cause the total expenses in such subsequent year to exceed the
0.85% expense limit; provided, however, that the Series is not obligated
to repay any expense paid by TNE Advisers more than two years after the
end of the fiscal year in which such expense was incurred.
10
<PAGE>
SALOMON BROTHERS U.S. GOVERNMENT SERIES
<TABLE>
<CAPTION>
OCTOBER 31(A) YEAR
TO ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Net Asset Value, Beginning of Period...... $10.00 $ 9.96
------ ------
Income From Investment Operations
Net Investment Income..................... 0.10 0.33
Net Gains or Losses on Investments (both
realized and unrealized)................. (0.04) 1.16
------ ------
Total From Investment Operations.......... 0.06 1.49
------ ------
Less Distributions
Distributions From Net Investment Income.. (0.10) (0.33)
Distributions From Net Realized Capital
Gains.................................... 0.00 (0.08)
------ ------
Total Distributions................... (0.10) (0.41)
------ ------
Net Asset Value, End of the Period........ $ 9.96 $11.04
====== ======
Total Return (%).......................... 0.6 (b) 15.0
Ratio of Operating Expenses to Average Net
Assets (%)(d)............................ 0.70 (c) 0.70
Ratio of Net Investment Income to Average
Net Assets (%)........................... 5.70 (c) 5.62
Portfolio Turnover Rate (%)............... 1,409 (c) 415
Net Assets, End of Period (000)........... $2,012 $7,542
The Ratio of Expenses to Average Net
Assets without giving effect to the
voluntary expense limitation described in
Footnote (d) would have been (%)......... 2.54 (c)(d) 2.90 (d)
</TABLE>
- --------
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
(d) Commencing November 1, 1994, TNE Advisers has agreed to pay operating
expenses of the Series in excess of an annual expense limit of 0.70% of
average assets subject to the obligation of the Series to repay TNE
Advisers such expenses in future years, if any, when the Series' expenses
fall below this stated expense limit; such deferred expenses may be
charged to the Series in a subsequent year to the extent that the charge
does not cause the total expenses in such subsequent year to exceed the
0.70% expense limit; provided, however, that the Series is not obligated
to repay any expense paid by TNE Advisers more than two years after the
end of the fiscal year in which such expense was incurred.
11
<PAGE>
THE FUND
The Fund is a diversified, open-end management investment company organized
in 1987 as a Massachusetts business trust under the laws of Massachusetts. The
Fund is a series type company with fourteen investment portfolios, nine of
which are contained herein: the Loomis Sayles Small Cap Series, the Draycott
International Equity Series, the Alger Equity Growth Series, the Loomis Sayles
Avanti Growth Series, the Venture Value Series, the Westpeak Value Growth
Series, the Loomis Sayles Balanced Series, the Salomon Brothers Strategic Bond
Opportunities Series and the Salomon Brothers U.S. Government Series.
Shares in the Fund are not offered directly to the general public and,
currently, are available only to separate accounts established by New England
Variable Life Insurance Company ("NEVLICO"), New England Mutual Life Insurance
Company ("The New England") or subsidiaries of The New England as an
investment vehicle for variable life insurance or variable annuity products,
although not all Series may be available to all separate accounts. In the
future, however, such shares may be offered to separate accounts of insurance
companies unaffiliated with NEVLICO or The New England.
INVESTMENT OBJECTIVES AND POLICIES
LOOMIS SAYLES SMALL CAP SERIES
The Loomis Sayles Small Cap Series' investment objective is long-term
capital growth from investments in common stocks or their equivalent.
Loomis, Sayles & Company, L.P. ("Loomis Sayles") the Series' subadviser,
manages the Series by investing primarily in stocks of small cap companies
with good earnings growth potential that Loomis Sayles believes are
undervalued by the market. Typically, such companies range in size from $100
million to $500 million in market capitalization, have better than average
growth rates at below average price/earnings ratios and have strong balance
sheets and cash flow. Loomis Sayles seeks to build a core small cap portfolio
of solid growth company stocks, with a smaller emphasis on special situations
and turnarounds (companies that have experienced significant business problems
but which Loomis Sayles believes have favorable prospects for recovery), as
well as unrecognized stocks.
Under unusual market conditions as determined by Loomis Sayles, all or any
portion of the Series may be invested, for temporary defensive purposes, in
short-term debt instruments or in cash. In addition, under normal conditions,
a portion of the Series' assets may be invested in short-term assets for
liquidity purposes or pending investment in other securities. Short-term
investments may include U.S. Government securities, certificates of deposit,
commercial paper and other obligations of corporate issuers rated in the top
two rating categories by a major rating agency or, if unrated, determined to
be of comparable quality by the subadviser, and repurchase agreements that are
fully collateralized by cash, U.S. Government securities or high-quality money
market instruments.
DRAYCOTT INTERNATIONAL EQUITY SERIES
The Draycott International Equity Series seeks total return from long-term
growth of capital and dividend income, primarily through investment in
international equity securities.
The Series seeks to achieve its objective by investing primarily in common
stocks, although the Series may invest in any type of equity securities.
Normally the Series will invest at least 65% of its total assets in equity
securities of issuers headquartered outside the United States, and
substantially all of its assets (other than cash and short-term investments)
in such equity securities or equity securities of issuers (including closed-
end investment companies) that derive a substantial part of their revenues or
profits from countries outside the United States. Under normal conditions, the
Series' portfolio will contain equity securities of issuers from at least five
countries outside the United States.
The Series' subadviser, Draycott Partners, Ltd. ("Draycott"), will make
investment decisions on behalf of the Series by, first, selecting countries
where it anticipates sustainable growth that will exceed current market
expectations. Within the selected countries, the subadviser will identify
economic sectors that appear to present the most potential for risk-adjusted
growth and finally, within the chosen economic sectors, the subadviser will
select securities that are expected to offer the best value.
12
<PAGE>
ALGER EQUITY GROWTH SERIES
The Alger Equity Growth Series' investment objective is to seek long-term
capital appreciation. The Series' assets will be invested primarily in a
diversified, actively managed portfolio of equity securities, primarily of
companies having a total market capitalization of $1 billion or greater. These
companies may still be in the developmental stage, may be older companies that
appear to be entering a new stage of growth progress, or may be companies
providing products or services with a high unit volume growth rate.
The Series' subadviser, Fred Alger Management, Inc. ("Alger Management"),
seeks to achieve its objective by investing in equity securities, such as
common or preferred stocks or securities convertible into or exchangeable for
equity securities, including warrants and rights. Except during temporary
defensive periods, the Series invests at least 85% of its net assets in equity
securities and at least 65% of its total assets in equity securities of
companies that, at the time of purchase of the securities, have total market
capitalization of $1 billion or greater; the Series may invest up to 35% of
its total assets in equity securities of companies that, at the time of
purchase, have total market capitalization of less than $1 billion. The Series
anticipates that it will invest primarily in companies whose securities are
traded on domestic stock exchanges or in the over-the-counter market.
The Series may invest in bank and thrift obligations, obligations issued or
guaranteed by the U.S. Government or by its agencies or instrumentalities,
foreign bank obligations and obligations of foreign branches of domestic
banks, and variable rate master demand notes.
The Series may also hold up to 15% of its net assets in money market
instruments and repurchase agreements, purchase restricted securities
(including Rule 144A securities) and enter into "short sales against the box."
The Series may lend securities it owns so long as such loans do not exceed
33 1/3% of the Series' total assets.
LOOMIS SAYLES AVANTI GROWTH SERIES
The Loomis Sayles Avanti Growth Series seeks long-term growth of capital.
The Series ordinarily invests substantially all of its assets in equity
securities. Investments are selected based on their growth potential; current
income is not a consideration. The Series normally will invest primarily in
equity securities of companies with medium and large capitalization
(capitalization of $1 billion to $5 billion and over $5 billion,
respectively), but will also invest a portion of its assets in equity
securities of companies with relatively small market capitalization (under $1
billion). The Series may invest a limited portion of its assets in securities
of foreign issuers. See "Investment Risks--Foreign Securities" below.
Loomis Sayles, the Series' subadviser, selects investments based upon
fundamental research and analysis of individual companies and industries. The
subadviser selects investments for the Series based on qualitative and
quantitative criteria including, among others, industry dominance and
competitive position, consistent earnings growth, a history of high
profitability, the subadviser's expectation of continued high profitability
and overall financial strength, although not every investment will have all of
these characteristics.
The Series may invest in convertible securities, including corporate bonds,
notes or preferred stocks that can be converted into common stocks or other
equity securities. See "Investment Risks--Convertible Securities" below.
VENTURE VALUE SERIES
The Series' investment objective is growth of capital. The Series subadviser
is Davis Selected Advisers, L.P. ("Davis Selected").
The Series will primarily invest in domestic common stocks that Davis
Selected believes have capital growth potential due to factors such as
undervalued assets or earnings potential, product development and demand,
favorable operating ratios, resources for expansion, management abilities,
reasonableness of market price, and favorable overall business prospects. The
Series will generally invest predominantly in equity securities of companies
with market capitalizations of at least $250 million. It may also invest in
issues with smaller capitalizations.
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The Series may invest in foreign securities, and may hedge currency
fluctuation risks related thereto. The Series may invest in U.S. registered
investment companies that primarily invest in foreign securities, provided
that no such investment may cause more than 10% of the Series' total assets to
be invested in such companies. The Series may invest in restricted securities,
which may include Rule 144A securities.
The Series may write covered call options on its portfolio securities, but
currently intends to invest in such options only to the extent that less than
5% of its net assets would be subject to the options.
The Series may lend securities it owns so long as such loans do not exceed
5% of the Series' net assets.
WESTPEAK VALUE GROWTH SERIES
The Series, for which Westpeak Investment Advisors, L.P. ("Westpeak") acts
as subadviser, seeks long-term total return (capital appreciation and dividend
income) through investment in equity securities. Emphasis will be given to
both undervalued securities ("value" style) and securities of companies with
growth potential ("growth" style). The Series will ordinarily invest
substantially all its assets in equity securities.
The Series may engage in transactions in futures contracts solely for the
purpose of maintaining full exposure of the portfolio to the movements of
broad equity markets at times when the Series holds a cash position pending
investment in stocks or in anticipation of redemptions. See "Futures and Other
Hedging Transactions" under "Investment Risks" below and "Futures" in the
Statement of Additional Information.
LOOMIS SAYLES BALANCED SERIES
The Series' investment objective is reasonable long-term investment return
from a combination of long-term capital appreciation and moderate current
income.
The Series, for which Loomis Sayles acts as subadviser, is "flexibly
managed" in that sometimes it invests more heavily in equity securities and at
other times it invests more heavily in fixed-income securities, depending on
Loomis Sayles' view of the economic and investment outlook. Most of the
Series' investments are normally in dividend-paying common stocks of
recognized investment quality that are expected to achieve growth in earnings
and dividends over the long term. Fixed-income securities include notes,
bonds, non-convertible preferred stock and money market instruments. The
Series may invest in adjustable rate mortgage securities, asset-backed
securities, stripped mortgage securities and inverse floaters, subject to a
limit of 5% of the Series' assets for each of these instruments. The Series
may invest in securities rated BB or Ba by Standard & Poor's Ratings Group
("Standard & Poor's" or "S&P") or Moody's Investors Service, Inc. ("Moodys")
or lower (or in unrated securities that Loomis Sayles determines to be of
comparable quality). During the fiscal year ended December 31, 1995, 0.86% of
the average month-end net assets of the Series was invested in fixed-income
securities rated in the rating category (BB or Ba) just below investment grade
and no assets were invested in fixed-income securities rated below this level.
The Series invests at least 25% of its assets in fixed-income senior
securities and, under normal market conditions, more than 50% of its assets in
equity securities. The Series also may invest in foreign securities. See
"Investment Risks--Foreign Securities" below.
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES
The Salomon Brothers Strategic Bond Opportunities Series' investment
objective is to seek a high level of total return consistent with preservation
of capital.
Salomon Brothers Asset Management Inc acts as sub-adviser to the Series, and
based on its assessment of the relative risks and opportunities available in
various market segments, assets will be allocated among U.S. Government
obligations, mortgage backed securities, domestic and foreign corporate debt
and sovereign debt securities rated investment grade (BBB or higher by S&P or
Baa or higher by Moody's) (or unrated but deemed to be of equivalent quality
in the subadviser's judgment) and domestic and foreign corporate debt and
sovereign debt securities rated below investment grade. The Series may invest
in fixed and floating rate loans ("Loans") arranged through private
negotiations between a foreign sovereign entity and one or more financial
institutions, in the form of participations in such Loans ("Participations")
and assignments of all or a portion of Loans from third parties
("Assignments"). See "Loan Participations and Assignments" below.
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Depending on market conditions, the Series may invest without limit in below
investment grade securities, which involve significantly greater risks,
including price volatility and risk of default in the payment of interest and
principal, than higher-quality securities. Although the Series' subadviser
does not anticipate investing in excess of 75% of the Series' assets in
domestic and developing country debt securities that are rated below
investment grade, the Series may invest a greater percentage in such
securities when, in the opinion of the subadviser, the yield available from
such securities outweighs their additional risks. Certain of the debt
securities in which the Series may invest may be rated as low as "C" by
Moody's or "D" by S&P or may be considered comparable to securities having
such ratings. Securities of below investment grade quality are considered high
yield, high risk securities and are commonly known as "junk bonds." See
"Investment Risks--Lower Rated Fixed-Income Securities" below. During the
fiscal year ended December 31, 1995, 6.6% of the average month-end net assets
of the Series was invested in fixed-income securities rated in the rating
category (BB or Ba) just below investment grade.
In addition, the Series may invest in securities issued or guaranteed as to
principal or interest by the U.S. Government or its agencies or
instrumentalities, including mortgage backed securities and may also invest in
preferred stocks, convertible securities (including those issued in the
Euromarket), securities carrying warrants to purchase equity securities,
privately placed debt securities, stripped mortgage securities, zero coupon
securities and inverse floaters.
The Series may, and the subadviser anticipates that under certain market
conditions it will, invest up to 100% of its assets in foreign securities,
including Brady Bonds. Brady Bonds are debt obligations created through the
exchange of commercial bank loans for new obligations under a plan introduced
by former U.S. Treasury Secretary Nicholas Brady. See "High Yield/High Risk
Foreign Sovereign Debt Securities" below. There is no limit on the value of
the Series' assets that may be invested in any one country or in assets
denominated in any one country's currency.
The Series may also invest in debt obligations issued or guaranteed by a
foreign sovereign government or one of its agencies or political subdivisions
and debt obligations issued or guaranteed by supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the "World Bank"), the European Coal and Steel Community, the
Asian Development Bank and the Inter-American Development Bank. Such
supranational issued instruments may be denominated in multi-national currency
units.
The Series currently intends to invest substantially all of its assets in
fixed-income securities. In order to maintain liquidity, the Series may invest
up to 20% of its assets in high-quality short-term money market instruments.
The Series' subadviser will have discretion to select the range of
maturities of the various fixed-income securities in which the Series will
invest. The weighted average life of the Series may vary substantially from
time to time depending on economic and market conditions.
The Series may purchase and sell (or write) exchange-listed and over-the-
counter put and call options on securities, financial futures contracts and
fixed income indices and other financial instruments, enter into financial
futures contracts, enter into interest rate transactions, and enter into
currency transactions. Interest rate transactions may take the form of swaps,
structured notes, caps, floors and collars, and currency transactions may take
the form of currency forward contracts, currency futures contracts, currency
swaps and options on currencies or currency futures contracts. See "Futures
and Other Hedging Transactions" under "Investment Risks" below and "Futures"
in the Statement of Additional Information.
The Series may lend securities it owns so long as such loans do not
represent more than 20% of the Series' total assets.
SALOMON BROTHERS U.S. GOVERNMENT SERIES
The Series' investment objective is to provide a high level of current
income consistent with preservation of capital and maintenance of liquidity.
The Series seeks to achieve its objective by investing primarily in debt
obligations (including mortgage backed securities) issued or guaranteed by the
U.S. Government or its agencies, authorities or instrumentalities ("U.S.
Government Securities") or derivative securities (such as collateralized
mortgage obligations) backed by such U.S. Government Securities.
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At least 80% of the total assets of the Series will be invested in:
(1) mortgage backed securities guaranteed by the Government National
Mortgage Association ("GNMA") that are supported by the full faith and
credit of the U.S. Government. Such securities entitle the holder to
receive all interest and principal payments due, whether or not payments
are actually made on the underlying mortgages;
(2) U.S. Treasury obligations;
(3) debt obligations issued or guaranteed by agencies or
instrumentalities of the U.S. Government which are backed by their own
credit but are not necessarily backed by the full faith and credit of the
U.S. Government;
(4) mortgage-related securities guaranteed by agencies or
instrumentalities of the U.S. Government which are supported by their own
credit but not the full faith and credit of the U.S. Government, such as
the Federal Home Loan Mortgage Corporation and Federal National Mortgage
Association ("FNMA"), and
(5) collateralized mortgage obligations issued by private issuers for
which the underlying mortgage backed securities serving as collateral are
backed (i) by the credit of the U.S. Government agency or instrumentality
which issues or guarantees the mortgage backed securities, or (ii) by the
full faith and credit of the U.S. Government.
Under normal market conditions, at least 65% of the Series' total assets
will be invested in U.S. Government Securities. For purposes of this policy,
securities that are not issued or guaranteed by the U.S. Government or an
agency, authority or instrumentality will not count toward the 65%, even if
they are backed by mortgages (or other collateral) that are so guaranteed.
Any guarantee of the securities in which the Series invests runs only to
principal and interest payments on the securities and not to the market value
of such securities or the principal and interest payments on the underlying
mortgages. In addition, the guarantee runs to the portfolio securities held by
the Series and not to the purchase of shares of the Series.
The Series may purchase or write options on securities, options on
securities indices and options on futures contracts and buy or sell futures on
financial instruments and securities indices.
Up to 20% of the total assets of the Series may be invested in marketable
debt securities of domestic issuers and of foreign issuers (payable in U.S.
dollars) rated at the time of purchase Baa or higher by Moody's or BBB or
higher by S&P, or, if unrated, deemed to be of equivalent quality in Salomon
Brothers Management Inc's judgment, convertible securities (including those
issued in the Euromarket), securities carrying warrants to purchase equity
securities and privately placed debt securities.
The Series may lend securities it owns so long as such loans do not
represent more than 20% of the Series' total assets.
ADDITIONAL INFORMATION
Except for the investment objective of the Loomis Sayles Small Cap, Loomis
Sayles Avanti Growth and Westpeak Value Growth, or except as otherwise
explicitly stated in this Prospectus or the Statement, each Series' investment
policies may be changed at any time without shareholder approval.
Equity securities are securities that represent an ownership interest (or
the right to acquire such an interest) in a company, and include common and
preferred stocks and securities exercisable for or convertible into common or
preferred stocks (such as warrants, convertible debt securities and
convertible preferred stock).
The Loomis Sayles Small Cap Series, Draycott International Equity Series,
Alger Equity Growth Series, Loomis Sayles Avanti Growth Series, Venture Value
Series and Westpeak Value Growth Series seek to attain their objectives by
normally investing their assets primarily in equity securities. When the
particular Series' adviser or subadviser deems it appropriate, however, any of
these Series may, for temporary defensive purposes, hold all or a substantial
portion of its assets in cash or fixed-income investments, including U.S.
Government obligations, investment grade (and comparable unrated) corporate
bonds or notes, money market instruments, bankers acceptances and repurchase
agreements. In addition, the Draycott International Equity Series may invest
temporarily in foreign government, agency or corporate debt obligations. No
estimate can be made as to when or for how long any Series will employ
defensive strategies.
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INVESTMENT RISKS
. EQUITY SECURITIES (LOOMIS SAYLES SMALL CAP, DRAYCOTT INTERNATIONAL EQUITY,
ALGER EQUITY GROWTH, LOOMIS SAYLES AVANTI GROWTH, VENTURE VALUE, WESTPEAK
VALUE GROWTH AND LOOMIS SAYLES BALANCED SERIES)
Equity securities are more volatile and more risky than some other forms of
investment. Therefore, the value of your investment in a Series may sometimes
decrease instead of increase. Investments in companies with relatively small
capitalization may involve greater risk than is usually associated with more
established companies. These companies often have sales and earnings growth
rates which exceed those of companies with larger capitalization. Such growth
rates may in turn be reflected in more rapid share price appreciation.
However, companies with smaller capitalization often have limited product
lines, markets or financial resources and they may be dependent upon a
relatively small management group. The securities may have limited
marketability and may be subject to more abrupt or erratic movements in price
than securities of companies with larger capitalization or the market averages
in general. The net asset value of a Series that invests in companies with
smaller capitalization, therefore, may fluctuate more widely than market
averages.
. CONVERTIBLE SECURITIES (DRAYCOTT INTERNATIONAL EQUITY, ALGER EQUITY GROWTH,
LOOMIS SAYLES AVANTI GROWTH, LOOMIS SAYLES BALANCED AND SALOMON BROTHERS
STRATEGIC BOND OPPORTUNITIES SERIES)
Convertible securities include debt securities or preferred stock that are
convertible into stock as well as other securities, such as warrants, that
provide an opportunity for equity participation. Because convertible
securities can be converted into equity securities, their values will normally
increase or decrease as the values of the underlying equity securities
increase or decrease. The movements in the prices of convertible securities,
however, may be smaller than the movements in the value of the underlying
equity securities. Convertible debt and preferred stock usually provide a
higher yield than the underlying equity securities, however, so that the price
decline of a convertible security may sometimes be less substantial than that
of the underlying equity securities. The value of convertible securities that
pay dividends or interest, like the value of all fixed-income securities,
generally fluctuates inversely with changes in interest rates. Warrants have
no voting rights, pay no dividends and have no rights with respect to the
assets of the corporation issuing them. They do not represent ownership of the
securities for which they are exercisable, but only the right to buy such
securities at a particular price. The Loomis Sayles Avanti Growth Series will
not purchase any convertible debt security or convertible preferred stock that
has not been rated at the time of acquisition investment grade by one major
rating agency or that is not rated but is determined to be of comparable
quality by the Series' adviser.
. FIXED-INCOME SECURITIES (ALL SERIES)
Fixed-income securities include a broad array of short, medium and long term
debt obligations issued by the U.S. or foreign governments, government or
international agencies and instrumentalities and corporate issuers of various
types as well as corporate preferred stock. Some fixed income securities
represent uncollateralized obligations of their issuers; in other cases, the
securities may be backed by specific assets (such as mortgages or other
receivables) that have been set aside as collateral for the issuers
obligation. Fixed-income securities generally involve an obligation of the
issuer to pay interest or dividends on either a current basis or at the
maturity of the security, as well as the obligation to repay the principal
amount of the security at maturity.
Fixed-income securities involve both credit risk and market risk. Credit risk
is the risk that the security's issuer will fail to fulfill its obligation to
pay interest, dividends or principal on the security. Market risk is the risk
that the value of the security will fall because of changes in market rates of
interest. (Generally, the value of fixed-income securities falls when market
rates of interest are rising.) Some fixed-income securities also involve
prepayment or call risk. This is the risk that the issuer will repay a Series
the principal on the security before it is due, thus depriving the Series of a
favorable stream of future interest or dividend payments.
Because interest rates vary, it is impossible to predict the income for any
particular period of a Series that invests in fixed-income securities.
Fluctuations in the value of a Series investments in fixed-income securities
will cause a Series' net asset value to increase or decrease.
. LOWER RATED FIXED-INCOME SECURITIES (LOOMIS SAYLES BALANCED AND SALOMON
BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
Fixed-income securities rated BB or lower by S&P or Ba or lower by Moody's
(and comparable unrated securities) are of below "investment grade" quality.
Lower quality fixed-income securities generally provide higher yields, but are
subject to
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greater credit and market risk than higher quality fixed-income securities.
Lower quality fixed-income securities are considered predominantly speculative
with respect to the ability of the issuer to meet principal and interest
payments. Achievement of the investment objective of a mutual fund investing
in lower quality fixed-income securities may be more dependent on the Series'
sub-adviser's own credit analysis than for a fund investing in higher quality
bonds. The market for lower quality fixed-income securities may be more
severely affected than some other financial markets by economic recession or
substantial interest rate increases, by changing public perceptions of this
market or by legislation that limits the ability of certain categories of
financial institutions to invest in these securities. In addition, the
secondary market may be less liquid for lower rated fixed-income securities.
This lack of liquidity at certain times may affect the valuation of these
securities and may make the valuation and sale of these securities more
difficult. Securities of below investment grade quality are considered high
yield, high risk securities and are commonly known as "junk bonds." For more
information, including a detailed description of the ratings assigned by S&P
and Moody's, please refer to "Appendix A--Ratings of Securities."
. MORTGAGE-RELATED SECURITIES (LOOMIS SAYLES BALANCED, SALOMON BROTHERS
STRATEGIC BOND OPPORTUNITIES AND SALOMON BROTHERS U.S. GOVERNMENT SERIES)
Mortgage-related securities, such as GNMA or FNMA certificates, differ from
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently, usually monthly, and that
principal may be prepaid at any time because the underlying mortgage loans
generally may be prepaid at any time. As a result, if a Series purchases these
assets at a premium, a faster-than-expected prepayment rate will reduce yield
to maturity, and a slower-than-expected prepayment rate will have the opposite
effect of increasing yield to maturity. If a Series purchases mortgage-related
securities at a discount, faster-than-expected prepayments will increase, and
slower-than-expected prepayments will reduce, yield to maturity. Prepayments,
and resulting amounts available for reinvestment by the Series, are likely to
be greater during a period of declining interest rates and, as a result, are
likely to be reinvested at lower interest rates. Accelerated prepayments on
securities purchased at a premium may result in a loss of principal if the
premium has not been fully amortized at the time of prepayment. Although these
securities will decrease in value as a result of increases in interest rates
generally, they are likely to appreciate less than other fixed-income
securities when interest rates decline because of the risk of prepayments.
. COLLATERALIZED MORTGAGE OBLIGATIONS (LOOMIS SAYLES BALANCED, SALOMON
BROTHERS STRATEGIC BOND OPPORTUNITIES AND SALOMON BROTHERS U.S. GOVERNMENT
SERIES)
A collateralized mortgage obligation ("CMO") is a security backed by a
portfolio of mortgages or mortgage securities held under a trust indenture. In
some cases, the underlying mortgages or mortgage securities are issued or
guaranteed by the U.S. Government or an agency or instrumentality thereof, but
the obligations purchased by a Series will in many cases not be so issued or
guaranteed. The issuer's obligation to make interest and principal payments is
secured by the underlying portfolio of mortgages or mortgage securities. CMOs
are issued with a number of classes or series which have different maturities
and which may represent interests in some or all of the interest or principal
on the underlying collateral or a combination thereof. In the event of
sufficient early prepayments on such mortgages, the class or series of CMO
first to mature generally will be retired prior to its maturity. The early
retirement of a particular class or series of CMO held by a Series would have
the same effect as the prepayment of mortgages underlying a mortgage pass-
through security.
. "STRIPPED" MORTGAGE SECURITIES (SALOMON BROTHERS STRATEGIC BOND
OPPORTUNITIES AND SALOMON BROTHERS U.S. GOVERNMENT SERIES)
"Stripped" mortgage securities are issued by agencies or instrumentalities of
the U.S. Government or private issuers. Stripped mortgage securities are
usually structured with two classes that receive different proportions of the
interest and principal distribution on a pool of mortgage assets. In some
cases, one class will receive all of the interest (the interest-only or "IO"
class), while the other class will receive all of the principal (the
principal-only or "PO" class). Stripped mortgage securities have greater
market volatility than other types of mortgage securities. If the underlying
mortgage assets experience greater than anticipated payments of principal, the
Series may fail to recoup fully its investments in IOs. The staff of the SEC
has indicated that it views stripped mortgage securities as illiquid. Until
further clarification of the matter is provided by the staff, the Series will
treat its investment in stripped mortgage securities as illiquid. As a result,
these investments, together with any other illiquid investments, will not
exceed 15% of a Series' net assets.
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. ADJUSTABLE RATE MORTGAGE SECURITIES (LOOMIS SAYLES BALANCED, SALOMON
BROTHERS STRATEGIC BOND OPPORTUNITIES AND SALOMON BROTHERS U.S. GOVERNMENT
SERIES)
An adjustable rate mortgage security ("ARM"), like a traditional mortgage
security, is an interest in a pool of mortgage loans that provides investors
with payments consisting of both principal and interest as mortgage loans in
the underlying mortgage pool are paid off by the borrowers. ARMs have interest
rates that are reset at periodic intervals, usually by reference to some
interest rate index or market interest rate. Although the rate adjustment
feature may act as a buffer to reduce sharp changes in the value of adjustable
rate securities, these securities are still subject to changes in value based
on changes in market interest rates or changes in the issuer's
creditworthiness. Because the interest rates are reset only periodically,
changes in the interest rate on ARMs may lag changes in prevailing market
interest rates. Also, some ARMs (or the underlying mortgages) are subject to
caps or floors that limit the maximum change in interest rate during a
specified period or over the life of the security. As a result, changes in the
interest rate on an ARM may not fully reflect changes in prevailing market
interest rates during certain periods. Because of the resetting of interest
rates, ARMs are less likely than non-adjustable rate securities of comparable
quality and maturity to increase significantly in value when market interest
rates fall.
. ASSET BACKED SECURITIES (LOOMIS SAYLES BALANCED, SALOMON BROTHERS STRATEGIC
BOND OPPORTUNITIES AND SALOMON BROTHERS U.S. GOVERNMENT SERIES)
The securitization techniques used to develop mortgage securities are also
being applied to a broad range of other assets. Through the use of trusts and
special purpose corporations, automobile and credit card receivables are being
securitized in pass-through structures similar to mortgage pass-through
structures or in a pay-through structure similar to the CMO structure.
Generally the issuers of asset backed bonds, notes or pass-through
certificates are special purpose entities and do not have any significant
assets other than the receivables securing such obligations. In general, the
collateral supporting asset backed securities is of shorter maturity than
mortgage loans. Instruments backed by pools of receivables are similar to
mortgage-backed securities in that they are subject to unscheduled prepayments
of principal prior to maturity. When the obligations are prepaid, the Series
will ordinarily reinvest the prepaid amounts in securities the yields of which
reflect interest rates prevailing at the time. Therefore, a Series' ability to
maintain a portfolio which includes high-yielding asset backed securities will
be adversely affected to the extent that prepayments of principal must be
reinvested in securities which have lower yields than the prepaid obligations.
Moreover, prepayments of securities purchased at a premium could result in a
realized loss. A Series will only invest in asset backed securities rated, at
the time of purchase, AA or better by S&P or Aa or better by Moody's or which,
in the opinion of the subadviser, are of comparable quality.
. INVERSE FLOATERS (LOOMIS SAYLES BALANCED, SALOMON BROTHERS STRATEGIC BOND
OPPORTUNITIES AND SALOMON BROTHERS U.S. GOVERNMENT SERIES)
The Series listed above may invest in inverse floaters, which are derivative
mortgage securities. Inverse floaters are structured as a class of security
that receives distributions on a pool of mortgage assets and whose yields move
in the opposite direction of short-term interest rates, sometimes, at an
accelerated rate. Inverse floaters may be issued by agencies or
instrumentalities of the U.S. Government, or by private issuers, including
savings and loan associations, mortgage banks, commercial banks, investment
banks and special purpose subsidiaries of the foregoing. Inverse floaters have
greater volatility than other types of mortgage securities in which the Series
invest (with the exception of stripped mortgage securities). Although inverse
floaters are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, the market for such
securities has not yet been fully developed. Accordingly, inverse floaters are
generally illiquid.
. REPURCHASE AGREEMENTS (ALL SERIES)
In repurchase agreements, a Series buys securities from a seller, usually a
bank or brokerage firm, with the understanding that the seller will repurchase
the securities at a higher price at a later date. Such transactions afford an
opportunity for a Series to earn a return on available cash at minimal market
risk, although the Series may be subject to various delays and risks of loss
if the seller is unable to meet its obligation to repurchase.
. REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS (SALOMON BROTHERS
STRATEGIC BOND OPPORTUNITIES AND SALOMON BROTHERS U.S. GOVERNMENT SERIES)
The Series may enter into reverse repurchase agreements and dollar roll
agreements with banks and brokers to enhance return. Reverse repurchase
agreements involve sales by the Series of portfolio assets concurrently with
an
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agreement by the Series to repurchase the same assets at a later date at a
fixed price. During the reverse repurchase agreement period, the Series
continues to receive principal and interest payments on these securities and
also has the opportunity to earn a return on the collateral furnished by the
counterparties to secure its obligation to redeliver the securities.
Dollar rolls are transactions in which the Series sells securities for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Series forgoes principal and interest paid
on both the securities sold and those to be purchased. The Series is
compensated by the difference between the current sales price and the forward
price for the future purchase (often referred to as the "drop") as well as by
the interest earned on the cash proceeds of the initial sale.
The Series will establish segregated accounts with the Fund's custodian in
which they will maintain cash, U.S. Government Securities or other liquid high
grade debt obligations equal in value to their obligations with respect to
reverse repurchase agreements and dollar rolls. Reverse repurchase agreements
and dollar rolls involve the risk that the market value of the securities
retained by the Series may decline below the price of the securities the
Series has sold but is obligated to repurchase under the agreement. In the
event the buyer of securities under a reverse repurchase agreement or dollar
roll files for bankruptcy or becomes insolvent, the Series' use of the
proceeds of the agreement may be restricted pending a determination by the
other party or its trustee or receiver, whether to enforce the Series'
obligation to repurchase the securities. Reverse repurchase agreements and
dollar rolls are not considered borrowings by the Series for purpose of the
Series' fundamental investment restriction with respect to borrowings.
. OPTIONS (DRAYCOTT INTERNATIONAL EQUITY, VENTURE VALUE, SALOMON BROTHERS
STRATEGIC BOND OPPORTUNITIES AND SALOMON BROTHERS U.S. GOVERNMENT SERIES)
A Series may seek to increase its current return by writing covered call
options and covered put options, with respect to securities it holds or
intends to buy, through the facilities of options exchanges and directly with
market makers in the over-the-counter market. A Series receives a premium from
writing a call or put option, which increases the Series' current return if
the option expires unexercised or is closed out at a net profit.
At times when a Series has written call options on a substantial portion of
its portfolio, the Series' ability to profit and its risk of loss from changes
in market prices of portfolio securities will be limited. Appreciation in
securities covering the options would likely be partially or wholly offset by
losses on the options. The termination of options positions under such
conditions would generally result in the realization of short-term capital
losses, which would reduce the Series' current return. Accordingly, a Series
may seek to realize capital gains to offset realized losses by selling
securities.
As described in the Statement, over-the-counter options involve certain
special risks (including liquidity and credit risks) not necessarily present
with exchange-listed options. A Series will treat as illiquid any over-the-
counter options and assets maintained as "cover" for over-the-counter options
that the Series has written.
The options markets of foreign countries are small compared to those of the
United States and consequently are characterized in most cases by less
liquidity than are the U.S. markets. In addition, foreign markets may be
subject to less detailed reporting requirements and regulatory controls than
U.S. markets. See "Foreign Securities" below.
. FUTURES AND OTHER HEDGING TRANSACTIONS (DRAYCOTT INTERNATIONAL EQUITY,
VENTURE VALUE, WESTPEAK VALUE GROWTH, LOOMIS SAYLES BALANCED, SALOMON
BROTHERS STRATEGIC BOND OPPORTUNITIES AND SALOMON BROTHERS U.S. GOVERNMENT
SERIES)
Futures contracts are exchange-traded obligations to buy or sell a particular
security on a specified future date (or to pay or receive amounts based on the
value of a securities index or currency on that date).
The use of futures transactions entails certain special risks. In particular,
the variable degree of correlation between price movements of futures
contracts and price movements in the related securities or currency position
of a Series could create the possibility that losses on the futures contracts
are greater than gains in the value of the Series' position. In addition,
futures markets could be illiquid in some circumstances. As a result, in
certain markets, a Series might not be able to close out a transaction without
incurring substantial losses. Although a Series' use of futures transactions
for hedging should tend to minimize the risk of loss due to a decline in the
value of the hedged position, at the same time it will tend to limit any
potential gain to a Series that might result from an increase in value of the
position. The daily variation margin
20
<PAGE>
requirements for futures contracts create a greater ongoing potential
financial risk than would purchases of options, in which case the exposure is
limited to the cost of the initial premium.
Each of these Series may, at the discretion of its subadviser, engage in
foreign currency exchange transactions, in connection with the purchase and
sale of portfolio securities, to protect the value of specific portfolio
positions or in anticipation of changes in relative values of currencies in
which current or future Series' portfolio holdings are denominated or quoted.
For hedging purposes, each of these Series may also buy put or call options on
securities that it holds or intends to buy. In addition to engaging in options
transactions on established exchanges, a Series may purchase over-the-counter
options from brokerage firms and other financial institutions.
Each of these Series may invest in options and futures contracts on various
securities indices to hedge against changes in the value of securities it
holds or expects to acquire. These Series may also invest in options on index
futures.
No Series will invest more than 5% of its net assets in futures or premiums
for options on futures that are traded on a U.S. commodities exchange.
Certain asset segregation requirements apply when a Series becomes obligated
under a hedging instrument. There is no assurance that a Series' hedging
strategies will be effective. These strategies involve costs and the risk of
loss to the Series. See Part II of the Statement for more information.
. SWAPS (SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
The Series may enter into interest rate, currency and index swaps. The Series
will enter into these transactions primarily to seek to preserve a return or
spread on a particular investment or portion of its portfolio, to protect
against currency fluctuations, as a duration management technique or to
protect against any increase in the price of securities a Series anticipates
purchasing at a later date. Interest rate swaps involve the exchange by a
Series with another party of their respective commitments to pay or receive
interest (for example, an exchange of floating rate payments for fixed rate
payments with respect to a notional amount of principal). A currency swap is
an agreement to exchange cash flows on a notional amount based on changes in
the relative values of the specified currencies. The Series will maintain cash
and appropriate liquid assets in a segregated custodial account to cover its
current obligations under swap agreements. Because swap agreements are not
exchange-traded, but are private contracts into which the Series and a swap
counterparty enter as principals, the Series may experience a loss or delay in
recovering assets if the counterparty were to default on its obligations.
. STRUCTURED NOTES (SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
The Salomon Brothers Strategic Bond Opportunities Series is permitted to
invest in a broad category of instruments known as "structured notes." These
instruments are debt obligations issued by industrial corporations, financial
institutions or governmental or international agencies. Traditional debt
obligations typically obligate the issuer to repay the principal plus a
specified rate of interest. Structured notes, by contrast, obligate the issuer
to pay amounts of principal or interest that are determined by reference to
changes in some external factor or factors. For example, the issuer's
obligations could be determined by reference to changes in the value of a
commodity (such as gold or oil), a foreign currency, an index of securities
(such as the S&P 500 Index) or an interest rate (such as the U.S. Treasury
bill rate). In some cases, the issuer's obligations are determined by
reference to changes over time in the difference (or "spread") between two or
more external factors (such as the U.S. prime lending rate and the London
Inter-Bank Offering Rate). In some cases, the issuer's obligations may
fluctuate inversely with changes in an external factor or factors (for
example, if the U.S. prime lending rate goes up, the issuer's interest payment
obligations are reduced). In some cases, the issuer's obligations may be
determined by some multiple of the change in an external factor or factors
(for example, three times the change in the U.S. Treasury bill rate). In some
cases, the issuer's obligations remain fixed (as with a traditional debt
instrument) so long as an external factor or factors do not change by more
than the specified amount (for example, if the U.S. Treasury bill rate does
not exceed some specified maximum); but if the external factor or factors
change by more than the specified amount, the issuer's obligations may be
sharply increased or reduced.
Structured notes can serve many different purposes in the management of the
Series. For example, they can be used to increase the Series' exposure to
changes in the value of assets that the Series would not ordinarily purchase
directly
21
<PAGE>
(such as gold or oil). They can also be used to hedge the risks associated
with other investments the Series holds. For example, if a structured note has
an interest rate that fluctuates inversely with general changes in market
interest rates, the value of the structured note would generally move in the
opposite direction to the value of traditional debt obligations, thus
moderating the effect of interest rate changes in the value of the Series'
portfolio as a whole.
Structured notes involve special risks. As with any debt obligation,
structured notes involve the risk that the issuer will become insolvent or
otherwise default on its payment obligations. The risk is in addition to the
risk that the issuer's obligations (and thus the value of the Series'
investment) will be reduced because of adverse changes in the external factor
or factors to which the obligations are linked. The value of structured notes
will in many cases be more volatile (that is, will change more rapidly or
severely) than the value of traditional debt instruments. Volatility will be
especially high if the issuer's obligations are determined by reference to
some multiple of the change in the external factor or factors. Many structured
notes have limited or no liquidity, so that the Series would be unable to
dispose of the investment prior to maturity. (The Series is not permitted to
invest more than 15% of its net assets in illiquid investments.) As with all
investments, successful use of structured notes depends in significant part on
the accuracy of the subadviser's analysis of the issuer's creditworthiness and
financial prospects, and of the subadviser's forecast as to changes in
relevant economic and financial market conditions and factors. In instances
where the issuer of a structured note is a foreign entity, the usual risks
associated with investments in foreign securities (described below) apply.
. FOREIGN SECURITIES (LOOMIS SAYLES SMALL CAP, DRAYCOTT INTERNATIONAL EQUITY,
ALGER EQUITY GROWTH, LOOMIS SAYLES AVANTI GROWTH, VENTURE VALUE, LOOMIS
SAYLES BALANCED, SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES AND SALOMON
BROTHERS U.S. GOVERNMENT SERIES)
Each of these Series may invest in securities of issuers organized or
headquartered outside the United States or primarily traded outside the United
States ("foreign securities"). In the case of the Loomis Sayles Small Cap,
Back Bay Advisors Bond Income, Loomis Sayles Avanti Growth and Salomon
Brothers U.S. Government Series, the Series will not purchase a foreign
security if, as a result, the Series' holdings of foreign securities would
exceed 20% (10% in the case of the Back Bay Advisors Bond Income Series) of
the Series' total assets.
Although investing in foreign securities may increase a Series'
diversification and reduce portfolio volatility, foreign securities may
present risks not associated with investments in comparable securities of U.S.
issuers. There may be less information publicly available about a foreign
corporate or government issuer than about a U.S. issuer, and foreign corporate
issuers are not generally subject to accounting, auditing and financial
reporting standards and practices comparable to those in the United States.
The securities of some foreign issuers are less liquid and at times more
volatile than securities of comparable U.S. issuers. Foreign brokerage
commissions and securities custody costs are often higher than in the United
States. With respect to certain foreign countries, there is a possibility of
governmental expropriation of assets, confiscatory taxation, political or
financial instability and diplomatic developments that could affect the value
of investments in those countries. A Series' receipt of interest on foreign
government securities may depend on the availability of tax or other revenues
to satisfy the issuer's obligations.
A Series' investments in foreign securities may include investments in
countries whose economies or securities markets are not yet highly developed.
Special considerations associated with these investments (in addition to the
considerations regarding foreign investments generally) may include, among
others, greater political uncertainties, an economy's dependence on revenues
from particular commodities or on international aid or development assistance,
currency transfer restrictions, highly limited numbers of potential buyers for
such securities and delays and disruptions in securities settlement
procedures.
In connection with their investments in foreign securities, the Series intend
to comply with certain diversification guidelines of the California Department
of Insurance. These guidelines limit each Series' investments in any one
foreign country to 20% of the Series' net assets (except that the limit is 35%
with respect to each of Australia, Canada, France, Japan, the United Kingdom
and Germany). Also, when a Series has at least 20% but less than 40% of its
net assets invested in foreign securities, it must have investments in at
least two foreign countries; when a Series has at least 40% but less than 60%
of its net assets invested in foreign securities, it must have investments in
at least three foreign countries; when a Series has at least 60% but less than
80% of its net assets invested in foreign securities, it must have investments
in at least four foreign counties; and when a Series has more than 80% of its
net assets invested in foreign securities, it must have investments in at
least five foreign countries.
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<PAGE>
Since most foreign securities are denominated in foreign currencies or trade
primarily in securities markets in which settlements are made in foreign
currencies, the value of these investments and the net investment income
available for distribution to shareholders of a Series investing in these
securities may be affected favorably or unfavorably by changes in currency
exchange rates or exchange control regulations. Changes in the value relative
to the U.S. dollar of a foreign currency in which a Series' holdings are
denominated will result in a change in the U.S. dollar value of the Series'
assets and the Series' income available for distribution.
In addition, although part of a Series' income may be received or realized in
foreign currencies, the Series will be required to compute and distribute its
income in U.S. dollars. Therefore, if the value of a currency relative to the
U.S. dollar declines after a Series' income has been earned in that currency,
translated into U.S. dollars and declared as a dividend, but before payment of
the dividend, the Series could be required to liquidate portfolio securities
to pay the dividend. Similarly, if the value of a currency relative to the
U.S. dollar declines between the time a Series accrues expenses in U.S.
dollars and the time such expenses are paid, the amount of such currency
required to be converted into U.S. dollars will be greater than the equivalent
amount in such currency of such expenses at the time they were incurred.
. HIGH YIELD/HIGH RISK FOREIGN SOVEREIGN DEBT SECURITIES (SALOMON BROTHERS
STRATEGIC BOND OPPORTUNITIES SERIES)
Investing in fixed and floating rate high yield foreign sovereign debt
securities will expose the Series to special risks in addition to those
described under "Foreign Securities" above. These bonds are typically issued
by developing or emerging countries, whose ability to pay principal and
interest may be adversely affected by many factors, including: high rates of
inflation, high interest rates, currency exchange rates or difficulties,
political uncertainty or instability, the country's cash flow position, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of its debt service burden to the economy as a whole, the policy
of the International Monetary Fund, the World Bank and other international
agencies, the obligor's balance of payments, including export performance, its
access to international credit and investments, fluctuations in the
international prices of commodities which it imports or exports and the extent
of its foreign reserves and access to foreign exchange. Currency devaluations
may also adversely affect the ability of a sovereign obligor to obtain
sufficient foreign exchange to service its external debt.
If a foreign sovereign obligor cannot generate sufficient earnings from
foreign trade to service its external debt, it may need to depend on
continuing loans and aid from foreign governments, commercial banks and
multilateral organizations, and inflows of foreign investment. The commitment
on the part of these entities to make such disbursements may be conditioned on
the government's implementation of economic reforms or other requirements.
Failure to meet such conditions may result in the cancellation of such third
parties' commitments to lend funds, which may further impair the obligor's
ability or willingness to timely service its debts. Sovereign obligors in
developing and emerging countries have in the past experienced substantial
difficulties in servicing their external debt obligations, which has led to
defaults on certain obligations and the restructuring of certain indebtedness
including among other things, reducing and rescheduling interest and principal
payments by negotiating new or amended credit agreements or converting
outstanding principal and unpaid interest to Brady Bonds and obtaining new
credit to finance interest payments. There can be no assurance that the Brady
Bonds and other foreign sovereign debt securities in which the Series may
invest will not be subject to similar restructuring arrangements or to
requests for new credit which may adversely affect the Series' holdings.
. LOAN PARTICIPATIONS AND ASSIGNMENTS (SALOMON BROTHERS STRATEGIC BOND
OPPORTUNITIES SERIES)
The Series may invest in fixed and floating rate loans ("Loans") arranged
through private negotiations between a foreign sovereign entity and one or
more financial institutions ("Lenders"). The Series may invest in such Loans
in the form of participations in Loans ("Participations") and assignments of
all or a portion of Loans from third parties ("Assignments"). Participations
typically will result in the Series having a contractual relationship only
with the Lender, not with the borrower. The Series will have the right to
receive payments of principal, interest and any fees to which it is entitled
only from the Lender selling the Participation and only upon receipt by the
Lender of the payments from the borrower. In connection with purchasing
Participations, the Series generally will have no right to enforce compliance
by the borrower with the terms of the loan agreement relating to the Loan, nor
any rights of set-off against the borrower, and the Series may not benefit
directly from any collateral supporting the Loan in which it has purchased the
Participation. As a result, the Series will be subject to credit risk relating
to both the borrower and the Lender that is selling the Participation. In the
event of the
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insolvency of the Lender selling a Participation, the Series may be treated as
a general creditor of the Lender and may not benefit from any set-off between
the Lender and the borrower. When the Series purchases Assignments from
Lenders, the Series will acquire direct rights against the borrower on the
Loan, except that under certain circumstances such rights may be more limited
than those held by the assigning Lender.
The Series may have difficulty disposing of Assignments and Participations.
Because the market for such instruments is not highly liquid, the Series
anticipates that such instruments could be sold only to a limited number of
institutional investors. The lack of a highly liquid secondary market may have
an adverse impact on the value of such instruments and will have an adverse
impact on the Series' ability to dispose of particular Assignments or
Participations in response to a specific economic event, such as deterioration
in the creditworthiness of the borrower. The Series currently intends to treat
all investments in Participations and Assignments as illiquid.
. WHEN-ISSUED SECURITIES (DRAYCOTT INTERNATIONAL EQUITY, ALGER EQUITY GROWTH,
VENTURE VALUE, SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES AND SALOMON
BROTHERS U.S. GOVERNMENT SERIES)
If the value of a "when-issued" security being purchased falls between the
time a Series commits to buy it and the payment date, the Series may sustain a
loss. The risk of this loss is in addition to the Series' risk of loss on the
securities actually in its portfolio at the time. In addition, when the Series
buys a security on a when-issued basis, it is subject to the risk that market
rates of interest will increase before the time the security is delivered,
with the result that the yield on the security delivered to the Series may be
lower than the yield available on other, comparable securities at the time of
delivery. The Series will maintain cash or liquid high grade assets in a
segregated account in an amount sufficient to satisfy its outstanding
obligations to buy securities on a "when-issued" basis.
. INVESTMENT COMPANY SECURITIES (DRAYCOTT INTERNATIONAL EQUITY, ALGER EQUITY
GROWTH, LOOMIS SAYLES AVANTI GROWTH, VENTURE VALUE AND WESTPEAK VALUE
GROWTH SERIES)
Each of these Series may invest up to 10% of its assets in securities of
investment companies. Because of restrictions on direct investment by U.S.
entities in certain countries, a Series may choose to invest indirectly in
such countries (by purchasing shares of another fund that is permitted to
invest in such countries) which may be the most practical or efficient way for
the Series to invest in such countries. In other cases, where the Series'
subadviser desires to make only a relatively small investment in a particular
country, investing through a fund that holds a diversified portfolio in that
country may be more effective than investing directly in issuers in that
country. As an investor in another investment company, a Series will bear its
share of the expenses of that investment company. These expenses are in
addition to the Series' own costs of operations. In some cases, investing in
an investment company may involve the payment of a premium over the value of
the assets held in that investment company's portfolio. The Venture Value
Series may only invest in securities of investment companies investing
primarily in foreign securities.
. LENDING OF PORTFOLIO SECURITIES (ALGER EQUITY GROWTH, VENTURE VALUE,
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES AND SALOMON BROTHERS U.S.
GOVERNMENT SERIES)
To the extent that any of the above Series lend that Series' portfolio
securities, such lending must be fully collateralized by cash, letters of
credit or U.S. Government Securities at all times, but involves some credit
risk to the Series if the other party should default on its obligations and
the Series is delayed in or prevented from recovering the collateral.
. ""SHORT SALES AGAINST THE BOX" (ALGER EQUITY GROWTH SERIES)
A short sale is a transaction in which a party borrows a security and then
sells the borrowed security to another party. The Alger Equity Growth Series
may engage in short sales, but only if the Series owns (or has the right to
acquire without further consideration) the security it has sold short, a
practice known as selling short "against the box." Short sales against the box
may protect the Series against the risk of losses in the value of its
portfolio securities because any unrealized losses with respect to such
securities should be wholly or partially offset by a corresponding gain in the
short position. However, any potential gains in such securities should be
wholly or partially offset by a corresponding loss in the short position.
Short sales against the box may be used to lock in a profit on a security
when, for tax reasons or otherwise, a subadviser does not want to sell the
security.
. ILLIQUID SECURITIES (ALL SERIES)
Each Series may invest up to 15% of its assets (10% in the case of the Back
Bay Advisors Money Market Series) in "illiquid securities," that is,
securities which are not readily resaleable, including securities whose
disposition is
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restricted by federal securities laws. The Series may purchase "Rule 144A
securities." These are privately offered securities that can be resold only to
certain qualified institutional buyers. Rule 144A securities are treated as
illiquid, unless the Series' subadviser has determined, under guidelines
established by the Fund's trustees, that the particular issue of Rule 144A
securities is liquid.
. ZERO COUPON SECURITIES (LOOMIS SAYLES BALANCED, SALOMON BROTHERS STRATEGIC
BOND OPPORTUNITIES AND SALOMON BROTHERS U.S. GOVERNMENT SERIES)
Zero coupon securities involve special risk considerations. Zero coupon
securities are debt securities that pay no cash income but are sold at
substantial discounts from their value at maturity. When a zero coupon
security is held to maturity, its entire return, which consists of the
amortization of discount, comes from the difference between its purchase price
and its maturity value. The difference is known at the time of purchase, so
that investors holding zero coupon securities until maturity know at the time
of their investment what the return on their investment will be. Certain zero
coupon securities also are sold at substantial discounts from their maturity
value and provide for the commencement of regular interest payments at a
deferred date.
Zero coupon securities tend to be subject to greater price fluctuations in
response to changes in interest rates than are ordinary interest-paying debt
securities with similar maturities. The value of zero coupon securities
appreciates more during periods of declining interest rates and depreciates
more during periods of rising interest rates. Zero coupon securities may be
issued by a wide variety of corporate and governmental issuers. Although zero
coupon securities are generally not traded on a national securities exchange,
many such securities are widely traded by brokers and dealers and, if so, will
not be considered illiquid.
Current federal income tax law requires the holder of a zero coupon security
(as well as the holders of other securities, such as Brady Bonds, which may be
acquired at a discount) to accrue income with respect to these securities
prior to the receipt of cash payments. To maintain its qualification as a
regulated investment company and avoid liability for federal income and excise
taxes, the Series may be required to distribute income accrued with respect to
these securities and may have to dispose of portfolio securities under
disadvantageous circumstances in order to generate cash to satisfy these
distribution requirements.
PORTFOLIO TURNOVER
Portfolio turnover is not a limiting factor with respect to investment
decisions for any Series. For example, although the Alger Equity Growth
Series' objective is long-term capital appreciation, it frequently sells
securities to reflect changes in market, industry or individual company
conditions or outlook, even though it may only have held those securities for
a short period. High portfolio turnover involves correspondingly greater
brokerage commissions and other transaction costs, which will be borne
directly by the relevant Series. For additional information about such costs
see "Taxes" and "Management" below, and "Portfolio Transactions and Brokerage"
in the Statement. For information about the past portfolio turnover rates of
all the Series see "Financial Highlights." Turnover in excess of 100% involves
higher levels of brokerage commissions and possibly increased realization of
taxable gains, as compared to many mutual funds.
RESOLVING MATERIAL CONFLICTS
Currently, shares in the Fund are available only to separate accounts
established by NEVLICO, The New England or subsidiaries of The New England as
an investment vehicle for variable life insurance or variable annuity
products. In the future, however, such shares may be offered to separate
accounts of insurance companies unaffiliated with NEVLICO or The New England.
A potential for certain conflicts of interest exists between the interests
of variable life insurance contract owners and variable annuity contract
owners. Pursuant to conditions imposed in connection with related regulatory
relief granted by the SEC, the Fund's board of trustees (the "Board of
Trustees") has an obligation to monitor events to identify conflicts that may
arise from the sale of shares to both variable life insurance and variable
annuity separate accounts or to separate accounts of insurance companies not
affiliated with The New England. Such events might include changes in state
insurance law or federal income tax law, changes in investment management of
any Series of the Fund, or differences between voting
25
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instructions given by variable life insurance and variable annuity contract
owners. Insurance companies investing in the Fund will be responsible for
proposing and executing any necessary remedial action and the Board of
Trustees has an obligation to determine whether such proposed action
adequately remedies any such conflicts.
PERFORMANCE INFORMATION
Information about the performance of the Series is set forth below and, from
time to time, the Fund may use this information in advertisements. Performance
information about a Series is based on that Series' past performance and is
not intended to indicate future performance. The Fund serves as the underlying
investment vehicle for variable life insurance or variable annuity products
and its shares cannot be purchased directly. Therefore, such performance
information does not reflect any of the charges assessed against the insurance
company separate accounts or the variable life insurance or variable annuity
products for which the Fund serves as an investment vehicle. Where relevant,
performance information about those variable life insurance or variable
annuity products is contained in the prospectus applicable to those products.
Each Series may include its total return in advertisements or other written
material. Total return is measured by comparing the value of a hypothetical
$1,000 investment in the Series at the beginning of the relevant period to the
value of the investment at the end of the period (assuming immediate
reinvestment of any dividends or capital gains distributions). Total return
reflects the bearing or deferral of certain expenses by The New England and
its affiliates pursuant to various arrangements that are described below under
"Management." If these arrangements had not been in effect, each Series' total
return would have been lower.
TOTAL RETURN
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN
AVERAGE ANNUAL AVERAGE ANNUAL SINCE
TOTAL RETURN TOTAL RETURN COMMENCEMENT
FOR THE TEN FOR THE FIVE OF OFFERING
YEARS ENDING YEARS ENDING THROUGH
PERIOD RETURN 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 12/31/95 12/31/95 12/31/95
------------- ----- ---- ----- ----- ----- ----- ---- ----- ----- ----- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loomis Sayles
Small Cap
Series(1) -- -- -- -- -- -- -- -- -3.2%(1) 28.9% -- -- 14.1%(1)
Draycott
International
Equity Series -- -- -- -- -- -- -- -- 2.6%(2) 6.0% -- -- 8.8%(2)
Alger Equity
Growth Series -- -- -- -- -- -- -- -- -4.2%(2) 48.7% -- -- 35.4%(2)
Loomis Sayles
Avanti Growth
Series(3) -- -- -- -- -- -- -- 14.7%(3) -0.3% 30.4% -- -- 16.2%(3)
Venture Value
Series -- -- -- -- -- -- -- -- -3.5%(2) 39.3% -- -- 28.8%(2)
Westpeak Value
Growth
Series(4) -- -- -- -- -- -- -- 14.2%(4) -1.2% 36.5% -- -- 17.6%(4)
Loomis Sayles
Balanced Series -- -- -- -- -- -- -- -- -0.1%(2) 24.8% -- -- 20.3%(2)
Salomon Brothers
Strategic Bond
Opportunities
Series -- -- -- -- -- -- -- -- -1.4%(2) 19.4% -- -- 15.0%(2)
Salomon Brothers
U.S. Government
Series -- -- -- -- -- -- -- -- 0.6%(2) 15.0% -- -- 13.3%(2)
S&P 500(5) 18.6% 5.2% 16.5% 31.6% -3.1% 30.3% 7.6% 10.1% 1.3% 37.4% 14.8% 16.5% 15.2%
Lehman
Intermediate
Government/Corporate
Bond Index(6) 13.1% 3.7% 6.8% 12.8% 9.2% 14.6% 7.2% 8.8% -2.0% 15.3% 8.8% 8.6% 10.1%
Consumer Price
Index(7) 1.1% 4.4% 4.4% 4.7% 6.1% 3.1% 2.9% 2.8% 2.8% 2.6% 3.5% 2.8% 3.5%
Dow Jones
Industrial
Average(8) 27.1% 5.5% 16.1% 32.2% -1.0% 24.2% 7.4% 16.9% 5.1% 37.0% 16.4% 17.6% 16.6%
</TABLE>
- -------
(1) For the period beginning May 2, 1994, when the Loomis Sayles Small Cap
Series commenced operations, but did not become publicly available.
Average annual total return for the period May 2, 1994 through December
31, 1994 is presented on an unannualized basis.
26
<PAGE>
(2) Represents unannualized total return for the period beginning October 31,
1994 when the Draycott International Equity, Alger Equity Growth, Venture
Value, Loomis Sayles Balanced, Salomon Brothers Strategic Bond
Opportunities and Salomon Brothers U.S. Government Series commenced
operations.
(3) For the period beginning April 30, 1993, when the Loomis Sayles Avanti
Growth Series became publicly available.
(4) For the period beginning April 30, 1993, when the Westpeak Value Growth
Series became publicly available.
(5) The S&P 500 Stock Index is an unmanaged weighted index of the stock
performance of 500 industrial, transportation, utility and financial
companies. Investment results shown assume the reinvestment of dividends.
(6) The Lehman Intermediate Government/Corporate Bond Index is a subset of the
Lehman Government/Corporate Bond Index covering all issues with maturities
between 1 and 10 years which is composed of taxable, publicly-issued, non-
convertible debt obligations issued or guaranteed by the U.S. Government
or its agencies and another Lehman index that is composed of taxable,
fixed rate publicly-issued, investment grade non-convertible corporate
debt obligations.
(7) The Consumer Price Index, published by the U.S. Bureau of Labor
Statistics, is a statistical measure of changes, over time, in the prices
of goods and services.
(8) The Dow Jones Industrial Average is a market value-weighted and unmanaged
index of 30 large industrial stocks traded on the New York Stock Exchange.
From time to time, articles about a Series regarding performance, rankings
and other Series characteristics may appear in national publications
including, but not limited to, The Wall Street Journal, Forbes, Fortune, CDA
Investment Technologies and Money Magazine. In particular, some or all of
these publications may publish their own rankings or performance reviews of
mutual funds, including the Fund. References to or reprints or portions of
reprints of such articles, which may include rankings that list the names of
other funds and their performance, may be used as Fund or variable contract
sales literature or advertising material.
YIELD
Loomis Sayles Balanced, Salomon Brothers Strategic Bond Opportunities and
Salomon Brothers U.S. Government Series
Each of these Series may advertise its yield in addition to its total
return. The yield will be computed in accordance with the SEC's standardized
formula by dividing the net investment income per share earned during a recent
30-day period by the net asset value of a Series share (reduced by any earned
income expected to be declared shortly as a dividend) on the last trading day
of the period. Yield calculations will reflect any waiver of fees and/or
bearing of expenses by The New England and its affiliates.
INVESTMENT RESTRICTIONS
The following is a description of restrictions on the investments to be made
by the nine Series. Except as specifically listed below, and except for
restrictions marked with an asterisk, these restrictions may not be changed
without the approval of a majority of the outstanding voting securities of the
relevant Series.
INVESTMENT RESTRICTIONS APPLICABLE TO THE LOOMIS SAYLES SMALL CAP, DRAYCOTT
INTERNATIONAL EQUITY, ALGER EQUITY GROWTH, LOOMIS SAYLES AVANTI GROWTH,
VENTURE VALUE, WESTPEAK VALUE GROWTH, LOOMIS SAYLES BALANCED, SALOMON BROTHERS
STRATEGIC BOND OPPORTUNITIES AND SALOMON BROTHERS U.S. GOVERNMENT SERIES
Each of the Series listed above will not:
*(1) With respect to 75% of the Series' total assets, purchase any
security (other than U.S. Government obligations) if, as a result, more
than 5% of the Series' total assets (taken at current value) would then be
invested in securities of a single issuer and, with respect to the Series'
total assets, purchase any security (other than U.S. Government
obligations) if, as a result, more than 10% of such assets would then be
invested in securities of a single issuer;
(2) Purchase any security (other than U.S. Government Securities) if, as
a result, more than 25% of the Series' total assets (taken at current
value) would be invested in any one industry (in the utilities category,
gas, electric, water
27
<PAGE>
and telephone companies will be considered as being in separate industries,
and each foreign country's government (together with subdivisions thereof)
will be considered to be a separate industry);
*(3) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities), or make short sales except where, by virtue of ownership of
other securities, it has the right to obtain, without payment of further
consideration, securities equivalent in kind and amount to those sold, and
the Series will not deposit or pledge more than 10% of its total assets
(taken at current value) as collateral for such sales. (For this purpose,
the deposit or payment by the Series of initial or variation margin in
connection with futures contracts or related options transactions is not
considered the purchase of a security on margin);
*(4) Acquire more than 10% of any class of securities of an issuer
(taking all preferred stock issues of an issuer as a single class and all
debt issues of an issuer as a single class) or acquire more than 10% of the
outstanding voting securities of an issuer;
(5) Borrow money in excess of 10% of its total assets (taken at cost) or
5% of its total assets (taken at current value), whichever is lower, and
then only as a temporary measure for extraordinary or emergency purposes;
*(6) Pledge more than 15% of its total assets (taken at cost). (For the
purpose of this restriction, collateral arrangements with respect to
options, futures contracts and options on futures contracts and with
respect to initial and variation margin are not deemed to be a pledge of
assets);
*(7) Invest more than 5% of its total assets (taken at current value) in
securities of businesses (including predecessors) less than three years
old;
*(8) Purchase or retain securities of any issuer if officers and trustees
of the Fund or officers and directors of any investment adviser of the Fund
who individually own more than 1/2 of 1% of the shares or securities of
that issuer, together own more than 5%;
(9) Make loans, except by entering into repurchase agreements (including
reverse repurchase agreements) or by purchase of bonds, debentures,
commercial paper, corporate notes and similar evidences of indebtedness,
which are a part of an issue to the public or to financial institutions, or
through the lending of the Series' portfolio securities to the extent set
forth under "Loans of Portfolio Securities" above;
(10) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, real estate or commodities or commodity contracts, except that
the Series may buy and sell futures contracts and related options. (This
restriction does not prevent the Series from purchasing securities of
companies investing in the foregoing);
(11) Act as underwriter, except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws;
*(12) Make investments for the purpose of exercising control or
management;
*(13) Participate on a joint or joint and several basis in any trading
account in securities. (The "bunching" of orders for the purchase or sale
of portfolio securities for a Series with that Series' adviser or
subadviser or accounts under their management to reduce brokerage
commissions, to average prices among them or to facilitate such
transactions is not considered a trading account in securities for purposes
of this restriction);
*(14) Write, purchase or sell options or warrants or, in the case of the
Loomis Sayles Small Cap Series, combinations of both, except that the
Series may (a) acquire warrants or rights to subscribe to securities of
companies issuing such warrants or rights, or of parents or subsidiaries of
such companies, (b) write, purchase and sell put and call options on
securities or securities indices, and (c) enter into currency forward
contracts;
*(15) Purchase any illiquid security if, as a result, more than 15% of
its net assets (taken at current value) would be invested in such
securities;
*(16) Invest in the securities of other investment companies, except by
purchases in the open market involving only customary brokers' commissions.
Under the 1940 Act, the Series may not (a) invest more than 10% of its
total assets (taken at current value) in such securities, (b) own
securities of any one investment company having a value in excess of 5% of
the total assets of the Series (taken at current value), or (c) own more
than 3% of the outstanding voting stock of any one investment company; or
28
<PAGE>
(17) Issue senior securities. (For the purpose of this restriction none
of the following is deemed to be a senior security: any pledge or other
encumbrance of assets permitted by restriction (6) above; any borrowing
permitted by restriction (5) above; any collateral arrangements with
respect to options, futures contracts and options on futures contracts and
with respect to initial and variation margin; the purchase or sale of
options, forward contracts, futures contracts or options on futures
contracts; and the issuance of shares of beneficial interest permitted from
time to time by the provisions of the Trust's Declaration of Trust and by
the 1940 Act, the rules thereunder, or any exemption therefrom.)
For purposes of restriction (5), reverse repurchase agreements are not
considered borrowings.
VARIABLE CONTRACT RELATED INVESTMENT RESTRICTIONS
Separate accounts supporting variable life insurance and variable annuity
contracts are subject to certain diversification requirements imposed by
regulations adopted under the Internal Revenue Code. Because the Fund is
intended as an investment vehicle for variable life insurance and variable
annuity separate accounts, Section 817(h) of the Internal Revenue Code
requires that the Fund's investments, and accordingly the investments of each
Series, be "adequately diversified" in accordance with Treasury Regulations.
Failure to do so means the variable life insurance and variable annuity
contracts would cease to qualify as life insurance and annuities for federal
tax purposes. Regulations specifying the diversification requirements have
been issued by the Department of Treasury. The Fund intends to comply with
these requirements.
MANAGEMENT
The Fund's Board of Trustees supervises the affairs of the Fund as conducted
by the Series' advisers and subadvisers. Pursuant to separate advisory
agreements, and subject in each case to the supervision of the Fund's Board of
Trustees, TNE Advisers, Inc. is the investment adviser of each of the Series.
SERIES ADVISED BY TNE ADVISERS, INC.
With respect to each of the nine Series for which TNE Advisers, Inc. serves
as adviser, TNE Advisers, Inc. has sub-contracted day-to-day portfolio
management responsibility to a sub-adviser as follows:
<TABLE>
<CAPTION>
SERIES SUBADVISER
------ ----------
<S> <C>
Loomis Sayles Small Cap Series............. Loomis, Sayles & Company, L.P.
Draycott International Equity Series....... Draycott Partners, Ltd.
Alger Equity Growth Series................. Fred Alger Management, Inc.
Loomis Sayles Avanti Growth Series......... Loomis, Sayles & Company, L.P.
Venture Value Series....................... Davis Selected Advisers, L.P.
Westpeak Investment Advisors,
Westpeak Value Growth Series............... L.P.
Loomis Sayles Balanced Series.............. Loomis, Sayles & Company, L.P.
Salomon Brothers Strategic Bond Salomon Brothers Asset
Opportunities Series...................... Management Inc
Salomon Brothers Asset
Salomon Brothers U.S. Government Series.... Management Inc
</TABLE>
TNE ADVISERS, INC., 501 Boylston Street, Boston Massachusetts 02116, was
organized in 1994. It is a wholly-owned subsidiary of The New England. TNE
Advisers, Inc. oversees, evaluates and monitors the subadvisers provision of
investment advisory services to the Series and provides general business
management and administration to the Series. TNE Advisers, Inc. has contracted
with New England Funds, L.P. to provide certain administrative services to
support the Series.
Subject to the supervision of TNE Advisers, Inc., each subadviser manages
its Series in accordance with the Series' investment objective and policies,
makes investment decisions for that Series, places orders to purchase and sell
securities for that Series and employs professional advisers and securities
analysts who provide research services to that Series. The Series advised by
TNE Advisers, Inc. pay no direct fees to any of the subadvisers described
below.
29
<PAGE>
TNE Advisers, investment adviser to each Series, is a wholly-owned
subsidiary of The New England. Loomis Sayles and Westpeak are each
independently operated subsidiaries of New England Investment Companies, L.P.
("NEIC"). The general partners of each of Loomis Sayles and Westpeak are
special purpose corporations which are indirect wholly-owned subsidiaries of
NEIC. NEIC's sole general partner, New England Investment Companies, Inc., is
a wholly-owned subsidiary of The New England, which also owns a majority of
the limited partnership interest in NEIC. Consequently, the subadvisers
(Loomis Sayles and Westpeak) of four Series of the Fund are currently wholly-
owned subsidiaries of NEIC. The subadvisers of the remaining five Series
offered through this prospectus are not affiliated with The New England or
NEIC.
The New England and Metropolitan Life Insurance Company ("MetLife") have
entered into an agreement to merge, with MetLife to be the survivor of the
merger. The merger is conditioned upon, among other things, receipt of certain
regulatory approvals.
The merger of The New England into MetLife is being treated, for purposes of
the Investment Company Act of 1940 (the "Act"), as an "assignment" of the
existing advisory agreements for each Series and of the subadvisory agreements
of the eight Series that have NEIC subsidiaries as subadvisers. Under the Act,
such an "assignment" will result in an automatic termination of these
agreements. The subadvisory agreements for the other Series terminate
automatically, by their terms, upon any termination of TNE Advisers' advisory
agreement with the Fund. Thus, those subadvisory agreements will also
terminate at the time of the merger. Shareholders of the Series have approved
new investment advisory and subadvisory agreements, intended to take effect at
the time of the merger. The new agreements are substantially identical to the
existing agreements.
LOOMIS SAYLES, One Financial Center, Boston, MA 02111, subadviser to the
Loomis Sayles Avanti Growth, Loomis Sayles Small Cap and Loomis Sayles
Balanced Series, was founded in 1926 and is one of the country's oldest and
largest investment firms. Richard W. Hurckes and Scott Pape are Vice
Presidents of Loomis Sayles and have served as the portfolio managers of the
Loomis Sayles Avanti Growth Series since its inception in 1993. As of June 30,
1996, Bruce A. Ebel, Vice President of Loomis Sayles, will replace Richard
Hurckes as co-portfolio manager of Avanti Growth Series. Mr. Hurckes has been
employed by Loomis Sayles for more than five years. Prior to the time he
joined Loomis Sayles in 1991, Mr. Pape was Equity Portfolio Manager of the
Illinois State Board of Investment. Mr. Ebel joined Loomis Sayles in 1994 and
prior to that time was Senior Vice President of Kemper Asset Management.
Jeffrey C. Petherick and Mary Champagne, who are Vice Presidents of Loomis
Sayles, have day-to-day management responsibility for the Loomis Sayles Small
Cap Series. Mr. Petherick has co-managed the Series since its inception and
has been employed by Loomis Sayles for more than five years. Ms. Champagne has
co-managed the Series since July 1995. Prior to joining Loomis Sayles in 1993,
Ms. Champagne served as a portfolio manager at NBD Bank for 10 years.
Douglas D. Ramos and Meri Anne Beck, who are Vice Presidents of Loomis
Sayles, serve as portfolio managers for the Loomis Sayles Balanced Series.
Both Mr. Ramos and Ms. Beck have been employed by Loomis Sayles for more than
five years.
WESTPEAK, 1011 Walnut Street, Boulder, CO 80302, subadviser to the Westpeak
Value Growth and Westpeak Stock Index Series, was organized in 1991. Gerald H.
Scriver, President and Chief Executive Officer of Westpeak and Philip J.
Cooper, CFA, Senior Vice President of portfolio management of Westpeak, have
served as the portfolio managers of the Westpeak Value Growth Series since its
inception in 1993. Both Mr. Scriver and Mr. Cooper have been with Westpeak
since its inception in 1991. Prior to joining Westpeak in 1991, Mr. Scriver
was Director of Quantitative Strategies of INVESCO and Mr. Cooper was
Portfolio Manager of United Asset Management Services.
DRAYCOTT, 66 Buckingham Gate, London SW1E 6AU, England, (prior to May 10,
1996, the address of Draycott was 8 City Road, London EC2Y 1HE, England),
subadvises the Draycott International Equity Series. Draycott was organized in
1991 to provide investment advice and management services to institutional
investors' accounts and to mutual funds distributed both to institutional and
retail customers. Draycott is regulated by the Investment Management
Regulatory Organisation Limited ("IMRO") in the conduct of Investment Business
and is registered as an investment adviser in the United States pursuant to
the Investment Advisers Act of 1940. IMRO is the United Kingdom regulator of
investment advisers. In addition to the Series, Draycott currently manages two
other mutual funds and a separate investment account of The New England that
invest substantially all of their assets in international equity securities.
Nicholas D.P. Carn, Chief
30
<PAGE>
Investment Officer, President and Chief Executive Officer of Draycott, Timothy
S. Griffen, Senior Portfolio Manager and Pacific Rim Specialist of Draycott,
Gregory D. Eckersley, Portfolio Manager and United Kingdom Specialist of
Draycott, and Nigel Hankin, Portfolio Manager and European Specialist of
Draycott, serves as the portfolio managers of the Draycott International
Equity Series. Prior to Draycott's organization in 1991, Mr. Carn was Managing
Director, International Equities Group, Mr. Griffen was a Vice President and
Portfolio Manager and Mr. Hankin was European Fund Manager, all at CIGNA
International Investment Advisors, Ltd. and Mr. Eckersley was an Investment
Manager at Century Asset Management, London.
Draycott is an indirect wholly-owned subsidiary of Cursitor Alliance LLC
("Cursitor Alliance"), which in turn is indirectly controlled by The Equitable
Life Assurance Socity of the United States, the parent company of which is
controlled by AXA, a French insurance holding company.
ALGER MANAGEMENT, 75 Maiden Lane, New York, New York 10038, subadvises the
Alger Equity Growth Series. Alger Management is a wholly-owned subsidiary of
Fred Alger & Company, Incorporated, which in turn is a wholly-owned subsidiary
of Alger Associates, Inc., a financial services holding company. Fred M. Alger
III and his brother, David D. Alger, are the majority shareholders of Alger
Associates, Inc. and may be deemed to control that company and its
subsidiaries. David D. Alger, Seilai Khoo and Ron Tartaro are primarily
responsible for the day-to-day management of the Alger Equity Growth Series.
David D. Alger has been employed by Alger Management as Executive Vice
President and Director of Research since 1971, as President since 1995 and he
serves as portfolio manager for other mutual funds and investment accounts
managed by Alger Management. Ms. Khoo has been employed by Alger Management
since 1989 and as a Senior Vice President since 1995. Mr. Tartaro has been
employed by Alger Management since 1990 and as a Senior Vice President since
1995.
DAVIS SELECTED, 124 East Marcy Street, Santa Fe, New Mexico 87501,
subadvises the Venture Value Series. Venture Advisers, Inc., is the sole
general partner of Davis Selected, which is controlled by Shelby M. C. Davis.
Davis Selected provides advisory services to other investment companies and
institutions. Since 1968, Mr. Davis, who is co-manager of the Series, has been
a director of Venture Advisers, Inc. He is also a director and officer of all
investment companies managed by Davis Selected. Christopher C. Davis has co-
managed the Venture Value Series since October, 1995. He has been employed by
Davis Selected as an assistant portfolio manager and research analyst since
1989.
SALOMON BROTHERS ASSET MANAGEMENT INC ("SBAM"), 7 World Trade Center, New
York, New York 10048, the subadviser to the Salomon Brothers U.S. Government
Series and the Salomon Brothers Strategic Bond Opportunities Series, is an
indirect, wholly-owned subsidiary of Salomon Inc ("SI") and was incorporated
in 1987.
In connection with SBAM's service as subadviser to the Strategic Bond
Opportunities Series, SBAM's London based affiliate, Salomon Brothers Asset
Management Limited ("SBAM Limited"), Victoria Plaza, 111 Buckingham Palace
Road, London SW1W, OSB, England, serves as subadviser to SBAM relating to
currency transactions and investments in non-dollar denominated debt
securities for the benefit of the Salomon Brothers Strategic Bond
Opportunities Series. For these services, SBAM has agreed to compensate SBAM
Limited at the rate of one-third of the compensation payable to SBAM by TNE
Advisers, Inc. SBAM Limited is an indirect, wholly-owned subsidiary of SI.
SBAM Limited is a member of IMRO and is registered as an investment adviser in
the United States pursuant to the Investment Advisers Act of 1940.
Steven Guterman is primarily responsible for the day-to-day management of
the Salomon Brothers U.S. Government Series and the mortgage-backed securities
and U.S. Government securities portions of the Salomon Brothers Strategic Bond
Opportunities Series. Mr. Guterman co-manages the Salomon Brothers U.S.
Government Series with Roger Lavan. Peter J. Wilby is primarily responsible
for the day-to-day management of the High Yield and Emerging Market Debt
Securities portions of the Salomon Brothers Strategic Bond Opportunities
Series. Beth Semmel assists Mr. Wilby in the day-to-day management of the
Strategic Bond Opportunities Series. David Scott is primarily responsible for
the portion of the Salomon Brothers Strategic Bond Opportunities Series
relating to currency transactions and investments in non-dollar denominated
debt securities.
Mr. Guterman joined SBAM in 1990 and is currently a Managing Director and
Senior Portfolio Manager. He initially worked in the mortgage research group
where he became a Research Director and later traded derivative mortgage-
backed
31
<PAGE>
securities for Salomon Brothers Inc. Mr. Guterman joined Salomon Brothers Inc
in 1983. Mr. Lavan joined SBAM in 1990 and is a Director and Portfolio
Manager. Prior to joining SBAM, Mr. Lavan spent four years analyzing
portfolios for Salomon Brothers Inc.'s Fixed Income Sales Group and Product
Support Divisions. Mr. Wilby joined SBAM in 1989. Ms. Semmel joined SBAM in
May of 1993 and is a Director and Portfolio Manager. Prior to joining SBAM,
Ms. Semmel spent four years as a high yield bond analyst at Morgan Stanley
Asset Management. Mr. Scott has been with SBAM Limited since April, 1994 and
is a Director and Portfolio Manager. Previously, he was a portfolio manager
for J.P. Morgan Investment Management in London from 1990-94 where he was
responsible for global and non-dollar portfolios. Before joining J.P. Morgan,
Mr. Scott was employed by Mercury Asset Management where he had responsibility
for captive insurance portfolios and products.
FEES AND EXPENSES. TNE Advisers, Inc. is paid a management fee from the
Series it manages as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEE PAID BY SERIES TO
TNE ADVISERS, INC.
SERIES (% OF AVERAGE DAILY NET ASSETS)
------ --------------------------------
<S> <C>
Loomis Sayles Small Cap Series............ 1.00% of all assets
Draycott International Equity Series...... 0.90% of all assets
Alger Equity Growth Series................ 0.75% of all assets
Loomis Sayles Avanti Growth Series........ 0.70% of the first $200 million
0.65% of the next $300 million
0.60% of amounts in excess of
$500 million
Venture Value Series...................... 0.75% of all assets
Westpeak Value Growth Series.............. 0.70% of the first $200 million
0.65% of the next $300 million
0.60% of amounts in excess of
$500 million
Loomis Sayles Balanced Series............. 0.70% of all assets
Salomon Brothers Strategic Bond
Opportunities Series...................... 0.65% of all assets
Salomon Brothers U.S. Government Series... 0.55% of all assets
</TABLE>
SUB-ADVISORY FEES. TNE Advisers, Inc. pays each sub-adviser at the following
rates for providing sub-advisory services to the following Series:
<TABLE>
<CAPTION>
ANNUAL PERCENTAGE
RATES PAID BY TNE
ADVISERS TO THE
RESPECTIVE AVERAGE DAILY NET ASSET
SERIES SUB-ADVISERS VALUE LEVELS
------ ----------------- -----------------------
<S> <C> <C>
Loomis Sayles Small Cap
Series................. 0.55% of the first $25 million
0.50% of the next $75 million
0.45% of the next $100 million
0.40% of amounts in excess of $200 million
Draycott International
Equity Series.......... 0.75% of the first $10 million
0.60% of the next $40 million
0.45% of amounts in excess of $50 million
Alger Equity Growth Se-
ries................... 0.45% of the first $100 million
0.40% of the next $400 million
0.35% of amounts in excess of $500 million
Loomis Sayles Avanti
Growth Series.......... 0.50% of the first $25 million
0.40% of the next $75 million
0.35% of the next $100 million
0.30% of amounts in excess of $200 million
Venture Value Series.... 0.45% of the first $100 million
0.40% of the next $400 million
0.35% of amounts in excess of $500 million
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
ANNUAL PERCENTAGE
RATES PAID BY TNE
ADVISERS TO THE
RESPECTIVE AVERAGE DAILY NET ASSET
SERIES SUB-ADVISERS VALUE LEVELS
------ ----------------- -----------------------
<S> <C> <C>
Westpeak Value Growth
Series................. 0.50% of the first $25 million
0.40% of the next $75 million
0.35% of the next $100 million
0.30% of amounts in excess of $200 million
Loomis Sayles Balanced
Series................. 0.50% of the first $25 million
0.40% of the next $75 million
0.30% of amounts in excess of $100 million
Salomon Brothers Strate-
gic Bond Opportunities
Series................. 0.35% of the first $50 million
0.30% of the next $150 million
0.25% of the next $300 million
0.20% of amounts in excess of $500 million
Salomon Brothers U.S.
Government Series...... 0.225% of the first $200 million
0.150% of the next $300 million
0.100% of amounts in excess of $500 million
</TABLE>
VOLUNTARY EXPENSE AGREEMENT
Pursuant to a voluntary expense agreement relating to the Loomis Sayles
Avanti Growth and the Westpeak Value Growth Series, TNE Advisers, Inc. bears
the expenses (other than the advisory fees and any brokerage costs, interest,
taxes or extraordinary expenses) of the Series in excess of 0.15% of the
respective Series' average daily net assets. In the case of the Loomis Sayles
Small Cap Series, TNE Advisers, Inc. bears all the expenses (other than any
brokerage costs, interest, taxes or extraordinary expenses) of the Series in
excess of 1.00% of the Series' average daily net assets. Similar voluntary
expense agreements with The New England have been in effect with respect to
the Loomis Sayles Small Cap, Loomis Sayles Avanti Growth and Westpeak Value
Growth Series from December 1, 1994 through April 30, 1995. As a result of the
current voluntary expense agreements (and assuming the Series incur the same
level of advisory fees as in 1995 and no taxes, interest or extraordinary
expenses), the Series' expense ratios during this prospectus' effectiveness,
assuming the continuation of the voluntary expense agreement, are expected to
be:
<TABLE>
<CAPTION>
TOTAL EXPENSE RATIO
UNDER CURRENT VOLUNTARY
SERIES EXPENSE AGREEMENT
------ -----------------------
<S> <C>
Westpeak Value Growth Series....................... 0.85%
Loomis Sayles Small Cap Series..................... 1.00%
Loomis Sayles Avanti Growth Series................. 0.85%
</TABLE>
TNE Advisers, Inc. may terminate these expense agreements at any time. If
these expense agreements were terminated, the expense ratios would be higher.
Prior to November 1, 1994, The New England had agreed to pay the charges and
expenses of preparing, printing and distributing prospectuses and reports to
shareholders, custodial and transfer agent charges and expenses, auditing,
accounting and legal fees and certain other expenses in connection with the
affairs of the Fund and the expenses of shareholders' and trustees' meetings.
EXPENSE DEFERRAL ARRANGEMENT
Pursuant to an expense deferral arrangement in effect beginning November 1,
1994, relating to the Draycott International Equity Series, the Alger Equity
Growth Series, the Venture Value Series, the Loomis Sayles Balanced Series,
the Salomon Brothers Strategic Bond Opportunities Series and the Salomon
Brothers U.S. Government Series, which TNE Advisers, Inc. may terminate at any
time, TNE Advisers, Inc. has agreed to pay the expenses of the Series'
operations (exclusive of any brokerage costs, interest, taxes, or
extraordinary expenses) in excess of stated expense limits, which limits vary
from Series to Series, subject to the obligation of the Series to repay TNE
Advisers, Inc. such expenses in future years,
33
<PAGE>
if any, when a Series' expenses fall below the stated expense limit that
pertains to that Series; such deferred expenses may be charged to a Series in
a subsequent year to the extent that the charge does not cause the total
expenses in such subsequent year to exceed the Series' stated expense limit;
provided, however, that no Series is obligated to repay any expense paid by
TNE Advisers, Inc. more than two years after the end of the fiscal year in
which such expense was incurred. For the Draycott International Equity Series,
TNE Advisers, Inc. has agreed to defer such expenses in excess of 1.30% of net
assets until a subsequent year, if any, when total expenses are less than
1.30% of net assets; for the Alger Equity Growth Series, TNE Advisers, Inc.
has agreed to defer such expenses in excess of 0.90% of net assets until a
subsequent year, if any, when total expenses are less than 0.90% of net assets
(prior to January 1, 1996 the expense deferral arrangement had been limited to
0.85%); for the Venture Value Series, TNE Advisers, Inc. has agreed to defer
such expenses in excess of 0.90% of net assets until a subsequent year, if
any, when total expenses are less than 0.90% of net assets; for the Loomis
Sayles Balanced Series, TNE Advisers, Inc. has agreed to defer such expenses
in excess of 0.85% of net assets until a subsequent year, if any, when total
expenses are less than 0.85% of net assets; for the Salomon Brothers Strategic
Bond Opportunities Series, TNE Advisers, Inc. has agreed to defer such
expenses in excess of 0.85% of net assets until a subsequent year, if any,
when total expenses are less than 0.85% of net assets; for the Salomon
Brothers U.S. Government Series, TNE Advisers, Inc. has agreed to defer such
expenses in excess of 0.70% of net assets until a subsequent year, if any,
when total expenses are less than 0.70% of net assets. These expense limits
can be prospectively discontinued by TNE Advisers, Inc. but any expenses that
were deferred while a Series' expense limit was in place can never be charged
to that Series unless that Series' expenses fall below the limit.
ADDITIONAL INFORMATION ABOUT EXPENSES
The Series pay all expenses not borne by TNE Advisers, Inc., the subadvisers
or the Distributor, including, but not limited to, the charges and expenses of
the respective Series' custodian, independent auditors and legal counsel, all
brokerage commissions and transfer taxes in connection with portfolio
transactions, all taxes and filing fees, the fees and expenses for
registration or qualification of its shares under federal or state securities
laws, all expenses of shareholders' and trustees' meetings and preparing,
printing and mailing prospectuses and reports to shareholders and the
compensation of trustees of the Fund who are not directors, officers or
employees of The New England or its affiliates, other than affiliated
registered investment companies.
The Fund incurred total expenses during the one-year period ended December
31, 1995 as follows:
<TABLE>
<CAPTION>
TOTAL EXPENSES
(AS OF A PERCENTAGE OF
AVERAGE DAILY NET ASSETS)
FOR THE ONE YEAR PERIOD ENDED
SERIES DECEMBER 31, 1995
------ -----------------------------
<S> <C>
Loomis Sayles Small Cap Series.............. 1.00
Draycott International Equity Series........ 1.30
Alger Equity Growth Series.................. 0.85
Loomis Sayles Avanti Growth Series.......... 0.85
Venture Value Series........................ 0.90
Westpeak Value Growth Series................ 0.85
Loomis Sayles Balanced Series............... 0.85
Salomon Brothers Strategic Bond
Opportunities Series....................... 0.85
Salomon Brothers U.S. Government Series..... 0.70
</TABLE>
34
<PAGE>
If the voluntary expense agreement and expense deferral arrangement
described above had not been in effect, the Series' expenses for the one year
period ended December 31, 1995 would have been:
<TABLE>
<CAPTION>
TOTAL EXPENSES
(AS A PERCENTAGE OF
AVERAGE DAILY NET ASSETS)
WITHOUT VOLUNTARY EXPENSE AGREEMENT
OR EXPENSE DEFERRAL ARRANGEMENT
FOR THE ONE YEAR PERIOD ENDED
SERIES DECEMBER 31, 1995
------ -----------------------------------
<S> <C>
Loomis Sayles Small Cap Series........ 1.91
Draycott International Equity Series.. 3.12
Alger Equity Growth Series............ 2.45
Loomis Sayles Avanti Growth Series.... 1.06
Venture Value Series.................. 1.51
Westpeak Value Growth Series.......... 1.06
Loomis Sayles Balanced Series......... 1.85
Salomon Brothers Strategic Bond
Opportunities Series................. 2.44
Salomon Brothers U.S. Government
Series............................... 2.90
</TABLE>
These expense figures do not include portfolio brokerage commission, which
are not deducted from the Series' assets in the same manner as other charges
and expenses; rather, brokerage commissions are part of the purchase price
paid for portfolio securities and reduce the proceeds received on the sale of
portfolio securities.
For the one-year period ended December 31, 1995, the Loomis Sayles Small Cap
Series paid $97,195 in brokerage commissions, the Draycott International
Equity Series paid $82,922 in brokerage commissions, the Alger Equity Growth
Series paid $69,052 in brokerage commissions, the Loomis Sayles Avanti Growth
Series paid a total of $72,377 in brokerage commissions, the Venture Value
Series paid a total of $40,523 in brokerage commissions, the Westpeak Value
Growth Series paid a total of $61,252 in brokerage commissions, the Loomis
Sayles Balanced Series paid a total of $44,131 in brokerage commissions on its
common stock portfolio transactions. These brokerage commissions equaled 0.66%
of the Loomis Sayles Small Cap Series' average net assets, 0.87% of the
Draycott International Equity Series' average net assets, 0.33% of the Alger
Equity Growth Series' average net assets, 0.19% of the Loomis Sayles Avanti
Growth Series' average net assets, 0.23% of the Venture Value Series' average
net assets, 0.18% of the Westpeak Value Growth Series' average net assets, and
0.47% of the Loomis Sayles Balanced Series' average net assets. The Alger
Equity Growth Series may pay brokerage commissions to a brokerage firm
affiliated with the Series' subadviser. Portfolio transactions of the Salomon
Brothers Strategic Bond Opportunities Series, Salomon Brothers U.S. Government
Series and portfolio transactions of the Loomis Sayles Balanced Series in
bonds, notes and money market instruments are generally on a net basis without
a stated commission.
MISCELLANEOUS ARRANGEMENTS
The Series' adviser has contracted with New England Funds, L.P. to provide
executive and other personnel for the administration of Fund affairs. Subject
to procedures adopted by the Fund's Board of Trustees, Fund brokerage
transactions may be executed by brokers that are affiliated with any adviser
or subadviser.
Fund shares are offered through New England Securities, 399 Boylston Street,
Boston, Massachusetts 02116, the principal underwriter for the Fund. New
England Securities is a wholly-owned subsidiary of The New England.
SALE AND REDEMPTION OF SHARES
Shares of each Series are purchased or redeemed depending, among other
things, on the amount of premium payments invested and the surrender and
transfer requests effected on any given day pursuant to the variable life
insurance and variable annuity contracts supported by the Fund. Such
transactions can be made only on those days during which the New York Stock
Exchange is open for trading. Purchases and redemptions of Fund shares are
effected at the net asset value per share determined as of the close of
regular trading on the New York Stock Exchange on the day such purchase order
or redemption request is received.
35
<PAGE>
The Fund may suspend the right of redemption for any Series and may postpone
payment for any period when the New York Stock Exchange is closed for other
than weekends or holidays, or, if permitted by the rules of the SEC, during
periods when trading on the New York Stock Exchange is restricted or during an
emergency which makes it impracticable for a Series to dispose of securities
or fairly to determine the value of its net assets, or during any other period
permitted by the SEC for the protection of investors.
NET ASSET VALUES AND PORTFOLIO VALUATION
Loomis Sayles, Draycott, Alger Management, Davis Selected, Westpeak and
SBAM, under the direction of the Board of Trustees, determine the value of
each Series' securities under the direction of the Fund's Board of Trustees.
The net asset value of each Series' shares is determined as of the close of
regular trading on the New York Stock Exchange each day it is open. Each
Series' total net assets are divided by the number of outstanding shares of
that Series to determine the net asset value per share for that Series.
Portfolio securities of each Series are valued at market value where current
market quotations are readily available and otherwise are taken at fair value
as determined in good faith by the Board of Trustees, although the actual
calculations may be made by persons acting pursuant to the direction of the
Board.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
It is the policy of each Series to pay annually as dividends substantially
all net investment income and to distribute annually all net realized capital
gains, if any, after offsetting any capital loss carryovers. See "Taxes."
Dividends from net investment income may be paid more or less often if the
Board of Trustees deems it appropriate.
Federal income tax law requires each Series to distribute prior to calendar
year end virtually all of its ordinary income for such year and virtually all
of the capital gain net income realized by the Series in the one-year period
ending October 31 (or December 31, if the Series so elects) of such year and
not previously distributed.
Dividends and distributions of each Series are automatically reinvested in
shares of the respective Series.
TAXES
Each Series is treated as a separate taxable entity for federal income tax
purposes and intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended. So long as a Series distributes all
of its net investment income and net capital gains to its shareholders, the
Series itself does not pay any federal income tax. Dividends from net
investment income of each of the Series and distributions of each Series' net
short-term gains, if any, are ordinary income to its shareholders.
Distributions of any Series' net realized long-term capital gains, if any, are
long-term capital gains to its shareholders. Whether or not taxes must be paid
by the shareholders of a Series on distributions received from that Series
will depend on the tax status of NEVLICO's or The New England's separate
accounts and the tax status of any other shareholders. For the purposes of the
foregoing, each Series' shareholders are the separate accounts investing
directly in the Fund and are not the owners of the variable life insurance or
variable annuity contracts for which the Fund serves as an investment vehicle.
For a description of the tax consequences for such contract owners, see the
relevant prospectus applicable to such contracts.
ORGANIZATION AND CAPITALIZATION OF THE FUND
The Fund was originally organized in 1983 as a Massachusetts corporation and
was reorganized into a Massachusetts business trust on February 27, 1987. The
Fund is registered as a diversified, open-end management company under the
1940 Act and is authorized to issue an unlimited number of shares of each
Series. Shareholders may address inquiries about the Fund to New England
Securities, 399 Boylston Street, Boston, Massachusetts 02116.
36
<PAGE>
As of the date of this prospectus, all of the outstanding voting securities
of the Fund are owned by separate accounts of The New England and/or NEVLICO,
and may, from time to time, be owned by those separate accounts and the
general account of The New England. Therefore, The New England and NEVLICO are
presumed to be in control (as that term is defined in the 1940 Act) of the
Fund. However, the staff of the SEC is presently of the view that The New
England and NEVLICO are each required to vote their Fund shares that are held
in a separate account that is a registered investment company under the 1940
Act (and, to the extent voting privileges are granted by the issuing insurance
company, in unregistered separate accounts) in the same proportion as the
voting instructions received from owners of the variable life insurance or
variable annuity contracts issued by the separate account, and that The New
England is required to vote any shares held in its general account (or in any
unregistered separate account that does not have voting privileges) in the
same proportion as all other Fund shares are voted. The New England and
NEVLICO currently intend to vote their shares in a manner consistent with this
view.
The Fund does not generally hold annual meetings of shareholders and will
hold shareholders meetings only when required by law. Shareholders may remove
trustees from office by votes cast at a shareholder meeting or by written
consent.
TRANSFER AGENT
The transfer agent and the dividend paying agent for the Fund is The New
England, 501 Boylston Street, Boston, Massachusetts 02116.
VOTING RIGHTS
Fund shareholders are entitled to one vote for each full share held (with
fractional votes for fractional shares held). NEVLICO and The New England are
the legal owners of shares attributable to variable life insurance and
variable annuity contracts issued by their separate accounts, and have the
right to vote those shares. Pursuant to the current view of the SEC staff,
NEVLICO and The New England will vote their shares in accordance with
instructions received from owners of variable life insurance and variable
annuity contracts issued by separate accounts that are registered under the
1940 Act. All Fund shares held by separate accounts of NEVLICO and The New
England that are registered under the 1940 Act (and, to the extent voting
privileges are granted by the issuing insurance company, by unregistered
separate accounts) for which no timely instructions are received will be voted
for, voted against or withheld from voting on any proposition in the same
proportion as the shares held in that separate account for all contracts for
which voting instructions are received. All Fund shares held by the general
investment account (or any unregistered separate account that does not have
voting privileges) of NEVLICO or The New England will be voted in the same
proportion as the aggregate of (i) the shares for which voting instructions
are received and (ii) the shares that are voted in proportion to such voting
instructions.
37
<PAGE>
APPENDIX A
RATINGS OF SECURITIES
Description of Moody's Investors Service, Inc. corporate bond ratings:
Aaa, Aa, A--Bonds which are rated AAA or Aa are judged to be of high quality
by all standards and are generally known as high grade bonds. Bonds rated Aa
are rated lower than Aaa securities because margins of protection may not be
as large as in the latter or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in Aaa securities. Bonds which are
rated A possess many favorable investment attributes and are to be considered
as upper medium grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered medium grade obligations,
i.e., they are neither higher protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in
high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
Description of Standard & Poor's Ratings Group corporate bond ratings:
AAA, AA, A--Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong. Bonds rated AA have a very strong capacity to pay interest
and repay principal and differ from the highest rated issues only in small
degree. Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in high rated
categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to repay principal and pay
interest for bonds in this category than for bonds in higher rated categories.
BB-B-CCC-CC--Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
CI--The rating CI is reserved for income bonds on which no income is being
paid.
D--Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
38
NEW ENGLAND ZENITH FUND
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1996
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information relates to the Prospectus dated
May 1, 1996, and should be read in conjunction therewith. A copy of
the Prospectus may be obtained from New England Securities
Corporation, 399 Boylston Street, Boston, Massachusetts 02116.
TABLE OF CONTENTS
Page
Investment Objectives and Policies 3
Miscellaneous Investment Practices 9
Determination of Net Asset Values 21
Fund Performance 23
Trustees and Officers 31
Advisory Arrangements 33
Distribution Agreement 43
Other Services 43
Portfolio Transactions and Brokerage 44
Description of the Fund 47
Appendix A-1 (Description of Bond Ratings) 50
Appendix A-2 (Description of Commercial Paper Ratings) 53
Appendix B 54
Appendix C Financial Statements and Report of Independent
Accountants 55
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of each Series
(collectively and individually the "Series") of New England Zenith
Fund (the "Fund") are summarized on the front page of the Prospectus
and in the text of the Prospectus following the caption "Investment
Objectives and Policies." There can be no assurance that any of the
Series will achieve its objective. The investment policies of each
Series set forth in the Prospectus and in this Statement of Additional
Information may be changed without shareholder approval, except for
any policy as to which the Prospectus or this Statement of Additional
Information explicitly indicates that such approval is required, and
except for the investment objectives of the Money Market, Bond Income,
Capital Growth, Value Growth, Avanti Growth, Stock Index, Managed and
Small Cap Series, which have fundamental investment objectives.
The terms "shareholder approval" and "approval of a majority of
the outstanding voting securities," as used in the Prospectus and this
Statement of Additional Information, mean, with respect to a Series,
approval by the lesser of (i) 67% of the shares of the Series
represented at a meeting at which more than 50% of the outstanding
shares of such Series are represented or (ii) more than 50% of the
outstanding shares of such Series.
Loomis Sayles Small Cap Series
As indicated in the Prospectus following the caption "Investment
Objective and Policies -- Loomis Sayles Small Cap Series," the Loomis
Sayles Small Cap Series seeks to attain its investment objective of
long-term capital growth through investments in common stocks or their
equivalent.
Loomis Sayles, the Series' subadviser, manages the Series by
investing primarily in stocks of small cap companies with good
earnings growth potential that Loomis Sayles believes are undervalued
by the market. Typically, such companies range in size from $100
million to $500 million in market capitalization, have better than
average growth rates at below average price/earnings ratios and have
strong balance sheets and cash flow. Loomis Sayles seeks to build a
core small cap portfolio of solid growth company stocks, with a
smaller emphasis on special situations and turnarounds (companies that
have experienced signficiant business problems but which Loomis Sayles
believes have favorable prospects for recovery), as well as
unrecognized stocks.
Under unusual market conditions as determined by Loomis Sayles,
all or any portion of the Series may be invested, for temporary,
defensive purposes, in short-term debt instruments or in cash. In
addition, under normal conditions, a portion of the Series' assets may
be invested in short-term assets for liquidity purposes or pending
investment in other securities. Short-term investments may include
U.S. Government securities, certificates of deposit, commercial paper
and other obligations of corporate issuers rated in the top two rating
categories by a major rating agency or, if unrated, determined to be
of comparable quality by the subadviser, and repurchase agreements
that are fully collateralized by cash, U.S. Government securities or
high-quality money market instruments.
Draycott International Equity Series
As disclosed in the Prospectus under the caption "Investment
Objectives and Policies -- Draycott International Equity Series," the
Draycott International Equity Series seeks to attain its investment
objective of total return from long-term growth of capital primarily
through investment in international equity securities.
Alger Equity Growth Series
As disclosed in the Prospectus under the caption "Investment
Objectives and Policies -- Alger Equity Growth Series," the Alger
Equity Growth Series seeks to attain its investment objective of long-
term capital appreciation by investing primarily in a diversified,
actively managed portfolio of equity securities, primarily of
companies having a total market capitalization of $1 billion or
greater. These companies may still be in the developmental stage,
may be older companies that appear to be entering a new stage of
growth progress, or may be companies providing products or services
with a high unit volume growth rate.
Capital Growth Series
As disclosed in the Prospectus under the caption "Investment
Objectives and Policies -- Capital Growth Series," the Capital Growth
Series seeks to attain its investment objective of 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. The selection of common stocks for the Capital Growth
Series' investment portfolio is based on the assessment of the Series'
adviser, Capital Growth Management Limited Partnership ("CGM"), that
the common stock is attractively priced relative to its earnings and
growth potential.
The Series does not consider current income as a significant
factor in selecting its investments. However, during periods when
management considers that economic or market conditions make it
desirable, the Series may take a defensive position by investing a
substantial portion of its assets in cash or fixed-income securities
(bonds, notes and money market instruments). No estimate can be made
as to when or for how long the Series will employ such defensive
strategies; however, in the past, such periods have been as long as
one year.
The Capital Growth Series does not currently intend to invest in
restricted securities, options or warrants although, subject to its
investment restrictions, it may do so in the future. See "Investment
Restrictions."
Although the Capital Growth Series' objective is long-term
capital growth, it frequently sells securities to reflect changes in
market, industry or individual company conditions or outlook even
though it may only have held those securities for a short period. As
a result of these policies, the Capital Growth Series, under certain
market conditions, may experience high portfolio turnover, although
specific portfolio turnover rates are impossible to predict. In
recent years, the portfolio turnover rate of the Capital Growth Series
has fluctuated considerably as a result of strategic shifts in
portfolio holdings designed to maintain an optimum portfolio structure
in view of general market conditions and movements in individual stock
prices.
Loomis Sayles Avanti Growth Series
As disclosed in the Prospectus under the caption "Investment
Objectives and Policies -- Loomis Sayles Avanti Growth Series," the
Loomis Sayles Avanti Growth Series seeks to attain its investment
objective of long-term growth of capital through ordinarily investing
substantially all of its assets in equity securities. Investments are
selected by the Series' subadviser, Loomis, Sayles & Company, L.P.
("Loomis Sayles"), based on their growth potential; current income is
not a consideration.
Although the Loomis Sayles Avanti Growth Series' objective is
long-term capital growth, it may sell securities to reflect changes in
Loomis Sayles' assessment of the relative attractiveness of particular
investments. As a result, the Loomis Sayles Avanti Growth Series,
under certain market conditions, may experience high portfolio
turnover. High portfolio turnover involves correspondingly higher
brokerage commissions than would be experienced by a similar fund with
lower turnover. In addition, the Series may invest cash temporarily
in money market instruments and related repurchase agreements, as
described below under "Miscellaneous Investment Practices--Money
Market Instruments."
Venture Value Series
As disclosed in the Prospectus under the caption "Investment
Objectives and Policies -- Venture Value Series," the Venture Value
Series seeks to attain its investment objective of growth of capital
by investing in domestic common stocks that the Series' subadviser
believes have capital growth potential due to factors such as
undervalued assets or earnings potential, product development and
demand, favorable operating ratios, resources for expansion,
management abilities, reasonableness of market price, and favorable
overall business prospects. The Series will generally invest
predominantly in equity securities of companies with market
capitalizations of at least $250 million. It may also invest in
issues with smaller capitalizations.
Westpeak Value Growth Series
As disclosed in the Prospectus under the caption "Investment
Objectives and Policies -- Westpeak Value Growth Series," the Westpeak
Value Growth Series seeks long-term total return (capital appreciation
and dividend income) through investment in equity securities, both in
securities that the Series' subadviser, Westpeak Investment Advisors,
L.P. ("Westpeak"), believes are undervalued ("value" style) and
securities of companies that Westpeak believes have growth potential
("growth" style). The Westpeak Value Growth Series will ordinarily
invest substantially all of its assets in equity securities.
Although the Westpeak Value Growth Series' objective is long-term
total return, it may sell securities to reflect changes in Westpeak's
assessment of the relative attractiveness of particular investments.
As a result, the Westpeak Value Growth Series, under certain market
conditions, may experience high portfolio turnover. High portfolio
turnover involves correspondingly higher brokerage commissions than
would be experienced by a similar fund with lower turnover.
The assets of the Westpeak Value Growth Series that are not
invested in equity securities will be held in cash or invested as
described below under "Miscellaneous Investment Practices--Money
Market Instruments."
Westpeak Stock Index Series
As disclosed in the Prospectus under the caption "Investment
Objectives and Policies -- Westpeak Stock Index Series," the Westpeak
Stock Index Series uses the Standard & Poor's 500 Composite Stock
Index ("S&P 500 Index") as the standard of performance comparison
because that index currently represents a significant percentage of
the total market value of all United States publicly traded common
stocks, is well known to investors, and is commonly regarded as
representative of the performance of United States publicly traded
common stocks taken as a whole.
The S&P 500 Index is composed of 500 common stocks, most of which
are listed on the New York Stock Exchange. Standard & Poor's, which
is not a sponsor of or in any other way affiliated with the Series,
chooses the 500 stocks included in the S&P 500 Index on the basis of
market value and industry diversification. The S&P 500 Index assigns
relative values to the stocks included in the index, weighted
according to each stock's total market value relative to the total
market value of the other stocks included in the index. The stocks
included in the S&P 500 Index may change from time to time.
The Westpeak Stock Index Series is not managed through
traditional methods of investment management, which typically attempt
to use economic, financial and market analysis to select undervalued
stocks or stocks of companies that may experience above-average
growth, nor will the adverse financial situation of a company
necessarily result in the elimination of its stock from the Westpeak
Stock Index Series' portfolio. As described in the Prospectus, stocks
will be selected in an attempt to approximate the performance of the
S&P 500 Index and to minimize tracking error. From time to time,
adjustments may be made in the Westpeak Stock Index Series' investment
portfolio, but such changes should be infrequent compared to those of
most management investment companies. Westpeak currently expects that
such adjustments will ordinarily be made on a monthly basis, but such
adjustments could be made more or less frequently, depending on
changes in the size of the Westpeak Stock Index Series, among other
factors. As a consequence of the relative infrequency of portfolio
adjustments, brokerage and other transaction costs are expected to be
relatively low. However, these costs and other expenses may cause the
return of the Westpeak Stock Index Series to be lower than the return
of the S&P 500 Index. In addition, the relative infrequency of
portfolio adjustments may result in increased tracking error, to the
extent that new cash that has come into the Series is held, or
invested in money market instruments and repurchase agreements,
pending the next portfolio adjustment, rather than invested
immediately in common stocks included in the S&P 500 Index.
It is the Westpeak Stock Index Series' policy to be fully
invested in common stocks. However, the Westpeak Stock Index Series
may hold a portion of its assets, which will not exceed 5% (not
including additional cash that has come into the Series and is pending
investment in common stocks), in cash to meet redemptions and other
day-to-day operating expenses. The Series may also engage in futures
transactions to reduce tracking error. In addition, the Westpeak
Stock Index Series may invest cash temporarily in money market
instruments and repurchase agreements, as described below under
"Miscellaneous Investment Practices -- Money Market Instruments".
Such temporary investments will only be made with cash held to
maintain liquidity or pending investment, and will not be made for
defensive purposes in the event or in anticipation of a general
decline in the market prices of stocks in which the Series invests. A
defensive investment posture is precluded by the Westpeak Stock Index
Series' investment objective to provide investment results that
correspond to the price and yield performance of a universe of common
stocks. Investors in the Westpeak Stock Index Series therefore bear
the risk of general declines in stock prices in the stock markets.
The index that the Westpeak Stock Index Series uses as a standard
of comparison in seeking to achieve its objective may be changed
without shareholder approval. At some time in the future, another
index may be selected if such a standard of comparison is deemed more
appropriate than the S&P 500 Index as an indicator of the performance
of United States publicly traded common stocks.
Loomis Sayles Balanced Series
As disclosed in the Prospectus under the caption "Investment
Objectives and Policies -- Loomis Sayles Balanced Series," the Loomis
Sayles Balanced Series seeks to attain its investment objective of
reasonable long-term investment return from a combination of long-term
capital appreciation and moderate current income.
The Series is "flexibly managed" in that sometimes it invests
more heavily in equity securities and at other times it invests more
heavily in fixed-income securities, depending on its subadviser's view
of the economic and investment outlook. Most of the Series'
investments are normally in dividend-paying common stocks of
recognized investment quality that are expected to achieve growth in
earnings and dividends over the long-term. Fixed-income securities
include notes, bonds, non-convertible preferred stock and money market
instruments. The Series may invest in adjustable rate mortgage
securities, asset-backed securities, STRIPS and inverse floaters,
subject to a limit of 5% of the Series' assets for each of these types
of instruments. The Series invests at least 25% of its assets in
fixed-income senior securities and, under normal market conditions,
more than 50% of its assets in equity securities. The Series also may
invest in foreign securities.
Back Bay Advisors Managed Series
As indicated in the Prospectus following the caption "Investment
Objective and Policies -- Back Bay Advisors Managed Series," the Back
Bay Advisors Managed Series' investment portfolio will generally
contain a mix of (1) common stocks, (2) notes and bonds and (3) money
market instruments. Each of these categories of investments involves
certain risks.
The text of the Prospectus following the caption "Investment
Objective and Policies -- Back Bay Advisors Money Market Series,"
contains a description of the money market instruments and related
repurchase agreements in which the Back Bay Advisors Managed Series
may invest; for a fuller description, see "Miscellaneous Investment
Practices--Money Market Instruments," below.
The portion of the Back Bay Advisors Managed Series' investment
portfolio consisting of notes and bonds will be invested in bonds of
the types in which the Back Bay Advisors Bond Income Series is
permitted to invest. These investments may include both bonds in the
four highest rating categories of Moody's or Standard & Poor's (which
are described in Appendix A-1 hereto) and lesser rated or non-rated
bonds (the risks associated with which are described in the Prospectus
under "Investment Objectives and Policies -- Back Bay Advisors Bond
Income Series"). The Series will purchase and sell securities for the
bond portion of its portfolio in anticipation of or in response to
changes in yield relationships, markets or economic conditions. The
bond portion of the Series' investment portfolio will also be invested
to take advantage of temporary disparities in the relative values of
certain sectors of the market for fixed-income securities. As a
result of these policies, the bond portion of the Series' portfolio,
under certain market conditions, may experience high portfolio
turnover.
Because the securities in its portfolio are subject to price
declines as well as price advances, at times the net asset value per
Back Bay Advisors Managed Series share may be less than a
shareholder's original cost. There can be no assurance that the Back
Bay Advisors Managed Series' investment objective will be attained.
Salomon Brothers Strategic Bond Opportunities Series
As disclosed in the Prospectus under the caption "Investment
Objectives and Policies -- Salomon Brothers Strategic Bond
Opportunities Series," the Salomon Brothers Strategic Bond
Opportunities Series seeks to attain its investment objective of a
high level of total return consistent with preservation of capital by
assessing the relative risks and opportunities available in various
market segments and allocating assets primarily among U.S. Government
obligations, mortgage backed securities, domestic corporate debt and
international debt securities rated investment grade (BBB or higher
by S&P or Baa or higher by Moody's) and domestic and sovereign
corporate debt and international debt securities rated below
investment grade.
Back Bay Advisors Bond Income Series
The text of the Prospectus following the caption "Investment
Objectives and Policies -- Back Bay Advisors Bond Income Series" gives
a description of the securities in which the Back Bay Advisors Bond
Income Series may invest. Although at least 80% of the Series' bond
investments will carry investment grade ratings (see Appendix A-1)
from one of the recognized rating services, the Series may purchase
nonrated or lower-rated bonds, which may be traded only over-the-
counter. Nonrated bonds are so categorized because the bond's rating
has been suspended or because the issuer did not seek a rating of the
bonds from Moody's or Standard & Poor's.
As described in the Prospectus, the average maturity of the Back
Bay Advisors Bond Income Series' portfolio will usually be between
five and fifteen years. Depending on market conditions, the Back Bay
Advisors Bond Income Series may take a defensive position by investing
a substantial portion of its assets in the money market instruments
eligible for purchase by the Back Bay Advisors Money Market Series.
No estimate can be made as to when or for how long the Series would
employ such defensive strategies.
The Back Bay Advisors Bond Income Series purchases and sells
portfolio investments in anticipation of or in response to changes in
yield relationships, markets or economic conditions. The Back Bay
Advisors Bond Income Series also invests to take advantage of
temporary disparities in the relative values of certain sectors of the
market for fixed-income securities. As a result of these policies,
the Back Bay Advisors Bond Income Series, under certain market
conditions, may experience high portfolio turnover, although specific
portfolio turnover rates are impossible to predict.
Since levels of interest rates vary from time to time, there can
be no assurance as to the Back Bay Advisors Bond Income Series'
current income for any particular period. Moreover, since all
securities are subject to price declines as well as price advances, at
times the net asset value per Back Bay Advisors Bond Income Series
share may be less than a shareholder's original cost. In recent
years, prices for fixed-income securities have generally been more
volatile than they were in prior periods, and this has increased the
market risk of holding such securities.
Salomon Brothers U.S. Government Series
As disclosed in the Prospectus under the caption "Investment
Objectives and Policies -- Salomon Brothers U.S. Government Series,"
the Salomon Brothers U.S. Government Series seeks to attain its
investment objective of providing a high level of current income
consistent with preservation of capital and maintenance of liquidity
by investing primarily in debt obligations and, to the extent allowed
by state law and regulation, in mortgage backed securities issued or
guaranteed by the U. S. Government its agencies, authorities or
instrumentalities or derivative securities such as collateralized
mortgage obligations ("CMOs") backed by such securities.
Back Bay Advisors Money Market Series
The text of the Prospectus following the caption "Investment
Objectives and Policies -- Back Bay Advisors Money Market Series"
gives a description of the money market instruments in which the Back
Bay Advisors Money Market Series may invest. For a fuller description
of those money market instruments and some of the risks relating
thereto, see "Money Market Instruments," below. The Back Bay Advisors
Money Market Series will invest only in securities which the Series'
subadvisers, Back Bay Advisors, L.P. ("Back Bay Advisors"), acting
pursuant to guidelines established by the Fund's Board of Trustees has
determined are of high quality and present minimal credit risk.
As indicated in the Prospectus, all the Back Bay Advisors Money
Market Series' money market instruments mature in less than 397 days
and the average maturity of the Back Bay Advisors Money Market Series'
portfolio securities based on their dollar value will not exceed 90
days at the time of each investment. Money market instruments
maturing in less than 397 days tend to yield less than obligations of
comparable quality having longer maturities. See "Valuation of
Portfolio Securities" and "Fund Performance." Where obligations of
greater than one year are used to secure the Back Bay Advisors Money
Market Series' repurchase agreements, the repurchase agreements
themselves will have very short maturities. If the disposition of a
portfolio security results in a dollar-weighted average portfolio
maturity in excess of 90 days, the Back Bay Advisors Money Market
Series will invest its available cash in such a manner as to reduce
its dollar-weighted average portfolio maturity to 90 days or less as
soon as reasonably practicable.
In seeking to provide the highest possible level of current
income consistent with preservation of capital, the Back Bay Advisors
Money Market Series may not necessarily invest in money market
instruments paying the highest available yield at a particular time.
The Back Bay Advisors Money Market Series, consistent with its
investment objective, attempts to maximize income by engaging in
portfolio trading and by buying and selling portfolio investments in
anticipation of or in response to changing economic and money market
conditions and trends. The Series may also invest to take advantage
of what are believed to be temporary disparities in the yields of
different segments of the high grade money market or among particular
instruments within the same segment of the market. These policies, as
well as the relatively short maturity of obligations to be purchased
by the Series, may result in frequent changes in the Series'
investment portfolio of money market instruments.
The value of the securities in the Series' investment portfolio
can be expected to vary inversely to changes in prevailing interest
rates. Thus, if interest rates increase after a security is
purchased, that security, if sold, might be sold at less than cost.
Conversely, if interest rates decline after purchase, the security, if
sold, might be sold at a profit. In either instance, if the security
were held to maturity, no gain or loss would normally be realized as a
result of these fluctuations. Substantial redemptions of shares of
the Back Bay Advisors Money Market Series could require the sale of
portfolio investments at a time when a sale might not be desirable.
MISCELLANEOUS INVESTMENT PRACTICES
The following information relates to certain investment practices
in which certain Series may engage. The table indicates which Series
may engage in each of these practices.
<TABLE>
<S> <C>
Practices Series
Money Market Instruments All Series
U.S. Government Securities All Series
Convertible Securities Draycott International Equity Series
Alger Equity Growth Series
Capital Growth Series
Loomis Sayles Avanti Growth Series
Loomis Sayles Balanced Series
Back Bay Advisors Managed Series
Salomon Brothers Strategic Bond
Opportunities Series
Back Bay Advisors Bond Income Series
Reverse Repurchase Agreements and Dollar Rolls
Salomon Brothers Strategic Bond Opportunities
Series
Salomon Brothers U.S. Government Series
Loans of Portfolio Securities Alger Equity Growth Series
Venture Value Series
Back Bay Advisors Managed Series
Salomon Brothers Strategic Bond
Opportunities Series
Back Bay Advisors Bond Income Series
Salomon Brothers U.S. Government
Series
Privately-Issued Mortgage Securities Salomon Brothers Strategic Bond
Opportunities Series
Salomon Brothers U.S. Government
Series
Asset-Backed Securities; Types of Loomis Sayles Balanced Series
Credit Support Salomon Brothers Strategic Bond
Opportunities Series
Salomon Brothers U.S. Government
Series
STRIPS Loomis Sayles Balanced Series
Salomon Brothers Strategic Bond
Opportunities Series
Salomon Brothers U.S. Government
Series
Stripped Mortgage Securities Salomon Brothers Strategic Bond
Opportunities Series
Salomon Brothers U.S. Government
Series
Loomis Sayles Balanced Series
Swaps, Caps, Floors, Collars, Etc. Salomon Brothers Strategic Bond
Opportunities Series
Eurodollar Futures and Options Salomon Brothers Strategic Bond
Opportunities Series
Salomon Brothers U.S. Government
Series
High Yield/High Risk Foreign Sovereign Salomon Brothers Strategic Bond
Debt Securities Opportunities Series
Futures and Options Draycott International Equity
Series
Venture Value Series
Westpeak Value Growth Series
Westpeak Stock Index Series
Loomis Sayles Balanced Series
Back Bay Advisors Managed Series
Salomon Brothers Strategic Bond
Opportunities Series
Salomon Brothers U.S. Government
Series
Foreign Currency Hedging Transactions Draycott International Equity
Series
Venture Value Series
Salomon Brothers Strategic Bond
Opportunities Series
</TABLE>
Money Market Instruments - Obligations of foreign branches of U.S.
banks and other foreign securities are subject to risks of foreign
political, economic and legal developments, which include foreign
governmental restrictions adversely affecting payment of principal and
interest on the obligations, foreign withholding and other taxes on
interest income, and difficulties in obtaining and enforcing a
judgment against a foreign branch of a domestic bank. With respect to
bank obligations, different risks may result from the fact that
foreign banks are not necessarily subject to the same or similar
regulatory requirements that apply to domestic banks. For instance,
such branches may not be subject to the types of requirements imposed
on domestic banks with respect to mandatory reserves, loan
limitations, examinations, accounting, auditing, recordkeeping and the
public availability of information. Obligations of such branches will
be purchased by the Series only when the Series' adviser or subadviser
believes the risks are minimal.
The following constitutes a description of the money market
instruments which may be purchased by the Back Bay Advisors Money
Market Series, and by any of the Series for temporary defensive
purposes.
U.S. Government Securities -- are bills, certificates of
indebtedness, notes and bonds issued by agencies, authorities and
instrumentalities of the U.S. Government. Some obligations, such as
those issued by the U.S. Treasury, the Government National Mortgage
Association, the Farmers' Home Administration and the Small Business
Administration, are backed by the full faith and credit of the U.S.
Treasury. Other obligations are backed by the right of the issuer to
borrow from the U.S. Treasury or by the credit of the agency,
authority or instrumentality itself. Such obligations include, but
are not limited to, obligations issued by the Tennessee Valley
Authority, the Bank for Cooperatives, Federal Home Loan Banks, Federal
Intermediate Credit Banks, Federal Land Banks and the Federal National
Mortgage Association.
Repurchase Agreements -- are agreements by which a Series
purchases a security (usually a U.S. Government Security) and obtains
a simultaneous commitment from the seller (a member bank of the
Federal Reserve System or, to the extent permitted by the 1940 Act, a
recognized securities dealer) to repurchase the security at an agreed
upon price and date. The resale price is in excess of the purchase
price and reflects an agreed upon market rate unrelated to the coupon
rate on the purchased security. Such transactions afford the Series
the opportunity to earn a return on temporarily available cash at
minimal market risk. While the underlying security may be a bill,
certificate of indebtedness, note or bond issued by an agency,
authority or instrumentality of the United States Government, the
obligation of the seller is not guaranteed by the U.S. Government and
there is a risk that the seller may fail to repurchase the underlying
security. In such event, the Series may be able to exercise rights
with respect to the underlying security, including possible
disposition of the security in the market. However, the Series may be
subject to various delays and risks of loss, including (a) possible
declines in the value of the underlying security during the period
while the Series seeks to enforce its rights thereto, (b) possible
reduced levels of income and lack of access to income during this
period and (c) inability to enforce rights and the expenses involved
in attempted enforcement.
Certificates of Deposit -- are certificates issued against funds
deposited in a bank, are for a definite period of time, earn a
specified rate of return and are normally negotiable.
Bankers' Acceptances -- are short-term credit instruments used to
finance the import, export, transfer or storage of goods. They are
termed "accepted" when a bank guarantees their payment at maturity.
Eurodollar Obligations -- are obligations of foreign branches of
U.S. banks.
Commercial Paper -- refers to promissory notes issued by
corporations in order to finance their short-term credit needs. For a
description of commercial paper ratings see Appendix A-1.
U.S. Government Securities - The Series may invest in some or
all of the following U.S. Government Securities, as well as in other
types of securities issued or guaranteed by the U.S. Government or
its agencies, authorities or instrumentalities:
. U.S. Treasury Bills - Direct obligations of the United States
Treasury which are issued in maturities of one year or less. No
interest is paid on Treasury bills; instead, they are issued at a
discount and repaid at full face value when they mature. They are
backed by the full faith and credit of the United States Government.
. U.S. Treasury Notes and Bonds - Direct obligations of the United
States Treasury issued in maturities that vary between one and 40
years, with interest normally payable every six months. These
obligations are backed by the full faith and credit of the United
States Government.
. "Ginnie Maes" - Debt securities issued by a mortgage banker or
other mortgagee which represent an interest in a pool of mortgages
insured by the Federal Housing Administration or the Farmer's Home
Administration or guaranteed by the Veterans Administration. The
Government National Mortgage Association ("GNMA") guarantees the
timely payment of principal and interest when such payments are due,
whether or not these amounts are collected by the issuer of these
certificates on the underlying mortgages. Mortgages included in
single family or multi-family residential mortgage pools backing an
issue of Ginnie Maes have a maximum maturity of up to 30 years.
Scheduled payments of principal and interest are made to the
registered holders of Ginnie Maes (such as the Fund) each month.
Unscheduled prepayments may be made by homeowners, or as a result of
a default. Prepayments are passed through to the registered holder
(such as the Fund, which reinvests any prepayments) of Ginnie Maes
along with regular monthly payments of principal and interest.
. "Fannie Maes" - The Federal National Mortgage Association
("FNMA") is a government-sponsored corporation owned entirely by
private stockholders that purchases residential mortgages from a list
of approved seller/servicers. Fannie Maes are pass-through
securities issued by FNMA that are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith
and credit of the United States Government.
. "Freddie Macs" - The Federal Home Loan Mortgage Corporation
("FHLMC") is a corporate instrumentality of the United States
Government. Freddie Macs are participation certificates issued by
FHLMC that represent an interest in residential mortgages from
FHLMC's National Portfolio. FHLMC guarantees the timely payment of
interest and ultimate collection of principal, but Freddie Macs are
not backed by the full faith and credit of the United States
Government.
As described in the prospectus, U.S. Government Securities do
not involve the credit risks associated with investments in other
types of fixed-income securities, although, as a result, the yields
available from U.S. Government Securities are generally lower than
the yields available from corporate fixed-income securities. Like
other fixed-income securities, however, the values of U.S. Government
Securities change as interest rates fluctuate. Fluctuations in the
value of portfolio securities will not affect interest income on
existing portfolio securities but will be reflected in the Series'
net asset value. Since the magnitude of these fluctuations will
generally be greater at times when the Series' average maturity is
longer, under certain market conditions, a Series may, for temporary
defensive purposes, accept lower current income from short-term
investments rather than investing in higher yielding long-term
securities.
Convertible Securities - The Series listed above may invest in
convertible securities, including corporate bonds, notes or preferred
stocks of U.S. or foreign issuers that can be converted into (that
is, exchanged for) common stocks or other equity securities.
Convertible securities also include other securities, such as
warrants, that provide an opportunity for equity participation.
Because convertible securities can be converted into equity
securities, their values will normally vary in some proportion with
those of the underlying equity securities. Convertible securities
usually provide a higher yield than the underlying equity, however,
so that the price decline of a convertible security may sometimes be
less substantial than that of the underlying equity security.
Reverse Repurchase Agreements and Dollar Roll Agreements - The
Series may enter into reverse repurchase agreements and dollar roll
agreements with qualified institutions to seek to enhance returns.
Reverse repurchase agreements involve sales by the Series of
portfolio assets concurrently with an agreement by the Series to
repurchase the same assets at a later date at a fixed price. During
the reverse repurchase agreement period, the Series continues to
receive principal and interest payments on these securities.
The Series may enter into dollar rolls in which the Series sells
securities for delivery in the current month and simultaneously
contracts to repurchase substantially similar (same type and coupon)
securities on a specified future date. During the roll period, the
Series forgoes principal and interest paid on the securities. The
Series is compensated by the difference between the current sales
price and the forward price for the future purchase (often referred
to as the "drop") as well as by the interest earned on the cash
proceeds of the initial sale.
The Series will establish a segregated account with its
custodian in which it will maintain cash, U.S. Government securities
or other liquid high-grade debt obligations equal in value to its
obligations in respect of reverse repurchase agreements and dollar
rolls. Reverse repurchase agreements and dollar rolls involve the
risk that the market value of the securities retained by the Series
may decline below the price of the securities the Series has sold but
is obligated to repurchase under the agreement. In the event the
buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, the Series' use of the proceeds of
the agreement may be restricted pending a determination by the other
party, or its trustee or receiver, whether to enforce the Series'
obligation to repurchase the securities. Reverse repurchase
agreements and dollar rolls are considered borrowings by the Series.
Loans of Portfolio Securities - The Series listed above may lend
its portfolio securities to broker-dealers under contracts calling
for cash collateral equal to at least the market value of the
securities loaned, marked to market on a daily basis. (The Series
(except the Salomon Brothers U.S. Government Series) at the present
time have no intention to engage in the lending of portfolio
securities.) The Series will continue to benefit from interest or
dividends on the securities loaned and will also receive interest
through investment of the cash collateral in short-term liquid
investments, which may include shares of money market funds subject
to any investment restriction described in the Prospectus. No loans
will be made if, as a result, the aggregate amount of such loans
outstanding at any one time would exceed 15% of the respective
Series' total assets (taken at current value). Any voting rights, or
rights to consent, relating to securities loaned pass to the
borrower. However, if a material event affecting the investment
occurs, such loans will be called so that the securities may be voted
by the Series. A Series pays various fees in connection with such
loans, including shipping fees and reasonable custodian and placement
fees.
Privately-Issued Mortgage Securities - The Series listed above
may invest in privately-issued pass through securities that provide
for the monthly principal and interest payments made by individual
borrowers to pass through to investors on a corporate basis, and in
privately issued collateralized mortgage obligations ("CMOs"; see the
general description under "Investment Risks" in the Prospectus).
Privately-issued mortgage securities are issued by private
originators of, or investors in, mortgage loans, including mortgage
bankers, commercial banks, investment banks, savings and loan
associations and special purpose subsidiaries of the foregoing.
Since privately-issued mortgage certificates are not guaranteed by an
entity having the credit status of GNMA or FHLMC, such securities
generally are structured with one or more types of credit
enhancement. For a description of the types of credit enhancements
that may accompany privately-issued mortgage securities, see "Types
of Credit Support" below. A Series will not limit its investments to
asset-backed securities with credit enhancements.
Asset Backed Securities As with mortgage securities, asset-
backed securities are often backed by a pool of assets representing
the obligation of a number of different parties and use similar
credit enhancement techniques. For a description of the types of
credit enhancement that may accompany privately-issued mortgage
securities, see "Types of Credit Support" below. A Series will not
limit its investments to asset-backed securities with credit
enhancements. Although asset-backed securities are not generally
traded on a national securities exchange, many such securities are
widely traded by brokers and dealers, and in such cases will not be
considered illiquid securities for the purposes of the investment
policy that limits a Series' investments in illiquid securities to
15% of net assets.
Types of Credit Support - Mortgage securities and asset-backed
securities are often backed by a pool of assets representing the
obligations of a number of different parties. To lessen the effect
of failure by obligors on underlying assets to make payments, such
securities may contain elements of credit support. Such credit
support falls into two categories: (i) liquidity protection and (ii)
protection against losses resulting from ultimate default by an
obligor on the underlying assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the pool
of assets, to ensure that the pass-through of payments due on the
underlying pool occurs in a timely fashion. Protection against
losses resulting from ultimate default enhances the likelihood of
ultimate payment of the obligations on at least a portion of the
assets in the pool. Such protection may be provided through
guarantees, insurance policies or letters of credit obtained by the
issuer or sponsor from third parties, through various means of
structuring the transaction or through a combination of such
approaches. A Series will not pay any additional fees for such
credit support, although the existence of credit support may increase
the price of a security.
The ratings of mortgage securities and asset-backed securities
for which third-party credit enhancement provides liquidity
protection or protection against losses from default are generally
dependent upon the continued creditworthiness of the provider of the
credit enhancement. The ratings of such securities could be subject
to reduction in the event of deterioration in the creditworthiness of
the credit enhancement provider even in cases where the delinquency
and loss experience on the underlying pool of assets is better than
expected.
Examples of credit support arising out of the structure of the
transaction include "senior subordinated securities" (multiple class
securities with one or more classes subordinate to other classes as
to the payment of principal and interest, with the result that
defaults on the underlying assets are borne first by the holders of
the subordinated class), creation of "reserve funds" (where cash or
investments, sometimes funded from a portion of the payments on the
underlying assets, are held in reserve against future losses) and
"over-collateralization" (where the scheduled payments on, or the
principal amount of, the underlying assets exceed those required to
make payment of the securities and pay any servicing or other fees).
The degree of credit support provided for each issue is generally
based on historical information with respect to the level of credit
risk associated with the underlying assets. Delinquency or loss in
excess of that which is anticipated could adversely affect the return
on an investment in such security.
STRIPS - In addition to the U.S. Government securities discussed
above, the Series listed above may invest in separately traded
interest components of securities issued or guaranteed by the United
States Treasury. The interest components of selected securities are
traded independently under the Separate Trading of Registered
Interest and Principal of Securities program ("STRIPS"). Under the
STRIPS program, the interest components are individually numbered and
separately issued by the United States Treasury at the request of
depository financial institutions, which then trade the component
parts independently.
Stripped Mortgage Securities - Stripped mortgage securities are
derivative multiclass mortgage securities. Stripped mortgage
securities may be issued by agencies or instrumentalities of the U.S.
Government, or by private issuers, including savings and loan
associations, mortgage banks, commercial banks, investment banks and
special purpose subsidiaries of the foregoing. Stripped mortgage
securities have greater volatility than other types of mortgage
securities in which the Series invests. Although stripped mortgage
securities are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, the
market for such securities has not yet been fully developed.
Accordingly, stripped mortgage securities are generally illiquid.
Stripped mortgage securities are usually structured with two
classes that receive different proportions of the interest and
principal distributions on a pool of mortgage assets. A common type
of stripped mortgage security will have one class receiving some of
the interest and most of the principal from the mortgage assets,
while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will
receive all of the interest (the interest-only or "IO" class), while
the other class will receive all of the principal (the principal-only
or "PO" class). The yield to maturity on an IO class is extremely
sensitive not only to changes in prevailing interest rates but also
the rate of principal payments (including prepayments) on the related
underlying mortgage assets, and a rapid rate of principal payments
may have a material adverse effect on the Series' yield to maturity.
If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the Series may fail to fully recoup its
initial investment in these securities even if the securities are
rated in a top rating category.
As interest rates rise and fall, the value of IOs tends to move
in the same direction as interest rates. The value of other mortgage
securities, like other debt instruments, will tend to move in the
opposite direction of interest rates. Accordingly, investing in IOs,
in conjunction with the other mortgage securities described herein,
may reduce fluctuations in a Series' net asset value.
In addition to the stripped mortgage securities described above,
the Series listed above may invest in similar securities such as
"Super POs," "Levered IOs" and "IOettes," all of which are more
volatile than conventional POs or IOs. Risks associated with
instruments such as Super POs are similar in nature to those risks
related to investments in POs. Risks connected with Levered IOs and
IOettes are similar in nature to those associated with IOs. The
Series may also invest in other similar instruments developed in the
future that are deemed consistent with the investment objectives,
policies and restrictions of the Series.
Under the Internal Revenue Code of 1986, as amended (the
"Code"), POs may generate taxable income from the current accrual of
original issue discount, without a corresponding distribution of cash
to the portfolio.
Swaps, Caps, Floors, Collars, Etc. - The Series listed above may
enter into interest rate, currency and index swaps, the purchase or
sale of related caps, floors and collars and other derivatives. A
Series will enter into these transactions primarily to seek to
preserve a return or spread on a particular investment or portion of
its portfolio, to protect against currency fluctuations, as a
duration management technique or to protect against any increase in
the price of securities a portfolio anticipates purchasing at a later
date. A Series will use these transactions for non-speculative
purposes and will not sell interest rate caps or floors if it does
not own securities or other instruments providing the income the
portfolio may be obligated to pay. Interest rate swaps involve the
exchange by a Series with another party of their respective
commitments to pay or receive interest (for example, an exchange of
floating rate payments for fixed rate payments with respect to a
notional amount of principal). The purchase of an interest rate cap
entitles the purchaser to receive payments on a notional principal
amount from the party selling the cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase
of an interest rate floor entitles the purchaser to receive payments
of interest on a notional principal amount from the party selling the
interest rate floor to the extent that a specified index falls below
a predetermined interest rate or amount. A collar is a combination
of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values. A currency swap is
an agreement to exchange cash flows on a notional amount based on
changes in the values of the reference currencies.
A Series will usually enter into interest rate swaps on a net
basis, that is, two payment streams are netted out in a cash
settlement on the payment date or dates specified in the instrument,
with the portfolio receiving or paying, as the case may be, only the
net amount of the two payments. To the extent that a Series
maintains in a segregated account with its custodian assets
sufficient to meet its obligations under swaps, caps, floors, collars
and other similar derivatives (see below) these investments will not
constitute senior securities under the Investment Company Act of 1940
(the "1940 Act"), as amended, and, thus, will not be treated as being
subject to the Series' borrowing restrictions. A Series will not
enter into any swap, cap, floor, collar or other derivative
transaction unless the counterparty is deemed creditworthy by that
Series' subadviser. If a counterparty defaults, the Series may have
contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years
with a large number of banks and investment banking firms acting both
as principals and as agents utilizing standardized swap
documentation. As a result, the swap market has become relatively
liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed
and, for that reason, they are less liquid than swaps.
The liquidity of swap agreements will be determined by a Series'
subadviser based on various factors, including (1) the frequency of
trades and quotations, (2) the number of dealers and prospective
purchasers in the marketplace, (3) dealer undertakings to make a
market, (4) the nature of the security (including any demand or
tender features), and (5) the nature of the marketplace for trades
(including the ability to assign or offset a portfolio's rights and
obligations relating to the investment). Such determination will
govern whether a swap will be deemed to be within the 15% restriction
on investments in securities that are not readily marketable.
Each Series will maintain cash and appropriate liquid assets in
a segregated custodial account to cover its current obligations under
swap agreements. If a Series enters into a swap agreement on a net
basis, it will segregate assets with a daily value at least equal to
the excess, if any, of the Series' accrued obligations under the swap
agreement over the accrued amount the Series is entitled to receive
under the agreement. If a Series enters into a swap agreement on
other than a net basis, it will segregate assets with a value equal
to the full amount of the Series' accrued obligations under the
agreement.
Eurodollar Futures and Options - The Series listed above may
make investments in Eurodollar instruments, which are typically
dollar-denominated futures contracts or options on those contracts
that are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency denominated instruments are available from
time to time. Eurodollar futures contracts enable purchasers to
obtain a fixed rate for the lending of funds and sellers to obtain a
fixed rate for borrowings. A Series might use Eurodollar futures
contracts and options thereon to hedge against changes in LIBOR, to
which many interest rate swaps and fixed income instruments are
linked.
High Yield/High Risk Foreign Sovereign Debt Securities - The
Series listed above may invest in the sovereign debt of foreign
countries which have issued or have announced plans to issue Brady
Bonds, and expect that a substantial portion of their investments in
sovereign debt securities will consist of Brady Bonds. Brady Bonds
are debt securities issued under the framework of the Brady Plan, an
initiative announced by then U.S. Treasury Secretary Nicholas F.
Brady in 1989 as a mechanism for debtor nations to restructure their
outstanding external commercial bank indebtedness. In restructuring
its external debt under the Brady Plan framework, a debtor nation
negotiates with its existing bank lenders as well as multilateral
institutions such as the World Bank and the International Monetary
Fund (the "IMF"). The Brady Plan framework, as it has developed,
contemplates the exchange of commercial bank debt for newly issued
bonds (Brady Bonds). Brady Bonds may also be issued in respect of
new money being advanced by existing lenders in connection with the
debt restructuring. The World Bank and/or the IMF support the
restructuring by providing funds pursuant to loan agreements or other
arrangements which enable the debtor nation to collateralize the new
Brady Bonds or to repurchase outstanding bank debt at a discount.
Under these arrangements with the World Bank or the IMF, debtor
nations have been required to agree to the implementation of certain
domestic monetary and fiscal reforms. Such reforms have included the
liberalization of trade and foreign investment, the privatization of
state-owned enterprises and the setting of targets for public
spending and borrowing. These policies and programs seek to promote
the debtor country's economic growth and development. Investors
should recognize that the Brady Plan only sets forth general guiding
principles for economic reform and debt reduction, emphasizing that
solutions must be negotiated on a case-by-case basis between debtor
nations and their creditors. Investors should recognize that Brady
Bonds have been issued only recently, and accordingly do not have a
long payment history.
Agreements implemented under the Brady Plan to date are designed
to achieve debt and debt-service reduction through specific options
negotiated by a debtor nation with its creditors. As a result, the
financial packages offered by each country differ. The types of
options have included the exchange of outstanding commercial bank
debt for bonds issued at 100% of face value of such debt, which carry
a below-market stated rate of interest (generally known as par
bonds), bonds issued at a discount from face value of such debt
(generally known as discount bonds), bonds bearing an interest rate
which increases over time and bonds issued in exchange for the
advancement of new money by existing lenders. Regardless of the
stated face amount and stated interest rate of the various types of
Brady Bonds, a Series will purchase Brady Bonds in secondary markets,
as described below, in which the price and yield to the investor
reflect market conditions at the time of purchase. Brady Bonds
issued to date have traded at a deep discount from their face value.
Certain Brady Bonds have been collateralized as to principal due at
maturity (typically 30 years from the date of issuance) by U.S.
Treasury zero coupon bonds with a maturity equal to the final
maturity of such Brady Bonds, although the collateral is not
available to investors until the final maturity of the Brady Bonds.
Collateral purchases are financed by the IMF, the World Bank and the
debtor nations' reserves. In addition, interest payments on certain
types of Brady Bonds may be collateralized by cash or high-grade
securities in amounts that typically represent between 12 and 18
months of interest accruals on these instruments with the balance of
the interest accruals being uncollateralized. A Series may purchase
Brady Bonds with no or limited collateralization, and will be relying
for payment of interest and (except in the case of principal
collateralized Brady Bonds) principal primarily on the willingness
and ability of the foreign government to make payment in accordance
with the terms of the Brady Bonds. Brady Bonds issued to date are
purchased and sold in secondary markets through U.S. securities
dealers and other financial institutions and are generally maintained
through European transnational securities depositories.
Futures and Options
Futures Contracts. A futures contract is an agreement between
two parties to buy and sell a commodity or financial instrument (e.g.,
an interest-bearing security, a currency or, in the case of futures
contracts on the S&P 500 Index, the value of the basket of securities
comprising the Index) for a specified price on a specified future
date. In the case of futures on an index, the seller and buyer agree
to settle in cash, at a future date, based on the difference in value
of the contract between the date it is opened and the settlement date.
The value of each contract is equal to the value of the index from
time to time multiplied by a specified dollar amount. For example,
long-term municipal bond index futures trade in contracts equal to
$1000 multiplied by the Bond Buyer Municipal Bond Index.
When a trader, such as a Series, enters into a futures contract,
it is required to deposit with (or for the benefit of) its broker, as
"initial margin," an amount of cash or short-term high-quality
securities (such as U.S. Treasury Bills) equal to approximately 2% to
20% of the delivery or settlement price of the contract (depending on
applicable exchange rules). Initial margin is held to secure the
performance of the holder of the futures contract. As the value of
the contract changes, the value of futures contract positions
increases or declines. At the end of each trading day, the amount of
such increase or decline is received or paid respectively by and to
the holders of these positions. The amount received or paid is known
as "variation margin" or "maintenance margin." A Series with a long
position in a futures contract will establish a segregated account
with the Series' custodian containing cash or certain liquid assets
equal to the purchase price of the contract (less any margin on
deposit). For short positions in futures contracts, a Series will
establish a segregated account with the custodian with cash or high
grade liquid debt assets that, when added to the amounts deposited as
margin, equal the market value of the instruments or currency
underlying the futures contracts.
Although futures contracts by their terms may require actual
delivery and acceptance of securities, in most cases the contracts are
closed out before settlement. Closing out a futures sale is effected
by purchasing a futures contract for the same aggregate amount of the
specific type of financial instrument or commodity and with the same
delivery date. Similarly, the closing out of a futures purchase is
effected by the purchaser selling an offsetting futures contract.
Gain or loss on a futures position is equal to the net variation
margin received or paid over the time the position is held, plus or
minus the amount received or paid when the position is closed, minus
brokerage commissions.
The Westpeak Stock Index Series may purchase and sell futures
contracts on the S&P 500 Index solely for the purpose of reducing the
risk of tracking error arising from holding cash from new investments
in the Series or in anticipation of shareholder redemptions. The Back
Bay Advisors Managed Series may purchase and sell futures contracts on
interest-bearing securities or indices thereof, or on indices of stock
prices (such as the S&P 500 Index), to increase or decrease its
portfolio exposure to common stocks or to increase or decrease its
portfolio exposure to notes and bonds. The Westpeak Value Growth
Series may engage in transactions in futures contracts solely for the
purpose of maintaining full exposure of the portfolio to the movements
of broad equity markets at times when the Series holds a cash position
pending investment in stocks or in anticipation of redemptions.
Options. An option on a futures contract obligates the writer,
in return for the premium received, to assume a position in a futures
contract (a short position if the option is a call and a long
position if the option is a put), at a specified exercise price at
any time during the period of the option. Upon exercise of the
option, the delivery of the futures position by the writer of the
option to the holder of the option generally will be accompanied by
delivery of the accumulated balance in the writer's futures margin
account, which represents the amount by which the market price of the
futures contract, at exercise, exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of the option.
The premium paid by the purchaser of an option will reflect, among
other things, the relationship of the exercise price to the market
price and volatility of the underlying contract, the remaining term
of the option, supply and demand and interest rates. Options on
futures contracts traded in the United States may only be traded on a
United States board of trade licensed by the Commodity Futures
Trading Commission.
An option on a security entitles the holder to receive (in the
case of a call option) or to sell (in the case of a put option) a
particular security at a specified exercise price. An "American
style" option allows exercise of the option at any time during the
term of the option. A "European style" option allows an option to be
exercised only at the end of its term. Options on securities may be
traded on or off a national securities exchange.
A call option on a futures contract written by a Series is
considered by the Series to be covered if the Series owns the
security subject to the underlying futures contract or other
securities whose values are expected to move in tandem with the
values of the securities subject to such futures contract, based on
historical price movement volatility relationships. A call option on
a security written by a Series is considered to be covered if the
Series owns a security deliverable under the option. A written call
option is also covered if the Series holds a call on the same futures
contract or security as the call written where the exercise price of
the call held (a) is equal to or less than the exercise price of the
call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Series in cash,
Treasury bills or other high grade liquid obligations in a segregated
account with its custodian.
A put option on a futures contract written by a Series, or a put
option on a security written by a Series, is covered if the Series
maintains cash, U.S. Treasury bills or other high-grade liquid debt
obligations with a value equal to the exercise price in a segregated
account with the Series' custodian, or else holds a put on the same
futures contract (or security, as the case may be) as the put written
where the exercise price of the put held is equal to or greater than
the exercise price of the put written.
If the writer of an option wishes to terminate its position, it
may effect a closing purchase transaction by buying an option
identical to the option previously written. The effect of the
purchase is that the writer's position will be canceled. Likewise,
the holder of an option may liquidate its position by selling an
option identical to the option previously purchased.
Closing a written call option will permit the Series to write
another call option on the portfolio securities used to cover the
closed call option. Closing a written put option will permit the
Series to write another put option secured by the segregated cash,
U.S. Treasury bills or other high-grade liquid obligations used to
secure the closed put option. Also, effecting a closing transaction
will permit the cash or proceeds from the concurrent sale of any
futures contract or securities subject to the option to be used for
other Series investments. If a Series desires to sell particular
securities covering a written call option position, it will close out
its position or will designate from its portfolio comparable
securities to cover the option prior to or concurrent with the sale
of the covering securities.
The Series will realize a profit from closing out an option if
the price of the offsetting position is less than the premium
received from writing the option or is more than the premium paid to
purchase the option; the Series will realize a loss from closing out
an option transaction if the price of the offsetting option position
is more than the premium received from writing the option or is less
than the premium paid to purchase the option. Because increases in
the market price of a call option will generally reflect increases in
the market price of the covering securities, any loss resulting from
the closing of a written call option position is expected to be
offset in whole or in part by appreciation of such covering
securities.
Since premiums on options having an exercise price close to the
value of the underlying securities or futures contracts usually have
a time value component (i.e. a value that diminishes as the time
within which the option can be exercised grows shorter) an option
writer may profit from the lapse of time even though the value of the
futures contract (or security in some cases) underlying the option
(and of the security deliverable under the futures contract) has not
changed. Consequently, profit from option writing may or may not be
offset by a decline in the value of securities covering the option.
If the profit is not entirely offset, the Series will have a net gain
from the options transaction, and the Series' total return will be
enhanced. Likewise, the profit or loss from writing put options may
or may not be offset in whole or in part by changes in the market
value of securities acquired by the Series when the put options are
closed.
An over-the-counter option (an option not traded on a national
securities exchange) may be closed out only with the other party to
the original option transaction. While a Series will seek to enter
into over-the-counter options only with dealers who agree to or are
expected to be capable of entering into closing transactions with the
Series, there can be no assurance that the Series will be able to
liquidate an over-the-counter option at a favorable price at any time
prior to its expiration. Accordingly, the Series might have to
exercise an over-the-counter option it holds in order to realize any
profit thereon and thereby would incur transactions costs on the
purchase or sale of the underlying assets. If the Series cannot
close out a covered call option written by it, it will not be able to
sell the underlying security until the option expires or is
exercised. Furthermore, over-the-counter options are not subject to
the protections afforded purchasers of listed options by the Options
Clearing Corporation or other clearing organization.
The staff of the Securities and Exchange Commission (the "SEC")
has taken the position that over-the-counter options on U.S.
Government Securities and the assets used as cover for written over-
the-counter options on U.S. Government Securities should generally be
treated as illiquid securities. However, if a dealer recognized by
the Federal Reserve Bank of New York as a "primary dealer" in U.S.
Government Securities is the other party to an option contract
written by a mutual fund such as a Series, and such Series has the
absolute right to repurchase the option from the dealer at a formula
price established in a contract with the dealer, the SEC staff has
agreed that the Series only needs to treat as illiquid that amount of
the "cover" assets equal to the amount by which (i) the formula price
exceeds (ii) any amount by which the market value of the securities
subject to the options exceeds the exercise price of the option (the
amount by which the option is "in-the-money").
Risks Related to Futures and Options. The use of futures
contracts and options involves risks. One risk arises because of the
imperfect correlation between movements in the price of futures
contracts or options and movements in the price of the underlying
securities or index. The Series' use of futures contracts or options
will not be fully effective unless the Series can compensate for such
imperfect correlation. There is no assurance that the Series will be
able to effect such compensation.
The correlation between the price movement of a futures contract
or option and the related security (or index) may be distorted due to
differences in the nature of the markets. If the price of the futures
contract or option moves more than the price of the security or index,
the Series would experience either a loss or a gain on the future or
option that is not completely offset by movements in the price of the
security or index. In an attempt to compensate for imperfect price
movement correlations, a Series may purchase or sell futures contracts
or options in a greater amount than the related securities or index
position if the volatility of the related securities or index is
historically greater than the volatility of the futures contracts or
options. Conversely, the Series may purchase or sell fewer contracts
or options if the volatility of the price of the securities or index
is historically less than that of the contracts or options.
There are many reasons why changes in the values of futures
contracts or options may not correlate perfectly with changes in the
value of the underlying security of index. For example, all
participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts through
offsetting transactions, which could distort the normal relationship
between the index and futures markets. Secondly, the deposit
requirements in the futures market are less onerous than margin
requirements in the securities market, and as a result the futures
market may attract more speculators than does the securities market.
In addition, trading hours for index futures or options may not
correspond perfectly to hours of trading on the exchange where the
underlying securities trade. This may result in a disparity between
the price of futures or options and the value of the underlying
security or index due to the lack of continuous arbitrage between the
futures or options price and the value of the underlying security or
index. Hedging transactions using securities indices also involve
the risk that movements in the price of the index may not correlate
with price movements of the particular portfolio securities being
hedged (since a Series will typically not own all of the securities
included in a particular index.)
Price movement correlation also may be distorted by the limited
liquidity of certain futures or options markets and the participation
of speculators in such markets. If an insufficient number of
contracts are traded, commercial users may not deal in futures
contracts or options because they do not want to assume the risk that
they may not be able to close out their positions within a reasonable
amount of time. In such instance, futures and options market prices
may be driven by different forces than those driving the market in the
underlying securities, and price spreads between these markets may
widen. The participation of speculators in the market generally
enhances its liquidity. Nonetheless, speculative trading spreads
between futures markets may create temporary price distortions
unrelated to the market in the underlying securities.
Positions in futures contracts and related options are
established or closed out only on an exchange or board of trade
regulated by the Commodity Futures Trading Commission. There is no
assurance that a liquid market on an exchange or board of trade will
exist for any particular contract or at any particular time. The
liquidity of markets in futures contracts may be adversely affected by
"daily price fluctuation limits" established by commodity exchanges
which limit the amount of fluctuation in a futures price during a
single trading day. Once the daily limit has been reached in a
contract, no trades may be entered into at a price beyond the limit,
which may prevent the liquidation of open futures positions. Prices
have in the past exceeded the daily limit on a number of consecutive
trading days. If there is not a liquid market at a particular time,
it may not be possible to close a futures position at such time, and,
in the event of adverse price movements, the Series would continue to
be required to make daily cash payments of variation margin. However,
if futures or options are used to hedge portfolio securities, an
increase in the price of the securities, if any, may partially or
completely offset losses on the futures contract.
An exchange-traded option may be closed out only on a national
securities or commodities exchange which generally provides a liquid
secondary market for an option of the same series. If a liquid
secondary market for an exchange-traded option does not exist, it
might not be possible to effect a closing transaction with respect to
a particular option, with the result that the Series would have to
exercise the option in order to realize any profit. If the Series
that has written an option is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the
underlying security upon exercise. Reasons for the absence of a
liquid secondary market on an exchange include the following: (i)
there may be insufficient trading interest in certain options; (ii)
restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or
other restrictions may be imposed with respect to particular classes
or series of options or underlying securities; (iv) unusual or
unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or the Options Clearing
Corporation or other clearing organization may not at all times be
adequate to handle current trading volume or (vi) one or more
exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the
secondary market on that exchange (or in that class or series of
options) would cease to exist, although outstanding options on that
exchange that had been issued by the Options Clearing Corporation as
a result of trades on that exchange would continue to be exercisable
in accordance with their terms.
Because the specific procedures for trading foreign futures and
options on futures exchanges are still evolving, additional or
different margin requirements as well as settlement procedures may be
applicable to foreign futures and options at the time the Series
purchases foreign futures or options.
The successful use of transactions in futures and options depends
in part on the ability of the Series to forecast correctly the
direction and extent of interest rate or securities price movements
within a given time frame. To the extent interest rates or securities
prices move in a direction opposite to that anticipated, a Series may
realize a loss that is not fully or partially offset by an increase in
the value of portfolio securities. In addition, whether or not
interest rates or securities prices move during the period that the
Series holds futures or options positions, the Series will pay the
cost of taking those positions (i.e., brokerage costs). As a result,
the Series' total return for such period may be less than if it had
not engaged in the futures or option transaction.
Future Developments. The above discussion relates to the
Series' proposed use of futures contracts, options and options on
futures contracts currently available. The relevant markets and
related regulations are still in the developing stage. In the event
of future regulatory or market developments, the Series may also use
additional types of futures contracts or options and other similar or
related investment techniques.
Foreign Currency Hedging Transactions - To protect against a
change in the foreign currency exchange rate between the date on
which a Series contracts to purchase or sell a security that settles
in a foreign currency and the settlement date for the purchase or
sale, or to "lock in" the equivalent of a dividend or interest
payment in another currency, the Series might purchase or sell a
foreign currency on a spot (or cash) basis at the prevailing spot
rate. If conditions warrant, a Series may also enter into contracts
with banks or broker-dealers to purchase or sell foreign currencies
at a future date ("forward contracts"). The Series will maintain
cash or high-quality debt obligations in a segregated account with
the custodian in an amount at least equal to (i) the difference
between the current value of the Series' liquid holdings that settle
in the relevant currency and the Series' outstanding net obligations
under currency forward contracts in that currency, or (ii) the
current amount, if any, that would be required to be paid to enter
into an offsetting forward currency contract which would have the
effect of closing out the original forward contract. The Series' use
of currency hedging transactions may be limited by tax
considerations. The Series may also purchase or sell foreign
currency futures contracts traded on futures exchanges. Foreign
currency futures contract transactions involve risks similar to those
of other futures transactions. See "Futures and Options," above.
DETERMINATION OF NET ASSET VALUES
As described in the text of the Prospectus following the caption
"Net Asset Values and Portfolio Valuation," the value of each Series'
portfolio assets is determined by that Series' adviser (subadviser, in
the case of Series that have a subadviser). The net asset value of
each Series' shares is determined as of the close of regular trading
on the New York Stock Exchange on each day the New York Stock Exchange
is open and there is a sufficient degree of trading in a Series'
portfolio securities that the current net asset value of a Series'
shares is materially affected. The New York Stock Exchange is
currently expected to be closed on weekend days and on the following
holidays each year: New Year's Day, Presidents Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Expenses of each Series are paid or accrued each day.
Loomis Sayles Small Cap, Draycott International Equity, Alger Equity
Growth, Capital Growth, Loomis Sayles Avanti Growth, Venture Value,
Westpeak Value Growth, Westpeak Stock Index, Loomis Sayles Balanced,
Salomon Brothers Strategic Bond Opportunities, Salomon Brothers U.S.
Government Series
As described in the text of the Prospectus following the caption
"Net Asset Values and Portfolio Valuation," each of the Series listed
above values its portfolio securities (other than fixed-income
securities maturing in 60 days or less, which are valued using the
amortized cost method) at market value where current market quotations
are readily available and otherwise values them at fair value as
determined in good faith by the Trustees or by the particular Series'
adviser or subadviser under the supervision of the Board of Trustees.
Each of the advisers and subadvisers has been authorized to delegate
certain price determinations to pricing services or facilities which
they select. Securities traded on a national securities exchange or
exchanges are valued at their last sale price on the principal
exchange or, if there is no reported sale during the day, and in the
case of over-the-counter securities, at the last reported bid price
estimated by a broker.
Back Bay Advisors Managed Series
Equity securities traded on a national securities exchange or
exchanges are valued at their last sale price on the principal
exchange or, if there is no reported sale during the day, and in the
case of over-the-counter securities, at the last bid price. Debt
securities are valued at market value where current market quotations
are readily available. Where current market quotations are not
readily available, a pricing service selected by Back Bay Advisors,
acting pursuant to the authorization of the Board of Trustees, values
the securities at fair value. The pricing service employed will be
one that determines valuations of normal institutional-sized trading
units of long-term debt securities. Such valuations are determined by
using methods based on market transactions for comparable securities
and on various relationships between securities which are generally
recognized by institutional traders. Other securities for which
current market quotations are not readily available (including
restricted securities, if any) and all other assets are taken at fair
value as determined in good faith by Back Bay Advisors acting under
the supervision of the Board of Trustees, although the actual
calculations may be made by a pricing service selected by Back Bay
Advisors acting pursuant to the direction of the Board.
Back Bay Advisors Bond Income Series
As described in the text of the Prospectus following the caption
"Net Asset Values and Portfolio Valuation," the Back Bay Advisors Bond
Income Series values certain portfolio securities (other than fixed-
income securities maturing in 60 days or less, which are valued using
the amortized cost method) at market value where current market
quotations are readily available. Where current market quotations are
not readily available, a pricing service selected by Back Bay
Advisors, pursuant to the authorization of the Board of Trustees,
values the securities at fair value. The pricing service employed
will be one that determines valuations of normal institutional-sized
trading units of long-term debt securities. Such valuations are
determined by using methods based on market transactions for
comparable securities and on various relationships between securities
which are generally recognized by institutional traders. Other
securities for which current market quotations are not readily
available (including restricted securities, if any) and all other
assets are taken at fair value as determined in good faith by Back Bay
Advisors acting under the supervision of the Board of Trustees,
although the actual calculations may be made by a pricing service
selected by Back Bay Advisors acting pursuant to the direction of the
Board. Securities traded on a national securities exchange or
exchanges are valued at their last sale price on the principal
exchange, or if there is no reported sale, and in the case of over-the-
counter securities, at a bid price estimated by a broker.
Back Bay Advisors Money Market Series
As described in the text of the Prospectus following the caption
"Net Asset Values and Portfolio Valuation," the portfolio of the Back
Bay Advisors Money Market Series will be valued at amortized cost.
Under the amortized cost method of valuation, securities are valued at
cost on the date of purchase. Thereafter the values of securities
purchased at a discount or premium are increased or decreased
incrementally each day so that at maturity the purchase discount or
premium is fully amortized and the value of the security is equal to
its principal amount. Due to fluctuations in interest rates, the
amortized cost value of the securities of the Back Bay Advisors Money
Market Series may at times be more or less than their market value.
By using amortized cost valuation, the Back Bay Advisors Money
Market Series seeks to maintain a constant net asset value of $100 per
share despite minor shifts in the market value of its portfolio
securities. The yield on a shareholder's investment may be more or
less than that which would be recognized if the net asset value per
share of the Back Bay Advisors Money Market Series were not constant
and were permitted to fluctuate with the market value of the portfolio
securities of the Back Bay Advisors Money Market Series. However, as
a result of the following procedures, the Fund believes any difference
will normally be minimal. Quarterly, the Trustees monitor the
deviation between the net asset value per share of the Back Bay
Advisors Money Market Series as determined by using available market
quotations and its amortized cost price per share. Back Bay Advisors
makes such comparisons at least weekly and will advise the Trustees
promptly in the event of any significant deviation. If the deviation
exceeds 1/2 of 1% for the Back Bay Advisors Money Market Series, the
Board of Trustees will consider what action, if any, should be
initiated to provide fair valuation of the portfolio securities of the
Back Bay Advisors Money Market Series and prevent material dilution or
other unfair results to shareholders. Such action may include selling
portfolio securities prior to maturity; withholding dividends; or
utilizing a net asset value per share as determined by using available
market quotations.
FUND PERFORMANCE
Calculations of Yield and Return
Yield of the Back Bay Advisors Bond Income Series, the Salomon
Brothers U.S. Government Series and the Salomon Brothers Strategic
Bond Opportunities Series. As summarized in the Prospectus under the
caption "Performance Information," the yield of each of these Series
will be computed in accordance with the SEC's standardized formula by
annualizing net investment income per share for a recent 30-day period
and dividing that amount by a share's net asset value (reduced by any
earned income expected to be declared shortly as a dividend) on the
last trading day of that period. Net investment income will reflect
amortization of any market value premium or discount of fixed-income
securities (except for obligations backed by mortgages or other
assets) and may include recognition of a pro rata portion of the
stated dividend rate of dividend paying portfolio securities.
These Series' yield will vary from time to time depending upon
market conditions, the composition of the Series' portfolio and the
operating expenses of the Series. These factors and possible
differences in the methods used in calculating yield should be
considered when comparing the Back Bay Advisors Bond Income Series'
yield to yields published for other investment companies and other
investment vehicles. Yield should also be considered relative to
changes in the value of the Series' shares and to the relative risks
associated with the investment objectives and policies of the Series.
Yield information may be useful in reviewing such Series' performance
and providing a basis for comparison with other investment
alternatives, although the yields of the Series do not take into
account any of the fees imposed in connection with the purchase of
variable insurance contracts offered by New England Variable Life
Insurance Company ("NEVLICO") or variable annuity contracts offered by
NEVLICO or New England Life Insurance Company ("The New England").
Yield may be stated with or without giving effect to any expense
limitations in effect for the Series.
At any time in the future, yields may be higher or lower than
past yields and there can be no assurance that any historical results
will continue.
Investors are specifically advised that share prices, expressed
as the net asset value per share, will vary just as yields will vary.
An investor's focus on the yield of a Series to the exclusion of
consideration of the share price may result in the investor's
misunderstanding the total return he or she may derive from the
Series.
Yield of the Back Bay Advisors Money Market Series. The Back Bay
Advisors Money Market Series' yield represents the net change,
exclusive of capital changes, in the value of a hypothetical account
having a balance of one share at the beginning of the period for which
yield is determined (the "base period"). Current yield for the base
period (for example, seven calendar days) is calculated by dividing
(i) the net change in the value of the account for the base period by
(ii) the number of days in the base period. The resulting number is
then multiplied by 365 in order to determine such net change on an
annualized basis. This amount is divided by the value of the account
as of the beginning of the base period, normally $100, in order to
state the current yield as a percentage. Yield may also be calculated
on an "effective" or a "compound" basis, which assumes continual
reinvestment throughout an entire year of net income earned at the
same rate as net income is earned by the account for the base period.
Yield is calculated without regard to realized and unrealized gains
and losses. The yield of the Back Bay Advisors Money Market Series
will vary depending on prevailing interest rates, the operating
expenses of the Series and the quality, maturity and type of
instruments held in the portfolio of that Series. Yield information
may be useful in reviewing such Series' performance and providing a
basis for comparison with other investment alternatives, although the
yield of the Back Bay Advisors Money Market Series does not take into
account any of the fees imposed in connection with the purchase of
variable insurance contracts offered by NEVLICO or variable annuity
contracts offered by NEVLICO or The New England. However, unlike
certain bank deposits or other investments which pay a fixed yield for
a stated period of time, money market fund yields fluctuate.
Consequently no yield quotation should be considered as representative
of what the yield of the Back Bay Advisors Money Market Series may be
for any specified period in the future.
Calculation of Total Return. As summarized in the Prospectus
under the heading "Performance Information," total return is a measure
of the change in value of an investment in a Series over the period
covered, which assumes that any dividends or capital gain
distributions are automatically reinvested in the Series rather than
paid to the investor in cash. Total return may be higher or lower
than past performance and there can be no assurance that any
historical results will continue.
The formula for total return used by a Series includes three
steps: (1) adding to the total number of shares purchased by a
hypothetical $1,000 investment in a Series all additional shares that
would have been purchased if all dividends and distributions paid or
distributed during the period had been automatically reinvested; (2)
calculating the value of the hypothetical initial investment as of the
end of the period by multiplying the total number of shares owned at
the end of the period by the net asset value per share on the last
trading day of the period; and (3) dividing this account value for the
hypothetical investor by the amount of the initial investment and
annualizing the result for periods of less than one year. Total
return reflects the bearing or deferral of certain expenses by The New
England and its affiliates (see "Allocation of Expenses" below).
Total return would be lower for these Series if these expense
arrangements had not been in effect. Total return does not reflect
charges assessed against the insurance company separate accounts or
the variable life insurance or variable annuity products for which the
Fund serves as an investment vehicle. Total return may be stated
alone or may be accompanied by investment return information for those
separate accounts or the variable life insurance or variable annuity
products.
Performance Comparisons
Yield and Total Return. Each Series may, from time to time,
include its total return in advertisements or in other written
information furnished to present and prospective owners of the
variable life insurance and variable annuity contracts supported by
the Fund. The Back Bay Advisors Bond Income Series, the Salomon
Brothers U.S. Government Series, the Salomon Brothers Strategic Bond
Opportunities Series and the Back Bay Advisors Money Market Series
may, from time to time, also include their yield in such
advertisements or other written information. These results may
include comparisons to the yields of money market funds reporting to
IBC/Donoghue's Money Fund Report ("Donoghue's Report"). In addition,
each Series may, from time to time, provide a ranking of such
performance figures relative to similar figures for mutual funds whose
performance has been monitored by Lipper Analytical Services, Inc.
("Lipper"). Performance information about a Series is based on the
Series' past performance and is not intended to indicate future
performance.
Donoghue's Report is an independent service that collects data
from over 1,000 money market funds weekly and reports on the assets, 7-
and 30-day yields, 12-month yields, average maturities and portfolio
breakdowns of such funds. 12-month yields represent total return
assuming reinvestment of dividends for up to one year.
The Lipper is an independent service that monitors the
performance of over 750 variable annuity and variable life mutual
funds, calculates total return and, in some cases, yield for such
funds.
Total return (and yield in the case of the Back Bay Advisors Bond
Income Series, the Back Bay Advisors Money Market Series, the Salomon
Brothers U.S. Government Series and the Salomon Brothers Strategic
Bond Opportunities Series) may also be used to compare the performance
of a Series against certain widely acknowledged standards or indices
for stock and bond market performance, including, but not limited to,
the S&P 500 Index, the Dow Jones Industrial Average, the Lehman
Government/Corporate Bond Index, the Lehman Intermediate
Government/Corporate Bond Index, the S&P/BARRA Growth Index, the
S&P/BARRA Value Index, the Lipper Variable Balanced Fund Average, the
Lipper Variable Growth and Income Average, the Lipper Variable A-Rated
Corporate Bond Fund Average, the Lipper Variable Flexible Portfolio
Fund Average, the Lipper Variable General Bond Fund Average, the
Lipper Variable Growth Fund Average, the Lipper Variable International
Fund Average, the Lipper Variable Intermediate Investment Grade Debt
Fund Average, the Lipper Variable Small Company Fund Average, the
Lipper Variable S&P 500 Index Fund Average, the Lipper Variable U.S.
Mortgage and GNMA Fund Average, the Russell 2000 Index, the Lehman
Brothers Aggregate Bond Index, the Lehman Brothers Intermediate
Government Bond Index and the Morgan Stanley Capital International
Europe, Australia, Far East Index, or against the U.S. Bureau of Labor
Statistics' Consumer Price Index.
The S&P 500 Index is a market value-weighted and unmanaged index
showing the changes in the aggregate market value of 500 stocks
relative to the base period 1941-43. The S&P 500 Index is composed
almost entirely of common stocks of companies listed on the New York
Stock Exchange, although the common stocks of a few companies listed
on the American Stock Exchange or traded over-the-counter are
included. The 500 companies represented include 385 industrial, 15
transportation, 55 financial services and 45 utilities concerns.
The Dow Jones Industrial Average ("DJIA") is a market value-
weighted and unmanaged index of 30 large industrial stocks traded on
the New York Stock Exchange.
The Lehman Government/Corporate Bond Index is a measure 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
Government/Corporate Bond Index, an issue must have amounts
outstanding in excess of $1 million, have at least one year to
maturity and be rated "Baa" or higher ("investment grade") by a
nationally recognized rating agency.
The Lehman 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 Consumer Price Index, published by the U.S. Bureau of Labor
Statistics, is a statistical measure of changes, over time, in the
prices of goods and services in major expenditure groups.
The S&P/BARRA Growth Index is an unmanaged index of more than 150
large capitalization stocks that have high historical earnings growth
and predicted above average earnings growth. The S&P/BARRA Value
Index is an unmanaged index of more than 300 large capitalization
stocks characterized by low price-to-book ratios, high yield and low
price-to-earnings ratios. Both the S&P/BARRA Growth Index and the
S&P/BARRA Value Index are compiled by BARRA.
The Lipper Variable Balanced Fund Average is a measure of the
performance of the largest open-end balanced mutual funds.
The Lipper Variable Growth and Income Average represents a
grouping of funds underlying annuity products which have growth and
income as their investment objectives.
The Lipper Variable A-Rated Corporate Bond Fund Average is an
average of the total return performance (calculated on net asset
value) of funds with similar investment objectives as calculated by
Lipper Analytical Services.
Lipper Variable Flexible Portfolio Fund Average is an average of
the total return performance (calculated on net asset value) of funds
with similar investment objectives as calculated by Lipper Analytical
Services.
The Lipper Variable General Bond Fund Average is an average of
the total return performance (calculated on net asset value) of funds
with similar investment objectives as calculated by Lipper Analytical
Services.
Lipper Variable Growth Fund Average is an average of the total
return performance (calculated on net asset value) of funds with
similar investment objectives as calculated by Lipper Analytical
Services.
The Lipper Variable International Fund Average is an average of
the total return performance (calculated on net asset value) of funds
with similar investment objectives as calculated by Lipper Analytical
Services.
The Lipper Variable Intermediate Investmnet Grade Debt Fund
Average is an average of the total return performance (calculated on
net asset value) of funds with similar investment objectives as
calculated by Lipper Analytical Services.
The Lipper Variable Small Company Fund Average is an average of
the total return performance (calculated on net asset value) of funds
with similar investment objectives as calculated by Lipper Analytical
Services.
The Lipper Variable S&P 500 Index Fund Average is an average of
the total return performance (calculated on net asset value) of funds
with similar investment objectives as calculated by Lipper Analytical
Services.
The Lehman Brothers Aggregate Bond Index is an index which
includes most obligations of the U.S. Treasury, agencies and quasi-
federal corportions, most publicly issued investment grade corporate
bonds, and most bonds backed by mortgage pools of GNMA, FNMA and
FHLMC.
The Lehman Brothers Intermediate Government Bond Index is an
index which includes most obligations of the U.S. Treasury, agencies
and quasi-federal corporations having maturities of one to ten years.
The Russell 2000 Index is an index which consists of 2000 small
market capitalization stocks having an average market cap of $160
million.
The Morgan Stanley Capital International Europe, Australia, Far
East Index is an arithmetical average (weighted by market value) of
the performance (in U.S. dollars) of 1,036 companies representing the
stock markets of Europe, Australia, New Zealand and the Far East.
From time to time, articles about a Series regarding performance,
rankings and other Series characteristics may appear in national
publications including, but not limited to, the Wall Street Journal,
Forbes, Fortune, CDA Investment Technologies and Money Magazine (see
Appendix B). In particular, some or all of these publications may
publish their own rankings or performance reviews of mutual funds,
including the Fund. References to or reprints or portions of reprints
of such articles, which may be include rankings that list the names of
other funds and their performance, may be used as Fund or variable
contract sales literature or advertising material.
The following table presents certain total return information for
certain Series and certain indexes and averages for periods ended
December 31, 1995:
<TABLE>>
Total Return Total 5-Year 10-Year
For The Return Average Average
Year Ended For the 5- Annual Annual
Dec. 31, Year Total Total Return
1995 Period Return
Ended
Dec. 31,
1995
<S> <C> <C> <C> <C>
Loomis Sayles Small
Cap Series 28.9% -- -- --
Draycott
International 6.0% -- -- --
Equity Series
Alger Equity Growth
Series 48.7% -- -- --
Capital Growth 38.0% 113.4% 16.4% 22.0%
Series
Loomis Sayles
Avanti Growth 30.4% -- -- --
Series
Venture Valu 39.3% -- -- --
Series
Westpeak Value
Growth Series 36.5% -- -- --
Westpeak Stock
Index Series 36.9% 112.6% 16.3% --
Loomis Sayles
Balanced Series 24.8% -- -- --
Back Bay Advisors
Managed Series 31.3% 84.2% 13.0% --
Salomon Brothers
Strategic Bond
Opportunities
Series 19.4% -- -- --
Back Bay Advisors
Bond Income 21.2% 68.3% 11.0% 10.0%
Series
Salomon Brothers
U.S. Government 15.0% -- -- --
Series
Back Bay Advisors
Money Market
Series 5.6% 24.7% 4.5% 6.1%
S & P 500 37.4% 115.3% 16.5% 14.8%
Lehman Government/
Corporate Index 15.3% 51.1% 8.6% 8.8%
Consumer Price 2.6% 14.8% 2.8% 3.5%
Index
</TABLE>
<TABLE>
Total Return Total 5-Year 10-Year
For The Return Average Average
Year Ended For the 5- Annual Annual
Dec. 31, Year Total Total Return
1995 Period Return
Ended
Dec. 31,
1995
<S> <C> <C> <C> <C>
DJIA 37.0% 124.4% 17.6% 16.4%
</TABLE>
No brokerage commissions or other fees were factored into the
values of the S&P 500, which is an index of an unmanaged group of
common stocks. No adjustments have been made for a shareholder's tax
liability on dividends and capital gains distributions.
Since commencing operations on May 1, 1994, the Loomis Sayles
Small Cap Series has made the following distributions of income: on
12/28/94 $0.15 per share and on 12/29/95 $0.78 per share. Over the
same period, the Loomis Sayles Small Cap Series had made the following
distributions of realized capital gains: none on 12/28/94 and on
12/29/95 $4.81 per share.
Since commencing operations on October 31, 1994, the Draycott
International Equity Series has made the following distributions of
income: on 12/28/94 $ 0.02 per share and on 12/29/95 $0.12 per share.
Over the same period, the Draycott International Equity Series has
made the following distributions of realized capital gains: on
12/28/94 and 12/29/95 no realized capital gains, and paid-in capital
of $0.01 and none, respectively.
Since commencing operations on October 31, 1994, the Alger Equity
Growth Series has made the following distributions of income: on
12/28/94 $0.02 per share and on 12/29/95 $0.01 per share. Over the
same period, the Alger Equity Growth Series has made the following
distributions of realized capital gains: on 12/28/94 no realized
capital gains and on 12/29/95 $0.41 per share.
Since inception, the Capital Growth Series has made the following
distributions of income: on 1/20/84 $0.21 per share; on 1/25/85 $1.12
per share; on 1/24/86 $0.90 per share; on 1/23/87 $0.44 per share; on
12/31/87 $0.66 per share; on 12/29/88 $9.55 per share; on 9/14/89
$0.13 per share; on 12/29/89 $2.59 per share; on 12/28/90 $2.11 per
share; on 12/27/91 $3.22 per share; on 12/29/92 $4.07; on 12/29/93
$2.18 per share; on 12/28/94 $5.15 per share, and on 12/29/95 $3.48
per share. Over the same period, the Capital Growth Series has made
the following distributions of realized capital gains: on 1/20/84
$0.49 per share; on 1/24/86 $45.74 per share; on 1/23/87 $122.84 per
share; on 12/31/87 $19.59 per share; on 1/28/88 $0.30 per share; on
12/28/90 none; on 12/27/91 $32.37 per share; on 12/31/92 none; on
12/29/93 $16.75 per share; on 7/22/94 $0.41 per share; on 12/28/94
$8.92 per share and on 12/29/95 $52.58 per share.
Since commencing the sale of shares to the public on April 30,
1993, the Loomis Sayles Avanti Growth Series has made the following
distributions of income: on 12/29/93 $0.175 per share; on 12/28/94
$0.60 per share and on 12/29/95 $0.40 per share. Over the same
period, the Loomis Sayles Avanti Growth Series has made the following
distributions of realized capital gains: on 12/29/93 $0.885 per share;
on 12/28/94 none and on 12/29/95 $4.15 per share.
Since commencing operations on October 31, 1994, the Venture
Value Series has made the following distributions of income: on
12/28/94 $0.03 per share and on 12/29/95 $0.10 per share. Over the
same period, the Series has made the following distributions of
realized capital gains: on 12/28/94 no realized capital gains and on
12/29/95 $0.20 per share.
Since commencing the sale of shares to the public on April 30,
1993, the Westpeak Value Growth Series has made the following
distributions of income: on 12/29/93 $0.92 per share; on 12/28/94
$1.92 per share and on 12/29/95 $1.71 per share. Over the same
period, the Westpeak Value Growth Series has made the following
distributions of realized capital gains: on 12/29/93 $1.01 per share;
on 12/28/94 no capital gains but a distribution of paid-in capital was
made on 12/28/94 of $0.02 per share and on 12/29/95 capital gains of
$5.69 per share.
Since commencing the sale of shares to the public on May 1, 1987,
the Westpeak Stock Index Series has made the following distributions
of income: on 12/31/87 $2.23 per share; on 12/29/88 $3.44 per share;
on 12/27/89 $3.74 per share; on 12/28/90 $3.99 per share; on 12/27/91
$3.56 per share; on 12/29/92 $8.35 per share; on 12/29/93 $1.54 per
share; on 12/28/94 $1.82 per share and on 12/29/95 $1.85 per share.
Over the same period, the Westpeak Stock Index Series has made the
following distributions of realized capital gains: on 12/31/87 $0.41
per share; on 12/29/88 $0.81 per share; on 12/27/89 $1.64 per share;
on 12/28/90 none; on 1/29/91 $0.05; on 12/27/91 $0.39 per share; on
12/29/92 $67.41 per share; on 5/20/93 $0.29 per share; on 12/29/93
$0.695 per share and on 12/28/94 $0.16 per share and a distribution of
paid-in capital on 12/28/94 of $0.03 per share; on 12/29/95 $1.18 per
share.
Since commencing operations October 31, 1994, the Loomis Sayles
Balanced Series has made the following distributions of income: on
12/28/94 $0.05 per share and on 12/29/95 $0.26 per share. Over the
same period, the Loomis Sayles Balanced Series has made the following
distributions of realized capital gains: on 12/28/94 none and on
12/29/95 $0.19 per share.
Since commencing the sale of shares to the public on May 1, 1987,
the Back Bay Advisors Managed Series has made the following
distributions of income: on 12/31/87 $2.73 per share; on 12/29/88
$5.24 per share; on 12/27/89 $4.22 per share; on 12/28/90 $5.52 per
share; on 12/27/91 $6.41 per share; on 12/29/92 $5.13 per share; on
5/20/93 $0.02 per share; on 12/29/93 $4.36 per share; on 12/28/94
$5.38 per share and on 12/29/95 $6.57 per share. Over the same
period, the Back Bay Advisors Managed Series has made the following
distributions of realized capital gains: on 12/29/88 $0.38; on
12/27/89 $0.38; on 12/28/90 none; on 12/27/91 $1.15 per share; on
12/29/92 $1.07 per share; on 12/29/93 $2.65 per share; on 12/28/94
none; on 12/29/95 $0.88 per share.
Since commencing on October 31, 1994, the Salomon Brothers
Strategic Bond Opportunities Series has made the following
distributions of income: on 12/28/94 $ 0.12 per share and on 12/29/95
$0.55 per share. Over the same period, the Series has made the
following distributions of realized capital gains: on 12/28/94 no
realized capital gains and on 12/29/95 $0.22 per share.
Since inception, the Back Bay Advisors Bond Income Series has
made the following distributions of income: on 1/20/84 $3.76 per
share; on 1/25/85 $11.60 per share; on 1/24/86 $11.09 per share; on
1/23/87 $10.04 per share; on 12/31/87 $8.67 per share; on 12/29/88
$10.70 per share; on 12/27/89 $6.91 per share; on 12/28/90 $7.46 per
share; on 12/27/91 $9.47 per share; on 12/29/92 $6.87 per share; on
12/29/93 $6.25 per share; on 12/28/94 $7.05 per share and on 12/29/95
$7.05 per share. Over the same period, the Back Bay Advisors Bond
Income Series has made the following distributions of realized capital
gains: on 1/20/84 $0.11 per share; on 1/24/86 $1.67 per share; on
1/23/87 $11.10 per share; on 12/28/90 none; on 12/27/91 $2.13 per
share; on 12/29/92 $1.57 per share; on 12/29/93 $4.16 per share; on
12/28/94 none; and on 12/29/95 none.
Since commencing operations on October 31, 1994, the Salomon
Brothers U.S. Government Series has made the following distributions
of income: on 12/28/94 $ 0.10 per share and on 12/29/95 $0.33 per
share. Over the same period, the Salomon Brothers U.S. Government
Series has made the following distributions of realized capital gains:
on 12/28/94 no realized capital gains and on 12/29/95 $0.08 per share.
TRUSTEES AND OFFICERS
Trustees and officers of the Fund (ages in paranthesis) and their
principal occupations during the past five years or more are as
follows:
NANCY HAWTHORNE (44) -- Trustee; Pilot House, Lewis Wharf, Boston, MA
02110; Senior Vice President and Chief Financial Officer,
Continental Cablevision, Inc. (cable television operator);
formerly, Senior Vice President and Treasurer, Continental
Cablevision, Inc.; Director, Perini Corporation (construction).
JOSEPH M. HINCHEY (70) -- Trustee; 193 Wamphassue Road, Stonington,
Connecticut 06378; Retired; formerly, Senior Vice President-
Finance, Analog Devices, Inc. (manufacturer of electronic
devices); Trustee, Union College and Citizens Scholarship
Foundation of America, Inc.; Director, New England Security
Insurance and Chemet Corporation (manufacturer of metallurgical
products).
RICHARD S. HUMPHREY, JR. (70) -- Trustee; 217 Waterways Avenue., P.O.
Box 518, Boca Grande, Florida 33921; Director, RYKA, Inc.
(manufacturer of athletic footwear for women); retired Chairman of
the Board, HBM/Creamer (advertising agency).
ROBERT B. KITTREDGE (75) -- Trustee; 21 Sturdivant Street, Cumberland
Foreside, ME 04110; Retired; Trustee, CGM Trust and CGM Capital
Development Fund; formerly, Vice President, General Counsel and
Director, Loomis, Sayles & Company, Inc.
LAURENS MACLURE (70) -- Trustee; 183 Sohier Street, Cohasset, MA
02025; Retired; Trustee, CGM Trust and CGM Capital Development
Fund; Director, Blue Cross of Massachusetts (health insurance).
DALE ROGERS MARSHALL (58) -- Trustee; 26 East Main Street, Norton, MA
02766; President, Wheaton College; formerly, Academic Dean,
Wellesley College.
JOSEPH F. TURLEY (70) -- Trustee; 5680 N. AIA #304, Indian River
Shores, FL 32963; Retired; Director, The Gillette Company
(manufacturers of personal care products) and EG&G, Inc. (a
diversified technical company); formerly, President and Chief
Operating Officer, The Gillette Company.
FREDERICK K. ZIMMERMANN* (44) -- Chairman of the Board, Chief
Executive Officer, President and Trustee; Chief Investment
Officer and Executive Vice President, The New England; formerly,
Senior Vice President, Vice President and Controller, The New
England; Chairman of the Board and President, TNE Advisers, Inc.;
Director and Vice President - Investments, NEVLICO; Chairman of
the Board and President, New England Pension and Annuity Company.
ANNE M. GOGGIN* (47) -- Senior Vice President and Trustee; Vice
President and Counsel, The New England; Vice President, General
Counsel, Secretary and Clerk, New England Securities Corp.
BEVERLY J. DeWITT (46) -- Secretary; Chief Legal Officer and Clerk,
TNE Advisers, Inc.; Attorney, The New England; Assistant Secretary
and Clerk, Westpeak; Assistant Secretary, New England Securities
Corp; formerly, Attorney, Choate, Hall and Stewart.
JOHN F. GUTHRIE (52) -- Senior Vice President; Vice President of
Portfolio Strategy, The New England; Senior Vice President, TNE
Advisers, Inc.
ALAN C. LELAND (42) -- Vice President; Chief Financial Officer, TNE
Advisers, Inc.; Vice President, The New England.
FRANK NESVET (52) -- Treasurer; Senior Vice President and Chief
Financial Officer, New England Funds, L.P.; formerly, Executive
Vice President, SuperShare Services Corporation.
Previous positions during the past five years with The New
England, Back Bay Advisors, CGM, Westpeak, Loomis Sayles or New
England Funds, L.P. are omitted, if not materially different. Each of
the Fund's Trustees is also a manager of New England Variable Annuity
Fund I for which New England Securities acts as a principal
underwriter and CGM as investment adviser.
Except as indicated above, the address of each trustee and
officer of the Fund affiliated with The New England is 501 Boylston
Street, Boston, Massachusetts 02116. The address of each trustee or
officer of the Fund affiliated with Back Bay Advisors, New England
Funds, L.P. or New England Securities is 399 Boylston Street, Boston,
Massachusetts. The address of each trustee and officer affiliated
with CGM is One International Place, Boston, Massachusetts.
The officers and trustees of the Fund who are "interested
persons" receive no compensation from the Fund, for their services in
such capacities, although they do receive compensation from The New
England, Back Bay Advisors, CGM, Westpeak, Loomis Sayles or New
England Funds, L.P. for services rendered in other capacities.
Trustees Fees
New England Zenith Fund pays no compensation to its officers or
to its trustees who are interested persons thereof.
Until May 1, 1995, each Trustee who is not an interested person
of the Fund received, in the aggregate for serving on the boards of
the Fund and twenty one other mutual fund portfolios, a retainer fee
at the annual rate of $40,000 and meeting attendance fees of $2,500
for each meeting of the boards he or she attended and $1,500 for each
meeting he or she attended of a committee of the board of which he or
she was a member. Each committee chairman received an additional
retainer fee at the annual rate of $2,500. These fees were allocated
among the Series and the twenty one other mutual fund portfolios based
on a formula that took into account, among other factors, the net
assets of each Series and each mutual fund.
Effective May 1, 1995, each Trustee who is not an interested
person has received for serving as Trustee of the Fund and on the
board of New England Variable Annuity Fund I ("NEVA") a retainer fee
at an annual rate of $20,000, and meeting attendance fees of $2,000
for each board meeting attended and a special, one-time fee of $5,000
relating to the services of the board in conjunction with the
restructuring of the boards. In addition, the chairman of the Contract
Review and Governance Committee will receive a retainer at the annual
rate of $3,000, and the chairman of the Audit Committee will receive a
retainer at the annual rate of $2,000. The compensation will be
allocated among the Series and NEVA based on a formula that takes into
account, among other factors, the assets of each Series, and NEVA.
During the fiscal year ended December 31, 1995, the persons who
were then Trustees of the Fund received the amounts set forth below
for serving as a Trustee of the Fund and for also serving on the
governing boards of twenty-one other mutual fund portfolios (the
"Other Portfolios"). As of December 31, 1995, there were a total of
thirty-five portfolios or series in the Fund and the Other Funds
combined.
<TABLE>
Aggregate
Aggregate Compensation Total
Compensation from Compensation
from the Fund the Other from the Fund
in 1995 Portfolios and
in 1995 Other
Portfolios IN 1995
<S> <C> <C> <C>
Name of Trustee
Nancy Hawthorne $24,307 $2,026 $26,333
Joseph M. Hinchey $34,314 $15,811 $50,125
Richard S. $32,485 $15,682 $48,167
Humphrey, Jr.
Robert B. Kittredge $31,860 $46,807(a) $78,667
Laurens MacLure $34,398 $47,102(a) $81,500
Dale Rogers $24,307 $2,026 $26,333
Marshall
Joseph F. Turley $32,485 $15,682 $48,167
</TABLE>
________________
(a) Also includes compensation paid by the portfolios of the
CGM Funds, a group of mutual funds for which Capital Growth
Management Limited Partnership, the investment adviser of the
Fund's Capital Growth Series, serves as investment adviser.
The Fund provides no pension or retirement benefits to Trustees,
but has adopted a deferred payment arrangement under which each
Trustee may elect not to receive fees from the Fund on a current basis
but to receive in a subsequent period an amount equal to the value
that such fees would have if they had been invested in each Series on
the normal payment date for such fees. As a result of this method of
calculating the deferred payments, each Series, upon making the
deferred payments, will be in the same financial position as if the
fees had been paid on the normal payment dates.
At March 31, 1996, the officers and Trustees of the Fund as a
group owned less than 1% of the outstanding shares of the Fund.
ADVISORY ARRANGEMENTS
Advisory Structure. Pursuant to separate advisory agreements
dated October 31, 1994, TNE Advisers, Inc., has agreed to manage the
investment and reinvestment of assets of the Draycott International
Equity, Alger Equity Growth, Venture Value, Loomis Sayles Balanced,
Salomon Brothers Strategic Bond Opportunities and Salomon Brothers
U.S. Government Series. Pursuant to separate advisory agreements with
the Fund, each dated May 1, 1995, TNE Advisers, Inc. has agreed to
manage the investment and reinvestment of the assets of the Loomis
Sayles Small Cap, Loomis Sayles Avanti Growth, Westpeak Value Growth,
Westpeak Stock Index, Back Bay Advisors Managed, Back Bay Advisors
Bond Income and Back Bay Advisors Money Market Series. TNE Advisers,
Inc. has delegated certain of these responsibilities, including
responsibility for determining what investments such Series should
purchase, hold or sell and directing all trading for the Series'
account, for each of the above Series to subadvisers under subadvisory
agreements described below. Pursuant to an advisory agreement dated
September 1, 1993 (which replaced a substantially identical agreement
dated March 1, 1990), CGM has agreed to manage the investment and
reinvestment of the assets of the Capital Growth Series.
In each case, advisory services are provided subject to the
supervision and control of the Fund's trustees. Each advisory
agreement also provides that the relevant investment adviser will
furnish or pay the expenses of the applicable Series for office space,
facilities and equipment, services of executive and other personnel of
the Fund and certain administrative services. TNE Advisers, Inc. has
subcontracted with New England Funds, L.P. to provide, at no extra
cost to the Series it advises, certain administrative services to the
Fund. CGM, in the case of the Capital Growth Series, has
subcontracted with New England Funds, L.P. to provide such services
for that Series.
TNE Advisers, Inc. is a wholly-owned subsidiary of The New
England organized in 1994. TNE Advisers, Inc. oversees, evaluates and
monitors the subadvisers' provision of investment advisory services to
all of the Series (except the Capital Growth Series) and provides
general business management and administration to all of the Series
(except the Capital Growth Series).
The New England and Metropolitan Life Insurance Company
("MetLife") have entered into an agreement to merge, with MetLife to
be the survivor of the merger. The merger is conditioned upon, among
other things, receipt of certain regulatory approvals.
The merger of The New England into MetLife is being treated, for
purposes of the Investment Company Act of 1940 (the "Act"), as an
"assignment" of the existing advisory agreements for each Series and
of the subadvisory agreements of the eight Series that have NEIC
subsidiaries as subadvisers. Under the Act, such an "assignment" will
result in an automatic termination of these agreements. The
subadvisory agreements for the other Series terminate automatically,
by their terms, upon any termination of TNE Advisers' advisory
agreement with the Fund. Thus, those subadvisory agreements will also
terminate at the time of the merger. Shareholders of the Series have
approved new investment advisory and subadvisory agreements, intended
to take effect at the time of the merger. The new agreements are
substantially identical to the existing agreements.
Subject to the supervision of TNE Advisers, Inc. each subadviser,
pursuant to Subadvisory Agreements dated either October 31, 1994 (in
the case of the Alger Equity Growth, Venture Value, Loomis Sayles
Balanced, Salomon Brothers Strategic Bond Opportunities and Salomon
Brothers U.S. Government Series) or May 1, 1995, (in the case of the
Loomis Sayles Small Cap, Loomis Sayles Avanti Growth, Westpeak Value
Growth, Westpeak Stock Index, Back Bay Advisors Managed, Back Bay
Advisors Bond Income and Back Bay Advisors Money Market Series) or
February 29, 1996 (in the case of the Draycott International Equity
Series, which agreement replaces an earlier agreement dated December
29, 1995, which replaced an earlier agreement dated October 31, 1994)
manages the assets of its Series in accordance with that Series'
investment objective and policies, makes investment decisions for that
Series and employs professional advisers and securities analysts who
provide research services to that Series. The Series pay no direct
fees to any of the subadvisers.
Back Bay Advisors, formed in 1986, is a subsidiary of NEIC.
NEIC's sole general partner, New England Investment Companies, Inc.,
is a subsidiary of The New England. NEIC and its subsidiary or
affiliated asset management firms, collectively, have more than $84
billion of assets under management or administration. Back Bay
Advisors provides investment management services to institutional
clients, including other registered investment companies and accounts
of The New England and its affiliates. Back Bay Advisors specializes
in fixed-income management and currently manages over $6 billion in
total assets; it is subadviser Back Bay Advisors Managed, Back Bay
Advisors Bond Income and Back Bay Money Market Series.
Loomis Sayles, subadviser to the Loomis Sayles Small Cap, Loomis
Sayles Avanti Growth and Loomis Sayles Balanced Series, was organized
in 1926 and is one of the oldest and largest investment counsel firms
in the country. An important feature of the Loomis Sayles investment
approach is its emphasis on investment research. Recommendations and
reports of the Loomis Sayles research department are circulated
throughout the Loomis Sayles organization and are available to the
individuals in the Loomis Sayles organization who have been assigned
the responsibility for making investment decisions for the Funds'
portfolios. Loomis Sayles provides investment advice to numerous
other institutional and individual clients. These clients include
other registered investment companies and some accounts of The New
England and its affiliates ("New England Accounts"). Loomis Sayles
is a subsidiary of NEIC.
Draycott, formed in 1991, provides investment management services
to mutual funds and to institutional clients, including one separate
account of The New England and its affiliates; it is subadviser to the
Draycott International Equity Series. Draycott was a wholly-owned
subsidiary of NEIC until December 29, 1995, when NEIC sold Draycott to
Cursitor Holdings Limited ("Cursitor"), an international investment
management firm. Effective February 29, 1996, Cursitor Alliance LLC,
a newly formed Delaware limited liability company, acquired the stock
of Cursitor. Cursitor Alliance LLC is owned (directly and indirectly)
93% by Alliance Capital Management L.P. and 7% by an entity owned by
the principals of Cursitor. At February 29, 1996, Cursitor Alliance
LLC had approximately $17 billion in assets under management.
Alliance Capital Management Corporation ("ACMC") is the sole general
partner of, and the owner of a 1% general partnership interest in,
Alliance Capital. ACMC is an indirect, wholly-owned subsidiary of The
Equitable Life Assurance Society of the United States ("The
Equitable"), which is a wholly-owned subsidiary of The Equitable
Companies Incorporated, a holding company controlled by AXA, a French
insurance holding company. As of February 29, 1996, The Equitable
owned, directly and indirectly, approximately 59% of the outstanding
limited partnership interest in Alliance Capital.
Fred Alger Management Inc. ("Alger Management") provides
investment management services to mutual funds and to other
institutions and individuals; it is subadviser to the Alger Equity
Growth Series. Alger Management, a wholly-owned subsidiary of Fred
Alger Company, Inc., which in turn is a wholly-owned subsidiary of
Alger Associates, Inc., a financial services holding company.
Frederick M. Alger III and his brother, David D. Alger, own
approximately 53% and 17%, respectively, of Alger Associates, Inc. and
may be deemed to control that company and its subsidiaries.
CGM is a limited partnership whose general partner is a
corporation controlled equally by Robert L. Kemp and G. Kenneth
Heebner. In addition to advising the Capital Growth Series, CGM acts
as investment adviser of CGM Capital Development Fund, CGM Trust, New
England Variable Annuity Fund I and New England Growth Fund of the
New England Funds. CGM also provides investment advice to other
institutional and individual clients.
Westpeak is a wholly-owned subsidiary of NEIC. Organized in
1991, Westpeak provides investment management services to a mutual
fund and other institutional clients, including accounts of The New
England and its affiliates; it is subadviser to the Westpeak Value
Growth and Westpeak Stock Index Series.
Davis Selected Advisors, L.P. ("Davis Selected") provides
investment advisory services for mutual funds and other clients; it is
subadviser to the Venture Value Series. Venture Advisers, Inc., the
general partner of Davis Selected, is controlled by Shelby M.C. Davis.
Salomon Brothers Asset Management Inc ("SBAM") is a wholly-owned
subsidiary of Salomon Inc which provides investment advisory services
for individuals, other mutual funds and institutional clients; it is
subadviser to the Salomon Brothers U.S. Government Series and the
Salomon Brothers Strategic Bond Opportunities Series.
Advisory Fees. Each Series pays its adviser compensation at the
annual percentage rates of the corresponding levels of that Series'
average daily net asset values (the adviser of the Capital Growth
Series is CGM, the adviser of each other Series is TNE Advisers).
<TABLE>
Annual Average Daily Net
Series Percentage Asset Value
Rate Levels
<S> <C> <C>
Loomis Sayles Small 1.00% all assets
Cap Series
Draycott .90% all assets
International
Equity Series
Alger Equity Growth .75% all assets
Series
Capital Growth .70% the first $200
Series million
.65% the next $300
million
.60% amounts in excess
of $500 million
Loomis Sayles .70% the first $200
Avanti Growth .65% million
Series the next $300
million
.60% amounts in excess
of $500 million
Venture Value .75% all assets
Series
Westpeak Value .70% the first $200 million
Growth Series .65% the next $300 million
.60% of $500 million
Westpeak Stock .25% all assets
Index Series
Loomis Sayles .70% all assets
Balanced Series
Back Bay Advisors .50% all assets
Managed Series
Salomon Brothers .65% all assets
Strategic Bond
Opportunities
Series
Back Bay Advisors .40% the first $400 million
Bond Income .35% the next $300 million
Series
.30% the next $300
million
.25% amounts in excess
of $1 billion
Salomon Brothers .55% all assets
U.S. Government
Series
Back Bay Advisors .35% the first $500 million
Money Market .30% the next $500 million
Series .25% amounts in excess of
$1 billion
</TABLE>
Subadvisory Fees.
Sub-Advisory Fees. TNE Advisers pays each sub-adviser at the
following rates for providing sub-advisory services to the following
Series:
<TABLE>
Series Annual Percentage Average Daily Net Asset
Rates Paid Value Levels
by TNE
Advisers to the
Respective
Sub-Advisers
<S> <C> <C>
Loomis Sayles Small Cap 0.55% of the first $25 million
Series
0.50% of the next $75 million
0.45% of the next $100 million
0.40% of amounts in excess of
$200 million
Draycott International 0.75% of the first $10 million
Equity Series
0.60% of the next $40 million
0.45% of amounts in excess of
$50 million
Alger Equity Growth 0.45% of the first $100
Series million
0.40% of the next $400 million
0.35% of amounts in excess of
$500 million
Loomis Sayles Avanti 0.50% of the first $25 million
Growth Series
0.40% of the next $75 million
0.35% of the next $100 million
0.30% of amounts in excess of
$200 million
Venture Value Series 0.45% of the first $100
million
0.40% of the next $400 million
0.35% of amounts in excess of
$500 million
Westpeak Value Growth 0.50% of the first $25 million
Series
0.40% of the next $75 million
0.35% of the next $100 million
0.30% of amounts in excess of
$200 million
Westpeak Stock Index 0.10% of all assets
Series
Loomis Sayles Balanced 0.50% of the first $25 million
Series
0.40% of the next $75 million
0.30% of amounts in excess of
$100 million
Back Bay Advisors 0.25% of the first $50 million
Managed Series
0.20% of amounts in excess of
$50 million
Salomon Brothers 0.35% of the first $50 million
Strategic Bond
Opportunities Series 0.30% of the next $150 million
0.25% of the next $300 million
0.20% of amounts in excess of
$500 million
Back Bay Advisers Bond 0.25% of the first $50 million
Income
Series 0.20% of the next $200 million
0.15% of amounts in excess of
$250 million
Salomon Brothers U.S. 0.225% of the first $200
Government million
Series 0.150% of the next $300 million
0.100% of amounts in excess of
$500 million
Back Bay Advisors Money 0.15% of the first $100
Market million
Series 0.10% of amounts in excess of
$100 million
Prior to May 1, 1996, the advisory fee rate for the Alger Equity
Growth Series was 0.70% of average net assets and the sub-advisory fee
rate was 0.45% of the first $10 million of average net assets, 0.40%
of the next $90 million of such assets, 0.35% of the next $150 million
of such assets, 0.30% of the next $250 million of such assets and
0.25% of such assets in excess of $500 million. Effective May 1,
1996, Alger Management has agreed with TNE Advisers, Inc. that the sub-
advisory fee payable by TNE Advisers, Inc. to Alger Management will be
reduced by 0.05% of the first $240 million of the excess of the
Series' average daily net assets over $10 million, and by 0.10% of the
excess of the Series' average daily net assets over $250 million.
This fee reduction benefits TNE Advisers, Inc., but does not reduce
the advisory fees payable by the Series. The fee reduction agreement
will expire on (a) January 1, 1998 or (b) at such time as TNE
Advisers, Inc. has recovered certain expenses (generally, those
expenses borne by TNE Advisers, Inc. under the Expense Deferral
Arrangement prior to January 1, 1996 which are not recovered from the
Series), whichever comes first.
In connection with SBAM's service as subadviser to the Strategic
Bond Opportunities Series, SBAM's London based affiliate, Salomon
Brothers Asset Management Limited ("SBAM Limited"), Victoria Plaza,
111 Buckingham Palace Road, London SW1W OSB, England, serves as
subadviser to SBAM relating to currency transactions and investments
in non-dollar denominated debt securities for the benefit of the
Salomon Brothers Strategic Bond Opportunities Series. For these
services, SBAM has agreed to pay SBAM Limited one-third of the
compensation that SBAM receives for serving as subadviser to the
Series. SBAM Limited is an indirect, wholly-owned subsidiary of
Salomon Inc.
For the fiscal year ended December 31, 1993, the Back Bay
Advisors Money Market Series, the Back Bay Advisors Bond Income Series
and the Back Bay Advisors Managed Series paid advisory fees of
$213,811, $429,841 and $501,403, respectively, to Back Bay Advisors
and for that same period, the Capital Growth Series paid $3,729,518 to
CGM. For the period April 30 to December 31, 1993, the Westpeak Value
Growth Series paid advisory fees of $18,667 to Westpeak and the Loomis
Sayles Avanti Growth Series paid advisory fees of $23,455 to Loomis
Sayles. For the period January 1, 1993 to July 31, 1993, the Westpeak
Stock Index Series paid advisory fees of $22,166 to Back Bay Advisors
and for the period August 1,1993 to December 31, 1993, paid advisory
fees of $27,101 to Westpeak.
For the fiscal year ended December 31, 1994, the Back Bay
Advisors Managed Series, the Back Bay Advisors Bond Income Series and
the Back Bay Advisors Money Market Series paid advisory fees of
$613,249, $515,084 and $231,326, respectively, to Back Bay Advisors.
For that same period, the Capital Growth Series paid advisory fees of
$4,396,663 to CGM, the Westpeak Value Growth Series and the Westpeak
Stock Index Series paid advisory fees of $111,827 and $83,095,
respectively, to Westpeak and the Loomis Sayles Avanti Growth Series
paid advisory fees of $132,596 to Loomis Sayles. For the period May
1, 1994 to December 31, 1994, the Loomis Sayles Small Cap Series paid
no advisory fees to Loomis Sayles. For the period October 31, 1994 to
December 31, 1994, the Loomis Sayles Balanced, the Draycott
International Equity, Salomon Brothers U.S. Government, Salomon
Brothers Strategic Bond Opportunities, Venture Value and the Alger
Equity Growth Series paid no advisory fees to TNE Advisers, Inc.
For the following periods in 1995, advisory fees were paid by the
following Series:
</TABLE>
<TABLE>
January 1, 1995 to May 1, 1995 to January 1, 1995 to
April 30, 1995 December 31, 1995 December 31, 1995
<S> <C> <C> <C> <C> <C> <C>
Series Amount Adviser Amount Adviser Amount Adviser
Paid Paid Paid Paid Paid Paid
Loomis
Sayles $22,671 Loomis $124,433 TNE -- --
Small Sayles Advisers
Cap , Inc.
Series
Draycott
Internat -- -- -- -- $85,666 TNE
ional Advisers
Equity , Inc.
Series
Alger TNE
Equity -- -- -- -- $144,943 Advisers
Growth , Inc.
Series
Capital
Growth -- -- -- -- $5,232,5 CGM
Series 62
Loomis
Sayles $65,057 Loomis $195,829 TNE -- --
Avanti Sayles Advisers
Growth , Inc.
Series
Venture TNE
Value -- -- -- -- $131,969 Advisers
Series , Inc.
Westpeak
Value $59,980 Westpeak $182,648 TNE -- --
Growth Advisers
Series , Inc.
Westpeak
Stock $33,568 Westpeak $88,791 TNE -- --
Index Advisers
Series , Inc.
Loomis
Sayles -- -- -- -- $65,752 TNE
Balanced Advisers
Series , Inc.
Back Bay
Advisors $207,821 Back Bay $467,918 TNE -- --
Managed Advisors Advisers
Series , Inc.
Salomon
Brothers
Strategi -- -- -- -- $35,085 TNE
c Bond Advisers
Opportun , Inc.
ities
Series
Back Bay
Advisors $173,139 Back Bay $399,140 TNE -- --
Bond Advisors Advisers
Income , Inc.
Series
Salomon
Brothers
U.S. -- -- -- -- $20,446 TNE
Government Advisers, Inc. , Inc.
Series
Back Bay
Advisors $84,329 Back Bay $193,678 TNE -- --
Money Advisors Advisers
Market , Inc.
Series
</TABLE>
Each advisory and subadvisory agreement provides that it will
continue in effect after two years from the date of its execution only
if it is approved at least annually thereafter (i) by the trustees of
the Fund or by vote of a majority of the outstanding voting securities
of the applicable Series and (ii) by vote of a majority of the
trustees who are not interested persons of (i) the Fund or (ii) the
applicable Series' investment adviser or subadviser. Any amendment to
any advisory or subadvisory agreement must be approved by vote of a
majority of the outstanding voting securities of the applicable Series
and by vote of a majority of the trustees who are not interested
persons of (i) the Fund or (ii) the applicable Series' investment
adviser or subadviser. Each agreement may be terminated without
penalty by the trustees or by the shareholders of the applicable
Series, upon sixty days' written notice, or by the applicable Series'
investment adviser, upon ninety days' written notice, and each
terminates automatically in the event of its assignment. In addition,
each subadvisory agreement may be terminated without penalty upon
ninety days' written notice by the relevant subadviser. Each advisory
agreement will automatically terminate if the Fund shall at any time
be required by New England Securities, which is an indirectly wholly-
owned subsidiary of The New England, to eliminate all reference to the
words "New England" in its name, unless the continuance of such
agreement after such change of name is approved by a majority of the
outstanding voting securities of the applicable Series and by a
majority of the trustees who are not interested persons of (i) the
Fund or (ii) the applicable Series' investment adviser.
Each advisory agreement provides that if the total ordinary
business expenses of a particular Series for any fiscal year exceed
the lowest applicable limitations (based on a percentage of average
net assets or income) prescribed by any state in which shares of that
Series are qualified for sale, the applicable Series' investment
adviser shall pay such excess. Each advisory agreement provides,
however, that the advisory fee shall not be reduced nor shall any of
such expenses be paid to an extent or under circumstances which might
result in the inability of any Series or of the Fund, taken as a
whole, to qualify as a regulated investment company under the Internal
Revenue Code of 1986, as amended. The term "expenses" for this
purpose excludes brokerage commissions, taxes, interest and
extraordinary expenses.
As required by state insurance licensing authorities, each
Series' investment adviser has also undertaken, separately from the
advisory agreements, to be liable for negligence in the performance of
any administrative services with respect to the Fund which are
supplemental to their management of the investment and reinvestment of
that Series' assets.
Each advisory and subadvisory agreement provides that the
relevant investment adviser or subadviser shall not be subject to any
liability in connection with the performance of its services
thereunder in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties.
Certain officers and employees of Back Bay Advisors who are also
officers of the Fund have responsibility for portfolio management of
the other advisory accounts and clients (including other Series of the
Fund and other registered investment companies, and accounts of
affiliates of Back Bay Advisors) that may invest in securities in
which the Series for which Back Bay Advisors acts as a subadviser may
invest. Where Back Bay Advisors determines that an investment
purchase or sale opportunity is appropriate and desirable for more
than one advisory account, purchase and sale orders may be executed
separately or may be combined and, to the extent practicable,
allocated by Back Bay Advisors to the participating accounts.
Where advisory accounts have competing interests in a limited
investment opportunity, Back Bay Advisors will allocate an investment
purchase opportunity based on the relative time that competing
accounts have had funds available for investment, and the relative
amounts of available funds, and will allocate an investment sale
opportunity based on relative cash requirements and the time that the
competing accounts have had investments available for sale. It is
BBA's policy to allocate, to the extent practicable, investment
opportunities to each client over a period of time on a fair and
equitable basis relative to its other clients.
It is believed that the ability of the Series for which Back Bay
Advisors acts as subadviser to participate in larger volume
transactions in this manner will in some cases produce better
executions for the Series. However, in some cases, this procedure
could have a detrimental effect on the price and amount of a security
available to a Series or the price at which a security may be sold.
The trustees are of the view that the benefits of retaining Back Bay
Advisors as subadviser outweigh the disadvantages, if any, that might
result from participating in such transactions.
Certain officers of Loomis Sayles who are also officers of the
Fund have responsibility for the management of other client
portfolios. The Detroit office of Loomis Sayles buys and sell
portfolio securities for the Loomis Sayles Small Cap Series. The
Chicago office of Loomis Sayles buys and sells portfolio securities
for the Loomis Sayles Avanti Growth Series. The Pasadena office buys
and sells portfolio securities for the Loomis Sayles Balanced Series.
These and other offices of Loomis Sayles buy securities independently
of one another. The other investment companies and clients served by
Loomis Sayles sometimes invest in securities in which the Series
advised by Loomis Sayles also invest. If one of these Series and such
other clients advised by the same office of Loomis Sayles desire to
buy or sell the same portfolio securities at about the same time,
purchases and sales will be allocated, to the extent practicable, on a
pro rata basis in proportion to the amounts desired to be purchased or
sold for each. It is recognized that in some cases the practices
described in this paragraph could have a detrimental effect on the
price or amount of a security which that Series purchases or sells.
In other cases, however, it is believed that these practices may
benefit the Series. It is the opinion of the trustees of the Fund
that the desirability of retaining Loomis Sayles as subadviser for
these Series outweighs the disadvantages, if any, which might result
from these practices.
Certain officers of Westpeak, some of whom are officers of the
Fund, have responsibility for portfolio management for other clients
(including affiliates of Westpeak), some of which may invest in
securities in which the Westpeak Value Growth Series or the Westpeak
Stock Index Series also may invest. When these Series and other
clients desire to purchase or sell the same security at or about the
same time, the purchase and sale orders are ordinarily placed and
confirmed separately but may be combined to the extent practicable and
allocated as nearly as practicable on a pro rata basis in proportion
to the amounts desired to be purchased or sold for each. It is
believed that the ability of those clients to participate in larger
volume transactions will in some cases produce better executions for
the Westpeak Value Growth Series and the Westpeak Stock Index Series.
However, in some cases this procedure could have a detrimental effect
on the price and amount of a security available to a Series or the
price at which a security may be sold. It is the opinion of the
trustees of the Fund that the desirability of retaining Westpeak as
subadviser for the Westpeak Value Growth Series and the Westpeak Stock
Index Series outweighs the disadvantages, if any, which might result
from these practices.
Certain officers and employees of Draycott have responsibility
for portfolio management for other clients (including affiliates of
Draycott), some of which may invest in securities in which the
Draycott International Equity Series also may invest. When the
Series and other clients desire to purchase or sell the same security
at or about the same time, purchase and sale orders are ordinarily
placed and confirmed separately but may be combined to the extent
practicable and allocated as nearly as practicable on a pro rata
basis in proportion to the amounts desired to be purchased or sold
for each. It is believed that the ability of those clients to
participate in larger volume transactions will in some cases produce
better executions for the Draycott International Equity Series.
However, in some cases this procedure could have a detrimental effect
on the price and amount of a security available to the Draycott
International Equity Series or the price at which a security may be
sold. It is the opinion of the trustees that the desirability of
retaining Draycott as subadviser to the Series outweighs the
disadvantages, if any, which might result from such procedure.
Various officers and trustees of the Fund also serve as officers
or trustees of other investment companies advised by CGM. The other
investment companies and clients served by CGM (including accounts of
affiliates of CGM) sometimes invest in securities in which the Capital
Growth Series also invests. If the Capital Growth Series and such
other investment companies or clients advised by CGM desire to buy or
sell the same portfolio securities at the same time, purchases and
sales will be allocated to the extent practicable on a pro rata basis
in proportion to the amounts desired to be purchased or sold for each.
It is recognized that in some cases the practices described in this
paragraph could have a detrimental effect on the price or amount of
the securities which the Capital Growth Series purchases or sells. In
other cases, however, it is believed that these practices may benefit
the Capital Growth Series. It is the opinion of the trustees that the
desirability of retaining CGM as adviser for the Capital Growth Series
outweighs the disadvantages, if any, which might result from these
practices.
Certain officers and employees of SBAM, Davis Selected and Alger
Management have responsibility for portfolio management for other
clients (including other registered investment companies and
affiliates of SBAM, Davis Selected or Alger Management) some of which
may invest in securities in which the respective Series that these
subadvisers manage also invest. In such circumstances, SBAM, Davis
Selected or Alger Management may determine that orders for the
purchase or sale of the same security for the Series it manages and
one or more other registered investment companies or other accounts it
manages should be combined, in which event the transactions will be
priced and allocated in a manner deemed by SBAM, Davis Selected or
Alger Management, respectively, to be equitable and in the best
interests of the respective Series that it manages and its other
accounts. It is recognized that in some cases the practices described
in this paragraph could have a detrimental effect on the price or
amount of a security that a Series purchases or sells. In other
cases, however, it is believed that these practices may benefit a
Series. It is the opinion of the trustees that the desirability of
retaining SBAM, Davis Selected and Alger Management as subadvisers for
the respective Series outweighs the disadvantages, if any, which might
result from these practices.
DISTRIBUTION AGREEMENT
Under an agreement with the Fund, New England Securities, a
Massachusetts corporation, serves as the general distributor of shares
of each Series, which are sold at net asset value without any sales
charge. The offering of each Series' shares is continuous. Shares
are offered for sale only to certain insurance company separate
accounts. New England Securities receives no compensation from the
Fund or purchasers of Fund shares for acting as distributor. The
agreement does not obligate New England Securities to sell a specific
number of shares. New England Securities is a wholly-owned subsidiary
of The New England.
New England Securities controls the words "New England" in the
Fund's name and if it should cease to be the Fund's distributor, the
Fund may be required to change its name and delete these words. New
England Securities also acts as general distributor for New England
Retirement Investment Account, New England Variable Annuity Fund I,
The New England Variable Account, New England Variable Annuity
Separate Account and New England Variable Life Separate Account.
OTHER SERVICES
Custodial Arrangements. State Street Bank and Trust Company
("State Street Bank"), Boston, Massachusetts 02102, is the Fund's
custodian. As such, State Street Bank holds in safekeeping
certificated securities and cash belonging to each Series and, in such
capacity, is the registered owner of securities held in book-entry
form belonging to the Series. Upon instruction, State Street Bank
receives and delivers cash and securities of the Series in connection
with Series transactions and collects all dividends and other
distributions made with respect to Series portfolio securities. State
Street Bank also maintains certain accounts and records of the Fund
and calculates the total net asset value, total net income and net
asset value per share of each Series on a daily basis.
Independent Accountants. The Fund's independent accountants are
Coopers & Lybrand, One Post Office Square, Boston, Massachusetts
02109. Coopers & Lybrand conducts an annual audit of each Series,
assists in the preparation of federal and state income tax returns and
consults with the Fund as to matters of accounting and federal and
state income taxation. A table of selected per share data and ratios
for each of the Series appears in the Prospectus. This table and the
financial statements included in this Statement of Additional
Information are included in reliance on the report of Coopers &
Lybrand for the years 1987 through 1994 and on the report of the
Fund's former independent accountants, Price Waterhouse, for the years
1985 and 1986, given on the authority of said firms as experts in
auditing and accounting.
Other Arrangements. Office space, facilities, equipment and/or
certain administrative services for the Fund (and, where applicable,
other mutual funds) under the investment management of CGM or TNE
Advisers, Inc. are currently furnished by New England Funds, L.P.,
under separate service agreements with those investment advisers.
Under a service agreement between Back Bay Advisors and New England
Securities for fiscal years ended December 31, 1993, 1994 and 1995,
Back Bay Advisors paid New England Securities or New England Funds,
L.P., an affiliate of New England Securities, $51,918, $51, 918 and
$71,233, respectively, relating to the Back Bay Advisors Money Market
Series; $91,245, $109,472 and and $126,352, respectively, relating to
the Back Bay Advisors Bond Income Series; and $85,151, $104,256 and
$120,279, respectively, relating to the Back Bay Advisors Managed
Series under a service agreement. For the fiscal year ended December
31, 1992 and the period January 1, 1993 through July 31, 1993, Back
Bay Advisors paid New England Securities or New England Funds, L.P.
$17,920 and $ 7,552, respectively, for the Westpeak Stock Index
Series, which it managed prior to August 1, 1993, under such
agreement. Under a service agreement between New England Securities
and CGM, CGM paid New England Securities or New England Funds, L.P.,
for fiscal years ended December 31, 1993, 1994 and 1995, $530,147,
$621,253 and $734,743, respectively, relating to the Capital Growth
Series. Under a service agreement between Loomis Sayles and New
England Funds, L.P., Loomis Sayles paid New England Funds, L.P. for
the period April 30, 1993 through December 31, 1993 and the fiscal
years ended December 31, 1994 and 1995 $5,497, $29,614 and $34,683,
respectively, for the Avanti Growth Series. Under the service
agreement between New England Securities and Westpeak, Westpeak paid
New England Securities $4,735 for the period April 30, 1993 to
December 31, 1993 and $25,381 and $31,668 for the fiscal years ended
December 31, 1994 and 1995, respectively, for the Westpeak Value
Growth Series and $16,164, $49,833 and $49,914 for the period August
1, 1993 to December 31, 1993 and for the fiscal years ended December
31, 1994 and 1995, respectively, for the Westpeak Stock Index Series.
Under a service agreement between Loomis, Sayles and New England
Funds, L.P., Loomis Sayles paid New England Funds, L.P. $2,007 for the
period May 1, 1994 to December 31, 1994, and $10,604 for the fiscal
year ended December 31, 1995 for the Loomis Sayles Small Cap Series.
For the period October 31, 1994 through December 31, 1994, under
the service agreement between New England Funds, L.P. and TNE
Advisers, Inc., TNE Advisers, Inc. paid $1,666 for the Loomis Sayles
Balanced Series, $1,666 for the Draycott International Equity Series,
$1,666 the Salomon Brothers U.S. Government Series, $1,666 for the
Salomon Brothers Strategic Bond Opportunities Series, $1,666 for the
Venture Value Series and $1,666 for the Alger Equity Growth Series;
for the fiscal year ended December 31, 1995, TNE Advisers, Inc. paid
$10,044 for the Loomis Sayles Balanced Series, $10,044 for the
Draycott International Equity Series, $10,044 for the Salomon Brothers
U.S. Government Series, $10,044 for the Salomon Brothers Strategic
Bond Opportunities Series, $11,503 for the Venture Value Series and
$13,133 for the Alger Equity Growth Series.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Some of the Fund's portfolio transactions are placed with brokers
and dealers who provide the investment advisers or subadvisers with
supplementary investment and statistical information or furnish market
quotations to the Fund or other investment companies advised by the
investment advisers or subadvisers. Although it is not possible to
assign an exact dollar value to these services, they may, to the
extent used, tend to reduce the expenses of the investment advisers or
subadvisers. The services may also be used by the investment advisers
or subadvisers in connection with their other advisory accounts and in
some cases may not be used with respect to the Fund.
Certain Portfolio Transactions of Loomis Sayles Balanced and Back Bay
Advisors Managed Series; Back Bay Advisors Bond Income Series and Back
Bay Advisors Money Market Series
It is expected that the portfolio transactions of the Loomis
Sayles Balanced Series and the Back Bay Advisors Managed Series, and
portfolio transactions of the Back Bay Advisors Bond Income Series and
Back Bay Advisors Money Market Series in bonds, notes and money market
instruments, will generally be with issuers or dealers on a net basis
without a stated commission. Portfolio turnover for the years 1993,
1994 and 1995 was 177%, 82% and 73% respectively, for the Back Bay
Advisors Bond Income Series and 22%, 76% and 51%, respectively, for
the Back Bay Advisors Managed Series. The Loomis Sayles Balanced
Series' portfolio turnover rates for the periods May 1, 1994 through
December 31, 1994 and the fiscal year ended December 31, 1995 were 0%
and 72%, respectively.
Loomis Sayles Small Cap Series, Draycott International Equity Series,
Alger Equity Growth Series, Capital Growth Series, Loomis Sayles
Avanti Growth Series, Venture Value Series, Loomis Sayles Balanced
Series (Common Stock Transactions) and Back Bay Advisors Managed
Series
In placing orders for the purchase and sale of portfolio
securities, CGM, in the case of the Capital Growth Series, Loomis
Sayles, in the case of the Loomis Sayles Avanti Growth Series, the
Loomis Sayles Small Cap Series and the Loomis Sayles Balanced Series,
Back Bay Advisors in the case of investments in common stocks by the
Back Bay Advisors Managed Series, Draycott, in the case of the
Draycott International Equity Series, Davis Selected, in the case of
the Venture Value Series, and Alger Management, in the case of the
Alger Equity Growth Series, each select only brokers which it believes
are financially responsible, will provide efficient and effective
services in executing, clearing and settling an order and will charge
commission rates which, when combined with the quality of the
foregoing services, will produce best price and execution for the
transaction. This does not necessarily mean that the lowest available
brokerage commission will be paid. However, the commissions are
believed to be competitive with generally prevailing rates. The
Series' advisers or subadvisers will use their best efforts to obtain
information as to the general level of commission rates being charged
by the brokerage community from time to time and will evaluate the
overall reasonableness of brokerage commissions paid on transactions
by reference to such data. In making such evaluation, all factors
affecting liquidity and execution of the order, as well as the amount
of the capital commitment by the broker in connection with the order,
are taken into account. The Capital Growth Series, Loomis Sayles
Avanti Growth Series, Loomis Sayles Small Cap Series, Loomis Sayles
Balanced Series, Back Bay Advisors Managed Series, Draycott
International Equity Series, Venture Value Series and Alger Equity
Growth Series will not pay a broker a commission at a higher rate than
otherwise available for the same transaction in recognition of the
value of research services provided by the broker or of any other
services provided by the broker which do not contribute to the best
price and execution of the transaction.
For the fiscal years ending in 1993, 1994 and 1995, brokerage
transactions for the Capital Growth Series aggregating $1,745,079,465,
$1,855,305,003 and $3,292,999,742, respectively, were allocated to
brokers providing research services and commissions of $2,851,197,
$2,659,378 and $4,129,082, respectively, were paid on those
transactions. For the fiscal years ending in 1993, 1994 and 1995 the
Westpeak Stock Index Series paid brokerage commissions aggregating
$21,000, $10,918 and $10,566, respectively. For the same periods, the
Back Bay Advisors Managed Series paid brokerage commissions
aggregating $17,000, $21,159 and $1,615, respectively. For the period
April 30, 1993 to December 31, 1993, the Loomis Sayles Avanti Growth
Series and the Westpeak Value Growth Series paid brokerage commissions
aggregating $10,000 and $12,000, respectively; for the fiscal years
ending December 31, 1994 and December 31, 1995, the Loomis Sayles
Avanti Growth Series paid brokerage commissions of $67,095 and $72,377
(100% of which was paid to brokers providing research services) and,
for the same periods, the Westpeak Value Growth Series paid brokerage
commissions of $54,751 and $61,252. For the period May 1, 1994 to
December 31, 1994 and fiscal year ended December 31, 1995, the Loomis
Sayles Small Cap Series paid brokerage commissions of $7,395 and
$97,195, respectively (100% of which was paid to brokers providing
research services). For the period October 31, 1994 to December 31,
1994, the Draycott International Equity Series paid brokerage
commissions of $4,714, the Venture Value Series paid brokerage
commissions of $6,084 and the Alger Equity Growth Series paid
brokerage commissions of $2,452 (100% of which was paid to brokers
providing research services). For the fiscal year ended December 31,
1995, the Draycott International Equity Series paid brokerage
commissions of $82,922, the Venture Value Series paid brokerage
commissions of $40,523, the Loomis Sayles Balanced Series paid
brokerage commission of $25,690 ($120 of which was allotted to brokers
providing research services), and the Alger Equity Growth Series paid
brokerage commissions of $69,052 (100% of which was paid to brokers
providing research services).
Westpeak Value Growth Series, Westpeak Stock Index Series, Salomon
Brothers Strategic Bond Opportunities Series and Salomon Brothers U.S.
Government Series
In placing orders for the purchase and sale of securities,
Westpeak, in the case of the Westpeak Value Growth Series and the
Westpeak Stock Index Series, and SBAM, in the case of Salomon Brothers
Strategic Bond Opportunities Series and Salomon Brothers U.S.
Government Series, always seeks best execution. Westpeak and SBAM
each selects only brokers or dealers which it believes are financially
responsible, will provide efficient and effective services in
executing, clearing and settling an order and will charge commission
rates which, when combined with the quality of the foregoing services,
will produce best price and execution. This does not necessarily mean
that the lowest available brokerage commission will be paid. Westpeak
or SBAM will each use its best efforts to obtain information as to the
general level of commission rates being charged by the brokerage
community from time to time and will evaluate the overall
reasonableness of brokerage commissions paid on transactions by
reference to such data. In making such evaluation, all factors
affecting liquidity and execution of the order, as well as the amount
of the capital commitment by the broker in connection with the order,
are taken into account. Westpeak or SBAM may cause the Series they
manage to pay a broker-dealer that provides brokerage and research
services to Westpeak or SBAM an amount of commission for effecting a
securities transaction for a Series in excess of the amount another
broker-dealer would have charged effecting that transaction. Westpeak
or SBAM, as the case may be, must determine in good faith that such
greater commission is reasonable in relation to the value of the
brokerage and research services provided by the executing broker-
dealer viewed in terms of that particular transaction or Westpeak's or
SBAM's overall responsibilities to the Fund and its other clients.
Westpeak's or SBAM's authority to cause the Series it manages to pay
such greater commissions is also subject to such policies as the
trustees of the Fund may adopt from time to time.
Affiliated Brokerage
A Series may pay brokerage commissions to an affiliated broker
for acting as the respective Series' agent on purchases and sales of
securities for the portfolio of the Series. SEC rules require that
commissions paid to an affiliated broker of a mutual fund for
portfolio transactions not exceed "usual and customary" brokerage
commissions. The rules define "usual and customary" commissions to
include amounts which are "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by
other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange
during a comparable period of time." The Trustees, including those
who are not "interested persons" of the Fund, have adopted procedures
for evaluating the reasonableness of commissions paid to affiliated
brokers and will review these procedures periodically. The Westpeak
Stock Index Series paid $0, $0 and $0 in brokerage commissions to New
England Securities, an affiliated broker of the Series, in 1993, 1994,
and 1995, respectively. The Back Bay Advisors Managed Series paid
$17,268, $0 and $0 in brokerage commissions to New England Securities,
an affiliated broker of the Series, in 1993, 1994 and 1995,
respectively. The Back Bay Advisors Bond Income Series paid no
commissions to New England Securities during those periods. The Alger
Equity Growth Series paid $2,452 and $69,052 in brokerage commissions
to Fred Alger and Company, Inc., an affiliated broker, for the period
October 31, 1994 to December 31, 1994 and the year ended December 31,
1995, respectively. The amounts paid by the Westpeak Stock Index
Series represent approximately 0% , 0% and 0% of that Series'
aggregate brokerage commissions involving the payment of commissions
for fiscal years 1993, 1994 and 1995 respectively. The amount paid by
the Back Bay Advisors Managed Series represents approximately 100%, 0%
and 0% of that Series' aggregate brokerage commissions in 1993, 1994
and 1995 respectively. The amount paid by the Back Bay Advisors Bond
Income Series represents approximately 0%, 0% and 0% of the Series'
aggregate brokerage commissions in 1993, 1994 and 1995, respectively.
The amount paid by the Alger Equity Growth Series represents
approximately 100% and 100% of that Series' aggregate brokerage
commissions for the period October 31, 1994 to December 31, 1994 and
for the year ended December 31, 1995.
DESCRIPTION OF THE FUND
The Fund is organized as a Massachusetts business trust under the
laws of Massachusetts pursuant to an Agreement and Declaration of
Trust (the "Declaration of Trust") dated December 16, 1986. On
February 27, 1987, the Fund succeeded to the operations of The New
England Zenith Fund, Inc., a Massachusetts corporation incorporated on
January 7, 1983 as NEL Series Fund, Inc. On November 1, 1985, the
name of that corporation was changed to Zenith Fund, Inc. and on July
17, 1986 it was changed again to The New England Zenith Fund, Inc.
The Capital Growth, Back Bay Advisors Bond Income and Back Bay
Advisors Money Market Series all commenced investment operations in
1983. The Westpeak Stock Index Series commenced operations on March
30, 1987. The Back Bay Advisors Managed Series commenced investment
operations on May 1, 1987. The Loomis Sayles Avanti Growth and the
Westpeak Value Growth Series commenced investment operations in April
1993. The Loomis Sayles Small Cap Series commenced investment
operations on May 1, 1994. The Alger Equity Growth, Draycott
International Equity, Venture Value, Loomis Sayles Balanced, Salomon
Brothers Strategic Bond Opportunties and Salomon Brothers U.S.
Government Series commenced investment operations on October 31, 1994.
The Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of each of the Loomis
Sayles Small Cap, Draycott International Equity, Alger Equity Growth,
Capital Growth, Loomis Sayles Avanti Growth, Venture Value, Westpeak
Value Growth, Westpeak Stock Index, Loomis Sayles Balanced, Back Bay
Advisors Managed, Salomon Brothers Strategic Bond Opportunities, Back
Bay Advisors Bond Income, Salomon Brothers U.S. Government and Back
Bay Advisors Money Market Series. Interests in the Fund portfolios
described in the Prospectus and in this Statement of Additional
Information are represented by shares of such Series. Each share of a
Series represents an equal proportionate interest in such Series with
each other share and is entitled to a proportionate interest in the
dividends and distributions from such Series. The shares of the
Series do not have any preemptive rights. Upon liquidation of any
Series, whether pursuant to liquidation of the Fund or otherwise,
shareholders of such Series are entitled to share pro rata in the net
assets of such Series available for distribution to shareholders. The
Declaration of Trust also permits the trustees to charge shareholders
directly for custodial, transfer agency and servicing expenses.
The Declaration of Trust also permits the Trustees, without
shareholder approval, to subdivide any series of shares into various
sub-series of shares with such dividend preferences and other rights
as the trustees may designate. While the trustees have no current
intention to exercise this power, it is intended to allow them to
provide for an equitable allocation of the impact of any future
regulatory requirements which might affect various classes of
shareholders differently. The trustees may also, without shareholder
approval, establish one or more additional separate portfolios for
investments in the Fund or merge two or more existing portfolios.
Shareholders' investments in such a portfolio would be evidenced by a
separate series of shares. The Fund is a "series" company as that
term is used in Section 18(f) of the 1940 Act.
The Declaration of Trust provides for the perpetual existence of
the Fund. The Fund or any Series, however, may be terminated at any
time by vote of at least two-thirds of the outstanding shares of each
Series affected. The Declaration of Trust further provides that the
trustees may terminate the Fund or any Series upon written notice to
the shareholders thereof.
The assets received by the Fund for the issue or sale of shares
of each Series and all income, earnings, profits, losses and proceeds
therefrom, subject only to the rights of creditors, are allocated to
that Series, and constitute the underlying assets of the Series. The
underlying assets of each Series are segregated and are charged with
the expenses in respect of that Series and with a share of the general
expenses of the Fund. Any general expenses of the Fund not readily
identifiable as belonging to a particular Series are allocated by or
under the direction of the trustees in such manner as the trustees
determine to be fair and equitable. While the expenses of the Funds
are allocated to the separate books of account of each Series, certain
expenses may be legally chargeable against the assets of all Series.
As of December 31, 1995, all of the outstanding voting securities
of the Fund are owned by separate accounts of The New England and/or
NEVLICO, and may, from time to time, be owned by those separate
accounts and the general account of The New England. Therefore, The
New England and NEVLICO are presumed to be in control (as that term is
defined in the 1940 Act) of the Fund. However, the staff of the SEC
is presently of the view that The New England and NEVLICO are each
required to vote their Fund shares that are held in a registered
separate account (and, to the extent voting privileges are granted by
the issuing insurance company, in unregistered separate accounts) in
the same proportion as the voting instruction received from owners of
the variable life insurance or variable annuity contracts issued by
the separate account, and that The New England is required to vote any
shares held in its general account (or in any unregistered separate
account for which voting privileges were not extended) in the same
proportion as all other Fund shares are voted. The New England and
NEVLICO currently intend to vote their shares in a manner consistent
with this view.
Voting Rights
Fund shareholders are entitled to one vote for each full share
held (with fractional votes for fractional shares held). NEVLICO and
The New England are the legal owners of shares attributable to
variable life insurance and variable annuity contracts issued by their
separate accounts, and have the right to vote those shares. Pursuant
to the current view of the SEC staff, NEVLICO and The New England will
vote their shares in accordance with instructions received from owners
of variable life insurance and variable annuity contracts issued by
separate accounts that are registered under the 1940 Act. All Fund
shares held by separate accounts of NEVLICO and The New England that
are registered with the SEC (and, to the extent voting privileges are
granted by the issuing insurance company, by unregistered separate
accounts) for which no timely instructions are received will be voted
for, voted against, or withheld from voting on any proportion in the
same proportion as the shares held in that separate account for all
contracts for which voting instructions are recieved. All Fund shares
held by the general investment account (or any unregistered separate
account for which voting privileges are not extended) of NEVLICO or
The New England will be voted in the same proportion as the aggregate
of (i) the shares for which voting instructions are received and (ii)
the shares that are voted in proportion to such voting instructions
are received.
There will normally be no meetings of shareholders for the
purpose of electing trustees except that in accordance with the 1940
Act (i) the Fund will hold a shareholders' meeting for the election of
trustees at such time as less than a majority of the trustees holding
office have been elected by shareholders and (ii) if, as a result of a
vacancy in the Board of Trustees, less than two-thirds of the trustees
holding office have been elected by the shareholders, that vacancy may
only be filled by a vote of the shareholders. In addition, trustees
may be removed from office by a written consent signed by the holders
of two-thirds of the outstanding shares at a meeting duly called for
the purpose, which meeting shall be held upon the written request of
the holders of not less than 10% of the outstanding shares. Upon
written request by the holders of shares having a net asset value
constituting 1% of the outstanding shares stating that such
shareholders wish to communicate with the other shareholders for the
purpose of obtaining the signatures necessary to demand a meeting to
consider removal of a trustee, the Fund has undertaken to provide a
list of shareholders or to disseminate appropriate materials (at the
expense of the requesting shareholders). Except as set forth above,
the trustees shall continue to hold office and may appoint successor
trustees.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Fund
except (i) to change the Fund's name or to cure technical problems in
the Declaration of Trust and (ii) to establish, designate or modify
new and existing series or sub-series of Fund shares or other
provisions relating to Fund shares in response to applicable laws or
regulations.
Shareholder and Trustee Liability
Under Massachusetts law shareholders could, under certain
circumstances, be held personally liable for the obligations of the
Fund. However, the Declaration of Trust disclaims shareholder
liability for acts or obligations of the Fund and requires that notice
of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by the Fund or the trustees. The
Declaration of Trust provides for indemnification out of the relevant
Series' property for all loss and expense of any shareholder held
personally liable for the obligations of the Series in which the
shareholder owns shares. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered
remote since it is limited to circumstances in which the disclaimer is
inoperative and a Series itself would be unable to meet its
obligations. For purposes of such liability, the Fund's shareholders
are the separate accounts investing directly in the Fund and not the
owners of variable life insurance or variable annuity contracts or
purchasers of other insurance products.
The Declaration of Trust further provides that the trustees will
not be liable for errors of judgment or mistakes of fact or law.
However, nothing in the Declaration of Trust protects a trustee
against any liability to which the trustee would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her
office. The By-Laws of the Fund provide for indemnification by the
Fund of the trustees and officers of the Fund except with respect to
any matter as to which any such person did not act in good faith in
the reasonable belief that his or her action was in or not opposed to
the best interests of the Fund. Such person may not be indemnified
against any liability to the Fund or the Fund's shareholders to which
he or she would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
APPENDIX A-1
DESCRIPTION OF BOND RATINGS
Moody's Investors Service, Inc.
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge". Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuations of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in Aaa securities. See Note 1.
A
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future. See Note 1.
Baa
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well. See Note 1.
Ba
Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often, the
protection of interest and principal payments may be very moderate,
and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this
class.
B
Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca
Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Should no rating be assigned by Moody's, the reason may be one of the
following:
(1) An application for rating was not received or accepted.
(2) The issue or issuer belongs to a group of securities that
are not rated as a matter of policy.
(3) There is a lack of essential data pertaining to the issue or
issuer.
(4) The issue was privately placed, in which case the rating is
not published in Moody's publications.
_________________
Note 1: This rating may include the numerical modifier 1, 2 or 3 to
provide a more precise indication of relative debt quality within the
category, with 1 indicating the high end of the category, 2 the mid-
range and 3 nearer the low end.
Standard & Poor's Ratings Group
AAA
This is the highest rating assigned by Standard & Poor's Corporation
("S&P") to a debt obligation and indicates an extremely strong
capacity to pay principal and interest.
AA
Bonds rated AA also qualify as high quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A
Bonds rated A have strong capacity to pay principal and interest
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay principal and
interest for bonds in this category than for bonds in the A category.
BB, B, CCC, CC
Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and CC the highest degree
of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C
The rating C is reserved for income bonds on which no interest is
being paid.
D
Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified
by the addition of a plus or minus sign to show relative standing
within the major rating categories.
APPENDIX A-2
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Standard & Poor's Corporation
A-1
Commercial paper rated A-1 by S&P has the following characteristics:
Liquidity ratios are adequate to meet cash requirements. Long-term
senior debt is rated "A" or better. The issuer has access to at least
two additional channels of borrowing. Basic earnings and cash flow
have an upward trend with allowance made for unusual circumstances.
Typically, the issuer's industry is well established and the issuer
has a strong position within the industry. The reliability and
quality of management are unquestioned. Commercial paper within the A-
1 category which has overwhelming safety characteristics is denoted "A-
1+."
A-2
Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for
issues designated A-1.
Moody's Investors Service, Inc.
P-1
The rating P-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc. ("Moody's"). Among the factors
considered by Moody's in assigning ratings are the following:
(1) evaluation of the management of the issuer;
(2) economic evaluation of the issuer's industry or industries
and an appraisal of speculative-type risks which may be inherent in
certain areas;
(3) evaluation of the issuer's products in relation to
competition and customer acceptance;
(4) liquidity;
(5) amount and quality of long-term debt;
(6) trend of earnings over a period of ten years;
(7) financial strength of a parent company and the relationships
which exist with the issuer; and
(8) recognition by the management of obligations which may be
present or may arise as a result of public interest questions and
preparations to meet such obligations.
P-2
Issuers rated P-2 have a strong capacity for repayment of short-term
promissory obligations. This will normally be evidenced by many of
the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternative
liquidity is maintained.
APPENDIX B
ABC and affiliates
Atlanta Constitution
Atlanta Journal
Austin American Statesman
Baltimore Sun
Barron's
Bond Buyer
Boston Business Journal
Boston Globe
Boston Herald
Broker World
Business Radio Network
Business Week
CBS and affiliates
CFO
Changing Times
Chicago Sun Times
Chicago Tribune
Christian Science Monitor
Christian Science Monitor News Service
Cincinnati Enquirer
Cincinnati Post
CNBC
CNN
Columbus Dispatch
Dallas Morning News
Dallas Times-Herald
Denver Post
Des Moines Register
Detroit Free Press
Donoghue's Money Fund Report
Dorfman, Dan (syndicated column)
Dow Jones News Service
Economist
FACS of the Week
Financial News Network
Financial Planning
Financial Services Week
Financial World
Forbes
Fort Worth Star-Telegram
Fortune
Fox Network and affiliates
Fund Action
Hartford Courant
Houston Chronicle
INC
Indianapolis Star
Institutional Investor
Investment Dealers Digest
Investment Vision
Investor's Daily
Journal of Commerce
Kansas City Star
LA Times
Leckey, Andrew (syndicated column)
Life Association News
Miami Herald
Milwaukee Sentinel
Money
Money Maker
Money Management Letter
Morningstar
National Public Radio
National Underwriter
NBC and affiliates
New England Business
New England Cable News
New Orleans Times-Picayune
New York Daily News
New York Times
Newark Star Ledger
Newsday
Newsweek
Nightly Business Report
Orange County Register
Orlando Sentinel
Pension World
Pensions and Investments
Personal Investor
Philadelphia Inquirer
Porter, Sylvia (syndicated column)
Portland Oregonian
Public Broadcasting Service
Quinn, Jane Bryant (syndicated column)
Registered Representative
Research Magazine
Resource
Reuters
Rukeyser's Business (syndicated column)
Sacramento Bee
San Francisco Chronicle
San Francisco Examiner
San Jose Mercury
Seattle Post-Intelligencer
Seattle Times
Smart Money
St. Louis Post Dispatch
St. Petersburg Times
Standard & Poor's Outlook
Standard & Poor's Stock Guide
Stanger's Investment Advisor
Stockbroker's Register
Strategic Insight
Tampa Tribune
Time
Tobias, Andrew (syndicated column)
UPI
US News and World Report
USA Today
Value Line
Wall St. Journal
Wall Street Letter
Wall Street Week
Washington Post
WBZ
WBZ-TV
WCVB-TV
WEEI
WHDH
Worcester Telegram
Worth Magazine
WRKO
APPENDIX C
FINANCIAL STATEMENTS AND REPORTS OF INDEPENDENT ACCOUNTANTS
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--82.3% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
AEROSPACE--1.2%
14,800 Whittaker Corp.(c)....................................... $ 321,900
-----------
AUTOMOBILE & RELATED--1.9%
18,100 Masland Corp............................................. 253,400
7,000 Strattec Security Corp.(c)............................... 124,250
500 Tower Automotive(c)...................................... 8,750
7,800 Walbro Corp.............................................. 140,400
-----------
526,800
-----------
BANKS--SAVINGS & LOAN--3.2%
12,000 Charter One Financial, Inc. ............................. 367,500
6,150 Commercial Federal Corp. ................................ 232,163
7,500 First Financial Corp. ................................... 172,500
9,100 First Savings Bank of Washington Bancorp. ............... 119,437
-----------
891,600
-----------
BUSINESS SERVICES--2.4%
9,200 CDI Corp.(c)............................................. 165,600
6,800 Career Horizons, Inc.(c)................................. 229,500
5,500 Cort Business Services Corp.(c).......................... 90,750
6,900 W.H. Brady Co. .......................................... 186,300
-----------
672,150
-----------
CHEMICALS--SPECIALTY--2.7%
5,300 Cambrex Corp............................................. 219,288
3,700 Cytec Industries, Inc.(c)................................ 230,787
5,600 Intertape Polymer Group, Inc. ........................... 175,700
6,000 Learonal, Inc. .......................................... 138,000
-----------
763,775
-----------
COMPUTER SOFTWARE & SERVICES--2.3%
4,000 Analysts Internation Corp................................ 120,000
8,200 Control Data Systems, Inc.(c)............................ 160,925
7,200 MDL Information System, Inc.(c).......................... 165,600
3,200 SPSS, Inc.(c)............................................ 62,400
2,300 Sterling Software, Inc.(c)............................... 143,462
-----------
652,387
-----------
ELECTRICAL EQUIPMENT--1.5%
9,100 Gasonics International Corp.(c).......................... 122,850
21,900 Numerex Corp.(c)......................................... 142,350
10,400 Woodhead Industries...................................... 148,200
-----------
413,400
-----------
ELECTRONIC COMPONENTS--3.3%
6,100 Amphenol Corp.(c)........................................ 147,925
3,000 Burr Brown Corp.(c)...................................... 76,500
700 Dallas Semiconductor Corp. .............................. 14,525
18,700 Dynatech Corp.(c) ....................................... 317,900
6,500 Unitrode Corp.(c)........................................ 183,625
5,100 Zilog, Inc.(c)........................................... 186,788
-----------
927,263
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
ENVIROMENTAL SERVICES--2.0%
7,100 United Waste Systems, Inc.(c)............................ $ 264,475
18,400 World Fuel Services Corp. ............................... 292,100
-----------
556,575
-----------
FINANCIAL SERVICES--3.7%
6,000 Cityscape Financial Corp................................. 124,500
16,200 DVI(c)................................................... 226,800
4,900 Eaton Vance Corp......................................... 138,425
10,600 Imperial Credit Industries, Inc.(c)...................... 230,550
264 Investors Financial Services Co.(c)...................... 5,470
14,800 WFS Financial, Inc.(c)................................... 288,600
-----------
1,014,345
-----------
FOOD--0.7%
5,200 Universal Foods Corp..................................... 208,650
-----------
FREIGHT TRANSPORTATION--3.0%
9,300 ABC Rail Products Corp.(c)............................... 205,762
18,200 Harper Group, Inc........................................ 323,050
15,500 TNT Freightways Corp..................................... 311,938
-----------
840,750
-----------
HEALTH CARE--MEDICAL TECHNOLOGY--3.6%
9,000 Conmed Corp.(c).......................................... 225,000
11,600 Gelman Sciences, Inc.(c)................................. 292,900
2,000 Lunar Corp.(c)........................................... 55,000
15,100 Sofamor/Danek Group, Inc.(c)............................. 428,462
-----------
1,001,362
-----------
HEALTH CARE--SERVICES--6.2%
11,100 Community Health Systems, Inc.(c)........................ 395,438
19,945 Grancare, Inc.(c)........................................ 289,202
14,900 Health Images, Inc....................................... 108,025
5,000 Healthplan Services Corp.(c)............................. 125,000
8,900 Medisense, Inc.(c)....................................... 281,463
24,300 Regency Health Services(c)............................... 246,037
8,500 Sierra Health Services, Inc.(c).......................... 269,875
-----------
1,715,040
-----------
HOME PRODUCTS--3.4%
5,000 Aptargroup, Inc. ........................................ 186,875
6,300 Bush Boake Allen, Inc.(c)................................ 172,463
17,550 Inbrand Corp.(c)......................................... 289,575
21,150 US Can Corp.(c).......................................... 285,525
-----------
934,438
-----------
HOTELS & RESTAURANTS--0.1%
3,000 Supertel Hospitality, Inc.(c)............................ 30,000
-----------
HOUSING & BUILDING MATERIALS--3.6%
20,200 Congoleum Corp........................................... 217,150
10,500 Crossman Communities, Inc.(c)............................ 196,875
16,100 Giant Cement Holdings, Inc.(c)........................... 185,150
12,400 Toro Co.................................................. 407,650
-----------
1,006,825
-----------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
INSURANCE--7.1%
10,200 Allied Group, Inc........................................ $ 367,200
5,300 Amerin Corp.(c).......................................... 141,775
12,200 Capital Resource Corp.................................... 375,150
3,600 Meadrowbrook Insurance Group(c).......................... 120,600
10,600 Protective Life Corp..................................... 331,250
11,900 Reinsurance Group of America, Inc. ...................... 435,837
7,150 Triad Guaranty, Inc.(c).................................. 189,475
-----------
1,961,287
-----------
LEISURE--0.6%
4,095 Harman International..................................... 164,312
-----------
MACHINERY--3.5%
7,700 Greenfield Industries, Inc............................... 240,625
8,700 Hardinge Bros, Inc....................................... 226,200
14,900 Keystone International, Inc.............................. 298,000
5,400 Wolverine Tube, Inc.(c).................................. 202,500
-----------
967,325
-----------
MEDIA & ENTERTAINMENT--2.2%
7,200 Banta Corp............................................... 316,800
6,900 Houghton Mifflin Co...................................... 296,700
-----------
613,500
-----------
METALS--3.6%
15,200 Citation Corp.(c)........................................ 182,400
5,500 Cleveland Cliffs, Inc. .................................. 225,500
10,300 Quanex Corp.............................................. 199,563
19,300 Republic Engineered Steels(c)............................ 89,262
33,800 UNR Industries, Inc. .................................... 291,525
-----------
988,250
-----------
MULTI-INDUSTRY--1.6%
36,000 Griffon Corp.(c)......................................... 324,000
3,700 Insilco Corp.(c)......................................... 117,937
-----------
441,937
-----------
OIL--INDEPENDENT PRODUCERS--4.2%
18,100 Belden & Blake Corp.(c).................................. 316,750
13,400 Cross Timbers Oil Co..................................... 236,175
19,400 Lomak Petroleum, Inc.(c)................................. 189,150
19,100 Vintage Petroleum, Inc................................... 429,750
-----------
1,171,825
-----------
OIL--SERVICES--2.5%
3,000 Global Industries, Inc.(c)............................... 90,000
17,900 Pride Petroleum Services, Inc.(c)........................ 190,188
11,400 Seitel, Inc.(c).......................................... 403,275
-----------
683,463
-----------
PAPER PRODUCTS--1.1%
15,000 Caraustar Industries, Inc................................ 300,000
-----------
REAL-ESTATE INVESTMENT TRUSTS--6.2%
18,700 Capstone Capital Corp.(c)................................ 357,638
17,800 Chateau Properties, Inc.................................. 400,500
12,600 HGI Realty, Inc.......................................... 288,225
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
17,000 Liberty Property.................................... $ 352,750
12,700 Patriot American Hospitality(c)..................... 327,025
-----------
1,726,138
-----------
RETAIL--3.4%
7,200 Borders Group, Inc.(c).............................. 133,200
18,050 Cato Corp. Class A(c)............................... 139,887
1,200 Claire Speciality Stores............................ 21,150
21,800 Cole National Corp.(c).............................. 302,475
13,000 Haverty Furniture Companies, Inc.................... 180,375
6,800 Office Max, Inc.(c)................................. 152,150
-----------
929,237
-----------
TELECOMMUNICATIONS--0.3%
6,800 Davel Communications Group(c)....................... 91,800
-----------
TEXTILE & APPAREL--1.2%
7,900 Jones Apparel Group(c).............................. 311,063
-----------
Total Common Stocks
(Identified Cost $20,587,015)...................... 22,827,397
-----------
SHORT-TERM INVESTMENTS--18.4%
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
COMMERICAL PAPER--18.4%
$1,311,233 Associates Corp. NA, 5.954%,
1/02/96............................................ 1,311,233
1,300,000 Chevron Oil Finance Co., 5.754%, 1/02/96............ 1,300,000
1,300,000 Exxon Asset Management, 5.553%, 1/02/96............. 1,300,000
1,200,000 General Electric Capital Corp., 5.553%, 1/02/96..... 1,200,000
-----------
Total Short-Term Investments
(Identified Cost $5,111,233)....................... 5,111,233
-----------
Total Investments--100.7%
(Identified Cost $25,698,248)(b)................... 27,938,630
Cash and Receivables................................ 673,358
Liabilities......................................... (870,842)
-----------
TOTAL NET ASSETS--100%.............................. $27,741,146
===========
(a) See Note 1A.
(b) Federal Tax Information:
At December 31,1995 the net unrealized appreciation on investments based on
cost of $25,700,577 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...................................... $ 2,764,087
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value......................................... (526,034)
-----------
Net unrealized appreciation......................... $ 2,238,053
===========
</TABLE>
(c) Non-income producing security.
See accompanying notes to financial statements.
4
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
STATEMENT OF ASSETS & LIABILITIES STATEMENT OF OPERATIONS
DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at value..................................... $27,938,630
Receivable for:
Fund shares sold......................................... 79,549
Securities sold.......................................... 534,881
Dividends and interest................................... 41,863
Due from advisor......................................... 17,065
-----------
28,611,988
LIABILITIES
Payable for:
Securities purchased..................................... $815,769
Fund shares redeemed..................................... 4,675
Accrued expenses:
Management fees.......................................... 12,082
Other expenses........................................... 38,316
--------
870,842
-----------
$27,741,146
===========
NET ASSETS
Net Assets consist of:
Capital paid in.......................................... $25,080,746
Undistributed net investment income...................... 14,855
Accumulated net realized gains........................... 405,163
Unrealized appreciation on investments................... 2,240,382
-----------
NET ASSETS................................................ $27,741,146
===========
Computation of offering price:
Net asset value and redemption price per share
($27,741,146 divided by 233,502 shares of beneficial
interest)................................................ $ 118.80
===========
Identified cost of investments............................ $25,698,248
===========
</TABLE>
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends................................................ $ 155,166
Interest................................................. 178,490
----------
333,656
EXPENSES
Management fees.......................................... $147,104
Trustees' fees and expenses.............................. 15,050
Custodian................................................ 84,932
Audit and tax services................................... 11,400
Legal.................................................... 11,958
Printing................................................. 8,923
Registration............................................. 7
Miscellaneous............................................ 3,577
--------
Total expenses.......................................... 282,951
Less expenses assumed by the investment adviser......... (135,845) 147,106
-------- ----------
NET INVESTMENT INCOME..................................... 186,550
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments--net........................ 1,462,220
Unrealized appreciation on investments--net.............. 2,281,753
----------
Net gain on investment transactions....................... 3,743,973
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS................ $3,930,523
==========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 1, 1994 (A)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
--------------- ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income......................... $ 4,483 $ 186,550
Net realized gain on investments.............. 455 1,462,220
Unrealized appreciation (depreciation) on in-
vestments.................................... (41,371) 2,281,753
---------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERA-
TIONS........................................ (36,433) 3,930,523
---------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income......................... (4,709) (171,695)
Net realized gain on investments.............. 0 (1,055,203)
---------- -----------
(4,709) (1,226,898)
---------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares.................. 5,264,621 25,462,402
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income...... 4,709 171,695
Distributions from net realized gain.......... 0 1,055,203
---------- -----------
5,269,330 26,689,300
Cost of shares redeemed....................... (2,123,311) (4,756,656)
---------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS........................... 3,146,019 21,932,644
---------- -----------
TOTAL INCREASE IN NET ASSETS.................. 3,104,877 24,636,269
NET ASSETS
Beginning of the year......................... 0 3,104,877
---------- -----------
End of the year............................... $3,104,877 $27,741,146
========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year......................... $ 0 $ 0
========== ===========
End of the year............................... $ 0 $ 14,855
========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares................ 95,218 234,111
Issued in connection with the reinvestment of:
Distributions from net investment income...... 49 1,477
Distributions from net realized gain.......... 0 9,076
---------- -----------
95,267 244,664
Redeemed...................................... (63,128) (43,301)
---------- -----------
Net change.................................... 32,139 201,363
========== ===========
(a) Commencement of Operations
FINANCIAL HIGHLIGHTS
<CAPTION>
MAY 2, 1994*
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
--------------- ------------
<S> <C> <C>
Net Asset Value, Beginning of Year............. $ 100.00 $ 96.61
---------- -----------
Income From Investment Operations
Net Investment Income......................... 0.14 0.85
Net Realized and Unrealized Gain (Loss) on In-
vestments.................................... (3.38) 26.93
---------- -----------
Total From Investment Operations.............. (3.24) 27.78
---------- -----------
Less Distributions
Distributions From Net Investment Income...... (0.15) (0.78)
Distributions From Net Realized Capital Gains. 0.00 (4.81)
---------- -----------
Total Distributions........................... (0.15) (5.59)
---------- -----------
Net Asset Value, End of Year................... $ 96.61 $ 118.80
========== ===========
TOTAL RETURN (%)............................... (3.23)*** 28.88
Ratio of Operating Expenses to Average Net As-
sets (%)...................................... 1.00** .99
Ratio of Net Investment Income to Average Net
Assets (%).................................... 0.32** 1.26
Portfolio Turnover Rate (%).................... 80** 98
Net Assets, End of Year (000).................. $ 3,105 $ 27,741
The ratios of expenses to average net assets
without giving effect to the voluntary expense
limitations described in Note 4 to the Finan-
cial Statements would have been (%)........... 2.31** 1.91
</TABLE>
* Commencement of operations.
** Computed on an annualized basis.
*** Not computed on an annualized basis.
See accompanying notes to financial statements.
6
<PAGE>
NEW ENGLAND ZENITH FUND
(DRAYCOTT INTERNATIONAL EQUITY SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--92.4% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
AUSTRALIA--4.4%
6,300 Advance Bank Australia................................... $ 50,479
4,200 Amcor Ltd. .............................................. 29,657
4,900 Broken Hill Property..................................... 69,199
19,400 CSR Ltd. ................................................ 63,157
19,750 Fairfax (John)........................................... 41,103
3,800 Lend Lease Corp. ........................................ 55,077
8,900 Mayne Nickless Ltd. ..................................... 39,690
5,800 National Australia Bank.................................. 52,163
15,100 News Corporation......................................... 80,584
19,200 North Ltd. .............................................. 53,516
40,800 Normandy Mining Ltd. .................................... 59,135
15,000 QNI Limited.............................................. 31,663
11,300 WMC Limited.............................................. 72,567
6,700 Woolworths Ltd. ......................................... 16,135
-----------
714,125
-----------
FINLAND--1.8%
2,800 Cultor OY................................................ 115,878
1,900 Kymmene Corporation...................................... 50,237
3,500 Nokia (AB) OY............................................ 135,191
-----------
301,306
-----------
GERMANY--6.0%
1,600 Adidas................................................... 84,657
100 Boss (Hugo) AG........................................... 83,025
710 Mannesmann AG............................................ 226,042
530 Hoechst AG............................................... 143,723
280 Siemens AG............................................... 153,224
1,530 SGL Carbon............................................... 118,390
3,810 Veba Ag. ................................................ 161,749
-----------
970,810
-----------
GREAT BRITAIN--25.4%
104,500 ASDA Group............................................... 180,144
23,200 BAT Industries........................................... 204,293
4,750 Barclays................................................. 54,442
14,100 Bass..................................................... 157,336
15,150 British Aerospace........................................ 187,243
14,150 British Airways.......................................... 102,406
25,650 British Telecommunication................................ 140,619
15,700 British Sky Broadcast.................................... 99,116
40,600 Burton Group............................................. 84,807
47,450 Caradon PLC.............................................. 144,067
11,250 Commercial Union......................................... 109,722
24,850 Compass Group............................................ 189,105
22,000 Courtaulds............................................... 138,888
24,800 General Electric......................................... 136,344
17,150 Glaxo Welcome............................................ 243,706
77,600 Ladbroke Group........................................... 176,555
36,990 LLoyds TSB Group......................................... 190,436
12,800 Pearson.................................................. 123,945
35,100 Pillar Properties Inv. .................................. 77,406
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
13,150 Prudential Corporation................................... $ 84,651
14,400 Reed International....................................... 219,500
9,715 Shell Transportation & Trading........................... 128,472
15,800 Smithkline Beecham....................................... 174,220
33,650 Telewest Communications.................................. 81,003
21,500 Ti Group................................................. 153,094
6,265 Thorn EmI................................................ 147,552
28,950 Tomkins.................................................. 126,564
17,450 United News & Media PLC.................................. 150,255
26,100 Williams Holdings........................................ 132,750
-----------
4,138,641
-----------
ITALY--4.8%
54,750 BCA Fideuram SPA......................................... 63,261
14,200 Burgo (Cartiere) SA...................................... 70,860
92,200 Credito Italiano......................................... 107,403
7,900 Edison................................................... 34,025
26,900 Eni SPA.................................................. 94,007
155,750 Olivetti and C SPA....................................... 124,845
18,400 RAS...................................................... 112,905
24,350 Saipem................................................... 56,117
75,760 Telecom Italia Mob....................................... 79,666
15,760 Unicem (Union Cem)....................................... 39,992
-----------
783,081
-----------
JAPAN--33.3%
9,000 Asahi Glass Co. ......................................... 100,242
19,000 Asahi Bank............................................... 239,225
6,000 Bank of Tokyo............................................ 105,182
7,000 Canon Inc. .............................................. 126,780
9,000 Dai Nippon Printing...................................... 152,542
4,000 Daiwa Securities......................................... 61,211
13 East Japan Railway....................................... 63,206
12,000 Fuji Bank................................................ 264,988
2,000 Hitachi.................................................. 20,145
7,000 Honda Motor Co. ......................................... 144,407
7,000 Isetan Co. .............................................. 115,254
28,000 Ishikawajima Har......................................... 117,966
7,000 Kirin Brewery Co. ....................................... 82,712
12,000 Matsushita Electronic Industries......................... 195,254
11,000 Mitsubishi Bank.......................................... 258,886
11,000 Mitsubishi Corp. ........................................ 135,303
16,000 Mitsubishi Chemical...................................... 77,792
11,000 Mitsubishi Heavy Industrial.............................. 87,680
9,000 Mitsui + Co. ............................................ 78,973
19,000 MItsukoshi............................................... 178,499
11,000 Mitsui Fudosan Co. ...................................... 135,303
6,000 Nippondenso Co. ......................................... 112,155
39,000 Nippon Steel Corp. ...................................... 133,714
6,000 Nomura Securities........................................ 130,751
19,000 Odakyu Electric Railway.................................. 129,734
9,000 Okumura Corporation...................................... 81,937
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
NEW ENGLAND ZENITH FUND
(DRAYCOTT INTERNATIONAL EQUITY SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED) SHORT-TERM INVESTMENTS--5.3%
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
JAPAN--(CONTINUED)
9,000 Onward Kkashiyama...................................... $ 146,441
9,000 Ricom Company.......................................... 98,499
9,000 Sakura Bank............................................ 114,189
11,000 Sanwa Bank............................................. 223,729
5,000 Sony Corp.............................................. 299,758
12,000 Sumitomo Bank.......................................... 254,528
1,000 Sumitomo Marine & Fire................................. 8,213
15,000 Sumitomo Realty & Development.......................... 106,053
12,000 Sumitomo Rubber........................................ 100,184
7,000 Takashimaya Co. ....................................... 111,864
15,000 Tokai Bank............................................. 209,200
4,000 Toto................................................... 55,787
11,000 Yakult Honsha Co. ..................................... 150,218
10,000 Yamanouchi Pharmaceutical.............................. 215,012
-----------
5,423,516
-----------
NETHERLAND--4.8%
1,900 Akzo Nobel NV.......................................... 219,755
3,500 Fortis Amev NV......................................... 234,468
1,100 Nutricia Ver Berdj..................................... 88,976
2,600 N V Koninklijke Sphinx Gus............................. 50,227
5,300 Philips Electronic..................................... 191,562
-----------
784,988
-----------
NORWAY--1.5%
1,880 Kvaerner AS............................................ 66,485
3,300 Norske Skogsindust..................................... 91,173
6,000 Schibsted A/S.......................................... 81,464
-----------
239,122
-----------
SPAIN--5.2%
1,755 Acerinox SA............................................ 177,526
3,400 BCO Santander SA....................................... 170,700
1,550 Gas Natural Sdg SA..................................... 241,509
35,500 Sevillana de Elec...................................... 275,688
-----------
865,423
-----------
SWITZERLAND--5.2%
263 Alusuisse Lonza HD..................................... 208,394
36 Roche Holdings AG...................................... 284,785
100 Sandoz AG.............................................. 91,547
904 Zurich Versicherun..................................... 270,377
-----------
855,103
-----------
Total Common Stocks
(Identified Cost $14,217,725)......................... 15,076,115
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$865,000 Repurchase agreement with State Street Bank & Trust
Company dated 12/29/95 at 5.000% to be repurchased at
$865,480 on 1/2/96 collateralized by $865,000
U.S.Treasury Notes 8.00%, due 8/15/99 with a value of
$1,009,891........................................... $ 865,000
-----------
Total Short-Term Investments
(Identified Cost $865,000)........................... 865,000
-----------
Total Investments--97.7%
(Identified Cost $15,082,725)........................ 15,941,115
Cash and Receivables(c)............................... 418,547
Liabilities........................................... (92,155)
-----------
TOTAL NET ASSETS--100%................................ $16,267,507
===========
(a) See Note 1a.
(b) Federal Tax Information:
At December 31, 1995 the net unrealized appreciation on investments based on
cost of $15,104,781 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............................................. $ 1,138,334
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value........................................... (302,000)
-----------
Net unrealized appreciation........................... $ 836,334
===========
</TABLE>
As of December 1995, the Series had a net tax basis capital loss
carryforward as follows:
Expiring December 31, 2002 $323
Expiring December 31, 2003 $50,456
(c) Including deposits in foreign denominated currencies with a value of
$252,491 and a cost of $253,850.
TEN LARGEST INDUSTRY HOLDINGS AT DECEMBER 31, 1995
<TABLE>
<S> <C>
Banking.................................................................... 14.6
Consumer Basics............................................................ 12.6
Basic Industries........................................................... 10.7
Miscellaneous Industries................................................... 6.7
Consumer Non-Durables...................................................... 6.7
Capital Goods.............................................................. 6.3
Finance.................................................................... 6.3
Consumer Durables.......................................................... 6.1
Utilities.................................................................. 5.8
Communications............................................................. 4.4
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
NEW ENGLAND ZENITH FUND
(DRAYCOTT INTERNATIONAL EQUITY SERIES)
STATEMENT OF ASSETS & LIABILITIES STATEMENT OF OPERATIONS
DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at value..................................... $15,941,115
Cash..................................................... 567
Foreign cash at value.................................... 252,491
Receivable for:
Fund shares sold......................................... 88,653
Dividends and interest................................... 19,415
Foreign taxes............................................ 13,223
Due from advisor......................................... 36,493
Unamortized organization expense......................... 7,705
-----------
16,359,662
LIABILITIES
Payable for:
Securities purchased..................................... $29,374
Fund shares redeemed..................................... 80
Withholding Taxes........................................ 2,656
Accrued expenses:
Management fees.......................................... 5,181
Other expenses........................................... 54,864
-------
92,155
-----------
$16,267,507
===========
NET ASSETS
Net Assets consist of:
Capital paid in.......................................... $15,581,805
Distributions in excess of net investment income......... (6,800)
Accumulated net realized losses.......................... (164,529)
Unrealized appreciation on investments, forward contracts
and foreign currency.................................... 857,031
-----------
NET ASSETS................................................ $16,267,507
===========
Computation of offering price:
Net asset value and redemption price per share
($16,267,507 divided by 1,516,717 shares of beneficial
interest)................................................ $ 10.73
===========
Identified cost of investments............................ $15,082,725
===========
</TABLE>
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends.............................................. $174,150(a)
Interest............................................... 72,866
--------
247,016
EXPENSES
Management fees........................................ $ 85,666
Trustees' fees and expenses............................ 15,050
Custodian.............................................. 147,730
Audit and tax services................................. 28,000
Legal.................................................. 10,821
Printing............................................... 4,651
Registration........................................... 7
Insurance.............................................. 98
Amortization of organization expenses.................. 2,347
Miscellaneous.......................................... 3,165
---------
Total expenses........................................ 297,535
Less expenses assumed by the investment adviser....... (173,796) 123,739
--------- --------
NET INVESTMENT INCOME................................... 123,277
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments--net....................................... (205,658)
Foreign currency transactions--net..................... 80,389
---------
Total realized loss on investments and foreign
currency transactions................................ (125,269)
---------
Unrealized appreciation on:
Investments--net....................................... 543,413
Foreign currency transactions--net..................... 255,106
---------
Total unrealized appreciation on investments and
foreign currency transactions........................ 798,519
---------
Net gain on investment transactions..................... 673,250
--------
NET INCREASE IN NET ASSETS FROM OPERATIONS.............. $796,527
========
</TABLE>
(a)Net of foreign taxes of: $26,441
See accompanying notes to financial statements.
11
<PAGE>
NEW ENGLAND ZENITH FUND
(DRAYCOTT INTERNATIONAL EQUITY SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 31, 1994 (A)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
-------------------- ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income...................... $ 7,643 $ 123,277
Net realized loss on investments and for-
eign currency transactions................ (2,176) (125,269)
Unrealized appreciation on investments, and
foreign currency transactions............. 58,511 798,519
----------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS..... 63,978 796,527
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................... (5,791) (123,277)
In excess of net investment income......... 0 (48,516)
Paid in capital............................ (2,628) 0
----------- -----------
(8,419) (171,793)
----------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares............... 3,566,918 16,189,698
Net asset value of shares issued in connec-
tion with the reinvestment of:
Distributions from net investment income... 5,791 171,793
Distributions from paid in capital......... 2,628 0
----------- -----------
3,575,337 16,361,491
Cost of shares redeemed.................... (1,641,679) (3,707,935)
----------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS........................ 1,933,658 12,653,556
----------- -----------
TOTAL INCREASE IN NET ASSETS............... 1,989,217 13,278,290
NET ASSETS
Beginning of the year...................... 1,000,000 2,989,217
----------- -----------
End of the year............................ $ 2,989,217 $16,267,507
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year...................... $ 0 $ 0
=========== ===========
End of the year............................ $ 0 $ (6,800)
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares............. 355,009 1,564,292
Issued in connection with the reinvestment
of:
Distributions from net investment income... 571 16,055
Distributions from paid in capital......... 257 0
----------- -----------
355,837 1,580,347
Redeemed................................... (163,731) (355,736)
----------- -----------
Net change................................. 192,106 1,224,611
=========== ===========
(a) Commencement of Operations
FINANCIAL HIGHLIGHTS
<CAPTION>
OCTOBER 31, 1994*
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
-------------------- ------------
<S> <C> <C>
Net Asset Value, Beginning of Year.......... $ 10.00 $ 10.23
----------- -----------
Income From Investment Operations
Net Investment Income...................... 0.03 0.09
Net Realized and Unrealized Gain (Loss) on
Investments............................... 0.23 0.53
----------- -----------
Total From Investment Operations........... 0.26 0.62
----------- -----------
Less Distributions
Distributions From Net Investment Income... (0.02) (0.09)
Distributions in Excess of Net Investment
Income.................................... 0.00 (0.03)
Distributions From Paid-in Capital......... (0.01) 0.00
----------- -----------
Total Distributions........................ (0.03) (0.12)
----------- -----------
Net Asset Value, End of Year................ $ 10.23 $ 10.73
=========== ===========
TOTAL RETURN (%)............................ 2.60*** 6.03
Ratio of Operating Expenses to Average Net
Assets (%)................................. 1.30** 1.30
Ratio of Net Investment Income to Average
Net Assets (%)............................. 2.56** 1.29
Portfolio Turnover Rate (%)................. 4** 89
Net Assets, End of Year (000)............... $ 2,989 $ 16,268
The ratios of expenses to average net assets
without giving effect to the voluntary
expense limitations described in Note 4 to
the Financial Statements would have been
(%)........................................ 5.38** 3.12
</TABLE>
* Commencement of operations.
** Computed on an annualized basis.
*** Not computed on an annualized basis.
See accompanying notes to financial statements.
12
<PAGE>
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--87.9% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
AIRLINES--0.8%
5,000 Delta Air Lines, Inc. .................................... $ 369,375
-----------
APPAREL--0.9%
10,000 Tommy Hilfiger Corp. ..................................... 423,750
-----------
BIO TECHNOLOGY--2.7%
31,000 Biochem Pharmacy, Inc. ................................... 1,243,875
-----------
BUILDING & CONSTRUCTION--1.7%
22,500 Clayton Homes, Inc. ...................................... 480,938
9,200 Pulte Corp. .............................................. 309,350
-----------
790,288
-----------
CASINOS & RESORTS--0.2%
2,800 Mirage Resorts, Inc. ..................................... 96,600
-----------
COMMUNICATIONS--5.5%
13,500 DSC Communications Corp.(c)............................... 497,813
10,000 Glenayre Technologies, Inc. .............................. 622,500
5,400 Tellabs, Inc.(c).......................................... 199,800
8,000 US Robotics, Inc. ........................................ 702,000
11,000 Viacom Inc.--Class B(c)................................... 521,125
-----------
2,543,238
-----------
COMPUTER RELATED & BUSINESS
EQUIPMENT--18.1%
26,750 Bay Networks, Inc. ....................................... 1,100,094
11,500 Cisco Systems, Inc. ...................................... 858,187
9,000 Compaq Computer Corp.(c).................................. 432,000
23,350 Dell Computer Corp. ...................................... 808,494
22,900 Digital Equipment Corp.(c)................................ 1,468,462
19,801 First Data Corp. ......................................... 1,324,192
17,400 Seagate Technology........................................ 826,500
12,600 Summit Technology, Inc. .................................. 425,250
24,900 3Com Corp.(c)............................................. 1,160,962
-----------
8,404,141
-----------
COMPUTER SOFTWARE--1.0%
5,000 Broderbund Software, Inc. ................................ 303,750
6,000 Informix Corporation...................................... 180,000
-----------
483,750
-----------
COMPUTER TECHNOLOGY--1.9%
3,550 Adaptec, Inc. ............................................ 145,550
10,000 America Online, Inc. ..................................... 375,000
10,000 General Datacomm Industries, Inc. ........................ 171,250
6,500 Silicon Graphics, Inc. ................................... 178,750
-----------
870,550
-----------
DEFENSE--3.6%
3,000 Lockheed Martin Corp. .................................... 237,000
14,400 Loral Corp. .............................................. 509,400
10,200 McDonnell Douglas Corp. .................................. 938,400
-----------
1,684,800
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
FINANCE--2.8%
6,900 American International Group, Inc. ....................... $ 638,250
10,600 Travelers Group, Inc. .................................... 666,475
-----------
1,304,725
-----------
FINANCIAL SERVICES--0.7%
4,500 Lehman Brothers Holdings, Inc. ........................... 95,625
4,000 Merrill Lynch & Co., Inc. ................................ 204,000
-----------
299,625
-----------
HEALTH CARE--11.8%
8,400 Apria Health Care Group, Inc. ............................ 237,300
6,000 Boston Scientific Corp. .................................. 294,000
20,000 Cardinal Health, Inc. .................................... 1,095,000
16,400 Columbia/HCA Healthcare Corp. ............................ 832,300
12,000 Genzyme Corp. ............................................ 748,500
3,450 Health Management Assoc., Inc. ........................... 90,131
16,500 Merck & Co., Inc. ........................................ 1,084,875
4,300 Nellcor Puritan Bennett, Inc. ............................ 249,400
20,000 Occusystems, Inc. ........................................ 400,000
7,000 United Healthcare Corp. .................................. 458,500
-----------
5,490,006
-----------
HEALTH CARE--ADMINISTRATIVE
SERVICES--3.0%
33,400 Healthsource, Inc. ....................................... 1,202,400
10,000 Liposome, Inc. ........................................... 200,000
-----------
1,402,400
-----------
HEALTH MAINTENANCE SERVICES--2.5%
15,500 Oxford Health Plans, Inc. ................................ 1,145,062
-----------
MEDICAL SERVICES--0.6%
5,200 Medtronic, Inc. .......................................... 290,550
-----------
MISCELLANEOUS--2.6%
27,000 Service Corp. International............................... 1,188,000
-----------
PHARMECUTICALS--3.7%
16,200 Eli Lilly & Company....................................... 911,250
14,700 Smithkline Beecham PLC.................................... 815,850
-----------
1,727,100
-----------
RESTAURANTS & LODGING--5.9%
14,400 Boston Chicken, Inc. ..................................... 462,600
7,150 Cracker Barrel Old Country Store.......................... 123,338
20,000 La Quinta Inns, Inc. ..................................... 547,500
35,800 Lone Star Steakhouse Saloon............................... 1,373,825
6,000 Outback Steakhouse, Inc. ................................. 215,250
-----------
2,722,513
-----------
RETAILING--6.6%
9,800 Cintas Corp. ............................................. 436,100
10,000 CompUSA, Inc. ............................................ 311,250
56,000 Officemax, Inc. .......................................... 1,253,000
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED) SHORT-TERM INVESTMENTS--16.2%
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
RETAILING--(CONTINUED)
20,000 The Gap, Inc.............................................. $ 840,000
5,000 Viking Office Products, Inc............................... 232,500
-----------
3,072,850
-----------
SEMI-CONDUCTORS--11.3%
27,000 Altera Corp............................................... 1,343,250
17,800 Intel Corp. .............................................. 1,010,150
10,000 LSI Logic Corp............................................ 327,500
15,000 Linear Technology Corporation............................. 588,750
32,600 Maxim Integrated Products, Inc............................ 1,255,100
23,300 Xilinx, Inc............................................... 710,650
-----------
5,235,400
-----------
Total Common Stocks
(Identified Cost $36,287,708)............................ 40,788,598
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$7,504,356 Seven Seas U.S. Government
Money Market Fund........ $ 7,504,356
-----------
Total Short-Term
Investment
(Identified Cost
$7,504,356)................ 7,504,356
-----------
Total Investments--104.1%
(Identified cost
$43,792,064)(b)............ 48,292,954
Receivables............... 266,770
Liabilities............... (2,173,322)
-----------
TOTAL NET ASSETS--100%...... $46,386,402
===========
(a) See Note 1A.
(b) Federal Tax Information:
At December 31, 1995 the net unrealized appreciation on investments based on
cost of $43,809,703 for federal income tax purposes was as follows:
Aggregate gross unrealized
appreciation for all
investments in which
there is an excess of
value over tax cost...... $ 5,430,730
Aggregate gross unrealized
depreciation for all
investments in which
there is an excess of tax
cost over value.......... (947,479)
-----------
Net unrealized
appreciation............. $ 4,483,251
===========
</TABLE>
(c) Non-income producing security.
See accompanying notes to financial statements.
16
<PAGE>
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
STATEMENT OF ASSETS & LIABILITIES STATEMENT OF OPERATIONS
DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments at value.................................. $48,292,954
Receivable for:
Fund shares sold...................................... 215,212
Dividends and interest................................ 43,853
Unamortized organization expense...................... 7,705
-----------
48,559,724
LIABILITIES
Payable for:
Securities purchased.................................. $2,110,953
Fund shares redeemed.................................. 1,877
Accrued expenses:
Management fees....................................... 21,027
Other expenses........................................ 39,465
----------
2,173,322
-----------
$46,386,402
===========
NET ASSETS
Net Assets consist of:
Capital paid in....................................... $42,729,581
Undistributed net investment income................... 1,354
Accumulated net realized losses....................... (845,423)
Unrealized appreciation on investments................ 4,500,890
-----------
NET ASSETS............................................. $46,386,402
===========
Computation of offering price:
Net asset value and redemption price per share
($46,386,402 divided by 3,362,196 shares of beneficial
interest)............................................. $ 13.80
===========
Identified cost of investments......................... $43,792,064
===========
</TABLE>
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends............................................. $ 81,944(a)
Interest.............................................. 124,430
----------
206,374
EXPENSES
Management fees....................................... $144,943
Trustees' fees and expenses........................... 15,049
Custodian............................................. 52,793
Audit and tax services................................ 19,800
Legal................................................. 10,821
Printing.............................................. 4,920
Registration.......................................... 7
Amortization of organization expenses................. 2,347
Miscellaneous......................................... 2,575
--------
Total expenses....................................... 253,255
Less expenses assumed by the investment adviser...... (77,254) 176,001
-------- ----------
NET INVESTMENT INCOME.................................. 30,373
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments--net..................... 448,499
Unrealized appreciation on investments--net........... 4,579,507
----------
Net gain on investment transactions.................... 5,028,006
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............. $5,058,379
==========
</TABLE>
(a) Net of foreign taxes of: $319
See accompanying notes to financial statements.
17
<PAGE>
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 31, 1994(A)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------------- ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income....................... $ 3,467 $ 30,373
Net realized gain (loss) on investments..... (7,937) 448,499
Unrealized appreciation (depreciation) on
investments................................ (78,617) 4,579,507
---------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM OPER-
ATIONS..................................... (83,087) 5,058,379
---------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income....................... (3,466) (30,373)
In excess of net investment income.......... (534) (993)
Net realized gain on investments............ 0 (1,285,986)
---------- -----------
(4,000) (1,317,352)
---------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares................ 1,872,491 47,127,562
Net asset value of shares issued in connec-
tion with the reinvestment of:
Distributions from net investment income.... 4,000 31,366
Distributions from net realized gain........ 0 1,285,986
---------- -----------
1,876,491 48,444,914
Cost of shares redeemed..................... (1,872,491) (7,716,452)
---------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS......................... 4,000 40,728,462
---------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS..... (83,087) 44,469,489
NET ASSETS
Beginning of the year....................... 2,000,000 1,916,913
---------- -----------
End of the year............................. $1,916,913 $46,386,402
========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year....................... $ 0 $ 0
========== ===========
End of the year............................. $ 0 $ 1,354
========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.............. 220,620 3,648,304
Issued in connection with the reinvestment
of:
Distributions from net investment income.... 421 2,303
Distributions from net realized gain........ 0 94,419
---------- -----------
221,041 3,745,026
Redeemed.................................... (220,620) (583,251)
---------- -----------
Net change.................................. 421 3,161,775
========== ===========
(a) Commencement of Operations
FINANCIAL HIGHLIGHTS
<CAPTION>
OCTOBER 31, 1994*
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------------- ------------
<S> <C> <C>
Net Asset Value, Beginning of Year........... $ 10.00 $ 9.56
---------- -----------
Income From Investment Operations
Net Investment Income....................... 0.02 0.01
Net Realized and Unrealized Gain (Loss) on
Investments................................ (0.44) 4.65
---------- -----------
Total From Investment Operations............ (0.42) 4.66
---------- -----------
Less Distributions
Distributions From Net Investment Income.... (0.02) (0.01)
Distributions From Net Realized Capital
Gains...................................... 0.00 (0.41)
---------- -----------
Total Distributions......................... (0.02) (0.42)
---------- -----------
Net Asset Value, End of Year................. $ 9.56 $ 13.80
========== ===========
TOTAL RETURN (%)............................. (4.20)*** 48.70
Ratio of Operating Expenses to Average Net
Assets (%).................................. 0.85** 0.83
Ratio of Net Investment Income to Average Net
Assets (%).................................. 1.07** 0.14
Portfolio Turnover Rate (%).................. 32** 107
Net Assets, End of Year (000)................ $ 1,917 $ 46,386
The ratios of expenses to average net assets
without giving effect to the voluntary
expense limitations described in Note 4 to
the Financial Statements would have been
(%)......................................... 2.74** 2.45
</TABLE>
* Commencement of operations.
** Computed on an annualized basis.
*** Not computed on an annualized basis.
See accompanying notes to financial statements.
18
<PAGE>
NEW ENGLAND ZENITH FUND
(CAPITAL GROWTH SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--98.5% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
AEROSPACE--6.1%
721,000 Boeing Co............................................. $ 56,508,375
------------
AIRLINES--9.6%
90,000 AMR Corp.(c).......................................... 6,682,500
680,000 Northwest Airlines Corp.(c)........................... 34,680,000
265,000 UAL Corp.(c).......................................... 47,302,500
------------
88,665,000
------------
BANKS--MONEY CENTER--12.7%
930,000 Chemical Banking Corp. ............................... 54,637,500
926,000 CitiCorp.............................................. 62,273,500
------------
116,911,000
------------
BEVERAGES AND TOBACCO--4.5%
745,000 Pepsico, Inc.......................................... 41,626,875
------------
CHEMICALS--2.4%
423,000 Air Products & Chemicals, Inc......................... 22,313,250
------------
COMPUTER SOFTWARE & SERVICES--4.6%
485,000 Computer Associates International, Inc................ 27,584,375
211,000 Computer Sciences Corp.(c)............................ 14,822,750
------------
42,407,125
------------
DEFENSE--1.9%
220,000 Lockheed Martin Corp. ................................ 17,380,000
------------
DRUGS--13.4%
924,000 Eli Lilly and Co...................................... 51,975,000
775,000 Merck and Company, Inc. .............................. 50,956,250
330,000 Pfizer, Inc........................................... 20,790,000
------------
123,721,250
------------
FINANCIAL SERVICES--1.9%
253,000 First Data Corp....................................... 16,919,375
------------
FOOD--RETAILERS/WHOLERS--5.5%
560,000 Philip Morris Companies, Inc.......................... 50,680,000
------------
FREIGHT TRANSPORTATION--5.2%
611,000 Burlington Northern Santa Fe Corp. ................... 47,658,000
------------
HOME PRODUCTS AND COSMETIC--3.8%
425,000 Procter and Gamble Co. ............................... 35,275,000
------------
INSURANCE--11.9%
1,215,000 Allstate Corp......................................... 49,966,875
638,850 American International Group, Inc. ................... 59,093,625
------------
109,060,500
------------
MACHINERY--2.1%
555,000 Deere & Co............................................ 19,563,750
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
RETAIL--7.8%
820,000 May Department Stores Co. .......................... $ 34,645,000
940,000 Sears Roebuck and Co................................ 36,660,000
------------
71,305,000
------------
MISCELLANEOUS--5.1%
498,000 United Technologies Corp............................ 47,247,750
------------
Total Common Stock
(Identified Cost $780,984,415)..................... 907,242,250
------------
</TABLE>
SHORT-TERM INVESTMENTS--0.6%
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$5,910,000 Chevron Oil Finance Co.
5.7500%, 01/02/96................................. 5,910,000
------------
Total Short-Term Investments
(Identified Cost $5,910,000)...................... 5,910,000
------------
Total Investments--99.1%
(Identified Cost $786,894,415)(b)................. 913,152,250
Cash and Receivables............................... 23,889,162
Liabilities........................................ (15,597,592)
------------
TOTAL NET ASSETS--100%............................. $921,443,820
============
(a) See Note 1A.
(b) Federal Tax Information:
At December 31, 1995 the net unrealized appreciation on investments based on
cost of $788,379,751 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..................................... $129,236,142
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value................................... (4,463,643)
------------
Net unrealized appreciation........................ $124,772,499
============
</TABLE>
(c) Non-Income producing security.
See accompanying notes to financial statements.
20
<PAGE>
NEW ENGLAND ZENITH FUND
(CAPITAL GROWTH SERIES)
STATEMENT OF ASSETS & LIABILITIES STATEMENT OF OPERATIONS
DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................. $913,152,250
Cash................................................. 956
Receivable for:
Fund shares sold..................................... 668,455
Securities sold...................................... 21,702,342
Dividends and interest............................... 1,517,409
------------
937,041,412
LIABILITIES
Payable for:
Securities purchased................................. $14,184,326
Fund shares redeemed................................. 669,835
Accrued expenses:
Management fees...................................... 493,781
Deferred trustees' fees.............................. 44,575
Other expenses....................................... 205,075
-----------
15,597,592
------------
$921,443,820
============
NET ASSETS
Net Assets consist of:
Capital paid in...................................... $775,378,866
Undistributed net investment income.................. 28,556
Accumulated net realized gains....................... 19,778,563
Unrealized appreciation on investments............... 126,257,835
------------
NET ASSETS............................................ $921,443,820
============
Computation of offering price:
Net asset value and redemption price per share
($921,443,820 divided by 2,459,656 shares of
beneficial interest)................................. $ 374.62
============
Identified cost of investments........................ $786,894,415
============
</TABLE>
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends.......................................... $ 13,027,061(a)
Interest........................................... 124,993
------------
13,152,054
EXPENSES
Management fees.................................... $5,232,562
Trustees' fees and expenses........................ 41,166
Custodian.......................................... 143,365
Audit and tax services............................. 14,900
Legal.............................................. 8,055
Printing........................................... 240,863
Registration....................................... 7
Miscellaneous...................................... 20,525
----------
Total expenses.................................... 5,701,443
------------
NET INVESTMENT INCOME............................... 7,450,611
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments--net.................. 132,068,325
------------
Unrealized appreciation on investments--net........ 114,117,353
------------
Net gain on investment transactions................. 246,185,678
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS.......... $253,636,289
============
</TABLE>
(a) Net of foreign taxes of: $29,811
See accompanying notes to financial statements.
21
<PAGE>
NEW ENGLAND ZENITH FUND
(CAPITAL GROWTH SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income........................... $ 10,848,989 $ 7,450,611
Net realized gain on investments................ 18,279,890 132,068,325
Unrealized appreciation (depreciation) on in-
vestments...................................... (79,261,045) 114,117,353
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERA-
TIONS.......................................... (50,132,166) 253,636,289
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income........................... (10,566,409) (7,422,072)
Net realized gain on investments................ (19,094,533) (112,289,797)
------------- -------------
(29,660,942) (119,711,869)
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares.................... 265,969,106 211,234,567
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income........ 10,556,416 7,422,051
Distributions from net realized gain............ 18,284,122 112,289,762
------------- -------------
294,809,644 330,946,380
Cost of shares redeemed......................... (192,273,754) (210,553,681)
------------- -------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS............................. 102,535,890 120,392,699
------------- -------------
TOTAL INCREASE IN NET ASSETS.................... 22,742,782 254,317,119
NET ASSETS
Beginning of the year........................... 644,383,919 667,126,701
------------- -------------
End of the year................................. $ 667,126,701 $ 921,443,820
============= =============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year........................... $ (1,766) $ 278,739
============= =============
End of the year................................. $ 278,739 $ 28,556
============= =============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................. 773,701 561,255
Issued in connection with the reinvestment of:
Distributions from net investment income........ 33,768 19,951
Distributions from net realized gain............ 58,487 301,846
------------- -------------
865,956 883,052
Redeemed........................................ (562,304) (559,603)
------------- -------------
Net change...................................... 303,652 323,449
============= =============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year........................ $ 249.04 $ 347.36 $ 322.23 $ 351.63 $ 312.30
-------- -------- -------- -------- --------
Income From Investment Opera-
tions
Net Investment Income....... 3.16 4.04 2.12 5.28 3.47
Net Realized and Unrealized
Gain (Loss) on Investments. 130.75 (25.10) 46.21 (30.54) 114.91
-------- -------- -------- -------- --------
Total From Investment Opera-
tions...................... 133.91 (21.06) 48.33 (25.26) 118.38
-------- -------- -------- -------- --------
Less Distributions
Distributions From Net In-
vestment Income............ (3.22) (4.07) (2.18) (5.15) (3.48)
Distributions From Net Real-
ized Capital Gains......... (31.93) 0.00 (16.75) (8.92) (52.58)
Distributions From Paid-in
Capital.................... (0.44) 0.00 0.00 0.00 0.00
-------- -------- -------- -------- --------
Total Distributions......... (35.59) (4.07) (18.93) (14.07) (56.06)
-------- -------- -------- -------- --------
Net Asset Value, End of Year. $ 347.36 $ 322.23 $ 351.63 $ 312.30 $ 374.62
======== ======== ======== ======== ========
TOTAL RETURN (%)............. 54.00 (6.05) 14.97 (7.07) 38.03
Ratio of Operating Expenses
to Average Net Assets (%)... 0.70 0.70 0.68 0.67 0.71
Ratio of Net Investment In-
come to Average Net Assets
(%)......................... 1.22 1.53 0.67 1.61 0.92
Portfolio Turnover Rate (%).. 174 207 169 140 242
Net Assets, End of Year
(000)....................... $343,965 $472,017 $644,384 $667,127 $921,444
</TABLE>
See accompanying notes to financial statements.
22
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES AVANTI GROWTH SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--94.7% OF NET ASSETS
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
BANKS--SAVINGS AND LOAN--1.9%
18,500 First Bank System....................................... $ 918,063
-----------
BEVERAGES--3.1%
14,200 Coca Cola Co. .......................................... 1,054,350
8,500 Pepsico, Inc. .......................................... 474,937
-----------
1,529,287
-----------
BUSINESS SERVICES--11.9%
10,000 Checkfree Corp. ........................................ 215,000
14,000 Ceridian Corp.(c)....................................... 577,500
16,700 Cintas Corp. ........................................... 743,150
21,550 CUC International, Inc. ................................ 735,394
12,500 Danka Business Systems.................................. 462,500
15,000 First Data Corp. ....................................... 1,003,125
27,750 Fiserv, Inc. ........................................... 832,500
13,700 Medaphis Corp. ......................................... 506,900
15,000 Paychex, Inc. .......................................... 748,125
-----------
5,824,194
-----------
CHEMICAL--MAJOR--0.7%
6,500 Air Products & Chemicals, Inc. ......................... 342,875
-----------
COMPUTER SOFTWARE & SERVICES--8.6%
6,000 Adobe Systems, Inc. .................................... 372,000
10,900 Autodesk Inc. .......................................... 373,325
5,200 Broderbund Software, Inc. .............................. 315,900
16,500 FTP Software, Inc. ..................................... 478,500
27,000 Informix Corp. ......................................... 810,000
10,500 Microsoft Corp.(c)...................................... 921,375
22,000 Oracle Systems Corp.(c)................................. 932,250
-----------
4,203,350
-----------
ELECTRICAL EQUIPMENT--1.3%
9,000 General Electric Co. ................................... 648,000
-----------
ELECTRONIC COMPONENTS--7.5%
19,000 Intel Corp. ............................................ 1,078,250
16,500 LSI Logic Corp.(c)...................................... 540,375
12,500 Micron Technology....................................... 495,313
10,000 Motorola, Inc. ......................................... 570,000
16,700 Premier Industrial Corp. ............................... 409,150
8,000 Solectron Corp. ........................................ 353,000
4,100 Texas Instruments, Inc. ................................ 212,175
-----------
3,658,263
-----------
FINANCIAL SERVICES--2.1%
10,000 Dean Witter Discover & Co. ............................. 470,000
14,500 MBNA Corp. ............................................. 534,687
-----------
1,004,687
-----------
FOOD--PACKAGED & MISCELLANEOUS--1.9%
8,300 Dreyers Grand Ice Cream, Inc. .......................... 275,975
30,800 Starbucks Corp. ........................................ 646,800
-----------
922,775
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
HEALTH CARE--DRUGS--8.1%
15,200 Amgen, Inc.(c)............................................ $ 902,500
6,600 Johnson & Johnson......................................... 565,125
16,500 Merck & Co. .............................................. 1,084,875
60,000 Oncor, Inc. .............................................. 270,000
13,700 Smithkline Beecham PLC.................................... 760,350
20,000 Somatogen, Inc. .......................................... 377,500
-----------
3,960,350
-----------
HEALTH CARE--MEDICAL TECHNOLOGY--5.4%
23,500 Boston Scientific Corp. .................................. 1,151,500
20,000 Medtronic, Inc. .......................................... 1,117,500
21,000 Ventritex, Inc. .......................................... 364,875
-----------
2,633,875
-----------
HEALTH CARE SERVICES--3.6%
19,000 Columbia/HCA Health Care.................................. 964,250
26,800 Healthsouth Corp. ........................................ 780,550
-----------
1,744,800
-----------
HOME PRODUCTS--4.7%
16,000 Duracell International, Inc. ............................. 828,000
20,000 Gillette Co. ............................................. 1,042,500
5,000 Procter & Gamble Co. ..................................... 415,000
-----------
2,285,500
-----------
HOTELS & RESTAURANTS--2.7%
10,200 Boston Chicken, Inc. ..................................... 327,675
17,000 McDonalds Corp. .......................................... 767,125
14,900 Primadonna Resorts, Inc. ................................. 219,775
-----------
1,314,575
-----------
INSURANCE--3.9%
14,000 American International Group, Inc. ....................... 1,295,000
10,000 Exel Limited.............................................. 610,000
-----------
1,905,000
-----------
MEDIA & EQUIPMENT--3.1%
13,500 Walt Disney Co. .......................................... 796,500
15,000 Viacom, Inc. ............................................. 710,625
-----------
1,507,125
-----------
NATURAL GAS--PIPELINES--1.6%
19,900 Enron Corp. .............................................. 758,688
-----------
OFFICE EQUIPMENT--6.7%
10,300 Cisco Systems, Inc. ...................................... 768,638
14,000 Hewlett Packard Co. ...................................... 1,172,500
11,000 Parametric Technology Corp. .............................. 731,500
22,500 Silicon Graphics, Inc.(c)................................. 618,750
-----------
3,291,388
-----------
OIL--INDEPENDENT PRODUCERS--3.3%
22,500 Anadarko Petroleum Corp................................... 1,217,812
12,000 Philips Petroleum Co...................................... 409,500
-----------
1,627,312
-----------
</TABLE>
See accompanying notes to financial statements.
25
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES AVANTI GROWTH SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED) SHORT-TERM INVESTMENTS--5.1%
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
PHOTOGRAPHY--2.5%
18,000 Eastman Kodak Co. ........................................ $ 1,206,000
-----------
RETAIL--4.0%
40,500 Office Depot, Inc......................................... 799,875
22,500 Office Max, Inc........................................... 503,437
21,750 Petsmart, Inc............................................. 674,250
-----------
1,977,562
-----------
TELECOMMUNICATIONS--3.9%
5,000 Glenayre Technologies, Inc. .............................. 311,250
22,000 Qualcomm, Inc. ........................................... 946,000
18,000 Tellabs, Inc.(c).......................................... 666,000
-----------
1,923,250
-----------
TOBACCO--2.2%
12,000 Philip Morris Companies, Inc. ............................ 1,086,000
-----------
Total Common Stocks
(Identified Cost $38,942,941)............................ 46,272,919
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$2,481,000 Repurchase agreement with State Street Bank & Trust
Company dated 12/29/95 at 5.00% to be repurchased
at $2,484,378 on 1/2/96 and collateralized by
$2,350,000 U.S. Treasury Note 7.125% with a value
of $2,533,203...................................... $ 2,481,000
-----------
Total Short-Term Investments
(Identified Cost $2,481,000)....................... 2,481,000
-----------
Total Investments--99.8%
(Identified Cost $41,423,941)(b)................... 48,753,919
Receivables......................................... 169,962
Liabilities......................................... (91,511)
-----------
TOTAL NET ASSETS--100%.............................. $48,832,370
===========
(a) See Note 1A.
(b) Federal Tax Information:
At December 31, 1995 the net unrealized appreciation on investments based on
cost for federal income tax purposes of $41,423,941 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost...................................... $ 8,868,515
Aggregate gross unrealized appreciation for all
investments in which there is an excess of tax cost
over value......................................... (1,538,537)
-----------
Net unrealized appreciation......................... $ 7,329,978
===========
</TABLE>
(c) Non-income producing security.
See accompanying notes to financial statements.
26
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES AVANTI GROWTH SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at value........................................... $48,753,919
Receivable for:
Fund shares sold............................................... 116,599
Dividends and interest......................................... 53,316
Foreign taxes.................................................. 47
-----------
48,923,881
LIABILITIES
Payable for:
Fund shares redeemed.................................. $23,146
Withholding taxes..................................... 141
Due to custodian bank................................. 173
Accrued expenses:
Management fees....................................... 20,024
Deferred trustees' fees............................... 11,551
Other expenses........................................ 36,476
-------
91,511
-----------
$48,832,370
===========
NET ASSETS
Net Assets consist of:
Capital paid in................................................ $40,587,121
Undistributed net investment income............................ 6,362
Accumulated net realized gains................................. 908,909
Unrealized appreciation on investments......................... 7,329,978
-----------
NET ASSETS...................................................... $48,832,370
===========
Computation of offering price:
Net asset value and redemption price per share ($48,832,370
divided by 342,823 shares of beneficial interest).............. $ 142.44
===========
Identified cost of investments.................................. $41,423,941
===========
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends............................................. $ 337,093(a)
Interest.............................................. 118,109
----------
455,202
EXPENSES
Management fees....................................... $260,886
Trustees' fees and expenses........................... 15,250
Custodian............................................. 64,836
Audit and tax services................................ 11,400
Legal................................................. 10,325
Printing.............................................. 26,351
Registration.......................................... 7
Miscellaneous......................................... 5,263
--------
Total expenses....................................... 394,318
Less expenses assumed by the investment adviser...... (77,529) 316,789
-------- ----------
NET INVESTMENT INCOME.................................. 138,413
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments--net..................... 2,703,726
----------
Unrealized appreciation on investments--net........... 6,182,432
----------
Net gain on investment transactions.................... 8,886,158
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............. $9,024,571
==========
</TABLE>
(a) Net of foreign taxes of: $141
See accompanying notes to financial statements.
27
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES AVANTI GROWTH SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................. $ 133,225 $ 138,413
Net realized gain (loss) on investments........... (429,848) 2,703,726
Unrealized appreciation on investments............ 522,519 6,182,432
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS............ 225,896 9,024,571
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................. (133,225) (132,051)
In excess of net investment income................ (1,266) 0
Net realized gain on investments.................. 0 (1,364,969)
------------ ------------
(134,491) (1,497,020)
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares...................... 24,276,118 25,328,373
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income.......... 134,491 132,051
Distributions from net realized gain.............. 0 1,364,969
------------ ------------
24,410,609 26,825,393
Cost of shares redeemed........................... (10,852,176) (11,142,834)
------------ ------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS..................................... 13,558,433 15,682,559
------------ ------------
TOTAL INCREASE IN NET ASSETS...................... 13,649,838 23,210,110
NET ASSETS
Beginning of the year............................. 11,972,422 25,622,260
------------ ------------
End of the year................................... $ 25,622,260 $ 48,832,370
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year............................. $ 0 $ 0
============ ============
End of the year................................... $ 0 $ 6,362
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 219,339 188,223
Issued in connection with the reinvestment of:
Distributions from net investment income.......... 1,197 929
Distributions from net realized gain.............. 0 9,604
------------ ------------
220,536 198,756
Redeemed.......................................... (98,649) (83,183)
------------ ------------
Net change........................................ 121,887 115,573
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
APRIL 30, 1993*
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995
--------------- ------------ ------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Year... $100.00 $113.67 $112.77
------- ------- -------
Income From Investment Operations
Net Investment Income............... 0.18 0.59 0.42
Net Realized and Unrealized Gain
(Loss) on Investments.............. 14.56 (0.89) 33.80
------- ------- -------
Total From Investment Operations.... 14.74 (0.30) 34.22
------- ------- -------
Less Distributions
Distributions From Net Investment
Income............................. (0.18) (0.60) (0.40)
Distributions From Net Realized Cap-
ital Gains......................... (0.67) 0.00 (4.15)
Distributions From Paid-in Capital.. (0.22) 0.00 0.00
------- ------- -------
Total Distributions................. (1.07) (0.60) (4.55)
------- ------- -------
Net Asset Value, End of Year......... $113.67 $112.77 $142.44
======= ======= =======
TOTAL RETURN (%)..................... 14.74*** (0.27) 30.35
Ratio of Operating Expenses to Aver-
age Net Assets (%).................. 0.85** 0.84 0.85
Ratio of Net Investment Income to Av-
erage Net Assets (%)................ 0.46** 0.67 0.37
Portfolio Turnover Rate (%).......... 21** 67 58
Net Assets, End of Year (000)........ $11,972 $25,622 $48,832
The ratios of expenses to average net
assets without giving effect to the
voluntary expense limitations
described in Note 4 to the Financial
Statements would have been (%)...... 0.89** 0.84 1.06
</TABLE>
* Commencement of operations.
** Computed on an annualized basis.
*** Not computed on an annualized basis.
See accompanying notes to financial statements.
28
<PAGE>
NEW ENGLAND ZENITH FUND
(VENTURE VALUE SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--88.4% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
BANKS AND SAVINGS & LOANS--10.5%
17,800 Banc One Corp. .......................................... $ 671,950
5,300 Barnett Banks, Inc. ..................................... 312,700
15,200 First Bank Systems, Inc. ................................ 754,300
300 First Union Corp. ....................................... 16,687
8,400 Golden West Financial Corp. ............................. 464,100
12,400 State Street Boston Corp. ............................... 558,000
4,200 Wells Fargo & Co. ....................................... 907,200
-----------
3,684,937
-----------
CHEMICALS--0.0%
100 Dow Chemical Co. ........................................ 7,037
-----------
COMPUTER PRODUCTS AND SERVICES--7.1%
7,100 Cirrus Logic, Inc.(c).................................... 140,225
9,800 Hewlett-Packard Co. ..................................... 820,750
15,200 Intel Corp. ............................................. 862,600
12,800 Texas Instruments, Inc. ................................. 662,400
-----------
2,485,975
-----------
CONSUMER PRODUCTS--8.1%
500 American Brands, Inc. ................................... 22,312
100 American Home Products Corp. ............................ 9,700
11,700 Coca-Cola Company........................................ 868,725
700 General Electric Co. .................................... 50,400
15,900 General Motors Corp. .................................... 840,712
400 Maytag Corp. ............................................ 8,100
7,200 Nestle SA (Switzerland) (ADR)(d)......................... 399,217
600 Philip Morris Cos., Inc. ................................ 54,300
6,100 The Gillette Co. ........................................ 317,963
8,000 The Seagram Co., Ltd. ................................... 277,000
-----------
2,848,429
-----------
ENERGY--4.5%
10,000 Amerada Hess Corp. ...................................... 530,000
200 Amoco Corp. ............................................. 14,375
300 Atlantic Richfield Co. .................................. 33,225
12,100 Burlington Resources, Inc. .............................. 474,925
900 Chevron Corp. ........................................... 47,250
6,200 Energy Venture, Inc.(c).................................. 156,550
1,400 Exxon Corp. ............................................. 112,175
100 Mobil Corp. ............................................. 11,200
2,600 Schlumberger, Ltd. ...................................... 180,050
200 Sonat, Inc. ............................................. 7,125
-----------
1,566,875
-----------
ENTERTAINMENT--0.7%
3,900 The Walt Disney Company.................................. 230,100
-----------
FINANCIAL SERVICES--11.4%
27,100 American Express Co. .................................... 1,121,262
2,800 Dean Witter, Discover & Co. ............................. 131,600
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
9,000 Donaldson Lufkin & Jenrette, Inc......................... $ 281,250
2,500 Federal Home Loan Mortgage Corporation................... 208,750
8,400 J.P. Morgan & Co., Inc. ................................. 674,100
10,200 Morgan Stanley Group, Inc. .............................. 822,375
15,700 SunAmerica, Inc. ........................................ 745,750
-----------
3,985,087
-----------
FOOD--2.7%
15,300 McDonalds Corp. ......................................... 690,413
9,600 Tyson Foods Inc. (Del.).................................. 250,800
-----------
941,213
-----------
INSURANCE--20.3%
19,181 Allstate Corp. .......................................... 788,819
4,300 Americal International Group, Inc. ...................... 397,750
9,000 Chubb Corp. ............................................. 870,750
36,700 Equitable Companies, Inc. ............................... 880,800
5,700 General Re Corp. ........................................ 883,500
9,600 NAC Re Corp. ............................................ 345,600
4,300 National Re Holdings Corp. .............................. 163,400
8,000 Progressive Corp. (Ohio)................................. 391,000
3,800 Transatlantic Holdings Inc. ............................. 278,825
60 Transport Holdings, Inc., Class A........................ 2,445
16,700 The Travelers Group, Inc. ............................... 1,050,013
15,200 20th Century Industries, Inc. ........................... 302,100
8,900 W.R. Berkley Corp. ...................................... 478,375
5,300 UNUM Corp. .............................................. 291,500
-----------
7,124,877
-----------
INTERNATIONAL--0.7%
17,700 Morgan Stanley Asia Pacific Fund, Inc. .................. 236,738
-----------
METALS AND MINERALS--0.3%
800 Alumax, Inc. ............................................ 24,500
1,200 Reynolds Metals Co. ..................................... 67,950
-----------
92,450
-----------
NEWSPAPER, TELEVISION AND RADIO--4.5%
10,900 Gannet Co., Inc.......................................... 668,987
31,300 News Corp. Ltd. (Australia) ADR(d)....................... 602,525
5,200 Tribune Co............................................... 317,850
-----------
1,589,362
-----------
PAPER--3.6%
18,900 Fort Howard Corp.(c)..................................... 425,250
200 International Paper Co................................... 7,575
12,500 Jefferson Smurfit Corp.(c)............................... 118,750
4,400 Mead Corp. .............................................. 229,900
10,400 Union Camp Corp. ........................................ 495,300
-----------
1,276,775
-----------
</TABLE>
See accompanying notes to financial statements.
30
<PAGE>
NEW ENGLAND ZENITH FUND
(VENTURE VALUE SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED) PREFERRED STOCKS--2.3%
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
PHARMACEUTICAL AND HEALTH CARE--3.2%
100 Bristol-Myers Squibb Co. ............................. $ 8,588
3,300 Johnson & Johnson..................................... 282,562
2,300 Merck & Co., Inc. .................................... 151,225
10,700 Pfizer, Inc. ......................................... 674,100
-----------
1,116,475
-----------
PHOTOGRAPHIC--1.1%
5,600 Eastman Kodak Co. .................................... 375,200
-----------
REAL ESTATE--3.4%
5,500 Federal Realty Investment Trust....................... 125,125
37,700 Host Marriott Corp.(c)................................ 499,525
1,200 Kimco Realty Corp..................................... 32,700
3,200 Mid-Atlantic Realty Trust............................. 27,600
3,500 Saul Centers, Inc..................................... 47,688
6,000 United Dominion Realty Trust, Inc. ................... 90,000
8,600 Vornado Realty Trust.................................. 322,500
1,700 Weingarten Realty, Inc................ ............... 64,600
-----------
1,209,738
-----------
RETAIL--2.1%
15,100 Federated Department Stores, Inc.(c).................. 415,250
7,400 Harcourt General, Inc................................. 309,875
-----------
725,125
-----------
TELECOMMUNICATIONS--2.4%
12,700 Airtouch Communications(c)............................ 358,775
1,700 AT & T Corp........................................... 110,075
2,600 Cellular Communications, Inc.(c)...................... 129,350
8,800 MCI Communications Corp. ............................. 229,900
200 SBC Communications, Inc. ............................. 11,500
-----------
839,600
-----------
TIMBER PRODUCTS--0.6%
5,300 Weyerhaeuser Co. ..................................... 229,225
-----------
TRANSPORTATION--1.1%
4,600 Illinois Central Corp. ............................... 176,525
3,400 Union Pacific Corp. .................................. 224,400
-----------
400,925
-----------
UTILITIES--0.1%
100 Carolina Power & Light................................ 3,450
200 Duke Power Co. ....................................... 9,475
100 San Diego Gas & Electric Co. ......................... 2,375
200 SCEcorp. ............................................. 3,550
100 Wisconsin Energy Corp. ............................... 3,063
-----------
21,913
-----------
Total Common Stocks
(Identified Cost $27,202,197)........................ 30,988,056
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
900 Banc One Corp., $3.50,
Ser. C Conv. Pfd................................... $ 59,063
4,100 Citicorp, $5.375, Ser. 13 Conv. Pfd................. 752,862
-----------
Total Preferred Stocks
(Identified Cost $654,977)......................... 811,925
-----------
SHORT-TERM INVESTMENT--9.3%
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$3,255,000 Federal Home Loan Mortgage Association Discount
Note, 5.500%, 1/02/96.............................. 3,254,503
-----------
Total Short-Term Investment
(Identified Cost $3,254,503)....................... 3,254,503
-----------
Total Investments--100.0%
(Identified Cost $31,111,677)(b)................... 35,054,484
Cash and Receivables................................ 186,716
Liabilities......................................... (196,233)
-----------
TOTAL NET ASSETS--100%.............................. $35,044,967
===========
(a) See Note 1A.
(b) Federal Tax Information:
At December 31, 1995 the net unrealized appreciation on investments based on
cost of $31,114,217 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...................................... $ 4,206,324
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value......................................... (266,057)
-----------
Net unrealized appreciation......................... $ 3,940,267
===========
</TABLE>
(c) Non-income producing security.
(d) An American Depository Receipt (ADR) is a certificate issued by U.S. bank
representing the right to receive securities of the foreign issuer
described. The values of ADRs are significantly influenced by trading on
exchanges not not located in the United States or Canada.
See accompanying notes to financial statements.
31
<PAGE>
NEW ENGLAND ZENITH FUND
(VENTURE VALUE SERIES)
STATEMENT OF ASSETS & LIABILITIES STATEMENT OF OPERATIONS
DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at value..................................... $35,054,484
Cash..................................................... 6,174
Receivable for:
Fund shares sold......................................... 116,545
Dividends and interest................................... 54,906
Foreign taxes............................................ 137
Due from advisor......................................... 1,249
Unamortized organization expense......................... 7,705
-----------
35,241,200
LIABILITIES
Payable for:
Securities purchased..................................... $142,266
Fund shares redeemed..................................... 7,525
Dividends declared....................................... 178
Accrued expenses:
Management fees.......................................... 12,762
Other expenses........................................... 33,502
--------
196,233
-----------
$35,044,967
===========
NET ASSETS
Net Assets consist of:
Capital paid in.......................................... $31,014,881
Undistributed net investment income...................... 3,911
Accumulated net realized gains........................... 83,368
Unrealized appreciation on investments................... 3,942,807
-----------
NET ASSETS................................................ $35,044,967
===========
Computation of offering price:
Net asset value and redemption price per share
($35,044,967 divided by 2,674,422 shares of beneficial
interest)................................................ $ 13.10
===========
Identified cost of investments............................ $31,111,677
===========
</TABLE>
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends............................................. $ 300,211(a)
Interest.............................................. 104,200
----------
404,411
EXPENSES
Management fees....................................... $131,969
Trustees' fees and expenses........................... 15,050
Custodian............................................. 79,272
Audit and tax services................................ 19,800
Legal................................................. 10,821
Printing.............................................. 5,529
Registration.......................................... 7
Insurance............................................. 166
Amortization of organization expense.................. 2,347
Miscellaneous......................................... 2,372
--------
Total expenses....................................... 267,333
Less expenses assumed by the investment adviser...... (108,971) 158,362
-------- ----------
NET INVESTMENT INCOME.................................. 246,049
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on Investments--net..................... 600,646
Unrealized appreciation on Investments--net........... 3,966,150
----------
Net gain on investment transactions.................... 4,566,796
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............. $4,812,845
==========
</TABLE>
(a) Net of foreign taxes of: $1,574
See accompanying notes to financial statements.
32
<PAGE>
NEW ENGLAND ZENITH FUND
(VENTURE VALUE SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 31, 1994 (A)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
-------------------- ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income...................... $ 8,452 $ 246,049
Net realized gain on investments........... 0 600,646
Unrealized appreciation (depreciation) on
investments............................... (23,343) 3,966,150
----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM OP-
ERATIONS.................................. (14,891) 4,812,845
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................... (8,452) (244,485)
In excess of net investment income......... (1,456) 0
Net realized gain on investments........... 0 (517,278)
----------- -----------
(9,908) (761,763)
----------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares............... 3,821,298 31,372,928
Net asset value of shares issued in connec-
tion with the reinvestment of:
Distributions from net investment income... 9,908 244,485
Distributions from net realized gain....... 0 517,278
----------- -----------
3,831,206 32,134,691
Cost of shares redeemed.................... (1,434,963) (4,512,250)
----------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS........................ 2,396,243 27,622,441
----------- -----------
TOTAL INCREASE IN NET ASSETS............... 2,371,444 31,673,523
NET ASSETS
Beginning of the year...................... 1,000,000 3,371,444
----------- -----------
End of the year............................ $ 3,371,444 $35,044,967
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year...................... $ 0 $ 0
=========== ===========
End of the year............................ $ 0 $ 3,911
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares............. 397,102 2,627,688
Issued in connection with the reinvestment
of:
Distributions from net investment income... 1,030 18,850
Distributions from net realized gain....... 0 39,883
----------- -----------
398,132 2,686,421
Redeemed................................... (147,540) (362,591)
----------- -----------
Net change................................. 250,592 2,323,830
=========== ===========
(a) Commencement of Operations
FINANCIAL HIGHLIGHTS
<CAPTION>
OCTOBER 31, 1994*
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
-------------------- ------------
<S> <C> <C>
Net Asset Value, Beginning of Year.......... $ 10.00 $ 9.62
----------- -----------
Income From Investment Operations
Net Investment Income...................... 0.03 0.10
Net Realized and Unrealized Gain (Loss) on
Investments............................... (0.38) 3.68
----------- -----------
Total From Investment Operations........... (0.35) 3.78
----------- -----------
Less Distributions
Distributions From Net Investment Income... (0.03) (0.10)
Distributions From Net Realized Capital
Gains..................................... 0.00 (0.20)
----------- -----------
Total Distributions........................ (0.03) (0.30)
----------- -----------
Net Asset Value, End of Year................ $ 9.62 $ 13.10
=========== ===========
TOTAL RETURN (%)............................ (3.50)*** 39.28
Ratio of Operating Expenses to Average Net
Assets (%)................................. 0.90 ** 0.90
Ratio of Net Investment Income to Average
Net Assets (%)............................. 2.54 ** 1.39
Portfolio Turnover Rate (%)................. 1 ** 20
Net Assets, End of Year (000)............... $ 3,371 $ 35,045
The ratios of expenses to average net assets
without giving effect to the voluntary
expense limitations described in Note 4 to
the Financial Statements would have been
(%)........................................ 3.97 ** 1.51
</TABLE>
* Commencement of operations.
** Computed on an annualized basis.
*** Not computed on an annualized basis.
See accompanying notes to financial statements.
33
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK VALUE GROWTH SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--95.5% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
AEROSPACE--2.2%
6,200 Lockheed Martin Corp. ................................... $ 489,800
6,200 McDonnell Douglas Corp. ................................. 570,400
-----------
1,060,200
-----------
AGRICULTURE & FOOD--4.7%
4,600 CPC International, Inc. ................................. 315,675
13,900 IBP, Inc. ............................................... 701,950
17,000 Pioneer Hi Bred, Inc. ................................... 945,625
2,200 Unilever NV.............................................. 309,650
-----------
2,272,900
-----------
AIRLINES--1.4%
6,900 AMR Corp. (c)............................................ 512,325
2,800 Northwest Airlines Corp. ................................ 142,800
-----------
655,125
-----------
ALUMINUM--1.7%
15,600 Aluminium Company of America............................. 824,850
-----------
APPAREL--1.1%
7,600 Nike, Inc. .............................................. 529,150
-----------
BANKS--5.7%
5,900 Bank of Boston Corp. .................................... 272,875
17,000 Bank of New York, Inc. .................................. 828,750
7,000 Citicorp................................................. 470,750
9,100 NationsBank Corp. ....................................... 633,588
1,300 Suntrust Banks, Inc. .................................... 89,050
8,000 Union Bank of San Francisco.............................. 434,000
-----------
2,729,013
-----------
BEVERAGE--2.6%
17,000 Coca Cola Co. ........................................... 1,262,250
-----------
BUSINESS MACHINES--2.8%
8,200 Dell Computer Corp. ..................................... 283,925
7,600 Hewlett Packard Co. ..................................... 636,500
7,400 Seagate Technology....................................... 351,500
1,400 Sun Microsystems, Inc. (c)............................... 63,875
-----------
1,335,800
-----------
CHEMICALS--1.6%
14,400 Cabot Corp. ............................................. 775,800
-----------
COSMETICS--3.4%
16,700 Johnson & Johnson........................................ 1,429,939
2,700 Procter & Gamble Co. .................................... 224,100
-----------
1,654,039
-----------
DRUGS--6.3%
6,200 Amgen, Inc. (c).......................................... 368,125
8,800 Lilly & Eli and Co. ..................................... 495,000
27,600 Merck & Company, Inc. ................................... 1,814,700
6,500 Schering Plough Corp. ................................... 355,875
-----------
3,033,700
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
ELECTRIC UTILITIES--5.3%
3,500 Central and Southwest Corp. .............................. $ 97,563
15,200 Consolidated Edison Co. of New York....................... 486,400
13,000 Houston Industries, Inc. ................................. 315,250
32,400 Pacific Gas and Electric Co. ............................. 919,350
5,800 Southern Co. ............................................. 142,825
18,400 Unicom Corp. ............................................. 602,600
-----------
2,563,988
-----------
ELECTRONICS--2.4%
5,800 Intel Corp. .............................................. 329,150
11,800 Raytheon Co. ............................................. 557,550
900 U.S. Robotics Corp. ...................................... 78,975
6,510 Vishay Intertechnology, Inc. ............................. 205,065
-----------
1,170,740
-----------
FINANCIAL-SERVICES--3.1%
6,500 Beneficial Corp. ......................................... 303,062
2,700 Household International, Inc. ............................ 159,637
3,000 Merrill Lynch & Co. ...................................... 153,000
5,700 Student Loan Marketing Association........................ 375,488
7,900 Travelers Group, Inc. .................................... 496,712
-----------
1,487,899
-----------
GAS UTILITIES--1.6%
19,900 Oneok..................................................... 455,213
10,900 Pacific Enterprises....................................... 307,925
-----------
763,138
-----------
GOLD--0.1%
1,400 Newmont Gold Co. ......................................... 61,250
-----------
HEALTHCARE--4.5%
19,700 Abbott Labs............................................... 822,475
6,600 Boston Scientific Group................................... 323,400
18,000 Medtronic, Inc. .......................................... 1,005,750
-----------
2,151,625
-----------
HOTEL & RESTAURANT--0.3%
3,000 McDonalds Corp. .......................................... 135,375
-----------
INSURANCE--LIFE--0.3%
3,900 Protective Life Corp. .................................... 121,875
-----------
INSURANCE--OTHER--5.5%
12,000 American International Group, Inc. ....................... 1,110,000
3,300 Cigna Corp. .............................................. 340,725
700 General Realty Corp. ..................................... 108,500
13,000 Loews Corp. .............................................. 1,018,875
900 MGIC Investment Corp. .................................... 48,825
-----------
2,626,925
-----------
INTERNATIONAL OIL--5.2%
3,600 Chevron Corp. ............................................ 189,000
17,600 Exxon Corp. .............................................. 1,410,200
8,100 Mobil Corp. .............................................. 907,200
-----------
2,506,400
-----------
</TABLE>
See accompanying notes to financial statements.
36
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK VALUE GROWTH SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
MEDIA--2.1%
22,500 Clear Channel Communications.............................. $ 992,812
-----------
MORTGAGE--0.5%
500 Federal Home Loan Mortgage Corp. ......................... 41,750
7,200 Green Tree Financial Corp. ............................... 189,900
-----------
231,650
-----------
MOTOR VEHICLES--1.1%
19,000 Ford Motor Co. ........................................... 551,000
-----------
OIL REFINEMENT/DISTRIBUTION--5.0%
14,600 Amoco Corp. .............................................. 1,049,375
9,600 Royal Dutch Petroleum Co. ................................ 1,354,800
-----------
2,404,175
-----------
OIL SERVICE--0.3%
2,800 Halliburton Co. .......................................... 141,750
-----------
PAPER--0.9%
8,900 Champion International Corp. ............................. 373,800
800 Consolidated Papers....................................... 44,900
-----------
418,700
-----------
PHOTOGRAPHY--0.8%
6,100 Eastman Kodak............................................. 408,700
-----------
PRODUCER OF GOODS--2.4%
4,400 Applied Materials, Inc.(c)................................ 173,250
1,900 Danaher Corp. ............................................ 60,325
2,600 Dover Corp. .............................................. 95,875
7,300 Harsco Corp. ............................................. 424,312
5,200 Illinois Tool Works, Inc. ................................ 306,800
2,800 Parker-Hannifin Corp. .................................... 95,900
-----------
1,156,462
-----------
PUBLISHING--0.3%
3,700 Reynolds & Reynolds....................................... 143,837
-----------
RAILROAD--2.8%
8,900 Burlington Northern, Inc. ................................ 694,200
14,400 CSX Corp. ................................................ 657,000
-----------
1,351,200
-----------
RETAIL--3.4%
4,800 Barnes & Noble, Inc. ..................................... 139,200
8,100 Eckerd Jack Corp. Del..................................... 361,462
2,100 Micro Warehouse, Inc. .................................... 90,825
26,700 Sears Roebuck and Co. .................................... 1,041,300
-----------
1,632,787
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
SOAPS--1.0%
9,900 Premark International, Inc. ........................ $ 501,188
-----------
TELEPHONE--11.6%
22,000 Ameritech Corp. .................................... 1,298,000
5,600 Bell Atlantic Corp. ................................ 374,500
32,600 Bell South Corp. ................................... 1,418,100
27,500 Cincinnati Bell, Inc. .............................. 955,625
20,500 SBC Communications, Inc. ........................... 1,178,750
9,600 Sprint Corp. ....................................... 382,800
-----------
5,607,775
-----------
THRIFT--0.6%
7,200 Standard Federal Bancorporation..................... 283,500
-----------
TOBACCO--0.9%
4,800 Phillip Morris Companies, Inc. ..................... 434,400
-----------
Total Common Stocks
(Identified Cost $38,331,094)...................... 45,981,978
-----------
SHORT-TERM INVESTMENTS--4.8%
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$2,304,000 Repurchase agreement with State Street Bank & Trust
Company dated 12/29/95 at 5% to be repurchased at
$2,305,280 on 1/2/96. Collaterized by $2,015,000
U.S. Treasury Notes 8.75% due 8/15/00 with a value
of $2,352,498...................................... 2,304,000
-----------
Total Short-Term Investments
(Identified Cost $2,304,000)....................... 2,304,000
-----------
Total Investments--100.3%
(Identified Cost $40,635,094)(b)................... 48,285,978
Cash and Receivables................................ 173,840
Liabilities......................................... (330,781)
-----------
TOTAL NET ASSETS--100%.............................. $48,129,037
===========
(a) See Note 1A.
(b) Federal Tax Information:
At December 31, 1995 the net unrealized appreciation on investments based on
cost of $40,635,910 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost...................................... $ 7,954,474
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value......................................... (304,406)
-----------
Net unrealized appreciation......................... $ 7,650,068
===========
</TABLE>
(c) Non-income producing security.
(d) An American Depository Receipt (ADR) is a certificate issued by a U.S.
Bank representing the right to receive securities of the foreign issuer
described. The values of ADR's are significantly influenced by trading on
exchanges not located in the United States or Canada.
See accompanying notes to financial statements.
37
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK VALUE GROWTH SERIES)
STATEMENT OF ASSETS & LIABILITIES STATEMENT OF OPERATIONS
DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at value..................................... $48,285,978
Cash..................................................... 751
Receivable for:
Fund shares sold......................................... 80,096
Dividends and interest................................... 92,993
-----------
48,459,818
LIABILITIES
Payable for:
Securities purchased..................................... $258,121
Fund shares redeemed..................................... 11,565
Accrued expenses:
Management fees.......................................... 19,720
Deferred trustees' fees.................................. 655
Other expenses........................................... 40,720
--------
330,781
-----------
$48,129,037
===========
NET ASSETS
Net Assets consist of:
Capital paid in.......................................... $39,982,393
Undistributed net investment income...................... 13,865
Accumulated net realized gains........................... 481,895
Unrealized appreciation on investments................... 7,650,884
-----------
NET ASSETS................................................ $48,129,037
===========
Computation of offering price:
Net asset value and redemption price per share
($48,129,037 divided by 340,603 shares of beneficial
interest)................................................ $ 141.31
===========
Identified cost of investments............................ $40,635,094
===========
</TABLE>
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends............................................ $ 764,562(a)
Interest............................................. 93,774
-----------
858,336
EXPENSES
Management fees...................................... $242,628
Trustees' fees and expenses.......................... 15,270
Custodian............................................ 59,894
Audit and tax services............................... 11,400
Legal................................................ 10,326
Printing............................................. 23,326
Registration......................................... 7
Miscellaneous........................................ 5,506
--------
Total expenses...................................... 368,357
Less expenses assumed by the investment adviser..... (73,738) 294,619
-------- -----------
NET INVESTMENT INCOME................................. 563,717
REALIZED AND UNREALIZED GAIN ON INVESTMENTS,
Realized gain on investments--net.................... 2,941,365
Unrealized appreciation on investments--net.......... 6,907,865
-----------
Net gain on investment transactions................... 9,849,230
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............ $10,412,947
===========
</TABLE>
(a) Net of foreign taxes of $4,644
See accompanying notes to financial statements.
38
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK VALUE GROWTH SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income.............................. $ 387,990 $ 563,717
Net realized gain (loss) on investments............ (633,620) 2,941,365
Unrealized appreciation on investments............. 298,917 6,907,865
----------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS............. 53,287 10,412,947
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income.............................. (387,990) (549,852)
Paid in capital.................................... (9,110) 0
Net realized gain on investments................... 0 (1,825,459)
----------- -----------
(397,100) (2,375,311)
----------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares....................... 23,191,269 22,945,280
Net asset value of shares issued in connection with
the reinvestment of:
Distributions from net investment income........... 387,990 549,852
Distributions from paid in capital................. 9,110
Distributions from net realized gain............... 0 1,825,459
----------- -----------
23,588,369 25,320,591
Cost of shares redeemed............................ (9,392,660) (8,163,352)
----------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS...................................... 14,195,709 17,157,239
----------- -----------
TOTAL INCREASE IN NET ASSETS....................... 13,851,696 25,194,875
NET ASSETS
Beginning of the year.............................. 9,082,266 22,934,162
----------- -----------
End of the year.................................... $22,934,162 $48,129,037
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year.............................. $ (315) $ 0
=========== ===========
End of the year.................................... $ 0 $ 13,865
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares..................... 212,075 175,593
Issued in connection with the reinvestment of:
Distributions from net investment income........... 3,558 3,932
Distributions from paid in capital................. 73 0
Distributions from net realized gain............... 0 13,054
----------- -----------
215,706 192,579
Redeemed........................................... (88,227) (62,314)
----------- -----------
Net change......................................... 129,479 130,265
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
APRIL 30, 1993*
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995
--------------- ------------ ------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Year... $100.00 $112.32 $109.03
------- ------- -------
Income From Investment Operations
Net Investment Income............... 0.92 1.90 1.77
Net Realized and Unrealized Gain
(Loss) on Investments.............. 13.33 (3.25) 37.91
------- ------- -------
Total From Investment Operations.... 14.25 (1.35) 39.68
------- ------- -------
Less Distributions
Distributions From Net Investment
Income............................. (0.92) (1.92) (1.71)
Distributions From Net Realized Cap-
ital Gains......................... (1.00) 0.00 (5.69)
Distributions In Excess of Net Real-
ized Capital Gains................. (0.01) 0.00 0.00
Distributions From Paid-in Capital.. 0.00 (0.02) 0.00
------- ------- -------
Total Distributions................. (1.93) (1.94) (7.40)
------- ------- -------
Net Asset Value, End of Year......... $112.32 $109.03 $141.31
======= ======= =======
TOTAL RETURN (%)..................... 14.24*** (1.21) 36.46
Ratio of Operating Expenses to Aver-
age Net Assets (%).................. 0.85** 0.85 0.85
Ratio of Net Investment Income to Av-
erage Net Assets (%)................ 2.16** 2.30 1.63
Portfolio Turnover Rate (%).......... 49** 133 92
Net Assets, End of Year (000)........ $ 9,082 $22,934 $48,129
The ratios of expenses to average net
assets without giving effect to the
voluntary expense limitations
described in Note 4 to the Financial
Statements would have been (%)...... 0.94** 0.86 1.06
</TABLE>
* Commencement of operations.
** Computed on an annualized basis.
*** Not computed on an annualized basis.
See accompanying notes to financial statements.
39
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--99.1% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
AEROSPACE--2.2%
3,100 Allied Signal, Inc. ..................................... $ 147,250
4,500 Boeing Co. .............................................. 352,687
900 General Dynamics Corp. .................................. 53,213
2,815 Lockheed Martin Corp. ................................... 222,385
1,500 McDonnell Douglas Corp. ................................. 138,000
400 Northrop Grumman Corp. .................................. 25,600
2,300 Rockwell International Corp. ............................ 121,612
900 Teledyne, Inc. .......................................... 23,062
1,300 United Technologies Corp. ............................... 123,337
-----------
1,207,146
-----------
AGRICULTURE AND FOOD--3.1%
6,596 Archer-Daniels-Midland Co. .............................. 118,728
3,300 Campbell Soup Company.................................... 198,000
3,050 Conagra, Inc. ........................................... 125,812
1,600 CPC International, Inc. ................................. 109,800
2,200 General Mills, Inc. ..................................... 127,050
4,800 H.J. Heinz Co. .......................................... 159,000
700 Hershey Foods Corp. ..................................... 45,500
3,400 Kellogg Co. ............................................. 262,650
800 Pioneer Hi Bred International, Inc. ..................... 44,500
1,600 Quaker Oats Co. ......................................... 55,200
6,000 Sara Lee Corp. .......................................... 191,250
2,200 Unilever N.V. ........................................... 309,650
1,300 William Wrigley Jr. Co. ................................. 68,250
-----------
1,815,390
-----------
AIR TRANSPORT--0.4%
900 AMR Corp.(c)............................................. 66,825
900 Delta Airlines, Inc. .................................... 66,487
700 Federal Express Corp.(c)................................. 51,712
1,600 Southwest Airlines Co. .................................. 37,200
400 US Air Group, Inc.(c).................................... 5,300
-----------
227,524
-----------
ALUMINUM--0.4%
2,400 Alcan Aluminum, Ltd. .................................... 74,700
2,000 Aluminum Company of America.............................. 105,750
900 Reynolds Metals Co. ..................................... 50,962
-----------
231,412
-----------
APPAREL--0.5%
100 Brown Group, Inc. ....................................... 1,425
600 Liz Claiborne, Inc. ..................................... 16,650
2,400 Nike, Inc. .............................................. 167,100
1,200 Reebok International Ltd. ............................... 33,900
300 Russell Corp. ........................................... 8,325
100 Springs Industries, Inc. ................................ 4,137
400 Stride Rite Corp. ....................................... 3,000
1,000 VF Corp. ................................................ 52,750
-----------
287,287
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
BANKS--6.5%
4,978 Banc One Corp. .......................................... $ 187,920
2,200 Bank of New York, Inc. .................................. 107,250
1,800 Bank of Boston Corp. .................................... 83,250
4,928 BankAmerica Corp. ....................................... 319,088
900 Bankers Trust New York Corp. ............................ 59,850
1,100 Barnett Banks of Florida, Inc. .......................... 64,900
1,500 Boatmens Bancshares, Inc. ............................... 61,312
2,200 Chase Manhattan Corp. ................................... 133,375
3,282 Chemical Banking Corp. .................................. 192,817
5,200 Citicorp(c).............................................. 349,700
1,500 Comerica, Inc. .......................................... 60,187
1,700 Core States Financial Corp. ............................. 64,388
1,700 First Bank Systems, Inc. ................................ 84,362
3,510 First Chicago Corp. ..................................... 138,645
1,000 First Fidelity Bancorporation............................ 75,375
1,100 First Interstate Bancorp................................. 150,150
2,100 First U.N. Corp. ........................................ 116,812
4,462 Fleet Financial Group, Inc. ............................. 181,827
2,400 J.P. Morgan & Co., Inc. ................................. 192,600
3,100 Keycorp.................................................. 112,375
1,750 Mellon Bank Corp. ....................................... 94,062
1,800 National City Corp. ..................................... 59,625
3,816 Nationsbank Corp. ....................................... 265,689
3,700 Norwest Corp. ........................................... 122,100
4,400 PNC Bank Corp. .......................................... 141,900
700 Republic New York Corp. ................................. 43,487
1,100 Suntrust Banks, Inc. .................................... 75,350
1,900 U.S. Bancorp............................................. 63,887
1,900 Wachovia Corp. .......................................... 86,925
600 Wells Fargo & Co. ....................................... 129,600
-----------
3,818,808
-----------
BEVERAGES--3.1%
16,100 Coca Cola Co. ........................................... 1,195,425
10,100 PepsiCo, Inc. ........................................... 564,337
1,300 Whitman Corp. ........................................... 30,225
-----------
1,789,987
-----------
BUSINESS MACHINES--4.0%
1,400 Amdahl Corporation(c).................................... 11,900
1,400 Apple Computer, Inc. .................................... 44,625
1,000 Cabletron Systems, Inc.(c)............................... 81,000
3,600 Cisco Systems, Inc. ..................................... 268,650
3,300 Compaq Computer Corp.(c)................................. 158,400
300 Cray Research, Inc.(c)................................... 7,425
300 Data General Corp.(c).................................... 4,125
1,800 Digital Equipment Corp.(c)............................... 115,425
6,300 Hewlett-Packard Co. ..................................... 527,625
7,300 International Business Machines Corp. ................... 669,775
1,700 Pitney Bowes, Inc. ...................................... 79,900
2,200 Silicon Graphics, Inc.(c)................................ 60,500
</TABLE>
See accompanying notes to financial statements.
41
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
BUSINESS MACHINES--(CONTINUED)
2,300 Sun Microsystems, Inc.(c)................................ $ 104,938
1,800 Tandem Computers, Inc.(c)................................ 19,125
2,200 Unisystems, Corp.(c)..................................... 12,375
1,500 Xerox Corp. ............................................. 205,500
-----------
2,371,288
-----------
CHEMICALS--3.1%
1,000 Air Products and Chemicals, Inc. ........................ 52,750
900 Avery Dennison Corp. .................................... 45,113
300 B.F. Goodrich Co. ....................................... 20,437
3,050 Dow Chemical Co. ........................................ 214,644
1,300 Eastman Chemical Co. .................................... 81,413
7,000 E.I. Du Pont de Nemours & Co. ........................... 489,125
300 FMC Corp.(c)............................................. 20,288
800 Great Lakes Chemical Corp. .............................. 57,600
1,400 Hercules, Inc. .......................................... 78,925
1,300 Monsanto Company......................................... 159,250
2,100 Morton International, Inc. .............................. 75,337
1,000 Nalco Chemical Co. ...................................... 30,125
3,300 Occidental Petroleum Corp. .............................. 70,537
2,300 PPG Industries, Inc. .................................... 105,225
2,000 Praxair, Inc. ........................................... 67,250
1,000 Rohm & Haas Co. ......................................... 64,375
1,000 Sigma-Aldrich Corp. ..................................... 49,500
1,700 Union Carbide Corp. ..................................... 63,750
1,200 W.R. Grace & Co. ........................................ 70,950
-----------
1,816,594
-----------
CONSTRUCTION--0.3%
800 Armstrong World Industries, Inc. ........................ 49,600
700 Centex Corp. ............................................ 24,325
900 Fluor Corp. ............................................. 59,400
700 Sherwin Williams Co. .................................... 28,525
100 Skyline Corp. ........................................... 2,075
200 Zurn Industries, Inc. ................................... 4,275
-----------
168,200
-----------
CONSUMER DURABLES--0.3%
1,000 Black & Decker Corp. .................................... 35,250
2,000 Masco Corp. ............................................. 62,750
800 Maytag Corp. ............................................ 16,200
1,000 Whirlpool Corp. ......................................... 53,250
-----------
167,450
-----------
CONTAINERS--0.2%
200 Ball Corp. .............................................. 5,500
400 Bemis, Inc. ............................................. 10,250
1,300 Crown Cork & Seal, Inc.(c)............................... 54,275
900 Temple Inland, Inc. ..................................... 39,713
-----------
109,738
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
COSMETICS--2.6%
200 Alberto Culver Co. ...................................... $ 6,875
800 Avon Products, Inc. ..................................... 60,300
8,100 Johnson & Johnson........................................ 693,562
9,060 Procter & Gamble Co. .................................... 751,980
-----------
1,512,717
-----------
DOMESTIC OIL RESERVES--0.8%
2,000 Atlantic Richfield Co. .................................. 221,500
1,600 Burlington Resources, Inc. .............................. 62,800
700 Louisiana Land & Exploration............................. 30,013
800 Pennzoil Company......................................... 33,800
2,900 Phillips Petroleum Company............................... 98,962
1,711 Santa Fe Energy Research, Inc.(c)........................ 16,468
-----------
463,543
-----------
DRUGS & MEDICINE--6.2%
700 Allergan, Inc. .......................................... 22,750
1,600 Alza Corp.(c)............................................ 39,600
3,700 American Home Products Corp. ............................ 358,900
3,800 Amgen, Inc.(c)........................................... 225,625
6,140 Bristol Myers & Squibb Co. .............................. 527,273
7,200 Eli Lilly & Company...................................... 405,000
15,600 Merck & Co., Inc. ....................................... 1,025,700
8,000 Pfizer, Inc. ............................................ 504,000
6,680 Pharmacia & Upjohn, Inc. ................................ 258,850
4,600 Schering-Plough Corp. ................................... 251,850
-----------
3,619,548
-----------
ELECTRIC UTILITIES--3.7%
2,500 American Electric Power Co., Inc. ....................... 101,250
1,600 Baltimore Gas & Electric Co. ............................ 45,600
1,700 Carolina Power & Light Co. .............................. 58,650
2,500 Central & South West Corp. .............................. 69,688
2,111 Cinergy Corp. ........................................... 64,649
3,100 Consolidated Edison Co. of New York...................... 99,200
1,600 Detroit Edison Co. ...................................... 55,200
2,050 Dominion Resources, Inc. ................................ 84,562
2,800 Duke Power Co. .......................................... 132,650
3,200 Entergy Corp. ........................................... 93,600
2,300 FPL Group, Inc. ......................................... 106,663
1,500 General Public Utilities Corp. .......................... 51,000
4,000 Houston Industries, Inc. ................................ 97,000
2,000 Niagara Mohawk Power Corp. .............................. 19,250
500 Northern States Power Co. ............................... 24,563
2,100 Ohio Edison Co. ......................................... 49,350
5,600 Pacific Gas & Electric Corp. ............................ 158,900
3,500 Pacificorp............................................... 74,375
3,500 PECO Energy Co. ......................................... 105,437
2,000 P.P. & L Res, Inc. ...................................... 50,000
3,700 Public Service Enterprise Group.......................... 113,312
5,700 SCE Corp. ............................................... 101,175
</TABLE>
See accompanying notes to financial statements.
42
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
ELECTRIC UTILITIES--(CONTINUED)
8,800 Southern Co. ............................................ $ 216,700
2,500 Texas Utilities Company.................................. 102,812
2,700 Unicom Corp. ............................................ 88,425
800 Union Electric Co. ...................................... 33,400
-----------
2,197,411
-----------
ELECTRONICS--3.6%
1,600 Advanced Micro Devices, Inc.(c).......................... 26,400
3,056 AMP, Inc. ............................................... 117,274
225 Andrew Corp.(c).......................................... 8,606
1,300 Cooper Industries, Inc. ................................. 47,775
1,800 DSC Communications Corp.(c).............................. 66,375
300 Harris Corp. ............................................ 16,388
1,400 Honeywell, Inc. ......................................... 68,075
10,700 Intel Corp. ............................................. 607,225
1,800 Loral Corp. ............................................. 63,675
1,500 LSI Logic Corp.(c)....................................... 49,125
3,400 Micron Technology, Inc. ................................. 134,725
7,300 Motorola, Inc. .......................................... 416,100
1,800 National Semiconductor Corp.(c).......................... 40,050
3,100 Northern Telecom, Ltd. .................................. 133,300
300 Raychem Corp. ........................................... 17,063
2,600 Raytheon Co. ............................................ 122,850
1,100 Scientific Atlanta, Inc. ................................ 16,500
200 Tektronix, Inc. ......................................... 9,825
1,100 Tellabs, Inc.(c)......................................... 40,700
2,500 Texas Instruments, Inc. ................................. 129,375
100 Thomas & Betts Corp. .................................... 7,375
-----------
2,138,781
-----------
FINANCE--1.8%
6,400 American Express Co. .................................... 264,800
400 Beneficial Corp. ........................................ 18,650
2,402 Dean Witter Discover & Co. .............................. 112,894
1,200 Household International, Inc. ........................... 70,950
1,550 MBNA Corp. .............................................. 57,156
2,300 Merrill Lynch & Co., Inc. ............................... 117,300
1,000 Morgan Stanley Group, Inc. .............................. 80,625
1,200 Salomon, Inc. ........................................... 42,600
4,384 Travelers Group, Inc. ................................... 275,644
-----------
1,040,619
-----------
FOREIGN OIL RESERVES--0.1%
900 Kerr McGee Corp. ........................................ 57,150
-----------
FOREST PRODUCTS--0.1%
1,300 Louisiana Pacific Corp. ................................. 31,525
-----------
GAS UTILITIES--1.0%
900 Columbia Gas System, Inc.(c)............................. 39,488
1,100 Consolidated Natural Gas Co. ............................ 49,913
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
700 Eastern Enterprises...................................... $ 24,675
3,200 Enron Corp. ............................................. 122,000
700 Ensearch Corporation..................................... 11,375
400 Nicor, Inc. ............................................. 11,000
1,300 Noram Energy Corp. ...................................... 11,538
200 Oneok, Inc. ............................................. 4,575
1,100 Pacific Enterprises, Ltd. ............................... 31,075
1,829 Panhandle Eastern Corporation............................ 50,983
300 Peoples Energy Corp. .................................... 9,525
1,000 Sonat, Inc. ............................................. 35,625
2,800 Tenneco, Inc. ........................................... 138,950
1,600 Williams Companies, Inc. ................................ 70,200
-----------
610,922
-----------
GOLD--0.7%
4,300 Barrick Gold Corp. ...................................... 113,412
1,800 Echo Bay Mines, Ltd. .................................... 18,675
1,425 Engelhard Corp. ......................................... 30,994
2,700 Freeport McMoran Copper & Gold........................... 75,937
1,500 Homestake Mining Co. .................................... 23,438
1,124 Newmont Mining Corp. .................................... 50,861
3,000 Placer Dome, Inc. ....................................... 72,375
2,200 Santa Fe Pacific Gold Corp. ............................. 26,675
-----------
412,367
-----------
HEALTH CARE--3.4%
9,400 Abbott Laboratories, Inc. ............................... 392,450
400 Bausch & Lomb, Inc. ..................................... 15,850
3,400 Baxter International, Inc. .............................. 142,375
600 Becton Dickinson & Co. .................................. 45,000
1,300 Beverly Enterprises, Inc.(c)............................. 13,813
1,300 Biomet, Inc.(c).......................................... 23,238
2,100 Boston Scientific Corp.(c)............................... 102,900
5,791 Columbia Healthcare Corp. ............................... 293,893
1,300 Community Psychiatric Centers(c)......................... 15,925
3,300 Corning, Inc. ........................................... 105,600
400 C.R. Bard, Inc. ......................................... 12,900
2,100 Humana, Inc.(c).......................................... 57,487
400 Manor Care, Inc. ........................................ 14,000
3,600 Medtronics, Inc. ........................................ 201,150
400 Millipore Corp. ......................................... 16,450
600 St. Jude Medical, Inc.(c)................................ 25,800
3,000 Tenet Healthcare Corp.(c)................................ 62,250
2,600 U.S. Healthcare, Inc. ................................... 120,900
2,300 United Healthcare Corp. ................................. 150,650
700 United States Surgical Corp. ............................ 14,963
1,900 Warner-Lambert Company................................... 184,537
-----------
2,012,131
-----------
HOTELS AND RESTAURANTS--1.1%
600 Bally Entertainment Group(c)............................. 8,400
2,200 Darden Restaurants, Inc.(c).............................. 26,125
1,750 Harrahs Entertainment, Inc. ............................. 42,438
</TABLE>
See accompanying notes to financial statements.
43
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
HOTELS AND RESTAURANTS--(CONTINUED)
400 Hilton Hotels Corp. ..................................... $ 24,600
200 Luby's Cafeterias, Inc. ................................. 4,450
1,700 Marriott Corporation..................................... 65,025
8,600 McDonald's Corp. ........................................ 388,075
875 Promus Companies, Inc. .................................. 19,469
400 Ryans Family Steak Houses(c)............................. 2,800
800 Shoney's, Inc.(c)........................................ 8,200
1,400 Wendys International, Inc. .............................. 29,750
-----------
619,332
-----------
INTERNATIONAL OIL--4.3%
8,300 Chevron Corporation...................................... 435,750
15,800 Exxon Corporation........................................ 1,265,975
5,400 Mobil Corporation........................................ 604,800
1,200 Oryx Energy Corp.(c)..................................... 16,050
2,700 Texaco, Inc. ............................................ 211,950
-----------
2,534,525
-----------
LEISURE--0.3%
1,200 Brunswick Corp. ......................................... 28,800
1,400 Hasbro, Inc. ............................................ 43,400
3,000 Mattel, Inc. ............................................ 92,250
100 Outboard Marine Corp. ................................... 2,038
-----------
166,488
-----------
LIFE INSURANCE--0.4%
2,600 American General Corp. .................................. 90,675
525 Jefferson Pilot Corp. ................................... 24,413
1,400 Providian Corp. ......................................... 57,050
600 Transamerica Corp. ...................................... 43,725
1,050 USLife Corp. ............................................ 31,369
-----------
247,232
-----------
LIQUOR--0.7%
300 Adolph Coors Co. ........................................ 6,638
2,900 Anheuser-Busch Companies, Inc. .......................... 193,937
1,100 Brown Forman Corp. "B"................................... 40,150
5,100 Seagram Company, Ltd. ................................... 176,587
-----------
417,312
-----------
MEDIA--2.3%
2,000 Capital Cities/ABC, Inc. ................................ 246,750
2,600 Comcast Corp. ........................................... 47,288
200 Handleman Co. ........................................... 1,150
250 King World Productions(c)................................ 9,719
8,500 Tele-Communications A(c)................................. 168,937
5,000 Time-Warner, Inc. ....................................... 189,375
1,000 Tribune Co. ............................................. 61,125
4,857 Viacom, Inc.(c).......................................... 230,100
6,700 Walt Disney Co. ......................................... 395,300
-----------
1,349,744
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
METALS--0.3%
800 Asarco, Inc. ............................................ $ 25,600
1,050 Cyprus Amax Minerals Co. ................................ 27,431
1,400 Inco, Ltd. .............................................. 46,550
1,000 Phelps Dodge Corp. ...................................... 62,250
-----------
161,831
-----------
MORTGAGE--1.1%
2,400 Federal Home Loan Mortgage Corp. ........................ 200,400
3,500 Federal National Mortgage Association.................... 434,437
-----------
634,837
-----------
MOTOR VEHICLES--2.2%
4,800 Chrysler Corp. .......................................... 265,800
1,300 Dana Corp. .............................................. 38,025
400 Echlin, Inc. ............................................ 14,600
800 Fleetwood Enterprises, Inc. ............................. 20,600
13,500 Ford Motor Co. .......................................... 391,500
9,600 General Motors Corp. .................................... 507,600
100 Nacco Industries, Inc. .................................. 5,550
1,220 Navistar International Corp., Inc.(c).................... 12,810
345 Paccar, Inc. ............................................ 14,533
500 Varity Corp.(c).......................................... 18,563
-----------
1,289,581
-----------
OIL DISTRIBUTION--2.9%
1,200 Amerada Hess Corp. ...................................... 63,600
6,400 Amoco Corp. ............................................. 460,000
800 Ashland Oil Co. ......................................... 28,100
800 Coastal Corp. ........................................... 29,800
6,800 Royal Dutch Petroleum Co. ADR(d)......................... 959,650
800 Sun, Inc. ............................................... 21,900
3,000 Unocal Corp. ............................................ 87,375
4,000 USX Marathon Group....................................... 78,000
-----------
1,728,425
-----------
OIL SERVICES--0.6%
2,000 Baker Hughes, Inc. ...................................... 48,750
1,300 Halliburton Co. ......................................... 65,812
300 Helmerich & Payne, Inc. ................................. 8,925
1,100 Rowan Companies, Inc.(c)................................. 10,863
3,100 Schlumberger, Ltd. ...................................... 214,675
300 Western Atlas, Inc.(c)................................... 15,150
-----------
364,175
-----------
OTHER INSURANCE--2.7%
1,200 Aetna Life and Casualty Company.......................... 83,100
5,686 Allstate Corp. .......................................... 233,837
5,812 American International Group, Inc. ...................... 537,610
800 Chubb Corp. ............................................. 77,400
1,000 CIGNA Corp. ............................................. 103,250
</TABLE>
See accompanying notes to financial statements.
44
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
OTHER INSURANCE--(CONTINUED)
800 General Reinsurance Corp................................. $ 124,000
1,200 Lincoln National Corp., Inc. ............................ 64,500
1,400 Loews Corp. ............................................. 109,725
1,000 Safeco Corp.............................................. 34,500
600 St. Paul Companies, Inc. ................................ 33,375
1,450 Torchmark, Inc........................................... 65,612
1,700 UNUM Corp................................................ 93,500
2,100 USF&G Corp. ............................................. 35,438
-----------
1,595,847
-----------
PAPER--1.7%
1,600 Alco Standard Corp....................................... 73,000
633 Boise Cascade Corp....................................... 21,918
1,100 Champion International Corp.............................. 46,200
800 Federal Paper Board, Inc................................. 41,500
1,200 Georgia Pacific Corp. ................................... 82,350
3,800 International Paper Co. ................................. 143,925
900 James River Corp......................................... 21,713
3,806 Kimberly Clark Corp...................................... 314,946
900 Mead Corp. .............................................. 47,025
200 Potlatch Corp. .......................................... 8,000
1,100 Stone Container Corp..................................... 15,813
500 Union Camp Corp.......................................... 23,813
675 Westvaco Corporation..................................... 18,731
2,500 Weyerhaeuser Co. ........................................ 108,125
700 Willamette Industries, Inc............................... 39,375
-----------
1,006,434
-----------
PHOTOGRAPHY--0.5%
4,050 Eastman Kodak Co. ....................................... 271,350
800 Polaroid Corp............................................ 37,900
-----------
309,250
-----------
POLLUTION CONTROL--0.5%
2,800 Browning-Ferris Industries, Inc.......................... 82,600
3,200 Laidlaw, Inc. ........................................... 32,800
700 Safety Kleen Corp. ...................................... 10,938
6,300 WMX Technologies, Inc. .................................. 188,212
-----------
314,550
-----------
PRODUCER GOODS--6.4%
2,600 American Brands, Inc..................................... 116,025
2,000 Applied Materials, Inc.(c)............................... 78,750
700 Briggs & Stratton Corp. ................................. 30,363
2,900 Caterpillar Tractor Co. ................................. 170,375
700 Cincinnati Milacron, Inc. ............................... 18,375
200 Crane Co. ............................................... 7,375
700 Cummins Engine, Inc. .................................... 25,900
4,200 Deere & Co. ............................................. 148,050
2,000 Dover Corporation........................................ 73,750
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
1,600 Dresser Industries, Inc.................................. $ 39,000
1,000 Eaton Corp............................................... 53,625
3,100 Emerson Electric Co. .................................... 253,425
300 Foster Wheeler Corp. .................................... 12,750
21,900 General Electric Co...................................... 1,576,800
500 General Signal Corp. .................................... 16,188
1,400 Genuine Parts Company.................................... 57,400
400 Giddings & Lewis, Inc.................................... 6,600
300 Harnischfeger Industries, Inc............................ 9,975
1,300 Illinois Tool Works, Inc. ............................... 76,700
1,300 ITT Corp. ............................................... 68,900
1,300 ITT Industries, Inc. .................................... 31,200
1,200 Ingersoll Rand Co. ...................................... 42,150
300 Johnson Controls, Inc. .................................. 20,625
600 Mallinckrodt Group, Inc. ................................ 21,825
600 McDermott International, Inc. ........................... 13,200
5,300 Minnesota Mining & Mfg. Co............................... 351,125
400 National Services Industries, Inc. ...................... 12,950
800 Owens Corning Fiberglas Co.(c)........................... 35,900
1,400 Pall Corp................................................ 37,625
600 Parker Hannifin Corp. ................................... 20,550
300 Perkin Elmer Corp. ...................................... 11,325
300 Snap-On Tools Corp. ..................................... 13,575
300 Stanley Works............................................ 15,450
1,000 Textron, Inc. ........................................... 67,500
200 Timken Co. .............................................. 7,650
700 Trinova Corp. ........................................... 20,038
1,000 TRW, Inc................................................. 77,500
2,000 TYCO International Ltd. ................................. 71,250
900 W.W. Grainger, Inc....................................... 59,625
-----------
3,771,389
-----------
PROPERTY--0.0%
300 Kaufman & Broad Home Corp................................ 4,463
200 Pulte Corp. ............................................. 6,725
-----------
11,188
-----------
PUBLISHING--0.9%
1,100 American Greetings Corp. ................................ 30,387
2,100 Gannet Co., Inc. ........................................ 128,887
300 John H. Harland Co....................................... 6,263
800 Jostens, Inc............................................. 19,400
600 Knight-Ridder, Inc....................................... 37,500
400 McGraw-Hill Companies, Inc. ............................. 34,850
200 Meredith Corp. .......................................... 8,375
1,200 Moore Corp., Ltd......................................... 22,350
1,000 New York Times Co........................................ 29,625
1,700 R.R. Donnelley & Sons Co. ............................... 66,937
1,900 Time Mirror Co........................................... 64,363
5,600 U.S. West Media Group, Inc.(c)........................... 106,400
-----------
555,337
-----------
</TABLE>
See accompanying notes to financial statements.
45
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
RAILROADS--1.1%
2,122 Burlington Northern, Inc................................. $ 165,516
900 Conrail, Inc............................................. 63,000
2,600 CSX Corporation.......................................... 118,625
1,500 Norfolk Southern Corp. .................................. 119,062
2,300 Union Pacific Corp....................................... 151,800
-----------
618,003
-----------
RETAIL--FOOD--0.7%
2,800 Albertson's, Inc. ....................................... 92,050
2,100 American Stores Co....................................... 56,175
300 Fleming Companies, Inc. ................................. 6,188
600 Giant Foods, Inc. ....................................... 18,900
800 Great Atlantic & Pacific Tea Company, Inc. .............. 18,400
1,400 Kroger Co.(c)............................................ 52,500
1,300 SuperValu Stores, Inc. .................................. 40,950
2,700 Sysco Corp. ............................................. 87,750
1,200 Winn-Dixie Stores, Inc................................... 44,250
-----------
417,163
-----------
RETAIL--OTHER--4.0%
1,400 Charming Shoppes, Inc.(c)................................ 4,025
1,200 Circuit City Stores, Inc................................. 33,150
800 Dayton Hudson Corp. ..................................... 60,000
1,700 Dillard Department Stores, Inc........................... 48,450
2,600 Federated Department Stores.............................. 71,500
600 Harcourt General, Inc.................................... 25,125
5,849 Home Depot, Inc.......................................... 280,021
2,500 J.C. Penney Company, Inc................................. 119,062
5,900 K-Mart Corp.(c).......................................... 42,775
200 Longs Drug Stores Corp. ................................. 9,575
2,400 Lowes Companies, Inc. ................................... 80,400
2,700 May Department Stores Co. ............................... 114,075
1,100 Melville Corporation..................................... 33,825
250 Mercantile Stores Co., Inc. ............................. 11,563
1,400 Nordstrom, Inc. ......................................... 56,700
900 Pep Boys: Manny, Moe & Jack.............................. 23,063
2,239 Price Costco.(c)......................................... 34,145
900 Rite Aid Corp............................................ 30,825
5,300 Sears, Roebuck & Co...................................... 206,700
1,200 Tandy Corp. ............................................. 49,800
2,600 The Gap, Inc. ........................................... 109,200
4,400 The Limited, Inc......................................... 76,450
1,300 TJX Companies, Inc. ..................................... 24,537
3,475 Toys R Us, Inc.(c)....................................... 75,581
2,600 Walgreen Co. ............................................ 77,675
28,700 Wal-Mart Stores, Inc..................................... 642,162
1,800 Woolworth Corp.(c)....................................... 23,400
-----------
2,363,784
-----------
SERVICES--3.9%
800 Alexander & Alexander Services........................... 15,200
600 Autodesk, Inc. .......................................... 20,550
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
2,000 Automatic Data Processing, Inc........................... $ 148,500
600 Ceridian Corp.(c)........................................ 24,750
3,000 Computer Associates International, Inc. ................. 170,625
700 Computer Sciences Corp.(c)............................... 49,175
2,100 CUC International, Inc.(c)............................... 71,662
1,000 De Luxe Corp. ........................................... 29,000
1,200 Dow Jones & Co., Inc. ................................... 47,850
2,320 Dun & Bradstreet Corp. .................................. 150,220
400 EG & G, Inc.............................................. 9,700
2,600 First Data Corp.......................................... 173,875
1,200 H & R Block, Inc. ....................................... 48,600
400 Intergraph Corp.(c)...................................... 6,300
800 Interpublic Group Companies, Inc......................... 34,700
1,000 Marsh & McLennan Companies............................... 88,750
7,800 Microsoft Corp.(c)....................................... 684,450
4,500 Novell, Inc.(c).......................................... 64,125
300 Ogden Corp............................................... 6,413
5,750 Oracle Systems Corp.(c).................................. 243,656
800 Pittston Service Group................................... 25,100
800 Ryder Systems, Inc....................................... 19,800
1,050 Service Corporation International........................ 46,200
200 Shared Medical System.................................... 10,875
4,400 Westinghouse Electric Corp............................... 72,600
-----------
2,262,676
-----------
SOAPS--1.5%
400 Clorox Co. .............................................. 28,650
1,700 Colgate Palmolive Co. ................................... 119,425
1,100 Dial Corp. .............................................. 32,587
700 Ecolab, Inc. ............................................ 21,000
6,600 Gillette Co. ............................................ 344,025
1,300 International Flavours & Fragrances, Inc. ............... 62,400
1,900 Newell Co. .............................................. 49,163
800 Premark International, Inc. ............................. 40,500
1,800 Ralston Purina Co. ...................................... 112,275
2,200 Rubbermaid, Inc. ........................................ 56,100
-----------
866,125
-----------
STEEL & IRON--0.2%
1,300 Armco, Inc.(c)........................................... 7,638
1,200 Bethlehem Steel Corp.(c)................................. 16,800
300 Inland Steel Industries, Inc. ........................... 7,538
1,000 Nucor Corp. ............................................. 57,125
1,020 USX US Steel Corp. ...................................... 31,365
1,200 Worthington Industries, Inc. ............................ 24,975
-----------
145,441
-----------
TELEPHONE--8.4%
6,400 Airtouch Communications.................................. 180,800
2,400 ALLTEL Corp. ............................................ 70,800
6,900 Ameritech Corp. ......................................... 407,100
20,535 AT & T Corp. ............................................ 1,329,641
</TABLE>
See accompanying notes to financial statements.
46
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED) SHORT-TERM INVESTMENT--0.8%
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
TELEPHONE--(CONTINUED)
5,600 Bell Atlantic Corp....................................... $ 374,500
13,000 BellSouth Corp. ......................................... 565,500
12,500 GTE Corp. ............................................... 550,000
8,400 MCI Communications Corp. ................................ 219,450
4,400 NYNEX Corp. ............................................. 237,600
5,100 Pacific Telesis Group.................................... 171,487
7,600 SBC Communications, Inc. ................................ 437,000
4,400 Sprint Corp. ............................................ 175,450
5,600 U.S. West, Inc.(c)....................................... 200,200
-----------
4,919,528
-----------
THRIFT--0.3%
700 Golden West Financial Corp. ............................. 38,675
1,450 Great Western Financial Corp. ........................... 36,975
1,300 H.F. Ahmanson & Co....................................... 34,450
1,300 ITT Hartford Group, Inc.................................. 62,888
-----------
172,988
-----------
TIRES AND RUBBER GOODS--0.2%
600 Cooper Tire & Rubber Co. ................................ 14,775
1,600 Goodyear Tire & Rubber Company........................... 72,600
-----------
87,375
-----------
TOBACCO--1.8%
10,700 Philip Morris Companies, Inc. ........................... 968,350
3,000 UST, Inc. ............................................... 100,125
-----------
1,068,475
-----------
TRUCKING AND FREIGHT--0.0%
300 Consolidated Freightways, Inc. .......................... 7,950
300 Roadway Services, Inc. .................................. 14,663
300 Yellow Corp.(c).......................................... 3,713
-----------
26,326
-----------
Total Common Stocks
(Identified cost $42,697,809)........................... 58,132,899
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$481,000 Repurchase Agreement with State Street Bank & Trust
Co. dated 12/29/95 at 5.000% to be repurchased at
$481,267 on 1/02/96 collateralized by $425,000, U.S.
Treasury Notes 8.750% due 8/15/00, with a value of
$496,185............................................. $ 481,000
-----------
Total Short Term Investment
(Identified Cost $481,000)........................... 481,000
-----------
Total Investments---99.9%
(Identified Cost $43,178,809)(b)..................... 58,613,899
Cash and Receivables.................................. 164,890
Liabilities........................................... (108,167)
-----------
TOTAL NET ASSETS--100%................................ $58,670,622
===========
(a) See Note 1A.
(b) Federal Tax Information:
At December 31,1995 the net unrealized appreciation on investments based on
cost of $43,311,699 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost............................................. $16,007,152
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value........................................... (704,952)
-----------
Net unrealized appreciation........................... $15,302,200
===========
</TABLE>
(c) Non-income producing security.
(d) An American Depository Receipt (ADR) is a certificate issued by a U.S.
bank representing the right to receive securities of the foreign issuer
described. The values of ADR's are significantly influenced by trading on
exchanges not located in the United States or Canada.
See accompanying notes to financial statements.
47
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
STATEMENT OF ASSETS & LIABILITIES STATEMENT OF OPERATIONS
DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at value.................................... $58,613,899
Cash.................................................... 201
Receivable for:
Fund shares sold........................................ 47,719
Dividends and interest.................................. 116,412
Foreign taxes........................................... 206
Due from advisor........................................ 352
-----------
LIABILITIES 58,778,789
Payable for:
Fund shares redeemed.................................... $28,583
Accrued expenses:
Management fees......................................... 4,953
Deferred trustees' fees................................. 33,492
Other expenses.......................................... 41,139
-------
108,167
-----------
$58,670,622
===========
NET ASSETS
Net Assets consist of:
Capital paid in......................................... $43,247,821
Undistributed net investment income..................... 20,255
Accumulated net realized losses......................... (32,544)
Unrealized appreciation on investments.................. 15,435,090
-----------
NET ASSETS............................................... $58,670,622
===========
Computation of offering price:
Net asset value and redemption price per share
($58,670,622 divided by 586,173 shares of beneficial in-
terest)................................................. $ 100.09
===========
Identified cost of investments........................... $43,178,809
===========
</TABLE>
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends............................................ $ 1,212,104(a)
Interest............................................. 54,033
-----------
1,266,137
EXPENSES
Management fees...................................... $122,359
Trustees' fees and expenses.......................... 24,480
Custodian............................................ 67,024
Audit and tax services............................... 11,400
Legal................................................ 7,727
Printing............................................. 27,426
Registration......................................... 7
Miscellaneous........................................ 3,933
--------
Total expenses...................................... 264,356
Less expenses assumed by the investment adviser..... (68,581) 195,775
-------- -----------
NET INVESTMENT INCOME................................. 1,070,362
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments--net.................... 775,273
Unrealized appreciation on investments--net.......... 13,212,050
-----------
Net gain on investment transactions................... 13,987,323
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............ $15,057,685
===========
</TABLE>
(a) Net of foreign taxes of: $7,954
See accompanying notes to financial statements.
48
<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,
1994 1995
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................. $ 861,746 $ 1,070,362
Net realized gain on investments.................. 85,627 775,273
Unrealized appreciation (depreciation) on
investments...................................... (489,644) 13,212,050
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS............ 457,729 15,057,685
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................. (861,687) (1,050,107)
Net realized gain on investments.................. (74,418) (673,888)
Paid in capital................................... (28,861) 0
------------ ------------
(964,966) (1,723,995)
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares...................... 18,433,352 17,851,781
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income.......... 861,687 1,050,107
Distributions from net realized gain.............. 74,418 673,888
Distributions from paid in capital................ 28,861 0
------------ ------------
19,398,318 19,575,776
Cost of shares redeemed........................... (10,543,643) (11,403,132)
------------ ------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS..................................... 8,854,675 8,172,644
------------ ------------
TOTAL INCREASE IN NET ASSETS...................... 8,347,438 21,506,334
NET ASSETS
Beginning of the year............................. 28,816,850 37,164,288
------------ ------------
End of the year................................... $ 37,164,288 $ 58,670,622
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year............................. $ (2,244) $ 0
============ ============
End of the year................................... $ 0 $ 20,255
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 241,694 202,803
Issued in connection with the reinvestment of:
Distributions from net investment income.......... 11,363 10,562
Distributions from net realized gain.............. 983 6,778
Distributions from Paid-in Capital................ 421
------------ ------------
254,461 220,143
Redeemed.......................................... (138,029) (127,215)
------------ ------------
Net change........................................ 116,432 92,928
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year............................. $108.49 $137.39 $ 72.00 $ 76.48 $ 75.35
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income............ 3.56 8.35 1.54 1.80 1.88
Net Realized and Unrealized Gain
(Loss) on Investments........... 29.29 2.02 5.18 (0.92) 25.89
------- ------- ------- ------- -------
Total From Investment Operations. 32.85 10.37 6.72 0.88 27.77
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Distributions From Net Investment
Income.......................... (3.56) (8.35) (1.36) (1.82) (1.85)
Distributions in Excess of Net
Investment Income............... 0.00 0.00 (0.18) 0.00 0.00
Distributions From Net Realized
Capital Gains................... (0.39) (67.41) (0.55) (0.16) (1.18)
Distributions in Excess of Net
Realized Capital Gains.......... 0.00 0.00 (0.15) 0.00 0.00
Distributions From Paid-in
Capital......................... 0.00 0.00 0.00 (0.03) 0.00
------- ------- ------- ------- -------
Total Distributions.............. (3.95) (75.76) (2.24) (2.01) (3.03)
------- ------- ------- ------- -------
Net Asset Value, End of Year...... $137.39 $ 72.00 $ 76.48 $ 75.35 $100.09
======= ======= ======= ======= =======
TOTAL RETURN (%).................. 30.37 7.30 9.72 1.14 36.88
Ratio of Operating Expenses to
Average Net Assets (%)........... 0.36 0.35 0.34 0.33 0.40
Ratio of Net Investment Income to
Average Net Assets (%)........... 2.86 2.63 2.52 2.59 2.20
Portfolio Turnover Rate (%)....... 2 17 12 2 5
Net Assets, End of Year (000)..... $20,496 $10,172 $28,817 $37,164 $58,671
The ratios of expenses to average
net assets without giving effect
to the voluntary expense
limitations described in Note 4
to the Financial Statements would
have been (%).................... -- -- -- -- 0.54
</TABLE>
See accompanying notes to financial statements.
49
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--54.1% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
AEROSPACE--2.2%
3,700 Lockheed Martin Corp. ................................... $ 292,300
2,600 Raytheon Co. ............................................ 122,850
-----------
415,150
-----------
AUTOMOBILES--2.4%
3,800 Chrysler Corp. .......................................... 210,425
4,500 General Motors Corp. .................................... 237,937
-----------
448,362
-----------
BANKS/SAVINGS & LOAN--2.8%
3,900 Chemical Banking Corp. .................................. 229,125
700 First Interstate Bancorp. ............................... 95,550
5,100 Fleet Financial Group, Inc. ............................. 207,825
-----------
532,500
-----------
CHEMICALS--3.9%
3,100 E.I. Du Pont de Nemours & Co. ........................... 216,613
2,000 Georgia Gulf Corp(c)..................................... 61,500
4,400 PPG Industries, Inc. .................................... 201,300
7,800 Praxair, Inc. ........................................... 262,275
-----------
741,688
-----------
ELECTRONIC COMPONENTS--2.7%
3,300 Intel Corp. ............................................. 187,275
3,200 Micron Technology, Inc. ................................. 126,800
3,700 Texas Instruments, Inc. ................................. 191,475
-----------
505,550
-----------
ELECTRICAL EQUIPMENT--1.5%
2,100 General Electric Co. .................................... 151,200
2,600 Honeywell, Inc. ......................................... 126,425
-----------
277,625
-----------
ENGINEERING & CONSTRUCTION--0.6%
4,800 McDermott International, Inc. ........................... 105,600
-----------
FINANCIAL SERVICES--2.7%
2,900 Federal Home Loan Mortgage Corp. ........................ 242,150
1,900 Federal National Mortgage Association.................... 235,837
700 MBNA Corp ............................................... 25,813
-----------
503,800
-----------
FREIGHT--TRANSPORTATION--3.3%
12,100 Canadian Pacific Ltd. ................................... 219,312
5,900 Consolidated Freightways, Inc. .......................... 156,350
3,400 Federal Express Corp.(c)................................. 251,175
-----------
626,837
-----------
HEALTH CARE--MEDICAL TECHNOLOGY--1.3%
7,400 C.R. Bard, Inc. ......................................... 238,650
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
HEALTH CARE--SERVICES--0.8%
14,100 Beverly Enterprises, Inc.(c).............................. $ 149,813
-----------
HOME PRODUCTS--1.2%
4,600 Premark International, Inc. .............................. 232,875
-----------
HOUSING & BUILDING MATERIALS--2.3%
3,400 Armstrong World Industries, Inc. ......................... 210,800
7,300 Masco Corp. .............................................. 229,038
-----------
439,838
-----------
INSURANCE--4.8%
5,900 Ace Ltd. ................................................. 234,525
1,650 American International Group Inc. ........................ 152,625
1,700 Chubb Corp. .............................................. 164,475
5,800 Providian Corp. .......................................... 236,350
4,700 Prudential Reinsurance Hldgs., Inc. ...................... 109,862
-----------
897,837
-----------
LEISURE--1.9%
4,800 American Greetings Corp. ................................. 132,600
9,600 Carnival Corp. ........................................... 234,000
-----------
366,600
-----------
MACHINERY--0.2%
900 Case Corp. ............................................... 41,175
-----------
MULTI-INDUSTRY--2.4%
4,700 Allied Signal, Inc. ...................................... 223,250
6,500 Philips Electronics NV.................................... 233,188
-----------
456,438
-----------
NATURAL GAS--PIPELINES--0.6%
900 El Paso Natural Gas Co. .................................. 25,538
1,600 Mapco Inc. ............................................... 87,400
-----------
112,938
-----------
OFFICE EQUIPMENT--2.7%
10,500 EMC Corp. ................................................ 161,437
1,400 International Business Machines........................... 128,450
1,600 Xerox Corp. .............................................. 219,200
-----------
509,087
-----------
OIL--MAJOR INTEGRATED--1.9%
7,100 Repsol S.A., ADR(d)....................................... 233,412
600 Sun, Inc. ................................................ 16,425
4,300 Ultramar Corp. ........................................... 110,725
-----------
360,562
-----------
PAPER PRODUCTS--1.5%
5,800 Crown Cork and Seal Co., Inc.(c) ......................... 242,150
800 Mead Corp. ............................................... 41,800
-----------
283,950
-----------
</TABLE>
See accompanying notes to financial statements.
52
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
REAL ESTATE INVESTMENT TRUST--1.3%
6,800 Meditrust SBI........................................... $ 237,150
-----------
RETAIL--FOOD & DRUG--1.3%
5,400 Eckerd Corp............................................. 240,975
-----------
TELECOMMUNICATIONS--1.9%
5,200 GTE Corp................................................ 228,800
4,100 Telefonos de Mexico SA.................................. 130,687
-----------
359,487
-----------
TOBACCO--3.5%
2,900 Loews Corp.............................................. 227,288
2,200 Philip Morris Companies, Inc............................ 199,100
7,000 UST, Inc................................................ 233,625
-----------
660,013
-----------
UTILITIES--ELECTRIC--2.4%
7,800 Pacific Gas & Electric Co............................... 221,325
12,700 SCE Corp................................................ 225,425
-----------
446,750
-----------
Total Common Stocks
(Identified Cost $9,404,472)........................... 10,191,250
-----------
PREFERRED STOCK--0.5%
TOBACCO--0.4%
10,600 RJR Nabisco Holdings Corp............................... 67,575
-----------
OIL--MAJOR INTEGRATED--0.1%
300 Sun, Inc................................................ 8,325
-----------
Total Preferred Stock
(Identified Cost $73,537).............................. 75,900
-----------
MEDIUM & LONG TERM BONDS & NOTES--39.2%
<CAPTION>
FACE
AMOUNT
<C> <S> <C>
BANKS--1.1%
$100,000 Bankers Trust, NY Corp. 8.125%, 4/01/02................. 109,769
50,000 Chase Manhattan Corp. 9.050%, 2/01/02................... 51,556
50,000 Norwest Corp. 7.650%, 3/15/05........................... 55,374
-----------
216,699
-----------
CABLE & MEDIA--1.4%
250,000 TCI Communications, Inc.
7.390%, 8/28/01........................................ 261,913
-----------
ENERGY--0.9%
125,000 Coastal Corp. 8.125% 9/15/02............................ 136,721
25,000 Standard Oil Co. 9.000%, 6/01/19........................ 28,062
-----------
164,783
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
FINANCE--5.5%
$125,000 Associates Corp. NA 8.350%, 12/22/98................... $ 134,219
115,000 Avalon Propertys, Inc. 7.375%, 9/15/02................. 118,620
200,000 Ford Motor Credit Corp. 6.850%, 8/15/00................ 207,152
244,000 General Motors Acceptance Corp.
5.500%, 12/15/01...................................... 235,643
100,000 General Motors Corp. 9.125%, 7/15/01................... 114,008
50,000 International Lease Finance Corp.
8.040%, 12/01/97...................................... 52,096
100,000 Secured Finance Investment, Inc.
9.05%, 12/15/04....................................... 118,026
50,000 Standard Credit Card 8.625%, 1/07/02................... 52,736
-----------
1,032,500
-----------
GOVERNMENT--6.0%
200,000 U.S. Treasury Notes 5.875%, 5/31/96.................... 200,500
300,000 U.S. Treasury Notes 5.125%, 3/31/98.................... 299,484
25,000 U.S. Treasury Notes 8.250%, 7/15/98.................... 26,758
300,000 U.S. Treasury Notes 6.875%, 8/31/99.................... 315,282
100,000 U.S. Treasury Notes 7.500%, 10/31/99................... 107,359
175,000 U.S. Treasury Bonds 5.500%, 4/15/00.................... 176,449
-----------
1,125,832
-----------
GOVERNMENT AGENCY--2.3%
50,000 Federal Home Loan Banks 8.150%, 2/24/99................ 50,126
350,000 Federal Home Loan Banks 7.151%, 9/12/05................ 355,358
30,000 Federal National Mortgage Association Zero Coupon
10/10/01.............................................. 28,781
-----------
434,265
-----------
HEALTH CARE--0.3%
50,000 Columbia/HCA Healthcare Corp.
8.020%, 8/5/02........................................ 54,836
-----------
INDUSTRIAL--4.6%
175,000 Anheuser Busch Companies, Inc.
8.500%, 3/01/17....................................... 182,875
250,000 Coca Cola Enterprises, Inc.
8.750%, 4/01/17....................................... 262,375
200,000 Martin Marietta Corp. 6.500%, 4/15/03.................. 206,488
200,000 Tektronix, Inc. 7.625%, 8/15/02........................ 209,732
-----------
861,470
-----------
LEISURE & LODGING--1.1%
100,000 Carnival Corp. 7.050%, 5/15/05......................... 104,698
100,000 La Quinta Inns, Inc. 7.400%, 9/15/05................... 103,000
-----------
207,698
-----------
</TABLE>
See accompanying notes to financial statements.
53
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
MEDIUM & LONG TERM BONDS & NOTES--(CONTINUED)
SHORT-TERM INVESTMENTS--6.4%
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
MORTGAGED BACKED--3.4%
$200,000 Federal Home Loan Mortgage
8.000%, 7/15/21....................................... $ 211,624
50,000 G.E. Capital Mortgage Inc.
10.000%, 3/25/24...................................... 52,453
75,000 Paine Webber CMO Tr. 9.000%, 10/20/03.................. 77,344
75,000 Westam Mortgage Financial Corp.
8.950%, 8/01/18....................................... 80,555
200,000 Westam Mortgage Financial Corp.
9.400%, 12/01/18...................................... 213,312
-----------
635,288
-----------
RETAIL STORES--1.9%
170,000 Sears Overseas Finance Zero Coupon 7/12/98............. 147,368
200,000 Toys R US, Inc. 8.250%, 2/01/17........................ 209,956
-----------
357,324
-----------
SECURITIES--6.5%
200,000 Donaldson Lufkin & Jennrette
6.875%, 11/01/05...................................... 205,002
100,000 Lehman Bros. Inc. 5.750% 11/15/98 ..................... 99,108
200,000 Lehman Bros. Inc. 7.375% 5/15/07....................... 209,874
100,000 Merrill Lynch & Co. 8.375%, 2/09/00.................... 108,824
250,000 Paine Webber Group, Inc.
7.750%, 9/01/02....................................... 261,430
145,000 Salomon, Inc. 7.500%, 2/01/03.......................... 149,447
200,000 Smith Barney Holdings, Inc.
5.500%, 1/15/99....................................... 198,316
-----------
1,232,001
-----------
TELECOMMUNICATIONS--1.1%
200,000 Southern Bell Telephone & Telegraph Co. 7.625%,
3/15/13............................................... 205,664
-----------
TRANSPORTATION--0.8%
25,000 American Airlines 10.180%, 1/02/13..................... 29,944
100,000 AMR Corp 10.290%, 3/08/21.............................. 127,911
-----------
157,855
-----------
UTILITIES--2.0%
250,000 Cincinnati Gas & Electric Co.
7.375%, 11/01/01...................................... 253,780
130,000 General Telephone of California
7.125%, 12/01/98...................................... 130,720
-----------
384,500
-----------
YANKEE/SUPRANATIONAL--0.3%
50,000 SKF Aktiebolaget AB 7.625% 7/15/03 .................... 53,232
-----------
Total Bonds & Notes
(Identified Cost $7,147,215).......................... 7,385,860
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
413,000 American General Finance Corp.
5.550%, 1/02/96....................................... $ 413,000
800,000 Associates Corp. of North America
5.950%, 1/02/96....................................... 800,000
-----------
Total Short-Term Investments
(Identified Cost $1,213,000).......................... 1,213,000
-----------
Total Investments--100.2%
(Identified Cost $17,838,224)(b)...................... 18,866,010
Cash and Receivables................................... 410,926
Liabilities............................................ (454,260)
-----------
TOTAL NET ASSETS--100%................................. $18,822,676
===========
(a) See Note 1a.
(b) Federal Tax Information:
At December 31, 1995 the net unrealized appreciation on investments based on
cost of $17,838,224 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.............................................. $ 1,278,891
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value............................................ (251,105)
-----------
Net unrealized appreciation............................ $ 1,027,786
===========
</TABLE>
(c) Non-income producing security.
(d) An American Depository Receipt (ADR) is a certificate issued by a U.S.
bank representing the right to receive securities of the foreign issuer
described. The values of ADRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
See accompanying notes to financial statements.
54
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
STATEMENT OF ASSETS & LIABILITIES STATEMENT OF OPERATIONS
DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at value..................................... $18,866,010
Cash..................................................... 865
Receivable for:
Fund shares sold......................................... 67,963
Securities sold.......................................... 165,257
Dividends and interest................................... 152,428
Foreign taxes............................................ 275
Due from advisor......................................... 16,433
Unamortized organization expense......................... 7,705
-----------
19,276,936
LIABILITIES
Payable for:
Securities purchased..................................... $415,763
Fund shares redeemed..................................... 593
Withholding Taxes........................................ 126
Accrued expenses:
Management fees.......................................... 7,628
Other expenses........................................... 30,150
--------
454,260
-----------
$18,822,676
===========
NET ASSETS
Net Assets consist of:
Capital paid in.......................................... $17,655,390
Undistributed net investment income...................... 1,050
Accumulated net realized gains........................... 138,450
Unrealized appreciation on investments................... 1,027,786
-----------
NET ASSETS................................................ $18,822,676
===========
Computation of offering price:
Net asset value and redemption price per share
($18,822,676 divided by 1,575,093 shares of beneficial
interest)................................................ $ 11.95
===========
Identified cost of investments............................ $17,838,224
===========
</TABLE>
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends.............................................. $ 124,041(a)
Interest............................................... 338,426
----------
462,467
EXPENSES
Management fees........................................ $65,752
Trustees' fees and expenses............................ 15,049
Custodian.............................................. 56,354
Audit and tax services................................. 20,694
Legal.................................................. 10,821
Printing............................................... 2,299
Registration........................................... 7
Amortization of organization expenses.................. 2,347
Miscellaneous.......................................... 2,604
-------
Total expenses........................................ 175,927
Less expenses assumed by the investment adviser....... (96,085) 79,842
------- ----------
NET INVESTMENT INCOME................................... 382,625
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments---net..................... 426,765
Unrealized appreciation on investments--net............ 1,029,622
----------
Net gain on investment transactions..................... 1,456,387
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ............. $1,839,012
==========
</TABLE>
(a)Net of foreign taxes of: $735
See accompanying notes to financial statements.
55
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 31, 1994 (A)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
-------------------- ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income...................... $ 12,585 $ 382,625
Net realized gain on investments 0 426,765
Unrealized appreciation (depreciation) on
investments............................... (1,836) 1,029,622
---------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS..... 10,749 1,839,012
---------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................... (12,334) (382,625)
In excess of net investment income......... 0 (1,297)
Net realized gain on investments........... 0 (288,315)
---------- -----------
(12,334) (672,237)
---------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares............... 2,157,989 18,594,352
Net asset value of shares issued in connec-
tion with the reinvestment of:
Distributions from net investment income... 12,335 383,922
Distributions from net realized gain....... 0 288,315
---------- -----------
2,170,324 19,266,589
Cost of shares redeemed.................... (446,397) (4,333,030)
---------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS........................ 1,723,927 14,933,559
---------- -----------
TOTAL INCREASE IN NET ASSETS............... 1,722,342 16,100,334
NET ASSETS
Beginning of the year...................... 1,000,000 2,722,342
---------- -----------
End of the year............................ $2,722,342 $18,822,676
========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year...................... $ 0 $ 251
========== ===========
End of the year............................ $ 251 $ 1,050
========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares............. 217,577 1,626,505
Issued in connection with the reinvestment
of:
Distributions from net investment income... 1,242 32,426
Distributions from net realized gain....... 0 24,351
---------- -----------
218,819 1,683,282
Redeemed................................... (44,926) (382,082)
---------- -----------
Net change................................. 173,893 1,301,200
========== ===========
(a) Commencement of Operations
FINANCIAL HIGHLIGHTS
<CAPTION>
OCTOBER 31, 1994*
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
-------------------- ------------
<S> <C> <C>
Net Asset Value, Beginning of Year.......... $ 10.00 $ 9.94
---------- -----------
Income From Investment Operations
Net Investment Income...................... 0.05 0.26
Net Realized and Unrealized Gain
(Loss) on Investments...................... (0.06) 2.20
---------- -----------
Total From Investment Operations........... (0.01) 2.46
---------- -----------
Less Distributions
Distributions From Net Investment Income... (0.05) (0.26)
Distributions From Net Realized Capital
Gains..................................... 0.00 (0.19)
---------- -----------
Total Distributions........................ (0.05) (0.45)
---------- -----------
Net Asset Value, End of Year................ $ 9.94 $ 11.95
========== ===========
TOTAL RETURN (%)............................ (0.10)*** 24.79
Ratio of Operating Expenses to Average Net
Assets (%)................................. 0.85** 0.84
Ratio of Net Investment Income to Average
Net Assets (%)............................. 4.16** 4.03
Portfolio Turnover Rate (%)................. 0** 72
Net Assets, End of Year (000)............... $ 2,722 $ 18,823
The ratios of expenses to average net assets
without giving effect to the voluntary
expense limitations described in Note 4 to
the Financial Statements would have been
(%)........................................ 3.73** 1.85
</TABLE>
* Commencement of operations.
** Computed on an annualized basis.
*** Not computed on an annualized basis.
See accompanying notes to financial statements.
56
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--67.2% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
AEROSPACE--1.0%
5,025 Boeing Co. ............................................... $ 393,834
14,600 Rockwell International Corp. ............................. 771,975
2,500 United Technologies Corp. ................................ 237,187
-----------
1,402,996
-----------
AIR TRANSPORT--0.0%
255 UAL, Inc.(c).............................................. 45,518
-----------
APPAREL--0.2%
7,400 Melville Corp. ........................................... 227,550
-----------
AUTOMOBILE & RELATED--1.3%
15,432 Chrysler Corp. ........................................... 854,547
4,600 Ford Motor Co. ........................................... 133,400
12,500 General Motors Corp. ..................................... 660,937
6,750 Genuine Parts Co. ........................................ 276,750
-----------
1,925,634
-----------
BANKS--3.2%
29,260 Banc One Corp. ........................................... 1,104,565
10,144 Bank America Corp. ....................................... 656,824
5,400 Bankers Trust New York Corp. ............................. 359,100
19,000 Citicorp.................................................. 1,277,750
10,900 J.P. Morgan & Co., Inc. .................................. 874,725
7,200 Nations Bank Corp. ....................................... 501,300
-----------
4,774,264
-----------
BUSINESS MACHINES--1.8%
8,500 Apple Computer............................................ 270,938
28,400 Digital Equipment Corp.(c)................................ 1,821,150
5,900 International Business Machines Corp. .................... 541,325
-----------
2,633,413
-----------
BUSINESS SERVICES--1.5%
28,500 Browing Ferris Industries, Inc. .......................... 840,750
10,000 Dun & Bradstreet Corp. ................................... 647,500
9,200 H & R Block, Inc. ........................................ 372,600
39,200 Rollins Environmental Services............................ 112,700
9,500 WMX Technologies.......................................... 283,812
-----------
2,257,362
-----------
CHEMICALS--2.9%
14,200 Allied-Signals, Inc. ..................................... 674,500
8,200 Dow Chemical Co. ......................................... 577,075
13,700 E.I. Du Pont de Nemours & Co. ............................ 957,288
11,200 Monsanto Co. ............................................. 1,372,000
15,600 PPG Industries, Inc. ..................................... 713,700
-----------
4,294,563
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
COMMUNICATION--5.8%
15,000 Airtouch Communications................................... $ 437,875
35,200 Ameritech Corp. .......................................... 2,076,800
27,261 AT&T Co. ................................................. 1,765,150
12,200 Bell Atlantic Corp. ...................................... 815,875
16,200 Bellsouth Corp. .......................................... 704,700
10,600 GTE Corp. ................................................ 466,400
14,600 NYNEX Corp. .............................................. 788,400
15,500 Pacific Telesis Group..................................... 521,188
7,200 SBC Comunications, Inc. .................................. 414,000
9,700 U.S. West, Inc. .......................................... 346,775
9,700 U.S. West, Inc. .......................................... 184,300
-----------
8,521,463
-----------
CONGLOMERATES--0.7%
2,200 ITT Corp. New............................................. 116,600
13,800 Minnesota Mining & Mfg. Co. .............................. 914,250
-----------
1,030,850
-----------
CONSTRUCTION--1.2%
28,600 Home Depot................................................ 1,369,225
14,900 Masco Corp. .............................................. 467,487
-----------
1,836,712
-----------
CONSUMER DURABLES--0.0%
800 Whirlpool Corp. .......................................... 42,600
-----------
DOMESTIC OIL--1.5%
2,400 Amoco Corp. .............................................. 172,500
2,700 Atlantic Richfield Co. ................................... 299,025
3,600 Halliburton Co. .......................................... 182,250
69,300 Oryx Energy Co. .......................................... 926,887
934 Santa Fe Energy, Inc.(c).................................. 8,990
3,601 Sun Company............................................... 98,577
800 Tenneco, Inc. ............................................ 39,700
15,600 Unocal Corp. ............................................. 454,350
-----------
2,182,279
-----------
DRUGS & MEDICINE--6.0%
8,800 Abbott Laboratories....................................... 367,400
11,000 American Home Products Corp. ............................. 1,067,000
37,100 Baxter International, Inc. ............................... 1,553,563
15,200 Eli Lilly & Co. .......................................... 855,000
5,200 Johnson & Johnson......................................... 445,250
31,500 Merck & Co., Inc. ........................................ 2,071,125
19,200 Pfizer, Inc. ............................................. 1,209,600
18,705 Pharmacia & Upjohn, Inc. ................................. 724,819
10,800 Schering Plough Corp. .................................... 591,300
-----------
8,885,057
-----------
</TABLE>
See accompanying notes to financial statements.
59
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
ELECTRONICS--3.7%
43,200 AMP, Inc. ................................................ $ 1,657,800
9,400 Emerson Electric Co. ..................................... 768,450
22,400 Hewlett-Packard........................................... 1,876,000
6,400 Motorola, Inc. ........................................... 364,800
15,400 Raytheon Co. ............................................. 727,650
-----------
5,394,700
-----------
ENERGY & UTILITIES--3.1%
18,300 American Electric Power, Inc. ............................ 741,150
11,700 Consolidated Edison Co. .................................. 374,400
45,700 Pacific Gas & Electric Co. ............................... 1,296,738
7,700 Public Service Enterprise Group........................... 235,812
40,200 SCE Corp. ................................................ 713,550
10,200 Southern Co. ............................................. 251,175
8,900 Texas Utilities Co. ...................................... 366,013
17,300 Unicom Corp. ............................................. 566,575
-----------
4,545,413
-----------
ENERGY RAW MATERIALS--1.0%
58,800 Occidental Petroleum Corp. ............................... 1,256,850
3,200 Schlumberger Ltd. ........................................ 221,600
-----------
1,478,450
-----------
ENTERTAINMENT--0.0%
2,200 ITT Industry, Inc. ....................................... 52,800
-----------
FINANCE--0.7%
11,600 Federal Home Loan Mortgage Corp. ......................... 968,600
-----------
FOOD & AGRICULTURE--4.6%
19,900 Coca Cola Co. ............................................ 1,477,575
5,000 General Mills, Inc. ...................................... 288,750
41,850 H. J. Heinz Co. .......................................... 1,386,281
24,600 Kellogg Co. .............................................. 1,900,350
8,100 Pepsico, Inc. ............................................ 452,587
13,300 Ralston Purina Co. ....................................... 829,587
16,000 Sara Lee Corp. ........................................... 510,000
-----------
6,845,130
-----------
GOLD--0.2%
18,434 Santa Fe Pac Gold Corp. .................................. 223,512
-----------
INSURANCE--2.3%
11,500 Aetna Life & Casualty Co. ................................ 796,375
10,568 Allstate Corp. ........................................... 434,609
14,400 American General Corp. ................................... 502,200
6,468 American International Group, Inc. ....................... 598,290
2,700 CIGNA Corp. .............................................. 278,775
4,300 General Reinsurance Corp. ................................ 666,500
2,200 ITT Hartford Group........................................ 106,425
-----------
3,383,174
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
INTERNATIONAL OIL--4.7%
11,000 Chevron Corp. ............................................ $ 577,500
9,400 Cooper Industries, Inc. .................................. 345,450
25,100 Exxon Corp. .............................................. 2,011,138
7,800 Mobil Corp. .............................................. 873,600
9,800 Royal Dutch Petroleum Co. ADR(d).......................... 1,383,025
21,200 Texaco, Inc. ............................................. 1,664,200
-----------
6,854,913
-----------
LIQUOR--0.4%
3,300 Anheuser-Busch Companies, Inc. ........................... 220,687
11,700 Seagram, Ltd. ............................................ 405,113
-----------
625,800
-----------
MEDIA--2.3%
21,000 Capital Cities/ABC, Inc. ................................. 2,590,875
3,000 Gannett Co., Inc. ........................................ 184,125
15,200 Tele Communications Inc., NE.............................. 302,100
3,800 Telecommunications Inc., NE............................... 102,125
7,200 Time Warner, Inc. ........................................ 272,700
-----------
3,451,925
-----------
MISCELLANEOUS FINANCE--1.3%
25,000 American Express Co. ..................................... 1,034,375
4,449 Dean Witter Discover & Co. ............................... 209,103
5,000 Lehman Brothers Holdings, Inc. ........................... 106,250
16,900 Salomon, Inc. ............................................ 599,950
-----------
1,949,678
-----------
NON-FERROUS METALS--0.7%
8,075 Alcan Aluminum Ltd. ...................................... 251,334
14,000 Aluminum Co. of America................................... 740,250
220 USX U.S. Steel Corp. ..................................... 6,765
-----------
998,349
-----------
OFFICE EQUIPMENT--1.6%
16,900 Xerox Corp. .............................................. 2,315,300
-----------
OPTICAL PHOTO, EQUIPMENT--0.2%
3,600 Eastman Kodak Co. ........................................ 241,200
-----------
PAPER & FOREST PRODUCTS--1.3%
12,640 Burlington Northern Santa Fe.............................. 985,920
3,600 Georgia-Pacific Corp. .................................... 247,050
11,800 International Paper Co. .................................. 446,925
1,400 Kimberly Clark Corp. ..................................... 115,850
4,050 Weyerhaeuser Co. ......................................... 175,162
-----------
1,970,907
-----------
PRODUCER OF GOODS--2.5%
5,600 Caterpillar, Inc. ........................................ 329,000
24,000 Deere & Co. .............................................. 846,000
34,400 General Electric Co. ..................................... 2,476,800
4,200 Westinghouse Electric Corp. .............................. 69,300
-----------
3,721,100
-----------
</TABLE>
See accompanying notes to financial statements.
60
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED)
MEDIUM & LONG TERM BONDS & NOTES--
31.6%
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
RAILROADS & SHIPPING--0.4%
4,500 Norfolk Southern Corp. ................................. $ 357,187
4,200 Union Pacific Corp. .................................... 277,200
-----------
634,387
-----------
RESTAURANTS--0.3%
5,000 Darden Restaurants, Inc. ............................... 59,375
9,200 McDonald's Corp. ....................................... 415,150
-----------
474,525
-----------
RETAIL--2.7%
19,000 Albertsons, Inc. ....................................... 624,625
8,000 Dayton Hudson Corp. .................................... 600,000
15,600 J.C. Penney Company, Inc. .............................. 742,950
38,900 K-Mart Corp.(c)......................................... 282,025
5,400 Limited, Inc. .......................................... 93,825
7,800 May Department Stores Co. .............................. 329,550
11,400 Sears Roebuck and Co. .................................. 444,600
11,625 Toys R US(c)............................................ 252,844
29,200 Wal-Mart Stores, Inc. .................................. 653,350
-----------
4,023,769
-----------
SOAPS & COSMETICS--2.8%
6,260 Bristol-Myers Squibb Co. ............................... 537,577
18,400 Gillette Co. ........................................... 959,100
10,300 Procter & Gamble Co. ................................... 854,900
12,400 Unilever, N.V. ......................................... 1,745,300
-----------
4,096,877
-----------
STEEL--0.9%
64,700 USX Marathon Group...................................... 1,261,650
-----------
TOBACCO--1.1%
8,500 American Brands, Inc. .................................. 379,313
13,600 Philip Morris Companies, Inc. .......................... 1,230,800
140 Schweitzer Mauduit International, Inc. ................. 3,238
-----------
1,613,351
-----------
TRAVEL & RECREATION--1.3%
33,700 Walt Disney Productions................................. 1,988,300
-----------
Total Common Stock
(Identified cost $67,482,155).......................... 99,174,071
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
CORPORATE BONDS--16.8%
$ 2,000,000 Appalachian Power Co.
8.750%, 2/01/22.................................... $ 2,065,000
2,500,000 Banco de Comercio Exterior,
8.625%, 6/02/00.................................... 2,587,500
1,000,000 Boston Edison Co.
7.800%, 5/15/10.................................... 1,083,510
2,000,000 Cemex SA
8.875%, 6/10/98.................................... 1,928,750
2,000,000 Lehman Brothers Holdings, Inc.
8.500%, 5/01/07.................................... 2,244,240
1,730,000 Lehman Brothers Holdings, Inc.
8.800%, 3/01/15.................................... 2,005,485
1,000,000 Maxus Energy Corp.
9.375% 11/01/03.................................... 980,000
1,000,000 Paramount Communications, Inc.
8.250%, 8/01/22.................................... 1,033,130
1,485,000 Public Service Electric & Gas Co.
8.750%, 11/01/21................................... 1,592,455
2,100,000 Salomon, Inc.
6.700%, 12/01/98................................... 2,109,765
3,000,000 Tele Communications, Inc.
9.800%, 2/1/12..................................... 3,597,510
10,000,000 Time Warner Inc., Zero Coupon,
12/17/12........................................... 3,512,500
30,000 Viacom, Inc.
8.000%, 7/07/06.................................... 30,525
-----------
24,770,370
-----------
FOREIGN--4.4%
8,500,000 Government of Canada,
8.000%, 06/01/23(e)................................ 6,526,544
-----------
YANKEE--9.5%
3,000,000 Hydro Quebec,
9.400%, 2/01/21.................................... 3,807,690
2,000,000 Hydro Quebec,
8.050%, 7/07/24.................................... 2,283,520
5,000,000 News America Holdings, Inc.
9.250%, 2/01/13.................................... 5,889,200
1,500,000 Province of Manitoba,
9.125%, 1/15/18.................................... 1,943,310
-----------
13,923,720
-----------
U.S. GOVERNMENT BONDS--0.9%
564,805 Government National Mortgage Association,10.000%,
9/15/18............................................ 624,833
644,823 Government National Mortgage Association,11.500%
with various maturities to 2013.................... 736,674
-----------
1,361,507
-----------
Total Medium & Long Term Bonds & Notes
(Identified Cost $43,505,501)...................... 46,582,141
-----------
</TABLE>
See accompanying notes to financial statements.
61
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
SHORT-TERM INVESTMENT--0.5%
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
755,000 Household Finance Corp.
5.650%, 1/02/96...................................... $ 754,882
------------
Short-Term Investments
(Identified Cost $754,882)........................... 754,882
------------
Total Investments--99.3%
(Identified Cost $111,742,538)(b).................... 146,511,094
Cash and Receivables.................................. 1,297,345
Liabilities........................................... (272,703)
------------
TOTAL NET ASSETS--100%................................ $147,535,736
============
(a) See Note 1A.
(b) Federal Tax Information:
At December 31, 1995 the net unrealized appreciation on investments based on
cost of $111,742,538 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............................................. $ 37,122,196
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value........................................... (2,353,640)
------------
Net unrealized appreciation........................... $ 34,768,556
============
</TABLE>
(c) Non-income producing security.
(d) An American Depository Receipt (ADR) is a certificate issued by a U.S. bank
representing the right to receive securities of the foreign issuer
described. The values of ADRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
(e) Denominated in Canadian dollars.
See accompanying notes to financial statements.
62
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
STATEMENT OF ASSETS & LIABILITIES STATEMENT OF OPERATIONS
DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at value.................................... $146,511,094
Cash.................................................... 135,411
Receivable for:
Fund shares sold........................................ 51,543
Dividends and interest.................................. 1,109,230
Foreign taxes........................................... 1,161
------------
147,808,439
LIABILITIES
Payable for:
Fund shares redeemed.................................... $117,533
Withholding taxes....................................... 263
Dividends declared...................................... 14
Accrued expenses:
Management fees......................................... 62,259
Deferred trustees' fees................................. 30,097
Other expenses.......................................... 62,537
--------
272,703
------------
$147,535,736
============
NET ASSETS
Net Assets consist of:
Capital paid in......................................... $112,364,892
Undistributed net investment income..................... 45,930
Accumulated net realized gains.......................... 356,254
Unrealized appreciation on investments and foreign
currency............................................... 34,768,660
------------
NET ASSETS............................................... $147,535,736
============
Computation of offering price:
Net asset value and redemption price per share
($147,535,736 divided by 902,267 shares of beneficial
interest)............................................... $ 163.52
============
Identified cost of investments........................... $111,742,538
============
</TABLE>
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends.......................................... $ 2,472,077(a)
Interest........................................... 3,879,528
-----------
6,351,605
EXPENSES
Management fees.................................... $ 675,739
Trustees' fees and expenses........................ 34,040
Custodian.......................................... 63,948
Audit and tax services............................. 15,400
Legal.............................................. 12,300
Printing........................................... 58,064
Registration....................................... 7
Miscellaneous...................................... 4,504
-----------
Total expenses.................................... 864,002
864,002
-----------
NET INVESTMENT INCOME............................... 5,487,603
REALIZED AND UNREALIZED GAIN ON INVESTMENTS, FUTURES
CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS
Realized gain on:
Investments--net................................... 2,204,391
Futures contracts closed--net...................... 84,750
Foreign currency transactions--net................. 277,284
-----------
Total realized gain on investments and foreign
currency transactions............................ 2,566,425
-----------
Unrealized appreciation on:
Investments--net................................... 28,568,142
Foreign currency transactions--net 105
-----------
Total unrealized appreciation on investments and
foreign currency transactions.................... 28,568,247
-----------
Net gain on investment transactions................. 31,134,672
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS.......... $36,622,275
===========
</TABLE>
(a) Net of foreign taxes of: $17,070
See accompanying notes to financial statements.
63
<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,
1994 1995
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................. $ 4,885,826 $ 5,487,603
Net realized gain (loss) on investments and for-
eign currency transactions....................... (1,227,890) 2,566,425
Unrealized appreciation (depreciation) on invest-
ments, and foreign currency transactions......... (4,971,428) 28,568,247
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS. (1,313,492) 36,622,275
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................. (4,847,688) (5,487,603)
In excess of net investment income................ 0 (212,274)
Net realized gain on investments.................. 0 (764,206)
------------ ------------
(4,847,688) (6,464,083)
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares...................... 38,433,190 22,221,525
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income.......... 4,847,688 5,699,877
Distributions from net realized gain.............. 0 764,206
------------ ------------
43,280,878 28,685,608
Cost of shares redeemed........................... (36,581,093) (33,185,396)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS DERIVED FROM
CAPITAL SHARE TRANSACTIONS....................... 6,699,785 (4,499,788)
------------ ------------
TOTAL INCREASE IN NET ASSETS...................... 538,605 25,658,404
NET ASSETS
Beginning of the year............................. 121,338,727 121,877,332
------------ ------------
End of the year................................... $121,877,332 $147,535,736
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year............................. $ 6,388 $ 85
============ ============
End of the year................................... $ 85 $ 45,930
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 285,556 150,563
Issued in connection with the reinvestment of:
Distributions from net investment income.......... 37,014 35,150
Distributions from net realized gain.............. 0 4,713
------------ ------------
322,570 190,426
Redeemed.......................................... (271,720) (223,554)
------------ ------------
Net change........................................ 50,850 (33,128)
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1991 1992 1993 1994 1995
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year.......................... $112.79 $127.87 $ 130.26 $ 137.18 $ 130.30
------- ------- -------- -------- --------
Income From Investment Opera-
tions
Net Investment Income......... 6.41 5.14 4.35 5.42 6.34
Net Realized and Unrealized
Gain (Loss) on Investments... 16.23 3.45 9.58 (6.92) 34.33
------- ------- -------- -------- --------
Total From Investment Opera-
tions........................ 22.64 8.59 13.93 (1.50) 40.67
------- ------- -------- -------- --------
Less Distributions
Distributions From Net Invest-
ment Income.................. (6.41) (5.13) (4.36) (5.38) (6.34)
Distributions in Excess of Net
Investment Income............ 0.00 0.00 0.00 0.00 (0.23)
Distributions From Net Real-
ized Capital Gains........... (1.15) (1.07) (2.65) 0.00 (0.88)
------- ------- -------- -------- --------
Total Distributions........... (7.56) (6.20) (7.01) (5.38) (7.45)
------- ------- -------- -------- --------
Net Asset Value, End of Year... $127.87 $130.26 $ 137.18 $ 130.30 $ 163.52
======= ======= ======== ======== ========
TOTAL RETURN (%)............... 20.17 6.70 10.65 (1.11) 31.26
Ratio of Operating Expenses to
Average Net Assets (%)........ 0.55 0.54 0.53 0.54 0.64
Ratio of Net Investment Income
to Average Net Assets (%)..... 5.45 5.32 3.65 3.98 4.06
Portfolio Turnover Rate (%).... 36 36 22 76 51
Net Assets, End of Year (000).. $49,995 $77,575 $121,339 $121,877 $147,536
</TABLE>
See accompanying notes to financial statements.
64
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
BONDS & NOTES--80.4% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
CORPORATE BONDS--31.6%
$ 150,000 American Safety Razor Co. 9.875%, 8/01/05........... $ 153,000
150,000 Bally's Park Place Funding 9.250%, 3/15/04.......... 151,875
100,000 Berry Plastics 12.250%, 4/15/04..................... 105,750
150,000 Borg Warner Sec. Corp.
9.125%, 5/01/03.................................... 135,187
150,000 Cole National Group, Inc. 11.250%, 10/01/01......... 150,750
100,000 Crown Paper Co. 11.000%, 9/01/05.................... 87,750
100,000 Empress River Casino Financial Corp. 10.750%,
4/01/02............................................ 103,250
150,000 Grand Casino, Inc.
10.125%, 12/01/03.................................. 156,750
150,000 Harris Chemical of North America, Inc. Zero Coupon,
7/15/01 (n)........................................ 144,000
100,000 Herff Jones, Inc. 11.000%, 8/15/05.................. 107,250
200,000 In Flight Phone Corp.
zero coupon, 5/15/02(j) (n)........................ 74,000
150,000 Jordan Industries, Inc.
10.375%, 8/01/03................................... 133,500
150,000 Katz Corp. 12.750%, 11/15/02 ....................... 158,063
250,000 Marcus Cable Co.
Zero Coupon, 12/15/05 (n).......................... 170,000
150,000 Pathmark Stores, Inc. 9.625%, 5/01/03............... 145,313
150,000 RBX Corp. 11.250%, 10/15/05......................... 148,125
150,000 Renco Metals, Inc. 12.000%, 7/15/00................. 151,500
150,000 Selmer, Inc. 11.000%, 5/15/05....................... 148,875
150,000 Sinclair Broadcast Group, Inc. 10.000%, 9/30/05..... 153,750
100,000 Specialty Retailers, Inc. 11.000%, 8/15/03.......... 91,000
150,000 Telex Communications, Inc. 12.000%, 7/15/04......... 154,875
100,000 United States Leasing International 8.450%, 1/25/05. 114,291
50,000 Waters Corp. 12.750%, 9/30/04....................... 56,625
-----------
2,995,479
-----------
FOREIGN CORPORATE BONDS--1.7%
300,000 International Semi Tech. Zero Coupon, 8/15/03 (n)... 163,500
-----------
FOREIGN GOVERNMENT BONDS--29.6%
400,000 Argentina (Republic of)
6.5000%, 3/31/05................................... 285,000
1,000,000 Belgium (Kingdom of) 6.500%, 3/31/05(c)............. 33,530
583,665 Brazil (Federal Republic of) C Bonds 4.000%,
4/15/14............................................ 334,878
190,000 Brazil (Federal Republic of) 6.6875%, 1/01/01....... 169,290
250,000 Brazil (Federal Republic of) 4.250%, 4/15/24........ 132,813
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$ 500,000 Bulgaria (National Republic of) 2.000%, 7/28/12..... $ 132,500
14,000 Canada (Government of) 6.250%, 2/01/98(d)........... 10,304
28,000 Canada (Government of) 9.000%, 12/01/04(d).......... 23,110
30,000 Denmark (Kingdom of) 7.000%, 12/15/04(e)............ 5,381
60,000 Denmark (Kingdom of) 9.000%, 11/15/98(e)............ 11,771
50,000 Dutch (Government of) 6.250%, 7/15/98(f)............ 32,639
45,000 Dutch (Government of) 7.000%, 6/15/05(f)............ 29,992
500,000 Ecuador (Republic of) 3.000%, 2/28/25............... 181,563
210,000 Germany (Federal Republic of) 6.000%, 2/20/98(g).... 152,540
290,000 Germany (Federal Republic of) 8.375%, 5/21/01(g).... 231,413
120,000 Germany (Federal Republic of) 7.375%, 1/03/05(g).... 91,416
75,000,000 Italy (Republic of) 9.500%, 12/01/97(h)............. 46,730
30,000,000 Italy (Republic of) 9.500%, 1/01/05(h).............. 17,693
50,000 Indah Kiat International Finance Co.
12.500%, 6/15/06 .................................. 52,188
9,000,000 Japan 4.200%, 9/21/15(i)............................ 93,138
250,000 Mexico Par Series B 6.250%, 12/31/19(j)............. 163,750
700,000 Poland (Republic of) 3.750%, 10/27/14............... 451,500
430,000 Spain (Government of) 10.000%, 2/28/05(k)........... 3,595
2,320,000 Spain (Government of) 11.450%, 8/30/98(k)........... 20,098
65,000 UK Treasury 7.000%, 11/06/01(l)..................... 101,073
-----------
2,807,905
-----------
U.S. GOVERNMENT BONDS--17.5%
500,000 Federal Home Loan Bank 6.490%, 9/08/97.............. 509,735
375,000 Federal National Mortgage Association 7.520%,
8/26/05............................................ 381,900
300,000 Federal National Mortgage Association 6.500%,
1/01/99............................................ 296,343
90,000 United States Treasury Bond 6.125%, 5/31/97......... 91,139
100,000 United States Treasury Bond 5.625%, 11/30/00........ 100,996
100,000 United States Treasury Bond 6.500%, 8/15/05......... 106,615
150,000 United States Treasury Bond 6.875%, 8/15/25......... 169,171
-----------
1,655,899
-----------
Total Bonds & Notes
(Identified Cost $7,433,037)....................... 7,622,783
-----------
</TABLE>
See accompanying notes to financial statements.
67
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
SHORT-TERM INVESTMENTS--19.7%
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$ 1,869,000 Repurchase agreement with State Street Bank & Trust
Company dated 12/29/95 at 5.750% to be repurchased
at $1,870,194 on 1/2/96 collateralized by
$1,900,000. U.S. Treasury Note 5.125% due 4/30/98
with a value of $1,911,039........................ $ 1,869,000
-----------
Total Short-Term Investment
(Identified Cost $1,869,000)...................... 1,869,000
-----------
Total Investments--100.1%
(Identified Cost $9,302,037)(b)................... 9,491,783
Cash and Receivables(m)............................ 2,155,052
Liabilities........................................ (2,162,711)
-----------
TOTAL NET ASSETS--100%............................. $ 9,484,124
===========
(a) See Note 1a.
(b) Federal Tax Information:
At December 31, 1995 the net unrealized appreciation on investments based on
cost of $9,303,178 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..................................... $ 283,052
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value................................... (94,447)
-----------
Net unrealized appreciation........................ $ 188,605
===========
</TABLE>
(c) Denominated in Belgium francs.
(d) Denominated in Canadian dollars.
(e) Denominated in Danish kroner.
(f) Denominated in Netherland guilden.
(g) Denominated in German marks.
(h) Denominated in Italian lire.
(i) Denominated in Japanese yen.
(j) Rights attached.
(k) Denominated in Spanish pesetas.
(l) Denominated in Great British pound sterling.
(m) Including deposits in foreign denominated currencies with a value of
$21,814 and a cost of $21,724.
(n) Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
See accompanying notes to financial statements.
68
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
STATEMENT OF ASSETS & LIABILITIES STATEMENT OF OPERATIONS
DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at value:
Securities............................................. $ 7,622,783
Repurchase agreements.................................. 1,869,000
-----------
Total investments..................................... 9,491,783
Cash................................................... 145
Foreign cash at value.................................. 21,814
Receivable for:
Fund shares sold....................................... 120,471
Open forward currency contracts........................ 1,800,807
Accrued interest....................................... 187,837
Foreign taxes.......................................... 271
Due from advisor....................................... 16,000
Unamortized organization expense....................... 7,707
-----------
11,646,835
LIABILITIES
Payable for:
Securities purchased................................... $ 295,750
Open forward currency contracts........................ 1,837,293
Fund shares redeemed................................... 450
Withholding Taxes...................................... 288
Accrued expenses:
Management fees........................................ 2,288
Other expenses......................................... 26,642
----------
2,162,711
-----------
$ 9,484,124
===========
NET ASSETS
Net Assets consist of:
Capital paid in........................................ $ 9,260,335
Undistributed net investment income.................... 50,354
Accumulated net realized gains......................... 19,941
Unrealized appreciation on investments, forward
contracts and foreign currency........................ 153,494
-----------
NET ASSETS.............................................. $ 9,484,124
===========
Computation of offering price:
Net asset value and redemption price per share
($9,484,124 divided by 874,477 shares of beneficial
interest).............................................. $ 10.85
===========
Identified cost of investments.......................... $ 9,302,037
===========
</TABLE>
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest................................................ $506,785(a)
--------
506,785
EXPENSES
Management fees......................................... $ 35,085
Trustees' fees and expenses............................. 15,052
Custodian............................................... 47,259
Audit and tax services.................................. 19,800
Legal................................................... 10,821
Printing................................................ 1,550
Registration............................................ 7
Insurance............................................... 49
Amortization of organization expenses................... 2,345
Miscellaneous........................................... 2,033
--------
Total expenses......................................... 134,001
Less expenses assumed by the investment adviser........ (88,120) 45,881
-------- --------
NET INVESTMENT INCOME.................................... 460,904
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FORWARD CURRENCY CONTRACTS AND FOREIGN CURRENCY
TRANSACTIONS
Realized gain on:
Investments--net........................................ 238,818
Foreign currency transactions--net...................... 9,623
--------
Total realized gain on investments and foreign currency
transactions.......................................... 248,441
--------
Unrealized appreciation (depreciation) on:
Investments--net........................................ 222,618
Foreign currency transactions--net...................... (14,528)
--------
Total unrealized appreciation on investments, forwards
contracts and foreign currency transactions........... 208,090
--------
Net gain on investment transactions...................... 456,531
--------
NET INCREASE IN NET ASSETS FROM OPERATIONS............... $917,435
========
</TABLE>
(a) Net of foreign taxes of: $889
See accompanying notes to financial statements.
69
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 31, 1994 (A) YEAR ENDED
THROUGH DECEMBER 31,
DECEMBER 31, 1994 1995
-------------------- ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income...................... $ 40,922 $ 460,904
Net realized gain (loss) on investments and
foreign currency transactions............. (36,161) 248,441
Unrealized appreciation (depreciation) on
investments, and foreign currency transac-
tions..................................... (54,596) 208,090
----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM OP-
ERATIONS.................................. (49,835) 917,435
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................... (40,922) (435,233)
In excess of investment income............. (1,078) 0
Net realized gain on investments........... 0 (170,001)
----------- -----------
(42,000) (605,234)
----------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares............... 1,060,215 9,873,846
Net asset value of shares issued in connec-
tion with the reinvestment of:
Distributions from net investment income... 42,000 435,233
Distributions from net realized gain....... 0 170,001
----------- -----------
1,102,215 10,479,080
Cost of shares redeemed.................... (1,060,215) (4,757,322)
----------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS........................ 42,000 5,721,758
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS.... (49,835) 6,033,959
NET ASSETS
Beginning of the year...................... 3,500,000 3,450,165
----------- -----------
End of the year............................ $ 3,450,165 $ 9,484,124
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year...................... $ 0 $ 0
=========== ===========
End of the year............................ $ 0 $ 50,354
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares............. 106,727 919,222
Issued in connection with the reinvestment
of:
Distributions from net investment income... 4,325 40,562
Distributions from net realized gain....... 0 15,844
----------- -----------
111,052 975,628
Redeemed................................... (106,727) (455,476)
----------- -----------
Net change................................. 4,325 520,152
=========== ===========
</TABLE>
(a) Commencement of Operations
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
OCTOBER 31, 1994 * YEAR ENDED
THROUGH DECEMBER 31,
DECEMBER 31, 1994 1995
------------------ ------------
<S> <C> <C>
Net Asset Value, Beginning of Year............. $10.00 $ 9.74
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income......................... 0.12 0.58
Net Realized and Unrealized Gain (Loss) on
Investments.................................. (0.26) 1.30
------ ------
Total From Investment Operations.............. (0.14) 1.88
------ ------
LESS DISTRIBUTIONS
Distributions From Net Investment Income...... (0.12) (0.55)
Distributions From Net Realized Capital Gains. 0.00 (0.22)
------ ------
Total Distributions........................... (0.12) (0.77)
------ ------
Net Asset Value, End of Year................... $ 9.74 $10.85
====== ======
TOTAL RETURN (%)............................... (1.40)*** 19.38
Ratio of Operating Expenses to Average Net
Assets (%).................................... 0.85 ** 0.84
Ratio of Net Investment Income to Average Net
Assets (%).................................... 7.05 ** 8.39
Portfolio Turnover Rate (%).................... 403 202
Net Assets, End of Year (000).................. $3,450 $9,484
The ratios of expenses to average net assets
without giving effect to the voluntary expense
limitations described in Note 4 to the
Financial Statements would have been (%)...... 2.01 ** 2.44
</TABLE>
* Commencement of Operations
** Computed on an annualized basis.
*** Not computed on an annualized basis.
See accompanying notes to financial statements.
70
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
BONDS & NOTES--92.7% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
CORPORATE BONDS AND NOTES--66.3%
BROADCASTING--1.0%
$1,500,000 Viacom Inc. 7.625%, 1/15/16.......................... $ 1,517,655
------------
CHEMICALS--3.5%
4,850,000 Dow Chemical Co.
8.550%, 10/15/09.................................... 5,745,260
------------
FINANCIAL--6.8%
4,000,000 American General Financing, 8.450%, 10/15/09......... 4,734,680
4,160,000 Associates Corp. of North America, 8.550%, 7/15/09... 4,995,203
1,275,000 Toronto Dominion Bank Ontario, 7.875%, 8/15/04....... 1,394,391
------------
11,124,274
------------
FOREIGN--4.1%
3,000,000 British Columbia Province Canada,
7.750%, 06/16/03.................................... 2,276,265
2,000,000 Government of Canada, 9.000%, 12/1/04(c)............. 1,650,751
2,250,000 Government of Canada, 7.500%, 09/01/00(c)............ 1,709,555
1,300,000 Ontario Hydro, 8.875%, 10/25/05(c)................... 1,025,815
------------
6,662,386
------------
LEISURE--2.5%
1,250,000 ITT Corp. 7.750%, 11/15/25........................... 1,281,250
2,500,000 Time Warner Inc. 9.150%, 2/01/23..................... 2,865,350
------------
4,146,600
------------
OIL AND GAS--4.7%
1,050,000 Coastal Corp. 10.000%, 2/01/01....................... 1,217,906
800,000 Oryx Energy Co. 10.000%, 6/15/99..................... 870,288
3,290,000 Oryx Energy Co. 10.000%, 4/01/01..................... 3,653,874
500,000 Oryx Energy Co. 8.000%, 10/15/03..................... 511,200
1,250,000 USX Marathon Group, 9.125%, 1/15/13.................. 1,437,175
------------
7,690,443
------------
PUBLISHING--4.0%
4,000,000 News America Holdings Inc. 9.500%, 7/15/24........... 4,952,680
2,150,000 Western Publishing Group, Inc. 7.650%, 9/15/02....... 1,526,500
------------
6,479,180
------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
TELECOMMUNICATIONS--7.7%
$3,250,000 AT&T Corp. 8.350%, 1/15/25........................... $ 3,706,723
3,335,000 Tele-Communications Inc. 9.250%, 1/15/23............. 3,643,387
4,500,000 US West Communication, 8.875%, 6/01/31............... 5,244,525
------------
12,594,635
------------
UTILITIES--(DIVERSIFIED)--10.2%
1,250,000 Arizona Public Service Co. 10.250%, 5/15/20.......... 1,448,950
1,950,000 Long Island Lighting Co. 8.900%, 7/15/19............. 1,998,555
1,250,000 New York State Electric & Gas Co. 9.875%, 2/01/20.... 1,326,250
4,250,000 New York State Electric & Gas Co. 8.875%, 11/01/21... 4,662,633
7,000,000 Tennessee Valley Authority, 6.125%, 7/15/03.......... 7,077,490
------------
16,513,878
------------
UTILITIES--(ELECTRIC)--8.9%
1,500,000 Alabama Power Co.
8.750%, 12/01/21.................................... 1,599,975
4,200,000 Arizona Public Service Co. 8.000%, 12/30/15.......... 4,512,186
3,244,000 Ohio Edison, 9.120%, 5/30/16......................... 3,331,750
300,000 Texas Utilities Electric Co. 10.150%, 3/01/99........ 335,748
1,700,000 Texas Utilities Electric Co. 8.875%, 2/01/22......... 2,016,829
2,400,000 Texas Utilities Electric Co. 8.500%, 8/01/24......... 2,711,784
------------
14,508,272
------------
UTILITIES--(GAS)--3.7%
3,000,000 ANR Pipeline Co. 7.000% 6/01/25...................... 3,179,880
2,400,000 Southern California Gas Co. 8.750%, 10/01/21......... 2,813,520
------------
5,993,400
------------
YANKEE--9.2%
900,000 British Columbia Hydro & Power, 12.500%, 9/01/13..... 1,082,088
1,750,000 Canadian Pac. Limited,
8.850%, 06/01/22(c)................................. 2,031,488
4,000,000 Hydro Quebec, 8.050%, 7/07/24........................ 4,585,160
600,000 Maxus Energy Corp. 10.190%, 5/09/96.................. 603,000
1,500,000 Maxus Energy Corp. 11.500%, 11/15/15................. 1,560,000
</TABLE>
See accompanying notes to financial statements.
73
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
BONDS & NOTES--(CONTINUED) SHORT-TERM INVESTMENTS--5.5%
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
YANKEE--(CONTINUED)
$1,125,000 Mexico (United Mexican State) 6.250%, 12/31/19(d)... $ 736,875
450,000 Petroleos Mexicanos,
7.988%, 4/07/97.................................... 451,125
3,100,000 Petroleos Mexicanos,
8.625%, 12/01/23................................... 2,297,875
1,500,000 Republic of Coumbia
8.750%, 10/06/99(c)................................ 1,586,625
------------
14,934,236
------------
Total Corporate Bonds and Notes (Identified Cost
$101,828,372)...................................... 107,910,219
------------
U.S. GOVERNMENT AND AGENCIES--26.4%
58,620 Federal Home Loan Bank, 9.000%, 5/01/01............. 61,222
22,724 Federal Home Loan Bank, 9.000%, 9/01/01............. 23,732
6,000,000 Federal National Mortgage Association, 7.850%,
9/10/04............................................ 6,369,780
8,512,707 Government National Mortgage Association,
7.000% with various maturities to 2025............. 8,621,754
7,031,415 Government National Mortgage Association,
7.500% with various maturities to 2025............. 7,237,998
2,361,666 Government National Mortgage Association,
8.5000% with various maturities to 2022............ 2,481,237
256,441 Government National Mortgage Association,
9.000%, 10/15/16................................... 271,907
2,500,000 Student Loan Marketing Association, 7.820%,
10/14/99........................................... 2,541,050
1,500,000 U.S. Treasury Notes,
6.375%, 7/15/99.................................... 1,551,810
2,500,000 U.S. Treasury Notes, 8.500%, 11/15/00............... 2,831,125
3,500,000 U.S. Treasury Notes,
8.000%, 5/15/01.................................... 3,920,665
7,000,000 U.S. Treasury Notes,
5.750%, 8/15/03.................................... 7,094,150
------------
Total U.S. Government and Agencies (Identified Cost
$42,534,087)....................................... 43,006,430
------------
Total Bonds and Notes
(Identified Cost $144,362,459)..................... 150,916,649
------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
COMMERCIAL PAPER--5.5%
$2,930,000 American Express Credit Corp. 5.000%, 1/02/96...... $ 2,929,593
6,000,000 Household Finance Corp. 5.65%, 1/02/96............. 5,999,058
------------
8,928,651
------------
Total Short-Term Investments (Identified Cost
$8,928,651)....................................... 8,928,651
------------
Total Investments--98.2%
(Identified Cost $153,291,110)(b)................. 159,845,300
Cash and Receivables............................... 3,181,792
Liabilities........................................ (315,142)
------------
TOTAL NET ASSETS--100%............................. $162,711,950
============
(a) See Note 1A.
(b) Federal Tax Information:
At December 31, 1995 the net unrealized appreciation on investments based on
cost of $153,322,185 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost..................................... $ 7,425,469
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value................................... (902,354)
------------
Net unrealized appreciation........................ $ 6,523,115
============
As of December 1995, the Series had a net tax basis capital loss
carryforward as follows:
Expiring December 31, 2002......................... $ 362,321
</TABLE>
(c) Denominated in Canadian dollars.
(d) Rights attached.
See accompanying notes to financial statements.
74
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
STATEMENT OF ASSETS & LIABILITIES STATEMENT OF OPERATIONS
DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at value.................................... $159,845,300
Cash.................................................... 7,615
Receivable for:
Fund shares sold........................................ 168,756
Accrued interest........................................ 3,005,421
------------
163,027,092
LIABILITIES
Payable for:
Fund shares redeemed.................................... 155,010
Withholding Taxes....................................... 157
Accrued expenses:
Management fees......................................... 54,164
Deferred trustees' fees................................. 33,695
Other expenses.......................................... 72,116
-------
315,142
------------
$162,711,950
============
NET ASSETS
Net Assets consist of:
Capital paid in......................................... $156,446,786
Undistributed net investment income..................... 53,292
Accumulated net realized losses......................... (341,858)
Unrealized appreciation on investments and foreign
currency............................................... 6,553,730
------------
NET ASSETS............................................... $162,711,950
============
Computation of offering price:
Net asset value and redemption price per share
($162,711,950 divided by 1,497,241 shares of beneficial
interest)............................................... $ 108.67
============
Identified cost of investments........................... $153,291,110
============
</TABLE>
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest.............................................. $11,118,852
-----------
11,118,852
EXPENSES
Management fees....................................... $ 572,279
Trustees' fees and expenses........................... 32,681
Custodian............................................. 77,692
Audit and tax services................................ 15,100
Legal................................................. 10,175
Printing.............................................. 69,031
Registration.......................................... 7
Miscellaneous......................................... 6,494
----------
Total expenses....................................... 783,459
-----------
NET INVESTMENT INCOME.................................. 10,335,393
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, AND
FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments--net...................................... 1,968,574
Foreign currency transactions--net (408,762)
----------
Total realized gain on
investments and foreign currency transactions....... 1,559,812
----------
Unrealized appreciation on:
Investments--net...................................... 15,388,967
Foreign currency transactions--net.................... 3,212
----------
Total unrealized appreciation on investments and
foreign currency transactions....................... 15,392,179
----------
Net gain on investment transactions.................... 16,951,991
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............. $27,287,384
===========
</TABLE>
See accompanying notes to financial statements.
75
<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,
1994 1995
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................. $ 8,708,335 $ 10,335,393
Net realized gain (loss) on investments and for-
eign currency transactions....................... (2,245,611) 1,559,812
Unrealized appreciation (depreciation) on invest-
ments, and foreign currency transactions......... (10,925,944) 15,392,179
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS. (4,463,220) 27,287,384
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................. (8,697,370) (9,888,438)
In excess of net investment income................ (6,472) 0
------------ ------------
(8,703,842) (9,888,438)
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares...................... 50,909,294 46,886,957
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income.......... 8,703,842 9,888,437
------------ ------------
59,613,136 56,775,394
Cost of shares redeemed........................... (51,454,492) (37,696,007)
------------ ------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS..................................... 8,158,644 19,079,387
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........... (5,008,418) 36,478,333
NET ASSETS
Beginning of the year............................. 131,242,035 126,233,617
------------ ------------
End of the year................................... $126,233,617 $162,711,950
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year............................. $ 0 $ 0
============ ============
End of the year................................... $ 0 $ 53,292
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 493,361 440,564
Issued in connection with the reinvestment of:
Distributions from net investment income.......... 90,987 91,832
------------ ------------
584,348 532,396
Redeemed.......................................... (499,476) (356,518)
------------ ------------
Net change........................................ 84,872 175,878
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1991 1992 1993 1994 1995
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year.......................... $ 97.61 $103.44 $ 103.47 $ 106.14 $ 95.53
------- ------- -------- -------- --------
Income From Investment Opera-
tions
Net Investment Income......... 8.53 7.96 5.70 7.05 7.34
Net Realized and Unrealized
Gain (Loss) on Investments... 8.90 0.51 7.38 (10.61) 12.85
------- ------- -------- -------- --------
Total From Investment Opera-
tions........................ 17.43 8.47 13.08 (3.56) 20.19
------- ------- -------- -------- --------
Less Distributions
Distributions From Net Invest-
ment Income.................. (9.47) (6.87) (6.20) (7.05) (7.05)
Distributions In Excess of Net
Investment Income............ 0.00 0.00 (0.05) 0.00 0.00
Distributions From Net Real-
ized Capital Gains........... (2.13) (1.57) (4.16) 0.00 0.00
------- ------- -------- -------- --------
Total Distributions........... (11.60) (8.44) (10.41) (7.05) (7.05)
------- ------- -------- -------- --------
Net Asset Value, End of Year... $103.44 $103.47 $ 106.14 $ 95.53 $ 108.67
======= ======= ======== ======== ========
TOTAL RETURN (%)............... 17.96 8.18 12.61 (3.36) 21.20
Ratio of Operating Expenses to
Average Net Assets (%)........ 0.45 0.44 0.43 0.44 0.55
Ratio of Net Investment Income
to Average Net Assets (%)..... 8.27 7.70 6.47 6.75 7.22
Portfolio Turnover Rate (%).... 193 71 177 82 73
Net Assets, End of Year (000).. $49,369 $83,057 $131,242 $126,234 $162,712
</TABLE>
As of January 1, 1993, the Bond Income Series discontinued the use of
equalization accounting.
See accompanying notes to financial statements.
76
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROS. U.S. GOVERNMENT SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
BONDS & NOTES--92.0% OF TOTAL NET ASSETS SHORT-TERM INVESTMENTS--17.4%
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
FEDERAL AGENCY--60.9%
$ 250,000 Federal Home Loan Banks
6.49%, 9/08/97.......................................... $ 254,867
300,000 Federal Home Loan Banks
5.94%, 6/13/00.......................................... 304,188
391,841 Federal Home Loan Mortgage
6.00%, 10/01/10......................................... 388,291
363,770 Federal Home Loan Mortgage
6.00%, 2/15/13.......................................... 362,977
1,999,998 Federal National Mortgage Association
6.50%, 12/01/10......................................... 2,012,498
132,095 Federal National Mortgage Association
11.50%, 02/01/20........................................ 148,648
450,000 Federal National Mortgage Association
Pool TBA
6.50%, 10/01/25......................................... 444,515
350,000 Government National Mortgage Association TBA
7.00%, 12/15/24......................................... 353,937
300,000 Student Loan Marketing Association
7.50%, 3/08/00.......................................... 321,537
----------
4,591,458
----------
U.S. TREASURY--31.1%
350,000 U.S. Treasury Bond
8.875%, 8/15/17......................................... 468,857
600,000 U.S. Treasury Notes
7.75%, 1/31/00.......................................... 652,350
200,000 U.S. Treasury Notes
6.75%, 4/30/00.......................................... 210,590
1,000,000 U.S. Treasury Notes
5.75%, 10/31/00......................................... 1,015,470
----------
2,347,267
----------
Total Bonds & Notes
(Identified Cost $6,744,361)............................ 6,938,725
----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$1,314,000 Repurchase agreement with State Street Bank & Trust
Company dated 12/29/95 at 5.75% to be repurchased at
$1,314,840 on 1/2/96 collateralized by 1,335,000
U.S. Treasury Note 5.125% due 4/30/98 with a value
of $1,324,854....................................... $1,314,000
----------
Total Short-Term Investments
(Identified Cost $1,314,000)........................ 1,314,000
----------
Total Investments--109.4%
(Identified Cost $8,058,361)(b)..................... 8,252,725
Cash and Receivables................................. 110,456
Liabilities.......................................... (821,145)
----------
TOTAL NET ASSETS--100%............................... $7,542,036
==========
(a) See Note 1a.
(b) Federal Tax Information:
At December 31, 1995 the net unrealized appreciation on investments based on
cost of $8,059,236 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all in-
vestments in which there is an excess of value over
tax cost............................................ $ 194,439
Aggregate gross unrealized depreciation for all in-
vestments in which there is an excess of tax cost
over value.......................................... (950)
----------
Net unrealized appreciation.......................... $ 193,489
==========
</TABLE>
See accompanying notes to financial statements.
78
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS U.S. GOVERNMENT SERIES)
STATEMENT OF ASSETS & LIABILITIES STATEMENT OF OPERATIONS
DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at value:
Securities................................................ $6,938,725
Repurchase Agreements..................................... 1,314,000
----------
Total Investments........................................ 8,252,725
Cash...................................................... 343
Receivable for:
Fund shares sold.......................................... 12,653
Accrued interest.......................................... 74,392
Due from advisor.......................................... 15,361
Unamortized organization expense.......................... 7,707
----------
8,363,181
LIABILITIES
Payable for:
Securities purchased...................................... $795,977
Fund shares redeemed...................................... 54
Accrued expenses:
Management fees........................................... 1,365
Other expenses............................................ 23,749
--------
821,145
----------
$7,542,036
==========
NET ASSETS
Net Assets consist of:
Capital paid in........................................... $7,332,248
Undistributed net investment income....................... 735
Accumulated net realized gains............................ 14,689
Unrealized appreciation on
investments.............................................. 194,364
----------
NET ASSETS................................................. $7,542,036
==========
Computation of offering price:
Net asset value and redemption price per share ($7,542,036
divided by 683,462 shares of beneficial interest)......... $ 11.04
==========
Identified cost of investments............................. $8,058,361
==========
</TABLE>
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest................................................... $240,412
--------
240,412
EXPENSES
Management fees............................................ $ 20,446
Trustees' fees and expenses................................ 15,049
Custodian.................................................. 39,052
Audit and tax services..................................... 19,700
Legal...................................................... 10,824
Printing................................................... 843
Registration............................................... 7
Insurance.................................................. 29
Amortization of organization expenses...................... 2,345
Miscellaneous.............................................. 2,351
--------
Total expenses............................................ 110,646
Less expenses assumed by the investment adviser........... (84,623) 26,023
-------- --------
NET INVESTMENT INCOME....................................... 214,389
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments--net.......................... 71,273
Unrealized appreciation on investments--net................ 195,460
--------
Net gain on investment transactions......................... 266,733
--------
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $481,122
========
</TABLE>
See accompanying notes to financial statements.
79
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS U.S. GOVERNMENT SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 31, 1994 (A)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
-------------------- ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income...................... $ 19,034 $ 214,389
Net realized gain (loss) on investments.... (6,247) 71,273
Unrealized appreciation (depreciation) on
investments............................... (1,096) 195,460
---------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS..... 11,691 481,122
---------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................... (19,034) (214,389)
In excess of net investment income......... (966) (1,001)
Net realized gain on investments........... 0 (50,946)
---------- -----------
(20,000) (266,336)
---------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares............... 1,051,370 7,348,256
Net asset value of shares issued in connec-
tion with the reinvestment of:
Distributions from net investment income... 20,000 215,390
Distributions from net realized gain....... 0 50,946
---------- -----------
1,071,370 7,614,592
Cost of shares redeemed.................... (1,051,370) (2,299,033)
---------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS........................ 20,000 5,315,559
---------- -----------
TOTAL INCREASE IN NET ASSETS............... 11,691 5,530,345
NET ASSETS
Beginning of the year...................... 2,000,000 2,011,691
---------- -----------
End of the year............................ $2,011,691 $ 7,542,036
========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year...................... $ 0 $ 0
========== ===========
End of the year............................ $ 0 $ 735
========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares............. 111,982 671,863
Issued in connection with the reinvestment
of:
Distributions from net investment income... 2,008 19,652
Distributions from net realized gain....... 0 4,648
---------- -----------
113,990 696,163
Redeemed................................... (111,982) (214,709)
---------- -----------
Net change................................. 2,008 481,454
========== ===========
(a) Commencement of Operations
FINANCIAL HIGHLIGHTS
<CAPTION>
OCTOBER 31, 1994*
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
-------------------- ------------
<S> <C> <C>
Net Asset Value, Beginning of Year.......... $ 10.00 $ 9.96
---------- -----------
Income From Investment Operations
Net Investment Income...................... 0.10 0.33
Net Realized and Unrealized Gain (Loss) on
Investments............................... (0.04) 1.16
---------- -----------
Total From Investment Operations........... 0.06 1.49
---------- -----------
Less Distributions
Distributions From Net Investment Income... (0.10) (0.33)
Distributions From Net Realized Capital
Gains..................................... 0.00 (0.08)
---------- -----------
Total Distributions........................ (0.10) (0.41)
---------- -----------
Net Asset Value, End of Year................ $ 9.96 $ 11.04
========== ===========
TOTAL RETURN (%)............................ 0.60*** 15.02
Ratio of Operating Expenses to Average Net
Assets (%)................................. 0.70** 0.70
Ratio of Net Investment Income to Average
Net Assets (%)............................. 5.70** 5.62
Portfolio Turnover Rate (%)................. 1,409** 415
Net Assets, End of Year (000)............... $ 2,012 $ 7,542
The ratios of expenses to average net assets
without giving effect to the voluntary ex-
pense limitations described in Note 4 to
the Financial Statements would have been
(%)........................................ 2.54** 2.90
</TABLE>
* Commencement of operations.
** Computed on an annualized basis.
*** Not computed on an annualized basis.
See accompanying notes to financial statements.
80
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISERS MONEY MARKET SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
INVESTMENTS--98.7% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
FACE INTEREST MATURITY
VALUE DESCRIPTION RATE DATE VALUE (A)
<C> <S> <C> <C> <C>
BANKERS ACCEPTANCE--1.1%
$1,000,000 Bank of Montreal................... 5.500% 04/18/96 $ 983,500
-----------
Total Bankers Acceptance
($983,500)......................... 983,500
-----------
CERTIFICATE OF DEPOSIT--11.1%
1,000,000 Societe Generale New York.......... 5.730% 01/16/96 999,966
1,000,000 Societe Generale New York.......... 5.670% 01/31/96 999,902
1,000,000 Banque Nationale de Paris.......... 5.780% 02/05/96 1,000,025
1,000,000 Banque Nationale de Paris.......... 5.840% 02/26/96 1,000,127
1,000,000 Radobank Nederland................. 6.660% 02/27/96 999,701
1,000,000 Royal Bank of Canada............... 5.735% 03/13/96 1,000,068
1,000,000 Radobank Nederland................. 5.780% 04/05/96 1,000,058
2,000,000 Union Bank of Switzerland.......... 5.530% 06/17/96 2,000,068
1,000,000 CIBC Yankee CD..................... 5.595% 10/23/96 1,000,000
-----------
9,999,915
-----------
Total Certificate of Deposit
($9,999,915)....................... 9,999,915
-----------
CERTIFICATE OF DEPOSIT-EURO
DOLLAR--1.1%
1,000,000 ABN Amro Euro...................... 5.630% 05/14/96 1,000,063
-----------
Total Certificate of Deposit Euro-
Dollar ($1,000,063)................ 1,000,063
-----------
COMMERCIAL PAPER--85.4%
AUTOMOTIVE--8.6%
1,000,000 General Motors Acceptance Corp..... 5.750% 01/03/96 999,681
1,400,000 General Motors Acceptance Corp..... 5.750% 01/09/96 1,398,211
1,300,000 Ford Motor Credit Corp............. 5.690% 01/12/96 1,297,740
1,000,000 Ford Motor Credit Corp............. 6.050% 01/12/96 998,151
500,000 General Motors Acceptance Corp..... 5.800% 01/22/96 498,308
1,100,000 General Motors Acceptance Corp..... 5.790% 01/25/96 1,095,754
1,445,000 Ford Motor Credit Corp. ........... 5.600% 03/06/96 1,430,389
-----------
7,718,234
-----------
BANKING--14.4%
1,000,000 UBS Finance Delaware, Inc.......... 5.850% 01/02/96 999,837
1,000,000 Dredsner US Finance................ 5.820% 01/04/96 999,515
600,000 Commerzbank US Finance............. 5.950% 01/08/96 599,306
1,500,000 Commerzbank US Finance............. 5.800% 01/11/96 1,497,583
1,000,000 Commerzbank US Finance............. 5.700% 01/12/96 998,258
1,045,000 Toronto Dominion Holdings.......... 5.690% 01/23/96 1,041,366
1,000,000 Morgan Stanley Securities.......... 5.700% 02/12/96 993,350
1,000,000 Norwest Corp....................... 5.670% 02/23/96 991,652
1,000,000 J.P Morgan Securities.............. 5.580% 03/05/96 990,080
900,000 Commerzbank US Finance............. 5.570% 03/15/96 889,695
1,000,000 ABN Amro North..................... 5.550% 04/29/96 981,654
1,000,000 Dredsner US Finance................ 5.440% 05/16/96 979,449
1,000,000 Morgan Guaranty Trust.............. 6.050% 08/21/96 1,000,000
-----------
12,961,745
-----------
DRUGS--2.2%
1,000,000 American Home Products Corp........ 5.720% 02/02/96 994,916
1,000,000 American Home Products Corp........ 5.720% 02/08/96 993,962
-----------
1,988,878
-----------
</TABLE>
See accompanying notes to financial statements.
82
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
INVESTMENTS--(CONTINUED)
<TABLE>
<CAPTION>
FACE INTEREST MATURITY
VALUE DESCRIPTION RATE DATE VALUE (A)
<C> <S> <C> <C> <C>
FINANCE--26.5%
$1,000,000 Transamerica Finance Group......... 5.700% 01/05/96 $ 999,367
500,000 Transamerica Finance Group......... 5.640% 01/12/96 499,138
1,000,000 General Electric Capital Corp...... 5.600% 01/16/96 997,667
1,000,000 Household Finance.................. 5.720% 01/19/96 997,140
900,000 Avco Financial Services............ 5.700% 01/22/96 897,007
1,230,000 Beneficial Corp.................... 5.620% 01/23/96 1,225,776
1,180,000 Avco Financial Services............ 5.730% 01/25/96 1,175,492
1,000,000 CIT Group Holdings................. 5.700% 01/30/96 995,408
1,415,000 Beneficial Corp.................... 5.620% 02/01/96 1,408,152
1,500,000 Transamerica Finance Group......... 5.570% 02/15/96 1,489,556
Associates Corporation North
1,250,000 America............................ 5.650% 02/16/96 1,240,976
1,000,000 Avco Financial Services............ 5.670% 02/20/96 992,125
Associates Corporation North
1,000,000 America............................ 5.690% 02/28/96 990,833
1,000,000 General Electric Capital Corp...... 5.560% 03/08/96 989,652
1,000,000 American Express................... 5.640% 03/13/96 988,720
1,100,000 Beneficial Corporation............. 5.550% 03/18/96 1,086,942
1,615,000 International Lease Finance........ 5.550% 03/29/96 1,593,090
700,000 American Express................... 5.550% 04/03/96 689,964
975,000 Transamerica Finance Group......... 5.530% 04/04/96 960,922
1,110,000 CIT Group Holdings................. 5.560% 04/12/96 1,092,514
400,000 American Express................... 5.550% 04/26/96 392,847
1,000,000 American Express................... 5.590% 05/06/96 980,435
1,100,000 General Electric Capital Corp...... 5.550% 06/28/96 1,069,645
150,000 American Express................... 5.360% 07/02/96 145,913
-----------
23,899,281
-----------
FOOD & TOBACCO--3.3%
500,000 Philip Morris Companies, Inc....... 5.850% 01/03/96 499,837
1,000,000 Pepsico, Inc....................... 5.280% 09/03/96 963,920
500,000 Coca Cola Co. ..................... 6.050% 01/11/96 499,160
1,000,000 Coca Cola Co. ..................... 6.100% 01/11/96 998,306
-----------
2,961,223
-----------
FORESTRY--0.5%
490,000 Weyerhaeuser NTG................... 5.800% 01/08/96 489,447
-----------
INSURANCE--4.1%
500,000 Prudential Funding Corp............ 5.920% 01/02/96 499,918
780,000 Prudential Funding Corp. .......... 5.750% 01/04/96 779,626
1,225,000 Prudential Funding Corp............ 5.780% 01/08/96 1,223,623
1,160,000 Prudential Funding Corp. .......... 5.790% 01/18/96 1,156,828
-----------
3,659,995
-----------
MANAGEMENT SERVICE--1.1%
1,000,000 PHH Corp........................... 5.740% 01/19/96 997,130
-----------
MULTI-SERVICE--1.1%
1,000,000 Hanson Finance..................... 5.640% 02/23/96 991,697
-----------
</TABLE>
See accompanying notes to financial statements.
83
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
INVESTMENTS--(CONTINUED)
<TABLE>
<CAPTION>
FACE INTEREST MATURITY
VALUE DESCRIPTION RATE DATE VALUE (A)
<C> <S> <C> <C> <C>
POLLUTION CONTROL--3.7%
$1,100,000 WMX Technologies, Inc. ............ 5.700% 02/27/96 $ 1,090,072
1,000,000 WMX Technologies, Inc. ............ 5.500% 06/04/96 976,319
1,270,000 WMX Technologies, Inc. ............ 5.340% 08/16/96 1,227,049
-----------
3,293,440
-----------
RETAIL--4.3%
370,000 Sears Roebuck Acceptance Corp. .... 5.780% 01/17/96 369,050
760,000 Sears Roebuck Acceptance Corp. .... 5.680% 01/18/96 757,962
1,000,000 Sears Roebuck Acceptance Corp. .... 5.770% 01/24/96 996,314
1,785,000 Sears Roebuck Acceptance Corp. .... 5.810% 01/29/96 1,776,934
-----------
3,900,260
-----------
SECURITIES--11.8%
1,180,000 Smith Barney, Inc.................. 5.800% 01/09/96 1,178,479
1,385,000 Merrill Lynch, Inc................. 5.720% 01/10/96 1,383,019
1,030,000 Merrill Lynch, Inc................. 5.720% 01/17/96 1,027,382
520,000 Smith Barney, Inc.................. 5.750% 01/24/96 518,090
1,000,000 Smith Barney, Inc.................. 5.720% 01/26/96 996,028
600,000 Merrill Lynch, Inc................. 5.710% 02/09/96 596,288
1,000,000 Merrill Lynch, Inc................. 5.600% 02/23/96 991,756
1,200,000 Goldman Sachs Group................ 5.550% 03/22/96 1,185,015
2,000,000 Goldman Sachs Group................ 5.600% 04/09/96 1,969,200
800,000 Goldman Sachs Group................ 5.500% 05/07/96 784,478
-----------
10,629,735
-----------
UTILITY--3.8%
3,000,000 Michigan Consolidated Gas.......... 5.680% 02/06/96 2,982,960
485,000 Michigan Consolidated Gas.......... 5.650% 02/07/96 482,184
-----------
3,465,144
-----------
Total Commercial Paper
(Cost $76,956,209)................ 76,956,209
-----------
Total Investments--98.7%
(Cost $88,939,687)(b)............. 88,939,687
Cash and Receivables............... 1,999,602
Liabilities........................ (791,130)
-----------
TOTAL NET ASSETS--100%............. $90,148,159
===========
</TABLE>
(a) See Note 1A.
(b) The aggregate cost for federal income tax purposes was $88,939,687
See accompanying notes to financial statements.
84
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
STATEMENT OF ASSETS & LIABILITIES STATEMENT OF OPERATIONS
DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at value..................................... $88,939,687
Cash..................................................... 5,185
Receivable for:
Fund shares sold......................................... 1,786,132
Accrued interest......................................... 208,285
-----------
90,939,289
LIABILITIES
Payable for:
Fund shares redeemed..................................... $285,178
Dividends declared....................................... 384,224
Accrued expenses:
Management fees.......................................... 56,834
Deferred trustees' fees.................................. 28,188
Other expenses........................................... 36,706
--------
791,130
-----------
$90,148,159
===========
NET ASSETS
Net Assets consist of:
Capital paid in.......................................... $90,148,159
-----------
NET ASSETS................................................ $90,148,159
===========
Computation of offering price:
Net asset value and redemption price per share
($90,148,159 divided by 901,482 shares of beneficial
interest)................................................ $ 100.00
===========
Cost of investments....................................... $88,939,687
===========
</TABLE>
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest................................................. $4,800,248
----------
4,800,248
EXPENSES
Management fees.......................................... $278,007
Trustees' fees and expenses.............................. 25,255
Custodian................................................ 49,932
Audit and tax services................................... 10,400
Legal.................................................... 7,727
Printing................................................. 27,004
Registration............................................. 7
Miscellaneous............................................ 7,353
--------
Total expenses........................................... 405,685
Less expenses assumed by the
investment adviser...................................... (8,532) 397,153
-------- ----------
NET INVESTMENT INCOME..................................... 4,403,095
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS................ $4,403,095
==========
</TABLE>
See accompanying notes to financial statements.
85
<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,
1994 1995
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income........................... $ 2,614,216 $ 4,403,095
------------- -------------
Increase in net assets from operations.......... 2,614,216 4,403,095
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income........................... (2,614,206) (4,403,095)
------------- -------------
(2,614,206) (4,403,095)
------------- -------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares.................... 149,478,320 141,012,985
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income........ 2,445,979 4,331,085
------------- -------------
151,924,299 145,344,070
Cost of shares redeemed......................... (137,007,701) (129,156,304)
------------- -------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS............................. 14,916,598 16,187,766
------------- -------------
TOTAL INCREASE IN NET ASSETS.................... 14,916,598 16,187,766
NET ASSETS
Beginning of the year........................... 59,043,795 73,960,393
------------- -------------
End of the year................................. $ 73,960,393 $ 90,148,159
============= =============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................. 1,494,783 1,410,130
Issued in connection with the reinvestment of:
Distributions from net investment income........ 24,460 43,311
------------- -------------
1,519,243 1,453,441
Redeemed........................................ (1,370,077) (1,291,563)
------------- -------------
Net change...................................... 149,166 161,878
============= =============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of
year............................. $100.00 $100.00 $100.00 $100.00 $100.00
------- ------- ------- ------- -------
Income From Investment Operations
Net investment income............ 6.03 3.73 2.93 3.89 5.50
------- ------- ------- ------- -------
Total from Investment Operations. 6.03 3.73 2.93 3.89 5.50
Distributions from net investment
income.......................... (6.03) (3.73) (2.93) (3.89) (5.50)
------- ------- ------- ------- -------
Total Distribution............... (6.03) (3.73) (2.93) (3.89) (5.50)
------- ------- ------- ------- -------
Net asset value at end of year.... $100.00 $100.00 $100.00 $100.00 $100.00
======= ======= ======= ======= =======
TOTAL RETURN (%).................. 6.20 3.79 2.97 4.01 5.64
Ratio of operating expenses to av-
erage net assets (%)............. 0.38 0.38 0.38 0.40 0.50
Ratio of net investment income to
average net assets (%)........... 6.01 3.71 2.93 3.89 5.50
Net Assets, End of Year (000)..... $58,614 $61,607 $59,044 $73,960 $90,148
The ratios of expenses to average
net assets without giving effect
to the voluntary expense
limitations described in Note 4
to the Financial Statements would
have been (%).................... -- -- -- -- 0.51
</TABLE>
See accompanying notes to financial statements.
86
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1995
1. New England Zenith Fund (the "Fund") is organized as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts pursuant to
an Agreement and Declaration of Trust dated December 16, 1986. The Fund
succeeded to the operations of The New England Zenith Fund, Inc. on February
27, 1987. The Fund is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company.
Shares in the Fund are not offered directly to the general public and,
currently, are available only to separate accounts established by New England
Variable Life Insurance Company ("NEVLICO"), New England Mutual Life Insurance
Company ("The New England") or its subsidiaries as an investment vehicle for
variable life insurance or variable annuity products, although not all Series
may be available to all separate accounts. In the future, however, such shares
may be offered to separate accounts of insurance companies unaffiliated with
NEVLICO or The New England.
The Fund's Agreement and Declaration of Trust permits the issuance of an
unlimited number of shares of beneficial interest, no par value, in separate
Series, with shares of each Series representing interests in a separate
portfolio of assets. Each Series is separately managed and has its own
investment objective and policies. The Fund (or its predecessor) began
offering shares of the Series on the dates set forth below:
<TABLE>
<S> <C>
Bond Income............. August 26, 1983
Capital Growth.......... August 26, 1983
Money Market............ August 26, 1983
Stock Index............. March 30, 1987
Managed................. May 1, 1987
Avanti Growth........... April 30, 1993
Value Growth............ April 30, 1993
</TABLE>
<TABLE>
<S> <C>
Small Cap................ May 1, 1994
Balanced Series.......... October 31, 1994
International Equity Se-
ries.................... October 31, 1994
U.S. Government Series... October 31, 1994
Strategic Bond Opportuni-
ties Series............. October 31, 1994
Venture Value Series..... October 31, 1994
Equity Growth Series..... October 31, 1994
</TABLE>
The following is a summary of significant accounting policies followed by the
Fund in the preparation of the Financial Statements of the Series. The
policies are in conformity with generally accepted accounting principles for
investment companies. The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
A. SECURITY VALUATION
MONEY MARKET SERIES--The Money Market Series employs the amortized cost
method of security valuation which, in the opinion of the Board of
Trustees, represents the fair market value of the particular security. The
Board monitors the deviations between the Series' net asset value per
share, as determined by using available market quotations, and its
amortized cost price per share. If the deviation exceeds 1/2 of 1%, the
board will consider what action, if any, should be initiated to provide
fair valuation of the Series.
BOND INCOME, MANAGED, BALANCED, U.S. GOVERNMENT AND STRATEGIC BOND
OPPORTUNITIES SERIES--Debt securities (other than short-term obligations)
are valued on the basis of valuations furnished by a pricing service,
authorized by the Board of Trustees, which service determines valuations
for normal, institutional-size trading units of such securities using
market information, transactions for comparable securities and various
relationships between securities which are generally recognized by
institutional traders. Short-term notes are stated at amortized cost which
approximates market value.
CAPITAL GROWTH, MANAGED, STOCK INDEX, AVANTI GROWTH, VALUE GROWTH, SMALL
CAP, BALANCED, INTERNATIONAL EQUITY, VENTURE VALUE AND EQUITY GROWTH
SERIES--Equity securities are valued on the basis of market valuations
furnished by a pricing service, authorized by the Board of Trustees. The
pricing service provides the last reported sale price for securities listed
on a national securities exchange or on the NASDAQ National Market System,
or if there is no reported sale during the day, and in the case of over-
the-counter securities not so listed, the last bid price. Securities for
which current market quotations are not readily available are taken at fair
value as determined in good faith by the Board of
87
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1995--(CONTINUED)
Trustees, although the actual calculations may be made by persons acting
pursuant to the direction of the Board. Short-term notes are stated at
amortized cost which approximates market value.
B. FOREIGN CURRENCY TRANSLATION--The books and records of the funds are
maintained in U.S. dollars. The value of securities, currencies and other
assets and liabilities denominated in currencies other than U.S. dollars
are translated into U.S. dollars based upon foreign exchange rates
prevailing at the end of the period. Purchases and sales of investment
securities, income and expenses are translated on the respective dates of
such transactions.
Since the values of investment securities are presented at the foreign
exchange rates prevailing at the end of the period, it is not practical to
isolate that portion of the results of operations arising from changes in
exchange rates from fluctuations arising from changes in market prices of
the investment securities.
Net realized and unrealized gains and losses on foreign currency
transactions represent foreign exchange gains from the sale of short-term
securities and holdings of foreign currencies, foreign currency gains and
losses between trade dates and settlement dates on investment securities
transactions, and the difference between the amounts of daily interest
accruals on the books of the fund and the amounts actually received
resulting from changes in exchange rates on the payable date.
FORWARD FOREIGN CURRENCY CONTRACTS. The Fund may use foreign currency
contracts to facilitate transactions in foreign securities and to manage
the Fund's currency exposure. Contracts to buy generally are used to
acquire exposure to foreign currencies, while contracts to sell are used to
hedge the Fund's investments against currency fluctuations. Also, a
contract to buy or sell can offset a previous contract. These contracts
involve market risk in excess of the unrealized gain or loss reflected in
the Fund's Statement of Assets and Liabilities. The U.S. dollar value of
the currencies the Fund has committed to buy or sell is shown in the
schedule of investments under the caption "Forward Foreign Currency
Contracts." This amount represents the aggregate exposure to each currency
the Fund has acquired or hedged through currency contracts at period end.
Losses may arise from changes in the value of the foreign currency or if
the counterparties do not perform under the contracts terms. The U.S.
dollar value of forward foreign currency contracts is determined using
forward currency exchange rates supplied by a quotation service.
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME--Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Dividend income is recorded on the ex-dividend date and interest
income is recorded on the accrual basis. In determining gain or loss on
securities sold, the cost of securities has been determined on the
identified cost basis.
D. FUTURES CONTRACTS--The Value Growth, Stock Index, Managed, Balanced,
International Equity, U.S. Government, Strategic Bond Opportunities and
Venture Value Series may enter into futures contracts on the S&P 500 Index
or on interest-bearing securities or indices thereof, or on indices of
stock prices to hedge against changes in the values of securities the
Series owns or expects to purchase. Upon entering into a futures contract,
the Series is required to deposit with a broker an amount ("initial
margin") equal to a certain percentage of the purchase price indicated in
the futures contract. Subsequent payments ("variation margin") are made or
received by the Series each day, dependent on the daily fluctuations in the
value of the underlying security, and are recorded for financial reporting
purposes as unrealized gains or losses by the Series. When entering into a
closing transaction, the Series will realize, for book purposes, a gain or
loss equal to the difference between the value of the futures contract to
sell and the futures contract to buy. Futures contracts are valued at the
most recent settlement price, unless such price does not reflect the fair
market value of the contract, in which case the position will be valued by
or under the direction of the Trustees. Certain risks may arise upon
entering into futures contracts from the contingency of imperfect market
conditions. The potential risk to the fund is that the change in value of
futures contracts primarily corresponds with the value of underlying
instruments which may not correspond to the change in the value of the
hedged instruments. In addition, there is a risk that the fund may not be
able to close out its futures positions due to an illiquid secondary
market.
E. REPURCHASE AGREEMENTS--The Series, through their custodian, receive
delivery of the underlying securities collateralizing repurchase
agreements. It is the Series' policy that the market value of the
collateral be at least equal to 100% of the repurchase price. The adviser
is responsible for determining that the value of the collateral is at all
times at least equal to the repurchase price. In connection with
transactions in repurchase agreements, if the seller defaults and the value
of the collateral declines or if the seller enters an insolvency
proceeding, realization of the collateral by the Series may be delayed or
limited.
88
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1995--(CONTINUED)
F. SHORT SALES AGAINST THE BOX--The Equity Growth Series may hedge the
investments against changes in value by engaging in short sales against the
box. In a short sale against the box, the fund sells a borrowed security,
while at the same time either owning an identical security or having the
right to obtain such a security. By selling short against the box the
equity underlying one of its convertible holdings, the fund would seek to
offset the effect that a decline in the underlying equity might have on the
value of the convertible security. While the short sale is outstanding, the
fund will not dispose of the security hedged by the short sale. The fund is
required to establish a margin account with the broker lending the security
sold short. While the short sale is outstanding, the broker retains the
proceeds of the short sale and the fund instructs the custodian to maintain
in a separate account securities having a value at least equal to the
amount of the securities sold short. The Fund had no such transaction
during the year ended.
G. FEDERAL TAXES--Each Series, which is a separate taxable entity, intends to
meet the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute to its shareholders all of its
taxable income and any net realized capital gains at least annually.
Accordingly, no provision for federal income tax has been made.
H. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS--Money Market Series dividends
are declared daily to shareholders of record at the time and are paid
monthly. Dividends and distributions are recorded by all other Series on
the ex-dividend date. Net realized gains from security transactions are
distributed at least annually to shareholders. The timing and
characterization of certain income and capital gains distributions are
determined in accordance with federal tax regulations which may differ from
generally accepted accounting principles. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassification to paid in capital. These differences primarily relate to
tax equalization, investments in mortgage back securities and investments
in foreign securities.
I. OTHER--The Money Market Series invests primarily in a portfolio of money
market instruments maturing in 397 days or less whose ratings are within
the two highest ratings categories by a nationally recognized rating agency
or, if not rated, are believed to be of comparable quality. The weighted
average maturity of the Series is less than ninety days. The ability of the
issuers of the securities held by the Series to meet their obligations may
be affected by foreign economic, political and legal developments in the
case of foreign banks or of foreign branches or subsidiaries of U.S. banks
or domestic economic developments in a specific industry, state or region.
2. At December 31, 1995, The New England owned an aggregate of 11 shares of
the fourteen Series and held 12,567,940 shares in separate investment accounts
for annuity contracts offered by The New England. NEVLICO, a life insurance
subsidiary of The New England, held the remaining 5,382,165 shares then
outstanding in separate investment accounts for life insurance and annuity
contracts offered by NEVLICO.
As long as The New England owns (directly or through NEVLICO) more than 25% of
the Fund's outstanding shares, it will be presumed to be in control (as that
term is defined by the Investment Company Act of 1940, as amended) of the
Fund.
3. For the period ended December 31, 1995, purchases and sales of securities
(excluding short-term investments) for each of the Series were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------------------------ ------------------------------
SERIES OTHER U.S. GOVERNMENT OTHER U.S. GOVERNMENT
------ -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Bond Income............. $ 94,309,538 $18,399,214 $ 86,754,106 $ 6,825,139
Capital Growth.......... 1,948,934,590 -- 1,953,524,593 --
Stock Index............. 10,053,729 -- 2,412,819 --
Managed................. 60,871,228 7,288,867 54,355,580 18,598,516
Avanti Growth........... 35,078,791 -- 20,289,545 --
Value Growth............ 44,182,753 -- 30,305,881 --
Small Cap............... 28,278,054 -- 11,596,456 --
Balanced................ 16,060,167 3,485,704 3,652,680 2,550,154
International Equity.... 20,003,237 -- 7,565,727 --
U.S. Government......... -- 18,429,008 -- 12,951,464
Strategic Bond
Opportunities.......... 9,387,057 4,710,948 5,441,051 4,045,648
Venture Value........... 27,240,060 -- 3,308,605 --
Equity Growth........... 55,032,452 -- 21,154,236 --
</TABLE>
89
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1995--(CONTINUED)
Purchases and sales of corporate short-term obligations for the Money Market
Series aggregated $569,077,546 and $557,178,427, respectively.
Transactions in index futures contracts for the Managed Series for the year
ended December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
PURCHASES OF FUTURES
CONTRACTS
----------------------
AGGREGATE
NUMBER OF FACE VALUE
CONTRACTS OF CONTRACTS
--------- ------------
<S> <C> <C>
Contracts opened........................................ 20 $ 5,329,000
Contracts closed........................................ (20) (5,329,000)
--- -----------
Open at December 31, 1995............................... 0 $ 0
=== ===========
</TABLE>
4. During the four months ended April 30, 1995, the Fund incurred management
fees payable to the Fund's investment advisers for that period, Back Bay
Advisors, L.P., Capital Growth Management Limited Partnership, Loomis Sayles &
Company, L.P. and Westpeak Investment Advisors, L.P., certain officers and
directors of which are also officers and Trustees of the Fund. Back Bay
Advisors, L.P. and Westpeak Investment Advisors, L.P. are wholly owned
subsidiaries, Loomis Sayles & Company, L.P. is a majority-owned subsidiary and
Capital Growth Management Limited Partnership is a partially owned subsidiary
of New England Investment Companies, L.P., which is a subsidiary of The New
England. Effective May 1, 1995, TNE Advisers, Inc. became the adviser for all
series except Capital Growth with the aforementioned advisers being retained
as the sub-adviser for the respective series. Separate management agreements
for each Series provide for fees as set forth below:
<TABLE>
<CAPTION>
MANAGEMENT
FEES
ANNUAL AVERAGE
FEES SUBADVISER/ PERCENTAGE NET ASSET
SERIES EARNED(A) ADVISER RATE VALUE LEVELS
------ --------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Money Market............ $ 167,334 Back Bay Advisors, L.P./ 0.35% the first $500 million
110,673 TNE Advisers, Inc. 0.30% the next $500 million
0.25% amount in excess of $1 billion
Bond Income............. 389,490 Back Bay Advisors, L.P./ 0.40% the first $400 million
182,789 TNE Advisers, Inc. 0.35% the next $300 million
0.30% the next $300 million
0.25% amounts in excess of $1 billion
Capital Growth.......... 5,232,562 Capital Growth Management 0.70% the first $200 million
Limited Partnership 0.65% the next $300 million
0.60% amounts in excess of $500 million
Stock Index............. 69,084 Westpeak Investment 0.25% All net assets
Advisors, L.P./
53,275 TNE Advisers, Inc.
Managed................. 411,768 Back Bay Advisors, L.P./ 0.50% All net assets
263,970 TNE Advisers, Inc.
Avanti Growth........... 193,740 Loomis Sayles & Company, 0.70% the first $200 million
L.P./ 0.65% the next $300 million
67,146 TNE Advisers, Inc. 0.60% amounts in excess of $500 million
Value Growth............ 181,131 Westpeak Investment 0.70% the first $200 million
Advisors, L.P./ 0.65% the next $300 million
61,497 TNE Advisers, Inc. 0.60% amounts in excess of $500 million
Small Cap............... 88,206 Loomis Sayles & Company, 1.00% All net assets
L.P./
58,898 TNE Advisers, Inc.
</TABLE>
90
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1995--(CONTINUED)
a. Before reduction due to voluntary expense limitation, see below.
- - Pursuant to a voluntary expense agreement, effective from November 1, 1994
to May 1, 1995, relating to the Capital Growth, Back Bay Advisors Money
Market, Back Bay Advisors Bond Income, Back Bay Advisors Managed and the
Westpeak Stock Index Series and, beginning December 1, 1994, relating to the
Loomis Sayles Small Cap, Loomis Sayles Avanti Growth and the Westpeak Value
Growth Series, The New England agreed to bear the expenses (other than the
advisory fees and any brokerage costs, interest, taxes or extraordinary
expenses) of the Series (except the Loomis Sayles Small Cap Series) in excess
of 0.15% of the respective Series' average daily net assets. In the case of
the Loomis Sayles Small Cap Series, The New England agreed to bear such
expenses of the Series in excess of 1.00% of the Series' average daily net
assets. Beginning May 1, 1995, TNE Advisers voluntarily agreed to bear any
such excess expenses for all of the Series.
- - As a result of the Series expenses exceeding the voluntary expense
limitations for the period ending December 31, 1995, The New England and TNE
Advisers assumed expenses of the Series as follows:
<TABLE>
<CAPTION>
EXPENSE WAIVER
DECEMBER 31, 1995
-----------------
<S> <C>
Stock Index............................................ $ 68,581
Avanti Growth.......................................... 77,529
Value Growth........................................... 73,738
Small Cap.............................................. 135,845
Money Market........................................... 8,357
</TABLE>
Prior to November 1, 1994, pursuant to an Expense Agreement between The New
England and the Fund, The New England had agreed to pay the charges and
expenses of preparing, printing and distributing prospectuses and reports to
shareholders, custodial and transfer agent charges and expenses, auditing,
accounting and legal fees and expenses in connection with affairs of the Fund
(except for fees of the independent trustees' outside counsel) and the
expenses of shareholders' and trustees' meetings. In addition, The New England
also paid registration, filing and other fees arising prior to the date the
Fund commenced operations and relating to registration and qualification of
each Series' shares.
TNE Advisers, Inc. is the investment adviser of the Loomis Sayles Balanced
Series, the Draycott International Equity Series, the Salomon Brothers U.S.
Government Series, the Salomon Brothers Strategic Bond Opportunities Series,
the Venture Value Series and the Alger Equity Growth Series and has entered
into subadvisory agreements for these Series with Loomis Sayles, Draycott,
Salomon Brothers Asset Management Inc., Davis Selected Advisers, L.P., and
Fred Alger Management, Inc., respectively.
TNE Advisers, Inc. is paid a management fee from the Series it manages as
shown below. Pursuant to an expense deferral arrangement in effect beginning
November 1, 1994, which TNE Advisers may terminate at any time, TNE Advisers
has agreed to pay operating expenses of the Series in excess of expense limits
stated below subject to the obligation of the Series to repay TNE Advisers
such expenses in future years, if any, when a Series' expenses fall below the
stated expense limit that pertains to that Series; such deferred expenses may
be charged to a Series in a subsequent year to the extent that the charge does
not cause the total expenses in such subsequent year to exceed the Series'
expense limit; provided, however, that no Series is obligated to repay any
expense paid by TNE Advisers more than two years after the end of the fiscal
year in which such expense was incurred.
91
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1995--(CONTINUED)
<TABLE>
<CAPTION>
EXPENSE EXPENSE
MANAGEMENT MANAGEMENT LIMITATION DEFERRAL EXPENSE DEFERRAL
FEES EARNED FEES ANNUAL ANNUAL DECEMBER 31, 1995 DECEMBER 31, 1994
BY TNE PERCENTAGE PERCENTAGE (EXPIRES (EXPIRES
SERIES ADVISERS(A) RATE RATE DECEMBER 31, 1997) DECEMBER 31, 1996)
------ ----------- ----------- ---------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Balanced................ $65,752 0.70% 0.85% $96,085 $ 8,151
International Equity.... 85,666 0.90 1.30 176,796 11,312
U.S. Government......... 20,446 0.55 0.70 84,623 6,163
Strategic Bond
Opportunities.......... 35,085 0.65 0.85 88,120 6,799
Venture Value........... 131,989 0.75 0.90 108,971 9,339
Equity Growth........... 144,943 0.70 0.85 77,254 6,007
</TABLE>
- -------
(a) Before reduction due to voluntary expense deferral.
TNE Advisers, Inc. pays each subadviser at the following rates for providing
advisory services to the Series:
<TABLE>
<CAPTION>
ANNUAL
FEES PERCENTAGE
SUBADVISER SERIES EARNED RATE AVERAGE NET ASSET VALUE LEVELS
---------- ------ ------ ---------- ------------------------------
<S> <C> <C> <C> <C>
Loomis Sayles Balanced $46,966 0.500% the first $25 million
0.400% the next $75 million
0.300% amounts in excess of $100 million
Draycott International Equity $69,461 0.750% the first $10 million
0.600% the next $40 million
0.450% amounts in excess of $50 million
Salomon Brothers U.S. Government $ 8,364 0.225% the first $200 million
0.150% the next $300 million
0.100% amounts in excess of $500 million
Salomon Brothers Strategic Bond Opportunities $18,892 0.350% the first $50 million
0.300% the next $150 million
0.250% the next $300 million
0.200% amounts in excess of $500 million
Davis Selected Venture Value $79,181 0.450% the first $100 million
0.400% the next $400 million
0.350% amounts in excess of $500 million
Alger Equity Growth $87,139 0.450% the first $10 million
0.400% the next $90 million
0.350% the next $150 million
0.300% the next $250 million
0.250% amounts in excess of $500 million
</TABLE>
5. The Fund does not pay any compensation to its officers or to any trustees
who are directors, officers or employees of The New England, NEVLICO, Back Bay
Advisors, L.P., Capital Growth Management Limited Partnership, Loomis Sayles &
Company, L.P., Westpeak Investment Advisors, L.P., New England Funds L.P. or
their affiliates, other than registered investment companies. Each
disinterested trustee is compensated by each Series as follows:
<TABLE>
<CAPTION>
BOND CAPITAL MONEY STOCK AVANTI VALUE SMALL
INCOME GROWTH MARKET INDEX MANAGED GROWTH GROWTH CAP
------ ------- ------ ----- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Retainer......... $2,609 $2,609 $1,739 $870 $2,609 $870 $870 $870
Meeting Fee............. $ 133 $ 133 $ 133 $133 $ 133 $133 $133 $133
Committee Chairman
Annual Retainer
(Contract Review)...... $ 200 $ 200 $ 200 $200 $ 200 $200 $200 $200
Committee Chairman
Annual Retainer
(Audit)................ $ 133 $ 133 $ 133 $133 $ 133 $133 $133 $133
</TABLE>
92
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1995--(CONTINUED)
<TABLE>
<CAPTION>
STRATEGIC
INTERNATIONAL U.S. BOND VENTURE EQUITY
BALANCED EQUITY GOVERNMENT OPPORTUNITIES VALUE GROWTH
-------- ------------- ---------- ------------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Annual Retainer......... $870 $870 $870 $870 $870 $870
Meeting Fee............. $133 $133 $133 $133 $133 $133
Committee Chairman
Annual Retainer
(Contract Review)...... $200 $200 $200 $200 $200 $200
Committee Chairman
Annual Retainer
(Audit)................ $133 $133 $133 $133 $133 $133
</TABLE>
In addition to the fees detailed above each of the independent Trustees
received a $5,000 "one time" stipend for their efforts in the restructuring of
the Board.
A deferred compensation plan is available to trustees on a voluntary basis.
Each participating trustee will receive deferred compensation in an amount
equal to the value that such compensation would have had if it had been
invested in the relevant Series on the normal payment date.
6. Shareholder Meeting (unaudited)
At a special shareholders' meeting of the New England Zenith Fund held on
April 10, 1995 shareholders of each Series voted for the following proposals:
1.To fix the number of and elect Trustees:
<TABLE>
<CAPTION>
VOTED VOTED ABSTAINED TOTAL
FOR AGAINST VOTES VOTES
------------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
Anne M. Goggin........... 8,318,478.710 162,922.290 8,481,401.000
Nancy Hawthorne.......... 8,317,317.980 164,083.020 8,481,401.000
Joseph M. Hinchey........ 8,320,448.490 160,952.510 8,481,401.000
Richard S. Humphrey,
Jr. .................... 8,306,832.710 174,568.290 8,481,401.000
Robert B. Kittredge...... 8,295,605.600 185,795.400 8,481,401.000
Laurens MacLure.......... 8,298,617.180 182,783.820 8,481,401.000
Dale Rogers Marshall..... 8,317,669.890 163,731.110 8,481,401.000
Joseph F. Turley......... 8,306,762.990 174,638.010 8,481,401.000
Frederick K. Zimmermann.. 8,318,916.500 162,484.500 8,481,401.000
====================================
With respect to the Money
Market Series only:
2. To approve a new
Advisory Agreement
with TNE Advisers;
and.................. 686,974.780 36,750.910 15,211.320 738,937.010
====================================
3. To approve a related
Sub-Advisory
Agreement between TNE
Advisers and Back Bay
Advisors............. 699,471.910 24,251.410 15,213.680 738,937.000
====================================
With respect to the Bond
Income Series only:
4. To approve a new
Advisory Agreement
with TNE Advisers;
and.................. 1,264,059.800 23,078.080 34,815.120 1,321,953.000
====================================
5. To approve a related
Sub-Advisory
Agreement between TNE
Advisers and Back Bay
Advisors............. 1,262,180.600 24,809.760 34,962.650 1,321,953.010
====================================
With respect to the
Managed Series only:
6. To approve a new
Advisory Agreement
with TNE Advisers;
and.................. 887,882.730 12,900.720 23,537.550 924,321.000
====================================
7. To approve a related
Sub-Advisory
Agreement between TNE
Advisers and Back Bay
Advisors............. 879,289.610 20,428.560 24,602.840 924,321.010
====================================
With respect to the
Avanti Growth Series
only:
8. To approve a new
Advisory Agreement
with TNE Advisers;
and.................. 223,300.970 4,143.640 6,415.390 233,860.000
====================================
9. To approve a related
Sub-Advisory
Agreement between TNE
Advisers and Loomis
Sayles............... 222,584.210 4,220.520 7,055.280 233,860.010
====================================
With respect to the Small
Cap Series only:
10. To approve a new
Advisory Agreement
with TNE Advisers;
and.................. 55,887.570 1,688.610 404.820 57,981.000
====================================
11. To approve a related
Sub-Advisory
Agreement between TNE
Advisers and Loomis
Sayles............... 55,867.920 1,688.610 424.460 57,980.990
====================================
</TABLE>
93
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1995--(CONTINUED)
<TABLE>
<CAPTION>
VOTED VOTED ABSTAINED TOTAL
FOR AGAINST VOTES VOTES
----------- --------- ---------- -----------
<S> <C> <C> <C> <C>
With respect to the Value
Growth Series only:
12. To approve a new Advisory
Agreement with TNE
Advisers; and.............. 215,451.990 2,343.680 5,683.330 223,479.000
================================
13. To approve a related Sub-
Advisory Agreement between
TNE Advisers and Westpeak.. 215,149.750 2,500.290 5,828.950 223,478.990
================================
With respect to the Stock Index
Series only:
14. To approve a new Advisory
Agreement with TNE
Advisers; and.............. 482,379.070 8,201.040 11,538.880 502,118.990
================================
15. To approve a related Sub-
Advisory Agreement between
TNE Advisers and Westpeak.. 481,151.770 8,931.960 12,035.270 502,119.000
================================
</TABLE>
At a special shareholders' meeting of the New England Zenith Fund held on
December 28, 1995 shareholders of each Series voted for the following
proposals:
<TABLE>
<S> <C> <C> <C> <C>
1. To approve new
investment advisory
arrangements to be
effective upon the
merger of New
England Mutual Life
Insurance Company
into Metropolitan
Life Insurance
Company, such
arrangements to be
substantially
identical to the
investment advisory
arrangements for the
Series in effect
immediately prior to
such merger.........
<CAPTION>
SERIES
------
<S> <C> <C> <C> <C>
Bond Income............. 1,274,972.493 32,294.664 60,919.253 1,368,186.410
Capital Growth.......... 1,986,307.362 50,506.857 77,297.358 2,114,111.577
Stock Index............. 540,052.225 11,691.922 19,072.809 570,816.956
Money Market............ 788,545.319 43,320.234 38,096.673 869,962.226
Managed................. 831,901.435 11,697.036 29,745.435 873,343.906
Avanti Growth........... 287,934.212 4,669.516 14,668.919 307,272.647
Value Growth............ 288,267.977 3,174.085 10,252.891 301,694.953
Small Cap............... 180,449.675 2,261.222 4,215.528 186,926.425
Balanced................ 1,225,992.533 14,192.604 53,351.529 1,293,536.666
International Equity.... 1,221,859.512 17,625.779 38,712.452 1,278,197.743
U.S. Government......... 514,616.294 11,808.815 22,863.093 549,288.202
Strategic Bond
Opportunities.......... 622,689.667 11,483.159 22,044.017 656,216.843
Venture Value........... 2,024,999.920 28,772.401 67,930.188 2,121,702.509
Equity Growth........... 2,387,211.645 30,962.208 146,194.756 2,564,368.609
=====================================
With respect to the
International Equity
Series only:
2. To approve a new
Sub-Advisory
Agreement for the
Series between TNE
Advisers, Inc. ("TNE
Advisers"), the
Series' current
investment adviser,
and Draycott
Partners, Ltd.
("Draycott"), the
Series' current sub-
adviser, to be
effective upon the
sale of Draycott to
Cursitor Holdings
Ltd. U.K. ("Cursitor
Holdings"); and..... 1,203,510.020 18,030.440 56,657.283 1,278,197.743
=====================================
3. To approve a new
Sub-Advisory
Agreement for the
Series between TNE
Advisers and
Draycott, to be
effective upon the
acquisition of the
business of Cursitor
Holdings by Alliance
Capital Management
L.P. ............... 1,195,720.060 18,030.440 64,447.243 1,278,197.743
=====================================
With respect to the
Equity Growth Series
only:
4. To approve a new
Advisory Agreement
between the Series
and TNE Advisers,
the Series' current
investment adviser,
which would increase
the annual rate of
the advisory fee
payable by the
Series; and......... 2,284,911.674 179,064.985 100,391.951 2,564,368.610
=====================================
5. To approve a related
Sub-Advisory
Agreement between
TNE Advisers and
Fred Alger
Management, Inc.,
the Series' current
sub-adviser......... 2,337,631.370 91,720.864 135,016.376 2,564,368.610
=====================================
</TABLE>
94
<PAGE>
NEW ENGLAND ZENITH FUND
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of New England Zenith Fund:
We have audited the accompanying statements of assets and liabilities of New
England Zenith Fund (comprising, respectively, the Back Bay Advisors Bond
Income Series, Capital Growth Series, Back Bay Advisors Money Market Series,
Westpeak Stock Index Series, Back Bay Advisors Managed Series, Loomis Sayles
Avanti Growth Series, Westpeak Value Growth Series, Loomis Sayles Small Cap
Series, Loomis Sayles Balanced Series, Draycott International Equity Series,
Salomon Brothers U.S. Government Series, Salomon Brothers Strategic Bond
Opportunities Series, Venture Value Series, and Alger Equity Growth Series--
the "Series"), including the schedules of portfolio investments, as of
December 31, 1995, and the related statements of operations, changes in net
assets and financial highlights for the periods indicated herein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Series constituting New England Zenith Fund as of December
31, 1995, the results of their operations, the changes in their net assets,
and the financial highlights for the periods indicated herein, in conformity
with generally accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
February 7, 1996
95
