<PAGE>
[LOGO OF THE NEW ENGLAND INSURANCE AND INVESTMENT APPEARS HERE]
-------------------------------------------------------------------------
ZENITH FUND
VARIABLE PRODUCTS
ANNUAL REPORTS
DECEMBER 31, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Draycott International Equity Series Supplement . . . . . . . . . . . . I
Davis Venture Value Series Supplement . . . . . . . . . . . . . . . . . II
Loomis Sayles Small Cap Series . . . . . . . . . . . . . . . . . . . . 1
Draycott International Equity Series . . . . . . . . . . . . . . . . . 7
Alger Equity Growth Series . . . . . . . . . . . . . . . . . . . . . . 13
Capital Growth Series . . . . . . . . . . . . . . . . . . . . . . . . . 19
Loomis Sayles Avanti Growth Series . . . . . . . . . . . . . . . . . . 23
Davis Venture Value Series . . . . . . . . . . . . . . . . . . . . . . 29
Westpeak Growth and Income Series . . . . . . . . . . . . . . . . . . . 35
Westpeak Stock Index Series . . . . . . . . . . . . . . . . . . . . . . 42
Loomis Sayles Balanced Series . . . . . . . . . . . . . . . . . . . . . 52
Back Bay Advisors Managed Series . . . . . . . . . . . . . . . . . . . 59
Salomon Brothers Strategic Bond Opportunities Series . . . . . . . . . 67
Back Bay Advisors Bond Income Series . . . . . . . . . . . . . . . . . 75
Salomon Brothers U.S. Government Series . . . . . . . . . . . . . . . . 81
Back Bay Advisors Money Market Series . . . . . . . . . . . . . . . . . 85
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . 91
Footnotes to Portfolio Manager Commentary . . . . . . . . . . . . . . . 100
</TABLE>
IMPORTANT:
Some funds appearing in this report may not be available under your variable
life or variable annuity product.
<PAGE>
February, 1997
TO ZENITH VARIABLE PRODUCT POLICYHOLDERS/CONTRACT OWNERS:
I am pleased to provide you with the 1996 Annual Report for the Zenith Fund
variable life insurance and variable annuity products.* This report includes
performance histories, present investments, and financial reports as of December
31, 1996, as well as the outlook and strategy of each fund. It is intended to
help you make an informed decision regarding the investment of the cash value of
your variable product.
The 1996 Annual Report also contains important information pertaining to several
funds that may be available under your variable life or variable annuity
product. An explanation of the changes affecting these funds can be found on the
next few pages.
The New England and its affiliates offer many variable life and variable annuity
products to help you meet your financial objectives. We are committed to meeting
your expectations by providing quality products with strong performance
potential and excellent personal service.
Please feel free to contact your Registered Representative with any questions
you may have regarding your financial objectives. Thank you for choosing a
Zenith variable product.
Sincerely,
[DAVID ALLEN SIGNATURE] [BRUCE LONG SIGNATURE]
David Allen Bruce Long
Senior Vice President President
New England Life New England Annuities
* Variable products are offered through New England Securities
[RECYCLE LOGO]
<PAGE>
LOOMIS SAYLES SMALL CAP SERIES
PORTFOLIO MANAGERS: JEFFREY PETHERICK, MARY CHAMPAGNE
LOOMIS, SAYLES & COMPANY, L.P.
[PHOTOS OF JEFFREY PETHERICK & MARY CHAMPAGNE]
Q. HOW DID THE LOOMIS SAYLES SMALL CAP SERIES PERFORM IN 1996?
A. For the fiscal year ended December 31, 1996 the total return for the Series
was 30.67%. This compares favorably to the Russell 2000 Index/18/ return of
16.50% over the same period. The Series also outperformed the Lipper Variable
Small Company Fund Average which returned 19.85% over the same period.
Q. HOW DID YOU MANAGE THE LOOMIS SAYLES SMALL CAP SERIES IN 1996?
A. As always, we concentrated on locating undervalued, growing companies that
dominate, or are becoming dominant, in a specific market subsegment. Earlier in
1996, we increased our weighting in consumer cyclicals--retail stores,
restaurants and other services--with great success. Healthy consumer spending
throughout the year boosted many stocks, including Ann Taylor, an upscale
women's clothier, and Cole National, a specialty eyewear and giftware retailer.
We adopted a more defensive portfolio strategy in the second half of the year,
moving away from economically sensitive companies and toward companies with
strong value characteristics. That explains our increased exposure to Real
Estate Investment Trusts (REITs) and a more aggressive move into food stocks.
Q. WOULD YOU GIVE US MORE EXAMPLES?
A. Virtually every sector showed positive returns. The capital goods sector was
the exception; mixed stock selection held back portfolio performance in that
sector. Strong individual performers were Lance, Inc., a snack food
manufacturer; Public Service Company of North Carolina; Patriot American, a REIT
that owns valuable hotel property; and Alliant Telecommunications, a
Nebraska-based telephone company.
Q. WHAT IS YOUR INVESTMENT OUTLOOK FOR THE MONTHS AHEAD?
A. We expect that the economy will continue to slow in 1997 and that corporate
earnings will suffer as a result. In light of that assumption, we will move away
from sectors that are more economically sensitive, like capital goods and raw
materials. We'll look to sectors with favorable valuations, like health care,
where fundamentals are sound and earnings prospects are excellent.
[A CHART APPEARS HERE COMPARING THE GROWTH OF A
$10,000 INVESTMENT COMPARED TO AN INDEX]
<TABLE>
<CAPTION>
Small Cap Russell
Series 2000
<S> <C> <C>
Inception
5/1/94 10000 10000
12/31/94 9676 10027
12/31/95 12470 12879
12/31/96 16295 15004
</TABLE>
FUND FACTS
GOAL: Long-term capital growth from investments in common stocks or their
equivalent.
START DATE: May 1, 1994
SIZE: $89 million as of December 31, 1996
MANAGERS: Jeffrey Petherick and Mary Champagne. Mr. Petherick has managed the
Series since its inception in May 1994. Ms. Champagne joined the management of
the Fund in July 1995. Mr. Petherick has also managed the Loomis Sayles portion
of the New England Star Advisers Fund since July 1, 1994. Ms. Champagne has
co-managed the Loomis Sayles portion of the New England Star Advisers Fund
since July 1995. They also manage the Loomis Sayles Small Cap Value Fund and
the Maxim Series--Small Cap Fund. Mr. Petherick joined Loomis Sales in 1990.
Ms. Champagne joined Loomis Sayles in 1993.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life insurance
contracts. If these charges were included, the returns shown would be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
1
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--87.9% OF TOTAL NET ASSETS
SHARES VALUE (A)
<C> <S> <C>
AEROSPACE--0.2%
17,100 Kaman Corp. . . . . . . . . . . . . . $ 222,300
----------
AUTOMOBILE & RELATED--1.6%
9,200 Amcast Industrial Corp. . . . . . . . 227,700
11,100 Borg Warner Automotive, Inc. . . . . 427,350
24,900 Echlin, Inc. . . . . . . . . . . . . 787,463
----------
1,442,513
----------
BANKS--SAVINGS & LOAN--3.4%
28,700 Bank Utd. Corp. . . . . . . . . . . . 767,725
1,525 Charter One Financial, Inc. . . . . . 64,050
12,050 Commercial Federal Corp. . . . . . . 578,400
28,500 First Financial Corp. . . . . . . . . 698,250
32,500 Magna Group, Inc. . . . . . . . . . . 958,750
----------
3,067,175
----------
BUSINESS SERVICES--2.0%
12,800 CDI Corp.(c) . . . . . . . . . . . . 363,200
36,900 Cort Business Services Corp.(c) . . . 761,063
20,900 Prime Service, Inc.(c) . . . . . . . 574,750
8,300 Team America Corp.(c) . . . . . . . . 94,413
----------
1,793,426
----------
CHEMICALS--SPECIALTY--4.7%
9,850 Cambrex Corp. . . . . . . . . . . . . 322,588
36,900 Dexter Corp. . . . . . . . . . . . . 1,176,187
56,600 Hexcel Corp.(c) . . . . . . . . . . . 919,750
27,200 Intertape Polymer Group, Inc. . . . 625,600
64,300 Lawter International, Inc. . . . . . 811,787
13,600 Learonal, Inc. . . . . . . . . . . . 312,800
----------
4,168,712
----------
COMPUTER SOFTWARE & SERVICES--3.5%
21,600 Award Software International,
Inc.(c) . . . . . . . . . . . . . . 210,600
21,000 Boole & Babbage, Inc. . . . . . . . . 525,000
22,000 ESS Technology, Inc.(c) . . . . . . . 618,750
31,000 National Computer Systems, Inc. . . . 790,500
18,600 Nichols Research Corp. . . . . . . . 474,300
33,500 Symantec Corp.(c) . . . . . . . . . . 485,750
----------
3,104,900
----------
ELECTRICAL EQUIPMENT--1.2%
19,400 Belden, Inc. . . . . . . . . . . . . 717,800
26,200 Woodhead Industries . . . . . . . . . 360,250
----------
1,078,050
----------
ELECTRONIC COMPONENTS--2.9%
30,000 Amphenol Corp.(c) . . . . . . . . . . 667,500
22,000 Burr Brown Corp.(c) . . . . . . . . . 572,000
6,200 Etec Systems, Inc.(c) . . . . . . . . 237,150
30,000 Merix Corp.(c) . . . . . . . . . . . 457,500
22,000 Unitrode Corp.(c) . . . . . . . . . . 646,250
----------
2,580,400
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
ENVIRONMENTAL SERVICES--0.8%
32,100 World Fuel Services Corp. . . . . . $ 714,225
----------
FINANCIAL SERVICES--2.1%
40,000 DVI, Inc.(c) . . . . . . . . . . . . 520,000
34,500 Financial Federal Corp. . . . . . . 577,875
17,720 Imperial Credit Industries,
Inc.(c) . . . . . . . . . . . . . . 372,120
20,580 WFS Financial, Inc.(c) . . . . . . . 409,028
----------
1,879,023
----------
FOOD PACKAGING & MISCELLANEOUS--2.1%
28,800 Flowers Industries, Inc. . . . . . . 619,200
42,700 Lance, Inc. . . . . . . . . . . . . 768,600
37,200 Michaels Foods . . . . . . . . . . . 474,300
----------
1,862,100
----------
FREIGHT TRANSPORTATION--3.3%
37,500 Harper Group, Inc. . . . . . . . . . 890,625
39,400 Pittston Co. . . . . . . . . . . . . 788,000
46,000 US Freightways Corp. . . . . . . . . 1,262,125
----------
2,940,750
----------
HEALTH CARE--DRUGS--1.1%
49,300 Bindley Western Industries, Inc. . . 955,188
----------
HEALTH CARE--MEDICAL TECHNOLOGY--2.5%
36,800 Conmed Corp.(c) . . . . . . . . . . 754,400
21,700 Protocol Systems, Inc.(c) . . . . . 282,100
39,000 Sofamor/Danek Group, Inc.(c) . . . . 1,189,500
----------
2,226,000
----------
HEALTH CARE--SERVICES--5.3%
56,245 Grancare, Inc.(c) . . . . . . . . . 1,005,379
40,800 Health Images, Inc. . . . . . . . . 678,300
35,800 Healthplan Services Corp.(c) . . . . 756,275
36,900 Integrated Health Services, Inc. . . 899,437
33,000 Regency Health Services(c) . . . . . 317,625
51,500 Rotech Medical Corp.(c) . . . . . . 1,081,500
----------
4,738,516
----------
HOME PRODUCTS--3.2%
10,000 Aptargroup, Inc. . . . . . . . . . . 352,500
14,000 Bush Boake Allen, Inc.(c) . . . . . 372,750
14,800 Department 56, Inc.(c) . . . . . . . 366,300
37,800 Premark International, Inc. . . . . 841,050
53,650 US Can Corp.(c) . . . . . . . . . . 905,344
----------
2,837,944
----------
HOTELS & RESTAURANTS--0.8%
19,500 Cooker Restaurant Corp. . . . . . . 226,688
24,800 WMS Industries, Inc.(c) . . . . . . 496,000
----------
722,688
----------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--(CONTINUED)
SHARES VALUE (A)
<C> <S> <C>
HOUSING & BUILDING MATERIALS--3.5%
31,300 Congoleum Corp.(c) . . . . . . . . $ 434,287
12,700 Crossman Communities, Inc.(c) . . . 215,900
26,700 Dayton Superior Corp.(c) . . . . . 350,437
56,400 Giant Cement Holdings, Inc.(c) . . 909,450
34,000 Toro Co. . . . . . . . . . . . . . 1,241,000
----------
3,151,074
----------
INSURANCE--7.1%
34,050 Allied Group, Inc. . . . . . . . . 1,110,881
20,400 Capital Resource Corp. . . . . . . 951,150
15,500 Capmac Holdings, Inc. . . . . . . . 513,438
21,400 Dignity Partners, Inc.(c) . . . . . 56,175
31,100 Everest Reinsurance Holdings . . . 894,125
20,900 Meadrowbrook Insurance Group(c) . . 438,900
25,100 Protective Life Corp. . . . . . . . 1,000,862
18,000 Reinsurance Group of America,
Inc. . . . . . . . . . . . . . . . 848,250
17,925 Triad Guaranty, Inc.(c) . . . . . . 515,344
----------
6,329,125
----------
LEISURE--1.6%
7,795 Harman International . . . . . . . 433,597
37,500 Scientific Games Holdings
Corp.(c) . . . . . . . . . . . . . 1,003,125
----------
1,436,722
----------
MACHINERY--2.5%
33,200 Brown & Sharpe Manufacturing
Co.(c) . . . . . . . . . . . . . . 464,800
18,500 BW/IP, Inc. . . . . . . . . . . . . 305,250
20,800 Greenfield Industries Inc. . . . . 637,000
6,700 Hardinge Bros., Inc. . . . . . . . 178,387
34,000 Keystone International, Inc. . . . 684,250
----------
2,269,687
----------
MEDIA & ENTERTAINMENT--2.7%
33,800 Banta Corp. . . . . . . . . . . . . 773,175
33,200 Cadmus Communications Corp. . . . . 514,600
20,400 Houghton Mifflin Co. . . . . . . . 1,155,150
----------
2,442,925
----------
METALS--3.5%
38,400 Citation Corp.(c) . . . . . . . . . 393,600
16,900 Clevland Cliffs, Inc. . . . . . . . 766,837
28,700 Lone Star Technologies, Inc.(c) . . 487,900
51,100 Oregon Steel Mills, Inc. . . . . . 855,925
9,300 RMI Titanium Co.(c) . . . . . . . . 261,563
59,600 UNR Industries Inc. . . . . . . . . 357,600
----------
3,123,425
----------
MULTI-INDUSTRY--2.7%
84,000 Griffon Corp.(c) . . . . . . . . . 1,029,000
10,500 Insilco Corp.(c) . . . . . . . . . 404,250
56,600 Viad Corp. . . . . . . . . . . . . 933,900
----------
2,367,150
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
NATURAL GAS PIPELINES--0.3%
14,000 Public Service Co. of North Carolina . $ 255,500
----------
OIL--INDEPENDENT PRODUCERS--2.5% . . .
42,800 American Exploration Co.(c) . . . . . 684,800
21,200 Belden & Blake Corp.(c) . . . . . . . 540,600
34,500 Lomak Petroleum, Inc.(c) . . . . . . . 590,812
12,300 Vintage Petroleum, Inc.(c) . . . . . . 424,350
----------
2,240,562
----------
OIL--SERVICES--4.2%
38,100 Global Industries, Inc.(c) . . . . . . 709,612
54,100 Pride Petroleum Services, Inc.(c) . . 1,257,825
16,100 Seitel, Inc.(c) . . . . . . . . . . . 644,000
33,200 Tuboscope Vetco International
Corp.(c) . . . . . . . . . . . . . . 514,600
22,100 Weatherford Enterra, Inc.(c) . . . . . 663,000
----------
3,789,037
----------
PAPER PRODUCTS--0.4%
10,000 Caraustar Industries, Inc. . . . . . . 332,500
----------
REAL-ESTATE INVESTMENT TRUSTS--7.2%
25,500 Brandywine Realty Trust . . . . . . . 497,250
21,800 Cali Realty Corp. . . . . . . . . . . 673,075
52,400 Capstone Capital Corp.(c) . . . . . . 1,172,450
46,000 Koger Equity, Inc.(c) . . . . . . . . 862,500
42,100 Liberty Property . . . . . . . . . . . 1,084,075
27,600 Patriot American Hospitality(c) . . . 1,190,250
27,000 Sun Communities, Inc. . . . . . . . . 931,500
----------
6,411,100
----------
RETAIL--GENERAL MERCHANDISE--1.6%
49,000 Family Dollar Stores, Inc. . . . . . . 998,375
25,000 99 Cents Only Stores(c) . . . . . . . 409,375
----------
1,407,750
----------
RETAIL--SPECIALTY--3.3%
32,000 Carson Pirie Scott & Co.(c) . . . . . 808,000
40,650 Cato Corp.(c) . . . . . . . . . . . . 203,250
34,100 Cole National Corp.(c) . . . . . . . . 895,125
36,600 Tandycrafte, Inc.(c) . . . . . . . . . 219,600
41,300 Zale Corp.(c) . . . . . . . . . . . . 789,862
----------
2,915,837
----------
TELECOMMUNICATIONS--2.1%
53,000 Alliant Communications, Inc. . . . . . 901,000
33,200 Inter Tel, Inc.(c) . . . . . . . . . . 630,800
21,000 Vertex Communications Corp.(c) . . . . 380,626
----------
1,912,426
----------
TEXTILE & APPAREL--0.8%
15,000 Kenneth Cole Productions CLA(c) . . . 232,500
44,400 Stride Rite Corp. . . . . . . . . . . 444,000
----------
676,500
----------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--(CONTINUED)
SHARES VALUE (A)
<C> <S> <C>
UTILITIES--ELECTRIC--1.2%
51,700 Calpine Corp. (c) . . . . . . . . . $ 1,034,000
-----------
Total Common Stocks (Identified Cost
$68,222,622). . . . . . . . . . . . 78,429,230
-----------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS--12.9%
FACE
AMOUNT
<C> <S> <C>
$4,121,000 Repurchase Agreement with State Street Bank
& Trust Company dated 12/31/96 at 4.750% to
be repurchased at $4,122,087 on 1/02/97
collateralized by $3,835,000 U.S. Treasury
Bond 7.250% due 8/15/22 valued at
$4,205,319 . . . . . . . . . . . . . . . . 4,121,000
4,100,000 Chevron Oil Finance Co.
5.350%, 1/02/97 . . . . . . . . . . . . . 4,100,000
3,300,000 Exxon Asset Management
6.250%, 1/02/97 . . . . . . . . . . . . . 3,300,000
-----------
Short-Term Investments
(Identified Cost $11,521,000) . . . . . . 11,521,000
-----------
Total Investments--100.8%
(Identified Cost $79,743,622)(b) . . . . . 89,950,230
Other assets less liabilities . . . . . . . (756,205)
-----------
TOTAL NET ASSETS--100% . . . . . . . . . . $89,194,025
===========
</TABLE>
(a) See Note 1A.
(b) Federal Tax Information: At December 31, 1996 the net unrealized
appreciation on investments based on cost of $79,776,544 for federal income
tax purposes was as follows:
<TABLE>
<CAPTION>
<C> <S> <C>
Aggregate gross unrealized appreciation for
all investments in which there is an excess
of value over tax cost . . . . . . . . . . $11,583,498
Aggregate gross unrealized depreciation for
all investments in which there is an excess
of tax cost over value . . . . . . . . . . (1,409,812)
-----------
Net unrealized appreciation. . . . . . . . . $10,173,686
===========
</TABLE>
(c) Non-income Producing Security
See accompanying notes to financial statements.
4
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
<TABLE>
<CAPTION>
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1996
<S> <C> <C>
ASSETS
Investments at value . . . . . . . . . $89,950,230
Cash . . . . . . . . . . . . . . . . . 4,302
Receivable for:
Fund shares sold . . . . . . . . . . . 601,019
Securities sold . . . . . . . . . . . 307,835
Dividends and interest . . . . . . . . 91,955
-----------
90,955,341
LIABILITIES
Payable for:
Securities purchased . . . . . . . . . $1,513,473
Fund shares redeemed . . . . . . . . . 130,505
Accrued expenses:
Management fees . . . . . . . . . . . 85,761
Deferred trustees' fees . . . . . . . 291
Other expenses . . . . . . . . . . . . 31,286
----------
1,761,316
-----------
$89,194,025
===========
NET ASSETS
Net Assets consist of:
Capital paid in . . . . . . . . . . . $78,276,114
Undistributed net investment income . 9,342
Accumulated net realized gains . . . . 701,961
Unrealized appreciation on
investments . . . . . . . . . . . . . 10,206,608
-----------
NET ASSETS . . . . . . . . . . . . . . . $89,194,025
===========
Computation of offering price:
Net asset value and redemption price per
share ($89,194,025 divided by 618,171
shares of beneficial interest) . . . . $ 144.29
===========
Identified cost of investments . . . . . $79,743,622
===========
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<S> <C> <C>
INVESTMENT INCOME
Dividends . . . . . . . . . . . . $ 717,775
Interest . . . . . . . . . . . . . 380,416
-----------
1,098,191
EXPENSES
Management fees . . . . . . . . . $ 506,292
Trustees' fees and expenses . . . 10,713
Custodian . . . . . . . . . . . . 73,049
Audit and tax services . . . . . . 13,200
Legal . . . . . . . . . . . . . . 11,564
Printing . . . . . . . . . . . . . 28,409
Miscellaneous . . . . . . . . . . 8,418
---------
Total expenses . . . . . . . . . 651,645
Less expenses assumed by the
investment adviser . . . . . . (145,353) 506,292
--------- -----------
NET INVESTMENT INCOME . . . . . . . 591,899
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Realized gain on:
Investments--net . . . . . . . . 5,566,031
Unrealized appreciation on:
Investments--net . . . . . . . . 7,966,226
-----------
Net gain on investment transactions 13,532,257
-----------
NET INCREASE IN NET ASSETS FROM
OPERATIONS . . . . . . . . . . . . $14,124,156
===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ---------------
<S> <C> <C>
FROM OPERATIONS
Net investment income . . . . . . . . . . . . $ 186,550 $ 591,899
Net realized gain on investments . . . . . . . 1,462,220 5,566,031
Unrealized appreciation on investments . . . . 2,281,753 7,966,226
----------- ------------
INCREASE IN NET ASSETS FROM OPERATIONS . . . . 3,930,523 14,124,156
----------- ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income . . . . . . . . . . . . (171,695) (597,412)
Net realized gain on investments . . . . . . . (1,055,203) (5,269,235)
----------- ------------
(1,226,898) (5,866,647)
----------- ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares . . . . . . . . . 25,462,402 66,168,269
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income . . 171,695 597,412
Distributions from net realized gain . . . . 1,055,203 5,269,235
----------- ------------
26,689,300 72,034,916
Cost of shares redeemed . . . . . . . . . . . (4,756,656) (18,839,546)
----------- ------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS. . . . . . . . . . . . . . 21,932,644 53,195,370
----------- ------------
TOTAL INCREASE IN NET ASSETS . . . . . . . . . 24,636,269 61,452,879
NET ASSETS
Beginning of the year . . . . . . . . . . . . 3,104,877 27,741,146
----------- ------------
End of the year . . . . . . . . . . . . . . . $27,741,146 $ 89,194,025
=========== ============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year . . . . . . . . . . . . $ 0 $ 14,855
=========== ============
End of the year . . . . . . . . . . . . . . . $ 14,855 $ 9,342
=========== ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares . . . . . . . . 234,111 482,269
Issued in connection with the reinvestment of:
Distributions from net investment income . . 1,477 7,195
Distributions from net realized gain . . . . 9,076 34,411
----------- ------------
244,664 523,875
Redeemed . . . . . . . . . . . . . . . . . . . (43,301) (139,206)
----------- ------------
Net change . . . . . . . . . . . . . . . . . . 201,363 384,669
=========== ============
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
MAY 2, 1994(A)
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
-------------- ------------ --------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period. . . . . . . . . . . . . $100.00 $ 96.61 $118.80
------- ------- -------
Income From Investment Operations
Net Investment Income . . . . . 0.14 0.85 1.05
Net Realized and Unrealized Gain
(Loss) on Investments . . . . (3.38) 26.93 35.03
------- ------- -------
Total From Investment
Operations . . . . . . . . . . (3.24) 27.78 36.08
------- ------- -------
Less Distributions
Dividends From Net Investment
Income . . . . . . . . . . . . (0.15) (0.78) (1.03)
Distributions From Net Realized
Capital Gains . . . . . . . . 0.00 (4.81) (9.56)
------- ------- -------
Total Distributions . . . . . . (0.15) (5.59) (10.59)
------- ------- -------
Net Asset Value, End of
Period . . . . . . . . . . . . $ 96.61 $118.80 $144.29
======= ======= =======
TOTAL RETURN (%) . . . . . . . . (3.23)(c) 28.88 30.67
Ratio of Operating Expenses to
Average Net Assets (%) . . . . 1.00 (b) 1.00 1.00
Ratio of Net Investment Income to
Average Net Assets (%) . . . . 0.32 (b) 1.26 1.15
Portfolio Turnover Rate (%) . . 80 (b) 98 62
Average Commission Rate (d) . . -- -- $0.0568
Net Assets, End of
Period (000) . . . . . . . . . $ 3,105 $27,741 $89,194
The ratios of expenses to average
net assets without giving effect
to the voluntary expense
agreement described in Note 4 to
the Financial Statements would
have been (%) . . . . . . . . . 2.31 (b) 1.91 1.29
</TABLE>
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
(d) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for trades on which
commissions are charged. This rate generally does not reflect mark-ups,
mark-downs, or spreads on shares traded on a principal basis.
See accompanying notes to financial statements.
6
<PAGE>
DRAYCOTT INTERNATIONAL EQUITY SERIES*
PORTFOLIO MANAGERS: NICHOLAS CARN, TIMOTHY GRIFFEN,
GREGORY ECKERSLEY AND NIGEL HANKIN
DRAYCOTT PARTNERS, LTD.
[PHOTOS OF NICHOLAS CARN, TIM GRIFFEN, GREGORY ECKERSLEY AND NIGEL HANKIN]
Q. HOW DID THE DRAYCOTT INTERNATIONAL EQUITY SERIES PERFORM IN 1996?
A. The Series generated 6.67% total return for the year ended December 31, 1996,
this compares favorably to the Morgan Stanley Capital Europe Australasia Far
East (EAFE) Index/2/, which returned 6.36% for the same period.
The Series' performance was most influenced by its relatively large exposure to
the Japanese stock market. The perception that the Japanese domestic economy was
weakening as the fiscal stimulus of the first quarter subsided, caused the stock
market to deteriorate once again in the second half. In addition, the Japanese
stocks in the Series' portfolio as a whole underperformed the Japanese broad
market indexes.
European markets, however, staged a second half recovery from a weak showing at
the beginning of the year. The world economy continued to register steady
non-inflationary growth, due in part to the desynchronization of the European
and Japanese economies and also to the continued slow, steady growth of the U.S.
economy. It should be noted that exposure to the UK, Spain and Italy benefited
performance as interest rates fell further.
Unprecedented earnings growth and a decline in long-term interest rates in Japan
during the year slowed the Japanese stock market. This environment contrasts
sharply to the U.S. stock market, where earnings growth slowed, long term
interest rates rose and fell, and the equity risk premium declined to historical
lows. Consequently, we believe that the underperformance of the Japanese stock
market in 1996 is mostly attributable to an unprecedented rise in equity risk
premiums.
Q. HOW DID YOU MANAGE THE SERIES IN 1996?
A. Through the first half of the year we maintained a weighting in Japan below
that of the EAFE Index, the Series was overweighted in the UK and underweighted
in East Asia, while we kept our continental European holdings broadly in line
with the EAFE Index.
In the Fall, we increased our investments in Japan, primarily because of lower
stock market performance and signs of improvement in the Japanese economy.
Q. WHAT IS YOUR INVESTMENT OUTLOOK FOR THE MONTHS AHEAD?*
A. Global monetary policy is currently very accommodative and global interest
rates are at twenty-year lows. Some of the challenges facing the world
economy--continuing balance-sheet problems in Japan, high labor costs and rigid
labor markets in Europe, together with the legacy of exchange rate overvaluation
and the prospect of tight fiscal policy to remedy the effects of the long
recession in Japan and the wish to meet the Maastricht criteria in Europe.
We believe that this policy mix generally favors world stock markets in the
coming months. The discount rate applied to future earnings is likely to remain
low while an environment of low economic volatility favors companies
restructuring efforts.
* On January 22, 1997, the Board of Trustees of New England Zenith Fund approved
a new subadvisory agreement relating to the Draycott International Equity
Series between TNE Advisers, Inc. and Morgan Stanley Asset Management Inc.
("MSAM"). This new agreement, is expected to become effective May 1, 1997
(subject to shareholder approval). Under this new agreement MSAM would become
subadviser of the Series, succeeding Draycott Partners, Ltd. and would be
responsible for the day to day management of the Series. The new name of the
Series will be Morgan Stanley International Magnum Equity Series.
7
<PAGE>
<TABLE>
<CAPTION>
International
Equity Series EAFE
<S> <C> <C>
10/31/94 10000 10000
1994 10260 9555
1995 10879 10455
1996 11627 10915
</TABLE>
FUND FACTS
GOAL: Total return from long-term growth of capital and dividend income,
primarily through investment in international equity securities.
START DATE: October 31, 1994
SIZE: $39 million as of December 31, 1996
MANAGERS: Nicholas Carn, Timothy Griffen, Gregory Eckersley and Nigel Hankin
have served as portfolio managers since the Series' inception in 1994. Each
have also served as portfolio manager of New England International Equity Fund
since 1991. They also have managed the Maxim Series Fund--Foreign Equity
Portfolio since November 1994.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life insurance
contracts. If these charges were included, the returns shown would be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
8
<PAGE>
NEW ENGLAND ZENITH FUND
(DRAYCOTT INTERNATIONAL EQUITY SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--93.3% OF TOTAL NET ASSETS
SHARES VALUE (A)
<C> <S> <C>
AUSTRALIA--4.8%
28,800 Australian & New Zealand Bank Group,
144A(d) . . . . . . . . . . . . . . . . . $ 181,531
28,900 Boral Ltd. . . . . . . . . . . . . . . . . 82,237
9,200 Broken Hill Proprietary Co., 144A(d) . . . 131,042
18,100 Capral Aluminum . . . . . . . . . . . . . . 57,547
40,250 Fairfax, John . . . . . . . . . . . . . . . 91,179
8,200 Lend Lease Corp., 144A(d) . . . . . . . . . 159,033
29,500 News Corp. . . . . . . . . . . . . . . . . 155,695
21,800 Normandy Mining Ltd. . . . . . . . . . . . 7,278
100,400 Normandy Mining Ltd. Warrants . . . . . . . 138,857
50,400 North Ltd. . . . . . . . . . . . . . . . . 147,422
81,000 Oil Search Ltd. . . . . . . . . . . . . . . 157,738
48,000 QNI Limited . . . . . . . . . . . . . . . . 96,527
27,400 Southcorp Holdings Ltd. . . . . . . . . . . 87,115
9,000 Wesfarmers . . . . . . . . . . . . . . . . 62,952
31,100 Westpac Bank Corp. . . . . . . . . . . . . 176,994
26,500 WMC Ltd. . . . . . . . . . . . . . . . . . 167,034
----------
1,900,181
----------
BELGIUM--1.2%
3,630 Delhaize Le Lion, 144A(d) . . . . . . . . . 215,666
1,270 Glaverbel . . . . . . . . . . . . . . . . . 147,504
740 Powerfin . . . . . . . . . . . . . . . . . 113,120
----------
476,290
----------
DENMARK--0.8%
1,300 BG Bank . . . . . . . . . . . . . . . . . . 60,909
2,000 Crisplant Industries . . . . . . . . . . . 96,761
6,470 ISS International
Service Systems, 144A(d) . . . . . . . . . 170,240
----------
327,910
----------
FINLAND--2.1%
2,535 Huhtamaki OY . . . . . . . . . . . . . . . 117,933
7,720 Kesko . . . . . . . . . . . . . . . . . . . 108,919
870 Kone Corp. . . . . . . . . . . . . . . . . 96,078
1,800 Metra AB . . . . . . . . . . . . . . . . . 101,348
2,200 Raison Tehtaat . . . . . . . . . . . . . . 138,696
12,860 UPM Kymmene OY . . . . . . . . . . . . . . 269,780
----------
832,754
----------
GERMANY--8.6%
3,630 Adidas AG . . . . . . . . . . . . . . . . . 313,745
180 Bayer Motoren Werk . . . . . . . . . . . . 125,513
190 Boss Hugo AG . . . . . . . . . . . . . . . 238,673
3,950 Deutsche Telekom . . . . . . . . . . . . . 83,297
3,460 Henkel Kgaa . . . . . . . . . . . . . . . . 173,810
11,350 Hoechst AG . . . . . . . . . . . . . . . . 536,226
23,850 Lufthansa AG, 144A(d) . . . . . . . . . . . 325,481
1,130 Mannesmann AG,144A(d) . . . . . . . . . . . 489,804
1,200 Preussag AG . . . . . . . . . . . . . . . . 271,770
1,590 SGL Carbon, 144A(d) . . . . . . . . . . . . 200,455
6,350 Tarkett AG . . . . . . . . . . . . . . . . 126,686
8,510 Veba AG . . . . . . . . . . . . . . . . . . 492,195
----------
3,377,655
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
GREAT BRITAIN--26.8%
42,400 BAA . . . . . . . . . . . . . $ 351,578
47,400 BTR . . . . . . . . . . . . . 231,437
23,000 BPB . . . . . . . . . . . . . 151,311
48,350 Barclays . . . . . . . . . . . 828,751
23,200 Bass . . . . . . . . . . . . . 326,716
29,450 British Aerospace . . . . . . 644,802
28,400 British Petroleum . . . . . . 340,586
29,700 British Sky Broadcasting . . . 265,606
45,850 British Telecommunication . . 310,275
35,700 Cadbury Schweppes . . . . . . 301,527
40,000 Caradon PLC . . . . . . . . . 164,468
31,675 Carlton Communications . . . . 277,624
10,765 EMI Group . . . . . . . . . . 254,463
35,900 General Electric Co. PLC . . . 235,561
27,850 Glaxo Wellcome . . . . . . . . 453,272
29,300 Greenalls Group . . . . . . . 295,158
177,450 Hanson . . . . . . . . . . . . 249,287
39,100 IMI . . . . . . . . . . . . . 250,529
35,700 J. Sainsbury . . . . . . . . . 236,695
116,800 Ladbroke Group . . . . . . . . 464,239
80,650 National Grid Group . . . . . 269,432
19,750 National Westminster . . . . . 232,114
98,250 Orange . . . . . . . . . . . . 318,130
19,850 Pearson . . . . . . . . . . . 253,354
62,200 Rank Group . . . . . . . . . . 466,740
29,920 Reed International . . . . . . 562,826
17,750 Reuters Holdings . . . . . . . 228,223
16,520 Shell Transportation &
Trading . . . . . . . . . . . 286,418
18,450 Smithkline Beecham . . . . . . 255,398
98,400 Telewest Communication . . . . 208,196
44,150 Ti Group . . . . . . . . . . . 437,945
89,100 Toxkins . . . . . . . . . . . 412,147
-----------
10,564,808
-----------
ITALY--3.4%
73,250 BCA Fideuram SPA . . . . . . . 161,034
83,000 ENI Spa . . . . . . . . . . . 425,943
28,700 Edison . . . . . . . . . . . . 181,621
51,950 Saipem, 144A(d) . . . . . . . 239,032
90,800 Stet . . . . . . . . . . . . . 306,757
-----------
1,314,387
-----------
JAPAN--28.6%
23,000 Asahi Glass Co. . . . . . . . 216,475
22,000 Dai Nippon Printing . . . . . 385,632
87,000 Daiwa Bank . . . . . . . . . . 454,494
9,000 Daiwa Securities, 144A(d) . . 80,045
16,000 Denso Corp. . . . . . . . . . 385,459
72 East Japan Railway, 144A(d) . 323,910
26,000 Fuji Bank . . . . . . . . . . 379,415
1,000 Hitachi . . . . . . . . . . . 9,326
151,000 Hokkaido Takushoku, 144A(d) . 293,368
67,000 Ishikawajima Har . . . . . . . 297,945
18,000 Kirin Brewery Co. . . . . . . 177,187
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
NEW ENGLAND ZENITH FUND
(DRAYCOTT INTERNATIONAL EQUITY SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--(CONTINUED)
SHARES VALUE (A)
<C> <S> <C>
JAPAN--(CONTINUED)
26,000 Matsushita Electronic Industries,
144A(d) . . . . . . . . . . . . . . . . . $ 424,316
21,000 Mitsubishi Corp., 144A(d) . . . . . . . . 217,598
40,000 Mitsubishi Chemical . . . . . . . . . . . 129,522
21,000 Mitsubishi Logistic . . . . . . . . . . . 271,997
23,000 Mitsubishi Heavy Industry, Ltd., 144A(d) . 182,713
23,000 Mitsui & Co. . . . . . . . . . . . . . . . 186,685
43,000 Mitsukoshi . . . . . . . . . . . . . . . . 305,207
21,000 Mitsui Fudosan Co., 144A(d) . . . . . . . 210,344
7,000 Nintendo Co. . . . . . . . . . . . . . . . 501,079
70,000 Nippon Credit Bank . . . . . . . . . . . . 184,354
93,000 Nippon Steel Corp. . . . . . . . . . . . . 274,639
31 Nippon Telephone & Telegraph Corp. . . . . 235,023
16,000 Nomura Securities . . . . . . . . . . . . 240,394
43,000 Odakyu Electric Railway . . . . . . . . . 258,052
18,000 Onward Kashiyama . . . . . . . . . . . . . 253,346
96,000 Osaka Gas Co. . . . . . . . . . . . . . . 262,775
23,000 Ricoh Co. . . . . . . . . . . . . . . . . 264,139
21,000 Sakura Bank . . . . . . . . . . . . . . . 150,142
21,000 Sanwa Bank, 144A(d) . . . . . . . . . . . 286,504
36,000 Sato Kogyo Co. . . . . . . . . . . . . . . 125,585
9,000 Secom Co. . . . . . . . . . . . . . . . . 544,772
5,000 Sony Corp. . . . . . . . . . . . . . . . . 327,692
12,000 Sumitomo Bank, 144A(d) . . . . . . . . . . 173,042
1,000 Sumitomo Marine & Fire, 144A(d) . . . . . 6,217
39,000 Taisei Corp. . . . . . . . . . . . . . . . 202,055
17,000 Takashimaya Co. . . . . . . . . . . . . . 204,041
34,000 Tokai Bank . . . . . . . . . . . . . . . . 355,237
20,000 Tokyo Electric Power Co. . . . . . . . . . 438,649
23,000 Toto . . . . . . . . . . . . . . . . . . . 262,154
8,000 Toyota Motor Corp. . . . . . . . . . . . . 230,032
26,000 Yakult Honsha Co. . . . . . . . . . . . . 269,407
65,000 Yasuda Trust & Banking . . . . . . . . . . 275,581
-----------
11,256,549
-----------
NETHERLANDS--4.2%
2,250 ABN Amro Holdings NV . . . . . . . . . . . 146,481
1,060 Akzo Nobel NV . . . . . . . . . . . . . . 144,894
1,800 CSM NV . . . . . . . . . . . . . . . . . . 100,087
16,200 Fortis Amev NV . . . . . . . . . . . . . . 567,680
2,300 Kon Ahrend NV . . . . . . . . . . . . . . 128,289
13,600 Vendex International . . . . . . . . . . . 582,126
-----------
1,669,557
-----------
NORWAY--2.1%
13,100 Benor Tankers. . . . . . . . . . . . . . . 85,394
4,500 Narvesen ASA . . . . . . . . . . . . . . . 132,700
2,000 Orkla ASA . . . . . . . . . . . . . . . . 138,132
10,000 Schibsted ASA . . . . . . . . . . . . . . 182,366
9,450 Smedvig . . . . . . . . . . . . . . . . . 192,136
7,400 Unitor A/S . . . . . . . . . . . . . . . . 94,178
-----------
824,906
-----------
SPAIN--3.5%
2,880 Abengoa SA . . . . . . . . . . . . . . . . 99,827
10,250 Autupistas del Mare . . . . . . . . . . . 161,063
7,200 BCO Santander SA . . . . . . . . . . . . . 460,866
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
65,250 Corp Fin Reunido . . . . . . . . . . . . . $ 214,107
4,300 Repsol SA . . . . . . . . . . . . . . . . . 164,945
4,000 Tabacalera SA . . . . . . . . . . . . . . . 172,232
6,800 Viscofan Envoltura . . . . . . . . . . . . 99,519
-----------
1,372,559
-----------
SWEDEN--0.4%
8,300 Scandic Hotels AB . . . . . . . . . . . . . 138,741
-----------
SWITZERLAND--6.8%
425 Alusuisse Lonza HD . . . . . . . . . . . . 338,793
907 Adecco SA . . . . . . . . . . . . . . . . . 227,682
79 Baloise Holdings . . . . . . . . . . . . . 158,767
250 Danzas Holding . . . . . . . . . . . . . . 277,363
244 Nestle SA . . . . . . . . . . . . . . . . . 261,956
227 Novartis AG . . . . . . . . . . . . . . . . 259,986
52 Roche Holdings AG . . . . . . . . . . . . . 404,617
172 Schindler Holdings AG . . . . . . . . . . . 186,971
227 Swissair . . . . . . . . . . . . . . . . . 183,669
2,400 Tag Heuer . . . . . . . . . . . . . . . . . 387,299
-----------
2,687,103
-----------
Total Common Stocks
(Identified Cost $34,842,843) . . . . . . 36,743,400
-----------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENT--2.1%
FACE
AMOUNT
<C> <S> <C>
$845,000 Repurchase agreement with State Street Bank &
Trust Company dated 12/31/96 at 4.750% to be
repurchased at $845,223 on 1/02/97
collateralized by $675,000 U.S. Treasury
Notes 8.875% due 8/15/17 with a value of
$865,055 . . . . . . . . . . . . . . . . . . 845,000
-----------
Total Short-Term Investment
(Identified Cost $845,000) . . . . . . . . . 845,000
-----------
Total Investments--95.4%
(Identified Cost $35,687,843)(b) . . . . . . 37,588,400
Other assets less liabilities(c) . . . . . . 1,803,786
-----------
TOTAL NET ASSETS--100% . . . . . . . . . . . $39,392,186
===========
</TABLE>
(a) See Note 1a.
(b) Federal Tax Information: At December 31,1996 the net unrealized appreciation
on investments based on cost of $35,771,235 for federal income tax purposes
was as follows:
<TABLE>
<CAPTION>
<C> <S> <C>
Aggregate gross unrealized appreciation for all
investments in which there is an excess of
value over tax cost . . . . . . . . . . . . . $ 3,909,393
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value . . . . . . . . . . . . . . . (2,092,228)
-----------
Net unrealized appreciation . . . . . . . . . . $ 1,817,165
===========
</TABLE>
(c) Including deposits in foreign denominated currencies with a value of
$1,642,744 and a cost of $1,640,556.
(d) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
See accompanying notes to financial statements.
10
<PAGE>
NEW ENGLAND ZENITH FUND
(DRAYCOTT INTERNATIONAL EQUITY SERIES)
<TABLE>
<CAPTION>
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1996
ASSETS
<S> <C> <C>
Investments at value . . . . . . . . . . $37,588,400
Cash . . . . . . . . . . . . . . . . . . 716
Foreign cash at value
(Cost $1,640,556) . . . . . . . . . . . 1,642,744
Receivable for:
Fund shares sold . . . . . . . . . . . 178,332
Securities sold . . . . . . . . . . . . 162,550
Dividends and interest . . . . . . . . 46,471
Foreign taxes . . . . . . . . . . . . . 9,279
Unamortized organization expense . . . . 5,688
-----------
39,634,180
LIABILITIES
Payable for:
Securities purchased . . . . . . . . . $ 42,498
Fund shares redeemed . . . . . . . . . 101,049
Withholding taxes . . . . . . . . . . . 5,779
Accrued expenses:
Management fees . . . . . . . . . . . . 34,246
Deferred trustees' fees . . . . . . . . 277
Other expenses . . . . . . . . . . . . 58,145
--------
241,994
-----------
$39,392,186
===========
NET ASSETS
Net Assets consist of:
Capital paid in . . . . . . . . . . . . $37,517,658
Overdistributed net investment income . (55,074)
Accumulated net realized gain . . . . . 21,291
Unrealized appreciation on investments
and foreign currency . . . . . . . . . 1,908,311
-----------
NET ASSETS . . . . . . . . . . . . . . . $39,392,186
===========
Computation of offering price:
Net asset value and redemption price per
share ($39,392,186 divided by 3,490,576
shares of beneficial interest) . . . . . $ 11.29
===========
Identified cost of investments . . . . . $35,687,843
===========
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
INVESTMENT INCOME
<S> <C> <C>
Dividends . . . . . . . . . . . . . . . . $ 448,320(a)
Interest . . . . . . . . . . . . . . . . 113,890
----------
562,210
EXPENSES
Management fees . . . . . . . . . . . . . $ 256,659
Trustees' fees and expenses . . . . . . . 10,340
Custodian . . . . . . . . . . . . . . . . 145,265
Audit and tax services . . . . . . . . . 21,500
Legal . . . . . . . . . . . . . . . . . . 11,566
Printing . . . . . . . . . . . . . . . . 14,701
Amortization of organization
expenses . . . . . . . . . . . . . . . . 2,017
Miscellaneous . . . . . . . . . . . . . . 11,335
----------
Total expenses . . . . . . . . . . . . 473,383
Less expenses assumed by the investment
adviser. . . . . . . . . . . . . . . . (102,652) 370,731
---------- ----------
NET INVESTMENT INCOME . . . . . . . . . . 191,479
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Realized gain (loss) on:
Investments--net . . . . . . . . . . . . 727,827
Foreign currency transactions--net . . . (191,286)
----------
Net realized gain on investments and
foreign currency transactions . . . . . 536,541
----------
Unrealized appreciation (depreciation) on:
Investments--net . . . . . . . . . . . . 1,298,183
Foreign currency transactions--net . . . (246,903)
----------
Net unrealized appreciation on
investments and foreign currency
transactions. . . . . . . . . . . . . . 1,051,280
----------
Net gain on investment transactions . . . 1,587,821
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $1,779,300
==========
</TABLE>
(a) Net of foreign taxes of: $68,624.
See accompanying notes to financial statements.
11
<PAGE>
NEW ENGLAND ZENITH FUND
(DRAYCOTT INTERNATIONAL EQUITY SERIES)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------ --------------
<S> <C> <C>
FROM OPERATIONS
Net investment income . . . . . . . . . . . . . $ 123,277 $ 191,479
Net realized gain (loss) on investments and
foreign currency transactions . . . . . . . . (125,269) 536,541
Unrealized appreciation on investments and
foreign currency transactions . . . . . . . . 798,519 1,051,280
----------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS . . . . 796,527 1,779,300
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income . . . . . . . . . . . . . (123,277) (50,813)
In excess of net investment income . . . . . . (48,516) 0
Net realized gain on investments . . . . . . . 0 (542,008)
----------- -----------
(171,793) (592,821)
----------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares . . . . . . . . . 16,189,698 30,118,413
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income . . . 171,793 50,813
Distributions from net realized gain . . . . . 0 542,008
----------- -----------
16,361,491 30,711,234
Cost of shares redeemed . . . . . . . . . . . . (3,707,935) (8,773,034)
----------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS . . . . . . . . . . . . . . 12,653,556 21,938,200
----------- -----------
TOTAL INCREASE IN NET ASSETS . . . . . . . . . 13,278,290 23,124,679
NET ASSETS
Beginning of the year . . . . . . . . . . . . . 2,989,217 16,267,507
----------- -----------
End of the year . . . . . . . . . . . . . . . . $16,267,507 $39,392,186
=========== ===========
OVERDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year . . . . . . . . . . . . . $ 0 $ (6,800)
=========== ===========
End of the year . . . . . . . . . . . . . . . . $ (6,800) $ (55,074)
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares . . . . . . . . 1,564,292 2,705,127
Issued in connection with the reinvestment of:
Distributions from net investment income . . . 16,055 4,565
Distributions from net realized gain . . . . . 0 48,698
----------- -----------
1,580,347 2,758,390
Redeemed . . . . . . . . . . . . . . . . . . . (355,736) (784,531)
----------- -----------
Net change . . . . . . . . . . . . . . . . . . 1,224,611 1,973,859
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
OCTOBER 31, 1994 (A)
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
-------------------- ------------ --------------
<S> <C> <C> <C>
Net Asset Value, Beginning
of Period . . . . . . . . $10.00 $ 10.23 $ 10.73
------ ------- -------
Income From Investment
Operations
Net Investment Income . . 0.03 0.09 0.06
Net Realized and
Unrealized Gain (Loss) on
Investments. . . . . . . 0.23 0.53 0.68
------ ------- -------
Total From Investment
Operations . . . . . . . 0.26 0.62 0.74
------ ------- -------
Less Distributions
Dividends From Net
Investment Income . . . (0.02) (0.09) (0.02)
Distributions in Excess of
Net Investment Income . 0.00 (0.03) 0.00
Distributions From Net
Realized Capital Gains . 0.00 0.00 (0.16)
Distributions From Paid-in
Capital. . . . . . . . . (0.01) 0.00 0.00
------ ------- -------
Total Distributions . . . (0.03) (0.12) (0.18)
------ ------- -------
Net Asset Value, End of
Period. . . . . . . . . . $10.23 $ 10.73 $ 11.29
====== ======= =======
TOTAL RETURN (%) . . . . . 2.60(c) 6.03 6.67
Ratio of Operating Expenses
to Average Net
Assets (%) . . . . . . . 1.30(b) 1.30 1.30
Ratio of Net Investment
Income to Average Net
Assets (%) . . . . . . . 2.56(b) 1.29 0.67
Portfolio Turnover
Rate (%) . . . . . . . . 4(b) 89 64
Average Commission
Rate (d) . . . . . . . . -- -- $0.0204
Net Assets, End of
Period (000) . . . . . . $2,989 $16,268 $39,392
The ratios of expenses to
average net assets without
giving effect to the
voluntary expense
agreement described in
Note 4 to the Financial
Statements would have
been (%) . . . . . . . . 5.38(b) 3.12 1.66
</TABLE>
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
(d) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for trades on which
commissions are charged. This rate generally does not reflect mark-ups,
mark-downs, or spreads on shares traded on a principal basis.
See accompanying notes to financial statements.
12
<PAGE>
ALGER EQUITY GROWTH SERIES
PORTFOLIO MANAGER: DAVID D. ALGER
FRED ALGER MANAGEMENT, INC.
[PHOTO OF DAVID D. ALGER]
Q. HOW DID THE ALGER EQUITY GROWTH SERIES PERFORM IN 1996?
A. 1996 proved to be an interesting and turbulent time in the market. In
January, the Alger Equity Growth Series was coming off an extraordinary year,
having significantly outperformed all relevant major market indices. During the
past twelve months, however, it has been much more difficult to outperform the
market. Although the portfolio posted a positive return of 13.17%, it lagged its
benchmark index, the S&P 500 Index/19/, which returned 22.90% for the year.
In a sense, this past year has been almost a cycle. We began with the assumption
that the economy was exceedingly weak, went through a period from mid-March to
late October during which the popular view was that the economy was too strong,
and then moved back in the direction to close the year where we began it.
The economic uncertainty which existed throughout most of the year resulted in
defensive positioning of investors. Consequently, there was a flight to
blue-chip stocks. Therefore, both the Dow Jones Industrial Average and the S&P
500 Index/ /enjoyed very strong years. It appears that the performance of the
S&P 500 was primarily driven by a handful of blue-chip type stocks noted for
stable and predictable earnings growth. The portfolio typically invests in
stocks of companies that are expected to grow their earnings at a faster rate
(25% and above). Thus, the portfolio did not perform as well as funds largely
investing in blue chip companies or broad market indices. In addition, many of
the growth stocks the portfolio invested in were hit more severely during the
sell off in July and recovered less impressively.
Q. HOW DID YOU MANAGE THE SERIES IN 1996?
A. Although there were shifts within the portfolio, our strategy remained
consistent, emphasizing the individual selection of quality growth stocks
through in-depth, internal research conducted by talented analysts. At no time
during the course of the year did we stray from the philosophy and process that
have driven our long term success as an investment manager.
One specific area which contributed to underperformance was our failure to
foresee the earnings collapse of the HMO's. As a result, many medical technology
companies we owned did very poorly after the first quarter.
Although the portfolio remained diversified, owning many stocks across numerous
sectors, several key holdings impacted performance. Intel and Adaptec, for
instance, performed exceptionally well in spite of significant volatility within
their sector. Glenayre Technologies, which the portfolio held at year end, fell
victim to this volatility, and performance was disappointing.
Q. WHAT IS YOUR INVESTMENT OUTLOOK FOR THE MONTHS AHEAD?
A. The good news is that we feel that the factors which have contributed to our
recent performance are now behind us, setting the stage for a strong rebound in
1997. We continue to maintain that economic growth is not overly robust. Factors
which support our belief include a recent drop in the price of gold, the rising
dollar and slowing corporate profits. We contend that the stock market continues
to be undervalued relative to the bond market. Furthermore, we feel that growth
stocks are undervalued relative to the rest of the stock market. Currently, good
quality growth stocks, which typically trade in the range of 1.5 to 2.5 times
the market multiple, are trading at 1.3 times based on our 1997 estimated
earnings per share: below the low-end of the historical range. In other words,
investors are paying only a very small premium for quality growth stocks, such
as those in the portfolio. As it becomes clearer in the months ahead that the
economy is expanding at a noninflationary, steady pace, we expect that investor
confidence will rebound and premiums for growth stocks will expand. This should
translate into strong performance potential for the portfolio.
13
<PAGE>
<TABLE>
<CAPTION>
Alger Equity
Growth Series S&P 500
<S> <C> <C>
10/31/94 10000 10000
1994 9580 9794
1995 14245 13461
1996 16122 16544
</TABLE>
FUND FACTS
GOAL: Long-term capital appreciation.
START DATE: October 31, 1994
SIZE: $120 million as of December 31, 1996
MANAGER: David D. Alger, President and Chief Financial Officer (since 1975),
Executive Vice President, portfolio Manager and Director of Research (since
1971), Fred Alger Management, Inc.; Portfolio Manager, The Alger Growth
Portfolio (since 1986), The Alger American Fund Growth Portfolio (since 1989)
and the Alger Retirement Fund (since 1993).
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life insurance
contracts. If these charges were included, the returns shown would be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
14
<PAGE>
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--93.9% OF TOTAL NET ASSETS
SHARES VALUE (A)
<C> <S> <C>
AEROSPACE--3.4%
25,700 Boeing Co. . . . . . . . . . . $ 2,733,837
31,500 Gulfstream Aerospace Corp.
New(c) . . . . . . . . . . . . . 763,875
9,100 United Technologies Corp. . . . 600,600
------------
4,098,312
------------
APPAREL--0.6%
15,000 Tommy Hilfiger Corp.(c) . . . . . 720,000
------------
BANKS--5.3%
28,000 Chase Manhattan Corp. . . . . . 2,499,000
37,900 Citicorp . . . . . . . . . . . . 3,903,700
------------
6,402,700
------------
BIO TECHNOLOGY--0.7%
10,300 Amgen, Inc.(c) . . . . . . . . . 560,063
6,000 Biochem Pharmacy, Inc.(c) . . . . 301,500
------------
861,563
------------
BUILDING & CONSTRUCTION--0.8%
17,200 Case Corp. . . . . . . . . . . 937,400
------------
CASINOS & RESORTS--0.7%
40,000 Mirage Resorts, Inc. . . . . . 865,000
------------
CHEMICALS--2.6%
14,100 Avery Dennison Corp. . . . . . 498,788
68,500 Monsanto Co. . . . . . . . . . 2,662,937
------------
3,161,725
------------
COMMUNICATIONS--4.4%
14,300 LCI International, Inc.(c) . . . 307,450
9,000 Lucent Technologies, Inc. . . . 416,250
12,400 Nokia Corp. . . . . . . . . . . 714,550
16,000 PictureTel Corp.(c) . . . . . . 416,000
18,000 QUALCOMM, Inc.(c) . . . . . . . 717,750
18,500 Telecomunicacoes Brasileiras . . 1,415,250
48,700 Worldcom, Inc.(c) . . . . . . . . 1,269,244
------------
5,256,494
------------
COMMUNICATIONS EQUIPMENT--6.3%
19,300 Ascend Communications, Inc.(c) . 1,199,013
12,200 Cascade Communications
Corp.(c) . . . . . . . . . . . . 672,525
59,000 Cisco Systems, Inc.(c) . . . . . 3,753,875
20,000 Glenayre Technologies, Inc.(c) . 431,250
13,200 PairGain Technologies, Inc. . . 401,775
30,800 Tellabs, Inc.(c) . . . . . . . . 1,158,850
------------
7,617,288
------------
COMPUTER RELATED & BUSINESS EQUIPMENT--6.0%
82,502 First Data Corp. . . . . . . . 3,011,323
39,000 Ingram Micro, Inc.(c) . . . . . 897,000
48,600 Sun Microsystems, Inc. . . . . 1,248,413
28,500 3Com Corp.(c) . . . . . . . . . . 2,091,187
------------
7,247,923
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
COMPUTER SERVICES--0.4%
16,200 SABRE Group Holdings, Inc.(c) . . . . $ 451,575
------------
COMPUTER SOFTWARE--4.9%
9,400 Computer Associates International,
Inc. . . . . . . . . . . . . . . . . 467,650
25,000 Compuware Corp.(c) . . . . . . . . . . . 1,253,125
54,900 Informix Corp.(c) . . . . . . . . . . . 1,118,588
28,600 Microsoft Corp. . . . . . . . . . . . 2,363,075
12,400 Parametric Technology Corp. . . . . . 637,050
------------
5,839,488
------------
COMPUTER TECHNOLOGY--2.4%
71,500 Adaptec, Inc.(c) . . . . . . . . . . . . 2,860,000
------------
CONSUMER PRODUCTS--4.3%
50,750 CUC International, Inc.(c) . . . . . . . 1,205,312
11,000 Colgate Palmolive Co. . . . . . . . . 1,014,750
39,500 Nike, Inc. . . . . . . . . . . . . . . 2,360,125
12,000 Tyco International, Ltd. . . . . . . . 634,500
------------
5,214,687
------------
CONGLOMERATE--2.0%
24,500 General Electric Co. . . . . . . . . . 2,422,437
------------
DEFENSE--1.8%
3,000 Lockheed Martin Corp. . . . . . . . . 274,500
45,400 Sundstrand Corp. . . . . . . . . . . . 1,929,500
------------
2,204,000
------------
ELECTRONICS--1.1%
26,300 Hewlett-Packard Co. . . . . . . . . . 1,321,575
------------
ENERGY & ENERGY SERVICES--3.1%
19,000 Halliburton Co. . . . . . . . . . . . 1,144,750
18,500 Schlumberger, Ltd. . . . . . . . . . . 1,847,687
15,000 Tidewater, Inc. . . . . . . . . . . . 678,750
------------
3,671,187
------------
FINANCE--5.3%
29,400 American International Group, Inc. . . 3,182,550
39,500 Green Tree Financial Corp. . . . . . . 1,525,687
13,000 MBNA Corp. . . . . . . . . . . . . . . 539,500
39,300 Money Store, Inc. . . . . . . . . . . 1,085,663
------------
6,333,400
------------
FINANCIAL SERVICES--1.9%
37,700 Charles Schwab Corp. . . . . . . . . . 1,206,400
35,000 Equifax, Inc. . . . . . . . . . . . . 1,071,875
------------
2,278,275
------------
FOOD CHAINS--0.5%
14,000 Safeway, Inc. . . . . . . . . . . . . 598,500
------------
HEALTH CARE--8.9%
11,000 Boston Scientific Corp.(c) . . . . . . 660,000
45,500 Columbia/HCA Healthcare Corp. . . . . 1,854,125
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--(CONTINUED)
SHARES VALUE (A)
<C> <S> <C>
HEALTH CARE--(CONTINUED)
33,100 Eli Lilly & Co. . . . . . . . . . $ 2,416,300
40,900 Merck & Co. . . . . . . . . . . . 3,241,325
33,600 Warner-Lambert Co. . . . . . . . . 2,520,000
------------
10,691,750
------------
LEISURE & ENTERTAINMENT--0.8%
56,000 International Game Technology . . 1,022,000
------------
MEDICAL SERVICES--1.6%
28,000 Medtronic, Inc. . . . . . . . . . 1,904,000
------------
MISCELLANEOUS--3.1%
33,200 Loewen Group, Inc. . . . . . . . . 1,298,950
87,600 Service Corp. International . . . 2,452,800
------------
3,751,750
------------
OIL & GAS--0.5%
12,100 BJ Services Co.(c) . . . . . . . . 617,100
------------
PHARMACEUTICALS--1.5%
5,100 Bristol-Myers Squibb Co. . . . . . 554,625
14,500 Pfizer, Inc. . . . . . . . . . . . 1,201,688
------------
1,756,313
------------
POLLUTION CONTROL--1.3%
51,000 USA Waste Services, Inc.(c) . . . 1,625,625
------------
RESTAURANTS & LODGING--2.5%
36,200 Boston Chicken, Inc.(c) . . . . . 1,298,675
55,800 Lone Star Steakhouse Saloon(c) . . 1,492,650
8,900 Outback Steakhouse, Inc.(c) . . . 238,075
------------
3,029,400
------------
RETAILING--7.8%
15,700 Cintas Corp. . . . . . . . . . . . 922,375
18,500 Dollar General Corp. . . . . . . . 592,000
22,800 Gucci Group NY, Inc.(c) . . . . . 1,456,350
58,500 Home Depot, Inc. . . . . . . . . . 2,932,312
15,000 Nine West Group, Inc.(c) . . . . . 695,625
121,500 Officemax, Inc.(c) . . . . . . . . 1,290,938
15,000 Rite Aid Corp. . . . . . . . . . . 596,250
20,000 TJX Companies, Inc. . . . . . . . 947,500
------------
9,433,350
------------
SEMI-CONDUCTORS--7.4%
33,500 Altera Corp.(c) . . . . . . . . . 2,435,031
29,900 Intel Corp. . . . . . . . . . . . 3,915,031
15,400 Linear Technology Corp. . . . . . 675,675
13,000 Maxim Integrated Products,
Inc.(c) . . . . . . . . . . . . . 562,250
36,200 Xilinx, Inc.(c) . . . . . . . . . 1,332,613
------------
8,920,600
------------
Total Common Stocks
(Identified Cost $99,255,368) . . 113,115,417
------------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS--4.9%
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$3,000,000 Baltimore Gas & Electric Co.
5.85% 01/07/97 . . . . . . . . . $ 2,997,075
2,903,196 Seven Seas U.S. Government Money
Market Fund . . . . . . . . . . . 2,903,196
------------
Total Short-Term Investments
(Identified Cost $5,900,271) . . 5,900,271
------------
Total Investments--98.8%
(Identified Cost
$105,155,639)(b) . . . . . . . . 119,015,688
Other assets less liabilities . . 1,439,819
------------
TOTAL NET ASSETS--100% . . . . . . $120,455,507
============
</TABLE>
(a) See Note 1A.
(b) Federal Tax Information:
At December 31, 1996 the net unrealized appreciation on investments based on
cost of $105,368,896 for federal income tax purposes was as follows:
<TABLE>
<CAPTION>
<C> <S> <C>
Aggregate gross unrealized appreciation for
all investments in which there is an excess
of value over tax cost . . . . . . . . . . $ 16,735,570
Aggregate gross unrealized depreciation for
all investments in which there is an excess
of tax cost over value. . . . . . . . . . . (3,088,778)
------------
Net unrealized appreciation. . . . . . . . . $ 13,646,792
============
</TABLE>
(c) Non-income producing security.
See accompanying notes to financial statements.
16
<PAGE>
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
<TABLE>
<CAPTION>
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1996
ASSETS
<S> <C> <C>
Investments at value . . . . . . . . . $119,015,688
Cash . . . . . . . . . . . . . . . . . 2,209
Receivable for:
Fund shares sold . . . . . . . . . . . 676,306
Securities sold . . . . . . . . . . . 2,594,031
Dividends and interest . . . . . . . . 71,336
Due from advisor . . . . . . . . . . . 44,918
Unamortized organization expense . . . 5,688
------------
122,410,176
LIABILITIES
Payable for:
Securities purchased . . . . . . . . . $1,684,074
Fund shares redeemed . . . . . . . . . 169,719
Accrued expenses:
Management fees . . . . . . . . . . . 35,929
Deferred trustees' fees . . . . . . . 313
Other expenses . . . . . . . . . . . . 64,634
----------
1,954,669
------------
$120,455,507
============
NET ASSETS
Net Assets consist of:
Capital paid in . . . . . . . . . . . $106,473,943
Undistributed net investment income . 2,272
Accumulated net realized gains . . . . 119,243
Unrealized appreciation on
investments . . . . . . . . . . . . . 13,860,049
------------
NET ASSETS . . . . . . . . . . . . . . . $120,455,507
============
Computation of offering price:
Net asset value and redemption price per
share ($120,455,507 divided by 7,733,167
shares of beneficial interest) . . . . $ 15.58
============
Identified cost of investments . . . . . $105,155,639
============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
INVESTMENT INCOME
<S> <C> <C>
Dividends . . . . . . . . . . . . . . $ 473,183(a)
Interest . . . . . . . . . . . . . . 487,549
-----------
960,732
EXPENSES
Management fees . . . . . . . . . . . $620,895
Trustees' fees and expenses . . . . . 11,316
Custodian . . . . . . . . . . . . . . 52,986
Audit and tax services . . . . . . . 11,935
Legal . . . . . . . . . . . . . . . . 11,567
Printing . . . . . . . . . . . . . . 40,276
Amortization of organization
expenses . . . . . . . . . . . . . . 2,017
Miscellaneous . . . . . . . . . . . . 5,738
--------
Total expenses . . . . . . . . . . 756,730
-----------
NET INVESTMENT INCOME . . . . . . . . 204,002
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Realized gain on:
Investments--net . . . . . . . . . . 965,295
Unrealized appreciation on:
Investments--net . . . . . . . . . . 9,359,159
-----------
Net gain on investment transactions . 10,324,454
-----------
NET INCREASE IN NET ASSETS FROM
OPERATIONS. . . . . . . . . . . . . . $10,528,456
===========
</TABLE>
(a) Net of foreign taxes of: $2,410.
See accompanying notes to financial statements.
17
<PAGE>
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ---------------
<S> <C> <C>
FROM OPERATIONS
Net investment income . . . . . . . . . . . . $ 30,373 $ 204,002
Net realized gain on investments . . . . . . . 448,499 965,295
Unrealized appreciation on investments . . . . 4,579,507 9,359,159
----------- ------------
INCREASE IN NET ASSETS FROM OPERATIONS . . . . 5,058,379 10,528,456
----------- ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income . . . . . . . . . . . . (30,373) (206,060)
In excess of net investment income . . . . . . (993) 0
Net realized gain on investments . . . . . . . (1,285,986) 0
----------- ------------
(1,317,352) (206,060)
----------- ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares . . . . . . . . . 47,127,562 92,225,724
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income . . 31,366 206,060
Distributions from net realized gain . . . . 1,285,986 0
----------- ------------
48,444,914 92,431,784
Cost of shares redeemed . . . . . . . . . . . (7,716,452) (28,685,075)
----------- ------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS . . . . . . . . . . . . . 40,728,462 63,746,709
----------- ------------
TOTAL INCREASE IN NET ASSETS . . . . . . . . . 44,469,489 74,069,105
NET ASSETS
Beginning of the year . . . . . . . . . . . . 1,916,913 46,386,402
----------- ------------
End of the year . . . . . . . . . . . . . . . $46,386,402 $120,455,507
=========== ============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year . . . . . . . . . . . . $ 0 $ 1,354
=========== ============
End of the year . . . . . . . . . . . . . . . $ 1,354 $ 2,272
=========== ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares . . . . . . . . 3,648,304 6,311,990
Issued in connection with the reinvestment of:
Distributions from net investment income . . 2,303 13,117
Distributions from net realized gain . . . . 94,419 0
----------- ------------
3,745,026 6,325,107
Redeemed . . . . . . . . . . . . . . . . . . . (583,251) (1,954,136)
----------- ------------
Net change . . . . . . . . . . . . . . . . . . 3,161,775 4,370,971
=========== ============
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
OCTOBER 31, 1994(A)
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
------------------- ------------ --------------
<S> <C> <C> <C>
Net Asset Value, Beginning
of Period . . . . . . . . $10.00 $ 9.56 $ 13.80
------ ------- --------
Income From Investment
Operations
Net Investment Income . . 0.02 0.01 0.04
Net Realized and
Unrealized Gain (Loss)
on Investments . . . . . (0.44) 4.65 1.78
------ ------- --------
Total From Investment
Operations . . . . . . . (0.42) 4.66 1.82
------ ------- --------
Less Distributions
Dividends From Net
Investment Income . . . . (0.02) (0.01) (0.04)
Distributions From Net
Realized Capital Gains . 0.00 (0.41) 0.00
------ ------- --------
Total Distributions . . . (0.02) (0.42) (0.04)
------ ------- --------
Net Asset Value, End of
Period . . . . . . . . . . $ 9.56 $ 13.80 $ 15.58
====== ======= ========
TOTAL RETURN (%) . . . . . (4.20)(c) 48.80 13.17
Ratio of Operating
Expenses to Average
Net Assets (%) . . . . . . 0.85 (b) 0.85 0.90
Ratio of Net Investment
Income to Average Net
Assets (%) . . . . . . . . 1.07 (b) 0.14 0.24
Portfolio Turnover
Rate (%) . . . . . . . . . 32 (b) 107 78
Average Commission
Rate(d) . . . . . . . . . -- -- $ 0.0716
Net Assets, End of
Period (000) . . . . . . . $1,917 $46,386 $120,456
The ratios of expenses to
average net assets without
giving effect to the
voluntary expense agreement
described in Note 4 to the
Financial Statements would
have been (%) . . . . . . 2.74 (b) 2.45 0.90
</TABLE>
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
(d) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for trades on which
commissions are charged. This rate generally does not reflect mark-ups,
mark-downs, or spreads on shares traded on a principal basis.
See accompanying notes to financial statements.
18
<PAGE>
CAPITAL GROWTH SERIES
PORTFOLIO MANAGER: G. KENNETH HEEBNER
CAPITAL GROWTH MANAGEMENT LIMITED PARTNERSHIP
[Photo Of G. Kenneth Heebner]
Q. HOW DID THE CAPITAL GROWTH SERIES PERFORM IN 1996?
A. A continuing strong economy, low-to-moderate inflation, and a relatively
stable interest rate environment contributed to a strong stock market overall.
The Series posted solid performance of 21.08% for the year, on top of 1995's
return of 38.03%, as compared to the S&P 500 Index/19/ return of 37.44% and
22.90% for 1995 and 1996, respectively. Well-managed, moderate growth companies,
which the Series favors, continue to be steady, long-term performers. Many offer
double-digit growth rates, yet still sold at deep discounts, particularly in the
first half of the year. Sectors that fueled the Series' performance included
energy, banks, insurance and computers. Growth companies within these sectors,
most notably Citicorp, Intel, Dell Computer and Chase Manhattan, performed
admirably, benefiting from sustained, positive economic and market conditions.
Q. HOW DID YOU MANAGE THE SERIES IN 1996?
A. Throughout 1996, we remained confident about the economy. We therefore
maintained substantial positions in banking, energy and computing stocks, which
held up well throughout the year after a strong start.
While 1996 may have presented an uphill battle for business in terms of earnings
growth, nothing on the horizon seriously challenges this optimal business
scenario. In recent years, price earnings ratios for companies, especially
exotic technology firms, have risen to high levels not seen since the late
1960's. While some attractive values remain, they now are difficult to find. The
Series' concentrated investment approach is well-suited to this type of market
environment.
Our overall strategy of buying quality, long-term investments in
well-established companies at reasonable prices remains in place.
Q. WHAT IS YOUR INVESTMENT OUTLOOK FOR THE MONTHS AHEAD?
A. For the economy, we expect to see moderate growth with relatively low
inflation, an environment that favors the type of growth companies that comprise
your Series' portfolio. We will continue to avoid companies with high
price/earnings ratios relative to high growth rates. Many investors, we believe,
continue to be overly enthusiastic about growth without closely examining
valuations.
More specifically, we will continue to invest in companies that are industry
leaders that have reasonable valuations and proven track records. While periodic
bursts of volatility may surface along the way, we feel that the companies we
selected using this approach continue to hold potential for investor rewards
over the long term.
[A CHART APPEARS HERE COMPARING THE GROWTH
OF A $10,000 INVESTMENT COMPARED TO AN INDEX]
<TABLE>
<CAPTION>
Capital Growth
Series S&P 500
<S> <C> <C>
12/31/86 10000 10000
1987 15270 10518
1988 13928 12253
1989 18212 16124
1990 17577 15622
1991 27068 20360
1992 25430 21909
1993 29240 24108
1994 27171 24435
1995 37504 33585
1996 45409 41276
</TABLE>
FUND FACTS
GOAL: Long-term growth of capital.
START DATE: August 26, 1983
SIZE: $1.1 billion as of December 31, 1996
MANAGER: G. Kenneth Heebner, since 1983; portfolio manager of New England
Growth Fund since 1976; CGM Capital Development Fund since 1976; CGM Mutual
Fund since 1981; CGM Realty Fund since May 1994; CGM Fixed Income Fund since
June 1993.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life insurance
contracts. If these charges were included, the returns shown would be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
19
<PAGE>
NEW ENGLAND ZENITH FUND
(CAPITAL GROWTH SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--97.7% OF TOTAL NET ASSETS
SHARES VALUE (A)
<C> <S> <C>
AEROSPACE--5.3%
567,000 Boeing Co. . . . . . . . . . . . . $ 60,314,625
------------
AIRLINES--2.3%
415,000 UAL Corp.(c) . . . . . . . . . . . 25,937,500
------------
BANKS--MONEY CENTER--12.8%
630,000 Chase Manhattan Corp. . . . . . . 56,227,500
871,000 Citicorp . . . . . . . . . . . . . 89,713,000
------------
145,940,500
------------
BEVERAGES & TOBACCO--4.2%
1,198,000 Anheuser-Busch Companies, Inc. . . 47,920,000
------------
COMPUTER SOFTWARE & SERVICES--3.2%
244,000 Compaq Computer Corp.(c) . . . . . 18,117,000
350,000 Dell Computer Corp.(c) . . . . . . 18,593,750
------------
36,710,750
------------
ELECTRONIC COMPONENTS--6.8%
593,000 Intel Corp. . . . . . . . . . . . 77,645,937
------------
FOOD--RETAILERS/WHOLESALERS--9.8%
1,063,000 Hershey Foods Corp. . . . . . . . 46,506,250
585,000 Philip Morris Companies, Inc. . . 65,885,625
------------
112,391,875
------------
HOME PRODUCTS & COSMETIC--2.6%
275,000 Procter & Gamble Co. . . . . . . . 29,562,500
------------
INSURANCE--16.0%
473,000 Aetna, Inc. . . . . . . . . . . . 37,840,000
1,165,000 Allstate Corp. . . . . . . . . . . 67,424,375
603,850 American International
Group, Inc. . . . . . . . . . . . 65,366,763
200,000 Aon Corp. . . . . . . . . . . . . 12,425,000
------------
183,056,138
------------
MISCELLANEOUS--5.7%
876,000 NIKE, Inc. Class B . . . . . . . . 52,341,000
190,000 United Technologies Corp. . . . . 12,540,000
------------
64,881,000
------------
OFFICE EQUIPMENT & SUPPLIES--1.8%
136,000 International Business Machines . 20,536,000
------------
OIL--MAJOR INTEGRATED--9.5%
364,500 British Petroleum PLC (ADR)(d) . . 51,531,188
586,000 Texaco, Inc. . . . . . . . . . . . 57,501,250
------------
109,032,438
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
OIL--SERVICE--13.1%
740,000 Baker Hughes, Inc. . . . . . . $ 25,530,000
1,015,000 Halliburton Co. . . . . . . . . 61,153,750
626,000 Schlumberger Ltd. . . . . . . . 62,521,750
--------------
149,205,500
--------------
PERIPHERALS--4.6%
1,338,000 Seagate Technology(c) . . . . . 52,851,000
--------------
Total Common Stock
(Identified Cost
$867,912,359) . . . . . . . . 1,115,985,763
--------------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENT--1.9%
FACE
AMOUNT
<C> <S> <C>
$21,290,000 American Express Credit Corp.
6.55%, 01/02/97 . . . . . . . . . 21,290,000
--------------
Total Short-Term Investment
(Identified Cost $21,290,000) . . 21,290,000
--------------
Total Investments--99.6%
(Identified Cost
$889,202,359)(b) . . . . . . . . 1,137,275,763
Other assets less liabilities . . 5,384,412
--------------
TOTAL NET ASSETS--100% . . . . . . $1,142,660,175
==============
</TABLE>
(a) See Note 1A.
(b) Federal Tax Information:
At December 31, 1996 the net unrealized appreciation on investments based on
cost of $889,787,876 for federal income tax purposes was as follows:
<TABLE>
<CAPTION>
<C> <S> <C>
Aggregate gross unrealized appreciation for
all investments in which there is an excess
of value over tax cost . . . . . . . . . . $251,334,507
Aggregate gross unrealized depreciation for
all investments in which there is an excess
of tax cost over value . . . . . . . . . . (3,846,620)
------------
Net unrealized appreciation . . . . . . . . $247,487,887
============
</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.
20
<PAGE>
NEW ENGLAND ZENITH FUND
(CAPITAL GROWTH SERIES)
<TABLE>
<CAPTION>
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1996
ASSETS
<S> <C> <C>
Investments at value . . . . . . . $1,137,275,763
Cash . . . . . . . . . . . . . . . 1,293
Receivable for:
Fund shares sold . . . . . . . . . 739,181
Securities sold . . . . . . . . . 17,254,428
Dividends and interest . . . . . . 1,510,108
--------------
1,156,780,773
LIABILITIES
Payable for:
Securities purchased . . . . . . . $12,706,300
Fund shares redeemed . . . . . . . 616,582
Withholding taxes . . . . . . . . 74,007
Miscellaneous . . . . . . . . . . 23,225
Accrued expenses:
Management fees . . . . . . . . . 613,663
Deferred trustees' fees . . . . . 56,092
Other expenses . . . . . . . . . . 30,729
-----------
14,120,598
--------------
$1,142,660,175
==============
NET ASSETS
Net Assets consist of:
Capital paid in . . . . . . . . . $ 863,208,951
Undistributed net
investment income . . . . . . . . 36,394
Accumulated net realized gains . . 31,341,426
Unrealized appreciation on
investments . . . . . . . . . . . 248,073,404
--------------
NET ASSETS . . . . . . . . . . . . . $1,142,660,175
==============
Computation of offering price:
Net asset value and redemption price
per share ($1,142,660,175 divided by
2,675,506 shares of beneficial
interest) . . . . . . . . . . . . . $ 427.08
==============
Identified cost of investments . . . $ 889,202,359
==============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
INVESTMENT INCOME
<S> <C> <C>
Dividends . . . . . . . . . . . . $ 14,724,056(a)
Interest . . . . . . . . . . . . . 163,836
------------
14,887,892
EXPENSES
Management fees . . . . . . . . . $6,398,659
Trustees' fees and expenses . . . 59,562
Custodian . . . . . . . . . . . . 156,442
Audit and tax services . . . . . . 16,800
Legal . . . . . . . . . . . . . . 11,564
Printing . . . . . . . . . . . . . 304,709
Miscellaneous . . . . . . . . . . 10,791
----------
Total expenses . . . . . . . . . 6,958,527
------------
NET INVESTMENT INCOME . . . . . . . 7,929,365
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Realized gain on:
Investments--net . . . . . . . . 68,632,360
Unrealized appreciation on:
Investments--net . . . . . . . . 121,815,567
------------
Net gain on investment transactions 190,447,927
------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS . . . . . . . . . . . . $198,377,292
============
</TABLE>
(a) Net of foreign taxes of: $74,164.
See accompanying notes to financial statements.
21
<PAGE>
NEW ENGLAND ZENITH FUND
(CAPITAL GROWTH SERIES)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
-------------- -----------------
<S> <C> <C>
FROM OPERATIONS
Net investment income . . . . . . . . . . $ 7,450,611 $ 7,929,365
Net realized gain on investments . . . . . 132,068,325 68,632,360
Unrealized appreciation on investments . . 114,117,353 121,815,567
------------- --------------
INCREASE IN NET ASSETS FROM OPERATIONS . . 253,636,289 198,377,292
------------- ---------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income . . . . . . . . . . (7,422,072) (7,921,505)
============= ==============
Net realized gain on investments . . . . . (112,289,797) (57,069,463)
------------- --------------
(119,711,869) (64,990,968)
------------- --------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares . . . . . . . 211,234,567 236,084,630
Net asset value of shares issued in
connection with the reinvestment of:
Distributions from net investment income 7,422,051 7,921,505
Distributions from net realized gain . . 112,289,762 57,069,463
------------- --------------
330,946,380 301,075,598
Cost of shares redeemed . . . . . . . . . (210,553,681) (213,245,567)
------------- --------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS . . . . . . . . . . . 120,392,699 87,830,031
------------- --------------
TOTAL INCREASE IN NET ASSETS . . . . . . . 254,317,119 221,216,355
NET ASSETS
Beginning of the year . . . . . . . . . . 667,126,701 921,443,820
------------- --------------
End of the year . . . . . . . . . . . . . $ 921,443,820 $1,142,660,175
============= ==============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year . . . . . . . . . . $ 278,739 $ 28,556
============= ==============
End of the year . . . . . . . . . . . . . $ 28,556 $ 36,394
============= ==============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares . . . . . . 561,255 647,661
Issued in connection with the reinvestment
of:
Distributions from net investment income 19,951 18,320
Distributions from net realized gain . . 301,846 83,188
------------- --------------
883,052 749,169
Redeemed . . . . . . . . . . . . . . . . . (559,603) (533,320)
------------- --------------
Net change . . . . . . . . . . . . . . . . 323,449 215,849
============= ==============
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 347.36 $ 322.23 $ 351.63 $ 312.30 $ 374.62
-------- -------- -------- -------- ----------
Income From Investment
Operations
Net Investment
Income . . . . . . 4.04 2.12 5.28 3.47 3.08
Net Realized and
Unrealized Gain
(Loss) on
Investments . . . . (25.10) 46.21 (30.54) 114.91 74.80
-------- -------- -------- -------- ----------
Total From Investment
Operations. . . . . (21.06) 48.33 (25.26) 118.38 77.88
-------- -------- -------- -------- ----------
Less Distributions
Dividends From Net
Investment Income . (4.07) (2.18) (5.15) (3.48) (3.08)
Distributions From
Net Realized Capital
Gains . . . . . . . 0.00 (16.75) (8.92) (52.58) (22.34)
-------- -------- -------- -------- ----------
Total Distributions (4.07) (18.93) (14.07) (56.06) (25.42)
-------- -------- -------- -------- ----------
Net Asset Value, End
of Period . . . . . $ 322.23 $ 351.63 $ 312.30 $ 374.62 $ 427.08
======== ======== ======== ======== ==========
TOTAL RETURN (%) . . (6.05) 14.97 (7.07) 38.03 21.08
Ratio of Operating
Expenses to Average
Net Assets (%) . . . 0.70 0.68 0.67 0.71 0.69
Ratio of Net
Investment Income to
Average Net
Assets (%) . . . . . 1.53 0.67 1.61 0.92 0.79
Portfolio Turnover
Rate (%) . . . . . . 207 169 140 242 207
Average Commission
Rate (a) . . . . . . -- -- -- -- $ 0.0669
Net Assets, End of
Period (000) . . . . $472,017 $644,384 $667,127 $921,444 $1,142,660
</TABLE>
(a) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for trades on which
commissions are charged. This rate generally does not reflect mark-ups,
mark-downs, or spreads on shares traded on a principal basis.
See accompanying notes to financial statements.
22
<PAGE>
LOOMIS SAYLES AVANTI GROWTH SERIES
PORTFOLIO MANAGERS: SCOTT PAPE AND BRUCE EBEL
LOOMIS, SAYLES & COMPANY, L.P.
[PHOTO OF SCOTT PAPE & BRUCE EBEL]
Q. HOW DID LOOMIS SAYLES AVANTI GROWTH SERIES PERFORM IN 1996?
A. The Series' total return of 17.58% was not far behind the Lipper Variable
Growth Average/11/ of 20.39%. Meanwhile, the widely-followed large-cap
indices--the Dow Jones Industrial Average and the Standard & Poor's 500 Stock
Index/19/--gained 26.01% and 22.90%, respectively. These strong returns by the
major indices masked underperformance by the broader marketplace.
In absolute terms, the Series' 1996 total return of 17.58% came on top of 1995's
figure of 30.35%. In both cases, shareholders profited from a positive
foundation for equities: a strong profit picture coupled with modest inflation.
In addition, fairly stable interest rates favored investors through most of the
year. Long-term rates began the year at around 6%, moved up briefly to the 7%
range during the summer, and had settled back down to around 6% by the end of
December.
The U.S. economy was more vigorous than we expected, especially in the first two
quarters. Later, a slowdown that we had anticipated began to materialize, as
first half growth of over 3% in the nation's Gross Domestic Product (GDP) had
shrunk to less than 2% by the third quarter. The market then grew defensive,
favoring larger cap issues for their greater liquidity and lower risk potential.
This shift drove the major indices higher, creating relative underperformance in
the rest of the marketplace.
Q. HOW DID YOU MANAGE THE SERIES THIS YEAR?
A. We took advantage of corporate earnings trends that tracked the economic
pattern; higher first-half growth rates gave way to a slowdown in growth--not a
downturn--later in the year. As a result, the market's leadership group became
narrower, as investors were willing to pay more for those companies whose
earnings met or exceeded expectations.
The Series benefited from this blue-chip trend because of its positions in
General Electric, Coca Cola, Merck and Microsoft, all industry leaders and good
examples of our long-standing strategy.
Using a bottom-up approach, we look for America's premier companies: dominant
well-managed companies whose earnings potential should reward shareholders with
above- average long term returns. We make few assumptions about sectors; the
Series' industry allocation is chiefly the result of our stock selection
process.
Performance also benefited from our technology holdings, including positions in
Cisco Systems, Oracle, Hewlett Packard and Intel. Strength in financial issues
also favored the Series. These interest-rate sensitive companies did
particularly well in the second half of the year as rates began to fall. Among
our financial holdings were American International Group, First Bank Systems and
MGIC. Two mergers also boosted performance; the acquisition of Duracell by
Gillette and St. Jude Medical's purchase of Ventritex.
We increased our defensive stance with a commitment to consumer staples--health
care, food and beverage and consumer products companies. Better than expected
earnings from these less economically sensitive companies added value to the
portfolio. Our focus on energy stocks was also beneficial, as an improved
supply/demand balance led to a pickup in drilling and exploration, after years
of underinvestment in this sector. Meanwhile, our exposure to emerging growth
companies hampered performance. Although many of these fast-growing companies
did well, their stock prices lagged as the market began to favor more
established names.
Late in the year we took profits in--but did not eliminate--some of our blue
chips, where prices seemed overextended. We reinvested part of the proceeds into
emerging companies like Amgen, Informix, Idexx Labs and Thermo Electron, which
we judged to offer attractive growth prospects.
Q. WHAT IS YOUR INVESTMENT OUTLOOK FOR THE MONTHS AHEAD?
A. For the next several months, the economy should continue to slow, putting
pressure on profit growth. In a more sluggish environment, investors will
probably be willing to pay a premium for companies with strong potential for
earnings increases. Over the next six to twelve months, we believe interest
rates will remain stable or decline.
Historically, markets are not as strong following presidential elections. Also,
the increase in stock prices over the last two years has pushed overall
valuations to the high end of historical ranges, making stock selection even
more important in 1997. Large cap stocks are unlikely to outrun the rest of the
market again, a view which favors mid-cap and emerging growth companies.
American companies continue to do a good job of bringing money to the bottom
line. Productivity is up. U.S. firms have become more competitive globally. Many
are leaders in a wide range of industries; semiconductors, medical devices,
telecommunications products, software and semiconductor capital equipment.
23
<PAGE>
The cost of technology goods and services is declining steadily. Technology's
share of the economy continues to grow--it now represents 15% of GDP--producing
a disinflationary effect and a positive impact on productivity. Labor costs have
increased slightly--but this is not unusual at this stage in the economic cycle.
Thus, these costs present very little threat of future inflation.
Q. HOW HAVE YOU POSITIONED THE SERIES IN LIGHT OF THESE ASSUMPTIONS?
A. We believe the Series is well-positioned in view of our outlook for a more
positive tone in the broader stock market. We are emphasizing consumer
non-durables and have increased exposure to emerging growth stocks. We have also
built a strong position in technology, designed to take advantage of a long-term
trend toward expanded spending in this area.
A pickup in consumer spending could counter our thesis of a slowing economy.
Also, accelerating economic activity abroad might be a contrary indicator.
Finally, we will continue to watch closely the flow of money into mutual funds
and the stock market overall.
[A CHART APPEARS HERE COMPARING THE GROWTH OF A
$10,000 INVESTMENT IN THE SERIES COMPARED TO
AN INDEX]
<TABLE>
<CAPTION>
Avanti Growth
Series S&P 500
<S> <C> <C>
Inception 4/30/93 10000 10000
1993 11474 10819
1994 11443 10966
1995 14916 15072
12/31/96 17538 18524
</TABLE>
FUND FACTS
GOAL: Long-term growth of capital.
START DATE: April 30, 1993
SIZE: $83 million as of December 31, 1996
MANAGERS: Scott Pape has co-managed the Series since 1993; Bruce Ebel began
co-managing the Series in June 1996. They both also manage the New England
Capital Growth Fund. Mr. Pape joined Loomis Sayles in 1991 and Mr. Ebel joined
Loomis Sayles in 1994.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life insurance
contracts. If these charges were included, the returns shown would be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
24
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES AVANTI GROWTH SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--98.8% OF NET ASSETS
SHARES VALUE (A)
<C> <S> <C>
AEROSPACE--1.9%
15,000 Boeing Co. . . . . . . . . . . . . . . $ 1,595,625
-----------
AIRLINES--0.9%
34,900 Southwest Airlines Co.. . . . . . . . . 772,162
-----------
APPAREL & TEXTILES--0.6%
8,100 NIKE, Inc., Class B . . . . . . . . . . 483,975
-----------
BANKS--1.8%
2,900 Chase Manhattan Corp., New . . . . . . 258,825
17,800 First Bank Systems, Inc. . . . . . . . 1,214,850
-----------
1,473,675
-----------
BEVERAGES--2.7%
25,100 Coca-Cola Co. . . . . . . . . . . . . . 1,320,887
31,200 PepsiCo, Inc. . . . . . . . . . . . . . 912,600
-----------
2,233,487
-----------
BUSINESS SERVICES--10.9%
14,000 ABR Information Services, Inc.(c) . . . 551,250
30,700 Automatic Data Processing . . . . . . . 1,316,263
36,000 Checkfree Corp.(c) . . . . . . . . . . 616,500
24,200 Cintas Corp. . . . . . . . . . . . . . 1,421,750
21,400 Danka Business Systems . . . . . . . . 757,025
41,500 First Data Corp. . . . . . . . . . . . 1,514,750
44,250 Fiserv, Inc.(c) . . . . . . . . . . . . 1,626,188
22,100 Paychex, Inc. . . . . . . . . . . . . . 1,136,769
1,500 Sykes Enterprises, Inc.(c) . . . . . . 56,250
-----------
8,996,745
-----------
CHEMICALS--1.6%
34,500 Monsanto Co. . . . . . . . . . . . . . 1,341,188
-----------
COMPUTER SOFTWARE & SERVICES--7.1%
5,500 Computer Associates International, Inc. 273,625
18,400 HBO & Co. . . . . . . . . . . . . . . . 1,092,500
16,500 HNC Software, Inc.(c) . . . . . . . . . 515,625
47,400 Informix Corp.(c) . . . . . . . . . . . 965,775
22,100 Microsoft Corp. . . . . . . . . . . . . 1,826,013
27,800 Oracle Systems Corp.(c) . . . . . . . . 1,160,650
-----------
5,834,188
-----------
CONGLOMERATES--1.4%
27,500 Thermo Electron Corp.(c) . . . . . . . 1,134,375
-----------
ELECTRICAL EQUIPMENT--2.6%
21,800 General Electric Co. . . . . . . . . . 2,155,475
-----------
ELECTRONIC COMPONENTS--6.5%
28,500 Glenayre Technologies, Inc.(c) . . . . 614,531
12,900 Intel Corp. . . . . . . . . . . . . . . 1,689,094
27,800 LSI Logic Corp.(c) . . . . . . . . . . 743,650
7,000 Molex, Inc. . . . . . . . . . . . . . . 273,875
30,000 Molex, Inc. Class A . . . . . . . . . . 1,068,750
18,700 Solectron Corp.(c) . . . . . . . . . . 998,112
-----------
5,388,012
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
FINANCIAL SERVICES--2.3%
17,300 Charles Schwab Corp., New . . . . . . $ 553,600
17,800 MGIC Investment Corp. . . . . . . . . 1,352,800
-----------
1,906,400
-----------
GAS & PIPELINE UTILITIES--0.5%
9,800 Enron Corp. . . . . . . . . . . . . . 422,625
-----------
HEALTH CARE--MEDICAL TECHNOLOGY--5.0%
21,200 Boston Scientific Corp.(c) . . . . . 1,272,000
40,300 Indexx Laboratories, Inc.(c) . . . . 1,450,800
21,100 Medtronic, Inc. . . . . . . . . . . . 1,434,800
-----------
4,157,600
-----------
HEALTH CARE--DRUGS--9.2%
18,000 Abbott Laboratories . . . . . . . . . 913,500
26,300 Amgen, Inc.(c) . . . . . . . . . . . 1,430,063
26,000 Biogen, Inc.(c) . . . . . . . . . . . 1,007,500
6,900 Eli Lilly & Co. . . . . . . . . . . 503,700
19,700 Johnson & Johnson . . . . . . . . . . 980,075
26,000 Merck & Co. . . . . . . . . . . . 2,060,500
107,000 Oncor, Inc.(c) . . . . . . . . . . . 421,312
23,000 Somatogen, Inc.(c) . . . . . . . . . 253,000
-----------
7,569,650
-----------
HEALTH CARE--SERVICES--3.8%
33,000 Columbia / HCA Healthcare Corp. . . 1,344,750
32,600 Healthsouth Corp.(c) . . . . . . . . 1,259,175
17,650 Phycor, Inc.(c) . . . . . . . . . . . 500,819
-----------
3,104,744
-----------
HOTELS & RESTAURANTS--4.7%
14,000 Boston Chicken, Inc.(c) . . . . . . . 502,250
8,100 Circus Circus Enterprises, Inc.(c) . 278,437
10,000 Einstein Noah Bagel Corp.(c) . . . . 297,500
30,000 Lone Star Steakhouse Saloon(c) . . . 802,500
3,300 McDonald's Corp. . . . . . . . . . 149,325
15,900 Primadonna Resorts, Inc.(c) . . . . . 270,300
54,900 Starbucks Corp.(c) . . . . . . . . . 1,571,513
-----------
3,871,825
-----------
HOUSEHOLD PRODUCTS--5.0%
22,200 Duracell International, Inc. . . . . 1,551,225
19,500 Gillette Co. . . . . . . . . . . . . 1,516,125
2,000 Kimberly-Clark Corp. . . . . . . . 190,500
22,500 Newell Co. . . . . . . . . . . . . 708,750
1,600 Procter & Gamble Co. . . . . . . . 172,000
-----------
4,138,600
-----------
INSURANCE--1.7%
13,100 American International Group, Inc.(c) 1,418,075
-----------
LEISURE TIME--1.3%
13,400 Eastman Kodak Co. . . . . . . . . . . 1,075,350
-----------
</TABLE>
See accompanying notes to financial statements.
25
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES AVANTI GROWTH SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--(CONTINUED)
SHARES VALUE (A)
<C> <S> <C>
MACHINERY--1.5%
15,400 Illinois Tool Works, Inc. . . . . . $1,230,075
----------
MEDIA & ENTERTAINMENT--1.3%
1,550 TCI Satellite Entertainment, Inc.(c) 15,306
17,300 Tele-Communicationas, Inc.(c) . . . 225,981
12,100 Walt Disney Co. . . . . . . . . . . 842,462
----------
1,083,749
----------
METALS---0.2%
3,900 Nucor Corp. . . . . . . . . . . . . 198,900
----------
OFFICE EQUIPMENT & SUPPLIES--7.3%
24,600 Cascade Communications Corp.(c) . . 1,356,075
25,400 Cisco Systems, Inc.(c) . . . . . . . 1,616,075
21,400 Hewlett-Packard Co. . . . . . . . . 1,075,350
26,200 Parametric Technology Corp. . . . . 1,346,025
8,500 U.S. Robotics Corp.(c) . . . . . . . 612,000
----------
6,005,525
----------
OIL--INDEPENDENT PRODUCERS--2.4%
27,700 Anadarko Petroleum Corp. . . . . . . 1,793,575
6,000 Enron Oil & Gas Co. . . . . . . . . 151,500
----------
1,945,075
----------
OIL--MAJOR INTEGRATED--0.3%
3,300 Amoco Corp. . . . . . . . . . . . . 265,650
----------
OIL SERVICES--2.4%
14,500 Baker Hughes, Inc. . . . . . . . . . 500,250
14,300 Rowan Companies(c) . . . . . . . . . 323,537
11,500 Schlumberger, Ltd. . . . . . . . . . 1,148,563
----------
1,972,350
----------
RETAIL---0.2%
7,800 Wal-Mart Stores, Inc. . . . . . . . 178,425
----------
RETAIL SPECIALTY--5.4%
70,125 CUC International, Inc.(c) . . . . . 1,665,469
21,500 Home Depot, Inc. . . . . . . . . . . 1,077,687
77,200 Petsmart, Inc.(c) . . . . . . . . . 1,688,750
----------
4,431,906
----------
TELECOMMUNICATION--4.4%
8,100 MCI Communications . . . . . . . . . 264,769
8,400 Paging Network, Inc.(c) . . . . . . 128,100
17,200 PairGain Technologies, Inc.(c) . . . 523,525
30,900 QUALCOMM, Inc.(c) . . . . . . . . . 1,232,138
28,000 Tellabs, Inc.(c) . . . . . . . . . . 1,053,500
8,800 U.S. West Media Group(c) . . . . . . 162,800
11,800 Worldcom, Inc.(c) . . . . . . . . . 307,537
----------
3,672,369
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
TOBACCO--1.9%
13,900 Philip Morris Companies, Inc. $ 1,565,488
-----------
Total Common Stocks
(Identified Cost
$69,052,280) . . . . . . . . 81,623,288
-----------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENT--4.0%
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$3,285,796 Associates Corp. North America
6.55% 1/02/97 . . . . . . . . . 3,285,796
-----------
Total Short-Term Investment
(Identified cost $3,285,796) . . 3,285,796
-----------
Total Investments 102.8%
(Identified cost $72,338,076)(b) 84,909,084
Other assets less liabilities . . (2,241,739)
-----------
TOTAL NET ASSETS--100% . . . . . $82,667,345
===========
</TABLE>
(a) See Note 1A.
(b) Federal Tax Information:
At December 31, 1996 the net unrealized appreciation on investments based on
cost of $72,665,614 for federal income tax purposes was as follows:
<TABLE>
<CAPTION>
<C> <S> <C>
Aggregate gross unrealized appreciation for
all investments in which there is an excess
of value over tax cost . . . . . . . . . . $14,356,377
Aggregate gross unrealized depreciation for
all investments in which there is an excess
of tax cost over value . . . . . . . . . . (2,112,907)
-----------
Net unrealized appreciation . . . . . . . . $12,243,470
===========
</TABLE>
(c) Non-income producing security.
See accompanying notes to financial statements.
26
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES AVANTI GROWTH SERIES)
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1996
ASSETS
Investments at value . . . . . . . . . $84,909,084
Receivable for:
Fund shares sold . . . . . . . . . . . 260,183
Dividends and interest . . . . . . . . 66,351
Foreign taxes . . . . . . . . . . . . 44
-----------
85,235,662
LIABILITIES
Payable for:
Securities purchased . . . . . . . . . $2,383,605
Fund shares redeemed . . . . . . . . . 74,873
Withholding taxes . . . . . . . . . . 351
Miscellaneous . . . . . . . . . . . . 474
Accrued expenses:
Management fees . . . . . . . . . . . 82,461
Deferred trustees' fees . . . . . . . 1,086
Other expenses . . . . . . . . . . . . 25,467
----------
2,568,317
-----------
$82,667,345
===========
NET ASSETS
Net Assets consist of:
Capital paid in . . . . . . . . . . . $68,933,894
Accumulated net realized gains . . . . 1,162,443
Unrealized appreciation on
investments . . . . . . . . . . . . . 12,571,008
-----------
NET ASSETS . . . . . . . . . . . . . . . $82,667,345
===========
Computation of offering price:
Net asset value and redemption price per
share ($82,667,345 divided by 523,600
shares of beneficial interest) . . . . $ 157.88
===========
Identified cost of investments . . . . . $72,338,076
===========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
INVESTMENT INCOME
Dividends . . . . . . . . . . . . $ 436,309(a)
Interest . . . . . . . . . . . . . 164,434
-----------
600,743
EXPENSES
Management fees . . . . . . . . . $454,015
Trustees' fees and expenses . . . 11,532
Custodian . . . . . . . . . . . . 55,097
Audit and tax services . . . . . . 13,200
Legal . . . . . . . . . . . . . . 11,564
Printing . . . . . . . . . . . . . 44,769
Miscellaneous . . . . . . . . . . 4,122
--------
Total expenses . . . . . . . . . 594,299
Less expenses assumed by the
investment adviser. . . . . . . (42,992) 551,307
-------- -----------
NET INVESTMENT INCOME . . . . . . . 49,436
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Realized gain on:
Investments--net . . . . . . . . 4,796,759
Unrealized appreciation on:
Investments--net . . . . . . . . 5,241,031
-----------
Net gain on investment transactions 10,037,790
-----------
NET INCREASE IN NET ASSETS FROM
OPERATIONS . . . . . . . . . . . . $10,087,226
===========
</TABLE>
(a) Net of foreign taxes of: $514.
See accompanying notes to financial statements.
27
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES AVANTI GROWTH SERIES)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------- ---------------
<S> <C> <C>
FROM OPERATIONS
Net investment income . . . . . . . . . . . . $ 138,413 $ 49,436
Net realized gain on investments . . . . . . 2,703,726 4,796,759
Unrealized appreciation on investments . . . 6,182,432 5,241,031
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS . . . 9,024,571 10,087,226
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income . . . . . . . . . . . . (132,051) (56,514)
Net realized gain on investments . . . . . . (1,364,969) (4,542,510)
------------ ------------
(1,497,020) (4,599,024)
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares . . . . . . . . 25,328,373 40,573,027
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income . . 132,051 56,514
Distributions from net realized gain . . . . 1,364,969 4,542,510
------------ ------------
26,825,393 45,172,051
Cost of shares redeemed . . . . . . . . . . . (11,142,834) (16,825,278)
------------ ------------
Increase in net assets derived from capital
share transactions . . . . . . . . . . . . . 15,682,559 28,346,773
------------ ------------
Total increase in net assets . . . . . . . . 23,210,110 33,834,975
NET ASSETS
Beginning of the year . . . . . . . . . . . . 25,622,260 48,832,370
------------ ------------
End of the year . . . . . . . . . . . . . . . $ 48,832,370 $ 82,667,345
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year . . . . . . . . . . . . $ 0 $ 6,362
============ ============
End of the year . . . . . . . . . . . . . . . $ 6,362 $ 0
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares . . . . . . . 188,223 265,834
Issued in connection with the reinvestment of:
Distributions from net investment income . . 929 313
Distributions from net realized gain . . . . 9,604 22,968
------------ ------------
198,756 289,115
Redeemed . . . . . . . . . . . . . . . . . . (83,183) (108,338)
------------ ------------
Net change . . . . . . . . . . . . . . . . . 115,573 180,777
============ ============
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
APRIL 30, 1993(A) YEAR YEAR YEAR
THROUGH ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995 1996
----------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $100.00 $113.67 $112.77 $142.44
------- ------- ------- -------
Income From Investment
Operations
Net Investment
Income . . . . . . 0.18 0.59 0.42 0.11
Net Realized and
Unrealized Gain
(Loss) on
Investment . . . . 14.56 (0.89) 33.80 24.88
------- ------- ------- -------
Total From Investment
Operations. . . . . 14.74 (0.30) 34.22 24.99
------- ------- ------- -------
Less Distributions
Dividends From Net
Investment Income . (0.18) (0.60) (0.40) (0.13)
Distributions From
Net Realized Capital
Gains . . . . . . . (0.67) 0.00 (4.15) (9.42)
Distributions From
Paid-in Capital . . (0.22) 0.00 0.00 0.00
------- ------- ------- -------
Total Distributions (1.07) (0.60) (4.55) (9.55)
------- ------- ------- -------
Net Asset Value, End
of Period . . . . . $113.67 $112.77 $142.44 $157.88
======= ======= ======= =======
TOTAL RETURN (%) . . 14.74(c) (0.27) 30.35 17.58
Ratio of Operating
Expenses to Average
Net Assets (%) . . . 0.85(b) 0.84 0.85 0.85
Ratio of Net
Investment Income
to Average Net
Assets (%) . . . . . 0.46(b) 0.67 0.37 0.08
Portfolio Turnover
Rate (%) . . . . . . 21(b) 67 58 65
Average Commission
Rate(d) . . . . . . -- -- -- $0.0508
Net Assets, End of
Period (000) . . . . $11,972 $25,622 $48,832 $82,667
The ratios of expenses
to average net assets
without giving effect
to the voluntary
expense agreement
described in Note 4
to the Financial
Statements would have
been (%) . . . . . . 0.89(b) 0.84 1.06 0.92
</TABLE>
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
(d) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for trades on which
commissions are charged. This rate generally does not reflect mark-ups,
mark-downs, or spreads on shares traded on a principal basis.
See accompanying notes to financial statements.
28
<PAGE>
DAVIS VENTURE VALUE SERIES
PORTFOLIO MANAGERS: SHELBY M.C. DAVIS AND CHRISTOPHER C. DAVIS
DAVIS SELECTED ADVISERS, L.P.
PHOTO OF SHELBY AND CHRISTOPHER DAVIS
Q. HOW DID THE SERIES PERFORM IN 1996?
A. The Davis Venture Value Series delivered a total return of 25.84% for the
twelve months ended December 31, 1996, compared to a 22.90% gain for the
Standard & Poor's 500 Index/19/.
The strong performance of the index and the Series was to a large extent the
result of a fairly benign U.S. economy during 1996. While various economic
indicators argued for an acceleration of growth and a step-up in inflation,
others contradicted this conclusion, and the net result was a so-called
"Goldilocks" economy--neither too fast nor too slow. Combined with widely
reported strong corporate profits, the result was a buoyant (if somewhat
skittish) stock market during most of the year.
The final quarter of 1996 was an exceptionally strong period for U.S. stocks,
with the Dow Jones Industrial Average broaching an all-time high of 6548 on
December 27, 1996. However, as happened generally throughout 1996,
large-capitalization stocks fared better than smaller-capitalization issues.
Also, investors continued to punish the stock of any company, large or small,
that reported disappointing earnings, creating considerable volatility and a
dichotomous market of substantial winners and losers.
Q. HOW DID YOU MANAGE THE SERIES IN 1996?
A. Consistent with our long-term approach to investing, we did not revise the
portfolio in response to the economy or market momentum, except to take
advantage of others' short-term thinking. We believed that staying the course
would best serve our strategy, the key tenets of which are:
. An emphasis on stocks of financial companies with strong brand names that are
selling at a discount to the market. Such companies stand to be the
beneficiaries of long-term demographic trends as baby-boomers approach their
peak earnings and savings years with greater discretionary cash and an
increasing need to invest for retirement. Despite a strong year for many banks
and brokerage firms, financial company stocks remain undervalued relative to
the broader market.
. Purchasing high-quality growth companies during temporary lows. As we
mentioned earlier, the market tended to abandon stocks quickly if quarterly
earnings disappointed, regardless of sound fundamentals or long-term
prospects. In keeping with our longer-term perspective, we view these
short-term price dips as an opportunity to buy at favorable prices. Among our
opportunistic additions to the portfolio was IBM, which did extremely well.
. Investing in high-quality U.S.-based multinational corporations positioned to
grow with the expanding economies overseas.
. Choosing companies with strong cash flows and top management teams that are
undergoing restructuring. We look for those where the cash is being used to
implement a long-term vision and/or to buy back stock.
As a group, financial stocks continued to be our strong- performing sector, led
primarily by banks and brokerage firms. The best-performing individual stocks,
however, were pri marily very large companies with consistently strong earnings,
spread across a wide variety of industries, including consumer products (Philip
Morris), technology (IBM and Intel), diversified financial services (American
Express), oil services (Noble Drilling) and automotive ( General Motors).
Results were least favorable overall for the telecommunications sector, where
the market, in our view, tended to overreact to any negative event or
information. The least profitable of the portfolio's holdings were in a variety
of industries, such as life insurance (Equitable) and food (McDonald's). Stock
prices of both companies fell as a result of lower-than-expected short-term
earnings. However, the downturn was neither sudden nor unpredictable in either
case, and we continue to believe in their long-term potential.
Q. WHAT IS YOUR INVESTMENT OUTLOOK FOR THE MONTHS AHEAD?
A. We remain optimistic about the state of the economy and believe that 1997
could be another year of modest growth and stable interest rates. We are less
positive about the outlook for corporate profits, as few companies can sustain
earnings growth rates of 20% and 30% indefinitely. Benign economic conditions
notwithstanding, a falloff in profits would likely spell a slower-growing stock
market.
Whether or not the market continues its record-setting runup, we do not
anticipate major adjustments to the portfolio. As value-conscious, buy-and-hold
investors, we make commitments to companies with superior managements that are
positioned to take
29
<PAGE>
advantage of broad economic, demographic and social trends and have the
attributes to consistently deliver more reasonable (i.e., sustainable) earnings
growth. Historically, this has resulted in solid results during up cycles and
superior returns during downturns.
[A CHART APPEARS HERE COMPARING A $10,000
INVESTMENT IN THE SERIES AND AN INDEX]
<TABLE>
<CAPTION>
Venture Value
Series S&P 500
<S> <C> <C>
10/31/94 10000 10000
12/94 9650 9794
12/95 13441 13461
12/96 16914 16544
</TABLE>
FUND FACTS
GOAL: Growth of capital.
START DATE: October 31, 1994
SIZE: $108 million as of December 31, 1996
MANAGER: Shelby M.C. Davis has served as portfolio manager since the Series'
inception in 1994 and has served as portfolio manager of Davis New York Venture
Fund since 1968 and of Selected American Shares since May 1993. He also
managed the Selected Special Fund from May 1993 through October 1994 and the
Davis Financial Fund from May 1991 through May 1995. Christopher C. Davis has
co-managed the Series since October 1995 and has been an assistant portfolio
manager and research analyst at Davis Selected.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life insurance
contracts. If these charges were included, the returns shown would be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
30
<PAGE>
NEW ENGLAND ZENITH FUND
(DAVIS VENTURE VALUE SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--90.8% OF TOTAL NET ASSETS
SHARES VALUE (A)
<C> <S> <C>
AEROSPACE--1.9%
19,600 Boeing Co. . . . . . . . . . . . $ 2,084,950
-----------
AGRICULTURE--1.0%
48,855 Archer-Daniels-Midland Co. . . . . 1,074,810
-----------
AUTOMOTIVE--2.4%
30,100 General Motors Corp. . . . . . . . 1,678,075
17,200 General Motors Corp., Class H . . . 967,500
-----------
2,645,575
-----------
BANKS AND SAVINGS & LOANS--12.3%
24,160 Banc One Corp. . . . . . . . . . . 1,038,880
23,900 BankAmerica Corp. . . . . . . . . . 2,384,025
18,100 Barnett Banks, Inc. . . . . . . . . 744,363
22,880 Citicorp . . . . . . . . . . . . . 2,356,640
25,700 First Bank Systems, Inc. . . . . . 1,754,025
400 First Union Corp. . . . . . . . . . 29,600
14,300 Golden West Financial Corp. . . . . 902,687
23,100 State Street Boston Corp. . . . . . 1,489,950
9,500 Wells Fargo & Co. . . . . . . . . . 2,562,625
-----------
13,262,795
-----------
CONSUMER PRODUCTS--5.9%
800 American Brands, Inc. . . . . . . . 39,700
500 American Home Products Corp. . . . 29,313
21,400 Coca-Cola Co. . . . . . . . . . . 1,126,175
1,200 General Electric Co. . . . . . . . 118,650
63,400 Guinness PLC(f) . . . . . . . . . . 498,554
30,000 Masco Corp. . . . . . . . . . . . . 1,080,000
12,300 Nestle S.A. (ADR)(d) . . . . . . . 658,180
25,500 Philip Morris Companies, Inc. . . . 2,871,937
-----------
6,422,509
-----------
DIVERSIFIED FINANCIAL SERVICES--6.4%
62,400 American Express Co. . . . . . . . 3,525,600
24,400 Dean Witter, Discover & Co. . . . 1,616,500
16,600 Federal Home Loan Mortgage Corp. . 1,828,075
-----------
6,970,175
-----------
DRILLING EQUIPMENT--0.3%
8,400 Smith International, Inc.(c) . . . 376,950
-----------
ENERGY--7.8%
400 Amerada Hess Corp. . . . . . . . . 23,150
300 Amoco Corp. . . . . . . . . . . . . 24,150
500 Atlantic Richfield Co. . . . . . . 66,250
46,100 Burlington Resources, Inc. . . . . 2,322,287
1,500 Chevron Corp. . . . . . . . . . . . 97,500
15,500 Energy Venture, Inc.(c) . . . . . . 788,562
2,400 Exxon Corp. . . . . . . . . . . . 235,200
4,000 Falcon Drilling(c) . . . . . . . . 157,000
33,500 Halliburton Co. . . . . . . . . . 2,018,375
200 Mobil Corp. . . . . . . . . . . . . 24,450
27,364 Noble Affiliates, Inc. . . . . . . 1,310,052
13,100 Schlumberger, Ltd. . . . . . . . . 1,308,362
400 Sonat, Inc. . . . . . . . . . . . . 20,600
-----------
8,395,938
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
ENTERTAINMENT--0.7%
10,600 Walt Disney Co. . . . . . . . . . . . . $ 738,025
-----------
FOOD & RESTAURANT--2.1%
39,600 McDonald's Corp. . . . . . . . . . . . . 1,791,900
15,100 Tyson Foods Inc. . . . . . . . . . . . 517,175
-----------
2,309,075
-----------
HOUSING & BUILDING MATERIALS--1.2%
53,800 Martin Marietta Materials, Inc. . . . . 1,250,850
-----------
INFORMATION SERVICES--0.0%
100 Cognizant Corp.(c) . . . . . . . . . . . 3,300
-----------
INTERNATIONAL CLOSED-END INVESTMENT COMPANY--0.7%
76,034 Morgan Stanley Asia Pacific Fund,
Inc. . . . . . . . . . . . . . . . . 741,332
-----------
INVESTMENT FIRMS--4.1%
23,500 Donaldson Lufkin & Jenrette, Inc. . . 846,000
16,000 J.P. Morgan & Co., Inc. . . . . . . . . 1,562,000
35,600 Morgan Stanley Group, Inc. . . . . . . 2,033,650
-----------
4,441,650
-----------
LIFE INSURANCE--3.1%
59,300 Equitable Companies, Inc. . . . . . . . 1,460,262
43,700 SunAmerica, Inc. . . . . . . . . . . . . 1,939,187
------------
3,399,449
------------
MANUFACTURING--0.0%
200 Dow Chemical Co. . . . . . . . . . . . . 15,675
800 Maytag Corp. . . . . . . . . . . . . . . 15,800
-----------
31,475
-----------
MARKETING ANALYSIS--0.0%
33 ACNeilson Corp. (c) . . . . . . . . . . 499
-----------
PAPER PRODUCTS--1.4%
25,200 Fort Howard Corp.(c) . . . . . . . . . . 697,725
300 International Paper Co. . . . . . . . 12,113
21,500 Jefferson Smurfit Corp.(c) . . . . . . . 345,344
4,200 Kimberly-Clark Corp. . . . . . . . . . . 400,050
400 Union Camp Corp. . . . . . . . . . . . . 19,100
-----------
1,474,332
-----------
PHARMACEUTICAL AND HEALTH CARE--2.9%
200 Bristol-Myers Squibb Co. . . . . . . . . 21,750
8,900 Eli Lilly & Co. . . . . . . . . . . . . 649,700
11,000 Johnson & Johnson . . . . . . . . . . . 547,250
5,100 Merck & Co. . . . . . . . . . . . . . . 404,175
18,100 Pfizer, Inc. . . . . . . . . . . . . . . 1,500,037
-----------
3,122,912
-----------
PHOTOGRAPHIC--1.6%
21,100 Eastman Kodak Co. . . . . . . . . . . 1,693,275
-----------
PROPERTY/CASUALTY INSURANCE--12.6%
35,481 The Allstate Corp. . . . . . . . . . . 2,053,463
7,200 American International Group, Inc. . . 779,400
23,200 W.R. Berkley Corp. . . . . . . . . . . . 1,177,400
31,400 Chubb Corp. . . . . . . . . . . . . . . 1,687,750
</TABLE>
See accompanying notes to financial statements.
31
<PAGE>
NEW ENGLAND ZENITH FUND
(DAVIS VENTURE VALUE SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--(CONTINUED)
SHARES VALUE (A)
<C> <S> <C>
PROPERTY/CASUALTY INSURANCE--(CONTINUED)
12,774 General Re Corp. . . . . . . . . . $ 2,015,098
6,100 NAC Re Corp. . . . . . . . . . . . 206,638
13,500 Progressive Corp. . . . . . . . . . . 909,563
15,500 Transatlantic Holdings, Inc. . . . 1,247,750
56,033 The Travelers Group, Inc. . . . . . . 2,542,497
25,400 20th Century Industries, Inc.(c) . . 428,625
7,100 UNUM Corp. . . . . . . . . . . . . 512,975
------------
13,561,159
------------
PUBLISHING--2.8%
100 Dun & Bradstreet Corp. . . . . . . . 2,375
18,400 Gannet Co., Inc. . . . . . . . . . . 1,377,700
52,900 News Corporation, Ltd. . . . . . . . 932,362
8,700 Tribune Co. . . . . . . . . . . . . . 686,213
------------
2,998,650
------------
RAILROAD--3.4%
21,900 Burlington Northern Santa Fe . . . . 1,891,612
11,800 Illinois Central Corp. . . . . . . 377,600
23,800 Union Pacific Corp. . . . . . . . . 1,430,975
------------
3,700,187
------------
REAL ESTATE--2.3%
19,400 Crescent Real Estate Equities . . . . 1,023,350
9,100 Federal Realty Investment Trust . . . 246,838
2,100 Kimco Realty Corp. . . . . . . . . . 73,238
5,200 Mid-Atlantic Realty Trust . . . . . . 58,500
5,900 Saul Centers, Inc. . . . . . . . . . 93,663
10,100 United Dominion Realty Trust, Inc. . 156,550
14,600 Vornado Realty Trust . . . . . . . . 766,500
2,900 Weingarten Realty . . . . . . . . . . 117,813
------------
2,536,452
------------
RETAIL--1.3%
25,600 Federated Department Stores, Inc.(c) 873,600
12,500 Harcourt General, Inc. . . . . . . . 576,562
------------
1,450,162
------------
TECHNOLOGY--9.7%
18,700 Applied Materials, Inc.(c) . . . . . 672,031
39,700 Hewlett-Packard Co. . . . . . . . . . 1,994,925
23,500 Intel Corp. . . . . . . . . . . . . . 3,077,031
19,200 International Business Machines . . . 2,899,200
41,200 Komag, Inc.(c) . . . . . . . . . . . 1,117,550
13,000 Novellus Systems, Inc.(c) . . . . . . 704,438
------------
10,465,175
------------
TELECOMMUNICATIONS--2.3%
60,800 Airtouch Communications(c) . . . . . 1,535,200
2,800 AT&T Corp. . . . . . . . . . . . . . 121,800
1,900 Globalstar Telecommunications . . . . 119,700
842 Lucent Technologies, Inc. . . . . . . 38,943
300 SBC Communications, Inc. . . . . . . 15,525
27,000 360 Communications Co.(c) . . . . . . 624,375
------------
2,455,543
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
UTILITIES--0.6%
300 Carolina Power & Light Co. . . . . . . . . . . $ 10,950
2,200 Cooper Cameron Corp. (c) . . . . . . . . . . . 168,300
300 Duke Power Co. . . . . . . . . . . . . . . . . 13,875
200 Edison International . . . . . . . . . . . . . 3,975
100 Enova Corp. . . . . . . . . . . . . . . . . . 2,275
15,359 Union Pacific Resources Group . . . . . . . . 449,251
200 Wisconsin Energy Corp. . . . . . . . . . . . . 5,375
-----------
654,001
-----------
Total Common Stocks
(Identified Cost $80,077,440) . . . . . . . . 98,261,205
-----------
</TABLE>
<TABLE>
<CAPTION>
PREFERRED STOCK--0.3%
<C> <S> <C>
3,920 Airtouch Communications, Inc. . . . . . . . . $106,820
2,496 Airtouch Communications, Inc. . . . . . . . . 112,944
1,500 Banc One Corp., $3.50, Ser. C Conv. Pfd. . . 124,500
--------
Total Preferred Stocks
(Identified Cost $317,241) . . . . . . . . . 344,264
--------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS--8.6%
FACE
AMOUNT
<C> <S> <C>
$4,150,000 Federal National Mortgage Assn., Discount
Note, 5.715%, 1/02/97 . . . . . . . . . $ 4,149,352
5,160,000 Repurchase agreement with State Street
Bank & Trust Company dated 12/31/96 at
5.50% to be repurchased at $5,161,577 on
1/2/97. Collateralized by $5,265,000 U.S
Treasury Bills 4.75% due 8/31/98 with a
value of $5,265,374 . . . . . . . . . . 5,160,000
------------
Total Short-Term Investment
(Identified Cost $9,309,352) . . . . . . 9,309,352
------------
Total Investments--99.7%
(Identified Cost $89,704,033)(b) . . . . 107,914,821
Other assets less liabilities(e) . . . . 274,205
------------
TOTAL NET ASSETS--100% . . . . . . . . . $108,189,026
============
</TABLE>
(a) See Note 1a.
(b) Federal Tax Information:
At December 31, 1996 the net unrealized appreciation on investments based on
cost of $89,706,946 for federal income tax purposes was as follows:
<TABLE>
<CAPTION>
<C> <S> <C>
Aggregate gross unrealized appreciation for
all investments in which there is an excess
of value over tax cost . . . . . . . . . . $18,568,358
Aggregate gross unrealized depreciation for
all investments in which there is an excess
of tax cost over value . . . . . . . . . . (360,483)
-----------
Net unrealized appreciation . . . . . . . . $18,207,875
===========
</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) Including deposits in foreign denominated currencies with a value of $12,397
and a cost of $11,296.
(f) Denominated in Great Britain Pounds.
See accompanying notes to financial statements.
32
<PAGE>
NEW ENGLAND ZENITH FUND
(DAVIS VENTURE VALUE SERIES)
<TABLE>
<CAPTION>
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1996
ASSETS
<S> <C> <C>
Investments at value . . . . . . . . . . $107,914,821
Cash . . . . . . . . . . . . . . . . . . 1,072
Foreign cash at value (Cost $11,296) . . 12,397
Receivable for:
Fund shares sold . . . . . . . . . . . . 737,470
Dividends and interest . . . . . . . . . 185,699
Foreign taxes . . . . . . . . . . . . . 697
Unamortized organization expense . . . . 5,688
------------
108,857,844
LIABILITIES
Payable for:
Securities purchased . . . . . . . . . . $398,508
Fund shares redeemed . . . . . . . . . . 132,279
Withholding taxes . . . . . . . . . . . 24
Accrued expenses:
Management fees . . . . . . . . . . . . 110,121
Deferred trustees' fees . . . . . . . . 300
Other expenses . . . . . . . . . . . . . 27,586
--------
668,818
------------
$108,189,026
============
NET ASSETS
Net Assets consist of:
Capital paid in . . . . . . . . . . . . $ 89,700,900
Undistributed net investment income . . 17,317
Accumulated net realized gains . . . . . 258,829
Unrealized appreciation on
investments and foreign currency . . . 18,211,980
------------
NET ASSETS . . . . . . . . . . . . . . . . $108,189,026
============
Computation of offering price:
Net asset value and redemption price per
share ($108,189,026 divided by 6,723,469
shares of beneficial interest) . . . . . $ 16.09
============
Identified cost of investments . . . . . . $ 89,704,033
============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
INVESTMENT INCOME
<S> <C> <C>
Dividends . . . . . . . . . . . . . . $ 1,003,895(a)
Interest . . . . . . . . . . . . . . . 424,772
-----------
1,428,667
EXPENSES
Management fees . . . . . . . . . . . $495,948
Trustees' fees and expenses . . . . . 10,949
Custodian . . . . . . . . . . . . . . 71,633
Audit and tax services . . . . . . . . 13,200
Legal . . . . . . . . . . . . . . . . 11,567
Printing . . . . . . . . . . . . . . . 26,071
Amortization of organization
expenses . . . . . . . . . . . . . . 2,017
Miscellaneous . . . . . . . . . . . . 5,661
--------
Total expenses . . . . . . . . . . . 637,046
Less expenses assumed by the
investment adviser . . . . . . . . (41,906) 595,140
-------- -----------
NET INVESTMENT INCOME . . . . . . . . . 833,527
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Realized gain on:
Investments--net . . . . . . . . . . 1,885,474
Unrealized appreciation on:
Investments--net . . . . . . . . . . 14,269,076
Foreign currency transactions--net . 91
-----------
Total unrealized appreciation on
investments and foreign currency
transactions. . . . . . . . . . . . 14,269,167
-----------
Net gain on investment transactions . . 16,154,641
-----------
NET INCREASE IN NET ASSETS FROM
OPERATIONS . . . . . . . . . . . . . . $16,988,168
===========
</TABLE>
(a) Net of foreign taxes of: $5,824.
See accompanying notes to financial statements.
33
<PAGE>
NEW ENGLAND ZENITH FUND
(DAVIS VENTURE VALUE SERIES)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ---------------
<S> <C> <C>
FROM OPERATIONS
Net investment income . . . . . . . . . . . . $ 246,049 $ 833,527
Net realized gain on investments . . . . . . . 600,646 1,885,474
Unrealized appreciation on investments and
foreign currency transactions . . . . . . . . 3,966,150 14,269,167
----------- ------------
INCREASE IN NET ASSETS FROM OPERATIONS . . . . 4,812,845 16,988,168
----------- ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income . . . . . . . . . . . . (244,485) (818,557)
Net realized gain on investments . . . . . . . (517,278) (1,709,985)
----------- ------------
(761,763) (2,528,542)
----------- ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares . . . . . . . . . 31,372,928 73,335,902
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income . . 244,485 818,557
Distributions from net realized gain . . . . 517,278 1,709,985
----------- ------------
32,134,691 75,864,444
Cost of shares redeemed . . . . . . . . . . . (4,512,250) (17,180,011)
----------- ------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS . . . . . . . . . . . . . 27,622,441 58,684,433
----------- ------------
TOTAL INCREASE IN NET ASSETS . . . . . . . . . 31,673,523 73,144,059
NET ASSETS
Beginning of the year . . . . . . . . . . . . 3,371,444 35,044,967
----------- ------------
End of the year . . . . . . . . . . . . . . . $35,044,967 $108,189,026
=========== ============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year . . . . . . . . . . . . $ 0 $ 3,911
=========== ============
End of the year . . . . . . . . . . . . . . . $ 3,911 $ 17,317
=========== ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares . . . . . . . . 2,627,688 5,082,303
Issued in connection with the reinvestment of:
Distributions from net investment income . . 18,850 49,916
Distributions from net realized gain . . . . 39,883 106,943
----------- ------------
2,686,421 5,239,162
Redeemed . . . . . . . . . . . . . . . . . . . (362,591) (1,190,115)
----------- ------------
Net change . . . . . . . . . . . . . . . . . . 2,323,830 4,049,047
=========== ============
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
OCTOBER 31, 1994 (A)
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
-------------------- ------------ --------------
<S> <C> <C> <C>
Net Asset Value, Beginning
of Period . . . . . . . . $10.00 $ 9.62 $ 13.10
------ ------- --------
Income From Investment
Operations
Net Investment Income . . 0.03 0.10 0.13
Net Realized and
Unrealized Gain (Loss) on
Investments. . . . . . . (0.38) 3.68 3.26
------ ------- --------
Total From Investment
Operations . . . . . . . (0.35) 3.78 3.39
------ ------- --------
Less Distributions
Dividends From Net
Investment Income . . . (0.03) (0.10) (0.13)
Distributions From Net
Realized Capital Gains . 0.00 (0.20) (0.27)
------ ------- --------
Total Distributions . . . (0.03) (0.30) (0.40)
------ ------- --------
Net Asset Value, End of
Period. . . . . . . . . . $ 9.62 $ 13.10 $ 16.09
====== ======= ========
TOTAL RETURN (%) . . . . . (3.50)(c) 39.28 25.84
Ratio of Operating
Expenses to Average
Net Assets (%) . . . . . 0.90 (b) 0.90 0.90
Ratio of Net Investment
Income to Average Net
Assets (%) . . . . . . . 2.54 (b) 1.39 1.25
Portfolio Turnover
Rate (%) . . . . . . . . 1 (b) 20 18
Average Commission
Rate(d) . . . . . . . . . -- -- $ 0.0599
Net Assets, End of
Period (000) . . . . . . $3,371 $35,045 $108,189
The ratios of expenses to
average net assets without
giving effect to the
voluntary expense
agreement described in
Note 4 to the Financial
Statements would have
been (%) . . . . . . . . 3.97 (b) 1.51 0.96
</TABLE>
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
(d) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for trades on which
commissions are charged. This rate generally does not reflect mark-ups,
mark-downs, or spreads on shares traded on a principal basis.
See accompanying notes to financial statements.
34
<PAGE>
WESTPEAK GROWTH AND INCOME SERIES
PORTFOLIO MANAGERS: GERALD SCRIVER AND PHILIP COOPER
WESTPEAK INVESTMENT ADVISORS, L.P.
[PHOTOS OF GERALD SCRIVER PHILIP COOPER]
Q. HOW DID WESTPEAK GROWTH AND INCOME SERIES PERFORM IN 1996?
For the year ended December 31, 1996, Westpeak Growth and Income delivered a
total return of 18.10%. This compares with 22.90% for the S&P 500 Index/19/, the
Series' benchmark. Most of this relative underperformance occurred in the first
half of the year. As the year progressed, the Series began to close the gap,
outperforming the S&P 500 in six of the last seven months of 1996.
The Series' track record remains exceptional: An investment of $10,000 at the
Series' inception date of April 30, 1993 would have grown to $18,189 by year-end
1996. This is a hypothetical value attributable to the Series since inception
and does not include variable annuity and life insurance contract charges and
expenses.
Q. HOW DID YOU MANAGE THE SERIES IN 1996?
Entering the year, our outlook for the U.S. economy was positive. As events
played out, however, particularly in the first half of the year, the economy's
continued vigor surpassed our expectations.
The strong economy produced rising interest rates, accompanied by notable
volatility in the nation's securities markets. These factors led us to believe
that a continued rise in stock prices was limited. What's more, these conditions
implied a weaker market environment ahead, one more favorable to value
stocks--companies whose market prices appear low relative to their potential
worth--than to growth stocks--those with expanding earnings. We therefore moved
cautiously, tilting the Series' portfolio toward value investments and away from
growth.
By July our view had changed somewhat. Interest rates seemed likely to remain
flat--although higher than in late 1995--as the economy's expansionary trend
began to cool. Therefore we maintained a cautious position, focusing the
portfolio on stocks that, while carrying lower price/earnings ratios (a measure
of a stock's price relative to the company's earning power), than our S&P
benchmark, appeared to offer attractive prospects for price appreciation.
We also underestimated the remarkably strong and persistent cash flows into
mutual funds. This record influx, coupled with an underlying tone of speculation
and excitement over new issues, helped to drive the stock market higher.
A heavy commitment to the regional telephone operating companies--the so-called
Baby Bells, as well as some large international oil companies, hindered
performance early in the year. These companies, selected for their value
characteristics, underperformed despite their size and quality.
Our decision to emphasize value stocks came too early. But during the second
half of the year the market favored such stocks, enabling the Series to close
part of the performance gap. We took advantage of downturns to build positions
in IBM, Intel and Compaq Computer while they were available at attractive
prices. These selections were very positive contributors to Series performance
as the year progressed.
Overall our conservative approach held Series performance back somewhat this
year. But we prefer to stick to our established philosophy rather than deviate
from it as markets ebb and flow. We hope that our avoidance of timing the market
will reduce the effects of risk on your Series' portfolio over the long-term.
Q. WHAT IS YOUR INVESTMENT OUTLOOK FOR THE MONTHS AHEAD?
As is often the case, changes in interest rates are the most powerful influence
on the stock market's direction. And a pickup in inflation, which has been
modest by historical measures in recent years, would almost certainly bring Fed
tightening.
But taking a longer term view, we see a continued favorable investment scenario,
marked by low inflation and good earnings growth. While there is some risk built
into the current market environment, a drop in stock prices would cause
investors' expectations to fall. This may create a very positive situation for
long-term investors.
35
<PAGE>
[A CHART APPEARS HERE COMPARING A $10,000
INVESTMENT IN THE SERIES AND AN INDEX]
<TABLE>
<CAPTION>
Growth and
Income Series S&P 500
<S> <C> <C>
4/30/93 10000 10000
12/31/93 11424 10819
12/31/94 11286 10966
12/31/95 15402 15072
12/31/96 18189 18524
</TABLE>
FUND FACTS
GOAL: Long-term total return through investment in equity securities.
START DATE: May 1, 1993
SIZE: $82 million as of December 31, 1996.
MANAGERS: Gerald Scriver and Philip Cooper. Mr. Scriver and Mr. Cooper have
managed the Series from its inception in 1993; they also have managed Westpeak
Stock Index Series since August 1993 and New England Growth Opportunities Fund
since May 1, 1995. Mr. Scriver joined Westpeak in July, 1991 and Mr. Cooper
joined Westpeak in December 1991.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life insurance
contracts. If these charges were included, the returns shown would be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
36
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK GROWTH & INCOME SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--97.6% OF TOTAL NET ASSETS
SHARES VALUE (A)
<C> <S> <C>
AEROSPACE--3.0%
7,700 Boeing Co. . . . . . . . . . . . $ 819,087
25,600 United Technologies Corp. . . . . 1,689,600
----------
2,508,687
----------
AGRICULTURE & FOOD--6.3%
44,500 Archer-Daniels-Midland Co. . . . 979,000
18,700 CPC International, Inc. . . . . . 1,449,250
28,800 IBP, Inc. . . . . . . . . . . . . 698,400
13,100 Tyson Foods, Inc. . . . . . . . . 448,675
9,300 Unilever NV . . . . . . . . . . . 1,629,825
----------
5,205,150
----------
AIRLINES--0.2%
2,800 UAL, Inc.(c) . . . . . . . . . . 175,000
----------
BANKS--7.7%
12,000 BankAmerica Corp. . . . . . . . . 1,197,000
8,300 Bankers Trust NY . . . . . . . . 715,875
40,000 Banponce Corp., New . . . . . . . 1,350,000
10,500 First Union Corp. . . . . . . . . 777,000
19,300 NationsBank Corp. . . . . . . . . 1,886,575
5,800 Republic NY Corp. . . . . . . . . 473,425
----------
6,399,875
----------
BEVERAGE--0.9%
14,300 Coca-Cola Co. . . . . . . . . . . 752,537
----------
BUSINESS MACHINES--5.2%
16,900 Compaq Computer Corp.(c) . . . . 1,254,825
11,400 International Business Machines . 1,721,400
23,100 Western Digital Corp.(c) . . . . 1,313,817
----------
4,290,042
----------
CHEMICAL--3.3%
4,700 Albemarle Corp. . . . . . . . . . 85,188
22,500 Dow Chemical Co. . . . . . . . . 1,763,437
4,000 EI Du Pont de Nemours & Co. . . . 377,500
5,900 Rohm & Haas Co. . . . . . . . . . 481,587
----------
2,707,712
----------
COMPUTER SOFTWARE & SERVICES--1.3%
27,500 Comdisco, Inc. . . . . . . . . . 873,125
3,600 Compuware Corp.(c) . . . . . . . 180,450
----------
1,053,575
----------
COSMETICS--2.5%
42,000 Johnson & Johnson . . . . . . . . 2,089,500
----------
DRUGS--7.2%
20,400 Abbott Laboratories . . . . . . . 1,035,300
7,900 Amgen, Inc.(c) . . . . . . . . 429,562
6,100 Bristol Myers & Squibb Co. . . . 663,375
20,800 Merck & Co. . . . . . . . . . . . 1,648,400
4,600 Pfizer, Inc. . . . . . . . . . . 381,225
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
DRUGS--(CONTINUED)
9,300 Rhone Poulenc Rorer, Inc. . . . $ 726,562
15,800 Schering Plough Corp. . . . . . 1,023,050
----------
5,907,474
----------
ELECTRIC UTILITIES--3.9%
27,700 Entergy Corp. . . . . . . . . . 768,675
52,900 Pinnacle West Capital Corp. . . 1,679,575
29,600 Unicom Corp. . . . . . . . . . . 802,900
----------
3,251,150
----------
ELECTRONICS--2.6%
3,600 Intel Corp. . . . . . . . . . . 471,375
27,400 KLA Instruments Corp.(c) . . . . 972,700
6,100 SCI Systems, Inc.(c) . . . . . . 272,213
10,600 Tellabs, Inc.(c) . . . . . . . . 398,825
----------
2,115,113
----------
FINANCIAL--SERVICES--3.2%
19,810 Bear Stearns Companies, Inc. . . 552,204
42,600 Lehman Brothers Holdings, Inc. . 1,336,575
9,500 Merrill Lynch & Co., Inc. . . . 774,250
----------
2,663,029
----------
GAS UTILITIES--0.2%
5,000 Nicor, Inc. . . . . . . . . . . 178,750
----------
HEALTHCARE--2.6%
28,800 OrNda Healthcorp.(c) . . . . . . 842,400
57,600 Tenet Healthcare Corp.(c) . . . 1,260,000
----------
2,102,400
----------
INSURANCE--OTHER--3.7%
12,000 AMBAC, Inc.(c) . . . . . . . . . 796,500
3,000 CIGNA Corp. . . . . . . . . . . 409,875
15,100 Loews Corp. . . . . . . . . . . 1,423,175
16,650 Old Republic International
Corp. . . . . . . . . . . . . . 445,387
----------
3,074,937
----------
INTERNATIONAL OIL--5.2%
3,600 Chevron Corp. . . . . . . . . . 234,000
28,400 Exxon Corp. . . . . . . . . . . 2,783,200
10,500 Mobil Corp. . . . . . . . . . . 1,283,625
----------
4,300,825
----------
LIFE INSURANCE--1.0%
12,300 Conseco, Inc. . . . . . . . . . 784,125
----------
MEDIA--1.0%
22,100 King World Productions(c) . . . 814,937
----------
METALS--1.1%
11,500 Asarco, Inc. . . . . . . . . . . 286,062
9,000 Phelps Dodge Corp. . . . . . . . 607,500
----------
893,562
----------
</TABLE>
See accompanying notes to financial statements.
37
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK GROWTH & INCOME SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--(CONTINUED)
SHARES VALUE (A)
<C> <S> <C>
MISCELLANEOUS--0.1%
5,600 American Water Works, Inc. . . . $ 115,500
----------
MORTGAGE--1.2%
16,600 Federal National Mortgage Assoc. 618,350
8,700 Green Tree Financial Corp. . . . 336,037
----------
954,387
----------
MOTOR VEHICLES--1.8%
22,500 Chrysler Corp. . . . . . . . . . 742,500
13,900 General Motors Corp. . . . . . . 774,925
----------
1,517,425
----------
OIL REFINEMENT/DISTRIBUTION--2.6%
12,400 Royal Dutch Petroleum Co. . . . 2,117,300
----------
OIL SERVICE--0.3%
8,700 Noble Drilling Corp.(c) . . . . 172,913
2,000 Rowan Companies(c) . . . . . . . 45,250
----------
218,163
----------
OIL RESERVES--3.1%
14,800 Amoco Corp. . . . . . . . . . . 1,191,400
9,300 National Fuel Gas Co. . . . . . 383,625
21,200 Phillips Petroleum Co. . . . . . 938,100
----------
2,513,125
----------
PAPER--3.3%
9,200 Champion International Corp. . . 397,900
7,800 Georgia-Pacific Corp. . . . . . 561,600
24,400 Mead Corp. . . . . . . . . . . . 1,418,250
8,300 Rayonier, Inc. . . . . . . . . . 318,512
----------
2,696,262
----------
PHOTOGRAPHY--1.5%
14,900 Eastman Kodak Co. . . . . . . . 1,195,725
----------
PRODUCER OF GOODS--5.6%
8,300 Applied Materials, Inc.(c) . . . 298,282
5,500 Case Corp. . . . . . . . . . . . 299,750
24,300 Caterpillar Tractor Co. . . . . 1,828,575
9,800 Harsco Corp. . . . . . . . . . . 671,300
8,300 Illinois Tool Works, Inc. . . . 662,962
38,400 Premark International, Inc. . . 854,400
----------
4,615,269
----------
PUBLISHING--1.0%
39,300 Moore Corp., Ltd. . . . . . . . 800,737
----------
RAILROAD--1.5%
29,100 CSX Corp. . . . . . . . . . . . 1,229,475
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
RETAIL--3.0%
19,000 Dayton Hudson Corp. . . . . . . $ 745,750
6,598 Eckerd Corp.(c) . . . . . . . . 211,136
10,700 Gap, Inc. . . . . . . . . . . . 322,337
12,700 Mercantile Stores Co., Inc. . . 627,062
2,800 Tiffany & Co., New . . . . . . 102,550
9,300 TJX Companies, Inc. . . . . . . 440,587
-----------
2,449,422
-----------
SAVINGS & LOAN--1.5%
1,900 Ahmanson & Co. . . . . . . . . 61,750
20,300 Dime Bancorp(c) . . . . . . . . 299,425
6,600 Golden West Financial Corp.
del . . . . . . . . . . . . . 416,625
7,400 Standard Federal Bancorp. . . . 420,875
-----------
1,198,675
-----------
SERVICES--0.2%
2,800 Omnicom Group . . . . . . . . . 128,100
-----------
SOAPS--0.1%
2,500 First Brands Corp. . . . . . . 70,938
-----------
STEEL--1.3%
34,900 USX-U.S. Steel Group . . . . . 1,094,987
-----------
TELEPHONE--6.4%
28,000 Ameritech Corp. . . . . . . . . 1,697,500
24,600 Bell Atlantic Corp. . . . . . . 1,592,850
22,400 Bell South Corp. . . . . . . . 904,400
24,100 MCI Communications . . . . . . 787,769
9,900 Sprint Corp. . . . . . . . . . 394,763
-----------
5,377,282
-----------
TIRES AND RUBBER GOODS--1.0%
15,400 Goodyear Tire & Rubber Co. . . 791,175
-----------
Total Common Stocks
(Identified Cost $70,424,057) 80,352,327
------------
</TABLE>
See accompanying notes to financial statements.
38
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK GROWTH & INCOME SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENT--2.3%
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$1,900,000 Repurchase agreement with State Street Bank
& Trust Company dated 12/31/96 at 4.75% to
be repurchased at $1,900,501 on 1/2/97.
Collaterized by $1,515,000 U.S. Treasury
Bond 8.875% due 8/15/97 with a value of
$1,941,568 . . . . . . . . . . . . . . . . $ 1,900,000
-----------
Total Short-Term Investment
(Identified cost $1,900,000) . . . . . . . 1,900,000
-----------
Total Investments --99.9%
(Identified cost $72,324,057)(b) . . . . . 82,252,327
Other assets less liabilities . . . . . . . 77,816
-----------
TOTAL NET ASSETS--100% . . . . . . . . . . $82,330,143
===========
</TABLE>
(a) See Note 1A.
(b) Federal Tax Information:
At December 31,1996 the net unrealized appreciation on investments based on
cost of $72,331,708 for federal income tax purposes was as follows:
<TABLE>
<CAPTION>
<C> <S> <C>
Aggregate gross unrealized appreciation for all
investments in which there is an excess of
value over tax cost . . . . . . . . . . . . . $10,880,192
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value . . . . . . . . . . . . . . . (959,573)
-----------
Net unrealized appreciation . . . . . . . . . . $ 9,920,619
===========
</TABLE>
(c) Non-income producing security.
See accompanying notes to financial statements.
39
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK GROWTH & INCOME SERIES)
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1996
ASSETS
Investments at value . . . . . . . . . . . . $82,252,327
Cash . . . . . . . . . . . . . . . . . . . . 728
Receivable for:
Fund shares sold . . . . . . . . . . . . . . 129,763
Dividends and interest . . . . . . . . . . . 115,999
-----------
82,498,817
LIABILITIES
Payable for:
Fund shares redeemed . . . . . . . . . . . . $59,014
Withholding taxes . . . . . . . . . . . . . 565
Miscellaneous . . . . . . . . . . . . . . . 471
Accrued expenses:
Management fees . . . . . . . . . . . . . . 79,576
Deferred trustees' fees . . . . . . . . . . 1,102
Other expenses . . . . . . . . . . . . . . . 27,946
-------
168,674
-----------
$82,330,143
===========
NET ASSETS
Net Assets consist of:
Capital paid in . . . . . . . . . . . . . . $70,263,879
Undistributed net investment income . . . . 469
Accumulated net realized gains . . . . . . . 2,137,525
Unrealized appreciation on
investments . . . . . . . . . . . . . . . . 9,928,270
-----------
NET ASSETS . . . . . . . . . . . . . . . . . . $82,330,143
===========
Computation of offering price:
Net asset value and redemption price per share
($82,330,143 divided by 542,449 shares of
beneficial interest) . . . . . . . . . . . . $ 151.77
===========
Identified cost of investments . . . . . . . . $72,324,057
===========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
INVESTMENT INCOME
Dividends . . . . . . . . . . . . $ 1,301,995(a)
Interest . . . . . . . . . . . . . 127,382
-----------
1,429,377
EXPENSES
Management fees . . . . . . . . . $443,509
Trustees' fees and expenses . . . 11,505
Custodian . . . . . . . . . . . . 57,352
Audit and tax services . . . . . . 13,200
Legal . . . . . . . . . . . . . . 11,564
Printing . . . . . . . . . . . . . 35,527
Miscellaneous . . . . . . . . . . 3,883
--------
Total expenses . . . . . . . . . 576,540
Less expenses assumed by the
investment adviser . . . . . . (37,994) 538,546
-------- -----------
NET INVESTMENT INCOME . . . . . . . 890,831
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Realized gain on:
Investments--net . . . . . . . . 8,163,321
Unrealized appreciation on:
Investments--net . . . . . . . . 2,277,386
-----------
Net gain on investment transactions 10,440,707
-----------
NET INCREASE IN NET ASSETS FROM
OPERATIONS . . . . . . . . . . . . $11,331,538
===========
</TABLE>
(a) Net of foreign taxes of: $6,549.
See accompanying notes to financial statements.
40
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK GROWTH & INCOME SERIES)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ---------------
<S> <C> <C>
FROM OPERATIONS
Net investment income . . . . . . . . . . . . $ 563,717 $ 890,831
Net realized gain on investments . . . . . . . 2,941,365 8,163,321
Unrealized appreciation on investments . . . . 6,907,865 2,277,386
----------- ------------
INCREASE IN NET ASSETS FROM OPERATIONS . . . . 10,412,947 11,331,538
----------- ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income . . . . . . . . . . . . (549,852) (904,227)
Net realized gain on investments . . . . . . . (1,825,459) (6,507,691)
----------- ------------
(2,375,311) (7,411,918)
----------- ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares . . . . . . . . . 22,945,280 35,852,491
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income . . 549,852 904,227
Distributions from net realized gain . . . . 1,825,459 6,507,691
----------- ------------
25,320,591 43,264,409
Cost of shares redeemed . . . . . . . . . . . (8,163,352) (12,982,923)
----------- ------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS . . . . . . . . . . . . . 17,157,239 30,281,486
----------- ------------
TOTAL INCREASE IN NET ASSETS . . . . . . . . . 25,194,875 34,201,106
NET ASSETS
Beginning of the year . . . . . . . . . . . . 22,934,162 48,129,037
----------- ------------
End of the year . . . . . . . . . . . . . . . $48,129,037 $ 82,330,143
=========== ============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year . . . . . . . . . . . . $ 0 $ 13,865
=========== ============
End of the year . . . . . . . . . . . . . . . $ 13,865 $ 469
=========== ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares . . . . . . . . 175,593 239,114
Issued in connection with the reinvestment of:
Distributions from net investment income . . 3,932 5,851
Distributions from net realized gain . . . . 13,054 42,976
----------- ------------
192,579 287,941
Redeemed . . . . . . . . . . . . . . . . . . . (62,314) (86,095)
----------- ------------
Net change . . . . . . . . . . . . . . . . . . 130,265 201,846
=========== ============
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
APRIL 30, 1993 (A) YEAR YEAR YEAR
THROUGH ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995 1996
------------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period . . . . . . . $100.00 $112.32 $109.03 $141.31
------- ------- ------- -------
Income From Investment
Operations
Net Investment
Income . . . . . . 0.92 1.90 1.77 1.78
Net Realized and
Unrealized Gain
(Loss) on
Investments . . . . 13.33 (3.25) 37.91 23.69
------- ------- ------- -------
Total From Investment
Operations. . . . . 14.25 (1.35) 39.68 25.47
------- ------- ------- -------
Less Distributions
Dividends From Net
Investment Income . (0.92) (1.92) (1.71) (1.82)
Distributions From
Net Realized Capital
Gains . . . . . . . (1.00) 0.00 (5.69) (13.19)
Distributions in
Excess of Net
Realized Capital
Gains . . . . . . . (0.01) 0.00 0.00 0.00
Distributions From
Paid-in Capital . . 0.00 (0.02) 0.00 0.00
------- ------- ------- -------
Total Distributions . (1.93) (1.94) (7.40) (15.01)
------- ------- ------- -------
Net Asset Value, End
of Period . . . . . $112.32 $109.03 $141.31 $151.77
======= ======= ======= =======
TOTAL RETURN (%) . . 14.24(c) (1.21) 36.46 18.10
Ratio of Operating
Expenses to Average
Net Assets (%) . . . 0.85(b) 0.85 0.85 0.85
Ratio of Net
Investment Income
to Average Net
Assets (%) . . . . . 2.16(b) 2.30 1.63 1.40
Portfolio Turnover
Rate (%) . . . . . . 49(b) 133 92 104
Average Commission
Rate(d). . . . . . . -- -- -- $0.0344
Net Assets, End of
Period (000) . . . . $ 9,082 $22,934 $48,129 $82,330
The ratios of expenses
to average net assets
without giving effect
to the voluntary
expense agreement
described in Note 4
to the Financial
Statements would have
been (%) . . . . . . 0.94(b) 0.86 1.06 0.91
</TABLE>
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
(d) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for trades on which
commissions are charged. This rate generally does not reflect mark-ups,
mark-downs, or spread on shares traded on a principal basis.
See accompanying notes to financial statements.
41
<PAGE>
WESTPEAK STOCK INDEX SERIES
PORTFOLIO MANAGERS: GERALD SCRIVER AND PHILIP COOPER
WESTPEAK INVESTMENT ADVISORS, L. P.
[PHOTOS OF GERALD SCRIVER & PHILIP COOPER]
Q. HOW DID THE WESTPEAK STOCK INDEX SERIES PERFORM IN 1996?
A. The Westpeak Stock Index Series returned 22.47% compared to 22.90% posted by
the S&P 500 Index/19/ for the fiscal year ended December 31, 1996. The backdrop
for the continued market success was the continued low interest rate environment
with little action from the Federal Reserve Board to raise interest rates.
Q. HOW DID YOU MANAGE THE SERIES IN 1996?
A. The Series' seeks to track the performance of the S&P 500 Stock Index. Our
approach is to own all of the 500 stocks in the Index in the same proportion as
the Index.
The past year was a difficult year for actively managed Funds to keep pace. This
was due to the fact that much of the most profitable returns came from a small
concentration of stocks such as Microsoft and Intel.
Q. WHAT IS THE OUTLOOK FOR THE MONTHS AHEAD?
A. Although recent market returns may not be sustainable in 1997, the Westpeak
Stock Index Series seeks to maintain full participation in S&P 500 returns.
[A CHART APPEARS HERE WHICH COMPARES A $10,000
INVESTMENT VERSUS AN INDEX]
<TABLE>
<CAPTION>
Stock Index
Series S&P 500
<S> <C> <C>
4/30/87 10000 10000
1987 8780 8770
1988 10215 10216
1989 13294 13444
1990 12743 13025
1991 16614 16976
1992 17826 18268
1993 19560 20101
1994 19783 20374
1995 27079 28003
1996 33163 34415
</TABLE>
FUND FACTS
GOAL: Investment results that correspond to the composite price and yield
performance of United States publicly traded common stocks.
START DATE: May 1, 1987.
SIZE: $81 million as of December 31, 1996
MANAGERS: Gerald Scriver and Philip Cooper. Mr. Scriver and Mr. Cooper have
managed the Series since 1993; they have also managed Westpeak Growth and
Income Series since August 1993 and New England Growth Opportunities Fund since
May 1, 1995. Mr. Scriver joined Westpeak in July 1991 and Mr. Cooper joined
Westpeak in December 1991.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life insurance
contracts. If these charges were included, the returns shown would be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
42
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--99.4% OF TOTAL NET ASSETS
SHARES VALUE (A)
<C> <S> <C>
AEROSPACE--2.0%
4,100 Allied Signal, Inc. . . . . . . . $ 274,700
5,247 Boeing Co. . . . . . . . . . . . 558,150
900 General Dynamics Corp. . . . . . . 63,450
2,815 Lockheed Martin Corp. . . . . . . 257,573
3,000 McDonnell Douglas Corp. . . . . . . 192,000
900 Northrop Grumman Corp. . . . . . . 74,475
3,500 United Technologies Corp. . . . . . 231,000
----------
1,651,348
----------
AGRICULTURE AND FOOD--2.8%
7,725 Archer-Daniels-Midland Co. . . . . 169,950
3,300 Campbell Soup Co. . . . . . . . . . 264,825
3,250 Conagra, Inc. . . . . . . . . . . 161,687
2,100 CPC International, Inc. . . . . . . 162,750
2,200 General Mills, Inc. . . . . . . . . 139,425
5,200 H.J. Heinz Co. . . . . . . . . . . 185,900
2,200 Hershey Foods Corp. . . . . . . . . 96,250
2,900 Kellogg Co. . . . . . . . . . . . . 190,312
1,200 Pioneer Hi Bred International,
Inc. . . . . . . . . . . . . . . . 84,000
1,900 Quaker Oats Co. . . . . . . . . . 72,437
7,000 Sara Lee Corp. . . . . . . . . . 260,750
2,200 Unilever N.V. . . . . . . . . . . . 385,550
1,800 William Wrigley Jr. Co. . . . . . . 101,250
----------
2,275,086
----------
AIR TRANSPORT--0.4%
1,400 AMR Corp.(c) . . . . . . . . . . . 123,375
1,100 Delta Airlines, Inc. . . . . . . 77,963
1,600 Federal Express Corp.(c) . . . . . 71,200
2,100 Southwest Airlines Co. . . . . . . 46,463
900 US Air Group, Inc.(c) . . . . . . . 21,038
----------
340,039
----------
ALUMINUM--0.4%
3,200 Alcan Aluminum, Ltd. . . . . . . . 107,600
2,500 Aluminum Company of America . . . . 159,375
900 Reynolds Metals Co. . . . . . . . 50,738
----------
317,713
----------
APPAREL--0.6%
1,000 Fruit of the Loom, Inc. . . . . . . 37,875
1,000 Liz Claiborne, Inc. . . . . . . . . 38,625
4,000 Nike, Inc. . . . . . . . . . . . . 239,000
800 Reebok International Ltd. . . . . 33,600
600 Russell Corp. . . . . . . . . . . . 17,850
100 Springs Industries, Inc. . . . . 4,300
700 Stride Rite Corp. . . . . . . . . 7,000
1,000 VF Corp. . . . . . . . . . . . . . 67,500
----------
445,750
----------
BANKS--7.5%
6,175 Banc One Corp. . . . . . . . . . . 265,525
2,200 Bank of Boston Corp. . . . . . . 141,350
5,400 Bank of New York, Inc. . . . . . . 182,250
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
4,928 BankAmerica Corp. . . . . . . . . . $ 491,568
900 Bankers Trust New York Corp. . . . . 77,625
2,600 Barnett Banks of Florida, Inc. . . . 106,925
2,000 Boatmens Bancshares, Inc. . . . . . . 129,000
6,070 Chase Manhattan Corp. . . . . . . . . 541,747
6,700 Citicorp(c) . . . . . . . . . . . . . 690,100
1,600 Comerica, Inc. . . . . . . . . . . 83,800
3,200 Core States Financial Corp. . . . . . 166,000
1,300 Fifth Third Bancorp. . . . . . . . . 81,656
1,900 First Bank Systems, Inc. . . . . . 129,675
4,510 First Chicago Corp. . . . . . . . . . 242,412
3,950 First U.N. Corp. . . . . . . . . . 292,300
3,662 Fleet Financial Group, Inc. . . . . . 182,642
2,600 J.P. Morgan & Co., Inc. . . . . . . . 253,825
3,100 Keycorp . . . . . . . . . . . . . . . 156,550
1,750 Mellon Bank Corp. . . . . . . . . . 124,250
3,100 National City Corp. . . . . . . . . . 139,112
4,016 Nationsbank Corp. . . . . . . . . . . 392,564
5,100 Norwest Corp. . . . . . . . . . . . 221,850
4,800 PNC Bank Corp. . . . . . . . . . . 180,600
800 Republic New York Corp. . . . . . . 65,300
3,200 Suntrust Banks, Inc. . . . . . . . 157,600
2,200 U.S. Bancorp. . . . . . . . . . . . . 98,863
2,300 Wachovia Corp. . . . . . . . . . . . 129,950
1,333 Wells Fargo & Co. . . . . . . . . . 359,577
----------
6,084,616
----------
BEVERAGES--3.1%
35,300 Coca Cola Co. . . . . . . . . . . . . 1,857,662
22,400 PepsiCo, Inc. . . . . . . . . . . . . 655,200
1,300 Whitman Corp. . . . . . . . . . . . 29,738
----------
2,542,600
----------
BUSINESS MACHINES--5.2%
2,300 3Com Corp. . . . . . . . . . . . . . 168,762
1,600 Alco Standard Corp. . . . . . . . . . 82,600
1,700 Amdahl Corporation(c) . . . . . . . . 20,612
1,900 Apple Computer, Inc. . . . . . . . 39,662
2,800 Bay Networks, Inc. . . . . . . . . 58,450
2,000 Cabletron Systems, Inc.(c) . . . . . 66,500
9,400 Cisco Systems, Inc. . . . . . . . . 598,075
3,800 Compaq Computer Corp.(c) . . . . . . 282,150
600 Data General Corp.(c) . . . . . . . . 8,700
2,400 Dell Computer Corp. . . . . . . . . . 127,500
2,200 Digital Equipment Corp.(c) . . . . . 80,025
3,200 EMC Corp. . . . . . . . . . . . . . . 106,000
14,400 Hewlett-Packard Co. . . . . . . . . 723,600
7,300 International Business Machines
Corp. . . . . . . . . . . . . . . . 1,102,300
2,000 Pitney Bowes, Inc. . . . . . . . . . 109,000
3,200 Seagate Technology . . . . . . . . . 126,400
2,500 Silicon Graphics, Inc.(c) . . . . . . 63,750
5,300 Sun Microsystems, Inc.(c) . . . . . . 136,144
1,800 Tandem Computers, Inc.(c) . . . . . . 24,750
2,500 Unisys, Corp.(c) . . . . . . . . . . 16,875
4,500 Xerox Corp. . . . . . . . . . . . . 236,813
----------
4,178,668
----------
</TABLE>
See accompanying notes to financial statements.
43
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--(CONTINUED)
SHARES VALUE (A)
<C> <S> <C>
CHEMICALS--3.2%
1,500 Air Products and
Chemicals, Inc. . . . . . . . . $ 103,687
900 Ashland, Inc. . . . . . . . . . 39,488
1,500 Avery Dennison Corp. . . . . . . 53,063
700 B.F. Goodrich Co. . . . . . . . 28,350
3,450 Dow Chemical Co. . . . . . . . . 270,394
1,100 Eastman Chemical Co. . . . . . . 60,775
8,100 E.I. Du Pont de Nemours & Co. . 764,437
2,025 Engelhard Corp. . . . . . . . . 38,728
500 FMC Corp.(c) . . . . . . . . . . 35,063
800 Great Lakes Chemical Corp. . . . 37,400
1,500 Hercules, Inc. . . . . . . . . . 64,875
8,500 Monsanto Co. . . . . . . . . . . 330,437
2,100 Morton International, Inc. . . . 85,575
1,000 Nalco Chemical Co. . . . . . . . 36,125
4,700 Occidental Petroleum Corp. . . . 109,862
2,600 PPG Industries, Inc. . . . . . . 145,925
2,100 Praxair, Inc. . . . . . . . . . 96,862
1,000 Rohm & Haas Co. . . . . . . . . 81,625
700 Sigma-Aldrich Corp. . . . . . . 43,706
1,700 Union Carbide Corp. . . . . . . 69,488
1,300 W.R. Grace & Co. . . . . . . . . 67,275
----------
2,563,140
----------
CONSTRUCTION--0.4%
600 Armstrong World
Industries, Inc. . . . . . . . 41,700
400 Centex Corp. . . . . . . . . . . 15,050
1,200 Fluor Corp. . . . . . . . . . . 75,300
600 Kaufman & Broad Home Corp. . . . 7,725
2,300 Masco Corp. . . . . . . . . . . 82,800
1,200 Sherwin Williams Co. . . . . . . 67,200
----------
289,775
----------
CONSUMER DURABLES--0.1%
1,300 Black & Decker Corp. . . . . . . 39,163
1,400 Maytag Corp. . . . . . . . . . . 27,650
1,000 Whirlpool Corp. . . . . . . . . 46,625
----------
113,438
----------
CONTAINERS--0.4%
200 Ball Corp. . . . . . . . . . . . 5,200
700 Bemis, Inc. . . . . . . . . . . 25,813
1,800 Crown Cork & Seal, Inc.(c) . . . 97,875
900 Temple Inland, Inc. . . . . . . 48,713
2,400 Tenneco, Inc. . . . . . . . . . 108,300
----------
285,901
----------
COSMETICS--1.3%
200 Alberto Culver Co. . . . . . . . 9,600
1,900 Avon Products, Inc. . . . . . . 108,537
19,200 Johnson & Johnson . . . . . . . 955,200
----------
1,073,337
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
DOMESTIC OIL RESERVES--1.7%
7,200 Amoco Corp. . . . . . . . . . . . . $ 579,600
2,300 Atlantic Richfield Co. . . . . . . 304,750
1,600 Burlington Resources, Inc. . . . . 80,600
400 Louisiana Land & Exploration . . . 21,450
800 Pennzoil Co. . . . . . . . . . . . 45,200
3,800 Phillips Petroleum Co. . . . . . . 168,150
1,311 Santa Fe Energy Research, Inc.(c) . 18,190
3,464 Union Pacific Resources
Group, Inc. . . . . . . . . . . . 101,322
2,400 Williams Companies, Inc. . . . . . 90,000
----------
1,409,262
----------
DRUGS & MEDICINE--7.2%
11,200 Abbott Laboratories, Inc. . . . . . 568,400
900 Allergan, Inc. . . . . . . . . . . 32,063
1,200 Alza Corp.(c) . . . . . . . . . . . 31,050
9,200 American Home Products Corp. . . . 539,350
3,800 Amgen, Inc.(c) . . . . . . . . . . 206,625
7,240 Bristol Myers & Squibb Co. . . . . 787,350
7,700 Eli Lilly & Co. . . . . . . . . . . 562,100
1,100 Mallinckrodt Group, Inc. . . . . . 48,537
17,400 Merck & Co., Inc. . . . . . . . . . 1,378,950
9,300 Pfizer, Inc. . . . . . . . . . . . 770,737
7,180 Pharmacia & Upjohn, Inc. . . . . . 284,507
5,100 Schering-Plough Corp. . . . . . . . 330,225
4,000 Warner-Lambert Co. . . . . . . . . 300,000
----------
5,839,894
----------
ELECTRIC UTILITIES--2.8%
2,500 American Electric Power Co., Inc. . 102,812
2,100 Baltimore Gas & Electric Co. . . . 56,175
2,200 Carolina Power & Light Co. . . . . 80,300
2,900 Central & South West Corp. . . . . 74,313
2,211 Cinergy Corp. . . . . . . . . . . . 73,792
3,400 Consolidated Edison Co. of
New York . . . . . . . . . . . . . 99,450
2,350 Dominion Resources, Inc. . . . . . 90,475
2,100 DTE Energy Co. . . . . . . . . . . 67,988
2,800 Duke Power Co. . . . . . . . . . . 129,500
6,200 Edison International . . . . . . . 123,225
3,200 Entergy Corp. . . . . . . . . . . . 88,800
2,600 FPL Group, Inc. . . . . . . . . . . 119,600
1,500 GPU, Inc. . . . . . . . . . . . . . 50,437
3,400 Houston Industries, Inc. . . . . . 76,925
2,000 Niagara Mohawk Power Corp. . . . . 19,750
900 Northern States Power Co. . . . . . 41,288
2,100 Ohio Edison Co. . . . . . . . . . . 47,775
5,900 Pacific Gas & Electric Corp. . . . 123,900
4,000 Pacificorp . . . . . . . . . . . . 82,000
3,200 PECO Energy Co. . . . . . . . . . . 80,800
2,300 P.P. & L Res, Inc. . . . . . . . . 52,900
3,200 Public Service Enterprise Group . . 87,200
9,700 Southern Co. . . . . . . . . . . . 219,462
3,100 Texas Utilities Co. . . . . . . . . 126,325
3,200 Unicom Corp. . . . . . . . . . . . 86,800
1,400 Union Electric Co. . . . . . . . . 53,900
----------
2,255,892
----------
</TABLE>
See accompanying notes to financial statements.
44
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--(CONTINUED)
SHARES VALUE (A)
<C> <S> <C>
ELECTRONICS--4.8%
1,900 Advanced Micro Devices,
Inc.(c) . . . . . . . . . . . $ 48,925
2,632 Allegheny Teldyne, Inc. . . . . 60,536
3,056 AMP, Inc. . . . . . . . . . . . 117,274
887 Andrew Corp.(c) . . . . . . . . 47,066
1,600 Cooper Industries, Inc. . . . . 67,400
500 Harris Corp. . . . . . . . . . 34,312
1,700 Honeywell, Inc. . . . . . . . . 111,775
11,900 Intel Corp. . . . . . . . . . . 1,558,156
2,000 LSI Logic Corp.(c) . . . . . . 53,500
3,000 Micron Technology, Inc. . . . . 87,375
8,500 Motorola, Inc. . . . . . . . . 521,687
1,900 National Semiconductor Corp.(c) 46,312
3,600 Northern Telecom, Ltd. . . . . 222,750
600 Raychem Corp. . . . . . . . . . 48,075
3,300 Raytheon Co. . . . . . . . . . 158,812
3,500 Rockwell International Corp. . 213,062
1,100 Scientific Atlanta, Inc. . . . 16,500
500 Tektronix, Inc. . . . . . . . . 25,625
2,600 Tellabs, Inc.(c) . . . . . . . 97,825
2,600 Texas Instruments, Inc. . . . . 165,750
600 Thomas & Betts Corp. . . . . . 26,625
8,900 U.S. West Media Group,
Inc.(c) . . . . . . . . . . . 164,650
----------
3,893,992
----------
FINANCE--2.0%
6,900 American Express Co. . . . . . 389,850
800 Beneficial Corp. . . . . . . . 50,700
2,402 Dean Witter, Discover & Co. . . 159,132
1,200 Household International, Inc. . 110,700
3,325 MBNA Corp. . . . . . . . . . . 137,987
2,300 Merrill Lynch & Co., Inc. . . . 187,450
2,000 Morgan Stanley Group, Inc. . . 114,250
1,600 Salomon, Inc. . . . . . . . . . 75,400
9,168 Travelers Group, Inc. . . . . . 415,998
----------
1,641,467
----------
FOREIGN OIL RESERVES--0.1%
700 Kerr McGee Corp. . . . . . . . 50,400
----------
FOREST PRODUCTS--0.0%
1,600 Louisiana Pacific Corp. . . . . 33,800
----------
GAS UTILITIES--0.7%
900 Columbia Gas System, Inc.(c) . 57,263
1,300 Consolidated Natural Gas Co. . 71,825
300 Eastern Enterprises . . . . . . 10,612
3,600 Enron Corp. . . . . . . . . . . 155,250
900 Ensearch Corp. . . . . . . . . 20,700
700 Nicor, Inc. . . . . . . . . . . 25,025
1,900 Noram Energy Corp. . . . . . . 29,212
200 Oneok, Inc. . . . . . . . . . . 6,000
1,100 Pacific Enterprises, Ltd. . . . 33,412
2,229 PanEnergy Corp. . . . . . . . . 100,305
500 Peoples Energy Corp. . . . . . 16,937
1,000 Sonat, Inc. . . . . . . . . . . 51,500
----------
578,041
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
HEALTH CARE--1.9%
800 Bausch & Lomb, Inc. . . . . $ 28,000
3,800 Baxter International, Inc. . 155,800
1,700 Becton Dickinson & Co. . . . 73,738
1,300 Beverly Enterprises,
Inc.(c) . . . . . . . . . . 16,575
1,700 Biomet, Inc.(c) . . . . . . 25,713
2,600 Boston Scientific Corp.(c) . 156,000
9,686 Columbia Healthcare Corp. . 394,704
800 C.R. Bard, Inc. . . . . . . 22,400
1,100 Guidant Corp. . . . . . . . 62,700
2,300 Humana, Inc.(c) . . . . . . 43,987
900 Manor Care, Inc. . . . . . . 24,300
3,600 Medtronics, Inc. . . . . . . 244,800
400 Millipore Corp. . . . . . . 16,550
1,100 St. Jude Medical, Inc.(c) . 46,888
3,000 Tenet Healthcare Corp.(c) . 65,625
2,800 United Healthcare Corp. . . 126,000
900 United States Surgical
Corp. . . . . . . . . . . . 35,438
----------
1,539,218
----------
HOTELS AND RESTAURANTS--1.1%
2,200 Darden Restaurants,
Inc.(c) . . . . . . . . . . 19,250
1,450 Harrahs Entertainment,
Inc. . . . . . . . . . . . 28,819
1,900 HFS, Inc. . . . . . . . . . 113,525
3,600 Hilton Hotels Corp. . . . . 94,050
1,600 ITT Corp. New . . . . . . . 69,400
1,800 Marriott International,
Inc. . . . . . . . . . . . 99,450
10,100 McDonald's Corp. . . . . . . 457,025
1,800 Wendys International, Inc. . 36,900
----------
918,419
----------
INTERNATIONAL OIL--4.4%
9,400 Chevron Corp. . . . . . . . 611,000
17,900 Exxon Corp. . . . . . . . . 1,754,200
5,700 Mobil Corp. . . . . . . . . 696,825
1,500 Oryx Energy Corp.(c) . . . . 37,125
3,700 Texaco, Inc. . . . . . . . . 363,063
----------
3,462,213
----------
LEISURE--0.3%
1,200 Brunswick Corp. . . . . . . 28,800
1,200 Hasbro, Inc. . . . . . . . . 46,650
3,750 Mattel, Inc. . . . . . . . . 104,062
----------
179,512
----------
LIFE INSURANCE--0.8%
2,283 Aetna Life and Casualty
Co. . . . . . . . . . . . . 182,640
2,900 American General Corp. . . . 118,537
1,025 Jefferson Pilot Corp. . . . 58,041
1,400 Lincoln National Corp.,
Inc. . . . . . . . . . . . 73,500
1,400 Providian Corp. . . . . . . 71,925
1,000 Transamerica Corp. . . . . . 79,000
450 USLife Corp. . . . . . . . . 14,963
----------
598,606
----------
</TABLE>
See accompanying notes to financial statements.
45
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--(CONTINUED)
SHARES VALUE (A)
<C> <S> <C>
LIQUOR--0.7%
300 Adolph Coors Co. . . . . . . . . . . $ 5,700
7,000 Anheuser-Busch Companies, Inc. . . . 280,000
1,100 Brown Forman Corp. "B" . . . . . . . 50,325
5,400 Seagram Company, Ltd. . . . . . . . . 209,250
----------
545,275
----------
MEDIA--2.1%
4,600 Comcast Corp. . . . . . . . . . . . . 81,938
1,900 General Instrument Corp. . . . . . . 41,087
450 King World Productions, Inc.(c) . . . 16,594
9,600 Tele-Communications A(c) . . . . . . 125,400
8,000 Time-Warner, Inc. . . . . . . . . . . 300,000
1,000 Tribune Co. . . . . . . . . . . . . . 78,875
4,857 Viacom, Inc.(c) . . . . . . . . . . . 169,388
9,798 Walt Disney Co. . . . . . . . . . . . 682,186
9,000 Westinghouse Electric Corp. . . . . . 178,875
----------
1,674,343
----------
MISCELLANEOUS FINANCE--0.1%
1,500 H & R Block, Inc. . . . . . . . . . . 43,500
----------
MISCELLANEOUS MINING--0.2%
600 Asarco, Inc. . . . . . . . . . . . . 14,925
1,250 Cyprus Amax Minerals Co. . . . . . . 29,219
2,400 Inco, Ltd. . . . . . . . . . . . . . 76,500
1,000 Phelps Dodge Corp. . . . . . . . . . 67,500
----------
188,144
----------
MORTGAGE--1.1%
2,400 Federal Home Loan Mortgage Corp. . . 264,300
15,700 Federal National Mortgage
Association . . . . . . . . . . . . 584,825
1,800 Green Tree Acceptance Corp. . . . . . 69,525
----------
918,650
----------
MOTOR VEHICLES--2.1%
10,600 Chrysler Corp. . . . . . . . . . . . 349,800
1,300 Dana Corp. . . . . . . . . . . . . . 42,413
900 Echlin, Inc. . . . . . . . . . . . . 28,462
500 Fleetwood Enterprises, Inc. . . . . . 13,750
17,100 Ford Motor Co. . . . . . . . . . . . 545,062
10,400 General Motors Corp. . . . . . . . . 579,800
1,220 Navistar International
Corp., Inc.(c) . . . . . . . . . . . 11,132
645 Paccar, Inc. . . . . . . . . . . . . 43,860
1,800 TRW, Inc. . . . . . . . . . . . . . . 89,100
----------
1,703,379
----------
OIL REFINING--2.1%
1,300 Amerada Hess Corp. . . . . . . . . . 75,237
1,400 Coastal Corp. . . . . . . . . . . . . 68,425
7,500 Royal Dutch Petroleum Co. ADR(d) . . 1,280,625
1,100 Sun, Inc. . . . . . . . . . . . . . . 26,813
3,500 Unocal Corp. . . . . . . . . . . . . 142,188
4,000 USX Marathon Group . . . . . . . . . 95,500
----------
1,688,788
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
OIL SERVICES--0.8%
2,000 Baker Hughes, Inc. . . . . . . . . $ 69,000
1,800 Halliburton Co. . . . . . . . . . 108,450
300 Helmerich & Payne, Inc. . . . . . 15,638
1,100 Rowan Companies, Inc.(c) . . . . . 24,888
3,600 Schlumberger, Ltd. . . . . . . . . 359,550
700 Western Atlas, Inc.(c) . . . . . . 49,613
----------
627,139
----------
OTHER INSURANCE--3.0%
6,386 Allstate Corp. . . . . . . . . . . 369,590
6,812 American International
Group, Inc. . . . . . . . . . . . 737,399
1,500 Aon Corp. . . . . . . . . . . . . 93,188
2,500 Chubb Corp. . . . . . . . . . . . 134,375
1,000 CIGNA Corp. . . . . . . . . . . . 136,625
1,200 General Reinsurance Corp. . . . . 189,300
1,600 ITT Hartford Group, Inc. . . . . . 108,000
1,600 Loews Corp. . . . . . . . . . . . 150,800
1,000 Marsh & McLennan Companies . . . . 104,000
700 MBIA, Inc. . . . . . . . . . . . . 70,875
800 MGIC Investment Corp. . . . . . . 60,800
1,800 Safeco Corp. . . . . . . . . . . . 70,988
1,200 St. Paul Companies, Inc. . . . . . 70,350
950 Torchmark, Inc. . . . . . . . . . 47,975
1,000 UNUM Corp. . . . . . . . . . . . . 72,250
1,700 USF&G Corp. . . . . . . . . . . . 35,488
----------
2,452,003
----------
PAPER--1.4%
733 Boise Cascade Corp. . . . . . . . 23,273
1,400 Champion International Corp. . . . 60,550
1,300 Georgia Pacific Corp. . . . . . . 93,600
4,310 International Paper Co. . . . . . 174,016
1,200 James River Corp. . . . . . . . . 39,750
4,106 Kimberly Clark Corp. . . . . . . . 391,096
900 Mead Corp. . . . . . . . . . . . . 52,312
200 Potlatch Corp. . . . . . . . . . . 8,600
1,400 Stone Container Corp. . . . . . . 20,825
1,000 Union Camp Corp. . . . . . . . . . 47,750
1,475 Westvaco Corp. . . . . . . . . . . 42,406
2,900 Weyerhaeuser Co. . . . . . . . . . 137,388
700 Willamette Industries, Inc. . . . 48,738
----------
1,140,304
----------
PHOTOGRAPHY--0.5%
7,850 Eastman Kodak Co. . . . . . . . . 381,188
800 Polaroid Corp. . . . . . . . . . . 34,800
----------
415,988
----------
POLLUTION CONTROL--0.4%
2,900 Browning-Ferris Industries, Inc. . 76,125
4,400 Laidlaw, Inc. . . . . . . . . . . 50,600
700 Safety Kleen Corp. . . . . . . . . 11,463
6,900 WMX Technologies, Inc. . . . . . . 225,112
----------
363,300
----------
</TABLE>
See accompanying notes to financial statements.
46
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--(CONTINUED)
SHARES VALUE (A)
<C> <S> <C>
PRECIOUS METALS--0.6%
5,100 Barrick Gold Corp. . . . . . . . . . $ 146,625
3,100 Battle Mountain Gold Co. . . . . . . 21,313
1,800 Echo Bay Mines, Ltd. . . . . . . . . 11,925
2,700 Freeport McMoran Copper & Gold . . . 80,662
1,900 Homestake Mining Co. . . . . . . . . 27,075
1,424 Newmont Mining Corp. . . . . . . . . 63,724
3,400 Placer Dome, Inc. . . . . . . . . . 73,950
1,900 Santa Fe Pacific Gold Corp. . . . . 29,213
----------
454,487
----------
PRODUCER OF GOODS--6.8%
2,600 Applied Materials, Inc.(c) . . . . . 93,438
400 Briggs & Stratton Corp. . . . . . . 17,600
1,000 Case Equipment Corp. . . . . . . . . 54,500
2,800 Caterpillar Tractor Co. . . . . . . 210,700
700 Cincinnati Milacron, Inc. . . . . . 15,313
700 Crane Co. . . . . . . . . . . . . . 20,300
700 Cummins Engine, Inc. . . . . . . . . 32,200
3,600 Deere & Co. . . . . . . . . . . . . 146,250
1,600 Dover Corp. . . . . . . . . . . . . 80,400
2,500 Dresser Industries, Inc. . . . . . . 77,500
1,800 DSC Communications Corp.(c) . . . . 32,175
1,000 Eaton Corp. . . . . . . . . . . . . 69,750
3,100 Emerson Electric Co. . . . . . . . . 299,925
600 Foster Wheeler Corp. . . . . . . . . 22,275
23,700 General Electric Co. . . . . . . . . 2,343,337
500 General Signal Corp. . . . . . . . . 21,375
1,700 Genuine Parts Co. . . . . . . . . . 75,650
400 Giddings & Lewis, Inc. . . . . . . . 5,150
800 Harnischfeger Industries, Inc. . . . 38,500
1,700 Illinois Tool Works, Inc. . . . . . 135,787
1,500 Ingersoll Rand Co. . . . . . . . . . 66,750
1,600 ITT Industries Inc. . . . . . . . . 39,200
600 Johnson Controls, Inc. . . . . . . . 49,725
9,206 Lucent Technologies, Inc. . . . . . 425,777
600 McDermott International, Inc. . . . 9,975
5,800 Minnesota Mining &
Manufacturing Co. . . . . . . . . . 480,675
700 National Services Industries, Inc. . 26,162
800 Owens Corning Fiberglas Co.(c) . . . 34,100
1,700 Pall Corp. . . . . . . . . . . . . . 43,350
1,000 Parker Hannifin Corp. . . . . . . . 38,750
600 Perkin Elmer Corp. . . . . . . . . . 35,325
850 Snap-On Tools Corp. . . . . . . . . 30,281
1,200 Stanley Works . . . . . . . . . . . 32,400
1,100 Textron, Inc. . . . . . . . . . . . 103,675
2,100 Thermo Electron Corp. . . . . . . . 86,625
200 Timken Co. . . . . . . . . . . . . . 9,175
400 Trinova Corp. . . . . . . . . . . . 14,550
2,100 TYCO International Ltd. . . . . . . 111,037
900 W.W. Grainger, Inc. . . . . . . . . 72,225
----------
5,501,882
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
PROPERTY--0.0%
200 Pulte Corp. . . . . . . . . . . . . . . . $ 6,150
----------
PUBLISHING--0.7%
1,100 American Greetings Corp. . . . . . . . . . 31,212
2,100 Gannet Co., Inc. . . . . . . . . . . . . . 157,237
1,000 Harcourt General, Inc. . . . . . . . . . . 46,125
300 John H. Harland Co. . . . . . . . . . . . 9,900
600 Jostens, Inc. . . . . . . . . . . . . . . 12,675
1,200 Knight-Ridder, Inc. . . . . . . . . . . . 45,900
1,400 McGraw-Hill Companies, Inc. . . . . . . . 64,575
200 Meredith Corp. . . . . . . . . . . . . . . 10,550
1,200 Moore Corp., Ltd. . . . . . . . . . . . . 24,450
1,400 New York Times Co. . . . . . . . . . . . . 53,200
2,100 R.R.Donnelley & Sons Co. . . . . . . . . . 65,888
1,400 Time Mirror Co. . . . . . . . . . . . . . 69,650
----------
591,362
----------
RAILROADS--0.9%
2,122 Burlington Northern, Inc. . . . . . . . . 183,288
1,100 Conrail, Inc. . . . . . . . . . . . . . . 109,588
3,100 CSX Corporation . . . . . . . . . . . . . 130,975
1,500 Norfolk Southern Corp. . . . . . . . . . . 131,250
3,500 Union Pacific Corp. . . . . . . . . . . . 210,438
----------
765,539
----------
RETAIL-FOOD--0.7%
3,600 Albertson's, Inc. . . . . . . . . . . . . 128,250
2,100 American Stores Co. . . . . . . . . . . . 85,837
300 Fleming Companies, Inc. . . . . . . . . . 5,175
900 Giant Foods, Inc. . . . . . . . . . . . . 31,050
600 Great Atlantic & Pacific Tea
Company, Inc. . . . . . . . . . . . . . . 19,125
1,800 Kroger Co.(c) . . . . . . . . . . . . . . 83,700
1,000 SuperValu Stores, Inc. . . . . . . . . . . 28,375
2,700 Sysco Corp. . . . . . . . . . . . . . . . 88,088
2,100 Winn-Dixie Stores, Inc. . . . . . . . . . 66,413
----------
536,013
----------
RETAIL-OTHER--3.8%
2,100 Autozone, Inc. . . . . . . . . . . . . . . 57,750
1,400 Charming Shoppes, Inc.(c) . . . . . . . . 7,088
1,200 Circuit City Stores, Inc. . . . . . . . . 36,150
1,500 CVS Corp. . . . . . . . . . . . . . . . . 62,062
3,000 Dayton Hudson Corp. . . . . . . . . . . . 117,750
1,700 Dillard Department Stores, Inc. . . . . . 52,488
3,100 Federated Department Stores . . . . . . . 105,787
6,849 Home Depot, Inc. . . . . . . . . . . . . . 343,306
3,100 J.C. Penney Company, Inc. . . . . . . . . 151,125
6,900 K-Mart Corp.(c) . . . . . . . . . . . . . 71,587
200 Longs Drug Stores Corp. . . . . . . . . . 9,825
2,400 Lowes Companies, Inc. . . . . . . . . . . 85,200
3,400 May Department Stores Co. . . . . . . . . 158,950
450 Mercantile Stores Co., Inc. . . . . . . . 22,219
1,200 Nordstrom, Inc. . . . . . . . . . . . . . 42,525
900 Pep Boys: Manny, Moe & Jack . . . . . . . 27,675
2,739 Price Costco.(c) . . . . . . . . . . . . . 68,817
</TABLE>
See accompanying notes to financial statements.
47
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--(CONTINUED)
SHARES VALUE (A)
<C> <S> <C>
RETAIL-OTHER--(CONTINUED)
1,800 Rite Aid Corp. . . . . . . . . . . . . . $ 71,550
5,400 Sears, Roebuck & Co. . . . . . . . . . . 249,075
800 Tandy Corp. . . . . . . . . . . . . . . . 35,200
4,000 The Gap, Inc. . . . . . . . . . . . . . . 120,500
3,693 The Limited, Inc. . . . . . . . . . . . . 67,859
1,100 TJX Companies, Inc. . . . . . . . . . . . 52,113
3,975 Toys R Us, Inc.(c) . . . . . . . . . . . 119,250
3,500 Walgreen Co. . . . . . . . . . . . . . . 140,000
32,000 Wal-Mart Stores, Inc. . . . . . . . . . . 732,000
1,800 Woolworth Corp.(c) . . . . . . . . . . . 39,375
-----------
3,047,226
-----------
SERVICES--4.0%
600 Alexander & Alexander Services . . . . . 10,425
600 Autodesk, Inc. . . . . . . . . . . . . . 16,800
4,000 Automatic Data Processing, Inc. . . . . . 171,500
900 Ceridian Corp.(c) . . . . . . . . . . . . 36,450
5,100 Computer Associates International, Inc. . 253,725
1,000 Computer Sciences Corp.(c) . . . . . . . 82,125
2,320 Cognizant Corp. . . . . . . . . . . . . . 76,560
5,500 CUC International, Inc.(c) . . . . . . . 130,625
1,000 De Luxe Corp. . . . . . . . . . . . . . . 32,750
1,300 Dow Jones & Co., Inc. . . . . . . . . . . 44,038
2,320 Dun & Bradstreet Corp. . . . . . . . . . 55,100
700 EG & G, Inc. . . . . . . . . . . . . . . 14,088
6,200 First Data Corp. . . . . . . . . . . . . 226,300
600 Intergraph Corp.(c) . . . . . . . . . . . 6,150
1,100 Interpublic Group Companies, Inc. . . . . 52,250
17,200 Microsoft Corp.(c) . . . . . . . . . . . 1,421,150
5,000 Novell, Inc.(c) . . . . . . . . . . . . . 47,344
9,525 Oracle Systems Corp.(c) . . . . . . . . . 397,669
1,200 Ryder Systems, Inc. . . . . . . . . . . . 33,750
3,400 Service Corporation International . . . . 95,200
200 Shared Medical System . . . . . . . . . . 9,850
-----------
3,213,849
-----------
SOAPS--3.0%
700 Clorox Co. . . . . . . . . . . . . . . . 70,263
2,200 Colgate Palmolive Co. . . . . . . . . . . 202,950
3,300 Corning, Inc. . . . . . . . . . . . . . . 152,625
700 Ecolab, Inc. . . . . . . . . . . . . . . 26,338
7,700 Gillette Co. . . . . . . . . . . . . . . 598,675
1,600 International Flavours & Fragrances,
Inc. . . . . . . . . . . . . . . . . . . 72,000
100 Nacco Industries, Inc. . . . . . . . . . 5,350
2,200 Newell Co. . . . . . . . . . . . . . . . 69,300
9,560 Procter & Gamble Co. . . . . . . . . . . 1,027,700
1,500 Ralston Purina Co. . . . . . . . . . . . 110,063
2,200 Rubbermaid, Inc. . . . . . . . . . . . . 50,050
900 Tupperware Corp. . . . . . . . . . . . . 48,263
-----------
2,433,577
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
STEEL & IRON--0.2%
1,300 Armco, Inc.(c) . . . . . . . . . . . . . $ 5,363
1,600 Bethlehem Steel Corp.(c) . . . . . . . . 14,400
800 Inland Steel Industries, Inc. . . . . . 16,000
1,300 Nucor Corp. . . . . . . . . . . . . . . 66,300
1,020 USX US Steel Corp. . . . . . . . . . . . 32,003
1,200 Worthington Industries, Inc. . . . . . . 21,750
-----------
155,816
-----------
TELEPHONE--6.7%
7,200 Airtouch Communications . . . . . . . . 181,800
2,700 ALLTEL Corp. . . . . . . . . . . . . . . 84,712
7,900 Ameritech Corp. . . . . . . . . . . . . 478,937
22,735 AT & T Corp. . . . . . . . . . . . . . . 988,972
6,100 Bell Atlantic Corp. . . . . . . . . . . 394,975
14,300 BellSouth Corp. . . . . . . . . . . . . 577,362
2,300 Frontier Corp. . . . . . . . . . . . . . 52,037
13,900 GTE Corp. . . . . . . . . . . . . . . . 632,450
9,900 MCI Communications Corp. . . . . . . . . 323,606
6,200 NYNEX Corp. . . . . . . . . . . . . . . 298,375
6,200 Pacific Telesis Group . . . . . . . . . 227,850
8,500 SBC Communications, Inc. . . . . . . . . 439,875
6,100 Sprint Corp. . . . . . . . . . . . . . . 243,237
6,900 U.S. West, Inc.(c) . . . . . . . . . . . 222,525
10,300 Worldcom, Inc. . . . . . . . . . . . . . 268,444
-----------
5,415,157
-----------
THRIFT--0.2%
800 Golden West Financial Corp. . . . . . . 50,500
1,850 Great Western Financial Corp. . . . . . 53,650
1,500 H.F. Ahmanson & Co. . . . . . . . . . . 48,750
-----------
152,900
-----------
TIRES AND RUBBER GOODS--0.2%
1,100 Cooper Tire & Rubber Co. . . . . . . . . 21,725
2,200 Goodyear Tire & Rubber Co. . . . . . . . 113,025
-----------
134,750
-----------
TOBACCO--1.9%
2,600 American Brands, Inc. . . . . . . . . . 129,025
11,700 Philip Morris Companies, Inc. . . . . . 1,317,712
2,700 UST, Inc. . . . . . . . . . . . . . . . 87,413
-----------
1,534,150
-----------
TRUCKING AND FREIGHT--0.0%
600 Caliber Systems, Inc. . . . . . . . . . 11,550
-----------
Total Common Stocks
(Identified cost $53,081,323) . . . . . 80,277,348
-----------
</TABLE>
See accompanying notes to financial statements.
48
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENT--0.5%
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$419,000 Repurchase Agreement with State Street Bank &
Trust Co. dated 12/31/96 at 4.750% to be
repurchased at $419,111, on 1/02/97
collateralized by $335,000, U.S. Treasury
Bills 8.875% due 8/15/17, with a value of
$429,324 . . . . . . . . . . . . . . . . . . $ 419,000
-----------
Total Short Term Investment
(Identified cost $419,000) . . . . . . . . . 419,000
-----------
Total Investments--99.9%
(Identified cost $53,500,323)(b) . . . . . . 80,696,348
Other assets less liabilities . . . . . . . . 67,500
-----------
TOTAL NET ASSETS--100% . . . . . . . . . . . $80,763,848
===========
</TABLE>
(a) See Note 1A.
(b) Federal Tax Information:
At December 31, 1996 the net unrealized appreciation on investments based on
cost of $53,630,435 for federal income tax purposes was as follows:
<TABLE>
<CAPTION>
<C> <S> <C>
Aggregate gross unrealized appreciation for all
investments in which there is an excess of
value over tax cost . . . . . . . . . . . . . $28,002,651
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value . . . . . . . . . . . . . . . (936,738)
-----------
Net unrealized appreciation . . . . . . . . . . $27,065,913
===========
</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.
49
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1996
ASSETS
Investments at value . . . . . . . . . . . . $80,696,348
Cash . . . . . . . . . . . . . . . . . . . . 699
Receivable for:
Fund shares sold . . . . . . . . . . . . . . 113,468
Dividends and interest . . . . . . . . . . . 138,258
Foreign taxes . . . . . . . . . . . . . . . 290
-----------
80,949,063
LIABILITIES
Payable for:
Fund shares redeemed . . . . . . . . . . . . $88,403
Withholding taxes . . . . . . . . . . . . . 42
Accrued expenses:
Management fees . . . . . . . . . . . . . . 24,772
Deferred trustees' fees . . . . . . . . . . 42,230
Other expenses . . . . . . . . . . . . . . . 29,768
-------
185,215
-----------
$80,763,848
===========
Net Assets
Net Assets consist of:
Capital paid in . . . . . . . . . . . . . . $53,271,948
Undistributed net investment income . . . . 8,445
Accumulated net realized gains . . . . . . . 287,430
Unrealized appreciation on investments . . . 27,196,025
-----------
NET ASSETS . . . . . . . . . . . . . . . . . . $80,763,848
===========
Computation of offering price:
Net asset value and redemption price per share
($80,763,848 divided by 675,146 shares of
beneficial interest) . . . . . . . . . . . . $ 119.62
===========
Identified cost of investments . . . . . . . . $53,500,323
===========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
INVESTMENT INCOME
Dividends . . . . . . . . . . . . $ 1,474,292(a)
Interest . . . . . . . . . . . . . 57,446
-----------
1,531,738
EXPENSES
Management fees . . . . . . . . . $170,651
Trustees' fees and expenses . . . 24,999
Custodian . . . . . . . . . . . . 78,749
Audit and tax services . . . . . . 11,800
Legal . . . . . . . . . . . . . . 14,012
Printing . . . . . . . . . . . . . 37,606
Miscellaneous . . . . . . . . . . 6,367
--------
Total expenses . . . . . . . . . 344,184
Less expenses assumed by the
investment adviser . . . . . . (71,003) 273,181
-------- -----------
NET INVESTMENT INCOME . . . . . . . 1,258,557
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Realized gain on:
Investments--net . . . . . . . . 995,215
Unrealized appreciation on:
Investments--net . . . . . . . . 11,760,936
-----------
Net gain on investment
transactions . . . . . . . . . . . 12,756,151
-----------
NET INCREASE IN NET ASSETS FROM
OPERATIONS . . . . . . . . . . . . $14,014,708
===========
</TABLE>
(a) Net of foreign taxes of: $9,140.
See accompanying notes to financial statements.
50
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income . . . . . . . . . . . . $ 1,070,362 $ 1,258,557
Net realized gain on investments . . . . . . 775,273 995,215
Unrealized appreciation on investments . . . 13,212,050 11,760,936
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS . . . 15,057,685 14,014,708
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income . . . . . . . . . . . . (1,050,107) (1,270,368)
Net realized gain on investments . . . . . . (673,888) (675,238)
------------ ------------
(1,723,995) (1,945,606)
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares . . . . . . . . 17,851,781 21,863,034
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income . . 1,050,107 1,270,368
Distributions from net realized gain . . . . 673,888 675,238
------------ ------------
19,575,776 23,808,640
Cost of shares redeemed . . . . . . . . . . . (11,403,132) (13,784,516)
------------ ------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS . . . . . . . . . . . . . 8,172,644 10,024,124
------------ ------------
TOTAL INCREASE IN NET ASSETS . . . . . . . . 21,506,334 22,093,226
NET ASSETS
Beginning of the year . . . . . . . . . . . . 37,164,288 58,670,622
------------ ------------
End of the year . . . . . . . . . . . . . . . $ 58,670,622 $ 80,763,848
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year . . . . . . . . . . . . $ 0 $ 20,255
============ ============
End of the year . . . . . . . . . . . . . . . $ 20,255 $ 8,445
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares . . . . . . . 202,803 198,327
Issued in connection with the reinvestment of:
Distributions from net investment income . . 10,562 10,371
Distributions from net realized gain . . . . 6,778 5,855
------------ ------------
220,143 214,553
Redeemed . . . . . . . . . . . . . . . . . . (127,215) (125,580)
------------ ------------
Net change . . . . . . . . . . . . . . . . . 92,928 88,973
============ ============
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year . . . . . . . . . $137.39 $ 72.00 $ 76.48 $ 75.35 $100.09
------- ------- ------- ------- -------
Income From Investment
Operations
Net Investment Income . . 8.35 1.54 1.80 1.88 1.91
Net Realized and
Unrealized Gain (Loss) on
Investments. . . . . . . 2.02 5.18 (0.92) 25.89 20.58
------- ------- ------- ------- -------
Total From Investment
Operations . . . . . . . 10.37 6.72 0.88 27.77 22.49
------- ------- ------- ------- -------
Less Distributions
Dividends From Net
Investment Income . . . (8.35) (1.36) (1.82) (1.85) (1.93)
Distributions in Excess of
Net Investment Income . 0.00 (0.18) 0.00 0.00 0.00
Distributions From Net
Realized Capital Gains . (67.41) (0.55) (0.16) (1.18) (1.03)
Distributions in Excess of
Net Realized Capital
Gains. . . . . . . . . . 0.00 (0.15) 0.00 0.00 0.00
Distributions From Paid-in
Capital. . . . . . . . . 0.00 0.00 (0.03) 0.00 0.00
------- ------- ------- ------- -------
Total Distributions . . . (75.76) (2.24) (2.01) (3.03) (2.96)
------- ------- ------- ------- -------
Net Asset Value, End of
Year . . . . . . . . . . $ 72.00 $ 76.48 $ 75.35 $100.09 $119.62
======= ======= ======= ======= =======
TOTAL RETURN (%) . . . . . 7.30 9.72 1.14 36.88 22.47
Ratio of Operating Expenses
to Average Net Assets (%) 0.35 0.34 0.33 0.40 0.40
Ratio of Net Investment
Income to Average Net
Assets (%) . . . . . . . 2.63 2.52 2.59 2.20 1.84
Portfolio Turnover
Rate (%) . . . . . . . . 17 12 2 5 4
Average Commission
Rate (a) . . . . . . . . -- -- -- -- $0.0309
Net Assets, End of
Year (000) . . . . . . . $10,172 $28,817 $37,164 $58,671 $80,764
The ratios of expenses to
average net assets without
giving effect to the
voluntary expense
agreement described in
Note 4 to the Financial
Statements would have
been (%) . . . . . . . . -- -- -- 0.54 0.50
</TABLE>
(a) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for trades on which
commissions are charged. This rate generally does not reflect mark-ups,
mark-downs, or spreads on shares traded on a principal basis.
See accompanying notes to financial statements.
51
<PAGE>
LOOMIS SAYLES BALANCED SERIES
PORTFOLIO MANAGERS: DOUG RAMOS AND
MERI ANNE BECK
LOOMIS, SAYLES & COMPANY, L.P.
[PHOTOS OF DOUG RAMOS & MERI ANNE BECK]
Q. HOW DID LOOMIS SAYLES BALANCED SERIES PERFORM IN 1996?
A. The Series generated 16.91% total return through December 31, 1996, thanks
primarily to strong performance in the equity portion of the Series during the
second half of the year. The Series outperformed its benchmark, the Lipper
Variable Balanced Fund Average, which finished the year with a 12.41% total
return.
Q. HOW DID YOU MANAGE THE SERIES IN 1996?
A. For the equity component of the Series' portfolio, the key to performance in
1996 was stock selection. In the technology area, strong demand for personal
computers and computer networks resulted in outstanding performance for
companies such as EMC Corp. and Intel Corp.
Solid business fundamentals and higher energy prices powered investments in
Tosco and Pan Energy. In the financial sector, where the portfolio had a large
weighting, ongoing consolidation in the banking industry benefited our holdings
in NationsBank and Chase Manhattan. Attractive business fundamentals also helped
produce strong performance in other financial services holdings such as Ace
Ltd., a liability insurer; Federal Home Loan Mortgage Corporation (Freddie Mac);
and Green Tree, a financial services company.
In the capital goods sector, McDonnell-Douglas and Northrup were solid
performers that benefited from the ongoing consolidation in the defense
industry. Specific company events also contributed to performance in the case of
Eckerd, a drugstore chain, that was bought out by JCPenney. Allied Signal, a
large multinational conglomerate in the businesses of aerospace, automotive and
engineered materials, and Carnival Corp., the popular cruise line operator,
performed well as they continued to execute their business strategies.
Higher interest rates and new telecommunications legislation contributed to weak
performance in the Series' utilities and communications holdings. It should be
noted, however, that the Series was significantly underweighted in these
industries.
On the fixed-income side, our overweighting in corporate bonds had a positive
impact on the Series for most of the year. Profits were taken in Hospital Corp.
of America, International Lease Finance, Lockheed Martin and Smith Barney
corporate bonds. Coastal Corp. and Tektronix also performed well due to
improving fundamentals, and Carnival Corp. was upgraded in quality while TCI
Communications performed poorly as the company recorded losses. Toward the end
of the year we increased our allocation to U.S. Treasury and U.S. Government
Agency mortgage bonds as the risk/reward trade-off now favors these issues. Our
continuing focus is on credit and sector selection to provide the best total
return potential.
Q. WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD?
A. We continue to expect moderate economic growth, low inflation and a stable
interest rate environment in 1997. Overall, this should not produce any major
dislocations in the financial markets. However, we believe that equity markets
will experience increased volatility in 1997. An increase in the possibility of
earnings disappointments and investor concerns over lower corporate earnings
growth than last year should contribute to this volatility. We believe these
concerns will make stock selection an important factor in performance in 1997.
52
<PAGE>
[A CHART APPEARS HERE WHICH COMPARES A $10,000
INVESTMENT IN THE SERIES VERSUS AN INDEX]
<TABLE>
<CAPTION>
Balanced Leh/Gov't
Series S&P 500 Corp.
<S> <C> <C> <C>
10/31/94 10000 10000 10000
1994 9990 9794 10048
1995 12467 13461 11981
1996 14575 16552 12328
</TABLE>
FUND FACTS
GOAL: Reasonable long-term investment return from a combination of long-term
capital appreciation and moderate current income.
START DATE: October 31, 1994
SIZE: $59 million as of December 31, 1996
MANAGERS: Douglas Ramos and Meri Anne Beck have managed the Series since its
inception. Mr. Ramos serves as portfolio manager of New England Balanced Fund
and New England Value Fund. Ms. Beck also serves as portfolio manager of New
England Balanced Fund. Mr. Ramos joined Loomis Sayles in 1985 and Ms. Beck
joined Loomis Sayles in 1986.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life insurance
contracts. If these charges were included, the returns shown would be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
53
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--62.9% OF TOTAL NET ASSETS
SHARES VALUE (A)
<C> <S> <C>
AEROSPACE--3.3%
6,700 Lockheed Martin Corp. . . . . . . . . $ 613,050
7,900 Northrop Grumman Corp. . . . . . . . 653,725
13,600 Raytheon Co. . . . . . . . . . . . . 654,500
-----------
1,921,275
-----------
APPAREL & TEXTILES--1.2%
17,200 Reebok International, Ltd. . . . . 722,400
-----------
AUTOMOTIVE & RELATED--1.1%
11,600 General Motors Corp. . . . . . . . 646,700
-----------
BANKS--5.3%
7,400 BankAmerica Corp. . . . . . . . . . . 738,150
8,400 Chase Manhattan Corp., New . . . . . 749,700
9,100 NationsBank Corp. . . . . . . . . . . 889,525
16,300 Norwest Corp. . . . . . . . . . . . . 709,050
-----------
3,086,425
-----------
BEVERAGES--1.4%
35,600 Whitman Corp. . . . . . . . . . . . . 814,350
-----------
CHEMICALS--3.7%
26,300 Crompton & Knowles Corp. . . . . . . 506,275
8,900 El du Pont de Nemours & Co. . . . . . 839,938
14,700 PPG Industries, Inc. . . . . . . . . 825,037
-----------
2,171,250
-----------
COMPUTERS & BUSINESS EQUIPMENT--1.2%
21,300 EMC Corp.(c) . . . . . . . . . . . . 705,562
-----------
CONGLOMERATES--3.2%
12,100 Allied Signal, Inc. . . . . . . . . . 810,700
16,400 Dover Corp. . . . . . . . . . . . . . 824,100
6,600 Philips Electronics NV (ADR)(d) . . . 264,000
-----------
1,898,800
-----------
ELECTRIC UTILITIES--1.1%
33,300 Edison International . . . . . . . . 661,837
-----------
ELECTRICAL EQUIPMENT--1.1%
11,900 York International Corp., New . . . . 664,913
-----------
ELECTRONIC COMPONENTS--1.1%
5,100 Intel Corp. . . . . . . . . . . . 667,781
-----------
FINANCIAL SERVICES--3.5%
6,800 Federal Home Loan Mortgage Corp. . . 748,850
17,000 Federal National Mortgage Association 633,250
17,400 Green Tree Financial Corp. . . . . 672,075
-----------
2,054,175
-----------
FOOD--AGRIBUSINESS--0.8%
19,200 IBP, Inc. . . . . . . . . . . . . . . 465,600
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
FREIGHT TRANSPORTATION--3.5%
9,600 Burlington Northern Santa Fe . . . . $ 829,200
20,100 Canadian Pacific, Ltd., New . . . . 532,650
15,200 Federal Express Corp.(c) . . . . . . 676,400
-----------
2,038,250
-----------
GAS & PIPELINE UTILITIES--1.4%
3,200 Columbia Gas Systems, Inc. . . . . . 203,600
13,900 Panenergy Corp. . . . . . . . . . . 625,500
-----------
829,100
-----------
HEALTH CARE--SERVICES--4.1%
10,500 Aetna, Inc. . . . . . . . . . . . . 840,000
32,300 Beverly Enterprises, Inc. . . . . 411,825
21,450 Columbia/HCA Healthcare Corp. . . . 874,088
7,900 Foundation Health Corp.(c) . . . . . 250,825
-----------
2,376,738
-----------
HOUSEHOLD PRODUCTS--2.4%
4,000 Kimberly-Clark Corp. . . . . . . . . 381,000
9,200 Premark International, Inc. . . . . 204,700
15,500 Tupperware Corp. . . . . . . . . . . 831,188
-----------
1,416,888
-----------
HOUSING & BUILDING MATERIALS--5.0%
12,200 Armstrong World Industries, Inc. . . 847,900
9,000 Black & Decker Corp. . . . . . . 271,125
28,500 Leggett & Platt, Inc. . . . . . . . 986,812
23,200 Masco Corp. . . . . . . . . . . . . 835,200
-----------
2,941,037
-----------
INSURANCE--5.1%
14,200 ACE, Ltd. . . . . . . . . . . . . . 853,775
11,200 Allstate Corp. . . . . . . . . . . . 648,200
14,800 Chubb Corp. . . . . . . . . . . . . 795,500
22,900 Everest Reinsurance Holdings,
Inc. . . . . . . . . . . . . . . 658,375
-----------
2,955,850
-----------
LEISURE TIME--2.3%
15,600 American Greetings Corp. . . . . . . 442,650
27,900 Carnival Corp. . . . . . . . . . . . 920,700
-----------
1,363,350
-----------
OIL & GAS--3.0%
10,800 Tosco Corp. . . . . . . . . . . . . 854,550
17,000 United Meridian Corp.(c) . . . . . . 879,750
-----------
1,734,300
-----------
PACKAGING--1.5%
15,900 Crown Cork & Seal Co., Inc. . . . . 864,563
-----------
RETAIL--FOOD & DRUG--1.5%
18,400 Kroger Co.(c) . . . . . . . . . . . 855,600
-----------
</TABLE>
See accompanying notes to financial statements.
54
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--(CONTINUED)
SHARES VALUE (A)
<C> <S> <C>
TELECOMMUNICATION--3.3%
3,100 Ameritech Corp. . . . . . . . . . . . . $ 187,937
19,200 GTE Corp. . . . . . . . . . . . . . . . 873,600
23,400 Pacific Telesis Group . . . . . . . . . 859,950
-----------
1,921,487
-----------
TOBACCO--1.8%
6,600 Loews Corp. . . . . . . . . . . . . . . 622,050
12,400 UST, Inc. . . . . . . . . . . . . . . . 401,450
-----------
1,023,500
-----------
Total Common Stocks
(Identified Cost $31,413,750) . . . . 36,801,731
-----------
MEDIUM & LONG TERM BONDS & NOTES--33.1%
FACE
AMOUNT
BANKS--1.3%
$ 350,000 Capital One Bank,
6.830%, 5/17/99 . . . . . . . . . . . 351,543
50,000 Chase Manhattan Corp.,
9.050%, 2/01/02 . . . . . . . . . . . 50,093
310,000 Mellon Bank N A,
7.000%, 3/15/06 . . . . . . . . . . . 308,258
50,000
Norwest Corp.,
7.650%, 3/15/05 . . . . . . . . . . . 52,436
-----------
762,330
-----------
CABLE & MEDIA--0.6%
350,000
TCI Communications, Inc.,
7.250%, 6/15/99 . . . . . . . . . . . 350,987
-----------
COMPUTER--0.5%
300,000
Comdisco, Inc.,
5.760%, 1/19/99 . . . . . . . . . . . 297,045
-----------
ENERGY--0.2%
125,000
Coastal Corp.,
8.125% , 9/15/02 . . . . . . . . . . . 132,210
-----------
FINANCE--4.2%
125,000 Associates Corp. NA,
8.350%, 12/22/98 . . . . . . . . . . . 130,106
115,000 Avalon Properties, Inc.,
7.375%, 9/15/02 . . . . . . . . . . . 116,018
260,000 Dean Witter Discover & Co.,
6.750%, 1/01/16 . . . . . . . . . . . 239,361
200,000 Ford Motor Credit Corp.,
6.850%, 8/15/00 . . . . . . . . . . . 201,818
244,000 General Motors Acceptance Corp.
5.500%, 12/15/01 . . . . . . . . . . . 230,868
280,000 Oasis Residential, Inc.,
7.000%, 11/15/03 . . . . . . . . . . . 276,825
100,000 Secured Finance,
9.050%, 12/15/04 . . . . . . . . . . . 112,709
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$ 50,000 Standard Credit Card,
8.625%, 1/07/02 . . . . . . . . . . . $ 50,175
575,000 Transamerica Finance Corp.,
6.750%, 6/01/00 . . . . . . . . . . . 577,312
300,000 Western Financial Services,
6.950%, 11/20/03 . . . . . . . . . . . 304,071
200,000 World Omni Automobile Lease Finance
Corp., 6.550%, 6/25/02 . . . . . . . . 200,938
-----------
2,440,201
-----------
GOVERNMENT AGENCIES--0.6%
350,000 Federal Home Loan Bank,
7.151%, 9/13/05 . . . . . . . . . . . 347,295
-----------
U.S. GOVERNMENT--14.6%
700,000 United States Treasury Notes,
5.375%, 5/31/98 . . . . . . . . . . . 696,388
1,020,000 United States Treasury Notes,
6.750%, 6/30/99 . . . . . . . . . . . 1,038,013
455,000 United States Treasury Notes,
6.125%, 7/31/00 . . . . . . . . . . . 455,000
1,815,000 United States Treasury Notes,
6.250%, 2/15/03 . . . . . . . . . . . 1,812,731
2,550,000 United States Treasury Notes,
6.500%, 8/15/05 . . . . . . . . . . . 2,566,346
2,500,000 United States Treasury Notes,
Zero Coupon, 11/15/09 . . . . . . . . 1,055,475
830,000 United States Treasury Bonds,
7.875%, 2/15/21 . . . . . . . . . . . 938,157
-----------
8,562,110
-----------
HEALTH CARE--SERVICES--0.1%
50,000 Columbia/HCA Healthcare Co.,
8.020%, 8/5/02 . . . . . . . . . . . . 53,104
-----------
INDUSTRIALS--1.7%
325,000 Amerco,
7.850%, 5/15/03. . . . . . . . . . . . 332,429
200,000 Martin Marietta Corp.,
6.500%, 4/15/03 . . . . . . . . . . . 197,248
260,000 Philips Electronics NV,
7.250%, 8/15/13 . . . . . . . . . . . 253,539
200,000 Tektronix, Inc.,
7.625%, 8/15/02 . . . . . . . . . . . 205,600
-----------
988,816
-----------
INSURANCE--0.5%
275,000 Travelers Aetna Property & Casualty Co.,
6.750%, 4/15/01 . . . . . . . . . . . 276,086
-----------
</TABLE>
See accompanying notes to financial statements.
55
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
MEDIUM & LONG TERM BONDS & NOTES--(CONTINUED)
FACE
AMOUNT VALUE (A)
<C> <S> <C>
LEISURE & LODGING--0.7%
$ 100,000 Carnival Corp.,
7.050%, 5/15/05 . . . . . . . . . . . . . $ 99,539
300,000 La Quinta Inns, Inc.,
7.400%, 9/15/05 . . . . . . . . . . . . . 294,750
-----------
394,289
-----------
MORTGAGE--2.0%
368,008 Federal National Mortgage Association,
7.000%, 12/01/11 . . . . . . . . . . . . 279,650
280,000 Federal National Mortgage Association,
7.000%, 12/01/11 . . . . . . . . . . . . 367,548
620,000 Federal National Mortgage Association,
6.000%, 2/25/24 . . . . . . . . . . . . . 548,712
-----------
1,195,910
-----------
MORTGAGED BACKED--1.5%
200,000 Federal Home Loan Mortgage Corp.,
8.000%, 7/15/21 . . . . . . . . . . . . . 206,374
390,220 Federal Home Loan Mortgage Association,
6.000%, 8/15/22 . . . . . . . . . . . . . 348,880
50,000 General Electric Capital Mortgage Services,
Inc.,10.000%, 3/25/24 . . . . . . . . . . 51,344
75,000 Westam Mortgage Financial Corp.,
8.950%, 8/01/18 . . . . . . . . . . . . . 80,132
200,000 Westam Mortgage Financial Corp.,
9.400%, 12/01/18 . . . . . . . . . . . . 211,186
-----------
897,916
-----------
RETAIL--0.6%
335,000 Federated Department Stores, Inc.,
8.500%, 6/15/03 . . . . . . . . . . . . . 350,799
-----------
SECURITIES--2.3%
225,000 Alex. Brown, Inc.,
7.625%, 8/15/05 . . . . . . . . . . . . . 229,556
200,000 Donaldson Lufkin & Jennrette, Inc.,
6.875%, 11/01/05 . . . . . . . . . . . . 194,868
100,000 Lehman Brothers Holdings, Inc.,
5.750%, 11/15/98 . . . . . . . . . . . . 98,865
200,000 Lehman Brothers Holdings, Inc.,
7.360%, 12/15/03 . . . . . . . . . . . . 200,798
100,000 Merrill Lynch & Co.,
8.375%, 2/09/00 . . . . . . . . . . . . . 105,262
390,000 Salomon Bros., Inc,
7.125%, 8/01/99 . . . . . . . . . . . . . 394,376
145,000 Salomon, Inc,
7.500%, 2/01/03 . . . . . . . . . . . . . 146,814
-----------
1,370,539
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
TECHNOLOGY--0.3%
$ 200,000 Digital Equipment Corp.,
8.625%, 11/01/12 . . . . . . . . . . . . $ 193,806
----------
TELECOMMUNICATION--0.3%
200,000 Southern Bell Telephone & Telegraph Co.,
7.625%, 3/15/13 . . . . . . . . . . . . . 199,266
----------
TRANSPORTATION--0.3%
25,000 American Airlines,
10.180%, 1/02/13 . . . . . . . . . . . . 30,196
100,000 AMR Corp.,
10.290%, 3/08/21 . . . . . . . . . . . . 126,975
----------
157,171
----------
UTILITIES--0.8%
250,000 Cincinnati Gas & Electric Co.,
7.375%, 11/01/01 . . . . . . . . . . . . 252,930
195,000 Detroit Edison Co.,
6.340%, 3/15/00 . . . . . . . . . . . . . 193,292
----------
446,222
----------
Total Bonds & Notes
(Identified Cost $19,295,649) . . . . . . 19,416,102
----------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENT--3.3%
<C> <S> <C>
$1,937,000 Associates Corp. of North America,
6.550%, 1/2/97 . . . . . . . . . 1,937,000
-----------
Total Short-Term Investment
(Identified Cost $1,937,000) . . 1,937,000
-----------
Total Investments--99.3%
(Identified Cost
$52,646,399 (b)) . . . . . . . . 58,154,833
Other assets less liabilities . . 370,010
------------
TOTAL NET ASSETS--100% . . . . . . $58,524,843
============
</TABLE>
(a) See Note 1a.
(b) Federal Tax Information: At December 31, 1996 the net unrealized
appreciation on investments based on cost of $52,686,315 for federal income
tax purposes was as follows:
<TABLE>
<CAPTION>
<C> <S> <C>
Aggregate gross unrealized appreciation for all
investments in which there is an excess of
value over tax cost . . . . . . . . . . . . $5,702,244
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value . . . . . . . . . . . . . . . (233,726)
----------
Net unrealized appreciation . . . . . . . . . . $5,468,518
==========
</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.
56
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
<TABLE>
<CAPTION>
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1996
ASSETS
<S> <C> <C>
Investments at value . . . . . . . . . . . . $58,154,833
Cash . . . . . . . . . . . . . . . . . . . . 748
Receivable for:
Fund shares sold . . . . . . . . . . . . . . 242,693
Securities sold . . . . . . . . . . . . . . 52,642
Dividends and interest . . . . . . . . . . . 298,016
Foreign taxes . . . . . . . . . . . . . . . 275
Unamortized organization expense . . . . . . 5,689
-----------
58,754,896
LIABILITIES
Payable for:
Securities purchased . . . . . . . . . . . . $ 24,224
Fund shares redeemed . . . . . . . . . . . . 132,521
Withholding taxes . . . . . . . . . . . . . 265
Accrued expenses:
Management fees . . . . . . . . . . . . . . 34,792
Deferred trustees' fees . . . . . . . . . . 280
Other expenses . . . . . . . . . . . . . . . 37,971
--------
230,053
-----------
$58,524,843
===========
NET ASSETS
Net Assets consist of:
Capital paid in . . . . . . . . . . . . . . $52,484,161
Undistributed net investment income . . . . 10,566
Accumulated net realized gains . . . . . . . 521,682
Unrealized appreciation on investments . . . 5,508,434
-----------
NET ASSETS . . . . . . . . . . . . . . . . . . $58,524,843
===========
Computation of offering price:
Net asset value and redemption price per share
($58,524,843 divided by 4,318,444 shares of
beneficial interest) . . . . . . . . . . . . $ 13.55
===========
Identified cost of investments . . . . . . . . $52,646,399
===========
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
INVESTMENT INCOME
<S> <C> <C>
Dividends . . . . . . . . . . . . . . $ 432,720(a)
Interest . . . . . . . . . . . . . . . 996,102
----------
1,428,822
EXPENSES
Management fees . . . . . . . . . . . $252,822
Trustees' fees and expenses . . . . . 10,423
Custodian . . . . . . . . . . . . . . 53,131
Audit and tax services . . . . . . . . 14,100
Legal . . . . . . . . . . . . . . . . 11,567
Printing . . . . . . . . . . . . . . . 9,528
Amortization of organization expenses 2,017
Miscellaneous . . . . . . . . . . . . 5,490
--------
Total expenses . . . . . . . . . . . 359,078
Less expenses assumed by the
investment adviser . . . . . . . . (52,078) 307,000
-------- ----------
NET INVESTMENT INCOME . . . . . . . . . 1,121,822
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Realized gain on:
Investments--net . . . . . . . . . . 940,791
Unrealized appreciation on:
Investments--net . . . . . . . . . . 4,480,648
----------
Net gain on investment transactions . 5,421,439
----------
NET INCREASE IN NET ASSETS FROM
OPERATIONS . . . . . . . . . . . . . . $6,543,261
==========
</TABLE>
(a) Net of foreign taxes of: $5,506.
See accompanying notes to financial statements.
57
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------ --------------
<S> <C> <C>
FROM OPERATIONS
Net investment income . . . . . . . . . . . . . $ 382,625 $ 1,121,822
Net realized gain on investments . . . . . . . 426,765 940,791
Unrealized appreciation on investments . . . . 1,029,622 4,480,648
----------- -----------
Increase in net assets from operations . . . . 1,839,012 6,543,261
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income . . . . . . . . . . . . . (382,625) (1,114,677)
In excess of net investment income . . . . . . (1,297) 0
Net realized gain on investments . . . . . . . (288,315) (557,561)
----------- -----------
(672,237) (1,672,238)
----------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares . . . . . . . . . 18,594,352 41,044,288
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income . . . 383,922 1,114,677
Distributions from net realized gain . . . . . 288,315 557,561
----------- -----------
19,266,589 42,716,526
Cost of shares redeemed . . . . . . . . . . . . (4,333,030) (7,885,382)
----------- -----------
Increase in net assets derived from capital
share transactions . . . . . . . . . . . . . . 14,933,559 34,831,144
----------- -----------
Total increase in net assets . . . . . . . . . 16,100,334 39,702,167
NET ASSETS
Beginning of the year . . . . . . . . . . . . . 2,722,342 18,822,676
----------- -----------
End of the year . . . . . . . . . . . . . . . . $18,822,676 $58,524,843
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year . . . . . . . . . . . . . $ 251 $ 1,050
=========== ===========
End of the year . . . . . . . . . . . . . . . . $ 1,050 $ 10,566
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares . . . . . . . . 1,626,505 3,250,311
Issued in connection with the reinvestment of:
Distributions from net investment income . . . 32,426 82,445
Distributions from net realized gain . . . . . 24,351 30,535
----------- -----------
1,683,282 3,363,291
Redeemed . . . . . . . . . . . . . . . . . . . (382,082) (619,940)
----------- -----------
Net change . . . . . . . . . . . . . . . . . . 1,301,200 2,743,351
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
OCTOBER 31, 1994 (A)
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
-------------------- ------------ --------------
<S> <C> <C> <C>
Net Asset Value, Beginning
of Period . . . . . . . . $10.00 $ 9.94 $ 11.95
------ ------- -------
Income From Investment
Operations
Net Investment Income . . 0.05 0.26 0.27
Net Realized and
Unrealized Gain (Loss) on
Investments. . . . . . . (0.06) 2.20 1.73
------ ------- -------
Total From Investment
Operations . . . . . . . (0.01) 2.46 2.00
------ ------- -------
Less Distributions
Dividends From Net
Investment Income . . . (0.05) (0.26) (0.27)
Distributions From Net
Realized Capital Gains . 0.00 (0.19) (0.13)
------ ------- -------
Total Distributions . . . (0.05) (0.45) (0.40)
------ ------- -------
Net Asset Value, End of
Period. . . . . . . . . . $ 9.94 $ 11.95 $ 13.55
====== ======= =======
TOTAL RETURN (%) . . . . . (0.10)(c) 24.79 16.91
Ratio of Operating Expenses
to Average Net
Assets (%) . . . . . . . 0.85 (b) 0.85 0.85
Ratio of Net Investment
Income to Average Net
Assets (%) . . . . . . . 4.16 (b) 4.03 3.08
Portfolio Turnover
Rate (%) . . . . . . . . 0 (b) 72 59
Average Commission
Rate(d) . . . . . . . . . -- -- $0.0594
Net Assets, End of
Period (000) . . . . . . $2,722 $18,823 $58,525
The ratios of expenses to
average net assets without
giving effect to the
voluntary expense
agreement described in
Note 4 to the Financial
Statements would have
been (%) . . . . . . . . 3.73 (b) 1.85 0.99
</TABLE>
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
(d) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for trades on which
commissions are charged. This rate generally does not reflect mark-ups,
mark-downs, or spread on shares traded on a principal basis.
See accompanying notes to financial statements.
58
<PAGE>
BACK BAY ADVISORS MANAGED SERIES
PORTFOLIO MANAGER: PETER PALFREY
BACK BAY ADVISORS, L.P.
[PHOTO OF PETER PALFREY]
The Back Bay Advisors Managed Series is a "Flexible" fund, typically targeting a
65%/35% split between stocks and bonds. As market conditions dictate, the stock
allocation can vary from 50% to 80% of the total, based on market outlook, and
the relative valuation between stocks and bonds. During 1996, the stock
allocation ranged from 68-73%. Over the past three years, the stock allocation
has ranged from 50-75%.
Q. HOW DID THE BACK BAY ADVISORS MANAGED SERIES PERFORM IN 1996?
A. The Managed Series continued its strong relative and absolute performance in
1996, returning 15.01% for the year versus 13.85% for the average Lipper
Variable Flexible Portfolio Fund. This should be viewed in the context of a
2.90% return for the year ended December 31, 1996 for the Lehman Brothers
Government/Corporate Index/4/ and a 22.90% return for the S&P 500 Index/19/.
The U.S. economy rebounded sharply during the first half of 1996, fueled in part
by the lagged effect of easier Federal Reserve monetary policy through 1995 and
into early 1996. With the backdrop of a favorable interest rate environment,
corporations continued their strong year-over-year earnings growth in 1996,
propelled by the rebound in U.S. economic activity, particularly during the
first two quarters. Additionally, leaner and more efficient operations and
healthier balance sheets allowed corporations to translate robust top line
revenue growth into solid bottom line earnings. This, coupled with monthly flows
of $10-20 billion into stock mutual funds throughout the year supported the
strong performance in U.S. equity markets.
The fixed income market, however, suffered from the strong rebound in the U.S.
economy early in 1996, with investors worried that higher than expected Gross
Domestic Product (GDP) growth would translate into increased inflationary
pressures going forward. Steady gains in nonfarm payrolls, solid personal income
growth and relatively high manufacturing capacity utilization rates, coupled
with a spike in energy costs, all served to push interest rates sharply higher
through the first half of 1996, as investors speculated over the timing (or
necessity) of a pre-emptive strike by the Federal Reserve. After a very
difficult first half of the year for bonds, signs of continued modest
inflationary pressures, coupled with a modest slowdown in the U.S. economy
during the early part of the second half of the year, allowed bond prices to
rebound somewhat.
The Series' overweight position in equities throughout 1996 positively impacted
performance, with stocks significantly outperforming bonds for the year. Within
the equity portfolio, larger capitalization growth stocks performed relatively
better than value and mid-to-small cap holdings.
Within the fixed income portfolio, short and intermediate holdings performed
relatively better than longer duration issues, given the 70-85 basis point
backup in interest rates during 1996. Emerging market, upgraded bonds and high
yield issues were among the best performing sectors in the fixed income market,
due to significant spread tightening. Canadian denominated obligations also
turned in a very strong performance due to significant spread tightening versus
U.S. Treasuries.
Q. HOW DID YOU MANAGE THE SERIES IN 1996?
A. Given the continued strong capital flows into equities, our positive
corporate earnings outlook, and expectations for a range-bound interest rate
environment, overall portfolio strategy during the year continued to favor a
bias towards stocks (68.3% at December 31, 1996). While the stock allocation
remains slightly overweight versus the normally "targeted" 65% stock/35% bond
split, the allocation to stocks was reduced from nearly 73% in November as a
hedge against very "full" equity valuations. The proceeds were redirected into
intermediate and longer maturity bonds.
The U.S. economy slowed from a 4.7% pace in the second quarter to 2.1% in the
third quarter, easing investor fears of runaway economic growth pushing
inflation much beyond the 3.1% year-over-year rate experienced through November
1996. While fourth quarter 1996 GDP estimates had been running at 2-2.5%, the
most recent payroll figures, earnings and manufacturing data now point to a
greater than expected rebound in economic growth as we enter 1997.
Q. WHAT IS YOUR INVESTMENT OUTLOOK FOR THE MONTHS AHEAD?
A. Although the rising GDP has put considerable pressure on fixed income markets
(and to a lesser degree, equity markets)
59
<PAGE>
over the past several weeks, I remain constructive on the bond and equity
markets over the longer term, and would need to see several months of stronger
data before changing my expectation of a sidelined Federal Reserve.
[A CHART APPEARS HERE COMPARING A $10,000
INVESTMENT IN THE SERIES COMPARED TO AN INDEX]
<TABLE>
<CAPTION>
Managed Leh/Gov't
Series S&P 500 Corp.
<S> <C> <C> <C>
5/1/87 10000 10000 10000
1987 9935 8770 10357
1988 10877 10216 11142
1989 12952 13444 12729
1990 13369 13025 13782
1991 16065 16976 16001
1992 17142 18268 17213
1993 18968 20101 19117
1994 18756 20374 18447
1995 24620 28003 21997
1996 28316 34432 22635
</TABLE>
FUND FACTS
GOAL: A favorable total return through investment in diversified portfolio. The
Series' portfolio is expected to include a mix of (1) common stocks, (2) notes
and bonds and (3) money market instruments.
START DATE: May 1, 1987
SIZE: $161 million as of December 31, 1996
MANAGER: Peter Palfrey has managed the Series since January 1994 and joined
Back Bay Advisors in 1993. Mr. Palfrey also manages several other fixed income
and separate accounts.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life insurance
contracts. If these charges were included, the returns shown would be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
60
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--68.2% OF TOTAL NET ASSETS
SHARES VALUE (A)
<C> <S> <C>
AEROSPACE--1.1%
5,638 Boeing Co. . . . . . . . . . . . . . $ 599,742
14,600 Rockwell International Corp. . . . . 888,775
5,000 United Technologies Corp. . . . . . . 330,000
----------
1,818,517
----------
AUTOMOBILE & RELATED--1.3%
30,864 Chrysler Corp. . . . . . . . . . . . 1,018,512
4,600 Ford Motor Co. . . . . . . . . . . . 146,625
12,500 General Motors Corp. . . . . . . . . 696,875
6,750 Genuine Parts Co. . . . . . . . . . . 300,375
----------
2,162,387
----------
BANKS--5.4%
32,186 Banc One Corp. . . . . . . . . . . . 1,383,998
10,144 Bank America Corp. . . . . . . . . . 1,011,864
5,400 Bankers Trust NY . . . . . . . . . . 465,750
8,700 Chase Manhattan Corp. New . . . . . . 776,475
9,400 Citicorp . . . . . . . . . . . . . . 968,200
10,300 First Union Corp. . . . . . . . . . . 762,200
10,900 J.P. Morgan & Co., Inc. . . . . . . . 1,064,113
7,200 Nations Bank Corp. . . . . . . . . . 703,800
17,100 Norwest Corp. . . . . . . . . . . . . 743,850
2,800 Wells Fargo & Co. . . . . . . . . . . 755,300
----------
8,635,550
----------
BUSINESS MACHINES--1.7%
8,500 Apple Computer . . . . . . . . . . . 177,437
28,400 Digital Equipment Corp.(c) . . . . . 1,033,050
10,300 International Business Machines
Corp. . . . . . . . . . . . . . . . 1,555,300
----------
2,765,787
----------
BUSINESS SERVICES--1.0%
28,500 Browning Ferris Industries, Inc. . . 748,125
10,000 Dun & Bradstreet Corp. . . . . . . . 237,500
9,200 H & R Block, Inc. . . . . . . . . . . 266,800
9,500 WMX Technologies, Inc. . . . . . . . 309,938
----------
1,562,363
----------
CHEMICALS--2.2%
14,200 Allied-Signals, Inc. . . . . . . . . 951,400
8,200 Dow Chemical Co. . . . . . . . . . . 642,675
13,700 E.I. Du Pont de Nemours & Co. . . . . 1,292,937
17,500 Monsanto Co. . . . . . . . . . . . . 680,313
500 PPG Industries, Inc. . . . . . . . . 28,063
----------
3,595,388
----------
COMMUNICATION--5.1%
15,500 Airtouch Communications, Inc. . . . . 391,375
13,100 Ameritech Corp. . . . . . . . . . . . 794,187
27,261 AT & T Co. . . . . . . . . . . . . . 1,185,853
12,200 Bell Atlantic Corp. . . . . . . . . . 789,950
16,200 Bellsouth Corp. . . . . . . . . . . . 654,075
10,600 GTE Corp. . . . . . . . . . . . . . . 482,300
8,834 Lucent Technologies, Inc. . . . . . . 408,572
11,900 Northern Telecom LTD . . . . . . . . 736,313
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
14,600 NYNEX Corp. . . . . . . . . . . . . $ 702,625
15,500 Pacific Telesis Group . . . . . . . 569,625
21,900 SBC Comunications, Inc. . . . . . . 1,133,325
9,700 US West, Inc. . . . . . . . . . . . 312,825
----------
8,161,025
----------
CONGLOMERATES--0.8%
2,200 ITT Corp. . . . . . . . . . . . . . 95,425
13,800 Minnesota Mining &
Manufacturing . . . . . . . . . 1,143,675
----------
1,239,100
----------
CONSTRUCTION--0.8%
13,400 Home Depot, Inc. . . . . . . . . . 671,675
14,900 Masco Corp. . . . . . . . . . . . . 536,400
----------
1,208,075
----------
CONSUMER DURABLES--0.0%
800 Whirlpool Corp. . . . . . . . . . . 37,300
----------
DATA PROCESSING--3.0%
16,100 Intel Corp. . . . . . . . . . . . . 2,108,094
23,400 Microsoft Corp. . . . . . . . . . . 1,933,425
17,100 Oracle Sys. Corp. . . . . . . . . . 713,925
----------
4,755,444
----------
DOMESTIC OIL--1.3%
9,700 Amoco Corp. . . . . . . . . . . . . 780,850
2,700 Atlantic Richfield Co. . . . . . . 357,750
3,600 Halliburton Co. . . . . . . . . . . 216,900
934 Santa Fe Energy, Inc.(c) . . . . . 12,959
3,601 Sun, Inc. . . . . . . . . . . . . . 87,774
800 Tenneco, Inc. . . . . . . . . . . . 36,100
15,600 Unocal Corp. . . . . . . . . . . . 633,750
----------
2,126,083
----------
DRUGS & MEDICINE--5.6%
8,800 Abbott Laboratories . . . . . . . . 446,600
22,000 American Home Products Corp. . . . 1,289,750
17,500 Baxter International, Inc. . . . . 717,500
15,200 Eli Lilly & Co. . . . . . . . . . . 1,109,600
31,500 Merck & Co., Inc. . . . . . . . . . 2,496,376
19,200 Pfizer, Inc. . . . . . . . . . . . 1,591,200
18,705 Pharmacia & Upjohn, Inc. . . . . . 741,186
10,800 Schering Plough Corp. . . . . . . . 699,300
----------
9,091,512
----------
ELECTRONICS--3.0%
21,400 AMP, Inc. . . . . . . . . . . . . . 821,225
9,400 Emerson Electric Co. . . . . . . . 909,450
20,000 Hewlett-Packard . . . . . . . . . . 1,005,000
22,000 Motorola, Inc. . . . . . . . . . . 1,350,250
15,400 Raytheon Co. . . . . . . . . . . . 741,125
----------
4,827,050
----------
</TABLE>
See accompanying notes to financial statements.
61
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--(CONTINUED)
SHARES VALUE (A)
<C> <S> <C>
ENERGY & UTILITIES--2.6%
18,300 American Electric Power, Inc. . . $ 752,587
11,700 Consolidated Edison Co. . . . . . 342,225
40,200 Edison International . . . . . . . 798,975
74 El Paso Nat. Gas Co. . . . . . . . 3,737
45,700 Pacific Gas & Electric Co. . . . . 959,700
7,700 Public Service Enterprise Group . 209,825
10,200 Southern Co. . . . . . . . . . . . 230,775
8,900 Texas Utilities Co. . . . . . . . 362,675
17,300 Unicom Corp. . . . . . . . . . . . 469,263
------------
4,129,762
------------
ENERGY RAW MATERIALS--0.8%
58,800 Occidental Petroleum Corp. . . . . 1,374,450
------------
ENTERTAINMENT--0.0%
2,200 ITT Industry, Inc. . . . . . . . . 53,900
1,520 TCI Satellite Entertainment Inc. . 15,010
------------
68,910
------------
FINANCE--2.8%
25,000 American Express Co. . . . . . . . 1,412,500
4,449 Dean Witter, Discover & Co. . . . 294,746
11,600 Federal Home Loan Mortgage Corp. . 1,277,450
21,400 Federal Nat'l Mortgage Assn. . . . 797,150
16,900 Salomon, Inc. . . . . . . . . . . 796,413
------------
4,578,259
------------
FOOD & AGRICULTURE--4.2%
48,800 Coca Cola Co. . . . . . . . . . . 2,568,100
5,000 General Mills, Inc. . . . . . . . 316,875
20,450 H. J. Heinz Co. . . . . . . . . . 731,087
11,200 Kellogg Co. . . . . . . . . . . . 735,000
30,700 PepsiCo, Inc. . . . . . . . . . . 897,975
13,300 Ralston Purina Co. . . . . . . . . 975,888
16,000 Sara Lee Corp. . . . . . . . . . . 596,000
------------
6,820,925
------------
GOLD--0.2%
18,434 Santa Fe Pacific Gold Corp. . . . 283,423
------------
INSURANCE--2.5%
11,500 Aetna Life & Casualty Co. . . . . 920,000
10,568 Allstate Corp. . . . . . . . . . . 611,623
14,400 American General Corp. . . . . . . 588,600
6,468 American International Group, Inc. 700,161
2,700 CIGNA Corp. . . . . . . . . . . . 368,887
4,300 General Reinsurance Corp. . . . . 678,325
2,200 ITT Hartford Group, Inc. . . . . . 148,500
------------
4,016,096
------------
INTERNATIONAL OIL--4.3%
11,000 Chevron Corp. . . . . . . . . . . 715,000
9,400 Cooper Industries, Inc. . . . . . 395,975
25,100 Exxon Corp. . . . . . . . . . . . 2,459,800
7,800 Mobil Corp. . . . . . . . . . . . 953,550
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
9,800 Royal Dutch Petroleum Co. ADR(d) $ 1,673,350
7,100 Texaco, Inc. . . . . . . . . . . 696,688
------------
6,894,363
------------
LIQUOR--0.4%
6,600 Anheuser-Busch Companies, Inc. . 264,000
11,700 Seagram, Ltd. . . . . . . . . . 453,375
------------
717,375
------------
MEDIA--1.0%
3,000 Gannett Company, Inc. . . . . . 224,625
15,200 Tele-Communications, Inc. . . . 198,550
26,500 Time Warner, Inc. . . . . . . . 993,750
9,700 US West, Inc. . . . . . . . . . 179,450
------------
1,596,375
------------
MISCELLANEOUS--0.9%
3,333 Acnielson Corp. . . . . . . . . 50,412
7,420 Allegiance Corp. . . . . . . . . 204,977
12,700 Cisco Sys. Corp. . . . . . . . . 808,037
10,000 Cognizant Corp. . . . . . . . . 330,000
160 Newport News Shipbuilding . . . 2,400
------------
1,395,826
------------
NON-FERROUS METALS--0.7%
8,075 Alcan Aluminum Ltd. . . . . . . 271,522
14,000 Aluminum Company of America . . 892,500
------------
1,164,022
------------
OFFICE EQUIPMENT--0.5%
15,600 Xerox Corp. . . . . . . . . . . 820,950
------------
OPTICAL PHOTO, EQUIPMENT--0.2%
3,600 Eastman Kodak Co. . . . . . . . 288,900
------------
PAPER & FOREST PRODUCTS--1.8%
12,640 Burlington Northern Santa Fe . . 1,091,780
3,600 Georgia-Pacific Corp. . . . . . 259,200
11,800 International Paper Co. . . . . 476,425
9,500 Kimberly Clark Corp. . . . . . . 904,875
4,050 Weyerhaeuser Co. . . . . . . . . 191,869
------------
2,924,149
------------
PRODUCER OF GOODS--2.5%
5,600 Caterpillar, Inc. . . . . . . . 421,400
1,100 Deere & Co. . . . . . . . . . . 44,687
34,400 General Electric Co. . . . . . . 3,401,300
4,200 Westinghouse Electric Corp. . . 83,475
------------
3,950,862
------------
RAILROADS & SHIPPING--0.5%
4,500 Norfolk Southern Corp. . . . . . 393,750
4,200 Union Pacific Corp. . . . . . . 252,525
3,557 Union Pacific Resources Group IN 104,042
------------
750,317
------------
</TABLE>
See accompanying notes to financial statements.
62
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--(CONTINUED)
SHARES VALUE (A)
<C> <S> <C>
RESTAURANTS--0.3%
5,000 Darden Restaurants, Inc. . . . . . $ 43,750
9,200 McDonald's Corp. . . . . . . . . . 416,300
------------
460,050
------------
RETAIL--3.8%
19,000 Albertsons, Inc. . . . . . . . . . 676,875
7,400 CVS Corp. . . . . . . . . . . . . . 306,175
24,000 Dayton Hudson Corp. . . . . . . . . 942,000
38,900 Kmart Corp.(c) . . . . . . . . . . 403,587
26,400 Mattel Inc. . . . . . . . . . . . . 732,600
7,800 May Department Stores Co. . . . . . 364,650
11,600 Nike Inc. . . . . . . . . . . . . . 693,100
11,400 Sears Roebuck & Co. . . . . . . . . 525,825
5,400 The Limited, Inc. . . . . . . . . . 99,225
11,625 Toys R Us(c) . . . . . . . . . . . 348,750
44,900 Wal-Mart Stores, Inc. . . . . . . . 1,027,088
------------
6,119,875
------------
SOAPS & COSMETICS--3.6%
9,860 Bristol-Myers Squibb Co. . . . . . 1,072,275
18,400 Gillette Co. . . . . . . . . . . . 1,430,600
26,100 Johnson & Johnson . . . . . . . . . 1,298,475
10,300 Procter & Gamble Co. . . . . . . . 1,107,250
4,800 Unilever, N.V. . . . . . . . . . . 841,200
------------
5,749,800
------------
STEEL--0.5%
31,700 USX Marathon Group . . . . . . . . 756,838
220 USX-US Steel Group . . . . . . . . 6,903
------------
763,741
------------
TOBACCO--1.2%
8,500 American Brands, Inc. . . . . . . . 421,812
13,600 Philip Morris Companies, Inc. . . . 1,531,700
------------
1,953,512
------------
TRAVEL & RECREATION--0.6%
13,235 Walt Disney Co. . . . . . . . . . . 921,487
------------
Total Common Stock
(Identified cost $70,717,612) . . 109,729,010
------------
</TABLE>
<TABLE>
<CAPTION>
BONDS & NOTES--30.9%
FACE
AMOUNT
<C> <S> <C>
CORPORATE BONDS--20.2%
$ 4,000,000 Banco de Comercio Exterior,
8.625%, 6/02/00 . . . . . . . 4,144,440
1,000,000 Boston Edison Co.,
7.800%, 5/15/10 . . . . . . . 966,000
500,000 Continental Cablevision Inc.,
11.00%, 06/01/07 . . . . . . 573,750
2,000,000 Continental Cablevision IN,
9.00%, 09/01/08 . . . . . . . 2,218,160
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$ 2,000,000 Lehman Brothers Holdings, Inc.,
8.500%, 5/01/07 . . . . . . . . . $ 2,145,720
1,000,000 Maxus Energy Corp.,
9.375%, 11/01/03 . . . . . . . . . 1,015,000
4,025,000 News Amer. Holdings Inc.,
10.125%, 10/15/12 . . . . . . . . 4,615,910
1,000,000 Paramount Communications, Inc.,
8.250%, 8/01/22 . . . . . . . . . 944,970
7,000,000 Tele-Communications, Inc.,
9.800%, 2/01/12 . . . . . . . . . 7,575,400
10,000,000 Time Warner, Inc.,
Zero Coupon, 12/17/12 . . . . . . 3,762,500
4,500,000 Total Access Communication,
8.375%, 11/04/06 . . . . . . . . . 4,527,495
30,000 Viacom, Inc.,
8.000%, 7/07/06 . . . . . . . . . 29,025
-----------
32,518,370
-----------
FOREIGN--7.8%
5,000,000 Government of Canada,
Zero Coupon, 3/15/21(d) . . . . . 644,599
11,500,000 Government of Canada,
Zero Coupon,12/01/20(d) . . . . . 1,494,924
5,000,000 Government of Canada,
8.000%, 6/01/23(d) . . . . . . . . 4,058,643
30,000,000 Ontario Province,
Zero Coupon, 09/08/23(d) . . . . . 2,968,670
4,250,000 Quebec Province,
Zero Coupon, 03/30/23(d) . . . . . 397,283
3,600,000 Quebec Province,
8.50%, 04/01/26(d) . . . . . . . . 2,895,932
-----------
12,460,051
-----------
YANKEE--2.3%
2,000,000 Republic of Colombia, 144A(f),
8.66%, 10/07/16 . . . . . . . . . 2,119,240
1,500,000 United Mexican States,
9.750%, 2/06/01 . . . . . . . . . 1,558,125
-----------
3,677,365
-----------
U.S. GOVERNMENT BONDS--0.6%
427,561 Government National Mortgage
Association,
10.000%, 9/15/18 . . . . . . . . . 470,715
491,692 Government National Mortgage
Association,
11.500% with various maturities to
2013 . . . . . . . . . . . . . . . 562,209
-----------
1,032,924
-----------
Total Bonds & Notes
(Identified Cost $47,486,764) . . 49,688,710
-----------
</TABLE>
See accompanying notes to financial statements.
63
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENT--2.0%
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$ 3,160,000 Household Finance Corp.,
6.250%, 1/02/97 . . . . . . . . . $ 3,159,451
------------
Short-Term Investment
(Identified Cost $3,159,451) . . 3,159,451
------------
Total Investments--101.1%
(Identified Cost $121,363,826)(b) 162,577,171
Other assets less liabilities(e) . (1,688,743)
------------
TOTAL NET ASSETS--100% . . . . . . $160,888,428
============
</TABLE>
(a) See Note 1A.
(b) Federal Tax Information:
At December 31, 1996 the net unrealized appreciation on investments based on
cost of $121,363,826 for federal income tax purposes was as follows:
<TABLE>
<CAPTION>
<C> <S> <C>
Aggregate gross unrealized appreciation
for all investments in which there is an
excess of value over tax cost . . . . . $43,001,247
Aggregate gross unrealized depreciation
for all investments in which there is an
excess of tax cost over value . . . . . (1,787,902)
-------------
Net unrealized appreciation . . . . . . . $41,213,345
=============
</TABLE>
(c) Non-income producing security.
(d) Denominated in Canadian dollars.
(e) Including deposits in foreign denominated currency with a value of $131 and
a cost of $133.
(f) Security exempt from registration under Rule-144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified-institutional buyers.
See accompanying notes to financial statements.
64
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1996
ASSETS
Investments at value . . . . . . . . . $162,577,171
Cash . . . . . . . . . . . . . . . . . 2,364
Foreign cash at value (Cost $133) . . . 131
Receivable for:
Fund shares sold . . . . . . . . . . . 44,425
Dividends and interest . . . . . . . . 1,058,524
Foreign taxes . . . . . . . . . . . . 632
------------
163,683,247
LIABILITIES
Payable for:
Securities purchased . . . . . . . . . $2,593,440
Fund shares redeemed . . . . . . . . . 63,083
Accrued expenses:
Management fees . . . . . . . . . . . 68,383
Deferred trustees' fees . . . . . . . 35,859
Other expenses . . . . . . . . . . . . 34,054
----------
2,794,819
------------
$160,888,428
============
NET ASSETS
Net Assets consist of:
Capital paid in . . . . . . . . . . . $119,495,162
Undistributed net investment income . 40,029
Accumulated net realized gains . . . . 140,816
Unrealized appreciation on investments
and foreign currency . . . . . . . . 41,212,421
------------
NET ASSETS . . . . . . . . . . . . . . . $160,888,428
============
Computation of offering price:
Net asset value and redemption price per
share ($160,888,428 divided by 944,370
shares of beneficial interest) . . . . $ 170.37
============
Identified cost of investments . . . . . $121,363,826
============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
INVESTMENT INCOME
Dividends . . . . . . . . . . . . . $ 2,573,306(a)
Interest . . . . . . . . . . . . . . 3,903,015
-----------
6,476,321
EXPENSES
Management fees . . . . . . . . . . $ 759,871
Trustees' fees and expenses . . . . 28,419
Custodian . . . . . . . . . . . . . 79,808
Audit and tax services . . . . . . . 17,400
Legal . . . . . . . . . . . . . . . 11,564
Printing . . . . . . . . . . . . . . 45,989
Miscellaneous . . . . . . . . . . . 6,200
----------
Total expenses . . . . . . . . . . 949,251
-----------
NET INVESTMENT INCOME . . . . . . . . 5,527,070
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Realized gain (loss) on:
Investments--net . . . . . . . . . 9,604,547
Foreign currency
transactions--net . . . . . . . . (72,774)
Net realized gain on investments
and foreign currency transactions 9,531,773
----------
Unrealized appreciation (depreciation) on:
Investments--net . . . . . . . . . 6,444,788
Foreign currency transactions--net (1,027)
----------
Net unrealized appreciation on
investments and foreign currency
transactions. . . . . . . . . . . 6,443,761
----------
Net gain on investment transactions . 15,975,534
-----------
NET INCREASE IN NET ASSETS FROM
OPERATIONS . . . . . . . . . . . . . $21,502,604
===========
</TABLE>
(a) Net of foreign taxes of: $16,633.
See accompanying notes to financial statements.
65
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income . . . . . . . . . . . . $ 5,487,603 $ 5,527,070
Net realized gain on investments and foreign
currency transactions . . . . . . . . . . . 2,566,425 9,531,773
Unrealized appreciation on investments and
foreign currency transactions . . . . . . . 28,568,247 6,443,761
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS . . . 36,622,275 21,502,604
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income . . . . . . . . . . . . (5,487,603) (5,442,217)
In excess of net investment income . . . . . (212,274) 0
Net realized gain on investments . . . . . . (764,206) (9,837,965)
------------ ------------
(6,464,083) (15,280,182)
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares . . . . . . . . 22,221,525 20,225,126
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income . . 5,699,877 5,442,217
Distributions from net realized gain . . . . 764,206 9,837,965
------------ ------------
28,685,608 35,505,308
Cost of shares redeemed . . . . . . . . . . . (33,185,396) (28,375,038)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS DERIVED FROM
CAPITAL SHARE TRANSACTIONS . . . . . . . . . (4,499,788) 7,130,270
------------ ------------
TOTAL INCREASE IN NET ASSETS . . . . . . . . 25,658,404 13,352,692
NET ASSETS
Beginning of the year . . . . . . . . . . . . 121,877,332 147,535,736
------------ ------------
End of the year . . . . . . . . . . . . . . . $147,535,736 $160,888,428
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year . . . . . . . . . . . . $ 85 $ 45,930
============ ============
End of the year . . . . . . . . . . . . . . . $ 45,930 $ 40,029
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares . . . . . . . 150,563 120,220
Issued in connection with the reinvestment of:
Distributions from net investment income . . 35,150 31,471
Distributions from net realized gain . . . . 4,713 55,351
------------ ------------
190,426 207,042
Redeemed . . . . . . . . . . . . . . . . . . (223,554) (164,939)
------------ ------------
Net change . . . . . . . . . . . . . . . . . (33,128) 42,103
============ ============
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1992 1993 1994 1995 1996
-------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year . . $127.87 $ 130.26 $ 137.18 $ 130.30 $ 163.52
------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment Income 5.14 4.35 5.42 6.34 6.43
Net Realized and
Unrealized Gain
(Loss) on
Investments . . . . 3.45 9.58 (6.92) 34.33 18.21
------- -------- -------- -------- --------
Total From Investment
Operations . . . . . 8.59 13.93 (1.50) 40.67 24.64
------- -------- -------- -------- --------
Less Distributions
Dividends From Net
Investment Income . (5.13) (4.36) (5.38) (6.34) (6.34)
Distributions in
Excess of Net
Investment Income . 0.00 0.00 0.00 (0.23) 0.00
Distributions From Net
Realized Capital
Gains. . . . . . . . (1.07) (2.65) 0.00 (0.88) (11.45)
------- -------- -------- -------- --------
Total Distributions . (6.20) (7.01) (5.38) (7.45) (17.79)
------- -------- -------- -------- --------
Net Asset Value, End of
Year. . . . . . . . . $130.26 $ 137.18 $ 130.30 $ 163.52 $ 170.37
======= ======== ======== ======== ========
TOTAL RETURN (%) . . . 6.70 10.65 (1.11) 31.26 15.01
Ratio of Operating
Expenses to Average
Net Assets (%) . . . 0.54 0.53 0.54 0.64 0.62
Ratio of Net Investment
Income to Average Net
Assets (%) . . . . . 5.32 3.65 3.98 4.06 3.64
Portfolio Turnover Rate
(%) . . . . . . . . . 36 22 76 51 72
Average Commission Rate
(a) . . . . . . . . . -- -- -- -- $ 0.0318
Net Assets, End of Year
(000) . . . . . . . . $77,575 $121,339 $121,877 $147,536 $160,888
</TABLE>
(a) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for trades on which
commissions are charged. This rate generally does not reflect mark-ups,
mark-downs, or spreads on shares traded on a principal basis.
See accompanying notes to financial statements.
66
<PAGE>
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES
PORTFOLIO MANAGERS: STEVEN GUTERMAN, PETER WILBY AND DAVID SCOTT
SALOMON BROTHERS ASSET MANAGEMENT INC
[PHOTOS OF STEVEN GUTERMAN, PETER WILBY AND DAVID SCOTT]
Q. HOW DID THE SERIES PERFORM IN 1996?
A. For the year ended December 31, 1996, the Series posted a 14.36% return
versus 3.63% for the Lehman Brothers Aggregate Bond Index/3/. The Series'
ability to rotate its assets among global fixed income markets enabled it to
outperform the broad fixed income market. Over the course of the year, the
Series maintained and allocated about 35% of its assets to the high yield sector
and about 22% to emerging markets debt (Brady Bonds). These two sectors
responded favorably to the improving credit quality of their issuers. High yield
issuers were supported by moderate economic growth as corporations strengthened
their balance sheets by posting higher earnings and paying down debt. The
strength in the emerging markets debt sector is attributable to the improving
fiscal and monetary practices of these countries. During the year, both Moody's
and S&P upgraded Poland's debt to investment grade. This positive development
helped to boost prices across the whole emerging markets debt sector. In
addition, during 1996, a large and growing number of institutional investors,
particularly U.S. pension funds and insurance companies, entered this market in
search of higher yields. This flow of institutional funds has helped to
stabilize and support the market sector.
Q. HOW DID YOU MANAGE THE SERIES IN 1996?
A. During 1996, the Series allocated its assets among the U.S. high yield
sector, U.S. investment grade sector, emerging markets debt and non-dollar
government bonds. Our strategy for the U.S. investment grade sector was to
overweight mortgage pass-through securities and underweight U.S. Treasuries. We
believed that mortgage pass-through securities were attractive as higher
interest rates reduced the incentive for homeowners to refinance their
mortgages. In the non-dollar portion of the Series, we allocated assets among
government bonds of Germany, Denmark, Ireland, the United Kingdom, Canada and
Australia. The Canadian government bond market posted solid gains for the year
supported by the absence of constitutional problems, and fiscal consolidation
and a pro-growth monetary policy stance from the Bank of Canada. The progress
toward European Monetary Union dominated the European bond market in 1996. As
prospects improved for a prompt start to the single currency on January 1, 1999,
yield spreads to the German market converged.
Q. WHAT IS YOUR INVESTMENT OUTLOOK FOR THE MONTHS AHEAD?
A. We anticipate moderate economic growth in the U.S. and positive supply and
demand factors in the high yield corporate market. We also maintain a positive
outlook on emerging market debt as broader participation in the sector and
favorable monetary and fiscal policies by emerging market nations should
continue to be positive for the market. Our U.S. investment grade outlook is
cautious over the short run. However, long-term we remain constructive on the
fixed income market as inflation remains benign and economic growth remains
modest.
67
<PAGE>
[A CHART APPEARS HERE COMPARING A
$10,000 INVESTMENT IN THE SERIES
VERSUS AN INDEX]
<TABLE>
<CAPTION>
Strategic Lehman
Bond Opp. Aggregate
Series Bond
<S> <C> <C>
10/31/94 10000 10000
1994 9860 10047
1995 11771 11903
1996 13461 12335
</TABLE>
FUND FACTS
GOAL: A high level of total return consistent with preservation of capital.
START DATE: October 31, 1994
SIZE: $36 million as of December 31, 1996
MANAGERS: Peter Wilby, Steven Guterman and David Scott have managed the Series
since its inception in October of 1994. Mr. Wilby and Mr. Scott have also
managed the Salomon Brothers Investment Series--Strategic Bond Fund since March
1995. Mr. Wilby also manages the Salomon Brothers Investment Series--High Yield
Bond Fund. Mr. Guterman also co-manages the Salomon Brothers U.S. Government
Series of New England Zenith Fund.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life insurance
contracts. If these charges were included, the returns shown would be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
68
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
BONDS & NOTES--92.4% OF TOTAL NET ASSETS
FACE
AMOUNT VALUE (A)
<C> <S> <C>
CORPORATE BONDS--37.2%
$ 125,000 Airplane Pass Thru Trust,
10.875%, 3/15/19 . . . . . . . . . . . . . $ 137,884
150,000 Alvey Systems, Inc.,
11.375%, 1/31/03 . . . . . . . . . . . . . 158,250
150,000 American Media Operations
11.625%, 11/15/04 . . . . . . . . . . . . 161,250
150,000 Americold Corp.
12.875%, 5/01/08 . . . . . . . . . . . . . 154,875
200,000 Arch Communications Group
0/10.875%, 3/15/08(j) . . . . . . . . . . 115,000
200,000 Arkla, Inc.
8.875%, 7/15/99 . . . . . . . . . . . . . 211,224
150,000 Berry Plastics
12.250%, 4/15/04 . . . . . . . . . . . . . 163,125
150,000 Borg Warner Security Corp.
9.125%, 5/01/03 . . . . . . . . . . . . . 147,000
150,000 Cablevision Systems Corp.
10.500%, 5/15/16 . . . . . . . . . . . . . 155,625
150,000 Carr Gottstein Foods Co.
12.000%, 11/15/05 . . . . . . . . . . . . 160,875
166,000 Central Transportation Rental Finance Corp.
9.500%, 4/30/03 . . . . . . . . . . . . . 158,115
150,000 Cinemark USA, Inc.
9.625%, 8/01/08 . . . . . . . . . . . . . 151,500
150,000 Clark Schwebel, Inc.
10.500%, 4/15/06 . . . . . . . . . . . . . 159,750
150,000 Cobb Theaters
10.625%, 3/01/03 . . . . . . . . . . . . . 158,062
200,000 Crown Paper Co.
11.000%, 9/01/05 . . . . . . . . . . . . . 188,000
240,000 CS Wireless Systems, Inc.
0/11.375%, 3/01/06(j) . . . . . . . . . . 87,600
150,000 CSK Auto, Inc.
11.000%, 11/01/06 . . . . . . . . . . . . 155,250
200,000 Dole Foods, Inc.
6.750%, 7/15/00 . . . . . . . . . . . . . 199,870
150,000 Dollar Financial Group, Inc.
10.875%, 11/15/06 . . . . . . . . . . . . 154,875
150,000 Ekco Group, Inc.
9.250%, 4/01/06 . . . . . . . . . . . . . 146,250
100,000 Excide Electronics Group, Inc.
11.500%, 3/15/06 (h) . . . . . . . . . . . 109,000
200,000 Eye Care Ctrs. America, Inc.
12.000%, 10/01/03 . . . . . . . . . . . . 215,750
100,000 Finlay Fine Jewerly Corp.
10.625%, 5/01/03 . . . . . . . . . . . . . 105,000
150,000 Foamex L.P/Foamex Cap. Corp.
11.875%, 10/01/04 . . . . . . . . . . . . 160,875
150,000 Four M Corp.
12.000%, 6/01/06 . . . . . . . . . . . . . 158,250
150,000 Freedom Chemical Co.
10.625%, 10/15/06 . . . . . . . . . . . . 156,750
150,000 Fresenius Medical Care Cap
9.000%, 12/01/06 . . . . . . . . . . . . . 152,625
150,000 Guitar CTR Management Co., Inc.
11.000%, 7/01/06 . . . . . . . . . . . . . 159,750
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$ 150,000 Harveys Casino Resorts
10.625%, 6/01/06 . . . . . $ 162,000
100,000 Herff Jones, Inc.
11.000%, 8/15/05 . . . . . 108,000
150,000 Hills Stores Co.
12.500%, 7/01/03 . . . . . 133,500
150,000 Hines Horticulture
11.750%, 10/15/05 . . . . 159,000
150,000 HMH Properties, Inc.
9.500%, 5/15/05 . . . . . 156,750
150,000 Hollinger International
9.250%, 2/01/06 . . . . . 148,500
275,000 ICG Holdings, Inc.
0/13.500%, 9/15/05(j) . . 193,875
200,000 Imed Corp.
9.750%, 12/01/06 . . . . . 204,500
200,000 International Cabletel, Inc.
0/11.500%, 2/01/06(j) . . 136,000
150,000 Iron Mountain, Inc.
10.125%, 10/01/06 . . . . 158,813
200,000 Jacor Communications Co.
9.750%, 12/15/06 . . . . . 206,000
150,000 Jitney Jungle Stores
12.000%, 3/01/06 . . . . . 159,000
250,000 Jordan Industries, Inc.
10.375% 8/01/03 . . . . . 247,500
150,000 KCS Energy, Inc.
11.000%, 1/15/03 . . . . . 162,000
200,000 Lamar Advertising Co.
9.625%, 12/01/06 . . . . . 206,500
250,000 Marcus Cable Co.
0/14.250%, 12/15/05(j) . . 177,500
150,000 Maxxam Medical, Inc.
10.500%, 8/01/06 . . . . . 157,125
180,000 Mellon Financial Co.
9.750%, 6/15/01 . . . . . 201,289
150,000 Mesa Oper Co.
10.625%, 7/01/06 . . . . . 163,500
250,000 NL Industries, Inc.
0/13.000%, 10/15/05(j) . . 215,625
200,000 National Energy Group, Inc.
10.750%, 11/01/06 . . . . 208,500
250,000 Norcal Waste Systems, Inc.
12.500%, 11/15/05 . . . . 277,500
450,000 Paine Webber Group, Inc.
7.000%, 3/01/00 . . . . . 453,091
150,000 Parker Distilling Co.
9.750%, 11/15/06 . . . . . 158,250
150,000 Penn Traffic Co.
9.625%, 4/15/05 . . . . . 85,500
200,000 Peoples Choice TV Corp.
0/13.125%, 6/01/04(j) . . 85,000
150,000 Printpack, Inc.
10.625%, 8/15/06 . . . . . 156,750
</TABLE>
See accompanying notes to financial statements.
69
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
BONDS & NOTES--(CONTINUED)
FACE
AMOUNT VALUE(A)
<C> <S> <C>
CORPORATE BONDS--(CONTINUED)
$ 150,000 Quest Diagnostics, Inc.
10.750%, 12/15/06 . . . . . . . . . . $ 157,875
200,000 Radnor Holdings Corp.
10.000%, 12/01/03 . . . . . . . . . . 204,500
150,000 Rayovac Corp.
10.250%, 11/01/06 . . . . . . . . . . 154,875
150,000 Remington Product Co.
11.000%, 5/15/06 . . . . . . . . . . . 127,500
150,000 Renco Metals, Inc.
11.500%, 7/01/03 . . . . . . . . . . . 156,750
250,000 Revlon Worldwide Corp.
Zero Coupon 3/15/98 . . . . . . . . . 215,625
150,000 Rogers Cablesystems, LTD
10.000%, 3/15/05 . . . . . . . . . . . 160,688
200,000 Ryder Transportation, Inc.
10.000%, 12/01/06 . . . . . . . . . . 208,000
150,000 Selmer, Inc.
11.000%, 5/15/05 . . . . . . . . . . . 161,062
150,000 SFX Broadcasting, Inc.
10.750%, 5/15/06 . . . . . . . . . . . 158,625
150,000 Smiths Food & Drug
11.250%, 5/15/07 . . . . . . . . . . . 166,500
125,000 Southdown, Inc.
10.000%, 3/01/06 . . . . . . . . . . . 132,500
150,000 Specialty Equipment Companies, Inc.
11.375%, 12/01/03 . . . . . . . . . . 162,938
100,000 Specialty Retailers, Inc.
11.000%, 8/15/03 . . . . . . . . . . . 104,250
250,000 Speedy Muffler King, Inc.
10.875%, 10/01/06 . . . . . . . . . . 268,125
150,000 Stroh Brewery Co.
11.100%, 7/01/06 . . . . . . . . . . . 156,750
150,000 Talley Manufacturing & Technology, Inc.
10.750%, 10/15/03 . . . . . . . . . . 157,125
150,000 Telex Communications, Inc.
12.000%, 7/15/04 . . . . . . . . . . . 165,000
150,000 Trump Atlantic City Associates
11.250%, 5/01/06 . . . . . . . . . . . 148,500
150,000 Twin Laboratories, Inc.
10.250%, 5/15/06 . . . . . . . . . . . 156,937
250,000 UNC, Inc.
11.000%, 6/01/06 . . . . . . . . . . . 267,500
100,000 United States Leasing International
8.450%, 1/25/05 . . . . . . . . . . . 108,102
150,000 Universal Outdoor, Inc.
9.750%, 10/15/06 . . . . . . . . . . . 155,250
150,000 Winstar Communications, Inc.
0/14.000%, 10/15/05(j) . . . . . . . . 91,500
150,000 Wyndham Hotel Corp.
10.500%, 5/15/06 . . . . . . . . . . . 159,375
-----------
13,329,800
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE(A)
<C> <S> <C>
FOREIGN CORPORATE BONDS--5.4%
$ 150,000 Algoma Steel, Inc.,
12.375%, 7/15/05 . . . . . . $ 162,750
250,000 Costilla Energy, Inc.
10.250%, 10/01/06 . . . . . . 265,000
250,000 Diamond Cable Communication
0/11.750%, 12/15/05(j) . . . 178,750
250,000 Doane Products Co.
10.625%, 3/01/06 . . . . . . 266,875
150,000 Doman Industries, Ltd.
8.750%, 3/15/04 . . . . . . . 141,375
300,000 International Semi Tech.
0/11.500%, 8/15/03(e)(j) . . 197,250
400,000 Korea Development Bank
9.600%, 12/01/00 . . . . . . 441,952
250,000 Nextlink Communications, Ltd.
12.500%, 4/15/06 . . . . . . 268,125
-----------
1,922,077
-----------
FOREIGN GOVERNMENT BONDS--21.0%
1,323,000 Argentina (Republic of)
6.3125%, 3/31/05 . . . . . . 1,152,664
40,000 Australia (Commonwealth of)
6.750%, 11/15/06(c) . . . . . 30,446
182,000 Brazil (Federal Republic of)
6.375%, 1/01/01 . . . . . . . 176,426
1,266,575 Brazil (Federal Republic of)
C Bonds 8.000%, 4/15/14 . . . 935,683
250,000 Brazil (Federal Republic of)
5.000%, 4/15/24 . . . . . . . 158,125
730,000 Canada (Government of)
6.500%, 8/01/99(d) . . . . . 557,125
330,000 Canada (Government of)
7.500%, 9/01/00(d) . . . . . 259,662
270,000 Canada (Government of)
7.000%, 9/01/01(d) . . . . . 209,406
950,000 Denmark (Kingdom of)
8.000%, 11/15/01(e) . . . . . 179,008
500,000 Ecuador (Republic of)
3.250%, 2/28/25 . . . . . . . 233,125
80,000 Germany (Federal Republic of)
8.250%, 9/20/01(f) . . . . . 59,522
260,000 Germany (Federal Republic of)
7.500%, 11/11/04(f) . . . . . 188,884
100,000 Ireland (Republic of)
6.250%, 4/01/99(g) . . . . . 170,395
120,000 Ireland (Republic of)
6.500%, 10/18/01(g) . . . . . 206,711
1,300,000 Morocco (Kingdom of)
4.375%, 1/01/09(k) . . . . . 1,073,313
500,000 Panama (Republic of)
3.500%, 7/17/14 . . . . . . . 346,250
</TABLE>
See accompanying notes to financial statements.
70
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
BONDS & NOTES--(CONTINUED)
FACE
AMOUNT VALUE (A)
<C> <S> <C>
FOREIGN GOVERNMENT BONDS--(CONTINUED)
$ 216,000 Philippines (Republic of)
8.750% 10/07/16 . . . . . . . . . . $ 224,640
250,000 United Mexican States
6.250%, 12/31/19 . . . . . . . . . . 184,062
750,000 United Mexican States
6.250%, 12/31/19 . . . . . . . . . . 547,500
750,000 Venezuela (Republic of)
6.563%, 12/18/07 . . . . . . . . . . 637,500
-----------
7,530,447
-----------
U.S. GOVERNMENT BONDS--28.8%
500,000 Federal Home Loan Bank
6.490%, 9/08/97 . . . . . . . . . . 502,755
295,275 Federal Home Loan Mortgage
10.000%, 5/15/20 . . . . . . . . . . 314,831
500,000 Federal National Mortgage Association
7.000%, 12/01/99 . . . . . . . . . . 488,905
28,523 Federal National Mortgage Association
13.000%, 11/01/15 . . . . . . . . . 33,684
117,446 Federal National Mortgage Association
13.000%, 04/25/19 . . . . . . . . . 126,186
297,663 Federal National Mortgage Association
6.500%, 3/01/26 . . . . . . . . . . 284,176
146,928 Federal National Mortgage Association
7.000%, 5/01/26 . . . . . . . . . . 143,668
200,000 Government National Mortgage
Association 7.000%, 11/15/99 . . . . 195,624
23,326 Government National Mortgage
Association 7.000%, 4/15/24 . . . . 22,823
547,468 Government National Mortgage
Association 7.000%, 5/15/26 . . . . 535,664
2,000,000 United States Treasury Bonds
5.750%, 12/31/98 . . . . . . . . . . 1,995,500
150,000 United States Treasury Bonds
6.875%, 8/15/25 . . . . . . . . . . 152,922
140,000 United States Treasury Bonds
6.750%, 8/15/26 . . . . . . . . . . 141,243
90,000 United States Treasury Bonds
6.125%, 5/31/97 . . . . . . . . . . 90,272
1,870,000 United States Treasury Notes
5.625%, 2/28/01 . . . . . . . . . . 1,833,628
100,000 United States Treasury Notes
6.250%, 4/30/01 . . . . . . . . . . 100,289
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$ 250,000 United States Treasury Notes
6.500%, 8/31/01 . . . . . . . . . . $ 252,867
750,000 United States Treasury Notes
6.125%, 12/31/01 . . . . . . . . . . 747,292
1,100,000 United States Treasury Notes
6.875%, 5/15/06 . . . . . . . . . . 1,133,935
1,200,000 United States Treasury Notes
6.500%, 10/15/06 . . . . . . . . . . 1,206,744
-----------
10,303,008
-----------
Total Bonds & Notes
(Identified Cost $32,283,175) . . . 33,085,332
-----------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENT--20.1%
<S> <C> <C>
$7,187,000 Repurchase agreement with Merrill Lynch &
Co. dated 12/31/96 at 6.500% to be
repurchased at $7,189,595 on 1/2/97
collateralized by $5,735,000. U. S.
Treasury Bond 8.875% due 2/15/19 with a
value of $7,333,631 . . . . . . . . . . 7,187,000
-----------
Total Short-Term Investment
(Identified Cost $7,187,000) . . . . . . 7,187,000
-----------
Total Investments--112.5%
(Identified Cost $39,470,175)(b) . . . . 40,272,332
Other assets less liabilities(i) . . . . (4,464,681)
-----------
TOTAL NET ASSETS--100% . . . . . . . . . $35,807,651
===========
</TABLE>
See accompanying notes to financial statements.
71
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
FORWARD CONTRACT OUTSTANDING AT DECEMBER 31, 1996
LOCAL AGGREGATE UNREALIZED
CURRENCY DELIVERY CURRENCY FACE TOTAL APPRECIATION/
CONTRACT DATE AMOUNT VALUE VALUE DEPRECIATION
<S> <C> <C> <C> <C> <C>
Australian Dollar
(sold) 01/22/97 38,653 $ 30,714 $ 30,536 $ (178)
Canadian Dollar (sold) 01/22/97 358,684 262,324 268,275 5,951
Canadian Dollar (sold) 01/22/97 292,121 213,642 219,640 5,998
Canadian Dollar (sold) 01/22/97 483,711 353,763 362,059 8,296
Canadian Dollar (sold) 01/22/97 297,222 217,374 219,352 1,978
Deutsche Mark (bought) 01/22/97 1,080,900 703,441 720,000 (16,559)
Deutsche Mark (bought) 01/22/97 284,369 185,065 189,529 (4,464)
Deutsche Mark (bought) 01/22/97 522,375 339,958 350,000 (10,042)
Deutsche Mark (bought) 01/22/97 693,074 451,047 462,049 (11,002)
Deutsche Mark (bought) 01/22/97 520,680 338,854 344,821 (5,967)
Deutsche Mark (bought) 01/22/97 225,907 147,017 145,221 1,796
Deutsche Mark (bought) 01/22/97 715,654 465,742 474,950 (9,208)
Deutsche Mark (sold) 01/22/97 2,477,588 1,612,395 1,615,116 2,721
Deutsche Mark (sold) 01/22/97 799,290 520,172 536,797 16,625
Deutsche Mark (sold) 01/22/97 520,422 338,687 348,808 10,121
Deutsche Mark (sold) 01/22/97 264,852 172,363 170,000 (2,363)
Deutsche Mark (sold) 01/22/97 92,986 60,515 59,837 (678)
Danish Krone (bought) 01/22/97 334,390 56,831 56,200 631
Danish Krone (sold) 01/22/97 1,364,953 231,979 234,649 2,670
Pound Sterling
(bought) 01/22/97 280,931 476,007 455,951 20,056
Pound Sterling
(bought) 01/22/97 166,943 282,867 275,790 7,077
Pound Sterling
(bought) 01/22/97 251,712 426,498 423,882 2,616
Pound Sterling
(bought) 01/22/97 146,286 247,867 241,226 6,641
Pound Sterling (sold) 01/22/97 276,963 469,284 442,587 (26,697)
Pound Sterling (sold) 01/22/97 289,739 490,931 474,950 (15,981)
Pound Sterling (sold) 01/22/97 250,245 424,014 414,156 (9,858)
Pound Sterling (sold) 01/22/97 252,445 427,741 414,534 (13,207)
New Zealand Dollar
(bought) 01/22/97 1,316,335 929,316 925,779 3,537
New Zealand Dollar
(sold) 01/22/97 1,316,335 929,316 929,431 115
--------
Total depreciation on Forward Currency contracts . . . . . . . . . . . $(29,375)
========
</TABLE>
(a) See Note 1A.
(b) Federal Tax Information:
At December 31, 1996 the net unrealized appreciation on investments based on
cost of $39,482,198 for federal income tax purposes was as follows:
<TABLE>
<CAPTION>
<S> <C>
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost . . . . $1,043,478
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value . . . . (253,344)
----------
Net unrealized appreciation . . . . . . . . . . . . . . . . $ 790,134
==========
</TABLE>
(c) Denominated in Australian dollars.
(d) Denominated in Canadian Dollars.
(e) Denominated in Danish Kroner.
(f) Denominated in German Marks.
(g) Denominated in Irish Pounds.
(h) Rights attached.
(i) Including deposits in foreign denominated currencies with a value of $54 and
a cost of $54.
(j) Step Bond; Coupon rate is zero or below market for an initial period and
then increases to a higher coupon rate at a specified date and rate.
(k) These securities represent loan participations which are arranged through
private negotiations between the Fund and a lender. Due to the nature of
these securities, they are typically purchased on a forward delivery basis
(Note 1), some of which remain unsettled, in whole or in part, at December
31, 1996.
See accompanying notes to financial statements.
72
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
<TABLE>
<CAPTION>
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1996
ASSETS
<S> <C> <C>
Investments at value . . . . . . . . . . $40,272,332
Foreign cash at value (Cost $54) . . . . 54
Receivable for:
Fund shares sold . . . . . . . . . . . 93,719
Dividends and interest . . . . . . . . 546,979
Miscellaneous . . . . . . . . . . . . . 1,574
Unamortized organization expense . . . . 5,694
-----------
40,920,352
LIABILITIES
Payable for:
Securities purchased . . . . . . . . . $4,362,169
Loan participations purchased . . . . . 664,000
Open forward currency contracts--net . 29,375
Fund shares redeemed . . . . . . . . . 5,503
Due to custodian bank . . . . . . . . . 355
Accrued expenses:
Management fees . . . . . . . . . . . . 21,647
Deferred trustees' fees . . . . . . . . 270
Other expenses . . . . . . . . . . . . 29,382
----------
5,112,701
-----------
$35,807,651
===========
NET ASSETS
Net Assets consist of:
Capital paid in . . . . . . . . . . . . $35,037,908
Undistributed net investment income . . 18,251
Accumulated net realized loss . . . . . (21,203)
Unrealized appreciation on investments,
forward contracts and foreign
currency . . . . . . . . . . . . . . . 772,695
-----------
NET ASSETS . . . . . . . . . . . . . . . $35,807,651
===========
Computation of offering price:
Net asset value and redemption price per
share ($35,807,651 divided by 3,081,361
shares of beneficial interest) . . . . . $ 11.62
===========
Identified cost of investments . . . . . $39,470,175
===========
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
INVESTMENT INCOME
<S> <C> <C>
Dividends . . . . . . . . . . . . . . . . . $ 150
Interest . . . . . . . . . . . . . . . . . 1,729,474(a)
----------
1,729,624
EXPENSES
Management fees . . . . . . . . . . . . . . $130,094
Trustees' fees and expenses . . . . . . . . 10,121
Custodian . . . . . . . . . . . . . . . . . 61,710
Audit and tax services . . . . . . . . . . 13,000
Legal . . . . . . . . . . . . . . . . . . . 11,498
Printing . . . . . . . . . . . . . . . . . 4,280
Amortization of organization expenses . . . 2,013
Miscellaneous . . . . . . . . . . . . . . . 5,776
--------
Total expenses . . . . . . . . . . . . . 238,492
Less expenses assumed by the investment
adviser. . . . . . . . . . . . . . . . . (68,374) 170,118
-------- ----------
NET INVESTMENT INCOME . . . . . . . . . . . 1,559,506
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, FORWARD CURRENCY CONTRACTS AND
FOREIGN CURRENCY TRANSACTIONS
Realized gain on:
Investments--net . . . . . . . . . . . . . 480,879
Foreign currency transactions--net . . . . 106,879
--------
Net realized gain on Investments and
foreign currency transactions . . . . . . 587,758
--------
Unrealized appreciation (depreciation) on:
Investments--net . . . . . . . . . . . . . 634,136
Foreign currency transactions--net . . . . (14,935)
--------
Net unrealized appreciation on investments
and foreign currency transactions . . . . 619,201
--------
Net gain on investment transactions . . . . 1,206,959
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS . $2,766,465
==========
</TABLE>
(a) Net of foreign taxes of: $178.
See accompanying notes to financial statements.
73
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------ --------------
<S> <C> <C>
FROM OPERATIONS
Net investment income . . . . . . . . . . . . . $ 460,904 $ 1,559,506
Net realized gain on investments and foreign
currency transactions . . . . . . . . . . . . 248,441 587,758
Unrealized appreciation on investments and
foreign currency transactions . . . . . . . . 208,090 619,201
----------- -----------
Increase in net assets from operations . . . . 917,435 2,766,465
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income . . . . . . . . . . . . . (435,233) (1,704,472)
Net realized gain on investments . . . . . . . (170,001) (518,385)
----------- -----------
(605,234) (2,222,857)
----------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares . . . . . . . . . 9,873,846 29,554,662
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income . . . 435,233 1,704,472
Distributions from net realized gain . . . . . 170,001 518,385
----------- -----------
10,479,080 31,777,519
Cost of shares redeemed . . . . . . . . . . . . (4,757,322) (5,997,600)
----------- -----------
Increase in net assets derived from capital
share transactions . . . . . . . . . . . . . . 5,721,758 25,779,919
----------- -----------
Total increase in net assets . . . . . . . . . 6,033,959 26,323,527
NET ASSETS
Beginning of the year . . . . . . . . . . . . . 3,450,165 9,484,124
----------- -----------
End of the year . . . . . . . . . . . . . . . . $ 9,484,124 $35,807,651
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year . . . . . . . . . . . . . $ 0 $ 50,354
=========== ===========
End of the year . . . . . . . . . . . . . . . . $ 50,354 $ 18,251
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares . . . . . . . . 919,222 2,532,646
Issued in connection with the reinvestment of:
Distributions from net investment income . . . 40,562 144,891
Distributions from net realized gain . . . . . 15,844 42,731
----------- -----------
975,628 2,720,268
Redeemed . . . . . . . . . . . . . . . . . . . (455,476) (513,384)
----------- -----------
Net change . . . . . . . . . . . . . . . . . . 520,152 2,206,884
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
OCTOBER 31, 1994(A)
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
------------------- ------------ --------------
<S> <C> <C> <C>
Net Asset Value, Beginning
of Period . . . . . . . . $10.00 $ 9.74 $ 10.85
------ ------ -------
Income From Investment
Operations
Net Investment Income . . 0.12 0.58 0.51
Net Realized and Unrealized
Gain (Loss) on
Investments . . . . . . . (0.26) 1.30 1.05
------ ------ -------
Total From Investment
Operations. . . . . . . . (0.14) 1.88 1.56
------ ------ -------
Less Distributions
Dividends From Net
Investment Income . . . . (0.12) (0.55) (0.60)
Distributions From Net
Realized Capital Gains . 0.00 (0.22) (0.19)
------ ------ -------
Total Distributions . . . (0.12) (0.77) (0.79)
------ ------ -------
Net Asset Value, End of
Period . . . . . . . . . . $ 9.74 $10.85 $ 11.62
====== ====== =======
TOTAL RETURN (%) . . . . . (1.40)(c) 19.38 14.36
Ratio of Operating Expenses
to Average Net Assets (%) 0.85 (b) 0.85 0.85
Ratio of Net Investment
Income to Average Net
Assets (%) . . . . . . . . 7.05 (b) 8.39 7.79
Portfolio Turnover Rate (%) 403 (b) 202 176
Net Assets, End of
Period (000) . . . . . . . $3,450 $9,484 $35,808
The ratios of expenses to
average net assets without
giving effect to the
voluntary expense agreement
described in Note 4 to the
Financial Statements would
have been (%) . . . . . . 2.01 (b) 2.44 1.19
</TABLE>
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
See accompanying notes to financial statements.
74
<PAGE>
BACK BAY ADVISORS BOND INCOME SERIES
PORTFOLIO MANAGER: CATHY BUNTING
BACK BAY ADVISORS, L.P.
[PHOTO OF CATHY BUNTING]
Q. HOW DID THE BACK BAY ADVISORS BOND INCOME SERIES PERFORM IN 1996?
A. The Back Bay Advisors Bond Income Series continued to deliver consistently
strong results, despite the challenging conditions that pervaded bond markets.
Rising long-term interest rates early in 1996 along with weak bond market
returns stood in vivid contrast to the remarkable strength of bonds in 1995.
Concerned that robust economic growth might cause inflationary pressures to
escalate, bond investors pushed down fixed income prices and drove up yields. By
the second half of the year, slower yet steady economic growth, continued low
inflation and strong demand for U.S. government bonds from foreign investors
fostered better performance from bonds.
After a disappointing first half in 1996, the Series more than made up for lost
ground by the year's end. For the 12 months ended December 31, 1996, the Series
generated a total return of 4.61%. This return reflects the reinvestment of
$8.05 per share in income distributions paid during the year and a decline in
share price to $105.63 on December 31, 1996, from $108.67 a year ago. By
comparison, the Lipper Variable "A" Rated Bond Funds Average return was 2.61%
for the same period. The Series also outperformed the Lehman Brothers
Intermediate Government/ Corporate Index/6/, the Series' benchmark, which posted
a return of 4.05%.
Q. WHAT WAS BEHIND THE SERIES' STRONG PERFORMANCE?
A. An emphasis on corporate bonds--ranging between 60% to 70% of the
portfolio--worked well for the Series. When economic activity is strong, as was
the case last year, improving company fundamentals can help cushion price
declines of corporate bonds from rising interest rates. Supply and demand
relationships also worked to the advantage of the corporate sector.
Institutional investors kept demand at healthy levels, which helped support bond
prices even as interest rates rose and prices of government securities fell.
Government issues are particularly sensitive to changes in interest rates, in
part because they gain no additional benefit from improving credit
conditions--they already enjoy the distinction as the most creditworthy fixed
income instruments around.
Q. HOW DID YOU MANAGE THE SERIES DURING THE YEAR?
A. We took steps to make the most of mixed conditions in the bond markets. For
example, we focused on corporate bonds from select industries. We favored
fundamentally solid though undervalued corporate sectors. Careful credit
research played a critical role in enabling us to identify attractive issues in
areas such as utilities, oil and gas, and cable and media. Utility bonds, for
instance, benefited from a combination of technical factors, including low
levels of bond issuance and expanded debt repurchase programs, which tipped the
supply/demand balance toward higher bond prices. The sector's fundamentals also
were attractive, thanks to merger activity that improved the operating and
financial strength of formerly separate entities. We invested in utility bonds
that offered favorable price and yield characteristics, namely those with a
15-year maturity structure. These holdings contributed positively to the Series'
performance, as did energy investments. Severe winter weather across the country
significantly increased oil prices, providing a windfall for the energy industry
and price gains for the Series' holdings of Oryx Energy, Mitchell Energy, Pemex
and Transgas.
The cable/media sector, meanwhile, experienced setbacks. During the first half
of the year, Moody's--an independent bond rating agency--downgraded the credit
quality of Tele-Communications, Inc. to below investment grade. (Bonds rated BBB
and above are considered "investment grade.") This event raised concerns about
the industry's financial condition as a whole, taking a toll on the Series'
cable bond holdings. However, many companies, including Tele-Communications,
have begun programs to improve their financial position by reducing their debt
loads. We remain invested in cable bonds, believing that industry fundamentals
are essentially sound and that bond prices should recover.
Nearly 6.9% of the Series' assets were invested in the Canadian bond market.
Canada's lower inflation rates and moderate economic growth, compared to that of
the United States, enabled Canadian bonds to outperform their U.S. counterparts.
Further, the postponement of Quebec's Separatist referendum to 1998 improved
investor sentiment and attracted foreign investors, further buoying the market.
The Series' approach to duration worked both for and against it during the year.
Duration is measured in years, and is a more precise gauge than maturity of a
bond's sensitivity to interest rate changes. Essentially, the longer a bond's
duration, the more its price reacts to changes in interest rates--rising when
interest rates fall and declining when interest rates rise. The portfolio's
75
<PAGE>
average duration at the beginning of the period was relatively long--about six
years--which boosted the Series' current yield but hampered its price
performance when interest rates were rising. As market conditions improved,
however, the Series' longer duration enhanced its performance by capturing price
gains and offsetting losses sustained earlier in 1996.
During 1996, we selectively invested in lower-grade bonds. Given the strength of
the economy, taking a measure of credit risk was amply rewarded with higher
yields and additional price gains relative to higher-grade issues. Nevertheless,
the overall quality of the portfolio remains high at A.
Q. WHAT IS YOUR INVESTMENT OUTLOOK FOR THE MONTHS AHEAD?
A. Going forward, we believe the ingredients that foster positive bond market
performance--moderate economic growth, low inflation, and stable interest
rates--will remain in place. As always, thorough credit research continues to be
instrumental in helping us sort through opportunities in the bond markets. And,
we will closely monitor the investment landscape to help gauge the direction of
interest rates over the short term and adjust portfolio strategy to take
advantage of market changes.
[A CHART APPEARS HERE COMPARING A $10,000 INVESTMENT
IN THE SERIES COMPARED TO AN INDEX]
<TABLE>
<CAPTION>
Lehman
Bond Income Intermediate Cost of
Series Gov't/Corp. Living
<S> <C> <C> <C>
12/31/86 10000 10000 10000
1987 10143 10366 10443
1988 10992 11057 10905
1989 12343 12469 11412
1990 13341 13612 12109
1991 15737 15602 12480
1992 17025 16721 12842
1993 19171 18191 13195
1994 18527 17840 13548
1995 22454 20575 13891
1996 23489 21408 14353
</TABLE>
FUND FACTS
GOAL: A high level of current income consistent with the protection of capital
and moderate investment risk.
START DATE: August 26, 1983
SIZE: $180 million as of December 31, 1996
MANAGER: Cathy Bunting has managed the Series since 1989. She has also acted as
portfolio manager of New England Bond Income Fund since 1989. She joined Back
Bay Advisors in April 1987.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life insurance
contracts. If these charges were included, the returns shown would be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
76
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
BONDS AND NOTES--91.9% OF TOTAL NET ASSETS
FACE
AMOUNT VALUE (A)
<C> <S> <C>
BROADCASTING--5.5%
$ 2,050,000 Cablevision Industrial Corp.,
9.250%, 4/01/08 . . . . . . . . . . . $ 2,190,938
4,520,000 Continental Cablevision, Inc.,
11.000%, 6/01/07 . . . . . . . . . . . 5,149,772
2,300,000 Continental Cablevision, Inc.,
9.500%, 8/01/13 . . . . . . . . . . . 2,641,665
------------
9,982,375
------------
FEDERAL AGENCIES--10.2%
42,105 Federal Home Loan Bank,
9.000%, 5/01/01 . . . . . . . . . . . 43,816
16,084 Federal Home Loan Bank,
9.000%, 9/01/01 . . . . . . . . . . . 16,737
1,500,000 Federal National Mortgage Association,
7.850%, 9/10/04 . . . . . . . . . . . 1,521,375
7,948,949 Government National Mortgage
Association, 7.000% with various
maturities to 2025 . . . . . . . . . . 7,777,570
6,552,031 Government National Mortgage
Association, 7.500% with various
maturities to 2025 . . . . . . . . . . 6,558,190
2,013,581 Government National Mortgage
Association, 8.5000% with various
maturities to 2022 . . . . . . . . . . 2,087,197
242,199 Government National Mortgage
Association, 9.000%, 10/15/16 . . . . 255,217
------------
18,260,102
------------
FINANCIAL--9.9%
2,500,000 American General Financing,
8.450%, 10/15/09 . . . . . . . . . . . 2,795,625
5,160,000 Associates Corporation of North America,
8.550%, 7/15/09 . . . . . . . . . . . 5,819,706
3,000,000 Intermediate American Development Bank,
6.950%, 8/01/26 . . . . . . . . . . . 3,101,340
1,800,000 Pitney Bowes Credit Corp.,
8.550%, 9/15/09 . . . . . . . . . . . 2,049,786
3,750,000 Toronto Dominion Bank,
7.875%, 8/15/04 . . . . . . . . . . . 3,873,300
------------
17,639,757
------------
FOREIGN--6.9%
4,500,000 British Columbia Province,
7.750%, 6/16/03(c) . . . . . . . . . . 3,567,301
6,500,000 Government of Canada,
8.000%, 6/01/23(c) . . . . . . . . . . 5,276,236
15,000,000 Ontario Hydro,
Zero Coupon, 11/27/20(c) . . . . . . . 1,818,447
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$16,050,000 Ontario Hydro,
Zero Coupon, 8/06/21(c) . . . . . . . $ 1,846,108
------------
12,508,092
------------
LEISURE--2.7%
4,500,000 Time Warner, Inc.
9.150%, 2/01/23 . . . . . . . . . . . 4,889,700
------------
OIL AND GAS--2.7%
2,400,000 Gulf Canada Resources, Ltd.,
9.000%, 8/15/99 . . . . . . . . . . . 2,526,000
2,250,000 Mitchell Energy & Development Corp.,
9.250%, 1/15/02 . . . . . . . . . . . 2,430,743
------------
4,956,743
------------
PUBLISHING--2.6%
2,150,000 Golden Books Publishing, Inc.,
7.650%, 9/15/02 . . . . . . . . . . . 1,945,750
1,500,000 News America Holdings, Inc.,
7.750%, 2/01/24 . . . . . . . . . . . 1,434,705
1,300,000 News America Holdings, Inc.,
8.250%, 8/10/18 . . . . . . . . . . . 1,327,599
------------
4,708,054
------------
TELECOMMUNICATIONS--11.5%
2,600,000 360 Communications,
7.125%, 3/01/03 . . . . . . . . . . . 2,567,318
7,300,000 AT&T Corp.,
8.350%, 1/15/25 . . . . . . . . . . . 7,702,303
3,000,000 Bellsouth Telecomm, Inc.,
5.850%, 11/15/45 . . . . . . . . . . . 2,964,180
2,935,000 Tele-Communications, Inc.,
9.250%, 1/15/03 . . . . . . . . . . . 2,920,530
1,500,000 Tele-Communications, Inc.,
9.800%, 2/01/12 . . . . . . . . . . . 1,622,385
3,000,000 Total Access Communication,
8.375%, 11/04/06 . . . . . . . . . . . 3,018,330
------------
20,795,046
------------
U.S. GOVERNMENT--14.9%
10,000,000 U.S. Treasury Notes,
5.750%, 8/15/03 . . . . . . . . . . . 9,705,201
1,500,000 U.S. Treasury Notes,
6.375%, 7/15/99 . . . . . . . . . . . 1,515,105
2,500,000 U.S. Treasury Notes,
6.500%, 8/15/05 . . . . . . . . . . . 2,516,125
6,500,000 U.S. Treasury Notes,
6.875%, 7/30/99 . . . . . . . . . . . 6,635,200
3,500,000 U.S. Treasury Notes,
8.000%, 5/15/01 . . . . . . . . . . . 3,741,640
2,500,000 U.S. Treasury Notes,
8.500%, 11/15/00 . . . . . . . . . . . 2,701,950
------------
26,815,221
------------
</TABLE>
See accompanying notes to financial statements.
77
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
BONDS AND NOTES--(CONTINUED)
FACE
AMOUNT VALUE (A)
<C> <S> <C>
UTILITIES--(DIVERSIFIED)--8.5%
$ 5,000,000 Long Island Lighting Co.,
9.000%, 11/01/22 . . . . . . . . $ 5,296,900
625,000 New York State Electric & Gas Co.,
9.875%, 2/01/20 . . . . . . . . . 626,681
4,250,000 New York State Electric & Gas Co.,
8.875%, 11/01/21 . . . . . . . . 4,485,832
5,000,000 Tennessee Valley Authority,
6.125%, 7/15/03 . . . . . . . . . 4,862,700
------------
15,272,113
------------
UTILITIES--(ELECTRIC)--7.8%
6,700,000 Arizona Public Service Co.,
8.000%, 12/30/15 . . . . . . . . 6,879,359
3,000,000 New Mexico Public Service Corp.,
10.250%, 10/01/12 . . . . . . . . 3,371,250
1,000,000 Ohio Edison Corp.,
8.680%, 6/01/17 . . . . . . . . . 992,030
1,700,000 Texas Utilities Electric Co.,
8.875%, 2/01/22 . . . . . . . . . 1,832,549
1,100,000 Toledo Edison Co.,
7.875%, 8/01/04 . . . . . . . . . 1,089,748
------------
14,164,936
------------
YANKEE--8.7%
900,000 British Columbia Hydro & Power,
12.500%, 9/01/13 . . . . . . . . 1,020,600
1,000,000 British Columbia Hydro & Power,
12.500%, 1/15/14 . . . . . . . . 1,152,720
2,000,000 Hydro Quebec,
8.050%, 7/07/24 . . . . . . . . . 2,196,380
5,400,000 Petroleos Mexicanos,
8.625%, 12/01/23 . . . . . . . . 4,428,000
2,000,000 Province of Quebec,
8.625%, 12/01/26 . . . . . . . . 2,234,540
1,700,000 Republic of Colombia,
8.660%, 10/07/16 . . . . . . . . 1,801,352
2,700,000 Transgas de Occidente SA,
9.790%, 11/01/10 . . . . . . . . 2,862,000
------------
15,695,592
------------
Total Bonds and Notes
(Identified Cost $164,803,203) . 165,687,731
------------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENT--6.3%
FACE
AMOUNT VALUE (A)
<C> <S> <C>
COMMERCIAL PAPER---6.3%
$11,320,000 Household Finance Corp.
6.250%, 1/02/97 . . . . . . . . . $ 11,318,035
------------
Total Short-Term Investment
(Identified Cost $11,318,035) . . 11,318,035
------------
Total Investments--98.2%
(Identified Cost
$176,121,238)(b) . . . . . . . . 177,005,766
Other assets less liabilities(e) . 3,353,190
------------
TOTAL NET ASSETS--100% . . . . . . $180,358,956
============
</TABLE>
(a) See Note 1A.
(b) Federal Tax Information:
At December 31, 1996 the net unrealized appreciation on investments based on
cost of $176,234,143 for federal income tax purposed was as follows:
<TABLE>
<CAPTION>
<C> <S> <C>
Aggregate gross unrealized appreciation for
all investments in which there is an excess
of value over tax cost . . . . . . . . . . $ 2,646,350
Aggregate gross unrealized depreciation for
all investments in which there is an excess
of tax cost over value . . . . . . . . . . (1,874,727)
-----------
Net unrealized appreciation . . . . . . . . $ 771,623
===========
</TABLE>
(c) Denominated in Canadian dollars.
(d) Including deposits in foreign denominated currency with a value of $274
and a cost of $275.
See accompanying notes to financial statements.
78
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1996
ASSETS
Investments at value . . . . . . . . . . $177,005,766
Cash . . . . . . . . . . . . . . . . . . 3,991
Foreign cash at value (Cost $275) . . . . 274
Receivable for:
Fund shares sold . . . . . . . . . . . . 331,818
Accrued interest . . . . . . . . . . . . 3,304,914
------------
180,646,763
LIABILITIES
Payable for:
Fund shares redeemed . . . . . . . . . . $155,160
Miscellaneous . . . . . . . . . . . . . 27,647
Accrued expenses:
Management fees . . . . . . . . . . . . 60,640
Deferred trustees' fees . . . . . . . . 36,363
Other expenses . . . . . . . . . . . . . 7,997
--------
287,807
------------
$180,358,956
============
NET ASSETS
Net Assets consist of:
Capital paid in . . . . . . . . . . . . $178,899,513
Undistributed net investment income . . 146,994
Accumulated net realized gains . . . . . 428,101
Unrealized appreciation on investments
and foreign currency . . . . . . . . . 884,348
------------
NET ASSETS . . . . . . . . . . . . . . . . $180,358,956
============
Computation of offering price:
Net asset value and redemption price per
share ($180,358,956 divided by 1,707,523
shares of beneficial interest) . . . . . $ 105.63
============
Identified cost of investments . . . . . . $176,121,238
============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . $13,045,963
-----------
13,045,963
EXPENSES
Management fees . . . . . . . . . . . $ 672,348
Trustees' fees and expenses . . . . . 27,049
Custodian . . . . . . . . . . . . . . 75,732
Audit and tax services . . . . . . . . 17,000
Legal . . . . . . . . . . . . . . . . 11,564
Printing . . . . . . . . . . . . . . . 66,987
Miscellaneous . . . . . . . . . . . . 6,125
-----------
Total expenses . . . . . . . . . . . 876,805
-----------
NET INVESTMENT INCOME . . . . . . . . . 12,169,158
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Realized gain on:
Investments--net . . . . . . . . . . 1,392,369
Foreign currency transactions--net . 42,011
-----------
Net realized gain on investments and
foreign currency transactions . . . 1,434,380
-----------
Unrealized appreciation (depreciation)
on:
Investments--net . . . . . . . . . . (5,669,661)
Foreign currency transactions--net . 280
-----------
Net unrealized depreciation on
investments and foreign currency
transactions . . . . . . . . . . . . (5,669,381)
-----------
Net loss on investment transactions . . (4,235,001)
-----------
NET INCREASE IN NET ASSETS FROM
OPERATIONS . . . . . . . . . . . . . . $ 7,934,157
===========
</TABLE>
See accompanying notes to financial statements.
79
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------- ---------------
<S> <C> <C>
FROM OPERATIONS
Net investment income . . . . . . . . . . . . $ 10,335,393 $ 12,169,158
Net realized gain on investments and foreign
currency transactions . . . . . . . . . . . 1,559,812 1,434,380
Unrealized appreciation (depreciation) on
investments and foreign currency
transactions . . . . . . . . . . . . . . . . 15,392,179 (5,669,381)
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS . . . 27,287,384 7,934,157
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income . . . . . . . . . . . . (9,888,438) (12,191,823)
Net realized gain on investments . . . . . . 0 (496,515)
------------ ------------
(9,888,438) (12,688,338)
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares . . . . . . . . 46,886,957 53,162,089
Net asset value of shares issued in
connection with the reinvestment of:
Distributions from net investment income . . 9,888,437 12,191,823
Distributions from net realized gain . . . . 0 496,515
------------ ------------
56,775,394 65,850,427
Cost of shares redeemed . . . . . . . . . . . (37,696,007) (43,449,240)
------------ ------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS . . . . . . . . . . . . . 19,079,387 22,401,187
------------ ------------
TOTAL INCREASE IN NET ASSETS . . . . . . . . 36,478,333 17,647,006
NET ASSETS
Beginning of the year . . . . . . . . . . . . 126,233,617 162,711,950
------------ ------------
End of the year . . . . . . . . . . . . . . . $162,711,950 $180,358,956
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year . . . . . . . . . . . . $ 0 $ 53,292
============ ============
End of the year . . . . . . . . . . . . . . . $ 53,292 $ 146,994
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares . . . . . . . 440,564 491,882
Issued in connection with the reinvestment of:
Distributions from net investment income . . 91,832 114,880
Distributions from net realized gain . . . . 0 4,700
------------ ------------
532,396 611,462
Redeemed . . . . . . . . . . . . . . . . . . (356,518) (401,180)
------------ ------------
Net change . . . . . . . . . . . . . . . . . 175,878 210,282
============ ============
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1992 1993 1994 1995 1996
-------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year . . $103.44 $ 103.47 $ 106.14 $ 95.53 $ 108.67
------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment
Income . . . . . . . 7.96 5.70 7.05 7.34 7.72
Net Realized and
Unrealized Gain
(Loss) on
Investments . . . . 0.51 7.38 (10.61) 12.85 (2.70)
------- -------- -------- -------- --------
Total From Investment
Operations . . . . . 8.47 13.08 (3.56) 20.19 5.02
------- -------- -------- -------- --------
Less Distributions
Dividends From Net
Investment Income . (6.87) (6.20) (7.05) (7.05) (7.74)
Distributions in
Excess of Net
Investment Income . 0.00 (0.05) 0.00 0.00 0.00
Distributions From Net
Realized Capital
Gains. . . . . . . . (1.57) (4.16) 0.00 0.00 (0.32)
------- -------- -------- -------- --------
Total Distributions . (8.44) (10.41) (7.05) (7.05) (8.06)
------- -------- -------- -------- --------
Net Asset Value, End of
Year. . . . . . . . . $103.47 $ 106.14 $ 95.53 $ 108.67 $ 105.63
======= ======== ======== ======== ========
TOTAL RETURN (%) . . . 8.18 12.61 (3.36) 21.20 4.61
Ratio of Operating
Expenses to Average
Net Assets (%) . . . 0.44 0.43 0.44 0.55 0.52
Ratio of Net Investment
Income to Average Net
Assets (%) . . . . . 7.70 6.47 6.75 7.22 7.22
Portfolio Turnover
Rate (%) . . . . . . 71 177 82 73 98
Net Assets, End of
Year (000) . . . . . $83,057 $131,242 $126,234 $162,712 $180,359
</TABLE>
As of January 1, 1993, the Bond Income Series discontinued the use of
equalization accounting.
See accompanying notes to financial statements.
80
<PAGE>
SALOMON BROTHERS U.S. GOVERNMENT SECURITIES
PORTFOLIO MANAGERS: STEVEN GUTERMAN AND ROGER LAVAN
SALOMON BROTHERS ASSET MANAGEMENT INC
[PHOTOS OF STEVEN GUTERMAN & ROGER LAVAN]
Q. HOW DID THE SERIES PERFORM IN 1996?
A. For the year ended December 31, 1996, the Series posted a 3.31% return versus
a 4.06% return for the Lehman Intermediate Government Index/5/. In general, the
performance of the U.S. government bond market and the Salomon Brothers U.S.
Government Securities Series was hindered by the dramatic rise in interest rates
during the first half of 1996. Although a rally occurred in the fourth quarter
as inflation remained in check while economic indicators signaled moderate
growth, it was not enough to overcome the dramatic rise in rates during the
first half of 1996.
Q. HOW DID YOU MANAGE THE SERIES IN 1996?
A. For most of the year, the Series maintained a neutral duration strategy in
anticipation of higher yields. This defensive strategy posture was taken in
response to reports of stronger economic growth (e.g. strong job growth and
increases in consumption and housing activity). Market participants also focused
on stronger than expected rises in average hourly earnings which led to concerns
that inflationary pressures could develop and influence the Federal Reserve to
hike short term rates.
The Series also had an overweight allocation to the mortgage pass-through sector
versus its benchmark. Mortgage pass-through securities performed strongly in
1996 as higher interest rates reduced the incentive for homeowners to refinance
their mortgages.
During the fourth quarter, the Series extended its duration to about 4.25 years
as inflation threats subsided and it became clear that Federal Reserve policy
was on hold. At year-end, the Series' assets were allocated as follows: U.S.
Treasuries 30%, U.S. Agency debentures 7%, mortgage pass-throughs 62% and
short-term investments 1%.
Q. WHAT IS YOUR INVESTMENT OUTLOOK FOR THE MONTHS AHEAD?
A. Bonds are likely to experience volatility early in 1997 as investors sort out
the implications of stronger growth. We do not expect Fed action in the first
several months of 1997. Given our optimistic view of inflation, we believe
interest rates will move modestly lower during the year.
[A CHART APPEARS HERE COMPARING A $10,000
INVESTMENT IN THE SERIES VERSUS AN INDEX]
<TABLE>
<CAPTION>
US Gov't Lehman Intermediate
Series Government
<S> <C> <C>
10/31/94 10000 10000
1994 10060 9989
1995 11571 11430
1996 11955 11894
</TABLE>
FUND FACTS
GOAL: A high level of current income consistent with the preservation of
capital and maintenance of liquidity.
START DATE: October 31, 1994
SIZE: $13 million as of December 31, 1996
MANAGERS: Steven Guterman and Roger Lavan have managed the Series since its
inception in October of 1994. Mr. Guterman and Mr. Lavan have also managed the
Salomon Brothers Investment Series--U.S. Government Income Fund since March
1995 and the North American U.S. Government Securities Fund since January 1992.
They both joined Salomon Brothers Asset Management Inc in 1990.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life insurance
contracts. If these charges were included, the returns shown would be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
81
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS U.S. GOVERNMENT SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
BONDS & NOTES--92.7% OF TOTAL NET ASSETS
FACE
AMOUNT VALUE (A)
<C> <S> <C>
FEDERAL AGENCY--71.6%
$ 250,000 Federal Home Loan Banks
6.490%, 9/08/97 . . . . . . . . . . . $ 251,377
300,000 Federal Home Loan Banks
5.940%, 6/13/00 . . . . . . . . . . . 297,231
22,355 Federal Home Loan Mortgage
6.000%, 10/01/10 . . . . . . . . . . . 21,537
412,932 Federal Home Loan Mortgage
7.000%, 7/01/11 . . . . . . . . . . . 413,060
72,265 Federal Home Loan Mortgage
11.750%, 1/01/12 . . . . . . . . . . . 81,795
46,446 Federal Home Loan Mortgage
11.750%, 12/01/13 . . . . . . . . . . 52,571
447,285 Federal Home Loan Mortgage
8.250%, 4/01/17 . . . . . . . . . . . 465,176
1,000,000 Federal Home Loan Mortgage
6.500%, 1/01/99 . . . . . . . . . . . 955,930
1,835,342 Federal National Mortgage Association
6.500%, 12/01/10 . . . . . . . . . . . 1,802,654
40,089 Federal National Mortgage Association
14.500%, 11/01/14 . . . . . . . . . . 49,447
19,584 Federal National Mortgage Association
12.500%, 8/01/15 . . . . . . . . . . . 22,870
92,292 Federal National Mortgage Association
12.500%, 9/01/15 . . . . . . . . . . . 108,184
93,718 Federal National Mortgage Association
13.000%, 11/01/15 . . . . . . . . . . 110,675
48,599 Federal National Mortgage Association
12.000%, 1/01/16 . . . . . . . . . . . 56,177
30,326 Federal National Mortgage Association
11.500%, 9/01/19 . . . . . . . . . . . 34,486
99,536 Federal National Mortgage Association
11.500%, 2/01/20 . . . . . . . . . . . 112,601
440,611 Federal National Mortgage Association
6.500%, 3/01/26 . . . . . . . . . . . 420,783
450,000 Federal National Mortgage Association
Pool TBA 7.000%, 12/01/2099 . . . . . 440,014
291,904 Government National Mortgage Association
TBA 9.000%, 12/15/16 . . . . . . . . . 309,555
28,366 Government National Mortgage Association
TBA 7.000%, 4/15/24 . . . . . . . . . 27,755
38,430 Government National Mortgage Association
TBA 7.000%, 3/15/26 . . . . . . . . . 37,601
2,104,732 Government National Mortgage Association
TBA 7.000%, 5/15/26 . . . . . . . . . 2,059,357
350,000 Government National Mortgage Association
TBA 7.000%, 12/15/2099 . . . . . . . . 341,908
300,000 Student Loan Marketing Association
7.500%, 3/08/00 . . . . . . . . . . . 311,157
----------
8,783,901
----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
U.S. TREASURY--21.1%
$ 500,000 U.S. Treasury Notes 6.125%, 5/31/97 $ 501,510
1,000,000 U.S. Treasury Notes
5.750%, 12/31/98 . . . . . . . . . 997,750
500,000 U.S. Treasury Notes 5.625%, 2/28/01 490,275
200,000 U.S. Treasury Notes 6.500%, 5/31/01 202,348
270,000 U.S. Treasury Notes 6.625%, 7/31/01 274,388
100,000 U.S. Treasury Notes 6.875%, 5/15/06 103,085
100,000 U.S. Treasury Notes 7.000%, 7/15/06 103,940
1,260,000 U.S. Treasury Notes
6.500%, 10/15/06 . . . . . . . . . 1,267,081
-----------
3,940,377
-----------
Total Bonds & Notes
(Identified Cost $12,744,814) . . 12,724,278
===========
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENT--23.2%
<C> <S> <C>
3,120,000 Repurchase Agreement with Merrill Lynch
dated 12/31/96 at 6.500% to be
repurchased at $3,121,127 on 1/02/97
collateralized by $2,490,000 U.S.
Treasury Bonds 8.875% due 2/15/19 with
a value of $3,184,088 . . . . . . . . 3,120,000
-----------
Total Short-Term Investment
(Identified Cost $3,120,000) . . . . . 3,120,000
-----------
Total Investments--115.9%
(Identified Cost $15,864,814)(b) . . . 15,844,278
Liabilities . . . . . . . . . . . . . . (2,633,614)
-----------
TOTAL NET ASSETS--100% . . . . . . . . $13,210,664
===========
</TABLE>
(a) See Note 1a.
(b) Federal Tax Information: At December 31, 1996 the net unrealized
depreciation on investments based on cost of $15,866,361 for federal income
tax purposes was as follows:
<TABLE>
<CAPTION>
<C> <S> <C>
Aggregate gross unrealized appreciation for
all investments in which there is an excess
of value over tax cost . . . . . . . . . . $ 45,984
Aggregate gross unrealized depreciation for
all investments in which there is an excess
of tax cost over value . . . . . . . . . . (68,067)
--------
Net unrealized depreciation . . . . . . . . $(22,083)
========
</TABLE>
See accompanying notes to financial statements.
82
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS U.S. GOVERNMENT SERIES)
<TABLE>
<CAPTION>
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1996
ASSETS
<S> <C> <C>
Investments at value . . . . . . . . . $15,844,278
Cash . . . . . . . . . . . . . . . . . 796
Receivable for:
Fund shares sold . . . . . . . . . . . 65,804
Accrued interest . . . . . . . . . . . 101,198
Due from advisor . . . . . . . . . . . 6,102
Unamortized organization . . . . . . . 5,694
-----------
16,023,872
LIABILITIES
Payable for:
Securities purchased . . . . . . . . . $2,757,054
Fund shares redeemed . . . . . . . . . 28,921
Accrued expenses:
Management fees . . . . . . . . . . . 2,465
Deferred trustees' fees . . . . . . . 267
Other expenses . . . . . . . . . . . . 24,501
----------
2,813,208
-----------
$13,210,664
===========
NET ASSETS
Net Assets consist of:
Capital paid in . . . . . . . . . . . $13,203,810
Undistributed net investment income . 6,776
Accumulated net realized gains . . . . 20,614
Unrealized depreciation on
investments . . . . . . . . . . . . . (20,536)
-----------
NET ASSETS . . . . . . . . . . . . . . . $13,210,664
===========
Computation of offering price:
Net asset value and redemption price per
share ($13,210,664 divided by 1,219,959
shares of beneficial interest) . . . . $ 10.83
===========
Identified cost of investments . . . . . $15,864,814
===========
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
INVESTMENT INCOME
<S> <C> <C>
Interest . . . . . . . . . . . . . . . . $ 740,123
---------
740,123
EXPENSES
Management fees . . . . . . . . . . . . . $ 59,626
Trustees' fees and expenses . . . . . . . 10,057
Custodian . . . . . . . . . . . . . . . . 44,258
Audit and tax services . . . . . . . . . 13,000
Legal . . . . . . . . . . . . . . . . . . 11,495
Printing . . . . . . . . . . . . . . . . 2,423
Amortization of organization expenses . . 2,013
Miscellaneous . . . . . . . . . . . . . . 5,424
--------
Total expenses . . . . . . . . . . . . 148,296
Less expenses assumed by the investment
adviser . . . . . . . . . . . . . . . (72,404) 75,892
-------- ---------
NET INVESTMENT INCOME . . . . . . . . . . 664,231
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain on:
Investments--net . . . . . . . . . . . . 1,275
Unrealized depreciation on:
Investments--net . . . . . . . . . . . . (214,900)
---------
Net loss on investment transactions . . . (213,625)
---------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 450,606
=========
</TABLE>
See accompanying notes to financial statements.
83
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS U.S. GOVERNMENT SERIES)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------ --------------
<S> <C> <C>
FROM OPERATIONS
Net investment income . . . . . . . . . . . . . $ 214,389 $ 664,231
Net realized gain on investments . . . . . . . 71,273 1,275
Unrealized appreciation (depreciation) on
investments. . . . . . . . . . . . . . . . . . 195,460 (214,900)
----------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS . . . . 481,122 450,606
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income . . . . . . . . . . . . . (214,389) (639,626)
In excess of net investment income . . . . . . (1,001) 0
Net realized gain on investments . . . . . . . (50,946) (16,259)
----------- -----------
(266,336) (655,885)
----------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares . . . . . . . . . 7,348,256 9,363,646
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income . . . 215,390 639,626
Distributions from net realized gain . . . . . 50,946 16,259
----------- -----------
7,614,592 10,019,531
Cost of shares redeemed . . . . . . . . . . . . (2,299,033) (4,145,624)
----------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS . . . . . . . . . . . . . . 5,315,559 5,873,907
----------- -----------
TOTAL INCREASE IN NET ASSETS . . . . . . . . . 5,530,345 5,668,628
NET ASSETS
Beginning of the year . . . . . . . . . . . . . 2,011,691 7,542,036
----------- -----------
End of the year . . . . . . . . . . . . . . . . $ 7,542,036 $13,210,664
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year . . . . . . . . . . . . . $ 0 $ 735
=========== ===========
End of the year . . . . . . . . . . . . . . . . $ 735 $ 6,776
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares . . . . . . . . 671,863 852,094
Issued in connection with the reinvestment of:
Distributions from net investment income . . . 19,652 58,698
Distributions from net realized gain . . . . . 4,648 0
----------- -----------
696,163 910,792
Redeemed . . . . . . . . . . . . . . . . . . . . (214,709) (374,295)
----------- -----------
Net change . . . . . . . . . . . . . . . . . . . 481,454 536,497
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
OCTOBER 31, 1994 (A)
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
-------------------- ------------ --------------
<S> <C> <C> <C>
Net Asset Value, Beginning
of Period . . . . . . . . $10.00 $ 9.96 $ 11.04
------ ------ -------
Income From Investment
Operations
Net Investment Income . . 0.10 0.33 0.58
Net Realized and
Unrealized Gain (Loss) on
Investments. . . . . . . (0.04) 1.16 (0.21)
------ ------ -------
Total From Investment
Operations . . . . . . . 0.06 1.49 0.37
------ ------ -------
Less Distributions
Dividends From Net
Investment Income . . . (0.10) (0.33) (0.56)
Distributions From Net
Realized Capital Gains . 0.00 (0.08) (0.02)
------ ------ -------
Total Distributions . . . (0.10) (0.41) (0.58)
------ ------ -------
Net Asset Value, End of
Period. . . . . . . . . . $ 9.96 $11.04 $ 10.83
====== ====== =======
TOTAL RETURN (%) . . . . . 0.60(c) 15.02 3.31
Ratio of Operating Expenses
to Average Net Assets (%) 0.70(b) 0.70 0.70
Ratio of Net Investment
Income to Average Net
Assets (%) . . . . . . . 5.70(b) 5.62 6.13
Portfolio Turnover
Rate (%) . . . . . . . . 1,409(b) 415 388
Net Assets, End of
Period (000) . . . . . . $2,012 $7,542 $13,211
The ratios of expenses to
average net assets without
giving effect to the
voluntary expense
agreement described in
Note 4 to the Financial
Statements would have
been (%) . . . . . . . . 2.54(b) 2.90 1.37
</TABLE>
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
See accompanying notes to financial statements.
84
<PAGE>
BACK BAY ADVISORS MONEY MARKET SERIES*
PORTFOLIO MANAGER: JOHN DONOVAN
BACK BAY ADVISORS, L.P.
[PHOTO OF JOHN DONOVAN]
Q. HOW DID BACK BAY ADVISORS MONEY MARKET SERIES PERFORM DURING 1996?
A. The Series continued to provide shareholders a stable cash reserve,
maintaining a constant share price of $100 while delivering competitive money
market yields. As was the case in the first half of the year, short-term
interest rates remained volatile as the markets debated the strength of the
economy and the outlook for inflation. Although short rates ended the year
moderately below their early July highs, the Series' dividend distributions
remained fairly stable throughout the period. For the fiscal year ended December
31, 1996, the Money Market Series had a total return of 5.11%. This compares
favorably to the Lipper Variable Money Market Fund average of 4.97%
Q. HOW DID YOU MANAGE THE SERIES DURING THE PERIOD?
A. Although interest rates were volatile during the period, the actual indicator
of the direction of short-term interest rates--the overnight Federal Funds
level--remained unchanged. In this environment, we attempted to extend the
average days to maturity of the portfolio when interest rates rose and,
conversely, to shorten that figure when rates reversed their direction.
Q. WHAT IS YOUR INVESTMENT OUTLOOK FOR THE MONTHS AHEAD?
A. After a weak third quarter, Gross Domestic Product appears to have rebounded
significantly in the last three months of the year. Despite few signs of rising
inflation, fixed income investors continue to be concerned from time to time
about the economy overheating. At this juncture, however, we do not foresee a
significant sustained rise in short-term rates, and thus our recent investment
strategy remains in place.
FUND FACTS
GOAL: The highest possible level of current income
consistent with the preservation of capital.
START DATE: August 1, 1983
SIZE: $116 million as of December 31, 1996
MANAGER: John Donovan has served as portfolio
manager since 1995. Mr. Donovan joined Back Bay
Advisors in 1992.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
* Money Market Funds are not insured or guaranteed by the U.S. Government. There
can be no assurance that the Series will maintain a stable net asset value of
$100.00 per share.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life insurance
contracts. If these charges were included, the returns shown would be lower.
85
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
INVESTMENTS--98.8% OF TOTAL NET ASSETS
FACE INTEREST MATURITY
VALUE DESCRIPTION RATE DATE VALUE (A)
<C> <S> <C> <C> <C>
CERTIFICATES OF DEPOSIT--11.1%
$2,000,000 Sumitomo Bank, Ltd. . . . . . . 5.647% 01/13/97 $ 1,999,913
2,000,000 Societe Generale New York . . . 5.450% 02/10/97 1,999,996
3,000,000 Sumitomo Bank, Ltd. . . . . . . 5.580% 02/10/97 2,999,415
1,000,000 National Westminster Bank . . . 5.420% 02/24/97 1,000,028
1,000,000 Societe Generale New York . . . 5.650% 04/01/97 999,746
2,000,000 Morgan Guaranty Trust Co. . . . 5.900% 09/30/97 2,002,754
2,000,000 Deutsche Bank Finance, Inc. . . 5.690% 10/28/97 2,002,547
-----------
Total Certificates of Deposit
($13,004,399). . . . . . . . . 13,004,399
-----------
CERTIFICATE OF DEPOSIT--EURO
DOLLAR--0.9%
1,000,000 Toronto Dominion Bank . . . . . 5.170% 01/17/97 1,000,039
-----------
Total Certificate of
Deposit--Euro Dollar
($1,000,039) . . . . . . . . . 1,000,039
-----------
COMMERCIAL PAPER--86.8%
AUTOMOTIVE--8.2%
1,280,000 General Motors Acceptance Corp. 5.340% 01/17/97 1,276,962
2,500,000 Ford Motor Credit Corp. . . . . 5.310% 01/27/97 2,490,413
720,000 Ford Motor Credit Corp. . . . . 5.320% 01/30/97 716,914
3,345,000 General Motors Acceptance Corp. 5.470% 02/27/97 3,316,030
535,000 Ford Motor Credit Corp. . . . . 5.330% 05/07/97 525,020
1,295,000 Ford Motor Credit Corp. . . . . 5.260% 08/14/97 1,252,427
-----------
9,577,766
-----------
BANKING--15.6%
2,000,000 Banque National de Paris . . . 5.450% 01/09/97 1,997,578
1,500,000 Societe Gereral North America . 5.450% 01/22/97 1,495,231
3,035,000 Commerzbank U.S. Finance . . . 5.300% 01/31/97 3,021,595
1,055,000 Banque National de Paris . . . 5.420% 02/04/97 1,049,600
500,000 Banque National de Paris . . . 5.420% 02/18/97 496,387
2,000,000 Bank of Nova Scotia . . . . . . 5.340% 03/10/97 1,979,827
1,000,000 Banque National de Paris . . . 5.400% 03/13/97 989,350
1,700,000 Svenska Handelsbanken, Inc. . . 5.340% 03/26/97 1,678,818
2,000,000 ABN Amro North . . . . . . . . 5.430% 04/01/97 1,972,850
500,000 Banque National de Paris . . . 5.330% 05/06/97 490,747
2,000,000 First UN National Bank . . . . 5.890% 06/03/97 2,000,000
1,125,000 Commerzbank U.S. Finance . . . 5.300% 08/01/97 1,089,887
-----------
18,261,870
-----------
FINANCE--32.8%
3,000,000 International Lease Finance
Corp.. . . . . . . . . . . . . 5.320% 01/06/97 2,997,783
1,000,000 CIT Group Holdings, Inc. . . . 5.420% 01/10/97 998,645
910,000 Heller Financial, Inc. . . . . 5.370% 01/10/97 908,778
2,170,000 UBS Finance, Inc. . . . . . . . 5.400% 01/10/97 2,167,070
3,000,000 CIT Group Holdings, Inc. . . . 5.420% 01/14/97 2,994,128
230,000 Avco Financial Services, Inc. . 5.340% 01/15/97 229,522
660,000 Heller Financial, Inc. . . . . 5.440% 01/15/97 658,604
2,000,000 American General Corp. . . . . 5.100% 01/16/97 1,995,492
2,000,000 Household Finance Corp. . . . . 5.310% 01/21/97 1,994,100
750,000 Household Finance Corp. . . . . 5.530% 01/21/97 747,696
2,000,000 Beneficial Corp. . . . . . . . 5.320% 01/27/97 1,992,316
2,500,000 Heller Financial, Inc. . . . . 5.580% 01/28/97 2,489,537
2,000,000 Beneficial Corp. . . . . . . . 5.320% 01/29/97 1,991,724
1,325,000 American Express Credit Corp. . 5.300% 01/31/97 1,319,148
</TABLE>
See accompanying notes to financial statements.
86
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
INVESTMENTS--(CONTINUED)
FACE INTEREST MATURITY
VALUE DESCRIPTION RATE DATE VALUE (A)
<C> <S> <C> <C> <C>
$3,000,000 Transamerica Finance
Group, Inc. . . . . . . . . . 5.300% 02/03/97 $ 2,985,425
2,000,000 Commercial Credit Co. . . . . . 5.470% 02/05/97 1,989,364
2,000,000 American Express Credit Corp. . 5.310% 02/13/97 1,987,315
1,000,000 General Electric Capital Corp. 5.600% 02/21/97 992,067
1,000,000 Heller Financial, Inc. . . . . 5.440% 02/28/97 991,236
500,000 General Electric Capital Corp. 5.620% 03/07/97 494,926
2,000,000 Avco Financial Services, Inc. . 5.480% 03/24/97 1,975,036
2,000,000 Household Finance Corp. . . . . 5.460% 05/22/97 2,000,000
1,500,000 General Electric Capital Corp. 5.360% 07/07/97 1,458,237
-----------
38,358,149
-----------
FOOD & TOBACCO--1.2%
1,355,000 Philip Morris Capital Corp. . . 6.150% 01/03/97 1,354,537
-----------
FORESTRY--1.5%
1,750,000 Weyerhauser MTG . . . . . . . . 5.300% 01/07/97 1,748,454
-----------
INSURANCE--5.4%
3,000,000 Prudential Funding Corp. . . . 6.000% 01/02/97 2,999,500
1,000,000 Prudential Funding Corp. . . . 5.350% 01/23/97 996,731
2,335,000 USAA Capital Corp. . . . . . . 5.300% 01/09/97 2,332,250
-----------
6,328,481
-----------
OIL & GAS--3.4%
3,000,000 BP America, Inc. . . . . . . . 6.750% 01/02/97 2,999,437
1,010,000 Michigan Consolidated Gas Co. . 5.580% 01/21/97 1,006,869
-----------
4,006,306
-----------
POLLUTION CONTROL--2.5%
1,000,000 WMX Technologies, Inc. . . . . 5.420% 01/24/97 996,537
500,000 WMX Technologies, Inc. . . . . 5.630% 02/04/97 497,341
500,000 WMX Technologies, Inc. . . . . 5.630% 03/04/97 495,152
1,000,000 WMX Technologies, Inc. . . . . 5.630% 04/18/97 983,266
-----------
2,972,296
-----------
RETAIL--3.5%
1,390,000 Sears Roebuck Acceptance Corp. 5.480% 01/29/97 1,384,076
315,000 Sears Roebuck Acceptance Corp. 5.400% 02/14/97 312,921
2,395,000 Sears Roebuck Acceptance Corp. 5.440% 02/14/97 2,379,076
-----------
4,076,073
-----------
SECURITIES--11.4%
2,000,000 Lehman Brothers, Inc. . . . . . 5.500% 01/13/97 1,996,333
1,700,000 Merrill Lynch & Co., Inc. . . . 5.400% 01/13/97 1,696,940
2,000,000 Lehman Brothers, Inc. . . . . . 5.500% 01/15/97 1,995,722
1,000,000 Goldman Sachs Group . . . . . . 5.430% 01/16/97 997,737
800,000 Merrill Lynch & Co., Inc. . . . 5.410% 01/17/97 798,076
390,000 Merrill Lynch & Co., Inc. . . . 5.330% 01/23/97 388,730
2,000,000 Merrill Lynch & Co., Inc. . . . 5.440% 01/24/97 1,993,049
1,500,000 Goldman Sachs Group . . . . . . 5.420% 02/06/97 1,491,870
2,000,000 Goldman Sachs Group . . . . . . 5.300% 04/21/97 1,967,611
-----------
13,326,068
-----------
</TABLE>
See accompanying notes to financial statements.
87
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
INVESTMENTS--(CONTINUED)
FACE INTEREST MATURITY
VALUE DESCRIPTION RATE DATE VALUE (A)
<C> <S> <C> <C> <C>
GOVERNMENT AGENCIES--1.3%
$1,530,000 Canadian Wheat Board . . . . . 5.420% 03/19/97 $ 1,512,264
------------
Total Commercial Papers
(Cost $101,522,264) . . . . . 101,522,264
------------
Total Investments--98.8%
(Cost $115,526,702) (b) . . . 115,526,702
Other assets less liabilities 1,472,017
------------
TOTAL NET ASSETS--100% . . . . $116,998,719
============
</TABLE>
(a) See Note 1A.
(b) The aggregate cost for federal income tax purposes was $115,526,702
See accompanying notes to financial statements.
88
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
<TABLE>
<CAPTION>
STATEMENT OF ASSETS & LIABILITIES
<S> <C> <C>
DECEMBER 31, 1996
ASSETS
Investments at value . . . . . . . . . . $115,526,702
Cash . . . . . . . . . . . . . . . . . . 903
Receivable for:
Fund shares sold . . . . . . . . . . . 2,354,876
Accrued interest . . . . . . . . . . . 218,005
------------
118,100,486
LIABILITIES
Payable for:
Fund shares redeemed . . . . . . . . . $555,513
Dividends declared . . . . . . . . . . 441,934
Accrued expenses:
Management fees . . . . . . . . . . . . 32,519
Deferred trustees' fees . . . . . . . . 29,240
Other expenses . . . . . . . . . . . . 42,561
--------
1,101,767
------------
$116,998,719
============
NET ASSETS
Net Assets consist of:
Capital paid in . . . . . . . . . . . . $116,998,719
------------
NET ASSETS . . . . . . . . . . . . . . . $116,998,719
============
Computation of offering price:
Net asset value and redemption price per
share ($116,998,719 divided by 1,169,987
shares of beneficial interest) . . . . . $ 100.00
============
Cost of investments . . . . . . . . . . . $115,526,702
============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1996
INVESTMENT INCOME
Interest . . . . . . . . . . . . . $5,523,727
EXPENSES
Management fees . . . . . . . . . . $350,632
Trustees' fees and expenses . . . . 18,295
Custodian . . . . . . . . . . . . . 57,962
Audit and tax services . . . . . . 12,911
Legal . . . . . . . . . . . . . . . 16,412
Printing . . . . . . . . . . . . . 24,379
Miscellaneous . . . . . . . . . . . 18,629
--------
Total expenses . . . . . . . . . 499,220
----------
NET INVESTMENT INCOME . . . . . . . 5,024,507
NET INCREASE IN NET ASSETS FROM
OPERATIONS. . . . . . . . . . . . . $5,024,507
==========
</TABLE>
See accompanying notes to financial statements.
89
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
-------------- ----------------
<S> <C> <C>
FROM OPERATIONS
Net investment income . . . . . . . . . . . $ 4,403,095 $ 5,024,507
------------- -------------
INCREASE IN NET ASSETS FROM OPERATIONS . . 4,403,095 5,024,507
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income . . . . . . . . . . . (4,403,095) (5,024,507)
------------- -------------
(4,403,095) (5,024,507)
------------- -------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares . . . . . . . 141,012,985 234,677,851
Net asset value of shares issued in
connection with the reinvestment of:
Distributions from net investment income . 4,331,085 4,966,805
------------- -------------
145,344,070 239,644,656
Cost of shares redeemed . . . . . . . . . . (129,156,304) (212,794,096)
------------- -------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS . . . . . . . . . . . . 16,187,766 26,850,560
------------- -------------
TOTAL INCREASE IN NET ASSETS . . . . . . . 16,187,766 26,850,560
NET ASSETS
Beginning of the year . . . . . . . . . . . 73,960,393 90,148,159
------------- -------------
End of the year . . . . . . . . . . . . . . $ 90,148,159 $ 116,998,719
============= =============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares . . . . . . 1,410,130 2,346,128
Issued in connection with the reinvestment
of:
Distributions from net investment income . 43,311 50,319
------------- -------------
1,453,441 2,396,447
Redeemed . . . . . . . . . . . . . . . . . (1,291,563) (2,127,942)
------------- -------------
Net change . . . . . . . . . . . . . . . . 161,878 268,505
============= =============
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value Beginning
of Year. . . . . . . . . $100.00 $100.00 $100.00 $100.00 $ 100.00
------- ------- ------- ------- --------
Income From Investment
Operations
Net investment income . 3.73 2.93 3.89 5.50 4.99
------- ------- ------- ------- --------
Total from Investment
Operations. . . . . . . 3.73 2.93 3.89 5.50 4.99
Distributions from net
investment income . . . (3.73) (2.93) (3.89) (5.50) (4.99)
------- ------- ------- ------- --------
Total Distributions . . (3.73) (2.93) (3.89) (5.50) (4.99)
------- ------- ------- ------- --------
Net Asset Value End of
Year . . . . . . . . . . $100.00 $100.00 $100.00 $100.00 $ 100.00
======= ======= ======= ======= ========
TOTAL RETURN (%) . . . . 3.79 2.97 4.01 5.64 5.11
Ratio of operating
expenses to average net
assets (%) . . . . . . . 0.38 0.38 0.40 0.50 0.50
Ratio of net investment
income to average net
assets (%) . . . . . . . 3.71 2.93 3.89 5.50 4.99
Net Assets, End of Year
(000). . . . . . . . . . $61,607 $59,044 $73,960 $90,148 $116,999
The ratios of expenses to
average net assets
without giving effect to
the voluntary expense
agreement described in
Note 4 to the Financial
Statements would have
been (%) . . . . . . . . -- -- -- 0.51 0.50
</TABLE>
See accompanying notes to financial statements.
90
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1996
1. New England Zenith Fund (the "Fund") is organized as a Massachusetts business
trust under the laws of the Commonwealth of Massachusetts pursuant to an
Agreement and Declaration of Trust dated December 16, 1986. The Fund succeeded
to the operations of The New England Zenith Fund, Inc. on February 27, 1987. The
Fund is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company.
Shares in the Fund are not offered directly to the general public and,
currently, are available only to certain separate accounts established by New
England Life Insurance Company ("NELICO") or Metropolitan Life Insurance Company
("MetLife") as an investment vehicle for variable life insurance or variable
annuity products, although not all Series are available to all such separate
accounts. In the future, shares may be offered to separate accounts of other
insurance companies, including companies unaffiliated with NELICO or MetLife.
The Fund's Agreement and Declaration of Trust permits the issuance of an
unlimited number of shares of beneficial interest, no par value, in separate
Series, with shares of each Series representing interests in a separate
portfolio of assets. Each Series is separately managed and has its own
investment objective and policies. The Series (or its predecessor) commenced
operations on the dates set forth below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Bond Income Series . August 26, 1983 Small Cap Series . . May 1, 1994
Capital Growth
Series . . . . . . . August 26, 1983 Balanced Series . . . October 31, 1994
Money Market Series . August 26, 1983 International Equity
Series . . . . . . . October 31, 1994
Stock Index Series . March 30, 1987 U.S. Government
Series . . . . . . . October 31, 1994
Managed Series . . . May 1, 1987 Strategic Bond
Opportunities
Series . . . . . . . October 31, 1994
Avanti Growth Venture Value
Series . . . . . . . April 30, 1993 Series . . . . . . . October 31, 1994
Growth & Income Equity Growth
Series . . . . . . . April 30, 1993 Series . . . . . . . October 31, 1994
</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, GROWTH & INCOME, SMALL
CAP, BALANCED, INTERNATIONAL EQUITY, VENTURE VALUE AND EQUITY GROWTH
SERIES--Equity securities are valued on the basis of market valuations
furnished by a pricing service, authorized by the Board of Trustees. The
pricing service provides the last reported sale price for securities listed
on a national securities exchange or on the NASDAQ National Market System, or
if there is no reported sale during the day, and in the case of
over-the-counter securities not so listed, the last bid price. Securities for
which current market quotations are not readily available are taken at fair
value as determined in good faith by the Board of Trustees, although the
actual calculations may be made by persons acting pursuant to the direction
of the Board. Short-term notes are stated at amortized cost, which
approximates market value.
91
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1996--(CONTINUED)
B. FOREIGN CURRENCY TRANSLATION--The books and records of the Funds are
maintained in U.S. dollars. The values of securities, currencies and other
assets and liabilities denominated in currencies other than U.S. dollars are
translated into U.S. dollars based upon foreign exchange rates prevailing at
the end of the period. Purchases and sales of investment securities
denominated in foreign currencies, income and expenses are translated on the
respective dates of such transactions, and items of income and expense
payable in foreign currencies are translated on the date they arise.
Since the values of investment securities are presented at the foreign
exchange rates prevailing at the end of the period, it is not practical to
isolate that portion of the results of operations arising from changes in
exchange rates from fluctuations arising from changes in market prices of the
investment securities.
Net realized and unrealized gains and losses on foreign currency transactions
represent foreign exchange gains from the sale of short-term securities and
holdings of foreign currencies, foreign currency gains and losses between
trade dates and settlement dates on investment securities transactions, and
the difference between the amounts of daily interest accruals on the books of
the Fund and the amounts actually received resulting from changes in exchange
rates on the payable date.
FORWARD FOREIGN CURRENCY CONTRACTS. The Fund may use foreign currency
contracts to facilitate transactions in foreign securities and to manage the
Fund's currency exposure. Contracts to buy generally are used to acquire
exposure to foreign currencies, while contracts to sell are used to hedge the
Fund's investments against currency fluctuations. Also, a contract to buy or
sell can offset a previous contract. These contracts involve market risk in
excess of the unrealized gain or loss reflected in the Fund's Statements of
Assets and Liabilities. The U.S. dollar value of the currencies the Fund has
committed to buy or sell is shown in the Schedules of Investments under the
caption "Forward Foreign Currency Contracts." This amount represents the
aggregate exposure to each currency the Fund has acquired or hedged through
currency contracts at period end. Losses may arise from changes in the value
of the foreign currency or if the counterparties do not perform under the
contract's terms. The U.S. dollar value of forward foreign currency contracts
is determined using forward currency exchange rates supplied by a quotation
service.
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME--Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Dividend income is recorded on the ex-dividend date and interest
income is recorded on the accrual basis. In determining gain or loss on
securities sold, the cost of securities has been determined on the identified
cost basis.
D. FUTURES CONTRACTS--The Growth & Income, Stock Index, Managed, Balanced,
International Equity, U.S. Government, Strategic Bond Opportunities and
Venture Value Series each may enter into futures contracts on the S&P 500
Index or on interest-bearing securities or indices thereof, or on indices of
stocks to hedge against changes in the values of securities the Series owns
or expects to purchase. Upon entering into a futures contract, the Series is
required to deposit with a broker an amount ("initial margin") equal to a
certain percentage of the purchase price indicated in the futures contract.
Subsequent payments ("variation margin") are made or received by the Series
each day, dependent on the daily fluctuations in the value of the underlying
security, and are recorded for financial reporting purposes as unrealized
gains or losses by the Series. When entering into a closing transaction, the
Series will realize, for book purposes, a gain or loss equal to the
difference between the value of the futures contract to sell and the futures
contract to buy. Futures contracts are valued at the most recent settlement
price, unless such price does not reflect the fair market value of the
contract, in which case the position will be valued by or under the direction
of the Board of Trustees. Certain risks are associated with investments in
futures contracts, including risk of imperfect correlation between the value
of a position in futures contracts and the value of the stocks or bonds that
the Series is attempting to hedge. In addition, there is a risk that the
Series may not be able to close out its futures positions due to an illiquid
secondary market.
E. REPURCHASE AGREEMENTS--The Series, through their custodian, receive delivery
of the underlying securities collateralizing repurchase agreements. It is the
Series' policy that the market value of the collateral be at least equal to
100% of the repurchase price. Each Series' adviser is responsible for
determining that the value of the collateral is at all times at least equal
to the repurchase price. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters an insolvency proceeding, realization of the
collateral by the Series may be delayed or limited.
92
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1996--(CONTINUED)
F. SHORT SALES AGAINST THE BOX--The Equity Growth Series may hedge against
changes in the value of investments by engaging in short sales against the
box. In a short sale against the box, the Series sells a borrowed security,
while at the same time either owning an identical security or having the
right to obtain such a security. By selling short against the box the equity
underlying one of its convertible holdings, the Series would seek to offset
the effect that a decline in the underlying equity might have on the value of
the convertible security. While the short sale is outstanding, the Series
will not dispose of the security hedged by the short sale. The Series is
required to establish a margin account with the broker lending the security
sold short. While the short sale is outstanding, the broker retains the
proceeds of the short sale and the Series instructs the custodian to maintain
in a separate account securities having a value at least equal to the amount
of the securities sold short. The Series had no such transactions during the
year ended December 31, 1996.
G. FEDERAL TAXES--Each Series is a separate taxable entity and intends to meet
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute to its shareholders all of its taxable
income and any net realized capital gains at least annually. Accordingly, no
provision for federal income tax has been made.
H. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS--Money Market Series dividends
are declared daily to shareholders of record at the time and are paid
monthly. Dividends and distributions are recorded by all other Series on the
ex-dividend date. Net realized gains from security transactions are
distributed at least annually to shareholders. The timing and
characterization of certain income and capital gains distributions are
determined in accordance with federal tax regulations which may differ from
generally accepted accounting principles. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassification to paid in capital. These differences primarily relate to
tax equalization, investments in mortgage backed securities and investments
in foreign securities.
I. OTHER--The Money Market Series invests primarily in a portfolio of money
market instruments maturing in 397 days or less whose ratings are within the
two highest ratings categories by a nationally recognized rating agency or,
if not rated, are believed to be of comparable quality. The weighted average
maturity of the Series is less than ninety days. The ability of the issuers
of the securities held by the Series to meet their obligations may be
affected by foreign economic, political and legal developments in the case of
foreign banks or of foreign branches or subsidiaries of U.S. banks or
domestic economic developments in a specific industry, state or region.
J. WHEN-ISSUED SECURITIES AND FORWARD DELIVERY SECURITIES--Delivery and payment
for securities purchased on a when-issued or forward delivery basis can take
place one month or more after the date of the transaction. The securities so
purchased are subject to market fluctuation during this period.
2. At December 31, 1996 MetLife held 19,352,266 shares of the Fund in separate
investment accounts for annuity contracts issued by MetLife. NELICO, a life
insurance subsidiary of MetLife, held the remaining 16,071,462 shares of the
Fund then outstanding in separate investment accounts for life insurance and
annuity contracts issued by NELICO.
As long as MetLife owns (directly or through NELICO) more than 25% of the Fund's
outstanding shares, it will be presumed to be in control (as that term is
defined by the Investment Company Act of 1940, as amended) of the Fund.
3. For the year ended December 31, 1996, purchases and sales of securities
(excluding short-term investments) for each of the Series were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------------------------- -------------------------------
SERIES OTHER U.S. GOVERNMENT OTHER U.S. GOVERNMENT
------ -------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C>
Back Bay Advisors Bond
Income . . . . . . . $ 137,692,765 $35,235,320 $ 130,989,953 $23,057,601
Capital Growth . . . 2,055,920,897 -- 2,037,625,313 --
Westpeak Stock Index 12,219,996 -- 2,831,698 --
Back Bay Advisors
Managed . . . . . . 104,791,938 617,880 107,609,326 597,480
Loomis Sayles Avanti
Growth . . . . . . . 65,735,396 -- 40,422,818 --
Westpeak Growth &
Income . . . . . . . 87,838,838 -- 63,909,195 --
Loomis Sayles Small
Cap . . . . . . . . 69,835,843 -- 27,766,266 --
Loomis Sayles
Balanced . . . . . . 41,932,898 11,418,054 16,369,200 3,877,406
Draycott International
Equity . . . . . . . 36,645,208 -- 16,747,918 --
Salomon Brothers U.S.
Government . . . . . 33,158,910 11,099,705 28,772,597 9,489,383
Salomon Brothers
Strategic Bond
Opportunities . . . 41,128,270 14,362,320 24,965,572 6,343,657
Venture Value . . . . 61,385,281 -- 10,733,253 --
Alger Equity Growth . 121,063,456 -- 59,061,091 --
</TABLE>
Purchases and sales of corporate short-term obligations for the Money Market
Series aggregated $737,083,687 and $714,742,304, respectively.
93
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1996--(CONTINUED)
Transactions in index futures contracts for the Managed Series for the year
ended December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
PURCHASES OF FUTURES
CONTRACTS
------------------------
AGGREGATE
NUMBER OF FACE VALUE
CONTRACTS OF CONTRACTS
---------- --------------
<S> <C> <C>
Contracts opened . . . . . . . . . . . . . . . . . 10 $ 3,153,870
Contracts closed . . . . . . . . . . . . . . . . . (10) (3,153,870)
--- -----------
Open at December 31, 1996 . . . . . . . . . . . . 0 $ 0
=== ===========
</TABLE>
Transactions in forward currency contracts for the Strategic Bond Opportunities
Series for the year ended December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
SALES OF CONTRACTS
--------------------
AGGREGATED FACE
VALUE OF CONTRACTS
--------------------
<S> <C>
Open at December 31, 1995 . . . . . . . . . . . . . . . $ 919,184
Contracts opened . . . . . . . . . . . . . . . . . . . . 17,086,127
Contracts closed . . . . . . . . . . . . . . . . . . . . (15,855,033)
------------
Open at December 31, 1996 . . . . . . . . . . . . . . . $ 2,150,278
============
</TABLE>
4. MANAGEMENT FEES.
TNE Advisers, Inc. acts as adviser to all of the Series (except the Capital
Growth Series, for which Capital Growth Management, L.P. ("CGM"), serves as
adviser). Separate management agreements for each Series provide for fees as set
forth below:
<TABLE>
<CAPTION>
FEES PAYABLE TO
BY TNE ADVISERS MANAGEMENT FEE RATE
FOR THE YEAR ENDED PAYABLE BY THE SERIES TO
DECEMBER 31, 1996 TNE ADVISERS, INC.
BEFORE REDUCTION DUE TO (ANNUAL % OF AVERAGE NET
SERIES EXPENSE LIMITS (A) ASSETS)
------ ----------------------- -----------------------------
<S> <C> <C>
Loomis Sayles Small
Cap Series . . . . . $240,646 1.00% all assets
Draycott International
Equity Series . . . 70,553 0.90% all assets
Alger Equity Growth
Series . . . . . . . 281,325 0.75% all assets
Loomis Sayles Avanti
Growth Series . . . 169,578 0.70% the first $200 million
0.65% the next $300 million
0.60% amounts in excess of $500
million
Venture Value Series 198,620 0.75% all assets
Westpeak Growth &
Income Series . . . 165,074 0.70% the first $200 million
0.65% the next $300 million
0.60% amounts in excess of $500
million
Westpeak Stock Index
Series . . . . . . . 102,444 0.25% all assets
Loomis Sayles Balanced
Series . . . . . . . 83,980 0.70% of all assets
Back Bay Managed
Series . . . . . . . 430,921 0.50% of all assets
Salomon Brothers
Strategic Bond
Opportunities Series 60,044 0.65% of all assets
Back Bay Advisors Bond
Income Series . . . 311,174 0.40% the first $400 million
0.35% the next $300 million
0.30% the next $300 million
0.25% amounts in excess of $1
billion
Salomon Brothers U.S.
Government Series . 35,234 0.55% all assets
Back Bay Advisors
Money Market Series 201,904 0.35% the first $500 million
0.30% the next $500 million
0.25% amounts in excess of $1
billion
</TABLE>
(a) There are two forms of expense limit, a Voluntary Expense Limitation and an
Expense Deferral Arrangement. Only one pertains to each of these Series, as
described below.
94
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1996--(CONTINUED)
The Capital Growth Series pays its adviser, CGM, a management fee at an annual
rate of 0.70% of the first $200 million of average net assets, 0.65% of the next
$300 million of such assets and 0.60% of such assets in excess of $500 million.
For advisory services rendered during the year ended December 31, 1996, CGM was
paid at an annual rate of 0.64% of the Capital Growth Series' average net
assets, totaling $6,398,659.
SUB-ADVISORY FEES. TNE Advisers, Inc. has sub-contracted day-to-day portfolio
management responsibilities to each of the following sub-advisers to manage the
Series: Loomis, Sayles & Company, L.P. for the Loomis Sayles Small Cap, Loomis
Sayles Avanti Growth and Loomis Sayles Balanced Series, Draycott Partners, Ltd.
for the Draycott International Equity Series; Fred Alger Management, Inc. for
the Alger Equity Growth Series; Davis Selected Advisers, L.P. for the Venture
Value Series; Westpeak Investment Advisors, L.P. for the Westpeak Growth &
Income and Westpeak Stock Index Series; Back Bay Advisors, L.P. for the Back Bay
Advisors Managed, Back Bay Advisors Bond Income and Back Bay Advisors Money
Market Series and Salomon Brothers Asset Management Inc for the Salomon Brothers
Strategic Bond Opportunities and Salomon Brothers U.S. Government Series. TNE
Advisers, Inc. pays each sub-adviser at the following rates for providing
sub-advisory services to the following Series:
<TABLE>
<CAPTION>
FEES ANNUAL
PAID TO PERCENTAGE
SUB-ADVISER RATES PAID SERIES AVERAGE DAILY NET
FOR YEAR ENDED TO SUB- ASSET
SERIES DECEMBER 31, 1996 ADVISER VALUE LEVELS
------ ----------------- ---------- ---------------------------
<S> <C> <C> <C>
Loomis Sayles Small
Cap Series . . . . . $265,646 0.55% of the first $25 million
0.50% of the next $75 million
0.45% of the next $100 million
0.40% of amounts in excess of $200
million
Draycott International
Equity Series . . . 186,106 0.75% of the first $10 million
0.60% of the next $40 million
0.45% of amounts in excess of $50
million
Alger Equity Growth
Series* . . . . . . 339,570 0.45% of the first $100 million
0.40% of the next $400 million
0.35% of amounts in excess of $500
million
Loomis Sayles Avanti
Growth Series . . . 284,437 0.50% of the first $25 million
0.40% of the next $75 million
0.35% of the next $100 million
0.30% of amounts in excess of $200
million
Davis Venture Value
Series . . . . . . . 297,328 0.45% of the first $100 million
0.40% of the next $400 million
0.35% of amounts in excess of $500
million
Westpeak Growth &
Income Series . . . 278,435 0.50% of the first $25 million
0.40% of the next $75 million
0.35% of the next $100 million
0.30% of amounts in excess of $200
million
Westpeak Stock Index
Series . . . . . . . 68,207 0.10% of all assets
Loomis Sayles Balanced
Series . . . . . . . 168,842 0.50% of the first $25 million
0.40% of the next $75 million
0.30% of amounts in excess of $100
million
Back Bay Advisors
Managed Series . . . 328,950 0.25% of the first $50 million
0.20% of amounts in excess of $50
million
</TABLE>
- ---------
* Amount shown does not reflect fee reduction pursuant to the agreement between
TNE Advisers, Inc. and Fred Alger Management, Inc. that is described in this
Note 4. During the period January 1, 1996 through May 1, 1996 the annual
percentage rates of the sub-advisory fees for the Alger Equity Growth Series
were: 0.45% of the Series' first $10 million of average daily net assets; 0.40%
of the next $90 million of such assets, 0.35% of the next $150 million of such
assets, 0.30% of the next $250 million of such assets and 0.25% of such assets
in excess of $500 million.
95
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1996--(CONTINUED)
<TABLE>
<CAPTION>
FEES ANNUAL
PAID TO PERCENTAGE
SUB-ADVISER RATES PAID SERIES AVERAGE DAILY NET
FOR YEAR ENDED TO SUB- ASSET
SERIES DECEMBER 31, 1996 ADVISERS VALUE LEVELS
------ ----------------- ---------- ---------------------------
<S> <C> <C> <C>
Salomon Brothers
Strategic Bond
Opportunities Series $ 70,050 0.35% of the first $50 million
0.30% of the next $150 million
0.25% of the next $300 million
0.20% of amounts in excess of $500
million
Back Bay Advisors Bond
Income Series . . . $361,174 0.25% of the first $50 million
0.20% of the next $200 million
0.15% of amounts in excess of $250
million
Salomon Brothers U.S.
Government Series . $ 24,392 0.225% of the first $200 million
0.150% of the next $300 million
0.100% of amounts in excess of $500
million
Back Bay Advisors
Money Market Series $148,728 0.15% of the first $100 million
0.10% of amounts in excess of $100
million
</TABLE>
TNE Advisers, Inc., which acts as adviser to each Series of the Fund (except the
Capital Growth Series) is a wholly-owned subsidiary of NELICO. Loomis Sayles,
Westpeak and Back Bay Advisors are each independently operated subsidiaries, and
CGM is an independently operated affiliate, of New England Investment Companies,
L.P. ("NEIC"). The general partners of each of Loomis Sayles, Westpeak and Back
Bay Advisors are special purpose corporations which are indirect wholly-owned
subsidiaries of NEIC. NEIC's sole general partner, New England Investment
Companies, Inc., is a wholly-owned subsidiary of MetLife, which also owns a
majority of the limited partnership interest in NEIC. NEIC is the owner of a
majority limited partnership interest in the Capital Growth Series' investment
adviser, CGM. Consequently, the subadvisers (Loomis Sayles, Westpeak and Back
Bay Advisors) of eight Series of the Fund are currently wholly-owned
subsidiaries of NEIC and an additional Series is advised by a majority-owned
subsidiary (CGM) of NEIC. The sub-advisers of the remaining five Series are not
affiliated with MetLife or NEIC.
VOLUNTARY EXPENSE LIMITATION AND EXPENSE DEFERRAL AGREEMENT.
Each Series (except the Capital Growth Series) is subject to one of two forms of
expense limit. The first form of expense limit is a Voluntary Expense
Limitation, which relates to the Loomis Sayles Avanti Growth Series, Westpeak
Growth & Income Series, Westpeak Stock Index Series, Back Bay Advisors Managed,
Back Bay Advisors Bond Income and Back Bay Advisors Money Market Series.
Pursuant to this arrangement, TNE Advisers, Inc. bears expenses (other than
advisory fees and any brokerage costs, interest, taxes or extraordinary
expenses) of each Series in excess of 0.15% of Series' average daily net assets.
In the case of the Loomis Sayles Small Cap Series, TNE Advisers, Inc. bears all
the expenses (other than any brokerage costs, interest, taxes or extraordinary
expenses) of the Series in excess of 1.00% of the Series' average daily net
assets. Similar Voluntary Expense Limitations with New England Mutual Life
Insurance Company ("The New England") were, in effect with respect to the
Capital Growth Series from November 1, 1994 to April 30, 1996 and with respect
to the Back Bay Advisors Money Market, Back Bay Advisors Bond Income, Back Bay
Advisors Managed and Westpeak Stock Index Series from November 1, 1994 to April
30, 1995 and with respect to the Loomis Sayles Small Cap, Loomis Sayles Avanti
Growth and Westpeak Growth & Income Series from December 1, 1994 to April 30,
1995.
The current voluntary expense arrangements limit each of the affected series to
the following levels:
<TABLE>
<CAPTION>
TOTAL EXPENSE RATIO
UNDER CURRENT VOLUNTARY
SERIES EXPENSE ARRANGEMENT
------ -------------------------
<S> <C>
Back Bay Advisors Money Market Series 0.50%
Back Bay Advisors Bond Income Series . 0.55%
Back Bay Advisors Managed Series . . . 0.64%
Westpeak Value Growth Series . . . . . 0.85%
Westpeak Stock Index Series . . . . . 0.40%
Loomis Sayles Small Cap Series . . . . 1.00%
Loomis Sayles Avanti Growth Series . . 0.85%
</TABLE>
96
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1996--(CONTINUED)
TNE Advisers, Inc. may terminate these expense agreements at any time. If these
expense arrangements were terminated, the expense ratios would be higher.
Prior to November 1, 1994, The New England had agreed to pay the charges and
expenses of preparing, printing and distributing prospectuses and reports to
shareholders, custodial and transfer agent charges and expenses, auditing,
accounting and legal fees and certain other expenses in connection with the
affairs of the Fund and the expenses of shareholders' and trustees' meetings.
The second form of expense limit is an Expense Deferral Agreement, which has
been in effect since November 1, 1994 and relates to the Draycott International
Equity Series, Alger Equity Growth Series, Venture Value Series, Loomis Sayles
Balanced Series, Salomon Brothers Strategic Bond Opportunities Series and
Salomon Brothers U.S. Government Series. Under this Agreement, which TNE
Advisers, Inc. can terminate at any time, TNE Advisers, Inc. has agreed to pay
expenses of the Series' operations (exclusive of any brokerage costs, interest,
taxes or extraordinary expenses) in excess of the annual percentages of the
Series net assets set forth below, subject to the obligation of the Series to
repay TNE Advisers, Inc. such expenses in future years, if any, when the Series'
expenses fall below that percentage; provided, however, that no Series is
obligated to repay any expenses paid by TNE Advisers, Inc. more than two years
after the end of the fiscal year in which such expenses were incurred. The
percentage applicable to each Series are as follows:
<TABLE>
<CAPTION>
% OF SERIES
AVERAGE
SERIES NET ASSETS
------ -------------
<S> <C>
Draycott International Equity Series . . . . . . . . 1.30%
Alger Equity Growth Series . . . . . . . . . . . . . 0.90
Venture Value Series . . . . . . . . . . . . . . . . 0.90
Loomis Sayles Balanced Series . . . . . . . . . . . . 0.85
Salomon Brothers Strategic Bond Opportunities Series 0.85
Salomon Brothers U.S. Government Series . . . . . . . 0.70
</TABLE>
For the period January 1, 1996 to December 31, 1996, the effective expense
ratios for each Series, after giving effect to the foregoing arrangements, and
the amounts of expenses deferred for those Series to which the Expense Deferral
Agreement applies, are:
<TABLE>
<CAPTION>
EXPENSES ASSUMED
TOTAL EXPENSE RATIO BY THE NEW ENGLAND OR
UNDER CURRENT VOLUNTARY TNE ADVISERS AS A
EXPENSE ARRANGEMENT RESULT OF THE SERIES EXPENSES DEFERRED
OR EXPENSE DEFERRAL EXCEEDING THE UNTIL EXPENSES DEFERRED UNTIL
SERIES AGREEMENT VOLUNTARY EXPENSE LIMIT DECEMBER 31, 1997 DECEMBER 31, 1998
------ ----------------------- ----------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Back Bay Advisors Money Market
Series 0.50% -- not applicable not applicable
Back Bay Advisors Bond Income
Series 0.52% -- not applicable not applicable
Back Bay Advisors Managed
Series 0.63% -- not applicable not applicable
Westpeak Growth & Income Series 0.85% $ 37,994 not applicable not applicable
Westpeak Stock Index Series 0.40% 71,003 not applicable not applicable
Loomis Sayles Small Cap Series 1.00% 145,353 not applicable not applicable
Loomis Sayles Avanti Growth
Series 0.85% 42,992 not applicable not applicable
Draycott International Equity
Series 1.30% not applicable $176,796 $102,652
Alger Equity Growth Series 0.90%* not applicable 77,254 --
Davis Venture Value Series 0.90% not applicable 108,971 41,906
Loomis Sayles Balanced Series 0.85% not applicable 96,085 52,078
Salomon Brothers Strategic Bond
Opportunities Series 0.85% not applicable 88,120 68,374
Salomon Brothers U.S.
Government Series 0.70% not applicable 84,623 72,404
</TABLE>
* Prior to January 1, 1996, the voluntary expense limit was 0.85%.
Effective May 1, 1996, Fred Alger Management, Inc. has agreed with TNE Advisers,
Inc. that the sub-advisory fee payable by TNE Advisers, Inc. to Fred Alger
Management, Inc. will be reduced by 0.05% of the first $240 million of the
excess of the Series' average daily net assets over $10 million, and by 0.10% of
the excess of the Series' average daily net assets over $250 million. This fee
reduction benefits TNE Advisers, Inc. but does not reduce the advisory fee
payable by the Series. The fee
97
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1996--(CONTINUED)
reduction agreement will expire on (a) January 1, 1998 or (b) at such time as
TNE Advisers, Inc. has recovered certain expenses (generally those expenses
borne by TNE Advisers, Inc. under the Expense Deferral Arrangement prior to
January 1, 1996 which were not recovered from the Series), whichever occurs
first.
5. The Fund does not pay any compensation to its officers or to any trustees who
are directors, officers or employees of MetLife, NELICO, Back Bay Advisors,
L.P., Capital Growth Management Limited Partnership, Loomis, Sayles & Company,
L.P., Westpeak Investment Advisors, L.P., New England Funds L.P. or their
affiliates, other than registered investment companies. Each disinterested
trustee is compensated by each Series as follows:
<TABLE>
<CAPTION>
BOND CAPITAL MONEY STOCK AVANTI GROWTH & SMALL
INCOME GROWTH MARKET INDEX MANAGED GROWTH INCOME CAP
------ ------- ------ ------ ------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Retainer . . . $2,416 $3,692 $1,580 $1,527 $2,391 $796 $795 $761
Meeting Fee . . . . . $ 133 $ 133 $ 133 $ 133 $ 133 $133 $133 $133
Committee Chairman
Annual Retainer
(Contract Review). . $ 287 $1,627 $ 159 $ 104 $ 261 $ 86 $ 85 $ 49
Committee Chairman
Annual Retainer
(Audit). . . . . . . $ 192 $1,084 $ 106 $ 69 $ 174 $ 57 $ 57 $ 33
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC
INTERNATIONAL U.S. BOND VENTURE EQUITY
BALANCED EQUITY GOVERNMENT OPPORTUNITIES VALUE GROWTH
-------- ------------- ---------- ------------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Annual Retainer . . . $746 $742 $727 $730 $773 $792
Meeting Fee . . . . . $133 $133 $133 $133 $133 $133
Committee Chairman
Annual Retainer
(Contract Review) . $ 33 $ 29 $ 73 $ 77 $ 62 $ 82
Committee Chairman
Annual Retainer
(Audit) . . . . . . $ 22 $ 19 $ 9 $ 11 $ 41 $ 55
</TABLE>
A deferred compensation plan is available to trustees on a voluntary basis. Each
participating trustee will receive deferred compensation in an amount equal to
the value that such compensation would have had if it had been invested in the
relevant Series on the normal payment date.
6. SUBSEQUENT EVENT
On January 22, 1997, the Board of Trustees of New England Zenith Fund (the
"Fund") approved a new Subadvisory Agreement (the "New Agreement") relating to
the Fund's Draycott International Equity Series (the "Series") between TNE
Advisers, Inc. and Morgan Stanley Asset Management Inc. ("MSAM"). The New
Agreement is expected to become effective on May 1, 1997, subject to shareholder
approval, if required. (Shareholder approval of the New Agreement will be
required unless the Fund obtains an order of exemption from the Securities and
Exchange Commission relieving it of that requirement.) Under the New Agreement,
MSAM would become the subadviser of the Series, succeeding Draycott Partners,
Ltd., and would be responsible for the day-to-day management of the Series'
investment operations under the oversight of TNE Advisers, Inc. The name of the
Series will be changed to the "Morgan Stanley International Magnum Equity
Series" at the time the New Agreement takes effect. In the event that the Fund's
shareholders do not approve the Agreement at the special shareholder meeting,
then the Trust's Board of Trustees will convene a special meeting of trustees to
consider alternative arrangements for the management of the Series' investment
portfolio.
7. SHAREHOLDER MEETING (UNAUDITED)
At a Special Meeting of the shareholders of the Davis Venture Value Series held
on December 16, 1996 such shareholders voted for the following proposals:
<TABLE>
<CAPTION>
VOTED VOTED ABSTAINED
FOR AGAINST VOTES
------------ --------- ------------
<S> <C> <C> <C>
1. To approve a new Sub-Advisory
Agreement relating to the Series by and
among TNE Advisers, Inc., Davis
Selected Advisers, L.P. and Davis
Selected Advisors--NY, Inc. 1,590,110.29 53,103.34 101,225.26
</TABLE>
98
<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 Growth & Income Series, Loomis Sayles Small Cap Series,
Loomis Sayles Balanced Series, Draycott International Equity Series, Salomon
Brothers U.S. Government Series, Salomon Brothers Strategic Bond Opportunities
Series, Davis Venture Value Series, and Alger Equity Growth Series--the
"Series"), including the schedules of portfolio investments, as of December 31,
1996, and the related statements of operations, changes in net assets and
financial highlights for the periods indicated herein. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Series constituting New England Zenith Fund as of December 31,
1996, the results of their operations, the changes in their net assets, and the
financial highlights for the periods indicated herein, in conformity with
generally accepted accounting principles.
Boston, Massachetts COOPERS & LYBRAND L.L.P.
February 14, 1997
99
<PAGE>
FOOTNOTES TO PORTFOLIO MANAGER COMMENTARY
- -----------------------------------
(1) COL (Cost of Living) is based on the Consumer Price Index, a widely
recognized measure of the cost of goods and services in the United States,
calculated by the U.S. Bureau of Labor Statistics.
(2) EAFE-Morgan Stanley Capital International Europe, AustralAsia, Far East
Index is an arithmetical average (weighted by market value) of the
performance (in U.S. dollars) of 1,036 companies representing the stock
markets of Europe, Australia, New Zealand and the Far East. The Index
performance has not been adjusted for ongoing management, distribution and
operating expenses and sales charges.
(3) Lehman Brothers Aggregate Bond Index includes most obligations of the U.S.
Treasury, agencies and quasi-federal corporations, most publicly issued
investment grade corporate bonds, and most bonds backed by mortgage pools
of GNMA, FNMA and FHLMC.
(4) Lehman Brothers Government/Corporate Index is an unmanaged index of the
market value of approximately 5,300 bonds with a face value currently in
excess of $1.3 trillion. To be included in the Lehman Brothers Government/
Corporate Bond Index, an issue must have amounts outstanding in excess of
$25 million, have at least one year to maturity and be rated "Baa" or
higher ("investment grade") by a nationally recognized rating agency. The
index has not been adjusted for ongoing management, distribution and
operating expenses and applicable sales charges.
(5) Lehman Brothers Intermediate Government Bond Index includes most
obligations of the U.S. Treasury, agencies and quasi-federal corporations
having maturities of 1 to 10 years. The Index performance has not been
adjusted for ongoing management, distribution and operating expenses and
applicable sales charges.
(6) Lehman Brothers Intermediate Government/Corporate Bond Index is an
unmanaged index of investment grade bonds issued by the U.S. government and
U.S. corporations having maturities between one and ten years. The Index
performance has not been adjusted for ongoing management, distribution and
operating expenses and applicable sales charges
(7) Lipper Variable A-Rated Corporate Bond Fund Average is an average of the
total return performance (calculated on the basis of net asset value) of
funds with similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
(8) Lipper Variable Balanced Fund Average is an average of the total return
performance (calculated on the basis of net asset level) of funds with
similar investment objectives as calculated by Lipper Analytical Services,
an independent mutual fund ranking service.
(9) Lipper Variable Flexible Portfolio Fund Average is an average of the total
return performance (calculated on the basis of net asset value) of funds
with similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
(10) Lipper Variable General Bond Fund Average is an average of the total return
performance (calculated on the basis of net asset value) of funds with
similar investment objectives as calculated by Lipper Analytical Services,
an independent mutual fund ranking service.
(11) Lipper Variable Growth Fund Average is an average of the total return
performance (calculated on the basis of net asset value) of funds with
similar investment objectives as calculated by Lipper Analytical Services,
an independent mutual fund ranking service.
(12) Lipper Variable Growth and Income Fund Average is an average of the total
return performance (calculated on the basis of net asset value) of funds
with similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
(13) Lipper Variable International Funds Average is an average of the total
return performance (calculated on the basis of net asset value) of funds
with similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
(14) Lipper Variable Intermediate Investment Grade Debt Average is an average of
the total return performance (calculated on the basis of net asset value)
of funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
100
<PAGE>
(15) Lipper Variable Small Company Fund Average is an average of the total
return performance (calculated on the basis of net asset value) of funds with
similar investment objectives as calculated by Lipper Analytical Services, an
independent mutual fund ranking service.
(16) Lipper Variable S&P 500 Index Fund Average is an average of the total
return performance (calculated on the basis of net asset value) of funds with
similar investment objectives as calculated by Lipper Analytical Services, an
independent mutual fund ranking service.
(17) Lipper Variable U.S. Mortgage and GNMA Fund Average is an average of the
total return performance (calculated on the basis of net asset value) of
funds with similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
(18) Russell 2000 Index consists of 2000 small market capitalization stocks
having an average market cap of $160 million.
(19) Standard & Poor's 500 Index (S&P 500) is an unmanaged index representing
the performance of 500 major companies, most of which are listed on the New
York Stock Exchange. The S&P 500 performance has not been adjusted for
ongoing management, distribution and operating expenses and sales charges
applicable to mutual fund investments.
(20) S&P/BARRA Growth Index is constructed by dividing stocks in the S&P 500
according to price-to-book ratios. The Growth Index contains stocks with
higher price-to-book ratios than the average ratio.
(21) S&P/BARRA Value Index is constructed by dividing stocks in the S&P 500
according to price-to-book ratios. The Value Index contains stocks with lower
price-to-book ratios than the average ratio.
101
<PAGE>
Bulk Rate
[N/E THE NEW ENGLAND/(R)/ INSURANCE AND INVESTMENT LOGO] U.S. Postage
PAID
NEW ENGLAND LIFE INSURANCE COMPANY Hudson, MA
501 BOYLSTON STREET Permit No. 19
BOSTON, MASSACHUSETTS 02116
---------------
EQUAL OPPORTUNITY EMPLOYER M/F
/(C) /1997 NEW ENGLAND LIFE INSURANCE COMPANY
-----------------------------------------------------------------------------
This booklet has been prepared for variable contract owners of
New England Life Insurance Company and Zenith Accumulator
Contract owners of MetLife Insurance Co.
VA 1
