<PAGE>
[LOGO OF NEW ENGLAND FINANCIAL APPEARS HERE]
-------------------------------------------------------------------------
ZENITH FUND
VARIABLE PRODUCTS
SEMIANNUAL REPORTS
JUNE 30, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Loomis Sayles Small Cap Series.............................................. 1
Morgan Stanley International Magnum Equity Series........................... 8
Alger Equity Growth Series.................................................. 16
Capital Growth Series....................................................... 22
Goldman Sachs Midcap Value Series........................................... 27
Davis Venture Value Series.................................................. 33
Westpeak Growth and Income Series........................................... 40
Westpeak Stock Index Series................................................. 47
Loomis Sayles Balanced Series............................................... 57
Back Bay Advisors Managed Series............................................ 64
Salomon Brothers Strategic Bond Opportunities Series........................ 72
Back Bay Advisors Bond Income Series........................................ 82
Salomon Brothers U.S. Government Series..................................... 88
Back Bay Advisors Money Market Series....................................... 92
Notes to Financial Statements............................................... 98
Footnotes to Portfolio Manager Commentary................................... 108
Fidelity VIP Overseas Portfolio.............................................
Fidelity VIP Equity-Income Portfolio........................................
</TABLE>
IMPORTANT:
Some funds appearing in this report may not be available under your variable
annuity product.
<PAGE>
August, 1998
TO OUR POLICYHOLDERS/CONTRACT OWNERS:
We are pleased to provide you with the 1998 Semiannual Report for the Zenith
variable life insurance and variable annuity products.* This report includes
performance histories, present investments, and financial reports as of June
30, 1998, as well as the outlook and strategy of each fund. It is intended to
help you make an informed decision regarding the investment of the contract
value of your variable product.
New England Financial and its affiliates offer many variable life and variable
annuity products to help you meet your financial objectives. We are committed
to meeting your expectations by providing quality products with strong
performance potential and excellent personal service.
Please feel free to contact your Registered Representative with any questions
you may have regarding your financial objectives. Thank you for choosing a
Zenith Variable product.
Sincerely,
/s/ David Allen /s/ Bruce Long
David Allen Bruce Long
Senior Vice President President
New England Life Insurance Company New England Annuities
(A business unit of New England Life
Insurance Company)
* Variable products are offered through New England Securities Corporation.
New England Financial is the service mark for New England Life Insurance
Company, Boston, MA and related companies.
[LOGO OF RECYCLABLE PAPER APPEARS HERE]
<PAGE>
LOOMIS SAYLES SMALL CAP SERIES
PORTFOLIO MANAGERS: JEFFREY PETHERICK AND MARY CHAMPAGNE
LOOMIS, SAYLES & COMPANY, L.P.
[PHOTOS OF JEFFREY PETHERICK AND MARY CHANPAGNE APPEAR HERE]
Q. HOW DID THE SERIES PERFORM OVER THE FIRST HALF OF THE YEAR?
A. For the six months ended June 30, 1998 the Series returned 2.8% compared to
the Lipper Variable Products Small Company Fund Average return of 7.1% and the
Russell 2000 return of 4.9% over the same period.
Q. HOW DID YOU MANAGE THE SERIES DURING THE FIRST HALF OF THE YEAR?
A. Because stock prices rose significantly in 1997, we were somewhat cautious
about the market's upside potential. As we entered 1998, we took a more defen-
sive approach to managing the Series. We invested a significant portion of the
Series' assets in real estate investment trusts (REITs), increased investment
in utilities and emphasized stocks with more consistent earnings growth. While
the Series performed reasonably well when the market declined, it did not
fully participate in the rallies. The REITs in the portfolio were particularly
disappointing. Despite their attractive valuations and high dividend yields,
they did not perform well in market downturns.
During the period we were slightly overweighted compared to the Russell 2000
Index in health care stocks, which performed poorly. However, we believe as
the market moves from favoring economically sensitive (or cyclical) companies,
the health care sector should benefit. Energy stocks were also poor performers
during the period, and while we were not heavily weighted in this group, the
stocks we owned lagged the overall market.
On the positive side, the Series' consumer stocks--retailers and restaurants--
helped performance. Other successful companies were in the technology area,
where we emphasized telecommunications and software companies, which were
strong performers.
Q. WHAT IS YOUR CURRENT OUTLOOK FOR THE MONTHS AHEAD?
A. Looking ahead, we expect the market to consolidate in the near future. We
believe large cap stocks will continue to outperform small cap stocks for the
remainder of the year, as investors pay high prices for the liquidity and rel-
ative stability large company stocks offer.
While we are experiencing one of the best post-war economic expansions, with
low inflation and interest rates, this idyllic environment is reflected mostly
in large company stock prices. Small company stocks are trading at historic
lows relative to large companies. With earnings growth of small companies be-
ginning to exceed that of large multinational firms, we are beginning to see
the right conditions for small stocks to advance. However, we believe that un-
til the market corrects its excesses on the large cap side, small cap stocks
will not perform well. As we look toward the next big market rise, we think
small company stocks will take the lead. The market in the last four years is
best characterized as "bigger was better." During the next economic cycle,
however, we think "small will be beautiful."
1
<PAGE>
[LINE GRAPH APPEARS HERE]
A $10,000 Investment Compared to the Russell 2000/23/
Average Annual Total Return
Small Cap Lipper Variable Products Small
Series Company Fund Average /15/
6 months * 2.8% 7.1%
1 year 14.8% 18.4%
3 year 24.8% 20.2%
Since Inception 19.4% n/a
* not annualized
Small Cap Series Russell 2000
5/1/94 10,000 10,000
Dec-94 9,676 10,027
Dec-95 12,470 12,879
Dec-96 16,295 15,004
Dec-97 20,344 18,358
6/30/98 20,903 19,263
[X] FUND FACTS
GOAL: Long-term growth from investment in common stocks or their equivalents.
START DATE: May 1, 1994
SIZE: $236 million as of June 30, 1998
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 Fund and the Maxim
Series--Small Cap Fund. Mr. Petherick joined Loomis Sayles in 1990. Ms.
Champagne joined Loomis Sayles in 1993.
Performance numbers are net of all Series expenses but do not include any in-
surance, sales or administrative charges of variable annuity or life insurance
contracts; if these charges were included, the returns shown would be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
2
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
COMMON STOCKS--91.1% OF TOTAL NET ASSETS
SHARES VALUE (A)
AEROSPACE--2.1%
35,500 Alliant Techsystems, Inc. ................... $ 2,245,375
68,300 Gencorp, Inc. ............................... 1,724,575
37,900 Nichols Research Corp. ...................... 1,035,144
-----------
5,005,094
-----------
AUTOMOBILE & RELATED--0.9%
29,400 Dura Automotive Systems, Inc. ............... 944,475
66,300 Intermet Corp. .............................. 1,201,688
-----------
2,146,163
-----------
BANKS--SAVINGS & LOAN--5.8%
48,800 Bank United Corp. ........................... 2,336,300
33,000 City National Corp. ......................... 1,218,937
27,900 CNB Bancshares, Inc. ........................ 1,339,200
50,212 Commercial Federal Corp. .................... 1,587,955
59,120 Downey Financial Corp. ...................... 1,932,485
78,300 Imperial Bancorp. ........................... 2,349,000
55,600 Local Financial Corp. ....................... 722,800
31,100 UST Corp. ................................... 824,150
45,600 Webster Financial Corp. ..................... 1,516,200
-----------
13,827,027
-----------
BEVERAGES--0.9%
91,400 Whitman Corp. ............................... 2,096,488
-----------
BUILDING & RELATED--3.5%
98,200 Champion Enterprises, Inc. .................. 2,884,625
61,900 Furniture Brands International, Inc. ........ 1,737,069
51,200 Giant Cement Holdings, Inc.(c)................. 1,465,600
116,600 Shaw Industries, Inc. ....................... 2,055,075
-----------
8,142,369
-----------
BUSINESS SERVICES--2.8%
53,200 Acnielson Corp. ............................. 1,343,300
35,800 Cort Business Services Corp.(c).............. 1,127,700
70,500 Information Resources........................ 1,304,250
113,100 Viad Corp. .................................. 3,138,525
-----------
6,913,775
-----------
CAPTIVE FINANCE--0.8%
74,500 Franchise Mortgage Acceptance Corp. ......... 1,941,656
-----------
COMMUNICATION EQUIPMENT--0.7%
47,300 California Microwave......................... 827,750
25,800 Xylan Corp. ................................. 769,163
-----------
1,596,913
-----------
CHEMICALS--MAJOR--0.9%
75,600 Solutia, Inc. ............................... 2,168,775
-----------
CHEMICALS--SPECIALTY--1.9%
64,400 Cuno, Inc. .................................. 1,392,650
36,800 General Chemical Group, Inc. ................ 1,021,200
CHEMICALS--SPECIALTY--(CONTINUED)
38,700 Hanna M.A. Co. .............................. $ 708,694
27,300 Mississippi Chemical Corp.................... 448,744
25,600 Scotts Co. .................................. 953,600
-----------
4,524,888
-----------
COMPUTER HARDWARE--2.4%
81,000 Digi International, Inc. .................... 1,640,250
35,600 Fore Systems, Inc. .......................... 943,400
84,800 Komag, Inc. ................................. 453,150
34,800 Micron Electronics, Inc. .................... 419,775
51,400 Telxon Corp. ................................ 1,664,075
45,900 Xircon, Inc. ................................ 714,319
-----------
5,834,969
-----------
COMPUTER SOFTWARE & SERVICES--3.3%
43,000 American Management Systems, Inc. ........... 1,287,313
15,300 Choicepoint, Inc. ........................... 774,563
54,400 DSP Group, Inc. ............................. 1,074,400
98,300 Inprise Corp. ............................... 724,963
80,800 Platinum Technology, Inc. ................... 2,307,850
106,600 Rational Software Corp. ..................... 1,625,650
-----------
7,794,739
-----------
CONSUMER--JEWELRY/NOVELTIES/GIFTS--0.8%
50,300 Jostens, Inc. ............................... 1,200,913
22,700 Zale Corp. .................................. 722,144
-----------
1,923,057
-----------
ELECTRIC COMPANIES--3.0%
45,800 BEC Energy................................... 1,900,700
20,800 Commonwealth Energy System................... 785,200
72,000 Rochester Gas & Electric..................... 2,299,500
66,800 WPS Resources Corp. ......................... 2,191,875
-----------
7,177,275
-----------
ELECTRICAL EQUIPMENT--1.3%
42,200 Alpha Industries, Inc. ...................... 630,363
120,700 Sensormatic Electronics Corp. ............... 1,689,800
42,120 Vishay Intertechnology, Inc. ................ 755,528
-----------
3,075,691
-----------
ELECTRONICS--1.8%
42,200 AVX Corp..................................... 677,838
39,800 Berg Electronics Corp. ...................... 778,588
71,100 Cirrus Logic, Inc. .......................... 790,988
15,400 EG & G, Inc. ................................ 462,000
39,200 Exar Corp. .................................. 823,200
94,000 Integrated Device Technology................. 672,688
-----------
4,205,302
-----------
See accompanying notes to financial statements.
3
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
SHARES VALUE (A)
FINANCIAL--CONSUMER/DIVERSIFIED--9.9%
American General Hospitality
103,700 Corp. ........................... $ 2,203,625
66,700 Amresco Inc. ..................... 1,942,638
73,400 Anthracite Capital, Inc. ......... 1,018,425
77,300 Brandywine Realty Trust........... 1,729,588
101,400 Capital Automotive REIT........... 1,438,613
75,600 Capstone Capital Corp.(c)......... 1,738,800
45,150 Financial Federal Corp. .......... 1,210,584
173,700 Imperial Credit Commercial
Mortgage Investment Corp. ....... 2,268,956
101,800 Koger Equity, Inc.(c)............. 2,055,088
59,000 Liberty Property.................. 1,508,188
55,300 Mack CA Realty Corp. ............. 1,900,938
59,000 Sun Communities, Inc. ............ 1,954,375
120,200 Unicapital Corp. ................. 2,298,825
-----------
23,268,643
-----------
FOODS--2.6%
31,600 Dean Foods........................ 1,736,025
20,200 Earthgrains Co. .................. 1,128,675
61,200 International Multifoods Corp. ... 1,683,000
22,100 Keebler Foods Co. ................ 607,750
43,700 Vlasic Foods International........ 879,463
-----------
6,034,913
-----------
FREIGHT TRANSPORTATION--0.5%
34,100 US Freightways Corp. ............. 1,119,972
-----------
HEALTH CARE--DRUGS--1.0%
39,600 Biovail Corp. International....... 1,267,200
Weider Nutrition International,
69,200 Inc. ............................ 1,176,400
-----------
2,443,600
-----------
HEALTH CARE--MEDICAL PROPERTY/SUPPLIES--4.2%
44,700 Allegiance Corp. ................. 2,290,875
91,300 Conmed Corp. ..................... 2,099,900
50,000 DVI, Inc. ........................ 1,275,000
77,300 Dentsply International, Inc. ..... 1,932,500
59,200 Invacare Corp. ................... 1,517,000
25,600 Sola International, Inc. ......... 836,800
-----------
9,952,075
-----------
HEALTH CARE--SERVICES--4.7%
41,300 Alternative Resources Corp. ...... 1,115,100
46,800 Genesis Health Ventures, Inc. .... 1,170,000
38,600 Healthcare & Retirement Corp. .... 1,522,288
68,200 Healthplan Services Corp.(c)...... 1,193,500
67,200 Pharmerica, Inc. ................. 810,600
126,500 Phycor, Inc. ..................... 2,095,156
72,050 Sierra Health Services, Inc. ..... 1,814,759
60,343 Vitalink Pharmacy Services, Inc. . 1,331,317
-----------
11,052,720
-----------
SHARES VALUE (A)
HOUSEHOLD PRODUCTS--0.8%
68,700 Dial Corp. New.................... $ 1,781,906
-----------
INSURANCE--6.5%
41,300 Capital Re Corp. ................. 2,958,113
61,100 Everest Reinsurance Holdings...... 2,348,531
16,300 Horace Mann Educators............. 562,350
71,200 Protective Life Corp. ............ 2,612,150
55,600 Reinsurance Group of America, Inc. 3,287,350
125,100 Reliance Group of America......... 2,189,250
36,000 Trigon Healthcare, Inc. .......... 1,302,750
-----------
15,260,494
-----------
LEISURE TIME/PRODUCTS--0.6%
90,200 Midway Games, Inc. ............... 1,409,375
-----------
MANUFACTURING--DIVERSIFIED--3.4%
72,500 Mascotech, Inc. .................. 1,740,000
54,500 Pentair, Inc...................... 2,316,250
81,800 Premark International, Inc. ...... 2,638,050
25,600 Smith A O Corp. .................. 1,323,200
-----------
8,017,500
-----------
MANUFACTURING--SPECIAL--3.0%
54,700 Cognex Corp. ..................... 1,011,950
63,400 Federal Signal Corp. ............. 1,541,413
63,800 Hussmann International, Inc. ..... 1,184,288
24,600 Millipore Corp. .................. 670,350
93,800 Regal Beloit Corp. ............... 2,673,300
-----------
7,081,301
-----------
METALS & MINING--1.9%
89,100 Agnico Eagle Mines, Ltd. ......... 490,050
41,300 Chart Industries, Inc. ........... 986,038
62,300 Imco Recycling, Inc. ............. 1,152,550
43,300 Lone Star Technologies, Inc. ..... 660,325
74,100 Worthington Industries, Inc. ..... 1,116,131
-----------
4,405,094
-----------
NATURAL GAS PIPELINES--1.3%
58,400 Eastern Enterprises............... 2,503,900
28,800 Public Service Co. N.C., Inc. .... 626,400
-----------
3,130,300
-----------
OFFICE EQUIPMENT--2.4%
72,000 Bell & Howell Co. ................ 1,858,500
37,300 Hon Industries.................... 1,268,200
70,900 National Computer Systems, Inc. .. 1,701,600
32,700 Wallace Computer Services, Inc. .. 776,625
-----------
5,604,925
-----------
OIL & GAS--DRILLING EQUIPMENT--2.0%
19,700 Atwood Oceanics, Inc. ............ 784,306
77,200 IRI International Corp. .......... 829,900
See accompanying notes to financial statements.
4
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
SHARES VALUE (A)
OIL & GAS--DRILLING EQUIPMENT--(CONTINUED)
45,900 Key Energy Corp. ...................... $ 602,438
29,800 National Oilwell, Inc. ................ 793,650
54,900 Offshore Logistics, Inc. .............. 974,475
13,400 Veritas DGC, Inc. ..................... 669,163
-----------
4,653,932
-----------
OIL & GAS--EXPLORATION PRODUCTS--2.1%
73,900 Forcenergy, Inc. ...................... 1,316,344
65,700 Lomak Petroleum, Inc.(c)............... 687,831
54,600 Plains Resources, Inc. ................ 975,975
98,500 Vintage Petroleum, Inc.(c)............. 1,859,188
-----------
4,839,338
-----------
PAPER & FOREST PRODUCTS--0.5%
29,900 Chesapeake Corp. ...................... 1,164,231
-----------
RESTAURANTS--0.4%
31,200 Cracker Barrel Old Country Store....... 990,600
-----------
RETAIL--FOOD CHAINS--0.8%
43,300 Hannaford Bros. Co. ................... 1,905,200
-----------
RETAIL--GENERAL MERCHANDISE--1.2%
37,900 BJ's Wholesale Club, Inc. ............. 1,539,688
43,100 Saks Holdings, Inc. ................... 1,190,638
-----------
2,730,326
-----------
RETAIL--SPECIALTY--4.3%
83,300 Burlington Coat Factory Warehouse...... 1,874,250
70,400 Claire's Stores, Inc. ................. 1,443,200
31,700 Family Dollar Stores, Inc. ............ 586,450
114,300 Heilig Meyers Co. ..................... 1,407,319
102,100 Office Max, Inc. ...................... 1,684,650
63,500 Petco Animal Supplies.................. 1,266,031
50,100 United Auto Group, Inc. ............... 1,095,922
22,000 Wet Seal, Inc. ........................ 704,000
-----------
10,061,822
-----------
SERVICES/FACILITY ENVIRONMENT--0.4%
31,900 Southern California Water Co. ......... 865,288
-----------
SPECIALTY PRINTING--1.5%
72,600 Banta Corp. ........................... 2,241,525
49,500 Cadmus Communications Corp. ........... 1,200,375
-----------
3,441,900
-----------
SHARES VALUE (A)
TELEPHONE--0.8%
70,600 Alliant Communications, Inc. .......... $ 1,937,088
-----------
TEXTILE & APPAREL--0.9%
42,400 Burlington Industries, Inc. ........... 596,250
11,900 Oshkosh B Gosh, Inc. .................. 529,550
67,000 Stride Rite Corp. ..................... 1,009,188
1,400 Timberland Co. ........................ 100,713
-----------
2,235,701
-----------
WASTE MANAGEMENT--0.5%
68,950 World Fuel Services Corp. ............. 1,193,697
-----------
Total Common Stocks
(Identified Cost $200,347,419)........ 214,956,122
-----------
SHORT-TERM INVESTMENTS--8.9%
FACE
AMOUNT VALUE (A)
$11,407,856 Associates Corp. of North America,
5.950%, 7/01/98................... $ 11,407,856
9,700,000 Chevron Oil Finance Co.
5.350%, 7/01/98................... 9,700,000
------------
Short-Term Investments
(Identified Cost $21,107,856)..... 21,107,856
------------
Total Investments--100.0%
(Identified Cost $221,455,275)(b). 236,063,978
Other assets less liabilities...... (85,719)
------------
TOTAL NET ASSETS--100%............. $235,978,259
============
(a) See Note 1A.
(b) Federal Tax Information:
At June 30,1998 the net unrealized appreciation on investments based on cost
of $221,455,275 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost................................ $ 27,289,608
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value.............................. (12,680,905)
------------
Net unrealized appreciation.................. $ 14,608,703
============
(c) Non-income producing security.
See accompanying notes to financial statements.
5
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1998 (UNAUDITED)
ASSETS
Investments at value................................. $236,063,978
Receivable for:
Fund shares sold..................................... 711,803
Securities sold...................................... 1,192,669
Dividends and interest............................... 347,509
------------
238,315,959
LIABILITIES
Payable for:
Securities purchased................................. $1,615,277
Fund shares redeemed................................. 491,479
Accrued expenses:
Management fees...................................... 185,088
Deferred trustees' fees.............................. 3,783
Other expenses....................................... 42,073
----------
2,337,700
------------
$235,978,259
============
NET ASSETS
Net Assets consist of:
Capital paid in...................................... $212,852,710
Undistributed net investment income.................. 933,290
Accumulated net realized gains....................... 7,583,556
Unrealized appreciation on investments............... 14,608,703
------------
NET ASSETS............................................ $235,978,259
============
Computation of offering price:
Net asset value and redemption price per share
($235,978,259 divided by 1,445,185 shares of
beneficial interest)................................. $ 163.29
============
Identified cost of investments........................ $221,455,275
============
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1998 (Unaudited)
INVESTMENT INCOME
Dividends........................................... $1,311,052(a)
Interest............................................ 697,818
----------
2,008,870
EXPENSES
Management fees..................................... $1,111,006
Trustees' fees and expenses......................... 10,386
Custodian........................................... 46,355
Audit and tax services.............................. 6,500
Legal............................................... 4,541
Printing............................................ 42,459
Insurance........................................... 4,073
Miscellaneous....................................... 2,264
----------
Total expenses..................................... 1,227,584
Less expenses assumed by the investment adviser.... (116,577) 1,111,007
---------- ----------
NET INVESTMENT INCOME................................ 897,863
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain on:
Investments--net.................................... 5,687,510
Unrealized depreciation on:
Investments--net.................................... (1,579,037)
----------
Net gain on investment transactions.................. 4,108,473
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS........... $5,006,336
==========
(a) Net of foreign taxes of: $195.
See accompanying notes to financial statements.
6
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1997 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................. $ 1,362,282 $ 897,863
Net realized gain on investments.................. 22,598,381 5,687,510
Unrealized appreciation (depreciation) on
investments...................................... 5,981,132 (1,579,037)
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS............ 29,941,795 5,006,336
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................. (1,336,197) 0
Net realized gain on investments.................. (21,404,296) 0
------------ ------------
(22,740,493) 0
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares...................... 117,472,557 59,004,550
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income.......... 1,336,197 0
Distributions from net realized gain.............. 21,404,296 0
------------ ------------
140,213,050 59,004,550
Cost of shares redeemed........................... (36,502,923) (28,138,081)
------------ ------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS..................................... 103,710,127 30,866,469
------------ ------------
TOTAL INCREASE IN NET ASSETS...................... 110,911,429 35,872,805
NET ASSETS
Beginning of the period........................... 89,194,025 200,105,454
------------ ------------
End of the period................................. $200,105,454 $235,978,259
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
End of the period................................. $ 35,427 $ 933,290
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 721,830 356,601
Issued in connection with the reinvestment of:
Distributions from net investment income.......... 8,598 0
Distributions from net realized gain.............. 137,451 0
------------ ------------
867,879 356,601
Redeemed.......................................... (226,920) (170,546)
------------ ------------
Net change........................................ 640,959 186,055
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
MAY 2, 1994(A)
THROUGH YEAR YEAR YEAR SIX MONTHS ENDED
DECEMBER 31, ENDED ENDED ENDED JUNE 30,
1994 1995 1996 1997 1998
-------------- ------- ------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of period.... $100.00 $ 96.61 $118.80 $ 144.29 $ 158.92
------- ------- ------- -------- --------
Income From Investment
Operations
Net Investment Income.. 0.14 0.85 1.05 1.22 0.62
Net Realized and
Unrealized Gain (Loss)
on Investments........ (3.38) 26.93 35.03 34.11 3.75
------- ------- ------- -------- --------
Total From Investment
Operations............ (3.24) 27.78 36.08 35.33 4.37
------- ------- ------- -------- --------
Less Distributions
Distributions From Net
Investment Income..... (0.15) (0.78) (1.03) (1.21) 0.00
Distributions From Net
Realized Capital
Gains................. 0.00 (4.81) (9.56) (19.49) 0.00
------- ------- ------- -------- --------
Total Distributions.... (0.15) (5.59) (10.59) (20.70) 0.00
------- ------- ------- -------- --------
Net Asset Value, End of
period................. $ 96.61 $118.80 $144.29 $ 158.92 $ 163.29
======= ======= ======= ======== ========
TOTAL RETURN (%)........ (3.23)(b) 28.88 30.67 24.85 2.75(b)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 1.00 (c) 1.00 1.00 1.00 1.00(c)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 0.32 (c) 1.26 1.15 0.97 0.81(c)
Portfolio Turnover Rate
(%).................... 80 (c) 98 62 87 98(c)
Net Assets, End of
period (000)........... $ 3,105 $27,741 $89,194 $200,105 $235,978
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 (c) 1.91 1.29 1.14 1.10(c)
</TABLE>
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
See accompanying notes to financial statements.
7
<PAGE>
MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES
PORTFOLIO MANAGER: FRANCINE BOVICH
MORGAN STANLEY ASSET MANAGEMENT INC.
[PHOTO OF FRANCINE BOVICH APPEARS HERE]
Q. HOW DID THE SERIES PERFORM OVER THE FIRST HALF OF THE YEAR?
A. The Morgan Stanley International Magnum Equity Series returned 17.96%,
outperforming the Lipper Variable Products International Fund Average, which
returned 16.3%, and the MSCI EAFE Index/18/, which returned 15.93%, over the
first six months of the year. Our regional allocation contributed to perfor-
mance as we have continued to reduce exposure to Asia and Japan and increase
European holdings. However, we did miss a short-lived rally in Japan and Asia
at the beginning of the year. The performance of our stock selection in Europe
was mixed, as we were underweighted in the bank and insurance sectors, which
were among the stronger performers, but were rewarded by strong performance
among our cyclical stocks in the second quarter. Our stock selection continues
to be strong in Japan, where we are still avoiding banks and domestic-oriented
companies in favor of exporters. Country-specific factors dominated the Asian
markets, thereby limiting the impact of stock selection. Currency hedging,
where we have hedged exposure to the yen and the deutschemark, both of which
depreciated versus the dollar, added to performance.
Among top performers for the six months were Dyckerhoff, a German cement com-
pany, Metro AG, a German retailer, and Metra Oy, a Finnish conglomerate that
makes diesel engines and bathroom ceramics. Volkswagen was also a big contrib-
utor to performance as it represents one of the portfolio's largest positions.
Q. HOW DID YOU MANAGE THE SERIES DURING THE FIRST HALF OF THE YEAR?
A. The first half of 1998 was terrific for the European markets, as the MSCI
Europe Index/19/ rose 26.5% during the first six months of the year. The
markets continue to surge as investor optimism surrounding the European Mone-
tary Union (EMU), an improving European economic backdrop and the turbulence
in Asia and Japan have made the European markets the most attractive in the
world. We had increased our European holdings during the first quarter of the
year, and now have about three-quarters of the portfolio invested there. Our
holdings in Europe are dominated by cyclical stocks, which performed well
given the improvement in economic activity. We also held our underweights in
Japan and in Asia, which benefited the portfolio as the MSCI Japan Index/20/
and the MCSI Pacific Free ex Japan Index/21/ fell 4.5% and 22.6%, respec-
tively, over the first six months of the year. The Japanese economy remains in
the doldrums, and the government lacks the political will to implement much
needed reforms to the banking sector and to reduce income taxes. We are focus-
ing our portfolio on exporters, which are less sensitive to the domestic econ-
omy and that will benefit from the devaluation of the yen. In Asia, gains dur-
ing the first quarter were more than offset by losses during the second quar-
ter as the economies there continued to falter. The portfolio holds less than
2% of total assets in Asian markets outside of Japan, and so is largely pro-
tected from volatility in those countries.
Q. WHAT IS YOUR CURRENT OUTLOOK FOR THE MONTHS AHEAD?
A. The outlook for the European markets remains positive, although valuations
are high relative to historical levels. Nonetheless, the markets' current val-
uations have come on the back of some fundamental changes which justify these
higher valuations. Earnings expectations have bottomed and now are rising, and
increased restructurings, share buy-backs, mergers and acquisitions, and lower
interest rates are all positive for equities. We expect that economic activity
in Europe will continue to strengthen, with France, the Netherlands, Italy and
Spain best positioned to benefit. European markets are being helped by in-
creasing fund flows into the markets as Europeans discover the joys of equity
investing. Additionally, falling interest rates ahead of the European Monetary
Union convergence, declining income tax rates and increasing consumer spending
are also expected to provide support for the European markets. With commodity
and import prices low as a result of the turmoil in Asia, inflation risks re-
main at bay. As a result of all of these factors, we expect that Europe will
outperform relative to world markets in the coming months and expect to add to
our European holdings.
We will maintain our underweight positions in Japan and Asia pending signs of
improvement in that region. Specifically, we will carefully monitor political
developments in Japan, as the choice of a new prime minister may signal the
future policies that will be implemented. We will continue to look for signs
that the bad debt crisis is being addressed, and would view any permanent tax
cut or other stimulative policy as a positive move. Without stability and
growth in Japan, we believe opportunities for regional growth throughout Asia
will be limited.
8
<PAGE>
A $10,000 Investment Compared to the EAFE Index/18/
Average Annual Total Return
International Magnum Lipper Variable Products
Equity Series International Fund Average/12/
6 months* 18.0% 16.3%
1 year 8.0% 9.4%
3 year 9.4% 15.4%
Since Inception 8.6% n/a
*not annualized
[LINE GRAPH APPEARS HERE]
International Equity EAFE
10/31/94 10,000 10,000
Dec-94 10,260 9,555
Dec-95 10,879 10,455
Dec-96 11,627 10,915
Dec-97 11,476 11,476
6/30/98 13,537 13,322
[X] FUND FACTS
GOAL: Long-term capital appreciation through investment primarily in
international equity securities.
START DATE: October 31, 1994
SIZE: $69 million as of June 30, 1998
MANAGER: Francine Bovich has managed the Morgan Stanley International Magnum
Equity Series since May 1997. Ms. Bovich is a Managing Director of Morgan
Stanley Asset Management Inc.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts; if these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
9
<PAGE>
NEW ENGLAND ZENITH FUND
(MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
COMMON STOCKS--89.8% OF TOTAL NET ASSETS
SHARES VALUE (A)
AUSTRIA--0.6%
6,300 Bochler Uddeholm......................................... $ 416,608
-----------
AUSTRALIA--1.6%
22,000 Australia & New Zealand Bank............................. 152,133
5,600 Brambles Industries, Ltd. ............................... 110,161
15,500 Commonwealth Bank........................................ 181,271
5,050 Lend Lease Corp. ........................................ 102,351
7,950 National Australia Bank, Ltd. ........................... 105,115
29,000 News Corp., Ltd. ........................................ 237,263
12,300 Seven Network, Ltd. ..................................... 37,107
69,800 Telstra Corp. ........................................... 179,379
-----------
1,104,780
-----------
BELGIUM--0.8%
10,000 GB Inno.................................................. 564,668
-----------
DENMARK--1.5%
8,800 BG Bank AS............................................... 545,627
5,480 Unidanmark............................................... 492,997
-----------
1,038,624
-----------
FINLAND--5.1%
6,780 Huhtamaki OY 'I' Free.................................... 388,415
3,905 Kone OY Series B......................................... 548,590
55,000 Merita Ltd Series A...................................... 363,252
17,550 Metra OY Series B........................................ 576,349
10,750 Partek OY................................................ 186,324
21,708 Rauma OY................................................. 445,562
42,300 Rautaruukki OY........................................... 324,135
5,650 Sampo Insurance Co., Ltd. ............................... 268,014
22,000 Valmet OY................................................ 379,708
-----------
3,480,349
-----------
FRANCE--9.3%
1,200 Alcatel Alsthom.......................................... 244,339
530 Bongrain S.A. ........................................... 266,153
3,921 Cie de St. Gobain........................................ 727,036
5,840 France Telecommunication................................. 402,812
2,700 Groupe Danone............................................ 744,480
5,600 Elf Aquitaine............................................ 787,336
5,100 Lafarge-Coppee........................................... 527,234
10,600 Legris................................................... 496,187
4,240 Michelin Series B........................................ 244,762
4,900 Rohne-Poulenc S.A. Series A.............................. 276,379
3,300 Scor..................................................... 209,331
5,000 SGS Thomson Microelectronics............................. 354,384
6,130 Total S.A. Series B...................................... 796,960
900 Union Assure Federales................................... 141,869
9,500 Usinor................................................... 146,766
-----------
6,366,028
-----------
GERMANY--12.1%
18,010 Basf AG.................................................. 856,335
11,500 Bayer AG................................................. 595,581
5,400 Bayer Vereins Bank....................................... $ 458,122
1,370 Buderus AG............................................... 683,766
1,660 Dyckerhoff AG Preferred.................................. 648,923
13,700 Gerresheimer Glas........................................ 204,347
4,500 Hornbach Hldg AG Preferred............................... 411,711
7,110 Metro AG................................................. 429,726
7,110 Metro AG Rights.......................................... 39
2,130 Philipp Holzmann......................................... 507,860
3,680 Plettac AG............................................... 516,255
1,140 Sudzucker AG Preferred................................... 693,438
10,710 Veba AG.................................................. 720,651
990 Viag AG.................................................. 681,793
958 Volkswagen............................................... 925,889
-----------
8,334,436
-----------
GREAT BRITAIN--17.9%
180,000 Aegis Group.............................................. 291,530
28,096 Bank of Ireland.......................................... 576,070
44,372 Bank of Scotland......................................... 497,130
96,005 BG PLC................................................... 555,438
47,200 British Telecom PLC...................................... 583,193
74,825 BTR PLC.................................................. 212,390
43,600 Bunzl PLC................................................ 205,293
31,100 Burmah Castrol PLC....................................... 554,588
19,200 Capital Radio............................................ 227,854
64,400 Charter PLC.............................................. 673,130
13,400 Commercial Union PLC..................................... 250,141
400 Danka Business Systems PLC............................... 1,269
43,964 Diageo PLC............................................... 521,187
45,000 Glynwed International.................................... 185,211
36,500 Greal Universal Stores PLC............................... 481,458
12,900 Halma PLC................................................ 26,679
82,500 Imperial Tobacco Group................................... 608,857
70,000 Lonrho PLC............................................... 328,430
33,050 Lonrho Africa PLC........................................ 40,560
181,700 Medeva................................................... 515,754
14,600 P and O Steam Navigation Co. ............................ 210,379
56,000 Premier Farnell PLC...................................... 285,185
684,100 Premier Cons Oilfields LTD............................... 482,597
43,300 Reckitt and Colman....................................... 827,089
8,100 RMC Group PLC............................................ 140,520
85,854 Royal Sun Alliance Insurance............................. 888,056
164,000 Scapa Group.............................................. 520,278
59,600 SIG PLC.................................................. 224,902
23,000 Tate and Lyle PLC........................................ 182,511
18,700 Unilever PLC............................................. 199,205
23,800 Westminster Health Care Holdings......................... 126,370
136,500 WPP Group PLC............................................ 895,132
-----------
12,318,386
-----------
HONG KONG--0.9%
18,500 China Light & Power Co. ................................. 84,286
93,700 Hong Kong & China Gas.................................... 103,327
See accompanying notes to financial statements.
10
<PAGE>
NEW ENGLAND ZENITH FUND
(MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
HONG KONG--(CONTINUED)
28,000 Hong Kong Electric Holdings.............................. $ 86,732
51,200 Hong Kong Telecommunications............................. 96,149
3,200 HSBC Holdings PLC........................................ 78,265
15,000 Hutchison Whampoa........................................ 79,182
30,000 LI & Fung, Ltd. ......................................... 48,400
17,000 Television Broadcasts.................................... 44,979
-----------
621,320
-----------
ITALY--3.4%
130,760 Magneti Marelli Spa...................................... 287,021
24,350 Marzotto & Figli......................................... 371,400
59,450 Mediaset................................................. 379,603
89,600 Sogefi................................................... 300,053
200,912 Telecom Italia Spa....................................... 973,039
-----------
2,311,116
-----------
JAPAN--13.2%
24,000 Amada, Ltd. ............................................. 117,162
2,000 Autobacs Seven Co. ...................................... 57,424
11,000 Canon.................................................... 250,597
18,000 Casio Computer Co. ...................................... 167,802
13,000 Dai Nippon Printing...................................... 208,252
51,000 Daicel Chemical Inds. ................................... 108,440
31,000 Daifuku Co. ............................................. 115,911
29,000 Daikin Industries........................................ 187,503
3,000 Familymart Co., Ltd. .................................... 114,558
9,000 Fuji Machine Manufacturing............................... 239,531
7,000 Fuji Photo Film, Ltd. ................................... 244,522
18,000 Fujitec Co. ............................................. 109,351
26,000 Fujitsu, Ltd. ........................................... 274,535
45,000 Furukawa Electric Co. ................................... 151,985
10,000 Hitachi Credit Corp. .................................... 168,873
38,000 Hitachi, Ltd. ........................................... 248,716
15,000 Inabata and Co. ......................................... 46,431
28,000 Kaneka Corp. ............................................ 147,827
12,000 Kurita Water Industries.................................. 142,330
3,000 Kyocera Corp. ........................................... 147,103
10,000 Kyudenko Corp. .......................................... 65,669
8,000 Lintec Corp. ............................................ 70,008
17,000 Matsushita Electric Industries........................... 274,174
59,000 Mitsubishi Chemical Industries........................... 107,102
17,000 Mitsubishi Estate........................................ 149,996
49,000 Mitsubishi Heavy Industries.............................. 185,695
14,000 Mitsumi Electric......................................... 248,065
6,000 Murata Manufacturing..................................... 195,270
27,000 NEC Corp. ............................................... 252,484
10,000 Nifco, Inc. ............................................. 79,554
4,000 Nintendo, Ltd. .......................................... 371,736
33 Nippon Telephone & Telegraph Corp. ...................... 274,463
56,000 Nissan Motors............................................ 176,987
13,000 Nissha Printing Co. ..................................... 79,916
6,000 ONO Pharmaceutical....................................... 144,066
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
JAPAN--(CONTINUED)
26,000 Ricoh Co. ............................................... $ 274,723
6,000 Rinnai Corp. ............................................ 91,126
5,000 Sangetsu................................................. 64,729
11,000 Sankyo Co. .............................................. 251,392
19,000 Sanwa Shutter Corp. ..................................... 83,822
19,000 Sekisui Chemical......................................... 97,563
16,000 Sekisui House............................................ 124,394
5,000 Shimamura, Ltd. ......................................... 135,604
25,000 Shin-Estu Polymer Co. ................................... 101,251
4,500 Sony Corp. .............................................. 388,913
9,000 Sumitomo Marine and Fire................................. 50,510
14,000 Suzuki Motor............................................. 127,577
3,000 TDK Corp. ............................................... 222,391
7,000 Tokyo Electron, Ltd. .................................... 215,159
76,000 Toshiba Corp. ........................................... 311,651
300 Toto..................................................... 1,829
10,000 Toyota Motor Corp. ...................................... 259,638
35,000 Tsubakimoto Chain........................................ 117,705
11,000 Yamaha Corp. ............................................ 107,399
10,000 Yamanouchi Pharmacy...................................... 209,011
-----------
9,160,425
-----------
MALAYSIA--0.1%
3,000 Carlsberg Brewery........................................ 9,108
16,000 Guinness Anchor.......................................... 16,963
5,000 Nestle Malay............................................. 22,649
5,000 Rothmans of Pall Mall.................................... 34,636
-----------
83,356
-----------
NETHERLANDS--4.7%
15,100 ABN Amro Holdings........................................ 353,590
3,200 Akzo Nobel NV............................................ 711,863
15,168 Ing Groep NV............................................. 993,913
16,400 KNP BT (Kon) NV.......................................... 423,564
3,600 Koninklijke Bijenkorf Behee.............................. 252,367
5,300 Philips Electronics...................................... 445,849
-----------
3,181,146
-----------
NEW ZEALAND--0.1%
36,000 AMP Office Trust......................................... 16,859
2,000 Fletcher Challenge Forests Division...................... 1,124
5,900 Telecom Corp. of New Zealand............................. 24,376
2,000 Telecom Corp. of New Zealand Instalment.................. 4,288
-----------
46,647
-----------
NORWAY--1.0%
30,000 Saga Petroleum Series B.................................. 424,685
8,450 Sparebanken Primary Cap.................................. 242,547
-----------
667,232
-----------
SINGAPORE--0.2%
3,800 Creative Technology...................................... 46,232
16,000 Natsteel Electronics, Ltd. .............................. 26,872
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
NEW ENGLAND ZENITH FUND
(MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
SINGAPORE--(CONTINUED)
14,000 United Overseas Bank..................................... $ 43,620
13,000 Venture Manufacturing.................................... 24,688
-----------
141,412
-----------
SPAIN--3.5%
13,400 Banco Bilboa Vizcaya..................................... 687,695
49,700 Iberdrola S.A. .......................................... 806,997
8,063 Telefonica de Espana..................................... 372,786
39,280 Uralita S.A. ............................................ 559,679
-----------
2,427,157
-----------
SWEDEN--6.5%
17,000 Autoliv, Inc. ........................................... 543,506
1,270 Balder AB................................................ 12,659
12,300 BT Industries AB......................................... 248,282
25,200 Esselte AB Series B...................................... 584,504
134,900 Nordbanken AS............................................ 989,424
10,100 Pharmacia and Upjohn..................................... 464,732
27,400 PLM AB................................................... 432,849
1,100 SKF AB................................................... 19,997
11,800 Spectra Physics AB....................................... 188,628
16,600 Svedala Industries....................................... 385,030
12,700 Svenska Handelsbk........................................ 589,142
-----------
4,458,753
-----------
SWITZERLAND--7.3%
18 Ascom Holding AG......................................... 33,283
287 Bobst AG................................................. 528,779
1,120 Forbo Holdings........................................... 570,983
725 Holderbk Financiere Glarus............................... 924,024
520 Nestle S.A. ............................................. 1,114,654
341 Richemont Series A....................................... 446,995
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
SWITZERLAND--(CONTINUED)
150 Schindler Holding AG................................. $ 232,781
172 Schindler Holding Ptg. AG............................ 262,379
520 Sig Schweiz Industry Holding AG...................... 424,090
1,900 Valora Holding AG.................................... 501,882
-----------
5,039,850
-----------
Total Common Stocks
(Identified Cost $54,618,175)....................... 61,762,293
-----------
BONDS & NOTES--0.0%
<CAPTION>
FACE
AMOUNT
<C> <S> <C>
NEW ZEALAND
$ 36,000 AMP Office Trust, 7.500%, 6/30/03.................... 16,297
-----------
Total Bonds
(Identified Cost $21,310)........................... 16,297
-----------
SHORT-TERM INVESTMENT--9.2%
$6,327,000 Repurchase Agreement with State Street Corp. dated
6/30/98 at 5% to be repurchased at $6,327,879 on
7/01/98 collateralized by $4,915,000 U.S. Treasury
Note 8.125% due 8/15/19 with a value of $6,456,256.. 6,327,000
-----------
Total Short-Term Investments
(Identified Cost $6,327,000)........................ 6,327,000
-----------
Total Investments--99.0%
(Identified Cost $60,966,485)(b).................... 68,105,590
Other assets less liabilities........................ 697,212
-----------
TOTAL NET ASSETS--100%............................... $68,802,802
===========
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
NEW ENGLAND ZENITH FUND
(MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
FORWARD CONTRACTS OUTSTANDING AT JUNE 30, 1998
<TABLE>
<CAPTION>
LOCAL AGGREGATE UNREALIZED
DELIVERY CURRENCY FACE TOTAL APPRECIATION/
DATE AMOUNT VALUE VALUE DEPRECIATION
<S> <C> <C> <C> <C> <C>
Deutsch Mark (sold)... 07/14/98 1,099,500 $ 604,154 $ 610,189 $(6,035)
Deutsch Mark (sold)... 08/14/98 1,100,000 623,053 611,592 11,461
Deutsch Mark (sold)... 09/14/98 130,000 72,069 72,407 (338)
Japanese Yen (bought). 07/16/98 135,758,016 985,611 984,186 (1,425)
Japanese Yen (bought). 08/19/98 8,068,574 58,860 58,780 (80)
Japanese Yen (sold)... 08/19/98 110,485,760 836,000 804,899 31,101
Japanese Yen (sold)... 09/10/98 207,376,000 1,516,904 1,515,481 1,423
Japanese Yen (sold)... 07/16/98 135,758,016 1,060,000 984,186 75,814
Japanese Yen (sold)... 09/28/98 216,726,020 1,591,000 1,587,971 3,029
Japanese Yen (sold)... 10/26/98 293,363,500 2,075,000 2,158,424 (83,424)
Swiss Franc (sold).... 07/21/98 744,000 502,703 492,355 10,348
-------
$41,874
=======
</TABLE>
TEN LARGEST INDUSTRY HOLDINGS AT JUNE 30, 1998
<TABLE>
<C> <S> <C>
Banking & Financial
1 Services 14.41%
2 Electronics 13.60%
3 Energy 8.49%
Real Estate &
4 Construction 8.43%
Manufacturing &
5 Machinery 8.01%
6 Telecommunications 7.62%
Business Services &
7 Supplies 5.92%
Broadcasting &
8 Publishing 5.85%
9 Food Beverage & Tobacco 5.04%
Chemicals &
10 Pharmaceuticals 4.83%
</TABLE>
(a) See Note 1A.
(b) Federal Tax Information:
At June 30,1998 the net unrealized appreciation on investments based on cost
of $60,966,485 for federal income tax purposes was as follows:
<TABLE>
<C> <S> <C>
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost........ $ 9,818,187
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value........ (2,679,082)
-----------
Net unrealized appreciation................................ $ 7,139,105
===========
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
NEW ENGLAND ZENITH FUND
(MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES)
STATEMENT OF ASSETS & LIABILITIES STATEMENT OF OPERATIONS
JUNE 30, 1998 (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value..................................... $68,105,590
Cash..................................................... 403
Foreign cash at value (Cost $371,342).................... 374,747
Receivable for:
Fund shares sold......................................... 65,481
Securities sold.......................................... 564,934
Open forward currency contracts--net..................... 41,874
Dividends and interest................................... 136,061
Foreign taxes............................................ 114,591
Unamortized organization expense......................... 2,680
-----------
69,406,361
LIABILITIES
Payable for:
Securities purchased..................................... $298,710
Fund shares redeemed..................................... 164,174
Withholding taxes........................................ 10,551
Miscellaneous............................................ 23,772
Accrued expenses:
Management fees.......................................... 40,054
Deferred trustees' fees.................................. 5,060
Other expenses........................................... 61,238
--------
603,559
-----------
$68,802,802
===========
NET ASSETS
Net Assets consist of:
Capital paid in.......................................... $59,846,621
Undistributed net investment income...................... 465,315
Accumulated net realized gains........................... 1,208,767
Unrealized appreciation on investments, forward contracts
and foreign currency.................................... 7,282,099
-----------
NET ASSETS................................................ $68,802,802
===========
Computation of offering price:
Net asset value and redemption price per share
($68,802,802 divided by 5,369,664 shares of beneficial
interest)................................................ $ 12.81
===========
Identified cost of investments............................ $60,966,485
===========
</TABLE>
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends........................................... $ 832,611(a)
Interest............................................ 140,968
----------
973,579
EXPENSES
Management fees..................................... $ 271,071
Trustees' fees and expenses......................... 7,280
Custodian........................................... 106,966
Audit and tax services.............................. 8,786
Legal............................................... 8,405
Printing............................................ 13,096
Insurance........................................... 1,173
Amortization of organization expenses............... 997
Miscellaneous....................................... 1,537
----------
Total expenses..................................... 419,311
Less expenses deferred by the investment adviser... (27,762) 391,549
---------- ----------
NET INVESTMENT INCOME................................ 582,030
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
AND FOREIGN CURRENCY TRANSACTIONS
Realized gain on:
Investments--net.................................... 952,796
Foreign currency transactions--net.................. 668,229
----------
Total realized gain on investments and foreign
currency transactions.............................. 1,621,025
----------
Unrealized appreciation (depreciation) on:
Investments--net.................................... 7,697,908
Foreign currency transactions--net.................. (339,345)
----------
Total unrealized appreciation on investments and
foreign currency transactions...................... 7,358,563
----------
Net gain on investment transactions.................. 8,979,588
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS........... $9,561,618
==========
</TABLE>
(a) Net of foreign taxes of: $114,742.
See accompanying notes to financial statements.
14
<PAGE>
NEW ENGLAND ZENITH FUND
(MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES)
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
<S> <C> <C>
FROM OPERATIONS
Net investment income.............................. $ 451,721 $ 582,030
Net realized gain on investments and foreign
currency transactions............................. 392,080 1,621,025
Unrealized appreciation (depreciation) on
investments and foreign currency transactions..... (1,984,775) 7,358,563
------------ -----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS.. (1,140,974) 9,561,618
------------ -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income.............................. (401,271) 0
Net realized gain on investments................... (937,720) 0
------------ -----------
(1,338,991) 0
------------ -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares....................... 31,343,810 15,019,772
Net asset value of shares issued in connection with
the reinvestment of:
Distributions from net investment income........... 401,271 0
Distributions from net realized gain............... 937,720 0
------------ -----------
32,682,801 15,019,772
Cost of shares redeemed............................ (16,560,469) (8,813,141)
------------ -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS...................................... 16,122,332 6,206,631
------------ -----------
TOTAL INCREASE IN NET ASSETS....................... 13,642,367 15,768,249
NET ASSETS
Beginning of the period............................ 39,392,186 53,034,553
------------ -----------
End of the period.................................. $ 53,034,553 $68,802,802
============ ===========
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT
INCOME
End of the period.................................. $ (116,715) $ 465,315
============ ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares..................... 2,737,081 1,225,683
Issued in connection with the reinvestment of:
Distributions from net investment income........... 36,467 0
Distributions from net realized gain............... 86,482 0
------------ -----------
2,860,030 1,225,683
Redeemed........................................... (1,465,482) (741,142)
------------ -----------
Net change......................................... 1,394,548 484,541
============ ===========
</TABLE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 31, 1994(A) SIX MONTHS
THROUGH YEAR YEAR YEAR ENDED
DECEMBER 31, ENDED ENDED ENDED JUNE 30,
1994 1995 1996 1997 1998
------------------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of period.... $10.00 $ 10.23 $ 10.73 $ 11.29 $ 10.86
------ ------- ------- ------- -------
Income From Investment
Operations
Net Investment Income.. 0.03 0.09 0.06 0.08 0.11
Net Realized and
Unrealized Gain (Loss)
on Investments........ 0.23 0.53 0.68 (0.23) 1.84
------ ------- ------- ------- -------
Total From Investment
Operations............ 0.26 0.62 0.74 (0.15) 1.95
------ ------- ------- ------- -------
Less Distributions
Distributions From Net
Investment Income..... (0.02) (0.09) (0.02) (0.09) 0.00
Distributions in Excess
of Net Investment
Income................ 0.00 (0.03) 0.00 0.00 0.00
Distributions From Net
Realized Capital
Gains................. 0.00 0.00 (0.16) (0.08) 0.00
Distributions in Excess
of Net Realized
Capital Gains......... 0.00 0.00 0.00 (0.11) 0.00
Distributions From
Paid-in Capital....... (0.01) 0.00 0.00 0.00 0.00
------ ------- ------- ------- -------
Total Distributions.... (0.03) (0.12) (0.18) (0.28) 0.00
------ ------- ------- ------- -------
Net Asset Value, End of
period................. $10.23 $ 10.73 $ 11.29 $ 10.86 $ 12.81
====== ======= ======= ======= =======
TOTAL RETURN (%)........ 2.60(b) 6.03 6.87 (1.30) 17.96(b)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 1.30(c) 1.30 1.30 1.30 1.30(c)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 2.56(c) 1.29 0.67 0.96 1.93(c)
Portfolio Turnover Rate
(%).................... 4(c) 89 64 115 34(c)
Net Assets, End of
period (000)........... $2,989 $16,268 $39,392 $53,035 $68,803
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(c) 3.12 1.66 1.59 1.39(c)
</TABLE>
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
See accompanying notes to financial statements.
15
<PAGE>
ALGER EQUITY GROWTH SERIES
PORTFOLIO MANAGER: DAVID ALGER
FRED ALGER MANAGEMENT, INC.
[PHOTO OF DAVID ALGER]
Q. HOW DID THE SERIES PERFORM DURING THE FIRST HALF OF 1998?
A. The first quarter of 1998 proved very rewarding for investors in the U.S.
equity market. Stocks that had been undeservedly oversold in the wake of the
Asian crisis rebounded nicely. Inflation remained subdued, and the Federal Re-
serve left interest rates unchanged. The post-Asian crisis earnings season came
and went with some predictable casualties, but most companies got through it
unscathed. As a result, the S&P 500 Index, the Lipper Variable Products Growth
Fund Average and the Alger Equity Growth Series all posted positive double-
digit returns during the first quarter.
The second quarter was much more challenging. Data from both Lipper and Morn-
ingstar revealed that the average U.S. stock fund had a quarterly return of -
0.3%. Of the many domestic investment disciplines, large cap growth funds per-
formed the best. The Lipper Variable Products Growth Fund Average realized a
quarterly return of 2.42%. Buoyed by a strong June, the Alger Equity Growth Se-
ries posted an enviable quarter of absolute and relative performance. A second
quarter return of 8.98% capped an impressive six months and boosted the Series'
year to date return to 26.05%, significantly outpacing the Lipper Variable
Products Growth Fund Average's return of 16.2% over the same period.
Q. HOW DID YOU MANAGE THE SERIES DURING THE FIRST HALF OF THE YEAR?
A. The management of the Series remained unchanged, a research intensive, bot-
tom-up approach focusing on rapidly growing large cap stocks. The Series re-
mained fully invested throughout the period, with a cash position between 2%-
8%. Consistent cash inflows helped fuel investment opportunities and precluded
the selling of core holdings in order to satisfy redemptions.
Performance relative to the Series' peer group and benchmark was enhanced in
part by an overweighting of financial services and pharmaceutical stocks. Pro-
pelled by stable earnings growth and lack of exposure to the Asian markets,
pharmaceutical holdings continued their ascent. Many financial services hold-
ings appreciated due to a strong stock market and speculation about potential
consolidation. Value was also added in the month of June, as several of the
stocks composing the Series' substantial technology position performed well.
Examples of such stocks include Ciena, Microsoft and America On Line.
Q. WHAT IS YOUR CURRENT OUTLOOK FOR THE MONTHS AHEAD?
A. Looking ahead, we are very optimistic regarding the second half of the year.
Given the sustained low levels of inflation, we continue to believe that the
Federal Reserve will not raise interest rates for the rest of 1998. In fact, if
the yield curve continues to flatten, it is conceivable that the Fed may be
compelled to lower interest rates. This environment would justify a price-
/earnings ratio for the stocks comprising the Dow Jones Industrial Average of
20 times next year's earnings. When this ratio is multiplied against our bot-
tom-up, 1999 Dow earnings projection of $500, we feel the market could be at
the 10,000 level by year-end--although predicting future levels of the market
is a difficult business. Coupled with the heightened interest in growth stocks
revealed in June, we feel the prospects for solid performance in the second
half are strong.
16
<PAGE>
A $10,000 Investment Compared to the S&P 500 Index/25/
Average Annual Total Return
Alger Equity Lipper Variable Products Growth
Growth Series Fund Average/10/
6 months* 26.1% 16.2%
1 year 35.7% 28.1%
3 year 26.3% 25.6%
Since Inception 29.1% n/a
*not annualized
[LINE GRAPH APPEARS HERE]
Alger Equity S&P 500
10/31/94 10,000 10,000
Dec-94 9,580 9,794
Dec-95 14,245 13,461
Dec-96 16,122 16,544
Dec-97 20,254 22,055
6/30/98 25,530 25,952
[X] FUND FACTS
GOAL: Long-term capital appreciation.
START DATE: October 31, 1994
SIZE: $295 million as of June 30, 1998
MANAGER: David D. Alger has managed the Alger Equity Growth Series since its
inception in 1994. Mr. Alger is President and Chief Financial Officer of Fred
Alger Management Inc., and has been portfolio manager of The Alger Growth
Portfolio since 1986, The Alger American Fund Growth Portfolio since 1989 and
the Alger Retirement Fund since 1993.
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.
17
<PAGE>
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
COMMON STOCKS--94.3% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
AEROSPACE--3.0%
105,400 AMR Corp.(c)............................................. $ 8,774,550
-----------
BANKS--10.3%
45,398 Banc One Corp............................................ 2,533,776
110,400 Bank of New York......................................... 6,699,900
42,200 BankAmerica Corp......................................... 3,647,662
53,000 BankBoston Corp.......................................... 2,948,125
57,400 Chase Manhattan Corp..................................... 4,333,700
16,000 First Chicago NDB Corp................................... 1,418,000
87,614 First Union Corp......................................... 5,103,516
47,400 NationsBank Corp......................................... 3,626,100
-----------
30,310,779
-----------
BROADCASTING--0.9%
86,000 CBS Corp................................................. 2,730,500
-----------
CASINOS & RESORTS--2.2%
161,000 Carnival Corp............................................ 6,379,625
-----------
COMMUNICATIONS--2.5%
151,600 Worldcom, Inc.(c)........................................ 7,343,125
-----------
COMMUNICATIONS EQUIPMENT--2.7%
87,450 Cisco Systems, Inc.(c)................................... 8,050,866
-----------
COMMUNICATIONS SERVICES--0.5%
28,600 Ascend Communications.................................... 1,417,487
-----------
COMPUTER RELATED & BUSINESS EQUIPMENT--6.5%
89,600 America Online(c)........................................ 9,497,600
46,900 Bay Networks, Inc.(c).................................... 1,512,525
193,500 Compaq Computer Corp..................................... 5,490,563
22,500 International Business Machines.......................... 2,583,281
-----------
19,083,969
-----------
COMPUTER SOFTWARE--7.7%
86,900 Compuware Corp........................................... 4,442,762
167,300 HBO & Co................................................. 5,897,325
86,400 Microsoft Corp........................................... 9,363,600
60,450 Networks Associates(c)................................... 2,894,044
-----------
22,597,731
-----------
CONSUMER PRODUCTS--7.7%
23,300 Black & Decker Corp...................................... 1,421,300
88,700 Masco Corp............................................... 5,366,350
44,200 Mattel, Inc.............................................. 1,870,212
40,000 McKesson Corp............................................ 3,250,000
31,500 Newell Co................................................ 1,569,094
144,040 Tyco International, Ltd.................................. 9,074,520
-----------
22,551,476
-----------
CONTAINERS--0.9%
58,000 Owens-Illinois(c)........................................ 2,595,500
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
FINANCIAL SERVICES--8.8%
56,400 Federal Home Loan Mortgage Corp.......................... $ 2,654,325
30,500 H & R Block, Inc......................................... 1,284,812
113,700 Household International.................................. 5,656,575
93,450 Morgan Stanley Dean Witter............................... 8,538,994
126,300 Travelers Group.......................................... 7,656,938
-----------
25,791,644
-----------
HEALTH CARE--2.4%
44,100 Cardinal Health.......................................... 4,134,375
25,000 Elan PLC (ADR)(d)........................................ 1,607,812
23,200 Medtronic Inc............................................ 1,479,000
-----------
7,221,187
-----------
INSURANCE--3.4%
52,000 American International Group............................. 7,592,000
40,000 MGIC Investment Corp..................................... 2,282,500
-----------
9,874,500
-----------
LEISURE & ENTERTAINMENT--1.0%
126,200 International Game Technology............................ 3,060,350
-----------
MACHINERY--1.0%
57,500 AES Corp................................................. 3,022,344
-----------
PHARMACEUTICALS--11.1%
52,900 Bristol-Myers Squibb Co.................................. 6,080,194
21,000 Eli Lilly & Co........................................... 1,387,312
30,500 Omnicare, Inc............................................ 1,162,812
61,000 Pfizer, Inc.............................................. 6,629,938
91,900 Schering-Plough.......................................... 8,420,338
132,000 Warner-Lambert Co........................................ 9,157,500
-----------
32,838,094
-----------
POLLUTION CONTROL--2.0%
119,800 USA Waste Services, Inc.(c).............................. 5,915,125
-----------
RAILROAD--2.3%
42,800 Burlington Northern Santa Fe............................. 4,202,425
53,400 Kansas City Southern Industries.......................... 2,649,975
-----------
6,852,400
-----------
RETAIL--13.2%
150,000 CVS Corp................................................. 5,840,625
33,100 Fred Meyer, Inc.......................................... 1,406,750
107,600 Home Depot, Inc.......................................... 8,937,525
68,500 Kmart Corp.(c)........................................... 1,318,625
181,800 Safeway, Inc.(c)......................................... 7,396,988
183,300 Staples, Inc.(c)......................................... 5,304,244
145,000 Wal-Mart Stores, Inc..................................... 8,808,750
-----------
39,013,507
-----------
TECHNICAL SERVICES--1.6%
72,800 Cognizant Corp........................................... 4,586,400
-----------
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
TELECOM NETWORKS--2.6%
62,500 CIENA Corp.(c)....................................... $ 4,351,562
47,000 Nokia Corp. (ADR)(d)................................. 3,410,437
-----------
7,761,999
-----------
Total Common Stocks
(Identified Cost $203,133,754)...................... 277,773,158
-----------
SHORT-TERM INVESTMENTS--4.7%
<CAPTION>
FACE
AMOUNT
<C> <S> <C>
$2,000,000 Cargill, Inc., 5.570%, 7/10/98....................... 1,997,215
1,000,000 Export Development Corp.,
5.460%, 7/02/98..................................... 999,848
2,000,000 General Electric Capital Services, Inc., 5.570%,
7/14/98............................................. 1,995,977
2,000,000 Reliastar Management Corp.,
5.540%, 7/10/98..................................... 1,997,230
2,000,000 Respol International Financial
5.430%, 7/1/98...................................... 1,999,698
2,989,067 Street Street Global Advisors, Money Market Fund..... 2,989,067
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$2,000,000 Thunder Bay Funding, Inc.,
5.920%, 7/07/98..................................... $ 1,998,028
------------
Total Short-Term Investments
(Identified Cost $13,977,063)....................... 13,977,063
------------
Total Investments--99.0%
(Identified Cost $217,110,817)(b)................... 291,750,221
Other assets less liabilities........................ 3,000,102
------------
TOTAL NET ASSETS--100%............................... $294,750,323
============
</TABLE>
(a) See Note 1A.
(b) Federal Tax Information:
At June 30, 1998 the net unrealized appreciation on investments based on
cost of $217,110,817 for federal income tax purposes was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost ............. $ 75,178,018
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value ............. (538,614)
------------
Net unrealized appreciation .................................. $ 74,639,404
============
</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.
19
<PAGE>
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
STATEMENT OF ASSETS & LIABILITIES STATEMENT OF OPERATIONS
JUNE 30, 1998 (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value.................................... $291,750,221
Receivable for:
Fund shares sold........................................ 941,190
Securities sold......................................... 2,291,908
Dividends and interest.................................. 135,966
Foreign taxes........................................... 1,708
Unamortized organization expense........................ 2,680
------------
295,123,673
LIABILITIES
Payable for:
Fund shares redeemed.................................... $157,379
Accrued expenses:
Management fees......................................... 169,778
Deferred trustees' fees................................. 5,328
Other expenses.......................................... 40,865
--------
373,350
------------
$294,750,323
============
NET ASSETS
Net Assets consist of:
Capital paid in......................................... $209,389,198
Undistributed net investment income..................... 106,058
Accumulated net realized gains.......................... 10,615,663
Unrealized appreciation on
investments............................................ 74,639,404
------------
NET ASSETS............................................... $294,750,323
============
Computation of offering price:
Net asset value and redemption price per share
($294,750,323 divided by 13,273,694 shares of beneficial
interest)............................................... $ 22.21
============
Identified cost of investments........................... $217,110,817
============
</TABLE>
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends............................................. $ 817,100(a)
Interest.............................................. 310,778
-----------
1,127,878
EXPENSES
Management fees....................................... $907,513
Trustees' fees and expenses........................... 11,481
Custodian............................................. 33,352
Audit and tax services................................ 9,361
Legal................................................. 5,087
Printing.............................................. 47,179
Insurance............................................. 4,586
Amortization of organization expenses................. 997
Miscellaneous......................................... 2,264
--------
Total expenses....................................... 1,021,820
-----------
NET INVESTMENT INCOME.................................. 106,058
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on:
Investments--net...................................... 10,835,613
Unrealized appreciation on:
Investments--net...................................... 45,948,681
-----------
Net gain on investment transactions.................... 56,784,294
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............. $56,890,352
===========
</TABLE>
(a) Net of foreign taxes of: $4,692
See accompanying notes to financial statements.
20
<PAGE>
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1997 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................. $ 214,111 $ 106,058
Net realized gain on investments.................. 19,818,623 10,835,613
Unrealized appreciation on investments............ 14,830,675 45,948,681
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS............ 34,863,409 56,890,352
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................. (155,793) 0
Net realized gain on investments.................. (19,679,801) 0
------------ ------------
(19,835,594) 0
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares...................... 86,896,157 56,453,952
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income.......... 155,793 0
Distributions from net realized gain.............. 19,679,801 0
------------ ------------
106,731,751 56,453,952
Cost of shares redeemed........................... (36,896,638) (23,912,416)
------------ ------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS..................................... 69,835,113 32,541,536
------------ ------------
TOTAL INCREASE IN NET ASSETS...................... 84,862,928 89,431,888
NET ASSETS
Beginning of the period........................... 120,455,507 205,318,435
------------ ------------
End of the period................................. $205,318,435 $294,750,323
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
End of the period................................. $ 0 $ 106,058
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 4,818,140 2,833,488
Issued in connection with the reinvestment of:
Distributions from net investment income.......... 9,023 0
Distributions from net realized gain.............. 1,146,276 0
------------ ------------
5,973,439 2,833,488
Redeemed.......................................... (2,053,180) (1,213,220)
------------ ------------
Net change........................................ 3,920,259 1,620,268
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 31, 1994(A) SIX MONTHS
THROUGH YEAR YEAR YEAR ENDED
DECEMBER 31, ENDED ENDED ENDED JUNE 30,
1994 1995 1996 1997 1998
------------------- ------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of period.... $10.00 $ 9.56 $ 13.80 $ 15.58 $ 17.62
------ ------- -------- -------- --------
Income From Investment
Operations
Net Investment Income.. 0.02 0.01 0.04 0.02 0.01
Net Realized and
Unrealized Gain (Loss)
on Investments........ (0.44) 4.65 1.78 3.92 4.58
------ ------- -------- -------- --------
Total From Investment
Operations............ (0.42) 4.66 1.82 3.94 4.59
------ ------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income..... (0.02) (0.01) (0.04) (0.02) 0.00
Distributions From Net
Realized Capital
Gains................. 0.00 (0.41) 0.00 (1.88) 0.00
------ ------- -------- -------- --------
Total Distributions.... (0.02) (0.42) (0.04) (1.90) 0.00
------ ------- -------- -------- --------
Net Asset Value, End of
period................. $ 9.56 $ 13.80 $ 15.58 $ 17.62 $ 22.21
====== ======= ======== ======== ========
TOTAL RETURN (%)........ (4.20)(b) 48.80 13.17 25.63 26.05(b)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.85 (c) 0.85 0.90 0.87 0.84(c)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 1.07 (c) 0.14 0.24 0.12 0.09(c)
Portfolio Turnover Rate
(%).................... 32 (c) 107 78 137 88(c)
Net Assets, End of
period (000)........... $1,917 $46,386 $120,456 $205,318 $294,750
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 (c) 2.45 0.90 -- --
</TABLE>
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
See accompanying notes to financial statements.
21
<PAGE>
CAPITAL GROWTH SERIES
PORTFOLIO MANAGER: G. KENNETH HEEBNER CAPITAL GROWTH MANAGEMENT LIMITED
PARTNERSHIP
[PHOTO OF G. KENNETH HEEBNER APPEARS HERE]
Q. HOW DID THE CAPITAL GROWTH SERIES PERFORM FOR THE FIRST HALF OF 1998?
A. For the six months ending June 30, 1998, Capital Growth Series posted a
return of 27.1%--performance well above that of the Lipper Variable Growth
Fund Average's return of 16.2%. The Series' return reflects a $108.30 per
share gain in net asset value to $507.90.
Q. WHAT WAS THE INVESTMENT ENVIRONMENT LIKE, AND HOW DID IT INFLUENCE YOUR
INVESTMENT STRATEGY?
A. A continuing strong economy, low inflation and a relatively stable interest
rate environment contributed to a strong stock market overall for the first
half of the year.
During the period, the Series remained fully invested, keeping money hard at
work in the market. I continue to look for well managed, moderate growth com-
panies that are attractively valued. I see opportunity in what, in my view,
remains a near perfect investment climate.
Over the past six months, I built a significant position in American Deposi-
tory Receipts (ADRs) of European companies, which I believe are well posi-
tioned to benefit from continued growth in Europe over the next several years.
There has been a trend toward corporate restructuring, deregulation and merg-
ers among companies in major European countries recently. The push toward
leaner, meaner companies may continue as the move toward a common currency ap-
proaches.
Holdings that represent these trends are Nokia, Volkswagen, Phillips Electron-
ics and Daimler Benz.
I also maintained a substantial weighting in financial services stocks, in-
cluding banks, insurance companies and savings and loans. Many of these issues
are enjoying visible earnings growth yet are reasonably priced.
In addition, the retail sector provided several attractive investment opportu-
nities, including WalMart, Kmart and the Gap. These well known retailers
earned a spot in the portfolio because they share common traits: They are well
managed companies, benefiting from robust consumer spending, which reflects a
favorable economic climate.
Finally, I decreased my position in airline stocks as I found more attractive
opportunities in other sectors of the market. I was also careful to avoid in-
vesting in companies that appeared overpriced and what I considered to be
speculative stocks whose earning power is currently stagnant.
Q. HOW WOULD YOU DESCRIBE THE SERIES' INVESTMENT APPROACH?
A. The Capital Growth Series takes a concentrated approach, focusing on
established, reasonably priced companies in industries that offer the greatest
potential for growth. This generally means that I pursue my objective of
capital growth by investing more money in a smaller number of stocks instead
of maintaining smaller positions across a greater number of issues. My core
portfolio will typically number 20 to 30 issues. This allows me to use my
stock selection abilities to take full advantage of the stock market's growth
potential. Of course, a concentrated portfolio can involve greater potential
for price fluctuations than larger, more diversified portfolios.
Q. WHAT FACTORS HELPED OR HURT THE SERIES PERFORMANCE DURING THE YEAR?
A. Positive market reaction to many of the stocks in the portfolio contributed
to the Series' strong performance--specifically, large-cap growth companies
that maintained solid earnings momentum. In addition, several individual
holdings--Volkswagen, Nokia and Phillips Electronics, in particular--helped
fuel the Series' performance.
Q. WHAT IS YOUR OUTLOOK FOR THE REST OF 1998?
A. The U.S. economy remains strong. Although the Federal Reserve Board is
concerned about Asia's financial crisis, I expect interest rates to stay where
they are in the near future as inflation will likely remain subdued. All in
all, I believe this is a recipe for continued stock market success.
As always, it is my belief that outstanding companies with superior earnings
and revenue growth will outperform the broader market over time. As a result,
I will continue to focus on finding those companies that I believe can deliver
earnings growth in excess of investor expectations--and that are available at
reasonable prices. This means paying strict attention to the fundamentals and
valuations of individual companies that I currently own--and those that I'm
looking to buy. It is my goal to be invested in the most promising growth
stocks, whatever the market sector.
22
<PAGE>
A $10,000 Investment Compared to the S&P 500 Index/25/
Average Annual Total Return
Capital Lipper Variable Products Growth
Growth Series Fund Average/10/
6 months* 27.1% 16.2%
1 year 32.2% 28.1%
3 year 27.2% 25.6%
5 years 21.2% 20.3%
10 years 17.4% 16.8%
Since Inception 24.3% n/a
*not annualized
[LINE GRAPH APPEARS HERE]
Zenith Capital Growth S&P 500
12/31/87 10,000 10,000
Dec-88 9,121 11,650
Dec-89 11,927 15,330
Dec-90 11,511 14,852
Dec-91 17,726 19,358
Dec-92 16,654 20,831
Dec-93 19,149 22,921
Dec-94 17,794 23,232
Dec-95 24,561 31,931
Dec-96 29,737 39,243
Dec-97 36,719 52,317
6/30/98 46,671 61,562
[X] FUND FACTS
GOAL: Long-term growth of capital.
START DATE: August 26, 1983
SIZE: $1.8 billion as of June 30, 1998
MANAGER: G. Kenneth Heebner has managed the Capital Growth Series since its
inception in 1983. He has also been portfolio manager of New England Growth
Fund since 1976; CGM Capital Development Fund since 1976; CGM Mutual Fund since
1981; CGM Realty Fund since May 1994; and 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.
23
<PAGE>
NEW ENGLAND ZENITH FUND
(CAPITAL GROWTH SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
COMMON STOCKS--99.5% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE (A)
<C> <S> <C>
AIRLINES--1.0%
215,000 AMR Corp.(c)....................................... $ 17,898,750
---------------
AUTOMOTIVE & RELATED--11.9%
905,000 Daimler Benz AG(ADR)(d)............................ 88,067,813
905,000 Daimler Benz AG (Rights)(c)........................ 1,187,812
635,000 Volkswagen AG(ADR)(d).............................. 123,825,000
---------------
213,080,625
---------------
BANKS--MONEY CENTER--5.4%
1,280,000 Chase Manhattan.................................... 96,640,000
---------------
BANKS--REGIONAL--9.6%
1,430,000 Bank of New York................................... 86,783,125
1,975,000 Washington Mutual, Inc. ........................... 85,789,063
---------------
172,572,188
---------------
BEVERAGE & TOBACCO--4.9%
2,240,000 Philip Morris Companies............................ 88,200,000
---------------
COMPUTER SOFTWARE & SERVICES--6.1%
1,700,000 Computer Sciences Corp.(c)......................... 108,800,000
---------------
DRUGS--10.2%
615,000 Pfizer, Inc. ...................................... 66,842,813
1,678,000 Warner Lambert Co. ................................ 116,411,250
---------------
183,254,063
---------------
ELECTRONIC COMPONENTS--12.1%
1,640,000 Nokia Corp.(ADR)(d)................................ 119,002,500
1,150,000 Philips Electronics NV............................. 97,750,000
---------------
216,752,500
---------------
FOOD--RETAILERS/
WHOLESALERS--5.2%
1,345,000 Hershey Foods Corp. ............................... 92,805,000
---------------
FREIGHT TRANSPORTATION--4.8%
877,000 Burlington Northern Santa Fe....................... 86,110,437
---------------
INSURANCE--5.7%
697,275 American International Group....................... 101,802,150
---------------
LEISURE--7.6%
1,140,000 Carnival Corp. .................................... 45,172,500
2,140,000 Mattel, Inc. ...................................... 90,548,750
---------------
135,721,250
---------------
RETAIL--10.8%
4,695,000 Kmart.............................................. 90,378,750
1,710,000 Wal-Mart Stores, Inc. ............................. 103,882,500
---------------
194,261,250
---------------
SHARES DESCRIPTION VALUE (A)
TEXTILE & APPAREL--4.2%
1,210,000 Gap, Inc.......................................... $ 74,566,250
--------------
Total Common Stock
(Identified Cost $1,480,502,924)................. 1,782,464,463
--------------
SHORT-TERM INVESTMENT--0.1%
FACE
AMOUNT
$1,335,000 American Express, 5.950%, 7/1/98.................. 1,335,000
--------------
Total Short-Term Investment (Identified Cost
$1,335,000)...................................... 1,335,000
--------------
Total Investments--99.6%
(Identified Cost $1,481,837,924)(b).............. 1,783,799,463
Other assets less liabilities..................... 7,453,542
--------------
TOTAL NET ASSETS--100%............................ $1,791,253,005
==============
(a) See Note 1A.
(b) Federal Tax Information:
At June 30, 1998 the net unrealized appreciation on investments based on
cost of $1,481,837,924 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost.................................... $ 313,822,667
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value.................................. (11,861,128)
--------------
Net unrealized appreciation....................... $ 301,961,539
==============
</TABLE>
See accompanying notes to financial statements.
(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.
24
<PAGE>
NEW ENGLAND ZENITH FUND
(CAPITAL GROWTH SERIES)
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................ $1,783,799,463
Cash................................................ 4,328
Receivable for:
Fund shares sold.................................... 1,541,404
Securities sold..................................... 14,553,558
Dividends and interest.............................. 1,092,246
Foreign taxes....................................... 1,854,870
--------------
1,802,845,869
LIABILITIES
Payable for:
Securities purchased................................ $9,773,205
Fund shares redeemed................................ 696,586
Miscellaneous....................................... 23,225
Accrued expenses:
Management fees..................................... 882,939
Deferred trustees' fees............................. 82,035
Other expenses...................................... 134,874
----------
11,592,864
--------------
$1,791,253,005
==============
NET ASSETS
Net Assets consist of:
Capital paid in..................................... $1,205,021,390
Undistributed net investment income................. 15,421,758
Accumulated net realized gains...................... 268,848,318
Unrealized appreciation on investments.............. 301,961,539
--------------
NET ASSETS........................................... $1,791,253,005
==============
Computation of offering price:
Net asset value and redemption price per share
($1,791,253,005 divided by 3,526,773 shares of
beneficial interest)................................ $ 507.90
==============
Identified cost of investments....................... $1,481,837,924
==============
<CAPTION>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<S> <C> <C>
INVESTMENT INCOME
Dividends.......................................... $ 20,542,797(a)
Interest........................................... 228,323
------------
20,771,120
EXPENSES
Management fees.................................... $5,008,427
Trustees' fees and expenses........................ 58,030
Custodian.......................................... 97,213
Audit and tax services............................. 6,200
Legal.............................................. 57,364
Printing........................................... 160,912
Insurance.......................................... 31,017
Miscellaneous...................................... 605
----------
Total expenses.................................... 5,419,768
------------
NET INVESTMENT INCOME............................... 15,351,352
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on:
Investments--net................................... 214,271,481
Unrealized appreciation on:
Investments--net................................... 154,437,160
------------
Net gain on investment transactions................. 368,708,641
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS.......... $384,059,993
============
</TABLE>
(a) Net of foreign taxes of: $1,464,140
See accompanying notes to financial statements.
25
<PAGE>
NEW ENGLAND ZENITH FUND
(CAPITAL GROWTH SERIES)
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1997 1998
-------------- --------------
<S> <C> <C>
FROM OPERATIONS
Net investment income......................... $ 6,977,596 $ 15,351,352
Net realized gain on investments.............. 362,271,018 214,271,481
Unrealized appreciation (depreciation) on
investments.................................. (100,549,025) 154,437,160
-------------- --------------
INCREASE IN NET ASSETS FROM OPERATIONS........ 268,699,589 384,059,993
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income......................... (6,943,584) 0
Net realized gain on investments.............. (339,035,607) 0
-------------- --------------
(345,979,191) 0
-------------- --------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares.................. 281,227,370 147,726,662
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income...... 6,943,584 0
Distributions from net realized gain.......... 339,035,607 0
-------------- --------------
627,206,561 147,726,662
Cost of shares redeemed....................... (266,868,046) (166,252,738)
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS DERIVED FROM
CAPITAL SHARE TRANSACTIONS................... 360,338,515 (18,526,076)
-------------- --------------
TOTAL INCREASE IN NET ASSETS.................. 283,058,913 365,533,917
NET ASSETS
Beginning of the period....................... 1,142,660,175 1,425,719,088
-------------- --------------
End of the period............................. $1,425,719,088 $1,791,253,005
============== ==============
UNDISTRIBUTED NET INVESTMENT INCOME
End of the period............................. $ 70,406 $ 15,421,758
============== ==============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares................ 569,332 322,773
Issued in connection with the reinvestment of:
Distributions from net investment income...... 17,731 0
Distributions from net realized gain.......... 845,144 0
-------------- --------------
1,432,207 322,773
Redeemed...................................... (539,860) (363,853)
-------------- --------------
Net change.................................... 892,347 (41,080)
============== ==============
</TABLE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------------- JUNE 30,
1993 1994 1995 1996 1997 1998
-------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of period.... $ 322.23 $ 351.63 $ 312.30 $ 374.62 $ 427.08 $ 399.60
-------- -------- -------- ---------- ---------- ----------
Income From Investment
Operations
Net Investment Income.. 2.12 5.28 3.47 3.08 2.52 4.35
Net Realized and
Unrealized Gain (Loss)
on Investments........ 46.21 (30.54) 114.91 74.80 95.67 103.95
-------- -------- -------- ---------- ---------- ----------
Total From Investment
Operations............ 48.33 (25.26) 118.38 77.88 98.19 108.30
-------- -------- -------- ---------- ---------- ----------
Less Distributions
Distributions From Net
Investment Income..... (2.18) (5.15) (3.48) (3.08) (2.52) 0.00
Distributions From Net
Realized Capital
Gains................. (16.75) (8.92) (52.58) (22.34) (123.15) 0.00
-------- -------- -------- ---------- ---------- ----------
Total Distributions.... (18.93) (14.07) (56.06) (25.42) (125.67) 0.00
-------- -------- -------- ---------- ---------- ----------
Net Asset Value, End of
period................. $ 351.63 $ 312.30 $ 374.62 $ 427.08 $ 399.60 $ 507.90
======== ======== ======== ========== ========== ==========
TOTAL RETURN (%)........ 14.97 (7.07) 38.03 21.08 23.48 27.10(a)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.68 0.67 0.71 0.69 0.67 0.67(b)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 0.67 1.61 0.92 0.79 0.52 1.91(b)
Portfolio Turnover Rate
(%).................... 169 140 242 207 214 210(b)
Net Assets, End of
period (000)........... $644,384 $667,127 $921,444 $1,142,660 $1,425,719 $1,791,253
</TABLE>
(a) Not computed on an annualized basis.
(b) Computed on an annualized basis.
See accompanying notes to financial statements.
26
<PAGE>
GOLDMAN SACHS MIDCAP VALUE SERIES
(FORMERLY, LOOMIS SAYLES AVANTI GROWTH SERIES)
PORTFOLIO MANAGERS: RONALD GUTFLEISH, LAWRENCE SIBLEY AND G. LEE ANDERSON
GOLDMAN SACHS ASSET MANAGEMENT
Q. HOW DID THE SERIES PERFORM FOR THE FIRST SIX MONTHS OF THE YEAR?
A. Goldman Sachs Asset Management became the subadviser to the Goldman Sachs
Midcap Value Series (formerly the Loomis Sayles Avanti Growth Series) on May
1, 1998. The changes in investment style associated with the subadvisory
change resulted in the Series' benchmark being changed from the S&P 500 Index
to the Russell Midcap Index. For the six months ended June 30, 1998 the Series
returned 6.7%, compared to the Lipper Variable Products Midcap Fund Average of
13.4% over the same period.
Goldman Sachs Asset Management assumed responsibility for the Series in a par-
ticularly challenging time. The Russell Midcap Index, the Series' benchmark,
declined by 3.1% in May while the Series was being invested. This decline is a
continuation of the recent trend of mid cap stocks under-performing larger cap
stocks. With mid caps continuing to lag behind large caps, the Russell Midcap
Index has underperformed the S&P 500 Index for the reporting period. Within
mid cap stocks, growth has outperformed value, making this a difficult envi-
ronment for the midcap value style we use to manage the Series. For this ini-
tial reporting period, the Series has underperformed its financial benchmark,
the Russell Midcap Index.
Q. GIVEN THIS ENVIRONMENT, HOW DID YOU MANAGE THE SERIES?
A. We seek to find opportunities for the Series to invest in mid cap companies
which sell at a substantial discount to the market and to their respective in-
dustries. These opportunities may be a result of limited near-term earnings
visibility, cyclically out-of favor status or companies that are under-fol-
lowed or misunderstood. We believe that by performing rigorous, proprietary
fundamental research into these low-expectation stocks, we are building a
portfolio which offers long-term value. Most importantly, when the current ex-
cesses are wrung from the system, we believe that our discipline will preserve
capital.
During the six months ended June 30, 1998, our overweight position in tobacco
(and tobacco-related) companies hurt performance. These holdings have declined
over the last few months due to ongoing litigation and concern over government
regulation. Over the longer term, we believe that these companies are commit-
ted to rewarding shareholders and exhibit substantially better fundamental
value than their stock prices currently indicate.
At the individual stock level, Shopko Stores has contributed substantially to
recent returns. Shopko, a regional retailer operating primarily in the Mid-
west, has appreciated due to solid growth in its in-store optical and pharmacy
business, benefiting from the increased popularity of over-the-counter vita-
mins, nutritional supplements and new premium drugs. Utility holdings also fa-
vorably affected performance.
Q. WHAT IS YOUR CURRENT MARKET OUTLOOK FOR THE MONTHS AHEAD?
A. Goldman Sachs Asset Management's research indicates that the equity mar-
kets' rise has been well justified by the healthy fundamentals of the US econ-
omy. In addition, economic conditions that could lead to the end of the bull
market don't seem to be forming in the near future. Over the course of a 3-5
year business cycle, as short-term issues are resolved, cycles turn, or the
broader analyst community understands a company as the outcome of corporate
actions becomes evident, we believe that the Series' value investments should
be positioned to generate positive returns for clients.
27
<PAGE>
A $10,000 Investment Compared to the S&P 500 Index/25/ and Russell Midcap
Index/22/
Average Annual Total Return
Midcap Value Lipper Variable Products
Series Midcap Fund Average/14/
6 months* 6.7% 13.4%
1 year 12.8% 24.4%
3 year 17.0% 20.5%
5 years 15.9% 16.7%
Snce Inception 16.4% n/a
*not annualized
[LINE GRAPH APPEARS HERE]
MidCap Value Series S&P 500 Russell 1000
4/30/93 10,000 10,000 10,000
Dec-93 11,474 10,819 11,751
Dec-94 11,443 10,966 11,505
Dec-95 14,916 15,072 15,468
Dec-96 17,538 18,524 18,407
Dec-97 20,581 24,695 23,747
6/30/98 21,960 29,059 28,283
[X] FUND FACTS
GOAL: Long-term capital appreciation.
START DATE: April 30, 1993
SIZE: $127 million as of June 30, 1998
MANAGERS: Ronald Gutfleish, G. Lee Anderson and Lawrence Sibley have managed
the Series since May 1998.
In the past, the S&P 500 Index served as the benchmark for the Goldman Sachs
Midcap Value Series (formerly, Loomis Sayles Avanti Growth Series). Beginning
May 1, 1998, the Series' performance will be measured against a new
benchmark--the Russell Midcap Index.
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.
28
<PAGE>
NEW ENGLAND ZENITH FUND
(GOLDMAN SACHS MIDCAP VALUE SERIES) (FORMERLY, LOOMIS SAYLES AVANTI GROWTH
SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
COMMON STOCKS--92.0% OF NET ASSETS
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
AIRFREIGHT, TRUCK & OTHER--2.3%
69,300 CNF Transportation.................................... $ 2,945,250
------------
AIRLINES--1.0%
21,100 Continental Airlines, Inc. CL B....................... 1,284,463
------------
AUTO SUPPLIERS--2.2%
55,200 Lear Seating Corp..................................... 2,832,450
------------
BANKS--5.0%
82,700 Pacific Century Finance Corp. ........................ 1,984,800
68,800 Republic New York Corp. .............................. 4,330,100
------------
6,314,900
------------
COMMODITY CHEMICALS--5.5%
84,700 IMC Global, Inc....................................... 2,551,588
83,000 Union Carbide Corp.................................... 4,430,125
200 Lyondell Petrochemical................................ 6,088
------------
6,987,801
------------
CONSTRUCTION/ENVIRONMENTAL SERVICES--2.5%
62,700 Fluor Corp. .......................................... 3,197,700
------------
ELECTRIC UTILITIES--10.3%
76,200 Unicom Corp........................................... 2,671,762
106,400 Entergy Corp.......................................... 3,059,000
187,900 Northeast Utilities................................... 3,182,556
210,000 Central Maine Power Co................................ 4,095,000
------------
13,008,318
------------
FOREST PRODUCTS--6.1%
130,000 Georgia Pacific Timber Group.......................... 2,998,125
48,700 Georgia-Pacific Corp.................................. 2,870,256
118,800 Stone Container Corp.................................. 1,856,250
------------
7,724,631
------------
GAMING--2.1%
160,400 Circus Circus Enterprises, Inc. ...................... 2,716,775
------------
HEALTHCARE MANAGEMENT--8.9%
70,900 Aetna, Inc............................................ 5,397,263
8,800 Trigon Healthcare, Inc................................ 318,450
102,300 Tenet Healthcare Corp................................. 3,196,875
90,900 Foundation Health Corp................................ 2,397,488
------------
11,310,076
------------
INFORMATION MANAGEMENT--0.2%
13,000 ABR Information Services, Inc......................... 308,750
------------
INSURANCE BROKERS & OTHER INSURANCE--3.0%
43,100 Loews Corp............................................ 3,755,088
------------
LIFE INSURANCE--2.8%
19,900 American General Corp................................. $ 1,416,631
44,800 Reliastar Financial Corp.............................. 2,150,400
------------
3,567,031
------------
LOGISTICS/RAILS--2.2%
96,100 Canadian Pacific LTD. ................................ 2,726,837
------------
P/C INSURANCE--3.7%
69,600 CNA Financial Corp.................................... 3,240,750
22,600 Allmerica Financial Corp.............................. 1,469,000
------------
4,709,750
------------
PC & PERIPHERALS--6.1%
251,600 Quantum Corp.......................................... 5,220,700
60,300 Seagate Technology.................................... 1,435,894
53,100 CHS Electronics, Inc.................................. 946,163
------------
7,602,757
------------
PHARMACEUTICALS--1.9%
234,500 Perrigo Co............................................ 2,359,656
------------
REAL ESTATE--1.6%
183,800 Laser Mortgage Management, Inc. ...................... 1,998,825
------------
REFINING & MARKETING--2.7%
117,300 Tosco Corp............................................ 3,445,688
------------
SEMICONDUCTORS--4.9%
53,700 Avnet, Inc............................................ 2,936,719
43,700 Lam Research Corp..................................... 835,763
133,725 Vishay Intertechnology................................ 2,398,692
------------
6,171,174
------------
STEEL--5.1%
112,700 Ispat International................................... 2,113,125
159,400 AK Steel Holding Corp. ............................... 2,849,275
42,500 Ucar International, Inc............................... 1,240,468
------------
6,202,868
------------
SUPERMARKETS--2.0%
141,400 Fleming Companies, Inc................................ 2,483,337
------------
TEXTILES--3.8%
142,000 Fruit of The Loom, Inc. CL A.......................... 4,715,625
------------
TIRES & OTHER RELATED--2.4%
47,200 Goodyear Tire & Rubber Co............................. 3,041,450
------------
TOBACCO--3.7%
123,400 UST, Inc.............................................. 3,331,800
33,500 Philip Morris Companies, Inc.......................... 1,319,061
------------
4,650,861
------------
Total Common Stocks
(Identified Cost $125,079,945)....................... 116,062,061
------------
</TABLE>
See accompanying notes to financial statements.
29
<PAGE>
NEW ENGLAND ZENITH FUND
(GOLDMAN SACHS MIDCAP VALUE SERIES) (FORMERLY, LOOMIS SAYLES AVANTI GROWTH
SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
BONDS & NOTES SHORT TERM INVESTMENTS--7.8%
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
U.S. GOVERNMENT--0.4%
$525,000 United States Treasury Bills, 9/17/98..................... $519,451
--------
Total Bonds & Notes
(Identified Cost $519,273)............................... 519,451
--------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$9,900,000 GS Joint Account Repo (c)............................ $ 9,900,000
------------
Total Short-Term Investments
(Identified cost $9,900,000)........................ 9,900,000
------------
Total Investments 99.8%
(Identified cost $135,499,218) (b).................. 126,481,512
Other assets less liabilities........................ 286,678
------------
TOTAL NET ASSETS--100%............................... $126,768,190
============
</TABLE>
FUTURE CONTRACTS
<TABLE>
<CAPTION>
AGGREGATE MARKET
CONTRACTS DESCRIPTION EXPIRATION FACE VALUE APPRECIATION
<S> <C> <C> <C> <C> <C>
9 S&P 500 Index September 17, 1998 $2,519,057 $2,571,750 $52,693
</TABLE>
(a) See Note 1A.
(b) Federal Tax Information: At June 30, 1998 the net unrealized depreciation
on investments based on cost of $135,499,218 for federal income tax
purposes was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost.............. $ 2,297,771
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value.............. (11,262,784)
------------
Net unrealized depreciation................................... $ (8,965,013)
============
</TABLE>
(c) See Note 1E.
See accompanying notes to financial statements.
30
<PAGE>
NEW ENGLAND ZENITH FUND
(GOLDMAN SACHS MIDCAP VALUE SERIES) (FORMERLY, LOOMIS SAYLES AVANTI GROWTH
SERIES)
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value.................................... $126,481,512
Cash.................................................... 43,270
Receivable for:
Fund shares sold........................................ 144,535
Securities sold......................................... 138,528
Dividends and interest.................................. 169,308
------------
126,977,153
LIABILITIES
Payable for:
Securities purchased.................................... $41,056
Fund shares redeemed.................................... 40,022
Variation margin........................................ 19,125
Withholding taxes....................................... 1,372
Miscellaneous........................................... 474
Accrued expenses:
Management fees......................................... 77,907
Deferred trustees' fees................................. 4,514
Other expenses.......................................... 24,493
-------
208,963
------------
$126,768,190
============
NET ASSETS
Net Assets consist of:
Capital paid in......................................... $ 98,305,986
Undistributed net investment income..................... 217,860
Accumulated net realized gains.......................... 37,209,357
Unrealized depreciation on investments and futures
contracts.............................................. (8,965,013)
------------
NET ASSETS............................................... $126,768,190
============
Computation of offering price:
Net asset value and redemption price per share
($126,768,190 divided by 696,455 shares of beneficial
interest)............................................... $ 182.02
============
Identified cost of investments........................... $135,499,218
============
</TABLE>
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends............................................... $ 550,873(a)
Interest................................................ 188,257
----------
739,130
EXPENSES
Management fees......................................... $ 445,404
Trustees' fees and expenses............................. 8,345
Custodian............................................... 26,871
Audit and tax services.................................. 7,043
Legal................................................... 931
Printing................................................ 28,163
Insurance............................................... 2,252
Miscellaneous........................................... 2,261
----------
Total expenses......................................... 521,270
----------
NET INVESTMENT INCOME.................................... 217,860
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FUTURES CONTRACTS
Realized gain (loss) on:
Investments--net........................................ 35,795,135
Futures contracts--net.................................. (204,067)
-----------
Total realized gain on investments and futures
contracts............................................. 35,591,068
-----------
Unrealized appreciation (depreciation) on:
Investments--net........................................(28,322,712)
Futures contracts--net.................................. 52,693
-----------
Total unrealized depreciation on investments and
futures contracts.....................................(28,270,019)
-----------
Net gain on investment transactions...................... 7,321,049
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............... $7,538,909
==========
</TABLE>
(a) Net of foreign taxes of: $1,357
See accompanying notes to financial statements.
31
<PAGE>
NEW ENGLAND ZENITH FUND
(GOLDMAN SACHS MIDCAP VALUE SERIES) (FORMERLY, LOOMIS SAYLES AVANTI GROWTH
SERIES)
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1997 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................. $ (164,084) $ 217,860
Net realized gain on investments and futures
contracts........................................ 9,407,484 35,591,068
Unrealized appreciation (depreciation) on
investments and futures contracts................ 6,733,998 (28,270,019)
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS............ 15,977,398 7,538,909
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments.................. (8,951,638) 0
------------ ------------
(8,951,638) 0
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares...................... 43,452,563 18,737,237
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net realized gain.............. 8,951,638 0
------------ ------------
52,404,201 18,737,237
Cost of shares redeemed........................... (27,480,727) (14,124,535)
------------ ------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS..................................... 24,923,474 4,612,702
------------ ------------
TOTAL INCREASE IN NET ASSETS...................... 31,949,234 12,151,611
NET ASSETS
Beginning of the period........................... 82,667,345 114,616,579
------------ ------------
End of the period................................. $114,616,579 $126,768,190
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
End of the period................................. $ 0 $ 217,860
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 255,355 101,434
Issued in connection with the reinvestment of:
Distributions from net realized gain.............. 52,904 0
------------ ------------
308,259 101,434
Redeemed.......................................... (159,978) (76,860)
------------ ------------
Net change........................................ 148,281 24,574
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
APRIL 30, 1993(A) SIX MONTHS
THROUGH YEAR YEAR YEAR YEAR ENDED
DECEMBER 31, ENDED ENDED ENDED ENDED JUNE 30,
1993 1994 1995 1996 1997 1998
----------------- ------- ------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of period.... $100.00 $113.67 $112.77 $142.44 $ 157.88 $ 170.59
------- ------- ------- ------- -------- --------
Income From Investment
Operations
Net Investment Income.. 0.18 0.59 0.42 0.11 0.00 0.31
Net Realized and
Unrealized Gain (Loss)
on Investments........ 14.56 (0.89) 33.80 24.88 27.12 11.12
------- ------- ------- ------- -------- --------
Total From Investment
Operations............ 14.74 (0.30) 34.22 24.99 27.12 11.43
------- ------- ------- ------- -------- --------
Less Distributions
Distributions From Net
Investment Income..... (0.18) (0.60) (0.40) (0.13) 0.00 0.00
Distributions From Net
Realized Capital
Gains................. (0.67) 0.00 (4.15) (9.42) (14.41) 0.00
Distributions From
Paid-in Capital....... (0.22) 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- -------- --------
Total Distributions.... (1.07) (0.60) (4.55) (9.55) (14.41) 0.00
------- ------- ------- ------- -------- --------
Net Asset Value, End of
period................. $113.67 $112.77 $142.44 $157.88 $ 170.59 $ 182.02
======= ======= ======= ======= ======== ========
TOTAL RETURN (%)........ 14.74(b) (0.27) 30.35 17.58 17.35 6.70(b)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.85(c) 0.84 0.85 0.85 0.85 0.84(c)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 0.46(c) 0.67 0.37 0.08 (0.16) 0.35(c)
Portfolio Turnover Rate
(%).................... 21(c) 67 58 65 49 240(c)
Net Assets, End of
period (000)........... $11,972 $25,622 $48,832 $82,667 $114,617 $126,768
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(c) 0.84 1.06 0.92 0.86 --
</TABLE>
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
See accompanying notes to financial statements.
32
<PAGE>
DAVIS VENTURE VALUE SERIES
PORTFOLIO MANAGER: CHRISTOPHER C. DAVIS
DAVIS SELECTED ADVISERS, L.P.
[PHOTO OF CHRISTOPHER C. DAVIS APPEARS HERE]
Q. HOW DID THE SERIES PERFORM OVER THE FIRST HALF OF THE YEAR?
A. The Davis Venture Value Series delivered a total return of 10.4% for the
six-month period ended June 30, 1998. The Series underperformed the S&P 500,
which returned 17.67% over the period, and its Lipper peer group (Lipper Vari-
able Products Growth Fund Average) performance of 16.2% for the same period.
Q. HOW DID YOU MANAGE THE SERIES DURING THE FIRST HALF OF THE YEAR?
A. We managed the Series following our long-term investment strategy of buying
growing companies that are selling at value prices.
In the first quarter of 1998, the Series increased its holdings in
McDonald's--making it one of the portfolio's largest holding--and the stock
has produced strong results. But financial, technology and energy-related
stocks continue to dominate the Series.
The Series added more shares of insurer General Re during the first quarter of
1998, making it the second largest holding, and that stock performed excep-
tionally well. Shares of Citicorp were also added.
Texas Instruments, Inc. and Applied Materials, Inc. were added to the Series
and our position in Hewlett-Packard Co. increased.
In the energy-related arena, shares were added to existing positions in
Schlumberger and Haliburton.
Q. WHAT IS YOUR CURRENT OUTLOOK FOR THE MONTHS AHEAD?
A. Our evaluation of current market and economic conditions indicates that if
the Fed acts to slow economic growth by raising interest rates, it will be a
light "tapping on the brakes" to prolong the current market cycle, not to end
it.
There is no need for a recession, because inflation is low. And we believe the
Federal Reserve Bank does not want to end this strong period of economic
growth, which, if it continues through the year 2000, will break the all-time
record of 106 months.
We don't think the Clinton administration wants to fit a recession caused by
ratcheting up of interest rates into the next two years and then try to re-
cover from that recession in time for the next presidential election.
Given this overall economic scenario, we expect to continue to invest in equi-
ties, looking for solid companies with strong growth potential, selling at
modest prices.
We have a long-term perspective because we always want to remember that we are
investing in a "marathon"--more or less as continuous investors, not in a
"sprint."
A market decline of 20% has not occurred since 1990, and current economic in-
dicators remain strong. But we think investors should be mentally prepared for
a market decline sometime in the future.
33
<PAGE>
A $10,000 Investment Compared to the S&P 500 Index/25/
Average Annual Total Return
Venture Value Lipper Variable Products
Series Growth Fund Average/10/
6 months* 10.4% 16.2%
1 year 24.1% 28.1%
3 year 28.1% 25.6%
Since Inception 28.3% n/a
*not annualized
[LINE GRAPH APPEARS HERE]
A $10,000 Investment Compared to the S&P 500 Index
VentureValue S&P 500
10/31/94 10,000 10,000
Dec-94 9,650 9,794
Dec-95 13,441 13,461
Dec-96 16,914 16,544
Dec-97 22,580 22,055
6/30/98 24,924 25,952
[X] FUND FACTS
GOAL: Growth of capital.
START DATE: October 31, 1994
SIZE: $389 million as of June 30, 1998
MANAGER: Christopher C. Davis has been the portfolio manager of the Series since
February 1997. Previously, he was co-portfolio manager of the Series with Shelby
M.C. Davis from October 1995 to February 1997.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts; if these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
34
<PAGE>
NEW ENGLAND ZENITH FUND
(DAVIS VENTURE VALUE SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
COMMON STOCKS--88.6% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
AEROSPACE--1.3%
110,000 Boeing Co. ............................................. $ 4,901,875
------------
AGRICULTURE--0.5%
87,622 Archer-Daniels-Midland Co............................... 1,697,676
11,900 Corn Products International, Inc.(c).................... 403,112
------------
2,100,788
------------
BANKS AND SAVINGS & LOANS--13.7%
70,213 Banc One Corp........................................... 3,918,763
115,800 BankAmerica Corp........................................ 10,009,462
88,980 Citicorp................................................ 13,280,265
1,000 First Union Corp........................................ 58,250
712 NationsBank Corp. ...................................... 54,468
20,400 Norwest Corp............................................ 762,450
35,200 State Street Corp....................................... 2,446,400
87,100 U.S. Bancorp............................................ 3,745,300
50,200 Wells Fargo & Co. ...................................... 18,523,800
------------
52,799,158
------------
BUILDING MATERIALS--3.1%
108,300 Martin Marietta Materials, Inc.......................... 4,873,500
118,900 Masco Corp.............................................. 7,193,450
------------
12,066,950
------------
COMMUNICATION SERVICES--0.2%
24,800 Qwest Communications(c)................................. 864,900
------------
CONSUMER PRODUCTS--5.3%
48,800 American Home Products Corp............................. 2,525,400
2,700 Coca-Cola Co............................................ 230,850
900 Fortune Brands, Inc..................................... 34,593
900 Gallaher Group (ADR)(c)(d).............................. 19,688
2,800 General Electric Co..................................... 254,800
24,300 Hasbro, Inc............................................. 955,294
76,000 Nestle S.A. (ADR)(d).................................... 8,113,000
3,400 Mattel, Inc. ........................................... 143,863
50,300 NIKE, Inc., Class B..................................... 2,448,981
145,200 Philip Morris Cos....................................... 5,717,250
------------
20,443,719
------------
DIVERSIFIED FINANCIAL SERVICES--6.1%
151,100 American Express Co. ................................... 17,225,400
75,000 Federal Home Loan Mortgage Corp......................... 3,529,687
16,100 Golden West Financial Corp. ............................ 1,711,631
10,200 Household International, Inc............................ 507,450
900 ReliaStar Financial..................................... 43,200
20,200 TCF Financial Corp...................................... 595,900
------------
23,613,268
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
DRILLING--0.7%
27,600 Dover Corp.............................................. $ 945,300
47,400 Smith International, Inc.(c)............................ 1,650,113
------------
2,595,413
------------
ELECTRONIC EQUIPMENT--2.9%
35,087 Molex, Inc. ............................................ 877,175
179,000 Texas Instruments....................................... 10,437,937
------------
11,315,112
------------
ENERGY--7.1%
400 Amerada Hess Corp....................................... 21,725
600 Amoco Corp.............................................. 24,975
1,000 Atlantic Richfield Co................................... 78,125
500 Barnett Resources....................................... 18,719
18,278 British Petrol (ADR)(d)................................. 1,613,033
66,500 Burlington Resources, Inc............................... 6,529,469
1,700 Chevron Corp............................................ 141,206
47,400 Cooper Cameron Corp.(c)................................. 2,417,400
18,700 EVI, Inc.(c)............................................ 694,237
5,600 Exxon Corp. ............................................ 399,350
133,600 Halliburton Co.......................................... 5,953,550
12,000 KN Energy, Inc. ........................................ 650,250
600 Mobil Corp.............................................. 45,975
55,164 Noble Affiliates, Inc. ................................. 2,096,232
109,200 Schlumberger, Ltd....................................... 7,459,725
100 Sempra Energy........................................... 2,775
500 Sonat, Inc.............................................. 19,312
2,400 Tom Brown, Inc.......................................... 45,150
------------
28,211,208
------------
FOOD & RESTAURANT--4.5%
234,200 McDonald's Corp......................................... 16,159,800
61,350 Tyson Foods, Inc. ...................................... 1,330,528
------------
17,490,328
------------
INTERNATIONAL CLOSED-END INVESTMENT
COMPANY--0.2%
146,734 Morgan Stanley Asia Pacific Fund, Inc................... 944,600
------------
INVESTMENT FIRMS--3.8%
47,400 Donaldson, Lufkin & Jenrette............................ 2,408,512
18,100 J.P. Morgan & Co., Inc.................................. 2,119,962
112,055 Morgan Stanley Dean Witter.............................. 10,239,026
------------
14,767,500
------------
LIFE INSURANCE--1.3%
87,950 SunAmerica, Inc......................................... 5,051,628
------------
MANUFACTURING--1.2%
151,800 Applied Materials(c).................................... 4,478,100
200 Dow Chemical Co. ....................................... 19,337
800 Maytag Corp. ........................................... 39,500
------------
4,536,937
------------
</TABLE>
See accompanying notes to financial statements.
35
<PAGE>
NEW ENGLAND ZENITH FUND
(DAVIS VENTURE VALUE SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
MARKETING--0.0%
33 ACNeilson Corp.(c)...................................... $ 833
------------
MISCELLANEOUS--0.2%
10,200 FDX Corp................................................ 640,050
------------
OIL--0.3%
18,600 J.Ray McDermott S.A.(c)................................. 771,900
12,400 McDermott International................................. 427,025
------------
1,198,925
------------
PAPER PRODUCTS--0.0%
300 International Paper Co.................................. 12,900
400 Union Camp Corp......................................... 19,850
------------
32,750
------------
PHARMACEUTICAL & HEALTH CARE--4.3%
11,400 Bristol-Myers Squibb Co................................. 1,310,287
13,300 Eli Lilly & Co.......................................... 878,631
12,400 Johnson & Johnson....................................... 914,500
5,700 Merck & Co. ............................................ 762,375
27,900 Novartis AG (ADR)(d).................................... 2,326,162
40,900 Pfizer, Inc............................................. 4,445,319
99,300 SmithKline Beecham (ADR)(d)............................. 6,007,650
------------
16,644,924
------------
PROPERTY/CASUALTY INSURANCE--12.9%
40,181 Allstate Corp........................................... 3,679,073
12,250 American International Group, Inc....................... 1,788,500
73,300 Chubb Corp.............................................. 5,891,487
79,074 General Re Corp......................................... 20,045,259
22,100 Progressive Corp., Ohio................................. 3,116,100
61,050 Transatlantic Holdings, Inc............................. 4,719,928
133,287 Travelers Group......................................... 8,080,524
29,300 20th Century Industries, Inc. .......................... 840,544
11,200 UNUM Corp............................................... 621,600
39,400 W.R. Berkley Corp....................................... 1,578,462
------------
50,361,477
------------
PUBLISHING--1.4%
100 Dun & Bradstreet Corp. ................................. 3,612
41,700 Gannet Co., Inc......................................... 2,963,306
33,600 News Corp. Ltd. (ADR)(d)................................ 1,079,400
19,800 Tribune Co.............................................. 1,362,487
------------
5,408,805
------------
RAILROAD--2.1%
93,700 Burlington Northern Santa Fe Corp. ..................... 4,034,956
30,194 Canadian National Railway............................... 1,604,062
56,500 Union Pacific Corp...................................... 2,493,062
------------
8,132,080
------------
REAL ESTATE--3.1%
1,000 CenterPoint Properties Trust SBI........................ $ 33,062
9,880 Crescent Operations, Inc.(c)............................ 167,960
99,900 Crescent Real Estate Equities........................... 3,359,137
10,900 Federal Realty Investment Trust......................... 262,281
66,100 General Growth Properties............................... 2,470,488
2,400 Kimco Realty Corp....................................... 98,400
122,500 Rouse Co................................................ 3,851,094
12,000 United Dominion Realty Trust............................ 166,500
35,700 Vornado Realty Trust.................................... 1,416,844
3,300 Weingarten Realty SBI................................... 137,981
------------
11,963,747
------------
RETAIL--0.6%
40,400 Harcourt General........................................ 2,403,800
------------
TECHNOLOGY--8.6%
100 Cognizant Corp.(c)...................................... 6,300
225,000 Hewlett-Packard Co. .................................... 13,471,875
73,900 Intel Corp.............................................. 5,477,838
102,500 International Business Machines......................... 11,768,281
79,400 Novellus Systems, Inc.(c)............................... 2,833,587
------------
33,557,881
------------
TELECOMMUNICATIONS--3.2%
98,200 Airtouch Communications, Inc.(c)........................ 5,738,563
9,704 Globalstar Telecommunications(c)........................ 262,008
18,900 Loral Space Communications(c)........................... 533,925
83,500 Motorola, Inc........................................... 4,388,969
600 SBC Communications, Inc. ............................... 24,000
53,300 360(degrees) Communications Co.(c) ..................... 1,705,600
------------
12,653,065
------------
UTILITIES--0.0%
300 Carolina Power & Light Co. ............................. 13,022
300 Duke Energy Co. ........................................ 17,775
200 Edison International.................................... 5,912
200 New England Elecricial Systems.......................... 8,650
600 Southern Co............................................. 16,612
200 Wisconsin Energy Corp................................... 6,075
------------
68,046
------------
WASTE MANAGEMENT--0.0%
400 Waste Management, Inc................................... 14,000
------------
Total Common Stocks
(Identified Cost $258,711,749)......................... 344,783,767
------------
</TABLE>
See accompanying notes to financial statements.
36
<PAGE>
NEW ENGLAND ZENITH FUND
(DAVIS VENTURE VALUE SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
CONVERTIBLE PREFERRED STOCKS--0.8%
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
5,696 Airtouch Communications, Inc., Class C, 4.250%...... $ 469,920
7,000 Devon Financing Trust, 6.500%....................... 429,188
67,900 General Growth Properties, 7.250%................... 1,714,475
2,200 Rouse Co., Series B................................. 109,450
4,300 Union Pacific Corp. 144A, 6.250%(e)................. 198,337
2,000 Vornada Realty Trust, 6.500%........................ 114,750
------------
Total Preferred Stocks
(Identified Cost $2,690,898)....................... 3,036,120
------------
SHORT TERM INVESTMENTS--10.2%
<CAPTION>
FACE
AMOUNT
<C> <S> <C>
$27,160,000 Federal Home Loan Bank,
5.430%, 7/01/98.................................... 27,160,000
12,675,000 Federal Home Loan Bank,
5.460%, 7/07/98.................................... 12,663,466
------------
Total Short-Term Investments
(Identified Cost $39,823,466)...................... 39,823,466
------------
Total Investments--99.6%
(Identified Cost $301,226,113)(b).................. 387,643,353
Other assets less liabilities....................... 1,490,787
------------
TOTAL NET ASSETS--100%.............................. $389,134,140
============
</TABLE>
(a) See Note 1A.
(b) Federal Tax Information:
At June 30, 1998 the net unrealized appreciation on investments based on
cost of $301,226,113 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost.............. $91,298,943
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value.............. (4,881,703)
-----------
Net unrealized appreciation................................... $86,417,240
===========
(c) Non-income producing security.
(d) An American Depository Receipt (ADR) is a certificate issued by a US bank
representing the right to receive securities of the foreign issuer
described. The values of ADR's are significantly influenced by trading on
exchanges not located in the United States or Canada.
(e) 144A Securities exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $198,337 or 0.23% of net
assets.
See accompanying notes to financial statements.
37
<PAGE>
NEW ENGLAND ZENITH FUND
(DAVIS VENTURE VALUE SERIES)
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value.................................... $387,643,353
Cash.................................................... 14,569
Receivable for:
Fund shares sold........................................ 1,092,440
Securities sold......................................... 1,422,053
Dividends and interest.................................. 337,833
Foreign taxes........................................... 1,578
Unamortized organization expense........................ 2,680
------------
390,514,506
LIABILITIES
Payable for:
Securities purchased.................................... $923,408
Fund shares redeemed.................................... 168,988
Withholding taxes....................................... 5,305
Accrued expenses:
Management fees......................................... 230,055
Deferred trustees' fees................................. 5,019
Other expenses.......................................... 47,591
--------
1,380,366
------------
$389,134,140
============
NET ASSETS
Net Assets consist of:
Capital paid in......................................... $296,627,626
Undistributed net investment income..................... 1,441,707
Accumulated net realized gains.......................... 4,647,498
Unrealized appreciation on investments and foreign
currency............................................... 86,417,309
------------
NET ASSETS............................................... $389,134,140
============
Computation of offering price:
Net asset value and redemption price per share
($389,134,140 divided by 16,949,998 shares of beneficial
interest)............................................... $ 22.96
============
Identified cost of investments........................... $301,226,113
============
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends............................................... $ 1,874,496(a)
Interest................................................ 982,970
-----------
2,857,466
EXPENSES
Management fees......................................... $1,292,704
Trustees' fees and expenses............................. 12,899
Custodian............................................... 35,376
Audit and tax services.................................. 6,322
Legal................................................... 8,552
Printing................................................ 50,255
Insurance............................................... 6,391
Amortization of organization expenses................... 997
Miscellaneous........................................... 2,263
-----------
Total expenses......................................... 1,415,759
-----------
NET INVESTMENT INCOME.................................... 1,441,707
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Realized gain on:
Investments--net........................................ 4,197,532
Foreign currency transactions--net...................... 70
-----------
Total realized gain on investments and foreign
currency transactions................................. 4,197,602
-----------
Unrealized appreciation on:
Investments--net........................................ 26,760,889
Foreign currency transactions--net...................... 26
-----------
Total unrealized appreciation on investments and
foreign currency transactions......................... 26,760,915
-----------
Net gain on investment transactions..................... 30,958,517
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............... $32,400,224
===========
</TABLE>
(a)Net of foreign taxes of: $29,845
See accompanying notes to financial statements.
38
<PAGE>
NEW ENGLAND ZENITH FUND
(DAVIS VENTURE VALUE SERIES)
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1997 1998
------------ ----------------
<S> <C> <C>
FROM OPERATIONS
Net investment income.......................... $ 1,777,660 $ 1,441,707
Net realized gain on investments and foreign
currency transactions......................... 6,969,133 4,197,602
Unrealized appreciation on investments and
foreign currency transactions................. 41,444,414 26,760,915
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS......... 50,191,207 32,400,224
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income.......................... (1,734,376) 0
Net realized gain on investments............... (6,838,667) 0
------------ ------------
(8,573,043) 0
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares................... 161,182,195 111,273,089
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income....... 1,734,376 0
Distributions from net realized gain........... 6,838,667 0
------------ ------------
169,755,238 111,273,089
Cost of shares redeemed........................ (39,114,351) (34,987,250)
------------ ------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS............................ 130,640,887 76,285,839
------------ ------------
TOTAL INCREASE IN NET ASSETS................... 172,259,051 108,686,063
NET ASSETS
Beginning of the period........................ 108,189,026 280,448,077
------------ ------------
End of the period.............................. $280,448,077 $389,134,140
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
End of the period.............................. $ 0 $ 1,441,707
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares................. 8,370,050 5,051,732
Issued in connection with the reinvestment of:
Distributions from net investment income....... 85,008 0
Distributions from net realized gain........... 335,095 0
------------ ------------
8,790,153 5,051,732
Redeemed....................................... (2,030,066) (1,585,290)
------------ ------------
Net change..................................... 6,760,087 3,466,442
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 31, 1994(A) SIX MONTHS
THROUGH YEAR YEAR YEAR ENDED
DECEMBER 31, ENDED ENDED ENDED JUNE 30,
1994 1995 1996 1997 1998
------------------- ------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of period.... $10.00 $ 9.62 $ 13.10 $ 16.09 $ 20.80
------ ------- -------- -------- --------
Income From Investment
Operations
Net Investment Income.. 0.03 0.10 0.13 0.18 0.09
Net Realized and
Unrealized Gain (Loss)
on Investments........ (0.38) 3.68 3.26 5.20 2.07
------ ------- -------- -------- --------
Total From Investment
Operations............ (0.35) 3.78 3.39 5.38 2.16
------ ------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income..... (0.03) (0.10) (0.13) (0.14) 0.00
Distributions From Net
Realized Capital
Gains................. 0.00 (0.20) (0.27) (0.53) 0.00
------ ------- -------- -------- --------
Total Distributions.... (0.03) (0.30) (0.40) (0.67) 0.00
------ ------- -------- -------- --------
Net Asset Value, End of
period................. $ 9.62 $ 13.10 $ 16.09 $ 20.80 $ 22.96
====== ======= ======== ======== ========
TOTAL RETURN (%)........ (3.50)(b) 39.28 25.84 33.50 10.38(b)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.90 (c) 0.90 0.90 0.90 0.85(c)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 2.54 (c) 1.39 1.25 0.94 0.86(c)
Portfolio Turnover Rate
(%).................... 1 (c) 20 18 17 11(c)
Net Assets, End of
period (000)........... $3,371 $35,045 $108,189 $280,448 $389,134
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 (c) 1.51 0.96 0.90 --
</TABLE>
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
See accompanying notes to financial statements.
39
<PAGE>
WESTPEAK GROWTH AND INCOME SERIES
PORTFOLIO MANAGERS: GERALD H. SCRIVER AND PHILIP J. COOPER
WESTPEAK INVESTMENT ADVISORS, L.P.
[PHOTOS OF GERALD H. SCRIVER AND PHILIP J. COOPER APPEAR HERE[
Q. HOW DID THE SERIES PERFORM DURING THE FIRST SIX MONTHS ENDED?
A. For the six months ended June 30, 1998, the Westpeak Growth and Income Se-
ries had a total return of 18.8% compared to the 17.67% return for the Standard
& Poor's 500 Index and a return of 12.2% for the Lipper Variable Products
Growth and Income Fund Average. The Series' return reflected a $33.76 per share
gain in net asset value to $213.74.
Q. HOW DID YOU MANAGE THE SERIES DURING THE FIRST HALF OF THE YEAR?
A. Investors continued to assess the possible damage to the U.S. economy from
continued financial turmoil in Asia. For the first time in decades, long-stand-
ing concerns over inflation began yielding to unaccustomed worries about the
prospect of deflation, or falling prices.
Faltering economies cut currency values sharply in several Asian nations. As a
nation's currency declines, fewer dollars are needed to import its goods. Faced
with falling prices for competitive products from abroad, American companies
are limited in their ability to raise prices, putting pressure on profits and
raising concerns over an economic slowdown here.
For a time, there were signs of recovery in some Asian economies, and it ap-
peared that any impact on U.S. businesses would be mild and transitory. Conse-
quently, investors grew more optimistic about the U.S. economy and interest
rates began to rise, rekindling fears of possible inflation. But by late winter
it was clear that significant economic revitalization in Asia--especially in
Japan--would be a long time coming.
Toward the end of 1997, we began to moderate our emphasis on value stocks in
the Series' portfolio, so that by the end of 1998's second quarter the growth
and value portions of the portfolio were roughly equal. In choosing growth
stocks, we looked for companies whose earnings were increasing and whose stocks
were selling at low price/earnings ratios relative to the Series' benchmark,
the Standard & Poor's 500 Stock Index. A price/earnings ratio is a rule-of-
thumb that investors use to gauge whether a stock's price is high or low in
terms of the company's earning power--the higher the ratio, the more expensive
the stock. This ratio also serves as an objective standard by which investors
can evaluate stocks relative to one another.
Toward the end of the period under review, the Series' portfolio had an average
price/earnings ratio of 20--the average price was approximately 20 times the
average earnings--which was well below the S&P 500 Index's ratio of 25; the Se-
ries' holdings also have been growing their earnings faster than the companies
in the Index, with a 5-year growth rate of 22.5% per year, compared to 17% per
year for the benchmark.
Our bias toward companies with reasonable valuations proved beneficial to the
Series, as investors gravitated toward companies with below-average price-
/earnings ratios. The Series also benefited from our decision to avoid compa-
nies that are heavily dependent on overseas income, given the weak economies in
Asia, Russia and elsewhere.
We added some companies whose actual earnings exceeded the forecasts of Wall
Street analysts. According to our research, positive earnings surprises, as
these events are called, tend to be repeated and are often a powerful factor in
leading stock prices higher.
Other positives included a large position (relative to the S&P 500) in the au-
tomotive area and consumer-related companies. Both sectors are prospering
thanks to the nation's strong economy and low unemployment rate. Wal-Mart, for
instance, performed very well and is the Series' largest holding. We reduced
holdings in electric utilities; U.S. growth rates are slower but moderate
price/earnings ratios helped reduce volatility. Meanwhile, our decision to de-
emphasize the beverages sector hurt performance, as companies such as Coca-Cola
enjoyed strong growth. Finally, our relatively lighter exposure to technology
and energy companies was beneficial, as these sectors underperformed.
Q. WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD?
A. We believe that conditions in the Far East will continue to restrain busi-
ness activity here, keeping inflation in check and dispelling fears of higher
interest rates. In fact, we think any near-term change in interest rates will
be downward, as the Federal Reserve Board appears determined to prevent the
Asian crisis from hurting our economy excessively. Nevertheless, U.S. busi-
nesses will continue to feel persistent pricing pressures from overseas, and
the economy should begin to slow.
40
<PAGE>
Our style is to keep the Series' portfolio fully invested; we never try to
guess the market's highs or lows nor do we allow economic trends to influence
our stock selection. We will continue to manage the Westpeak Growth and Income
Series as we have, by
seeking to assemble a portfolio of stocks that, seen in total, present a pro-
file of attractive growth prospects and a low potential for share price vola-
tility, a combination that we believe will benefit investors in the months
ahead.
A $10,000 Investment Compared to the S&P 500 Index/25/
[LINE GRAPH APPEARS HERE]
Average Annual Total Return
Westpeak Lipper Variable Products Growth
Growth & Income and Income Fund Average/11/
6 months* 18.8% 12.2%
1 year 32.8% 23.0%
3 years 28.5% 25.0%
5 years 22.5% 19.4%
Since Inception 22.7% n/a
*not annualized
Growth And Income S&P 500
4/30/93 10,000 10,000
Dec-93 11,424 10,819
Dec-94 12,286 10,966
Dec-95 15,402 15,072
Dec-96 18,189 18,524
Dec-97 24,278 24,695
6/30/98 28,832 29,059
[X] FUND FACTS
GOAL: Long-term total return through investment in equity securities.
START DATE: May 1, 1993
SIZE: $221 million as of June 30, 1998
MANAGERS: Gerald Scriver and Philip Cooper. Mr. Scriver and Mr. Cooper have
managed the Series from its inception in 1993; they also have managed Westpeak
Stock Index Series since August 1993, New England Growth Opportunities Fund
since May 1, 1995 and New England Capital Growth Fund since February 16, 1998.
Mr. Scriver joined Westpeak in July 1991 and Mr. Cooper joined Westpeak in
December 1991.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts; if these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
41
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK GROWTH AND INCOME SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
COMMON STOCKS--96.3% OF TOTAL NET ASSETS
- --------------------------------------------------------------------------------
SHARES VALUE (A)
AIRLINES--0.7%
19,600 AMR, Corp.(c)........................................ $ 1,631,700
------------
APPAREL & TEXTILES--1.9%
12,000 Jones Apparel Group, Inc.(c)......................... 438,750
73,500 VF Corp.............................................. 3,785,250
------------
4,224,000
------------
AUTOMOTIVE--4.2%
82,600 Dana Corp. .......................................... 4,419,100
83,600 Ford Motor Co........................................ 4,932,400
------------
9,351,500
------------
BANKS--8.4%
65,000 Banc One Corp. ...................................... 3,627,813
13,000 BankAmerica Corp. ................................... 1,123,688
58,900 Comerica, Inc. ...................................... 3,902,125
46,631 NationsBank Corp. ................................... 3,567,272
11,600 Republic New York Corp. ............................. 730,075
56,300 SunTrust Banks, Inc. ................................ 4,577,894
7,600 UnionBanCal Corp. ................................... 733,400
------------
18,262,267
------------
BUSINESS SERVICES--0.8%
3,000 Interpublic Group Cos. .............................. 182,062
30,300 Robert Half International, Inc.(c)................... 1,693,013
------------
1,875,075
------------
CHEMICALS--2.8%
33,100 Dow Chemical Co. .................................... 3,200,356
29,300 Ecolab, Inc. ........................................ 908,300
47,300 Lyondell Petrochemical Co.(c)........................ 1,439,694
10,200 PPG Industries, Inc. ................................ 709,537
------------
6,257,887
------------
COMPUTER SOFTWARE & SERVICES--2.6%
20,800 Cadence Design Systems, Inc.(c)...................... 650,000
43,100 Microsoft Corp.(c)................................... 4,670,963
17,500 Symantec Corp.(c).................................... 457,187
------------
5,778,150
------------
COMPUTERS & BUSINESS EQUIPMENT--5.4%
56,500 Cisco Systems, Inc.(c)............................... 5,201,531
37,200 Compaq Computer Corp. ............................... 1,055,550
14,600 EMC Corp.(c)......................................... 654,262
36,300 Lexmark International Group, Inc.(c)................. 2,214,300
22,000 Pitney Bowes, Inc. .................................. 1,058,750
24,700 Sun Microsystems, Inc.(c)............................ 1,072,906
5,200 Xerox Corp. ......................................... 528,450
------------
11,785,749
------------
CONSTRUCTION--2.2%
43,400 Centex Corp. ........................................ 1,638,350
52,300 Masco Corp. ......................................... 3,164,150
------------
4,802,500
------------
CONSUMER GOODS & SERVICES--0.5%
18,500 Black & Decker Corp. ................................ 1,128,500
------------
DEFENSE & AEROSPACE--2.0%
24,200 B.F. Goodrich Co. ................................... 1,200,925
53,500 Gulfstream Aerospace Corp.(c)........................ 2,487,750
13,400 Litton Industries, Inc.(c)........................... 790,600
------------
4,479,275
------------
DRUGS--8.7%
14,500 Bristol-Myers Squibb Co. ............................ 1,666,594
25,400 Cardinal Health, Inc. ............................... 2,381,250
60,000 Genentech, Inc.(c)................................... 4,072,500
13,800 Merck & Co. ......................................... 1,845,750
33,100 Pfizer, Inc. ........................................ 3,597,556
59,700 Schering-Plough Corp. ............................... 5,470,013
------------
19,033,663
------------
ELECTRIC UTILITIES--3.2%
4,600 Consolidated Edison, Inc. ........................... 211,887
94,400 DTE Energy Co. ...................................... 3,811,400
69,000 Pinnacle West Capital Corp. ......................... 3,105,000
------------
7,128,287
------------
ELECTRONICS--3.2%
68,500 Lucent Technologies, Inc. ........................... 5,698,344
11,600 SCI Systems, Inc.(c)................................. 436,450
12,800 Tellabs, Inc.(c)..................................... 916,800
------------
7,051,594
------------
ENERGY RESERVES--2.3%
19,300 Chevron Corp. ....................................... 1,603,106
49,300 Exxon Corp. ......................................... 3,515,706
------------
5,118,812
------------
FINANCIAL SERVICES--5.3%
8,300 American Express Co. ................................ 946,200
21,910 Associates First Capital............................. 1,684,331
17,800 Dun & Bradstreet..................................... 4,255,525
77,600 Federal National Mortgage Association................ 4,714,200
------------
11,600,256
------------
FOOD & BEVERAGES--2.4%
15,000 Dean Foods Co. ...................................... 824,063
21,400 Interstate Bakeries.................................. 710,213
See accompanying notes to financial statements.
42
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK GROWTH AND INCOME SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONTINUED)
- --------------------------------------------------------------------------------
SHARES VALUE (A)
FOOD & BEVERAGES--(CONTINUED)
18,600 Kellogg Co. ............................................. $ 698,662
33,900 Quaker Oats Co. ......................................... 1,862,381
16,100 Unilever N.V. ........................................... 1,270,894
------------
5,366,213
------------
HEALTH CARE--PRODUCTS--1.8%
14,800 Johnson & Johnson........................................ 1,091,500
47,500 TYCO International, Ltd. ................................ 2,992,500
------------
4,084,000
------------
HEALTH CARE--SERVICES--1.6%
44,900 Health Care & Retirement Corp.(c)........................ 1,770,744
53,600 Tenet Healthcare Corp.(c)................................ 1,675,000
------------
3,445,744
------------
HOTELS & RESTAURANTS--0.2%
9,417 Promus Hotel Corp.(c).................................... 362,554
------------
HOUSEHOLD PRODUCTS--1.8%
27,900 Estee Lauder Companies, Inc. ............................ 1,944,281
10,100 Procter & Gamble Co. .................................... 919,731
35,300 Rubbermaid, Inc. ........................................ 1,171,519
------------
4,035,531
------------
INDUSTRIAL--PARTS & MACHINERY--4.4%
49,000 Caterpillar, Inc. ....................................... 2,590,875
58,500 Ingersoll-Rand Co. ...................................... 2,577,656
14,400 Timken Co. .............................................. 443,700
44,600 United Technologies Corp. ............................... 4,125,500
------------
9,737,731
------------
INSURANCE--4.9%
54,200 Allstate Corp. .......................................... 4,962,688
4,200 American International Group............................. 613,200
12,400 MGIC Investment Corp. ................................... 707,575
24,375 Old Republic International Corp. ........................ 714,492
71,000 St. Paul Cos. ........................................... 2,986,438
15,600 Travelers Group.......................................... 945,750
------------
10,930,143
------------
MEDIA & ENTERTAINMENT--1.4%
35,700 Time Warner, Inc. ....................................... 3,050,119
------------
MEDICAL--SERVICES--0.2%
12,700 Omnicare, Inc. .......................................... 484,187
------------
METALS & MINING--0.4%
25,400 USX-U.S. Steel Group..................................... 838,200
------------
OIL--REFINING & DISTRIBUTION--0.5%
16,700 Coastal Corp. ........................................... 1,165,869
------------
PUBLISHING--2.2%
13,600 Gannett Co. ............................................. 966,450
71,200 Knight-Ridder, Inc. ..................................... 3,920,450
------------
4,886,900
------------
RETAIL--CLOTHING--0.6%
13,500 Neiman-Marcus Group(c)................................... 586,406
34,600 TJX Companies, Inc. ..................................... 834,725
------------
1,421,131
------------
RETAIL--DEPARTMENT STORE--4.3%
38,000 Dayton Hudson Corp. ..................................... 1,843,000
27,700 Federated Department Stores, Inc.(c)..................... 1,490,606
15,600 Fred Meyer, Inc.(c)...................................... 663,000
91,600 Wal-Mart Stores, Inc. ................................... 5,564,700
------------
9,561,306
------------
RETAIL--FOOD & DRUG--1.1%
29,800 Albertson's, Inc. ....................................... 1,544,012
22,800 Safeway, Inc.(c)......................................... 927,675
------------
2,471,687
------------
RETAIL--SPECIALTY--1.9%
30,900 Borders Group, Inc.(c)................................... 1,143,300
7,100 General Nutrition(c)..................................... 220,987
32,800 Home Depot, Inc. ........................................ 2,724,450
------------
4,088,737
------------
SECURITIES & ASSET MANAGEMENT--4.6%
27,700 Bear Stearns Cos. ....................................... 1,575,438
12,200 Donaldson, Lufkin & Jenrette, Inc. ...................... 619,912
45,600 Equitable Cos. .......................................... 3,417,150
10,500 Lehman Brothers Holdings................................. 814,406
3,800 Merrill Lynch & Co. ..................................... 350,550
37,700 Morgan Stanley Dean Witter............................... 3,444,838
------------
10,222,294
------------
TELECOMMUNCIATION--6.6%
13,200 AirTouch Communications, Inc.(c)......................... 771,375
86,500 Ameritech Corp........................................... 3,881,688
88,800 AT&T Corp. .............................................. 5,072,700
13,400 Bell Atlantic Corp. ..................................... 611,375
46,200 BellSouth Corp. ......................................... 3,101,175
20,700 U.S. West, Inc. ......................................... 972,900
------------
14,411,213
------------
TOBACCO--1.2%
72,300 Universal Corp. ......................................... 2,702,213
------------
Total Common Stocks
(Identified Cost $172,382,122).......................... 212,774,987
------------
See accompanying notes to financial statements.
43
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK GROWTH AND INCOME SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENT--3.5%
- --------------------------------------------------------------------------------
FACE
AMOUNT VALUE (A)
$7,703,000 Repurchase agreement with State Street Corp. dated
6/30/98 at 5.000% to be repurchased at $7,704,070
on 7/01/98 collaterized by $5,985,000 U.S Treasury
Bond 8.125% due 8/15/19 with a value of
$7,861,788......................................... $ 7,703,000
------------
Total Short-Term Investment
(Identified cost $7,703,000)....................... 7,703,000
------------
Total Investments--99.8%
(Identified cost $180,085,122)(b).................. 220,477,987
Other assets less liabilities........................ 419,795
------------
TOTAL NET ASSETS--100%............................... $220,897,782
============
(a) See Note 1A.
(b) Federal Tax Information:
At June 30,1998 the net unrealized appreciation on investments based on cost
of $180,085,122 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost............... $43,305,477
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value............... (2,912,612)
-----------
Net unrealized appreciation................................... $40,392,865
===========
(c) Non-income producing security.
See accompanying notes to financial statements.
44
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK GROWTH AND INCOME SERIES)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1998 (UNAUDITED)
ASSETS
Investments at value.................................... $220,477,987
Cash.................................................... 216
Receivable for:
Fund shares sold....................................... 412,988
Dividends and interest................................. 243,361
Foreign taxes.......................................... 1,202
------------
221,135,754
LIABILITIES
Payable for:
Fund shares redeemed................................... $ 81,495
Accrued expenses:
Management fees........................................ 120,791
Deferred trustees' fees................................ 5,460
Other expenses......................................... 30,226
--------
237,972
------------
$220,897,782
============
NET ASSETS
Net Assets consist of:
Capital paid in........................................ $161,959,588
Undistributed net investment income.................... 703,014
Accumulated net realized gains......................... 17,842,315
Unrealized appreciation on investments................. 40,392,865
------------
NET ASSETS............................................... $220,897,782
============
Computation of offering price:
Net asset value and redemption price per share
($220,897,782 divided by 1,033,499 shares of beneficial
interest)............................................... $ 213.74
============
Identified cost of investments........................... $180,085,122
============
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
INVESTMENT INCOME
Dividends............................................. $ 1,278,864(a)
Interest.............................................. 137,695
-----------
1,416,559
EXPENSES
Management fees....................................... $645,414
Trustees' fees and expenses........................... 10,005
Custodian............................................. 30,614
Audit and tax services................................ 6,133
Legal................................................. 2,942
Printing.............................................. 27,206
Insurance............................................. 3,546
Miscellaneous......................................... 2,264
--------
Total expenses.................................... 728,124
-----------
NET INVESTMENT INCOME.................................. 688,435
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on:
Investments--net..................................... 13,123,139
Unrealized appreciation on:
Investments--net..................................... 17,485,162
-----------
Net gain on investment transactions.................... 30,608,301
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............. $31,296,736
===========
(a) Net of foreign taxes of: $1,804
See accompanying notes to financial statements.
45
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK GROWTH AND INCOME SERIES)
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1997 1998
------------ ----------------
FROM OPERATIONS
Net investment income.......................... $ 1,047,363 $ 688,435
Net realized gain on investments............... 17,943,986 13,123,139
Unrealized appreciation on investments......... 12,979,433 17,485,162
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS......... 31,970,782 31,296,736
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income.......................... (1,033,253) 0
Net realized gain on investments............... (15,362,335) 0
------------ ------------
(16,395,588) 0
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares................... 64,665,884 54,363,393
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income..... 1,033,253 0
Distributions from net realized gain......... 15,362,335 0
------------ ------------
81,061,472 54,363,393
Cost of shares redeemed........................ (26,228,431) (17,500,725)
------------ ------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS............................ 54,833,041 36,862,668
------------ ------------
TOTAL INCREASE IN NET ASSETS................... 70,408,235 68,159,404
NET ASSETS
Beginning of the period........................ 82,330,143 152,738,378
------------ ------------
End of the period.............................. $152,738,378 $220,897,782
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
End of the period.............................. $ 14,579 $ 703,014
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares................. 362,661 272,591
Issued in connection with the reinvestment of:
Distributions from net investment income..... 5,886 0
Distributions from net realized gain......... 86,752 0
------------ ------------
455,299 272,591
Redeemed....................................... (149,104) (87,736)
------------ ------------
Net change..................................... 306,195 184,855
============ ============
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
APRIL 30, 1993(A) SIX MONTHS
THROUGH YEAR YEAR YEAR YEAR ENDED
DECEMBER 31, ENDED ENDED ENDED ENDED JUNE 30,
1993 1994 1995 1996 1997 1998
----------------- ------- ------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of period.... $100.00 $112.32 $109.03 $141.31 $ 151.77 $ 179.98
------- ------- ------- ------- -------- --------
Income From Investment
Operations
Net Investment Income... 0.92 1.90 1.77 1.78 1.37 0.66
Net Realized and
Unrealized Gain (Loss)
on Investments......... 13.33 (3.25) 37.91 23.69 48.76 33.10
------- ------- ------- ------- -------- --------
Total From Investment
Operations............. 14.25 (1.35) 39.68 25.47 50.13 33.76
------- ------- ------- ------- -------- --------
Less Distributions
Distributions From Net
Investment Income...... (0.92) (1.92) (1.71) (1.82) (1.35) 0.00
Distributions From Net
Realized Capital Gains. (1.00) 0.00 (5.69) (13.19) (20.57) 0.00
Distributions in Excess
of Net Realized Capital
Gains.................. (0.01) 0.00 0.00 0.00 0.00 0.00
Distributions From Paid-
in Capital............. 0.00 (0.02) 0.00 0.00 0.00 0.00
------- ------- ------- ------- -------- --------
Total Distributions..... (1.93) (1.94) (7.40) (15.01) (21.92) 0.00
------- ------- ------- ------- -------- --------
Net Asset Value, End of
period................. $112.32 $109.03 $141.31 $151.77 $ 179.98 $ 213.74
======= ======= ======= ======= ======== ========
TOTAL RETURN (%)........ 14.24(b) (1.21) 36.46 18.10 33.48 18.76(b)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.85(c) 0.85 0.85 0.85 0.82 0.79(c)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 2.16(c) 2.30 1.63 1.40 0.91 0.75(c)
Portfolio Turnover Rate
(%).................... 49(c) 133 92 104 93 94(c)
Net Assets, End of
period (000)........... $ 9,082 $22,934 $48,129 $82,330 $152,738 $220,898
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(c) 0.86 1.06 0.91 -- --
</TABLE>
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
See accompanying notes to financial statements.
46
<PAGE>
WESTPEAK STOCK INDEX SERIES
PORTFOLIO MANAGERS: GERALD H. SCRIVER AND PHILIP J. COOPER
WESTPEAK INVESTMENT ADVISORS, L.P.
[PHOTO OF GERALD H. SCRIVER [PHOTO OF PHILIP J. COOPER
APPEARS HERE] APPEARS HERE]
Q. HOW DID THE SERIES PERFORM DURING THE FIRST HALF OF 1998?
A. The Westpeak Stock Index Series returned 17.3% compared to 17.67% posted by
the S&P 500 Index for the six months ended June 30, 1998.
A $10,000 Investment Compared to the S&P 500 Index/25/
[LINE GRAPH APPEARS HERE]
Average Annual Total Return
Stock Index Lipper Variable Products
Series S&P 500 Fund Index/16/
6 months* 17.3% 17.4%
1 year 29.4% 29.6%
3 years 29.5% 29.7%
5 years 22.5% 22.5%
10 Years 18.0% 17.9%
Since Inception 15.8% n/a
*not annualized
Stock Index Series S&P 500
12/31/87 10,000 10,000
Dec-88 11,634 11,650
Dec-89 15,142 15,330
Dec-90 14,514 14,852
Dec-91 18,923 19,358
Dec-92 20,304 20,831
Dec-93 22,278 22,921
Dec-94 22,532 23,232
Dec-95 30,842 31,931
Dec-96 37,771 39,243
Dec-97 50,045 52,317
6/30/98 58,695 61,562
Q. HOW WAS THE SERIES MANAGED DURING THE FIRST SIX MONTHS?
A. The Series is managed so as to track the performance of the S&P 500 Index.
Westpeak's approach is to emulate the S&P 500 Index by owning a majority of
the stocks in the Index in the same proportion as the index. This process
seeks to minimize the tracking error (the difference between the performance
of the series to the index). The Series expects to be fully invested in the
S&P 500 stocks.
[X] 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: $159 million as of June 30, 1998
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, New England Growth Opportunities Fund since May 1,
1995 and New England Capital Growth Fund since February 16, 1998. Mr. Scriver
joined Westpeak in July 1991 and Mr. Cooper joined Westpeak in December 1991.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts; if these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
47
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
COMMON STOCKS--99.1% OF TOTAL NET ASSETS
- --------------------------------------------------------------------------------
SHARES VALUE (A)
AIRLINES--0.4%
3,200 AMR Corp.(c)............................................. $ 266,400
1,300 Delta Air Lines.......................................... 168,025
3,900 Southwest Airlines....................................... 115,537
1,500 US Airways Group, Inc.(c)................................ 118,875
------------
668,837
------------
APPAREL & TEXTILES--0.3%
1,300 Fruit of the Loom, Inc.(c)............................... 43,144
1,100 Liz Claiborne, Inc....................................... 57,475
5,100 NIKE, Inc., Class B...................................... 248,306
1,000 Reebok International, Ltd.(c)............................ 27,687
600 Russell Corp............................................. 18,113
300 Springs Industries, Inc.................................. 13,838
2,100 VF Corp.................................................. 108,150
------------
516,713
------------
AUTOMOTIVE--2.1%
11,600 Chrysler Corp............................................ 653,950
1,400 Cooper Tire & Rubber Co.................................. 28,875
1,900 Dana Corp................................................ 101,650
1,100 Echlin, Inc.............................................. 53,969
21,300 Ford Motor Co............................................ 1,256,700
12,600 General Motors Corp...................................... 841,837
2,700 Goodyear Tire & Rubber................................... 173,981
2,000 ITT Industries, Inc...................................... 74,750
1,320 Navistar International Corp.(c).......................... 38,115
1,290 PACCAR, Inc.............................................. 67,403
------------
3,291,230
------------
BANKS--8.5%
12,552 Banc One Corp............................................ 700,558
6,600 Bank of New York......................................... 400,537
12,356 BankAmerica Corp......................................... 1,068,022
5,000 BankBoston Corp.......................................... 278,125
1,700 Bankers Trust New York................................... 197,306
2,500 BB&T Corp................................................ 169,063
14,940 Chase Manhattan.......................................... 1,127,970
8,000 Citicorp................................................. 1,194,000
2,700 Comerica, Inc............................................ 178,875
4,200 Fifth Third Bancorp...................................... 264,600
5,110 First Chicago Corp....................................... 452,874
17,170 First Union Corp......................................... 1,000,152
4,862 Fleet Financial Group, Inc............................... 405,977
3,400 Huntington Bancshares, Inc............................... 113,900
3,200 J.P. Morgan.............................................. 374,800
7,800 Keycorp.................................................. 277,875
4,500 Mellon Bank Corp......................................... 313,313
2,300 Mercantile Bancorp, Inc.................................. 115,863
5,700 National City Corp....................................... 404,700
16,742 NationsBank Corp......................................... 1,280,763
1,900 Northern Trust Corp...................................... 144,875
13,500 Norwest Corp............................................. 504,562
5,500 PNC Bank Corp............................................ 295,969
2,000 Republic New York Corp................................... 125,875
2,800 State Street Corp........................................ 194,600
3,000 Summit Bancorp........................................... 142,500
3,700 SunTrust Banks, Inc...................................... 300,856
4,650 Synovus Financial Corp................................... 110,438
13,008 U.S. Bancorp............................................. 559,344
3,600 Wachovia Corp............................................ 304,200
1,433 Wells Fargo & Co......................................... 528,777
------------
13,531,269
------------
BUSINESS SERVICES--1.1%
5,200 Automatic Data Processing, Inc........................... 378,950
1,400 Ceridian Corp.(c)........................................ 82,250
2,920 Cognizant Corp........................................... 183,960
2,800 Computer Sciences(c)..................................... 179,200
2,700 Equifax, Inc............................................. 98,044
7,500 First Data Corp.......................................... 249,844
7,500 HBO & Co................................................. 264,375
2,200 Interpublic Group Cos.................................... 133,512
2,900 Omnicom Group............................................ 144,637
400 Shared Medical System.................................... 29,375
------------
1,744,147
------------
CHEMICALS--3.1%
4,200 Air Products & Chemicals, Inc............................ 168,000
1,300 Ashland, Inc............................................. 67,113
1,800 Avery Dennison Corp...................................... 96,750
3,850 Dow Chemical Co.......................................... 372,247
1,400 Eastman Chemical Co...................................... 87,150
2,200 Ecolab, Inc.............................................. 68,200
20,100 El duPont deNemours...................................... 1,499,962
2,525 Engelhard Corp........................................... 51,131
1,100 Great Lakes Chemical Corp................................ 43,381
1,700 Hercules, Inc............................................ 69,913
7,300 Minnesota Mining & Manufacturing Co...................... 599,969
10,400 Monsanto Co.............................................. 581,100
2,300 Morton International, Inc................................ 57,500
1,200 Nalco Chemical Co........................................ 42,150
6,100 Occidental Petroleum Corp................................ 164,700
3,100 PPG Industries, Inc...................................... 215,644
2,700 Praxair, Inc............................................. 126,394
1,000 Rohm & Haas Co........................................... 103,937
896 Sealed Air Corp.(c)...................................... 32,928
3,000 Sherwin Williams Co...................................... 99,375
1,700 Sigma-Aldrich............................................ 59,713
3,000 Tenneco, Inc............................................. 114,187
2,100 Union Carbide Corp....................................... 112,087
1,300 W.R. Grace & Co.(c)...................................... 22,181
1,775 Westvaco Corp............................................ 50,144
------------
4,905,856
------------
See accompanying notes to financial statements.
48
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONTINUED)
- --------------------------------------------------------------------------------
SHARES VALUE (A)
COMPUTER SOFTWARE & SERVICES--3.8%
1,300 Adobe Systems, Inc....................................... $ 55,169
700 Autodesk, Inc............................................ 27,037
9,600 Computer Associates International, Inc................... 533,400
43,000 Microsoft Corp.(c)....................................... 4,660,125
6,100 Novell, Inc.(c).......................................... 77,775
17,537 Oracle Systems Corp.(c).................................. 430,753
4,500 Parametric Technology Corp.(c)........................... 122,062
4,400 Unisys Corp.(c).......................................... 124,300
------------
6,030,621
------------
COMPUTERS & BUSINESS EQUIPMENT--5.7%
6,200 3Com Corp.(c)............................................ 190,263
2,300 Apple Computer(c)........................................ 65,981
3,400 Ascend Communications(c)................................. 168,513
3,900 Bay Networks, Inc.(c).................................... 125,775
2,700 Cabletron Systems, Inc.(c)............................... 36,281
18,050 Cisco Systems(c)......................................... 1,661,728
31,947 Compaq Computer Corp..................................... 906,496
800 Data General Corp.(c).................................... 11,950
11,400 Dell Computer Corp.(c)................................... 1,058,062
8,700 EMC Corp.(c)............................................. 389,869
2,800 Gateway 2000, Inc.(c).................................... 141,750
18,500 Hewlett-Packard Co....................................... 1,107,687
2,400 Ikon Office Solutions, Inc............................... 34,950
17,300 International Business Machines.......................... 1,986,256
5,000 Pitney Bowes, Inc........................................ 240,625
4,200 Seagate Technology(c).................................... 100,013
3,200 Silicon Graphics, Inc.(c)................................ 38,800
6,600 Sun Microsystems, Inc.(c)................................ 286,688
5,700 Xerox Corp............................................... 579,262
------------
9,130,949
------------
CONSTRUCTION--0.3%
600 Armstrong World Industries, Inc.......................... 40,425
1,000 Centex Corp.............................................. 37,750
500 Fleetwood Enterprises, Inc............................... 20,000
1,500 Fluor Corp............................................... 76,500
600 Kaufman & Broad Home..................................... 19,050
2,900 Masco Corp............................................... 175,450
800 Owens-Corning............................................ 32,650
600 Pulte Corp............................................... 17,925
------------
419,750
------------
CONSUMER GOODS & SERVICES--0.2%
1,600 Black & Decker Corp...................................... 97,600
1,700 Maytag Corp.............................................. 83,938
1,300 Whirlpool Corp........................................... 89,375
------------
270,913
------------
DEFENSE & AEROSPACE--1.6%
400 Aeroquip-Vickers, Inc.................................... 23,350
9,900 Allied Signal, Inc....................................... 439,312
1,300 B.F. Goodrich Co......................................... 64,513
17,754 Boeing Co................................................ 791,163
2,200 General Dynamics Corp.................................... 102,300
3,315 Lockheed Martin.......................................... 350,976
1,100 Northrop Grumman Corp.................................... 113,438
5,900 Raytheon Co., Class B.................................... 348,837
2,800 Textron, Inc............................................. 200,725
2,100 TRW, Inc................................................. 114,712
------------
2,549,326
------------
DRUGS--8.2%
1,200 Allergan, Inc............................................ 55,650
1,500 ALZA Corp.(c)............................................ 64,875
23,200 American Home Products Corp.............................. 1,200,600
4,600 Amgen, Inc.(c)........................................... 300,725
17,680 Bristol-Myers Squibb..................................... 2,032,095
1,900 Cardinal Health, Inc..................................... 178,125
19,700 Eli Lilly................................................ 1,301,431
21,100 Merck & Co............................................... 2,822,125
22,800 Pfizer, Inc.............................................. 2,478,075
8,880 Pharmacia & Upjohn, Inc.................................. 409,590
13,000 Schering-Plough Corp..................................... 1,191,125
14,400 Warner-Lambert Co........................................ 999,000
------------
13,033,416
------------
ELECTRIC UTILITIES--2.4%
2,400 Ameren Corp.(c).......................................... 95,400
3,400 American Electric Power, Inc............................. 154,275
2,600 Baltimore Gas & Electric Co.............................. 80,763
2,700 Carolina Power & Light Co................................ 117,112
3,800 Central & South West Corp................................ 102,125
2,811 Cinergy Corp............................................. 98,385
4,100 Consolidated Edison, Inc................................. 188,856
3,350 Dominion Resources, Inc.................................. 136,512
2,600 DTE Energy Co............................................ 104,975
6,327 Duke Power Co............................................ 374,875
6,700 Edison International..................................... 198,069
4,300 Entergy Corp............................................. 123,625
4,100 FirstEnergy Corp.(c)..................................... 126,075
3,200 FPL Group, Inc........................................... 201,600
2,200 GPU, Inc................................................. 83,187
5,048 Houston Industries, Inc.................................. 155,857
2,600 Niagara Mohawk Power Corp.(c)............................ 38,838
2,700 Northern States Power Co................................. 77,288
6,800 Pacific Gas & Electric Corp.............................. 214,625
5,200 Pacificorp............................................... 117,650
3,900 PECO Energy Co........................................... 113,831
2,800 PP&L Resources, Inc...................................... 63,525
4,000 Public Service Enterprise Group.......................... 137,750
12,300 Southern Co.............................................. 340,556
See accompanying notes to financial statements.
49
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONTINUED)
- --------------------------------------------------------------------------------
SHARES VALUE (A)
ELECTRIC UTILITIES--(CONTINUED)
4,425 Texas Utilities Co....................................... $ 184,191
3,800 Unicom Corp. ............................................ 133,237
------------
3,763,182
------------
ELECTRONICS--3.4%
3,856 AMP, Inc................................................. 132,550
1,530 Andrew Corp.(c).......................................... 27,636
2,000 Cooper Industries, Inc................................... 109,875
4,100 Corning, Inc............................................. 142,475
2,100 DSC Communications Corp.(c).............................. 63,000
1,300 Eaton Corp. ............................................. 101,075
700 EG&G, Inc................................................ 21,000
7,800 Emerson Electric Co...................................... 470,925
600 Foster Wheeler Corp. .................................... 12,863
2,600 General Instrument Corp.(c).............................. 70,687
900 General Signal Corp. .................................... 32,400
1,400 Harris Corp. ............................................ 62,563
2,300 Honeywell, Inc. ......................................... 192,194
1,400 Johnson Controls, Inc.................................... 80,062
1,500 KLA Instruments Corp.(c)................................. 41,531
23,112 Lucent Technologies, Inc. ............................... 1,922,629
800 Millipore Corp. ......................................... 21,800
10,600 Motorola, Inc. .......................................... 557,162
9,300 Northern Telecom, Ltd. .................................. 527,775
800 Perkin Elmer Corp. ...................................... 49,750
1,000 Phelps Dodge Corp. ...................................... 57,188
1,400 Raychem Corp. ........................................... 41,388
3,500 Rockwell International Corp.............................. 168,219
1,300 Scientific Atlanta, Inc. ................................ 32,988
750 Tektronix, Inc. ......................................... 26,531
3,100 Tellabs, Inc.(c)......................................... 222,037
2,800 Thermo Electron Corp.(c)................................. 95,725
1,000 Thomas & Betts Corp. .................................... 49,250
1,800 W.W. Grainger, Inc. ..................................... 89,662
------------
5,422,940
------------
ENERGY RESERVES--4.9%
17,300 Amoco Corp. ............................................. 720,112
1,100 Anadarko Petroleum Corp.................................. 73,906
1,600 Apache Corp.............................................. 50,400
5,600 Atlantic Richfield Co.................................... 437,500
2,962 Burlington Resources, Inc................................ 127,551
11,700 Chevron Corp............................................. 971,831
43,600 Exxon Corp. ............................................. 3,109,225
14,000 Mobil Corp. ............................................. 1,072,750
1,800 Oryx Energy Corp.(c)..................................... 39,825
900 Pennzoil Co.............................................. 45,563
4,700 Phillips Petroleum Co. .................................. 226,481
1,900 Sonat, Inc. ............................................. 73,388
9,800 Texaco, Inc. ............................................ 584,938
4,364 Union Pacific Resources Group, Inc....................... 76,643
4,200 Unocal Corp. ............................................ 150,150
------------
7,760,263
------------
ENVIRONMENTAL SERVICES--0.2%
3,400 Browning-Ferris Industries, Inc.......................... 118,150
8,000 Waste Management, Inc.................................... 280,000
------------
398,150
------------
FINANCIAL SERVICES--6.7%
8,100 American Express Co...................................... 923,400
3,000 Aon Corp. ............................................... 210,750
6,151 Associates First Capital................................. 472,857
800 Beneficial Corp.......................................... 122,550
1,100 Capital One Financial.................................... 136,606
1,800 Countrywide Credit Industries, Inc....................... 91,350
2,920 Dun & Bradstreet......................................... 105,485
12,400 Federal Home Loan Mortgage Corp. ........................ 583,575
18,800 Federal National Mortgage Association.................... 1,142,100
57,900 General Electric Co...................................... 5,268,900
900 Golden West Financial.................................... 95,681
2,300 Green Tree Financial..................................... 98,469
1,900 H & R Block, Inc......................................... 80,038
1,900 H F Ahmanson & Co. ...................................... 134,900
5,700 Household International.................................. 283,575
4,500 Marsh & McLennan......................................... 271,969
8,780 MBNA Corp................................................ 289,740
3,000 SLM Holding Corp......................................... 147,000
6,817 Washington Mutual, Inc. ................................. 296,113
------------
10,755,058
------------
FOOD & BEVERAGES--5.7%
180 Agribrands International, Inc.(c)........................ 5,445
10,046 Archer-Daniels-Midland Co. .............................. 194,641
5,100 Bestfoods................................................ 296,119
8,000 Campbell Soup Co. ....................................... 425,000
43,700 Coca-Cola Co............................................. 3,736,350
8,500 ConAgra, Inc............................................. 269,344
2,800 General Mills, Inc. ..................................... 191,450
6,500 H.J. Heinz Co............................................ 364,812
2,500 Hershey Foods............................................ 172,500
7,200 Kellogg Co. ............................................. 270,450
26,900 PepsiCo, Inc............................................. 1,107,944
4,200 Pioneer Hi-Bred International, Inc. ..................... 173,775
2,400 Quaker Oats Co........................................... 131,850
8,400 Sara Lee Corp. .......................................... 469,875
1,000 Supervalu, Inc........................................... 44,375
6,000 Sysco Corp. ............................................. 153,750
11,400 Unilever NV.............................................. 899,887
20 Vlasic Foods International, Inc. ........................ 403
2,000 William Wrigley Jr. Co................................... 196,000
------------
9,103,970
------------
See accompanying notes to financial statements.
50
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONTINUED)
- --------------------------------------------------------------------------------
SHARES VALUE (A)
FREIGHT TRANSPORTATION--0.1%
2,580 Federal Express Corp.(c)................................. $ 161,895
5,800 Laidlaw, Inc............................................. 70,688
------------
232,583
------------
GAS & PIPELINE UTILITIES--0.2%
1,500 Columbia Gas Systems, Inc. .............................. 83,437
1,600 Consolidated Natural Gas Co. ............................ 94,200
300 Eastern Enterprises...................................... 12,863
900 Nicor, Inc. ............................................. 36,112
600 ONEOK, Inc., New......................................... 23,925
500 Peoples Energy Corp. .................................... 19,313
4,256 Sempra Energy(c)......................................... 118,096
------------
387,946
------------
HEALTH CARE--PRODUCTS--3.2%
27,200 Abbott Laboratories...................................... 1,111,800
1,000 Bausch & Lomb, Inc. ..................................... 50,125
5,000 Baxter International, Inc. .............................. 269,062
2,200 Becton, Dickinson & Co. ................................. 170,775
1,900 Biomet, Inc. ............................................ 62,819
3,500 Boston Scientific Corp.(c)............................... 250,687
2,600 Guidant Corp............................................. 185,412
23,900 Johnson & Johnson........................................ 1,762,625
1,300 Mallinckrodt, Inc........................................ 38,594
8,200 Medtronic, Inc........................................... 522,750
1,600 St. Jude Medical, Inc.(c)................................ 58,900
10,000 TYCO International, Ltd.................................. 630,000
1,300 United States Surgical Corp.............................. 59,313
------------
5,172,862
------------
HEALTH CARE--SERVICES--0.8%
1,000 C.R. Bard, Inc. ......................................... 38,063
11,386 Columbia/HCA Healthcare.................................. 331,617
6,900 HEALTHSOUTH Corp.(c)..................................... 184,144
2,800 Humana, Inc.(c).......................................... 87,325
1,100 Manor Care, Inc.......................................... 42,281
4,500 Service Corporation International........................ 192,937
5,400 Tenet Healthcare Corp.(c)................................ 168,750
3,300 United Healthcare Corp. ................................. 209,550
------------
1,254,667
------------
HOTELS & RESTAURANTS--0.9%
2,600 Darden Restaurants, Inc. ................................ 41,275
1,750 Harrahs Entertainment, Inc.(c)........................... 40,688
4,400 Hilton Hotels............................................ 125,400
4,600 Marriott International, Inc.(c).......................... 148,925
12,300 McDonald's Corp. ........................................ 848,700
3,200 Mirage Resorts(c)........................................ 68,200
2,620 Tricon Global Restaurants, Inc.(c)....................... 83,021
2,300 Wendy's International, Inc............................... 54,050
------------
1,410,259
------------
HOUSEHOLD PRODUCTS--3.1%
1,000 Alberto Culver Co........................................ 29,000
2,200 Avon Products, Inc....................................... 170,500
1,200 Brown-Forman Corp., Class B.............................. 77,100
1,800 Clorox Co................................................ 171,675
5,200 Colgate-Palmolive........................................ 457,600
3,000 Fortune Brands, Inc. .................................... 115,312
20,000 Gillette Co.............................................. 1,133,750
1,800 International Flavours & Fragrances, Inc. ............... 78,188
700 National Service Industries, Inc......................... 35,613
2,800 Newell Co................................................ 139,475
23,820 Procter & Gamble......................................... 2,169,109
1,800 Ralston Purina Co. ...................................... 210,262
2,600 Rubbermaid, Inc. ........................................ 86,287
1,100 Tupperware Corp. ........................................ 30,938
------------
4,904,809
------------
INDUSTRIAL PARTS & MACHINERY--1.3%
400 Briggs & Stratton Corp................................... 14,975
1,300 Case Corp................................................ 62,725
6,600 Caterpillar, Inc. ....................................... 348,975
600 Cincinnati Milacron, Inc. ............................... 14,588
700 Crane Co. ............................................... 33,994
600 Cummins Engine, Inc. .................................... 30,750
4,400 Deere & Co............................................... 232,650
4,000 Dover Corp. ............................................. 137,000
3,200 Genuine Parts Co. ....................................... 110,600
700 Harnischfeger Industries, Inc. .......................... 19,819
4,300 Illinois Tool Works, Inc................................. 286,756
2,800 Ingersoll-Rand Co. ...................................... 123,375
1,000 McDermott International, Inc. ........................... 34,437
100 Nacco Industries, Inc. .................................. 12,925
2,100 Pall Corp................................................ 43,050
1,850 Parker Hannifin Corp..................................... 70,531
1,050 Snap-On, Inc. ........................................... 38,062
1,500 Stanley Works............................................ 62,344
1,000 Timken Co................................................ 30,813
4,000 United Technologies Corp................................. 370,000
------------
2,078,369
------------
INSURANCE--3.5%
7,486 Allstate Corp. .......................................... 685,437
12,518 American International Group............................. 1,827,628
3,000 Chubb Corp............................................... 241,125
2,900 Cincinnati Financial Corp. .............................. 111,288
1,400 General Re Corp.......................................... 354,900
2,000 Hartford Financial Services Group........................ 228,750
1,900 Loews Corp. ............................................. 165,537
1,700 MBIA, Inc. .............................................. 127,287
2,000 MGIC Investment Corp..................................... 114,125
1,300 Progressive Corp......................................... 183,300
2,500 Safeco Corp.............................................. 113,594
See accompanying notes to financial statements.
51
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONTINUED)
- --------------------------------------------------------------------------------
SHARES VALUE (A)
INSURANCE--(CONTINUED)
4,070 St. Paul Cos............................................. $ 171,194
20,353 Travelers Group, Inc..................................... 1,233,901
------------
5,558,066
------------
LEISURE--0.5%
1,700 Brunswick Corp........................................... 42,075
5,850 Eastman Kodak Co. ....................................... 427,416
2,350 Hasbro, Inc. ............................................ 92,384
5,150 Mattel, Inc.............................................. 217,909
700 Polaroid Corp............................................ 24,894
------------
804,678
------------
LIFE INSURANCE--1.2%
2,683 Aetna, Inc. ............................................. 204,243
4,498 American General......................................... 320,201
3,900 CIGNA Corp. ............................................. 269,100
3,300 Conseco, Inc............................................. 154,275
1,837 Jefferson Pilot.......................................... 106,431
1,800 Lincoln National Corp., Inc. ............................ 164,475
1,600 Providian Financial Corp................................. 125,700
3,400 SunAmerica, Inc. ........................................ 195,288
2,500 Torchmark Corp. ......................................... 114,375
1,000 Transamerica Corp. ...................................... 115,125
2,400 UNUM Corp. .............................................. 133,200
------------
1,902,413
------------
LIQUOR--0.3%
600 Adolph Coors Co., Class B................................ 20,400
8,600 Anheuser-Busch Cos....................................... 405,813
------------
426,213
------------
MEDIA & ENTERTAINMENT--2.9%
12,700 CBS Corp. ............................................... 403,225
2,200 Clear Channel Communications(c).......................... 240,075
6,100 Comcast.................................................. 247,622
1,300 King World Productions, Inc.(c).......................... 33,150
10,700 MediaOne Group, Inc.(c).................................. 470,131
6,200 Seagram Company, Ltd. ................................... 253,812
8,900 Tele-Communications, Inc.(c)............................. 342,094
10,100 Time Warner, Inc. ....................................... 862,919
2,200 Tribune Co............................................... 151,388
6,157 Viacom, Inc., Class B(c)................................. 358,645
11,998 Walt Disney Co. ......................................... 1,260,540
------------
4,623,601
------------
METALS & MINING--0.6%
4,000 Alcan Aluminum, Ltd. .................................... 110,500
3,432 Allegheny Teldyne, Inc. ................................. 78,507
3,000 Aluminum Company of America.............................. 197,812
1,800 Armco, Inc.(c)........................................... 11,475
600 ASARCO, Inc.............................................. 13,350
500 Ball Corp................................................ 20,094
2,300 Bethlehem Steel Corp.(c)................................. 28,606
2,300 Crown Cork & Seal Company, Inc. ......................... 109,250
1,550 Cyprus Amax Minerals Co.................................. 20,538
2,900 Inco, Ltd. .............................................. 39,512
1,500 Nucor Corp............................................... 69,000
2,700 Owens Illinois, Inc.(c).................................. 120,825
1,300 Reynolds Metals Co....................................... 72,719
1,420 USX-U.S. Steel Group..................................... 46,860
1,600 Worthington Industries, Inc. ............................ 24,100
------------
963,148
------------
OIL--FOREIGN--0.0%
900 Kerr-McGee Corp. ........................................ 52,088
------------
OIL---REFINING & DISTRIBUTION--0.6%
1,800 Coastal Corp. ........................................... 125,663
5,700 Enron Corp. ............................................. 308,156
1,700 Sun, Inc. ............................................... 65,981
5,100 USX-Marathon Group....................................... 174,994
7,200 Williams Companies, Inc.................................. 243,000
------------
917,794
------------
OIL RESERVES--1.4%
1,600 Amerada Hess Corp. ...................................... 86,900
37,900 Royal Dutch Petroleum Co................................. 2,077,394
------------
2,164,294
------------
OIL SERVICES--0.8%
3,000 Baker Hughes, Inc........................................ 103,687
3,000 Dresser Industries, Inc.................................. 132,187
600 FMC Corp.(c)............................................. 40,913
4,700 Halliburton Co. ......................................... 209,444
800 Helmerich & Payne, Inc. ................................. 17,800
1,500 Rowan Companies, Inc.(c)................................. 29,156
8,700 Schlumberger, Ltd. ...................................... 594,319
1,000 Western Atlas, Inc.(c)................................... 84,875
------------
1,212,381
------------
PAPER & FOREST PRODUCTS--1.0%
800 Bemis, Inc., Rights...................................... 32,700
933 Boise Cascade Corp. ..................................... 30,556
1,600 Champion International Corp.............................. 78,700
3,600 Fort James............................................... 160,200
1,600 Georgia Pacific Corp..................................... 94,300
5,310 International Paper Co. ................................. 228,330
9,912 Kimberly-Clark Corp...................................... 454,713
1,800 Louisiana Pacific Corp. ................................. 32,850
1,800 Mead Corp. .............................................. 57,150
400 Potlatch Corp............................................ 16,800
See accompanying notes to financial statements.
52
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONTINUED)
- --------------------------------------------------------------------------------
SHARES VALUE (A)
PAPER & FOREST PRODUCTS--(CONTINUED)
1,700 Stone Container Corp.(c)................................. $ 26,563
1,000 Temple-Inland, Inc. ..................................... 53,875
1,200 Union Camp Corp.......................................... 59,550
3,400 Weyerhaeuser Co.......................................... 157,037
2,000 Willamette Industries, Inc............................... 64,000
------------
1,547,324
------------
PRECIOUS METAL--0.2%
6,700 Barrick Gold Corp........................................ 128,556
4,100 Battle Mountain Gold Co.................................. 24,344
3,300 Freeport McMoran Copper & Gold, Class B.................. 50,119
3,800 Homestake Mining Co. .................................... 39,425
2,741 Newmont Mining Corp...................................... 64,756
4,300 Placer Dome, Inc......................................... 50,525
------------
357,725
------------
PUBLISHING--0.8%
1,300 American Greetings Corp. ................................ 66,219
1,400 Deluxe Corp.............................................. 50,138
1,600 Dow Jones & Company, Inc................................. 89,200
5,000 Gannett Co............................................... 355,312
1,300 Harcourt General, Inc.................................... 77,350
600 Jostens, Inc............................................. 14,325
1,400 Knight-Ridder, Inc....................................... 77,088
1,700 McGraw-Hill Companies, Inc............................... 138,656
800 Meredith Corp. .......................................... 37,550
1,500 Moore Corporation, Ltd................................... 19,875
1,600 New York Times Co........................................ 126,800
2,500 R.R. Donnelley & Sons Co................................. 114,375
1,500 Times Mirror Co. ........................................ 94,312
------------
1,261,200
------------
RAILROADS & EQUIPMENT--0.5%
2,722 Burlington Northern Santa Fe............................. 267,266
3,800 CSX Corp. ............................................... 172,900
6,600 Norfolk Southern Corp.................................... 196,762
4,300 Union Pacific Corp....................................... 189,738
------------
826,666
------------
RETAIL--CLOTHING--0.5%
64 Abercrombie & Fitch Co................................... 2,830
7,050 Gap, Inc................................................. 434,456
4,093 Limited, Inc............................................. 135,581
1,400 Nordstrom, Inc. ......................................... 108,150
5,800 TJX Companies, Inc. ..................................... 139,925
2,400 Venator Group, Inc.(c)................................... 45,900
------------
866,842
------------
RETAIL--DEPARTMENT STORE--2.8%
3,739 Costco Companies(c)...................................... 235,791
7,800 Dayton Hudson Corp....................................... 378,300
1,900 Dillard's, Inc........................................... 78,731
3,700 Federated Department Stores, Inc.(c)..................... 199,106
4,300 J.C. Penney, Inc. ....................................... 310,944
8,600 Kmart(c)................................................. 165,550
4,100 May Department Stores Co. ............................... 268,550
6,900 Sears, Roebuck & Co...................................... 421,331
39,700 Wal-Mart Stores, Inc. ................................... 2,411,775
------------
4,470,078
------------
RETAIL--FOOD & DRUG--0.4%
4,400 Albertson's, Inc......................................... 227,975
4,800 American Stores Co....................................... 116,100
600 Great Atlantic & Pacific Tea, Inc........................ 19,838
4,400 Kroger Co.(c)............................................ 188,650
2,600 Winn-Dixie Stores Inc.................................... 133,087
------------
685,650
------------
RETAIL--SPECIALTY--1.6%
2,700 Autozone, Inc.(c)........................................ 86,231
1,700 Circuit City Stores...................................... 79,688
1,800 Consolidated Stores Corp.(c)............................. 65,250
6,800 CVS Corp. ............................................... 264,775
12,773 Home Depot, Inc.......................................... 1,060,957
600 Longs Drug Stores Corp. ................................. 17,325
6,000 Lowe's Companies......................................... 243,375
1,100 Pep Boys-Manny, Moe & Jack............................... 20,831
4,500 Rite Aid Corp............................................ 169,031
1,800 Tandy Corp. ............................................. 95,512
5,075 Toys R Us, Inc.(c)....................................... 119,580
8,700 Walgreen Co.............................................. 359,419
------------
2,581,974
------------
SECURITIES & ASSET MANAGEMENT--1.4%
2,000 Bear Stearns Cos......................................... 117,750
4,750 Charles Schwab Corp...................................... 154,375
4,500 Franklin Resources, Inc.................................. 243,000
1,700 Lehman Brothers Holdings................................. 131,856
6,000 Merrill Lynch & Company, Inc. ........................... 553,500
10,499 Morgan Stanley Dean Witter............................... 959,346
------------
2,159,827
------------
SEMI-CONDUCTORS--1.9%
2,400 Advanced Micro Devices, Inc.(c).......................... 40,950
6,400 Applied Materials, Inc.(c)............................... 188,800
29,000 Intel Corp. ............................................. 2,149,625
2,500 LSI Logic Corp.(c)....................................... 57,656
3,700 Micron Technology, Inc.(c)............................... 91,806
2,800 National Semiconductor Corp.(c).......................... 36,925
6,800 Texas Instruments, Inc................................... 396,525
------------
2,962,287
------------
See accompanying notes to financial statements.
53
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
COMMON STOCKS--(CONTINUED) SHORT-TERM INVESTMENT--1.0%
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
SERVICES--0.2%
14,448 Cendant Corp.(c)......................................... $ 301,602
1,400 Ryder Systems, Inc....................................... 44,188
------------
345,790
------------
TELECOMMUNICATION--6.7%
10,000 AirTouch Communications, Inc.(c)......................... 584,375
3,200 ALLTEL Corp.............................................. 148,800
19,400 Ameritech Corp........................................... 870,575
28,835 AT&T Corp................................................ 1,647,200
27,552 Bell Atlantic Corp....................................... 1,257,060
17,600 BellSouth Corp........................................... 1,181,400
2,800 Frontier Corp............................................ 88,200
17,000 GTE Corp................................................. 945,625
12,200 MCI Communications Corp.................................. 709,125
4,600 NEXTEL Communications, Inc.(c)........................... 114,425
32,516 SBC Communications, Inc.................................. 1,300,640
7,700 Sprint Corp.............................................. 542,850
8,792 U.S. West................................................ 413,234
18,000 WorldCom, Inc.(c)........................................ 871,875
------------
10,675,384
------------
TOBACCO--1.1%
43,000 Philip Morris Companies.................................. 1,693,125
3,200 UST, Inc................................................. 86,400
------------
1,779,525
------------
Total Common Stock
(Identified Cost $82,630,231)........................... 157,883,033
------------
PREFERRED STOCK--0.0%
CHEMICALS--0.0%
617 Sealed Air Corp.......................................... $ 25,914
------------
Total Preferred Stock
(Identified Cost $21,819)............................... $ 25,914
------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$1,570,000 Repurchase Agreement with State Street Corp. dated
6/30/98 at 5.00% to be repurchased at $1,570,218,
on 7/01/98 collateralized by $1,220,000 U.S.
Treasury Bond 8.125% due 8/15/19 with a value of
$1,602,570.......................................... $ 1,570,000
------------
Total Short-Term Investment
(Identified Cost $1,570,000)........................ 1,570,000
------------
Total Investments--100.1%
(Identified Cost $84,222,050)(b).................... 159,478,947
Other assets less liabilities........................ (108,663)
------------
TOTAL NET ASSETS--100%............................... $159,370,284
============
(a) See Note 1A.
(b) Federal Tax Information:
At June 30, 1998 the net unrealized appreciation on investments based on cost
of $84,222,050 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost............ $ 76,497,442
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value............ (1,240,543)
------------
Net unrealized appreciation.................................... $ 75,256,899
============
</TABLE>
(c) Non-income producing security.
See accompanying notes to financial statements.
54
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value.................................... $159,478,947
Cash.................................................... 933
Receivable for:
Fund shares sold........................................ 369,020
Securities sold......................................... 25,678
Dividends and interest.................................. 159,308
Foreign taxes........................................... 1,141
------------
LIABILITIES 160,035,027
Payable for:
Securities purchased.................................... $451,518
Fund shares redeemed.................................... 76,092
Accrued expenses:
Management fees......................................... 44,639
Deferred trustees' fees................................. 62,508
Other expenses.......................................... 29,986
--------
664,743
------------
$159,370,284
============
NET ASSETS
Net Assets consist of:
Capital paid in......................................... $ 83,193,469
Undistributed net investment income.. 838,145
Accumulated net realized gains.......................... 81,771
Unrealized appreciation on investments.................. 75,256,899
------------
NET ASSETS............................................... $159,370,284
============
Computation of offering price:
Net asset value and redemption price per share
($159,370,284 divided by 872,406 shares of beneficial
interest)............................................... $ 182.68
============
Identified cost of investments........................... $ 84,222,050
============
<CAPTION>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<S> <C> <C>
INVESTMENT INCOME
Dividends............................................. $ 1,062,204(a)
Interest.............................................. 47,406
-----------
1,109,610
EXPENSES
Management fees....................................... $179,584
Trustees' fees and expenses........................... 17,589
Custodian............................................. 42,331
Audit and tax services................................ 8,000
Legal................................................. 1,375
Printing.............................................. 25,059
Insurance............................................. 2,635
Miscellaneous......................................... 2,264
--------
Total expenses....................................... 278,837
-----------
NET INVESTMENT INCOME.................................. 830,773
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on:
Investments--net...................................... 199,214
Unrealized appreciation on:
Investments--net...................................... 21,515,549
-----------
Net gain on investment transactions.................... 21,714,763
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............. $22,545,536
===========
</TABLE>
(a) Net of foreign taxes of: $7,323
See accompanying notes to financial statements.
55
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHES ENDED
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------------
<S> <C> <C>
FROM OPERATIONS
Net investment income......................... $ 1,474,760 $ 830,773
Net realized gain on investments.............. 327,190 199,214
Unrealized appreciation on investments........ 26,442,859 21,515,549
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS........ 28,244,809 22,545,536
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income......................... (1,486,184) 0
Net realized gain on investments.............. (619,246) 0
------------ ------------
(2,105,430) 0
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares.................. 41,747,560 30,298,726
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income...... 1,486,184 0
Distributions from net realized gain.......... 619,246 0
------------ ------------
43,852,990 30,298,726
Cost of shares redeemed....................... (24,172,689) (20,057,506)
------------ ------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS........................... 19,680,301 10,241,220
------------ ------------
TOTAL INCREASE IN NET ASSETS.................. 45,819,680 32,786,756
NET ASSETS
Beginning of the period....................... 80,763,848 126,583,528
------------ ------------
End of the period............................. $126,583,528 $159,370,284
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
End of the period............................. $ 7,372 $ 838,145
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares................ 294,863 177,696
Issued in connection with the reinvestment of:
Distributions from net investment income...... 9,711 0
Distributions from net realized gain.......... 4,056 0
------------ ------------
308,630 177,696
Redeemed...................................... (171,087) (117,979)
------------ ------------
Net change.................................... 137,543 59,717
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
-------------------------------------------- JUNE 30,
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of period.... $ 72.00 $ 76.48 $ 75.35 $100.09 $ 119.62 $ 155.76
------- ------- ------- ------- -------- --------
Income From Investment
Operations
Net Investment Income.. 1.54 1.80 1.88 1.91 1.86 0.95
Net Realized and
Unrealized Gain (Loss)
on Investments........ 5.18 (0.92) 25.89 20.58 36.95 25.97
------- ------- ------- ------- -------- --------
Total From Investment
Operations............ 6.72 0.88 27.77 22.49 38.81 26.92
------- ------- ------- ------- -------- --------
Less Distributions
Distributions From Net
Investment Income..... (1.36) (1.82) (1.85) (1.93) (1.86) 0.00
Distributions in Excess
of Net Investment
Income................ (0.18) 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Capital
Gains................. (0.55) (0.16) (1.18) (1.03) (0.67) 0.00
Distributions in Excess
of Net Realized
Capital Gains......... (0.15) 0.00 0.00 0.00 (0.14) 0.00
Distributions From
Paid-in Capital....... 0.00 (0.03) 0.00 0.00 0.00 0.00
------- ------- ------- ------- -------- --------
Total Distributions.... (2.24) (2.01) (3.03) (2.96) (2.67) 0.00
------- ------- ------- ------- -------- --------
Net Asset Value, End of
period................. $ 76.48 $ 75.35 $100.09 $119.62 $ 155.76 $ 182.68
======= ======= ======= ======= ======== ========
TOTAL RETURN (%)........ 9.72 1.14 36.88 22.47 32.50 17.28(a)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.34 0.33 0.40 0.40 0.40 0.39(b)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 2.52 2.59 2.20 1.84 1.41 1.16(b)
Portfolio Turnover Rate
(%).................... 12 2 5 4 3 1(b)
Net Assets, End of
period (000)........... $28,817 $37,164 $58,671 $80,764 $126,584 $159,370
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 0.43 --
</TABLE>
(a) Not computed on an annualized basis.
(b) Computed on an annualized basis.
See accompanying notes to financial statements.
56
<PAGE>
LOOMIS SAYLES BALANCED SERIES
PORTFOLIO MANAGERS: TRICIA MILLS, MERI ANNE BECK, JOHN HYLL AND BARR SEGAL
LOOMIS, SAYLES & COMPANY, L.P.
[PHOTO OF TRICIA MILLS AND MERI ANNE BECK APPEARS HERE]
[PHOTO OF JOHN HYLL AND BARR SEGAL]
Q. PLEASE TELL US ABOUT THE SERIES' PERFORMANCE DURING THE FIRST HALF OF 1998.
A. For the six months ended June 30, 1998, the Loomis Sayles Balanced Series
had a total return of 6.3%, compared to a return of 9.6% for the Lipper Vari-
able Products Balanced Fund Average. Both the stock and bond portions of the
portfolio contributed to the Series' return, which included a $0.93 per share
gain in net asset value.
Q. WHAT WAS THE ENVIRONMENT LIKE, AND HOW DID YOU RESPOND?
A. As if in defiance of forecasts to the contrary, euphoric U.S. stock markets
achieved sizable gains in the first quarter of 1998, with the Standard &
Poor's 500 Stock Index adding 13% to its stunning increases of the last three
years. In part, this strength grew out of the view that the deep economic cri-
ses that had roiled Asian markets in the last months of 1997 would soon end.
But early in the second quarter, many companies whose fortunes are tied to
Asia began to warn investors of profit shortfalls: For some, the reason was
weak sales in depressed Asian markets; for others it was a matter of falling
prices on competing imported goods. Most stocks fell after these announcements
(notably technology issues), abruptly erasing investors' enthusiasm for the
group earlier in 1998. This combination of weak export conditions and pricing
pressures on U.S. companies began to raise questions about sustained domestic
growth.
Q. GIVEN THIS ENVIRONMENT, WHAT WAS YOUR EQUITY STRATEGY DURING THE PERIOD?
A. We emphasized sectors that we think can do well even if the economy slows
and those where earnings disappointments seem unlikely. With unemployment low
and more disposable income in their hands, workers are likely to spend more,
heightening the appeal of consumer-related stocks. This sector is currently
one of the economy's strongest, and the stocks appear to offer good value; we
also think this area will be fairly resilient in the event of an economic
downturn. Areas of particular focus included specialty retail and auto-related
companies.
We reduced exposure to capital goods stocks, which would be among the first
groups to feel the impact of slowing global growth. However, the Series'
position in basic materials, predominantly specialty chemicals, is
overweighted relative to the S&P 500. We favored niche producers and other
special situations where fundamentals are strong and earnings prospects appear
solid, even in a slower economy.
Holdings in two financial sectors were cut back: money center banks with expo-
sure to Southeast Asia and property/casualty insurance companies, where in-
tense rate competition is limiting revenue growth.
Q. WHAT WAS THE FIXED-INCOME ENVIRONMENT LIKE, AND HOW DID YOU RESPOND?
A. Since last summer, dark economic clouds over the Far East and Russia man-
aged to brighten bond markets in the United States. Worried investors withdrew
from these unstable economies and fled to the quality they saw in the United
States --especially U.S. Treasury obligations. Early in the year, the belief
that conditions in Asia were improving suggested that stronger U.S. export ac-
tivity and inflationary pressure might lead the Federal Reserve Board to raise
interest rates. Domestic interest rates did move higher for a time and bond
prices fell. Later, as it became clear that Asia's problems were far from
over, bond prices rallied and yields fell, driving the yield on the 30-year
Treasury bond to a historic low of 5.57% on June 15.
We kept the duration of the Series' bond portfolio--a measure of price sensi-
tivity to interest rate changes--somewhat longer than that of the Lehman
Brothers Government/Corporate Index. This mildly optimistic stance, which re-
flects our expectation of a slow recovery in Asia, aided performance, as did
our overweighting in corporate bonds and underweighting in mortgage-backed se-
curities.
57
<PAGE>
The Series benefited from the purchase of Digital Equipment bonds as a result
of the Compaq merger, and of Avalon Securities, a real estate investment
trust, which we sold at a profit. A notable disappointment was SKF, a ball
bearings manufacturer whose sales suffered in Asia.
Q. WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD?
A. Continued turmoil in Asia means cheaper imported goods here, a deflationary
factor that we think will keep U.S. prices in check and earnings under pres-
sure. OPEC's decision to cut production and raise oil prices poses only a
small risk of igniting inflation, in our view.
[LINE GRAPH APPEARS HERE]
A $10,000 Investment Compared to the S&P 500 Index /25/
and Lehman Brothers Government/Corporate Bond Index /3/
Average Annual Total Return
Balanced Lipper Variable Products
Series Balanced Fund Average /7/
6 months* 6.3% 9.6%
1 year 13.8% 18.2%
3 years 15.9% 17.2%
Since Inception 17.4% n/a
* not annualized
Balanced Series S&P 500 Lehman Government Corp.
10/31/94 10,000 10,000 10,000
Dec-94 9,990 9,794 10,048
Dec-95 12,467 13,461 11,981
Dec-96 14,575 16,552 12,328
Dec-97 16,933 22,055 13,015
6/30/98 17,993 25,952 14,097
The near-term outlook is positive for the bond markets. The federal govern-
ment, its budget now in surplus, is issuing fewer securities, reducing the
supply of these sought-after issues. In addition, the Federal Reserve Board
seems determined to prevent Asia's crisis from becoming ours, and is thus un-
likely to raise interest rates to avoid stalling economic growth. Indeed, the
next change could well be a cut in rates.
While we think demand for equities may flatten, the strength of our economy
and currency should continue to attract investors. As always, we will rely on
Loomis Sayles' extensive research capabilities to invest in securities that
meet our standards for attractive value and growth potential, and allow
industry weightings to emerge from these selections.
[X] 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: $170 million as of June 30, 1998
MANAGERS: Tricia H. Mills, Meri Anne Beck, John Hyll and Barr Segal. Ms. Beck
has managed the fixed-income portion of the Series since its inception in 1994.
Mr. Hyll and Mr. Segal joined the portfolio management team for the fixed income
portion of the Series in 1997. Ms. Mills has managed the equity portion of the
Series since 1997.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts; if these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
58
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
COMMON STOCKS--56.6% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
AEROSPACE/DEFENSE--1.9%
15,600 Northrop Grumman Corp. ................................. $ 1,608,750
27,300 Sundstrand Corp. ....................................... 1,562,925
------------
3,171,675
------------
APPAREL & TEXTILES--1.4%
55,300 Warnaco Group, Inc. .................................... 2,346,794
------------
AUTO & RELATED--0.5%
12,400 Magna International, Inc. .............................. 850,950
------------
BANKS--4.8%
22,000 BankAmerica Corp. ...................................... 1,901,625
63,000 Charter One Financial, Inc. ............................ 2,122,312
24,200 Fleet Financial Group, Inc. ............................ 2,020,700
54,500 Norwest Corp. .......................................... 2,036,938
------------
8,081,575
------------
BUILDING & RELATED--3.6%
18,200 Armstrong World Industries, Inc. ....................... 1,226,225
68,800 Leggett & Platt, Inc. .................................. 1,720,000
35,900 Masco Corp. ............................................ 2,171,950
11,100 Philips Electronics NV (ADR)(d)......................... 943,500
------------
6,061,675
------------
CHEMICALS--6.1%
81,500 Crompton & Knowles Corp. ............................... 2,052,781
19,600 EI du Pont de Nemours & Co. ............................ 1,462,650
44,000 IMC Global, Inc. ....................................... 1,325,500
24,800 PPG Industries, Inc. ................................... 1,725,150
66,300 Solutia, Inc. .......................................... 1,901,981
112,600 W.R. Grace & Co. ....................................... 1,921,237
------------
10,389,299
------------
COMPUTERS & BUSINESS EQUIPMENT--2.7%
32,800 Gateway 2000 Inc. ...................................... 1,660,500
19,700 International Business Machines......................... 2,261,806
16,900 Sun Microsystems, Inc. ................................. 734,094
------------
4,656,400
------------
CONSUMER--JEWELRY/NOVELTIES/GIFTS--1.5%
49,000 American Greetings Corp. ............................... 2,495,938
------------
ELECTRIC COMPANIES--1.7%
43,000 CMS Energy Corp. ....................................... 1,892,000
26,000 Energy East Corp. ...................................... 1,082,250
------------
2,974,250
------------
ELECTRONICS--1.5%
35,600 Raytheon Co............................................. 2,104,850
10,000 W.W. Grainger, Inc...................................... 498,125
------------
2,602,975
------------
FINANCIAL SERVICES--2.9%
42,800 Corrections Corp. of America............................ 1,005,800
42,600 Federal Home Loan Mortgage Corp. ....................... 2,004,862
31,300 Federal National Mortgage Association................... 1,901,475
------------
4,912,137
------------
FREIGHT TRANSPORTATION--2.1%
65,400 Canadian Pacific, Ltd., New............................. 1,855,725
27,400 Federal Express Corp. (c)............................... 1,719,350
------------
3,575,075
------------
HEALTH CARE--SERVICES--3.7%
65,500 Columbia/HCA Healthcare Corp. .......................... 1,907,688
73,100 Humana, Inc. ........................................... 2,279,806
28,400 Wellpoint Health Networks, Inc. ........................ 2,101,600
------------
6,289,094
------------
INSURANCE--3.3%
56,000 ACE, Ltd. .............................................. 2,184,000
22,100 Allstate Corp. ......................................... 2,023,531
22,400 Everest Reinsurance Holdings, Inc. ..................... 861,000
21,700 TIG Holdings, Inc. ..................................... 499,100
------------
5,567,631
------------
LEISURE TIME--1.6%
68,000 Hasbro, Inc. ........................................... 2,673,250
------------
MACHINERY--1.7%
18,800 Case Corp. ............................................. 907,100
21,700 Deere & Co. ............................................ 1,147,388
26,900 Dover Corp. ............................................ 921,325
------------
2,975,813
------------
MANUFACTURING--DIVERSIFIED--1.1%
40,400 Allied Signal, Inc. .................................... 1,792,750
------------
OIL & GAS/EXPLORATION & PRODUCTION--0.4%
30,420 Ocean Energy, Inc. ..................................... 595,091
------------
OIL & GAS/MAJOR INTEGRATED--2.5%
11,200 British Petroleum PLC................................... 988,400
53,100 Tosco Corp. ............................................ 1,559,812
31,200 Royal Dutch Petroleum Co. .............................. 1,710,150
------------
4,258,362
------------
RETAIL SPECIALTY--3.3%
43,200 Autozone, Inc. ......................................... 1,379,700
74,300 Office Depot............................................ 2,345,094
114,000 Office Max.............................................. 1,881,000
------------
5,605,794
------------
</TABLE>
See accompanying notes to financial statements.
59
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
RETAIL--FOOD & DRUG--1.3%
53,500 Kroger Co.(c)....................................... $ 2,293,813
------------
TELEPHONE--5.0%
51,400 Ameritech Corp. .................................... 2,306,575
41,400 Bell Atlantic Corp. ................................ 1,888,875
31,200 BellSouth Corp. .................................... 2,094,300
57,400 SBC Communications, Inc. ........................... 2,296,000
------------
8,585,750
------------
TOBACCO--0.8%
51,700 UST, Inc. .......................................... 1,395,900
------------
WASTE MANAGEMENT--1.2%
42,200 USA Waste Services, Inc. ........................... 2,083,625
------------
Total Common Stocks
(Identified Cost $82,460,728)...................... 96,235,616
------------
MEDIUM & LONG TERM BONDS & NOTES--39.9%
<CAPTION>
FACE
AMOUNT
<C> <S> <C>
AIRLINES--0.4%
$ 600,000 Northwest Airlines,
8.375%, 03/15/04................................... 618,696
------------
BANKS--0.8%
1,280,000 Mellon Bank N.A.,
7.000%, 03/15/06................................... 1,335,040
50,000 Norwest Corp., 7.650%, 3/15/05...................... 54,087
------------
1,389,127
------------
ENERGY--0.9%
125,000 Coastal Corp., 8.125% 9/15/02....................... 133,060
1,230,000 Tosco Corp. 7.625%, 5/15/06......................... 1,316,752
------------
1,449,812
------------
FINANCE--1.1%
260,000 Dean Witter Discover & Co.,
6.750%, 1/01/16.................................... 266,105
790,000 Liberty Property, L.P.
6.950%, 12/01/06................................... 812,304
280,000 Oasis Residential, Inc.,
7.000%, 11/15/03................................... 284,953
520,000 Sears Roebuck Acceptance Corp.,
6.95% 05/15/02..................................... 534,472
100,000 Secured Finance, 9.050%, 12/15/04................... 114,942
------------
2,012,776
------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
U.S. GOVERNMENT--17.7%
$ 800,000 United States Treasury Notes,
7.250%, 5/15/04.................................... $ 868,000
9,940,000 United States Treasury Notes,
6.500%, 8/15/05.................................... 10,489,781
3,200,000 United States Treasury Notes,
5.625%, 2/15/06.................................... 3,212,992
3,720,000 United States Treasury Notes,
7.000%, 7/15/06.................................... 4,062,352
1,850,000 United States Treasury Notes,
6.625%, 5/15/07.................................... 1,987,011
5,620,000 United States Treasury Notes,
6.125%, 8/15/07.................................... 5,847,441
800,000 United States Treasury Notes,
Zero Coupon, 11/15/09.............................. 420,096
1,300,000 United States Treasury Bonds,
10.375%, 11/15/12.................................. 1,740,778
1,100,000 United States Treasury Bonds,
9.125%, 5/15/18.................................... 1,539,824
------------
30,168,275
------------
HEALTHCARE--0.3%
440,000 National Health Investors, Inc.,
7.300%, 07/16/07................................... 464,662
------------
INDUSTRIALS--5.7%
1,325,000 Amerco, Inc., 10.290%, 05/15/03..................... 1,403,983
1,995,000 Coca Cola Enterprises, Inc.,
6.750%, 1/15/38.................................... 2,012,077
1,400,000 Federal Express Corp.,
7.020%, 1/15/22.................................... 1,400,000
535,000 Lowen Group International, Inc.,
7.750%, 10/15/01................................... 557,395
260,000 Philips Electronics NV,
7.250%, 8/15/13.................................... 276,076
670,000 Raytheon Co., 6.300%, 03/15/05...................... 672,982
1,420,000 SKF AB, 7.125%, 07/01/07............................ 1,507,529
700,000 Textron Inc., 6.625, 11/15/07....................... 719,971
200,000 Tektronix, Inc., 7.625%, 8/15/02.................... 208,270
740,000 USX Marathon, 8.500%, 3/01/23....................... 866,851
------------
9,625,134
------------
LEISURE & LODGING--2.3%
1,100,000 Carnival Corp., 7.050%, 5/15/05..................... 1,148,510
300,000 La Quinta Inns, Inc., 7.400%, 9/15/05............... 307,875
1,180,000 MGM Grand, Inc., 7.750%, 02/06/08................... 1,126,227
960,000 Royal Caribbean Cruises Line,
7.000%, 10/15/07................................... 983,098
760,000 Royal Caribbean Cruises Line,
7.500%, 10/15/27................................... 794,838
------------
4,360,548
------------
</TABLE>
See accompanying notes to financial statements.
60
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
MEDIUM & LONG TERM BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
MORTGAGE--5.2%
$1,360,940 Federal Home Loan Bank,
6.000%, 12/01/27................................... $ 1,326,916
2,417,247 Federal Home Loan Bank,
6.000%, 2/01/13.................................... 2,393,824
620,000 Federal National Mortgage Association,
6.000%, 2/25/24.................................... 599,224
1,188,002 Federal National Mortgage Association Pool, 6.000%,
3/01/28............................................ 1,156,437
3,213,694 Federal National Mortgage Association Pool, 6.000%,
4/01/28............................................ 3,128,306
------------
8,604,707
------------
MORTGAGED BACKED--0.7%
1,076,032 Federal Home Loan Mortgage Association, 6.000%,
8/15/22............................................ 1,029,957
------------
OIL & GAS--1.6%
1,040,000 Kerr McGee, 6.625%, 10/15/07........................ 1,071,450
1,650,000 K.N. Energy, Inc., 6.650%, 3/01/05.................. 1,680,804
------------
2,752,254
------------
RAILROADS--0.3%
460,000 Norfolk Southern Corp.,
7.050%, 05/01/37................................... 492,922
------------
SECURITIES--1.4%
225,000 Bankers Trust N.Y. Corp.,
7.625%, 08/15/05................................... 243,185
1,040,000 Bear Stearns Cos., Inc.,
6.750%, 12/15/07................................... 1,065,719
200,000 Donaldson Lufkin & Jennrette, Inc.,
6.875%, 11/01/05................................... 205,164
200,000 Lehman Brothers Holdings, Inc.,
7.360%, 12/15/03................................... 210,210
145,000 Salomon, Inc., 7.500%, 2/01/03...................... 152,167
480,000 Salomon, Inc., 7.000%, 3/15/04...................... 498,475
------------
2,374,920
------------
TECHNOLOGY--0.5%
880,000 Dell Computer Corp.,
6.550%, 04/15/08................................... 880,405
------------
TELECOMMUNICATIONS--0.9%
950,000 Sprint Spectrum, L.P.,
Zero Coupon, 08/15/06.............................. 812,250
680,000 U.S. West Capital Funding, Inc.,
6.250%, 07/15/05................................... 678,518
------------
1,490,768
------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
TRANSPORTATION--0.1%
$ 100,000 American Airlines,
10.290%, 03/08/21................................. $ 137,142
25,000 American Airlines,
10.180%, 1/02/13.................................. 31,779
------------
168,921
------------
Total Bonds & Notes
(Identified Cost $66,338,273)..................... 67,883,884
------------
SHORT-TERM INVESTMENTS--5.3%
7,000,000 American Express Credit Corp, 5.950%, 7/01/98...... 7,000,000
2,017,000 Associates Corp. of North America,
5.950%, 7/01/98................................... 2,017,000
------------
Total Short-term Investments
(Identified Cost $9,017,000)...................... 9,017,000
------------
Total Investments--101.8%
(Identified Cost $157,816,001)(b)................. 173,136,500
Other assets less liabilities...................... (3,018,727)
------------
TOTAL NET ASSETS--100%............................. $170,117,773
============
(a) See Note 1A.
(b) Federal Tax Information:
At June 30, 1998 the net unrealized appreciation on investments based on
cost of $157,816,001 for fed income tax purposes was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost............... $ 17,503,763
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value............... (2,183,273)
============
Net unrealized appreciation................................... $ 15,320,490
============
</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 not located in the United States or Canada.
See accompanying notes to financial statements.
61
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value.................................. $173,136,500
Cash.................................................. 237
Receivable for:
Fund shares sold...................................... 185,467
Securities sold....................................... 3,685,211
Dividends and interest................................ 1,185,870
Unamortized organization expense...................... 2,680
------------
178,195,965
LIABILITIES
Payable for:
Securities purchased.................................. $7,823,549
Fund shares redeemed.................................. 95,831
Withholding taxes..................................... 2,558
Accrued expenses:
Management fees....................................... 121,968
Deferred trustees' fees............................... 3,548
Other expenses........................................ 30,738
----------
8,078,192
------------
$170,117,773
============
NET ASSETS
Net Assets consist of:
Capital paid in....................................... $149,505,446
Undistributed net investment income................... 2,112,179
Accumulated net realized gains........................ 3,179,658
Unrealized appreciation on investments................ 15,320,490
------------
NET ASSETS............................................. $170,117,773
============
Computation of offering price:
Net asset value and redemption price per share
($170,117,773 divided by 10,776,787 shares of
beneficial interest).................................. $ 15.79
============
Identified cost of investments......................... $157,816,001
============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
<S> <C> <C>
INVESTMENT INCOME
Dividends............................................. $ 595,991(a)
Interest.............................................. 2,117,868
----------
2,713,859
EXPENSES
Management fees....................................... $ 579,930
Trustees' fees and expenses........................... 8,875
Custodian............................................. 35,374
Audit and tax services................................ 6,994
Legal................................................. 1,675
Printing.............................................. 14,478
Insurance............................................. 2,866
Amortization of organization expenses................. 997
Miscellaneous......................................... 2,265
---------
Total expenses....................................... 653,454
----------
NET INVESTMENT INCOME.................................. 2,060,405
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on:
Investments--net...................................... 2,591,887
Unrealized appreciation on:
Investments--net...................................... 4,200,024
Net gain on investment transactions.................... 6,791,911
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............. $8,852,316
==========
</TABLE>
(a) Net of foreign taxes of: $6,959.
See accompanying notes to financial statements.
62
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1997 1998
------------ ----------------
<S> <C> <C>
FROM OPERATIONS
Net investment income.......................... $ 2,423,147 $ 2,060,405
Net realized gain on investments............... 5,050,034 2,591,887
Unrealized appreciation on investments......... 5,612,032 4,200,024
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS......... 13,085,213 8,852,316
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income.......................... (2,381,795) 0
Net realized gain on investments............... (4,984,089) 0
------------ ------------
(7,365,884) 0
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares................... 86,766,541 43,243,165
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income....... 2,381,795 0
Distributions from net realized gain........... 4,984,089 0
------------ ------------
94,132,425 43,243,165
Cost of shares redeemed........................ (20,933,471) (19,420,834)
------------ ------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS............................ 73,198,954 23,822,331
------------ ------------
TOTAL INCREASE IN NET ASSETS................... 78,918,283 32,674,647
NET ASSETS
Beginning of the period........................ 58,524,843 137,443,126
------------ ------------
End of the period.............................. $137,443,126 $170,117,773
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
End of the period.............................. $ 51,774 $ 2,112,179
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares................. 5,865,131 2,771,834
Issued in connection with the reinvestment of:
Distributions from net investment income....... 161,887 0
Distributions from net realized gain........... 337,428 0
------------ ------------
6,364,446 2,771,834
Redeemed....................................... (1,433,106) (1,244,831)
------------ ------------
Net change..................................... 4,931,340 1,527,003
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 31, 1994(A)
THROUGH YEAR YEAR YEAR SIX MONTHS ENDED
DECEMBER 31, ENDED ENDED ENDED JUNE 30,
1994 1995 1996 1997 1998
------------------- ------- ------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of period.... $10.00 $ 9.94 $ 11.95 $ 13.55 $ 14.86
------ ------- ------- -------- --------
Income From Investment
Operations
Net Investment Income.. 0.05 0.26 0.27 0.28 0.19
Net Realized and
Unrealized Gain (Loss)
on Investments........ (0.06) 2.20 1.73 1.90 0.74
------ ------- ------- -------- --------
Total From Investment
Operations............ (0.01) 2.46 2.00 2.18 0.93
------ ------- ------- -------- --------
Less Distributions
Distributions From Net
Investment Income..... (0.05) (0.26) (0.27) (0.27) 0.00
Distributions From Net
Realized Capital
Gains................. 0.00 (0.19) (0.13) (0.60) 0.00
------ ------- ------- -------- --------
Total Distributions.... (0.05) (0.45) (0.40) (0.87) 0.00
------ ------- ------- -------- --------
Net Asset Value, End of
period................. $ 9.94 $ 11.95 $ 13.55 $ 14.86 $ 15.79
====== ======= ======= ======== ========
TOTAL RETURN (%)........ (0.10)(b) 24.79 16.91 16.18 6.26(b)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.85 (c) 0.85 0.85 0.85 0.85(c)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 4.16 (c) 4.03 3.08 2.79 2.68(c)
Portfolio Turnover Rate
(%).................... 0 (c) 72 59 60 69(c)
Net Assets, End of
period (000)........... $2,722 $18,823 $58,525 $137,443 $170,118
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 (c) 1.85 0.99 0.86 --
</TABLE>
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
See accompanying notes to financial statements.
63
<PAGE>
BACK BAY ADVISORS MANAGED SERIES
PORTFOLIO MANAGER: PETER W. PALFREY, CFA BACK BAY ADVISORS, L.P.
[PHOTO OF PETER W. PALFREY, CFA APPEARS HERE]
Q. HOW DID THE SERIES PERFORM DURING THE FIRST HALF OF THE YEAR?
A. The Back Bay Advisors Managed Series continued its strong relative and abso-
lute performance during the first half of 1998, returning 12.48% versus 9.73%
for the Lipper Variable Products Flexible Portfolio Fund Average, an
outperformance of 275 basis points. For the 1-year period ended June 30, 1998,
the Series returned 23.14% versus 18.13% for the average of the Lipper catego-
ry, an outperformance of 501 basis points, but in line with an unmanaged com-
posite of 65% of the S&P 500 Index (which returned 30.16% for the last 12
months) and 35% of the Lehman Brothers Government/Corporate Bond Index (which
returned 11.28% for the last 12 months) for a blended return of 23.55% for the
year. The Series was ranked 11th of 87 funds in its peer group of Lipper Vari-
able Products Flexible Portfolio for the past year, and is ranked 6th for the
three year period and 5th for the five year period, each ended June 30, 1998.
Q. HOW DID YOU MANAGE THE SERIES DURING THE PAST SIX MONTHS?
A. With stock market technicals improving as the impending threat of the Asia
crisis to the U.S. economy diminished (at least in the eyes of U.S. investors),
and with interest rates grinding lower through the first quarter, I allowed the
stock portion of the portfolio to grow to over 68 percent by late March--versus
my neutral benchmark weighting of 65 percent/35 percent stocks-bonds. However,
with stock valuations climbing back above record levels (price to book, price-
/earnings, dividend yield), on the back of declining estimates for year-over-
year corporate earnings growth (now sub-10 percent for the first time since
early 1995), I shaved the equity allocation back to 65 percent at the end of
the first quarter. With market volatility picking up sharply during the second
quarter, as investors attempted to weigh renewed Asia/Russia concerns and lower
corporate earnings estimates against continued strong U.S. consumer demand for
housing, goods and services, I maintained the equity allocation at approxi-
mately 65%, reflecting a neutral stance on stocks versus bonds.
Bond returns were on a roller coaster through the first half of 1998, rallying
sharply early in the first quarter on expectations of a sharp slowdown in U.S.
economic growth from the Asia crisis, only to give back part of the gain later
in the quarter as the reach of the Asia crisis seemingly had become more lim-
ited in scope than investors had initially expected. However, continued benign
inflation data, coupled with renewed Asia concerns, pushed interest rates to
new period lows late in the second quarter, rewarding patient bond investors.
This decline in rates, coupled with the growing belief that the Federal Reserve
would remain sidelined at least through the summer months (despite continued
tight U.S. labor markets), allowed investors to push the equity market to new
highs by quarter end, which also helped firm credit spreads in the fixed-income
market. The portfolio remained overweight to the credit sector, particularly to
the cable/media sector and the Yankee sector--two of the best performing fixed-
income sectors during the first half of the year. The portfolio's longer dura-
tion (10 years), as well as its barbell maturity structure, has also allowed
the fixed-income portion of the portfolio to perform satisfactorily versus its
relevant benchmark.
Q. WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD?
A. I expect to maintain the stock portion of the portfolio at approximately 65
percent over the near term--in line with my neutral benchmark weighting of 65
percent/35 percent stocks-bonds--with stock valuations remaining quite full by
most historical measures (price to book, price/earnings, dividend yield), but
off the record levels recorded at the end of the first quarter (given the re-
cent decline in interest rates). While the U.S. domestic economy has continued
to produce very favorable numbers (solid retail sales growth, record new home
sales), coupled with very benign inflation data, global GDP growth is expected
to slow dramatically in 1998-99 from that of 1997 and early 1998. Weaker over-
seas demand for U.S. products, combined with tight U.S. labor markets and the
inability of U.S. corporations to push through price increases, will likely
lead to tighter operating margins (i.e. without substantial productivity
gains). Second quarter earnings remain the next hurdle for investors, with
softness in the export market and increased inventory levels likely to trans-
late to pockets of weakness in reported U.S. corporate earnings. Bond portfolio
duration has been maintained long, given my constructive outlook on interest
rates, with a continued bias towards credit exposure in the domestic and over-
seas markets.
64
<PAGE>
A $10,000 Investment Compared to the S&P 500/25/ and
Lehman Brothers Government/Corporate Bond Index
[LINE GRAPH APPEARS HERE]
Average Annual Total Return
Managed Series Lipper Variable Products Flexible
Portfolio Fund Average/8/
6 months* 12.5% 9.7%
1 year 23.1% 18.1%
3 years 22.5% 17.9%
5 years 17.1% 14.0%
10 years 14.4% 13.3%
Since Inception 13.3% n/a
*not annualized
<TABLE>
<CAPTION>
Zenith Managed Leh Gov't/
Series S&P 500 Corp.
-------------- ------- ---------
<S> <C> <C> <C>
12/31/87 10,000 10,000 10,000
12/31/88 10,948 11,649 10,678
12/31/89 13,037 15,329 12,041
12/31/90 13,456 14,852 13,145
12/31/91 16,171 19,357 15,068
12/31/92 17,255 20,830 16,148
12/31/93 19,092 22,920 17,567
12/31/94 18,880 23,231 17,228
12/31/95 24,782 31,931 19,886
12/31/96 28,508 39,243 20,673
12/31/97 36,078 52,317 23,994
06/30/98 40,582 61,562 24,992
</TABLE>
[X] FUND FACTS
GOAL: A favorable total return through investment in a 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: $207 million as of June 30, 1998
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.
65
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
COMMON STOCKS--65.4% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES VALUE (A)
------ ------------
<C> <S> <C>
AEROSPACE--0.9%
11,276 Boeing Co. .............................................. $ 502,487
5,400 Lockheed Martin Corp. ................................... 571,725
14,600 Rockwell International Corp. ............................ 701,712
------------
1,775,924
------------
AIR TRANSPORTATION--0.4%
2,900 Delta Air Lines, Inc. ................................... 374,825
15,150 Southwest Airlines Co. .................................. 448,819
------------
823,644
------------
AUTOMOBILE & RELATED--1.8%
37,764 Chrysler Corp. .......................................... 2,128,945
16,900 Ford Motor Co. .......................................... 997,100
4,500 Goodyear Tire & Rubber Co. .............................. 289,969
7,200 Paccar, Inc. ............................................ 376,200
------------
3,792,214
------------
BANKS--5.7%
16,704 Banc One Corp. .......................................... 932,292
9,888 Bank America Corp. ...................................... 854,694
10,600 Bankers Trust New York Corp. ............................ 1,230,262
17,400 Chase Manhattan Corp. New................................ 1,313,700
9,400 Citicorp................................................. 1,402,950
7,800 First Chicago Corp. ..................................... 691,275
10,900 J.P. Morgan & Co., Inc. ................................. 1,276,662
14,400 Nations Bank Corp. ...................................... 1,101,600
34,200 Norwest Corp. ........................................... 1,278,225
10,000 Republic NY Corp. ....................................... 629,375
2,800 Wells Fargo & Co. ....................................... 1,033,200
------------
11,744,235
------------
BEVERAGES--0.2%
20,000 Whitman Corp. ........................................... 458,750
------------
BUSINESS MACHINES--1.5%
26,838 Compaq Computer Corp. ................................... 761,528
19,800 International Business Machines Corp. ................... 2,273,287
------------
3,034,815
------------
BUSINESS SERVICES--0.7%
28,500 Browning Ferris Industries, Inc. ........................ 990,375
9,200 H & R Block, Inc. ....................................... 387,550
------------
1,377,925
------------
CHEMICALS--1.7%
28,400 AlliedSignal, Inc. ...................................... 1,260,250
15,100 E.I. Du Pont de Nemours & Co. ........................... 1,126,837
11,000 Great Lakes Chemical Corp. .............................. 433,813
7,800 Pitney Bowes, Inc. ...................................... 375,375
5,100 Union Carbide Corp. ..................................... 272,213
------------
3,468,488
------------
COMMUNICATION--5.8%
15,500 Airtouch Communications, Inc. ........................... $ 905,781
26,200 Ameritech Corp. ......................................... 1,175,725
39,261 AT & T Co. .............................................. 2,242,785
22,424 Bell Atlantic Corp. ..................................... 1,023,095
16,200 Bellsouth Corp. ......................................... 1,087,425
10,600 GTE Corp. ............................................... 589,625
12,800 Harris Corp. ............................................ 572,000
17,668 Lucent Technologies, Inc. ............................... 1,469,757
11,900 Northern Telecom LTD..................................... 675,325
28,274 SBC Communications, Inc. ................................ 1,130,960
23,900 US West, Inc. ........................................... 1,123,300
------------
11,995,778
------------
CONGLOMERATES--0.7%
11,100 Frontier Corp. .......................................... 349,650
13,800 Minnesota Mining & Manufacturing......................... 1,134,187
------------
1,483,837
------------
CONSTRUCTION--1.2%
20,100 Home Depot, Inc. ........................................ 1,669,556
14,900 Masco Corp. ............................................. 901,450
------------
2,571,006
------------
CONSUMER DURABLES--2.2%
7,300 Black & Decker Corp. .................................... 445,300
43,700 General Electric Co. .................................... 3,976,700
800 Whirlpool Corp. ......................................... 55,000
------------
4,477,000
------------
CONTAINERS--0.1%
6,000 Bemis, Inc. ............................................. 245,250
------------
DATA PROCESSING--2.7%
23,100 Intel Corp. ............................................. 1,712,287
35,800 Microsoft Corp. ......................................... 3,879,825
150 Oracle Systems Corp. .................................... 3,684
------------
5,595,796
------------
DOMESTIC OIL--1.0%
4,300 Amerada Hess Corp. ...................................... 233,544
5,600 Amoco Corp. ............................................. 233,100
5,400 Atlantic Richfield Co. .................................. 421,875
7,200 Halliburton Co. ......................................... 320,850
3,601 Sun, Inc. ............................................... 139,764
6,200 Tenneco, Inc. ........................................... 235,988
15,600 Unocal Corp. ............................................ 557,700
------------
2,142,821
------------
DRUGS & MEDICINE--5.4%
17,600 Abbott Laboratories...................................... 719,400
12,800 Bausch & Lomb, Inc. ..................................... 641,600
17,500 Baxter International, Inc. .............................. 941,719
</TABLE>
See accompanying notes to financial statements.
66
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
------ ------------
<C> <S> <C>
DRUGS & MEDICINE--(CONTINUED)
9,600 Becton Dickerson & Co. .................................. $ 745,200
17,000 C.R. Bard, Inc. ......................................... 647,063
12,600 Corning, Inc. ........................................... 437,850
15,800 Eli Lilly & Co. ......................................... 1,043,787
11,200 Mallinckrodt, Inc. ...................................... 332,500
19,500 Merck & Co., Inc. ....................................... 2,608,125
20,800 Pfizer, Inc. ............................................ 2,260,700
9,200 Schering Plough Corp. ................................... 842,950
------------
11,220,894
------------
ELECTRONICS--2.2%
21,400 AMP, Inc. ............................................... 735,625
18,800 Emerson Electric Co. .................................... 1,135,050
20,000 Hewlett-Packard.......................................... 1,197,500
15,400 Raytheon Co. ............................................ 910,525
14,400 Tektronix, Inc. ......................................... 509,400
------------
4,488,100
------------
ENERGY & UTILITIES--2.4%
11,700 Consolidated Edison Co. ................................. 538,931
40,200 Edison International..................................... 1,188,412
45,700 Pacific Gas & Electric Corp. ............................ 1,442,406
10,700 Pepco Energy Co. ........................................ 312,306
7,700 Public Service Enterprise Group.......................... 265,169
8,900 Texas Utilities Co. ..................................... 370,463
21,200 Unicom Corp. ............................................ 743,325
------------
4,861,012
------------
ENERGY RAW MATERIALS--0.4%
27,200 Occidental Petroleum Corp. .............................. 734,400
------------
FINANCE--2.5%
10,400 American Express Co. .................................... 1,185,600
4,429 Associates First Capital Corp. .......................... 340,479
21,800 Federal Home Loan Mortgage Corp. ........................ 1,025,962
21,400 Federal National Mortgage Association.................... 1,300,050
14,508 Morgan Stanley, Dean Witter.............................. 1,325,669
------------
5,177,760
------------
FOOD & AGRICULTURE--3.5%
36,900 Coca Cola Co. ........................................... 3,154,950
20,450 H. J. Heinz Co. ......................................... 1,147,756
30,700 PepsiCo, Inc. ........................................... 1,264,456
16,000 Sara Lee Corp. .......................................... 895,000
15,200 Supervalue, Inc. ........................................ 674,500
------------
7,136,662
------------
GAS UTILITIES--0.3%
14,200 Eastern Enterprises...................................... 608,825
------------
GOLD--0.1%
8,900 Barrick Gold Corp. ...................................... 170,769
------------
INSURANCE--2.8%
11,500 Aetna Life & Casualty Co. ............................... $ 875,438
10,568 Allstate Corp. .......................................... 967,632
14,400 American General Corp. .................................. 1,025,100
9,702 American International Group, Inc. ...................... 1,416,492
8,100 CIGNA Corp. ............................................. 558,900
4,600 Loews Corp. ............................................. 400,775
8,444 Travelers Group, Inc. ................................... 511,918
------------
5,756,255
------------
INTERNATIONAL OIL--3.2%
38,400 Exxon Corp. ............................................. 2,738,400
15,600 Mobil Corp. ............................................. 1,195,350
39,200 Royal Dutch Petroleum Co. (ADR)(f)....................... 2,148,650
9,600 Texaco, Inc. ............................................ 573,000
------------
6,655,400
------------
LEISURE--0.2%
17,000 Brunswick Corp. ......................................... 420,750
------------
LIQUOR--0.4%
6,600 Anheuser-Busch Companies, Inc. .......................... 311,438
11,700 Seagram, Ltd. ........................................... 478,969
------------
790,407
------------
MEDIA--1.6%
13,400 Cisco Systems, Inc. ..................................... 1,233,637
6,000 Gannett Company, Inc. ................................... 426,375
15,200 Tele-Communications, Inc. ............................... 584,250
13,200 Time Warner, Inc. ....................................... 1,127,775
------------
3,372,037
------------
MISCELLANEOUS--1.1%
8,000 American Greetings Corp. ................................ 407,500
10,000 Cognizant Corp. ......................................... 630,000
10,900 EG & G, Inc. ............................................ 327,000
9,000 Hussmann International, Inc. ............................ 167,063
4,400 Nacco Industries, Inc. .................................. 568,700
7,926 Newmont Mining Corp. .................................... 187,252
2,750 Octel Corp. ............................................. 54,656
------------
2,342,171
------------
NON-FERROUS METALS--0.4%
14,000 Aluminum Company of America.............................. 923,125
------------
OFFICE EQUIPMENT--1.2%
24,000 Xerox Corp. ............................................. 2,439,000
------------
OPTICAL PHOTO EQUIPMENT--0.1%
3,600 Eastman Kodak Co. ....................................... 263,025
------------
PAPER & FOREST PRODUCTS--0.8%
3,300 Burlington Northern Santa Fe............................. 324,019
3,600 Georgia-Pacific Corp. ................................... 212,175
</TABLE>
See accompanying notes to financial statements.
67
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
------ ------------
<C> <S> <C>
PAPER & FOREST PRODUCTS--(CONTINUED)
19,000 Kimberly Clark Corp. .................................... $ 871,625
8,400 Westvaco Corp. .......................................... 237,300
------------
1,645,119
------------
POLLUTION CONTROL--0.2%
9,500 Waste Management, Inc. .................................. 332,500
------------
PRODUCER OF GOODS--0.2%
21,200 Cincinnati Milacron, Inc. ............................... 515,425
------------
PUBLISHING--0.3%
12,000 Knight Ridder, Inc. ..................................... 660,750
------------
RAILROADS & SHIPPING--0.3%
5,100 CSX Corp. ............................................... 232,050
13,500 Norfolk Southern Corp. .................................. 402,469
------------
634,519
------------
RESTAURANTS--0.0%
3,070 Tricon Global Restaurants, Inc. ......................... 97,281
------------
RETAIL--3.6%
19,000 Albertsons, Inc. ........................................ 984,438
5,000 J. C. Penney, Inc. ...................................... 361,563
38,900 Kmart Corp.(c)........................................... 748,825
26,400 Mattel Inc. ............................................. 1,117,050
7,800 May Department Stores Co. ............................... 510,900
10,000 Mercantile Stores, Inc. ................................. 789,375
11,600 Nike Inc. ............................................... 564,775
11,400 Sears Roebuck & Co. ..................................... 696,113
28,100 Wal-Mart Stores, Inc. ................................... 1,707,075
------------
7,480,114
------------
SOAPS & COSMETICS--4.0%
17,000 Alberto Culver Co. ...................................... 493,000
3,900 Avon Products, Inc. ..................................... 302,250
19,620 Bristol-Myers Squibb Co. ................................ 2,255,074
3,800 Clorox Co. .............................................. 362,425
18,000 Gillette Co. ............................................ 1,020,375
26,100 Johnson & Johnson........................................ 1,924,875
20,600 Procter & Gamble Co. .................................... 1,875,887
------------
8,233,886
------------
STEEL--0.1%
7,720 USX-US Steel Group....................................... 254,760
------------
TOBACCO--0.8%
40,800 Philip Morris Companies, Inc. ........................... 1,606,500
------------
TRAVEL & RECREATION--0.7%
13,235 Walt Disney Co. ......................................... 1,390,502
------------
Total Common Stock
(Identified cost $66,884,125)........................... 135,199,431
------------
</TABLE>
<TABLE>
<CAPTION>
BOND & NOTES -- 33.3%
FACE
AMOUNT VALUE (A)
------ ------------
<C> <S> <C>
CORPORATE BONDS--14.4%
$ 3,000,000 CSC Holdings, Inc. 7.875%, 1/30/17.................. $ 3,157,260
2,000,000 CSC Holdings, Inc. 7.875%, 2/15/18.................. 2,120,000
6,000,000 Comcast Cable Communications, 8.500%, 5/01/27....... 6,797,940
2,000,000 Comcast Cellular Holding, Inc,
9.500%, 5/01/07, 144A(e)........................... 2,075,000
700,000 Freeport Term Malta, 144A(e)........................ 717,255
2,000,000 MCI Communications Corp.
7.125%, 6/15/27.................................... 2,125,840
4,525,000 News America Holdings Inc.,
10.125%, 10/15/12.................................. 5,277,915
2,750,000 Norfolk Southern Corp.,
7.050%, 5/01/37.................................... 2,946,818
3,000,000 TCA Cable TV, Inc.,
6.530%, 2/01/28.................................... 2,999,790
2,000,000 Total Access Communication,
8.375%, 11/04/06................................... 1,505,340
30,000 Viacom, Inc., 8.000%, 7/07/06....................... 30,975
------------
29,754,133
------------
FOREIGN--9.8%
4,000,000 Government of Canada,
10.250%, 3/15/14(d)................................ 4,084,673
5,000,000 Government of Canada,
Zero Coupon, 3/15/21(d)............................ 963,270
15,000,000 Government of Canada,
Zero Coupon, 6/01/25(d)............................ 2,349,563
3,000,000 Province of Ontario,
8.100%, 9/08/23(d)................................. 2,652,305
30,000,000 Province of Ontario,
Zero Coupon, 09/08/23(d)........................... 4,668,547
15,000,000 Province of Quebec Stripped,
Zero Coupon, 1/16/23(d)............................ 2,335,293
3,600,000 Province of Quebec,
8.500%, 04/01/26(d)................................ 3,272,060
------------
20,325,711
------------
YANKEE--8.8%
2,000,000 Petroleos Mexicanos,
9.500%, 9/15/27.................................... 1,945,540
925,000 Pindo Deli Fin Mauritius,
10.750%, 10/01/07, 144A(e)......................... 642,875
6,000,000 Republic of Argentina,
11.375%, 1/30/17................................... 6,390,000
5,000,000 Republic of Colombia
7.625%, 2/15/07.................................... 4,513,200
4,958,000 Republic of Panama,
8.875%, 9/30/27, 144A(e)........................... 4,660,520
------------
18,152,135
------------
</TABLE>
See accompanying notes to financial statements.
68
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
------ ------------
<C> <S> <C>
U.S. GOVERNMENT AGENCY
BONDS--0.3%
$ 247,413 Government National Mortgage Association, 10.000%,
9/15/18........................................... $ 271,474
318,525 Government National Mortgage Association, 11.500%
with various maturities to 2013................... 358,872
------------
630,346
------------
Total Bonds & Notes
(Identified Cost $65,679,655)..................... 68,862,325
------------
SHORT-TERM INVESTMENT--0.7%
1,390,000 Household Finance Corp.,
6.000%, 7/01/98................................... 1,390,000
------------
Short-Term Investments
(Identified Cost $1,390,000)...................... 1,390,000
------------
Total Investments--99.4%
(Identified Cost $133,953,780)(b)................. 205,451,756
Other assets less liabilities...................... 1,313,348
------------
TOTAL NET ASSETS--100%............................. $206,765,104
============
</TABLE>
(a) See Note 1A.
(b) Federal Tax Information:
At June 30, 1998 the net unrealized appreciation on investments based on
cost of $133,953,780 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost.......... $73,699,704
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value.......... (2,201,728)
-----------
Net unrealized appreciation.................................. $71,497,976
===========
(c) Non-income producing security.
(d) Denominated in Canadian Dollars.
(e) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $8,095,650 or 3.9% of total
net assets.
(f) 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.
69
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value..................................... $205,451,756
Cash..................................................... 323
Receivable for:
Fund shares sold......................................... 49,069
Dividends and interest................................... 1,477,970
Foreign taxes............................................ 632
------------
206,979,750
LIABILITIES
Payable for:
Fund shares redeemed..................................... $46,830
Accrued expenses:
Management fees.......................................... 84,066
Deferred trustees' fees.................................. 50,446
Other expenses........................................... 33,304
-------
214,646
------------
$206,765,104
============
NET ASSETS
Net Assets consist of:
Capital paid in.......................................... $123,282,744
Undistributed net investment income...................... 3,132,851
Accumulated net realized gains........................... 8,855,190
Unrealized appreciation on investments and foreign
currency................................................ 71,494,319
------------
NET ASSETS................................................ $206,765,104
============
Computation of offering price:
Net asset value and redemption price per share
($206,765,104 divided by 968,218 shares of beneficial
interest)................................................ $ 213.55
============
Identified cost of investments............................ $133,953,780
============
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C> <C>
Dividends......................................... $ 1,118,484(a)
Interest.......................................... 2,606,857
-----------
3,725,341
EXPENSES
Management fees................................... $ 499,478
Trustees' fees and expenses....................... 15,394
Custodian......................................... 47,356
Audit and tax services............................ 6,500
Legal............................................. 3,457
Printing.......................................... 19,953
Insurance......................................... 3,553
Miscellaneous..................................... 2,265
-----------
Total expenses................................... 597,956
-----------
NET INVESTMENT INCOME.............................. 3,127,385
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments--net.................................. 4,251,755
Foreign currency transactions--net................ (20,747)
-----------
Total realized gain on investments and foreign
currency transactions........................... 4,231,008
-----------
Unrealized appreciation (depreciation) on:
Investments--net.................................. 16,047,241
Foreign currency transactions--net................ (565)
-----------
Total unrealized appreciation on investments and
foreign currency transactions................... 16,046,676
-----------
Net gain on investment transactions................ 20,277,684
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS......... $23,405,069
===========
</TABLE>
(a) Net of foreign taxes of: $6,375.
See accompanying notes to financial statements.
70
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1997 1998
------------ ----------------
<S> <C> <C>
FROM OPERATIONS
Net investment income.......................... $ 5,630,618 $ 3,127,385
Net realized gain on investments and foreign
currency transactions......................... 21,058,248 4,231,008
Unrealized appreciation on investments and
foreign currency transactions................. 14,235,222 16,046,676
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS......... 40,924,088 23,405,069
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income.......................... (5,622,790) 0
Net realized gain on investments............... (16,617,273) 0
------------ ------------
(22,240,063) 0
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares................... 22,338,847 12,362,251
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income....... 5,622,790 0
Distributions from net realized gain........... 16,617,273 0
------------ ------------
44,578,910 12,362,251
Cost of shares redeemed........................ (35,368,662) (17,784,917)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS DERIVED FROM
CAPITAL SHARE TRANSACTIONS.................... 9,210,248 (5,422,666)
------------ ------------
TOTAL INCREASE IN NET ASSETS................... 27,894,273 17,982,403
NET ASSETS
Beginning of the period........................ 160,888,428 188,782,701
------------ ------------
End of the period.............................. $188,782,701 $206,765,104
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
End of the period.............................. $ 5,466 $ 3,132,851
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares................. 115,122 60,659
Issued in connection with the reinvestment of:
Distributions from net investment income....... 30,044 0
Distributions from net realized gain........... 88,778 0
------------ ------------
233,944 60,659
Redeemed....................................... (183,956) (86,799)
------------ ------------
Net change..................................... 49,988 (26,140)
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
------------------------------------------------ JUNE 30,
1993 1994 1995 1996 1997 1998
-------- -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of period.... $ 130.26 $ 137.18 $ 130.30 $ 163.52 $ 170.37 $ 189.85
-------- -------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment Income.. 4.35 5.42 6.34 6.43 6.38 3.23
Net Realized and
Unrealized Gain (Loss)
on Investments........ 9.58 (6.92) 34.33 18.21 38.47 20.47
-------- -------- -------- -------- -------- --------
Total From Investment
Operations............ 13.93 (1.50) 40.67 24.64 44.85 23.70
-------- -------- -------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income..... (4.36) (5.38) (6.34) (6.34) (6.42) 0.00
Distributions in Excess
of Net Investment
Income................ 0.00 0.00 (0.23) 0.00 0.00 0.00
Distributions From Net
Realized Capital
Gains................. (2.65) 0.00 (0.88) (11.45) (18.95) 0.00
-------- -------- -------- -------- -------- --------
Total Distributions.... (7.01) (5.38) (7.45) (17.79) (25.37) 0.00
-------- -------- -------- -------- -------- --------
Net Asset Value, End of
period................. $ 137.18 $ 130.30 $ 163.52 $ 170.37 $ 189.85 $ 213.55
======== ======== ======== ======== ======== ========
TOTAL RETURN (%)........ 10.65 (1.11) 31.26 15.01 26.56 12.48(a)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.53 0.54 0.64 0.62 0.61 0.60(b)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 3.65 3.98 4.06 3.64 3.20 3.13(b)
Portfolio Turnover Rate
(%).................... 22 76 51 72 65 18(b)
Net Assets, End of
period (000)........... $121,339 $121,877 $147,536 $160,888 $188,783 $206,765
</TABLE>
(a) Not computed on an annualized basis.
(b) Computed on an annualized basis.
See accompanying notes to financial statements.
71
<PAGE>
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES
PORTFOLIO MANAGERS: ROGER LAVAN, PETER WILBY AND DAVID SCOTT
SALOMON BROTHERS ASSET MANAGEMENT INC
[PHOTO OF ROGER LAVAN AND PETER WILBY APPEAR HERE]
[PHOTO OF DAVID SCOTT APPEARS HERE]
Q. HOW DID THE SERIES PERFORM DURING THE FIRST HALF OF THE YEAR?
A. For the six months ended June 30, 1998, the Salomon Brothers Strategic Bond
Opportunities Series posted a 2.8% return versus a 3.9% return for the Lehman
Brothers Aggregate Bond Index and a 3.6% return for the Lipper Variable Prod-
ucts General Bond Fund Average. The underperformance is attributable to the Se-
ries' position in the emerging markets debt and high yield sectors.
Q. HOW DID YOU MANAGE THE SERIES DURING THE FIRST HALF OF THE YEAR?
A. For the first six months of 1998, the performance of the U.S. economy ex-
ceeded expectations. Low long-term interest rates, abundant money supply growth
and new highs in the equity markets contributed to the healthy economic perfor-
mance. In addition, investors concerned about developments in Asia flocked to
the U.S. Treasury market as a "safe haven." As a result, the long bond reached
its lowest yield, 5.57%, since the U.S. Government began regular sales of secu-
rities in 1977. The yield curve flattened, with spreads between the two year
and 30 year bond tightening to 15 basis points at June 30, 1998. Investment
grade bonds were the winner in the first half of 1998 supported by the strong
performance of Treasuries and mortgage backed securities.
During the first half, all major credit-sensitive fixed-income sectors experi-
enced heightened volatility. The emerging markets debt sector, which rallied in
the first quarter based on an optimistic outlook for reforms in Asia, gave up
its gains as attempts to implement reforms met some resistance. Events that un-
folded in Russia, India and Pakistan in the second quarter compounded existing
challenges in Southeast Asia. Moreover, Japan's economic and banking system
problems became more prominent and led to a weakening of the Japanese yen ver-
sus the U.S. dollar. In addition to Asian economic problems, the markets had to
endure a crisis of confidence in Russia. Russia raised interest rates on over-
night money to 150% at one point in order to fund its liabilities. The problems
in Russia led to a sector-wide sell-off of emerging markets debt.
In the emerging markets debt sector, the Series lightened up on Russian expo-
sure and added to Bulgaria and Peru. Mexico and Argentina continue to be core
holdings as their fundamentals remain strong.
The Salomon Brothers High Yield Market Index/24/ posted a 5.1% return over
the six months ended June 30; however, the second quarter was volatile. Corpo-
rations issued record levels of debt to take advantage of low interest rates.
This pressured the market, and as a result yield spreads to comparable Treasur-
ies rose to about 380 basis points, about 100 basis points higher than the lows
set in August of last year. The Series was not deterred by the technically in-
duced spread widening and maintained its weightings to the high yield sector.
In addition, we maintained the Series' high standards for credit quality even
as a lot of the new deals coming to market had weaker underlying fundamentals.
The Series continues to seek opportunities to upgrade credit quality. We remain
positive on the high yield sector.
Q. WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD?
A. We believe that the Federal Reserve Board is firmly on hold for the time be-
ing supported by few signs of inflation and a persistent crisis in Asia. Our
strategy for the Series is to continue to allocate to higher yielding sectors,
which we believe over time will provide superior returns. At June 30, 1998, the
Series had the following allocation: U.S. investment grade (40%), high yield
(32%), emerging markets debt (15%), non-dollar government bonds (8%) and short-
term investments (5%).
72
<PAGE>
A $10,000 Investment Compared to the Lehman Brothers Aggregate Bond Index/2/
[LINE GRAPH APPEARS HERE]
Average Annual Total Return
Strategic Bond Lipper Variable Products
Opportunities Series General Bond Fund Average/9/
6 months* 2.8% 3.6%
1 year 8.7% 9.3%
3 years 11.6% 9.1%
Since Inception 12.5% n/a
* not annualized
[LINE GRAPH APPEARS HERE]
Strategic Bond
Lehman Aggregate Bond Opportunities Series
10/31/94 10,000 10,000
Dec-94 10,047 9,860
Dec-95 11,903 11,771
Dec-96 12,335 13,461
Dec-97 13,529 14,952
6/30/98 14,059 15,375
[X] FUND FACTS
GOAL: A high level of total return consistent with the preservation of capital.
START DATE: October 31, 1994
SIZE: $89 million as of June 30, 1998
MANAGERS: Peter Wilby and David Scott have managed the Series since its
inception in October 1994. Mr. Lavan began co-managing the Series in June 1998.
Mr. Wilby and Mr. Scott also have managed the Salomon Brothers Investment
Series--Strategic Bond Fund since March 1995. Mr. Wilby has also managed the
Salomon Brothers Investment Series--High Yield Bond Fund since March 1995.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life insurance
contracts; if these charges were included, the returns shown would be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
73
<PAGE>
NEW ENGLAND ZENITH FUND
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
BONDS & NOTES--93.2% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
APPAREL & TEXTILES--0.6%
$ 250,000 Collins & Aikman Floorcovering 10.000%, 1/15/07... $ 261,250
250,000 Synthetic Industries, Inc.
9.250%, 2/15/07.................................. 258,750
-----------
520,000
-----------
AUTOMOTIVE & RELATED--0.9%
300,000 Dana Corp. 6.500%, 3/15/08........................ 302,751
200,000 Foamex L.P/Foamex Capital Corp. 9.875%, 6/15/07... 217,000
250,000 Key Plastic, Inc.
10.250%, 3/15/07................................. 259,375
-----------
779,126
-----------
BANKS--0.3%
415,000 Malayan Banking Berhad
7.125%, 9/15/05.................................. 307,403
-----------
CABLE & OTHER MEDIA--3.1%
250,000 Adelphia Communications Series 10.500%, 7/15/04... 273,750
150,000 American Media Operations 11.625%, 11/15/04....... 162,000
500,000 Century Communications
Zero Coupon, 1/15/08............................. 226,875
150,000 CSC Holdings, Inc.
10.500%, 5/15/16................................. 176,052
150,000 Diamond Cable Communication, 0/11.750%,
12/15/05(c)...................................... 124,500
250,000 Falcon Holdings Group 144A, 8.375%, 4/15/10(d).... 251,250
250,000 Fox Family Worldwide, Inc. 0/10.250%, 11/01/07(c). 161,563
200,000 Jacor Communications Co.
9.750%, 12/15/06................................. 218,500
500,000 LIN Holdings Corp. 144A, 0/10.000%, 3/01/08(c)(d). 335,625
250,000 Marcus Cable Co.
14.250%, 12/15/05................................ 233,438
150,000 Rogers Cablesystems, Ltd., Series B 10.000%,
3/15/05.......................................... 166,500
150,000 SFX Broadcasting, Inc.
10.750%, 5/15/06................................. 166,875
400,000 United International Holdings, Series B 0/10.750%,
2/15/08(c)....................................... 247,000
-----------
2,743,928
-----------
CAPITAL GOODS/BUILDING PRODUCTS--3.3%
150,000 Alvey Systems, Inc.,
11.375%, 1/31/03................................. 156,750
250,000 EnviroSource, Inc.
9.750%, 6/15/03.................................. $ 252,500
250,000 High Voltage Engineering Corp. 10.500%, 8/15/04... 259,375
250,000 Insilco Corp. 10.250%, 8/15/07.................... 262,188
250,000 International Knife & Saw
11.375%, 11/15/06................................ 268,125
100,000 Jordan Industries, Inc., Series B 10.375%,
8/01/07.......................................... 102,750
250,000 Jordan Industries, Inc., Series B 9.875%, 8/01/07. 152,500
250,000 Motors & Gears, Inc., Series D 10.750%, 11/15/06.. 269,375
250,000 Nortek, Inc., Series B
9.125%, 9/01/07.................................. 255,625
250,000 Packard Biosciences, Inc.
9.375%, 3/01/07.................................. 244,375
250,000 Polymer Group, Inc., Series B 9.000%, 7/01/07..... 255,000
500,000 Praxair, Inc. 6.150%, 4/15/03..................... 499,940
-----------
2,978,503
-----------
CHEMICALS--0.3%
250,000 Texas Petrochemicals Corp. 11.125%, 7/01/06....... 274,688
-----------
COMPUTER SOFTWARE & SERVICES--0.5%
200,000 DecisionOne Corp.
9.750%, 8/01/07.................................. 191,750
250,000 Unisys Corp. 7.875%, 4/01/08...................... 250,938
-----------
442,688
-----------
CONSUMER PRODUCTS--2.1%
250,000 American Safety Razor
9.875%, 8/01/05.................................. 269,688
300,000 Ekco Group, Inc., Series B
9.250%, 4/01/06.................................. 311,250
150,000 Hines Horticulture, Inc.
11.750%, 10/15/05................................ 165,375
200,000 International Semi-Tech. 0/11.500%, 8/15/03(c).... 60,250
250,000 Moll Industries, Inc. 144A, 10.500%, 7/01/08(d)... 255,000
250,000 North Atlantic Trading, Inc. 11.000%, 6/15/04..... 250,000
250,000 Riddell Sports, Inc.
10.500%, 7/15/07................................. 261,875
150,000 Selmer Company, Inc.
11.000%, 5/15/05................................. 163,500
150,000 Shop-Vac Corp.
10.625%, 9/01/03................................. 164,625
-----------
1,901,563
-----------
</TABLE>
See accompanying notes to financial statements.
74
<PAGE>
NEW ENGLAND ZENITH FUND
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
COSMETICS & TOILETRIES--0.6%
$ 250,000 French Fragrances, Inc.
10.375%, 5/15/07................................. $ 267,500
350,000 Revlon Worldwide Corp., Series B Zero Coupon,
3/15/01.......................................... 271,688
-----------
539,188
-----------
DEFENSE & AEROSPACE--1.1%
250,000 BE Aerospace, Series B 8.000%, 3/01/08............ 250,000
250,000 Burke Industries, Inc.
10.000%, 8/15/07................................. 253,750
200,000 Raytheon Co. 5.950%, 3/15/01...................... 200,076
250,000 Stellex Industries, Inc.
9.500%, 11/01/07................................. 248,125
-----------
951,951
-----------
ELECTRONICS--0.6%
250,000 Amphenol Corp.
9.875%, 5/15/07.................................. 266,875
250,000 Jordan Telecommunication Products 9.875%, 8/1/07.. 265,000
-----------
531,875
-----------
ENERGY--1.6%
250,000 AES Corp. 8.500%, 11/01/07........................ 254,063
400,000 Occidental Petroleum Corp. 9.250%, 8/01/19........ 505,688
250,000 Transamerican Energy Corp., 0/13.000%, 6/15/02(c). 205,000
250,000 Transamerican Energy Corp. 11.500%, 6/15/02....... 237,500
250,000 United Refining Co., Series B 10.750%, 6/15/07.... 247,500
-----------
1,449,751
-----------
ENVIRONMENTAL CONTROL--0.7%
400,000 Allied Waste Industries, Inc. 0/11.300%,
6/01/07(c)....................................... 295,000
250,000 Norcal Waste Systems, Inc. 13.500%, 11/15/05...... 290,313
-----------
585,313
-----------
FINANCE--2.2%
125,000 Airplane Pass Thru Trust,
10.875%, 3/15/19................................. 141,194
625,000 Banc One Corp.
7.600%, 5/01/07.................................. 684,119
250,000 DVI, Inc. 9.875%, 2/01/04......................... 265,625
375,000 Merrill Lynch & Co.
6.000%, 2/12/03.................................. 374,378
450,000 Paine Webber Group, Inc.
7.000%, 3/01/00.................................. 456,719
-----------
1,922,035
-----------
FINANCIAL LEASING--0.7%
250,000 Navistar International
8.000%, 2/01/08.................................. 251,875
100,000 United States Leasing International, Inc.
8.450%, 1/25/05.................................. 111,391
250,000 William Scotsman, Inc.
9.875%, 6/01/07.................................. 260,000
-----------
623,266
-----------
FOOD & BEVERAGES--1.9%
125,000 B&G Foods, Inc.
9.625%, 8/01/07.................................. 127,188
250,000 CFP Holdings, Inc., Series B 11.625%, 1/15/04..... 235,000
250,000 Delta Beverage Group
9.750%, 12/15/03................................. 262,500
250,000 Doane Products Co.
10.625%, 3/01/06................................. 270,000
200,000 Dole Foods, Inc.
6.750%, 7/15/00.................................. 202,474
250,000 Imperial Holly Corp.
9.750%, 12/15/07................................. 252,500
250,000 SC International Services, Inc. 9.250%, 9/01/07... 259,375
150,000 Stroh Brewery Co.
11.100%, 7/01/06................................. 101,813
-----------
1,710,850
-----------
FOREIGN--2.9%
550,000 Bundesrepublik Deutche
6.500%, 7/04/27(f)............................... 355,901
45,000,000 Euro Investment Bank
4.250%, 7/16/98(e)............................... 325,938
400,000 Korea Development Bank
9.600%, 12/01/00................................. 383,148
90,000 New South Wales Treasury Corp. 7.375%, 2/21/07.... 60,823
3,000,000 Russian Principal Loan 3.313%, 12/15/20........... 1,425,000
51,517 Vnesheconombank USSR 144A, 6.625%, 12/02/15(d)(o). 27,658
-----------
2,578,468
-----------
FOREIGN GOVERNMENT--18.8%
2,050,000 Federal Republic of Brazil
10.125%, 5/15/27................................. 1,948,781
200,000 Federal Republic of Germany 6.000%, 1/05/06(f).... 119,881
</TABLE>
See accompanying notes to financial statements.
75
<PAGE>
NEW ENGLAND ZENITH FUND
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
FOREIGN GOVERNMENT--(CONTINUED)
$ 790,000 Federal Republic of Germany 5.625%, 1/04/28(f).... $ 454,695
1,150,000 Government of Canada
6.500%, 9/01/98(g)............................... 783,232
60,000 Government of Canada
7.000%, 12/01/06(g).............................. 45,258
1,440,000 Government of the Netherlands 9.000%, 1/15/01(h).. 788,449
550,000 Government of New Zealand 6.500%, 2/15/00(k)...... 283,188
5,960,000 Kingdom of Denmark
8.000%, 5/15/03(i)............................... 992,278
10,220,000 Kingdom of Denmark
6.000%, 2/15/99(i)............................... 1,503,803
1,300,000 Kingdom of Morocco
6.562%, 1/01/09.................................. 1,114,750
3,800,000 Kingdom of Sweden
11.000%, 1/21/99(j).............................. 493,400
1,400,000 National Republic of Bulgaria 6.563%, 7/28/11..... 997,500
1,600,000 Republic of Argentina
5.750%, 3/31/23.................................. 1,185,000
500,000 Republic of Ecuador
3.500%, 2/28/25.................................. 269,688
82,900,000 Republic of Greece
11.000%, 2/25/00(l).............................. 274,023
1,200,000,000 Republic of Italy,
Zero Coupon, 7/31/98(m).......................... 672,216
1,000,000 Republic of Panama
3.750%, 7/17/14.................................. 769,375
900,000 Republic of Peru 4.000%, 3/07/17.................. 554,670
1,809,524 Republic of Venezuela
6.625%, 12/18/07................................. 1,506,972
1,000,000 United Mexican States
6.250%, 12/31/19................................. 826,875
1,000,000 United Mexican States
11.500%, 5/15/26................................. 1,125,000
-----------
16,709,034
-----------
GOVERNMENT AGENCIES--18.7%
194,315 Federal Home Loan Mortgage 10.000%, 5/15/20....... 210,736
2,863 Federal Home Loan Mortgage 11.565%, 6/15/21....... 86,293
7,900,000 Federal National Mortgage Association 7.000%,
1/01/99.......................................... 8,011,074
4,600,000 Federal National Mortgage Association 6.500%,
12/01/99......................................... 4,581,278
800,000 Federal National Mortgage Association 7.500%,
12/01/99......................................... 820,496
19,982 Federal National Mortgage Association 13.000%,
11/01/14......................................... 24,022
500,000 Federal National Mortgage Association 7.000%,
11/18/15......................................... 508,625
79,624 Federal National Mortgage Association 10.400%,
4/25/19.......................................... 87,198
4,204,700 Federal National Mortgage Association 8.268%,
3/17/20(c)(n).................................... 118,362
947,544 Federal National Mortgage Association 6.500%,
3/01/26.......................................... 945,762
127,442 Federal National Mortgage Association 7.000%,
5/01/26.......................................... 129,273
5,096,783 Federal National Mortgage Association 7.991%,
2/25/35(c)(n).................................... 433,736
8,591,000 Federal National Mortgage Association 7.329%,
10/17/36(c)(n)................................... 260,307
493,484 Government National Mortgage Association 7.500%,
1/15/27.......................................... 507,207
-----------
16,724,369
-----------
HEALTH CARE--1.8%
200,000 Alaris Medical Systems, Inc.
9.750%, 12/01/06................................. 209,000
250,000 Dade International, Inc.
11.125%, 5/01/06................................. 283,125
150,000 Fresenius Medical Care Cap
9.000%, 12/01/06................................. 156,000
250,000 Integrated Health Services, Inc. 9.250%, 1/15/08.. 260,000
150,000 Maxxim Medical, Inc.
10.500%, 8/01/06................................. 165,375
250,000 Prime Medical Services, Inc. 144A, 8.750%,
4/01/08(d)....................................... 245,313
250,000 Vencor, Inc. 144A,
9.875%, 5/01/05(d)............................... 246,250
-----------
1,565,063
-----------
HOUSING RELATED--0.3%
250,000 CB Richards Ellis Services
8.875%, 6/01/06.................................. 247,500
-----------
INSURANCE--0.5%
400,000 Aetna Services, Inc. 7.625%, 8/15/26.............. 441,076
-----------
LEISURE TIME--0.9%
250,000 Grand Casino, Series B
9.000%, 10/15/04................................. 271,250
250,000 Prime Hospitality Corp.
9.750%, 4/01/07.................................. 268,125
</TABLE>
See accompanying notes to financial statements.
76
<PAGE>
NEW ENGLAND ZENITH FUND
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
LEISURE TIME--(CONTINUED)
$ 250,000 Sun International, Ltd.
8.625%, 12/15/07................................. $ 257,813
-----------
797,188
-----------
METAL/MINING/STEEL--1.2%
250,000 Commonwealth Aluminum Corp. 10.750%, 10/1/06...... 266,250
250,000 Murrin Murrin Holdings Property, Ltd. 9.375%,
8/31/07.......................................... 246,875
250,000 P&L Coal Holdings Corp. 144A, 9.625%, 5/15/08(d).. 257,500
250,000 Renco Metals, Inc.
11.500%, 7/01/03................................. 268,438
-----------
1,039,063
-----------
MISCELLANEOUS--1.1%
249,751 First Union Residential Securitization 7.000%,
8/25/28.......................................... 245,692
300,000 Norsk Hydro A.S.
6.700%, 1/15/18.................................. 306,111
482,143 RG Receivables Co.
9.600%, 2/28/05.................................. 447,626
-----------
999,429
-----------
MORTGAGE--5.3%
9,800,000 DLJ Commercial Mortgage Corp. .709%,
5/10/23(c)(n).................................... 487,060
1,668,707 Green Tree Financial Corp.
7.070%, 2/15/16.................................. 1,727,113
1,200,971 Mid State Trust VI
7.340%, 7/01/35.................................. 1,248,255
450,000 PNC Mortgage Securities Corp. 6.734%, 2/25/28..... 435,938
474,739 PNC Mortgage Securities Corp. 6.838%, 5/25/28..... 463,464
349,737 PNC Mortgage Securities Corp. 6.750%, 5/25/28..... 339,682
-----------
4,701,512
-----------
OIL & GAS--1.3%
250,000 Bellwether Exploration Co.
10.875%, 4/01/07................................. 263,750
150,000 Benton Oil & Gas Co.
11.625%, 5/01/03................................. 159,375
150,000 Cross Timbers Oil Co.
9.250%, 4/01/07.................................. 153,000
150,000 KCS Energy, Inc.
11.000%, 1/15/03................................. 161,625
200,000 National Energy Group, Inc., Series D 10.750%,
11/01/06......................................... 182,000
250,000 Wainoco Oil Corp. 144A,
9.125%, 2/15/06(d)................................ 253,125
-----------
1,172,875
-----------
PAPER--1.0%
250,000 Doman Industries, Ltd.
8.750%, 3/15/04................................... 246,875
400,000 Harnischfeger Industries, Inc.
6.875%, 2/15/27................................... 418,864
250,000 Stone Container Corp.
12.250%, 4/01/02.................................. 257,500
-----------
923,239
-----------
PETROLEUM SERVICES--0.7%
250,000 Dailey International, Inc.
9.500%, 2/15/08................................... 246,250
250,000 Dawson Production Services, Inc. 9.375%, 2/01/07... 246,875
150,000 Parker Drilling Co.
9.750%, 11/15/06.................................. 153,750
-----------
646,875
-----------
PLASTICS & PACKAGING--1.3%
150,000 Berry Plastics 12.250%, 4/15/04.................... 164,625
250,000 Huntsman Packaging Corp.
9.125%, 10/01/07.................................. 249,375
250,000 Indesco International 144A,
9.750%, 4/15/08(d)................................ 246,875
200,000 Radnor Holdings Corp.
10.000%, 12/01/03................................. 209,000
250,000 Tekni-Plex, Inc. 11.250%, 4/01/07.................. 275,000
-----------
1,144,875
-----------
PUBLISHING--0.6%
250,000 Garden State Newspapers, Inc. 8.750%, 10/01/09..... 255,625
250,000 Hollinger International
9.250%, 2/01/06................................... 261,250
-----------
516,875
-----------
RETAIL--FOOD & DRUG--0.5%
150,000 Carr-Gottstein Foods Co.
12.000%, 11/15/05................................. 168,000
250,000 Jitney-Jungle Stores
12.000%, 3/01/06.................................. 282,500
-----------
450,500
-----------
RETAIL--1.9%
250,000 Advance Stores Co. 144A,
10.250%, 4/15/08(d)............................... 259,688
250,000 Cole National Group, Inc.
9.875%, 12/31/06.................................. 270,625
</TABLE>
See accompanying notes to financial statements.
77
<PAGE>
NEW ENGLAND ZENITH FUND
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
RETAIL--(CONTINUED)
$ 150,000 Hills Stores Co.
12.500%, 7/01/03................................. $ 149,625
250,000 Musicland Group, Series B
9.875%, 3/15/08.................................. 249,375
700,000 Staples, Inc. 7.125%, 8/15/07..................... 727,230
-----------
1,656,543
-----------
SERVICES--2.3%
150,000 Borg-Warner Security Corp.
9.125%, 5/01/03.................................. 156,375
600,000 First Data 6.375%, 12/15/07....................... 606,540
250,000 Intertek Financial PLC, Series B 10.250%,
11/01/06......................................... 265,625
250,000 Iron Mountain, Inc.
10.125%, 10/01/06................................ 271,250
250,000 Kindercare Learning Centers
9.500%, 2/15/09.................................. 256,250
250,000 LES, Inc. 144A,
9.250%, 6/01/08(d)............................... 255,000
250,000 Loomis Fargo & Co.
10.000%, 1/15/04................................. 250,625
-----------
2,061,665
-----------
TELECOMMUNICATIONS--3.5%
1,020,000 British Telecommunication
7.000%, 5/23/07.................................. 1,083,750
250,000 Comcast Cellular Holdings, Inc. 9.500%, 5/01/07... 261,563
400,000 GTE Corp. 6.940%, 4/15/28......................... 411,208
275,000 ICG Holdings, Inc.
0/13.500%, 9/15/05(c)............................ 235,125
250,000 Intermedia Communications 144A, 8.600%,
6/01/08(d)....................................... 253,125
350,000 International CableTel, Inc., 0/11.500%,
2/01/06(c)....................................... 285,688
200,000 Nextel Communications, Inc., 0/9.750%, 8/15/04(c). 195,000
250,000 Nextel Communications, Inc. 144A, 0/9.950%,
2/15/08(c)(d).................................... 160,000
250,000 Nextlink Communications, Ltd. 144A, 9.000%,
3/15/08(d)....................................... 253,125
-----------
3,138,584
-----------
TRANSPORTATION--1.8%
250,000 Atlantic Express Transportation Corp. 10.750%,
2/01/04.......................................... 266,875
150,000 Enterprises Shipholding Corp. 144A, 8.875%,
5/01/08(d)....................................... 147,471
200,000 Holt Group, Inc. 144A,
9.750%, 1/15/06 (d)............................... 200,000
250,000 Offshore Logistics, Inc.
7.875%, 1/15/08................................... 248,750
200,000 Ryder Transportation, Inc.
10.000%, 12/01/06................................. 232,500
250,000 Stena AB 10.500%, 12/15/05......................... 273,125
400,000 TFM, S.A. DE CV,
0/11.750%, 6/15/09(c)............................. 264,932
-----------
1,633,653
-----------
U.S. GOVERNMENT--6.3%
130,000 United States Treasury Bonds 6.375%, 8/15/27....... 142,980
500,000 United States Treasury Notes
6.625%, 3/31/02................................... 517,915
1,000,000 United States Treasury Notes
5.875%, 9/30/02................................... 1,012,420
400,000 United States Treasury Notes
5.625%, 12/31/02.................................. 401,652
215,309 United States Treasury Notes
3.375%, 1/15/07................................... 208,581
3,200,000 United States Treasury Notes
6.125%, 8/15/07................................... 3,330,048
-----------
5,613,596
-----------
Total Bonds & Notes
(Identified Cost $82,826,258)..................... 83,024,110
-----------
<CAPTION>
PREFERRED STOCK--0.3%
SHARES
<C> <S> <C>
2,566 Nebco Evans Holdings............................... 260,449
-----------
Total Preferred Stock
(Identified Cost $257,031)........................ 260,449
-----------
<CAPTION>
WARRANT--0.0%
FACE
AMOUNT
<C> <S> <C>
$ 200 In Flight Phone Corp. ............................. 0
-----------
Total Warrant
(Identified Cost $0).............................. 0
-----------
</TABLE>
See accompanying notes to financial statements.
78
<PAGE>
NEW ENGLAND ZENITH FUND
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
SHORT-TERM INVESTMENT--20.8%
<TABLE>
<CAPTION>
FACE
AMOUNT
<C> <S> <C>
$18,549,000 Repurchase agreement with State Street Corp. dated
6/30/98 at 5.70% to be repurchased at $18,551,937
on 7/01/98 collateralized by $15,725,000 U.S.
Treasury Bond 7.50% due 11/15/16 with a value of
$18,924,063...................................... $ 18,549,000
-------------
Total Short-Term Investment
(Identified Cost $18,549,000).................... 18,549,000
-------------
Total Investments--114.3%
(Identified Cost $101,632,289)(b)................ 101,833,559
Other assets less liabilities..................... (12,721,956)
-------------
TOTAL NET ASSETS--100%............................ $ 89,111,603
=============
</TABLE>
<TABLE>
<CAPTION>
FORWARD CURRENCY CONTRACTS OUTSTANDING AT JUNE 30, 1998
LOCAL AGGREGATE UNREALIZED
CURRENCY DELIVERY CURRENCY FACE TOTAL APPRECIATION/
CONTRACT DATE AMOUNT VALUE VALUE DEPRECIATION
<S> <C> <C> <C> <C> <C>
Canadian Dollar (sold) 08/12/98 1,531,932 $1,069,039 $1,041,987 $ 27,052
Canadian Dollar
(bought) 08/12/98 351,763 243,435 239,261 (4,174)
Deutsche Mark (bought) 08/12/98 500,000 281,793 277,965 (3,828)
Deutsche Mark (sold) 08/12/98 2,180,839 1,230,000 1,212,392 17,608
Deutsche Mark (bought) 08/12/98 3,623,667 2,047,796 2,014,502 (33,294)
Deutsche Mark (sold) 08/12/98 420,000 236,965 233,490 3,475
Deutsche Mark (sold) 08/12/98 520,000 292,278 289,083 3,195
Danish Krone (sold) 08/12/98 6,815,230 1,011,162 993,844 17,318
Greek Drachma (sold) 08/12/98 88,900,000 281,793 290,174 (8,381)
Greek Drachma (bought) 08/12/98 89,440,000 292,278 291,936 (342)
Japanese Yen (sold) 08/12/98 48,335,955 369,541 351,789 17,752
Netherlands Guilder
(sold) 08/12/98 454,383 228,448 224,115 4,333
Netherlands Guilder
(bought) 08/12/98 473,361 236,965 233,476 (3,489)
New Zealand Dollar
(sold) 08/12/98 450,229 241,322 233,625 7,697
--------
Total Appreciation on Forward Currency contracts................ $ 44,922
========
</TABLE>
(a) See Note 1a of Notes to Financial Statements
(b) Federal Tax Information: At June 30, 1998 the net unrealized appreciation
on investments based on cost of $101,632,289 for federal income tax
purposes was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost............... $ 1,776,696
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value............... (1,575,453)
-----------
Net unrealized appreciation.................................... $ 201,243
===========
(c) Step Bond; Coupon rate is zero or below market for an initial period and
then increased to a higher coupon rate at a specified date and rate.
(d) 144A Securities exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $3,647,005 or 4.1% of net
assets.
(e) Denominated in Japanese Yen
(f) Denominated in German Marks
(g) Denominated in Canadian Dollars
(h) Denominated in Netherland Guilder
(i) Denominated in Danish Krone
(j) Denominated in Swedish Krona
(k) Denominated in New Zealand Dollars
(l) Denominated in Greek Drachma
(m) Denominated in Italian Lira
(n) Interest only certificate. This security receives monthly interest
payments but is not entitled to principal payments.
(o) Variable or floating rate security. Rate disclosed is as of June 30, 1998.
See accompanying notes to financial statements.
79
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................ $101,833,559
Cash................................................ 416
Foreign cash at value
(Cost $2,304)...................................... 2,278
Receivable for:
Securities sold..................................... 111,355
Open forward currency
contracts--net..................................... 44,922
Dividends and interest.............................. 1,311,998
Miscellaneous....................................... 5,535
Unamortized organization
expense............................................ 2,691
------------
LIABILITIES.......................................... 103,312,754
Payable for:
Securities purchased................................ $14,108,584
Fund shares redeemed................................ 9,615
Withholding taxes................................... 781
Accrued expenses:
Management fees..................................... 56,318
Deferred trustees' fees............................. 2,646
Other expenses...................................... 23,207
-----------
14,201,151
------------
$ 89,111,603
============
NET ASSETS
Net Assets consist of:
Capital paid in..................................... $ 85,391,804
Undistributed net investment income................. 2,854,744
Accumulated net realized gains...................... 621,641
Unrealized appreciation on investments, forward
contracts and foreign currency..................... 243,414
------------
NET ASSETS........................................... $ 89,111,603
============
Computation of offering price:
Net asset value and redemption price per share
($89,111,603 divided by 7,214,454 shares of
beneficial interest)................................ $ 12.35
============
Identified cost of investments....................... $101,632,289
============
<CAPTION>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<S> <C> <C>
INVESTMENT INCOME
Dividends.......................................... $ 6,343(a)
Interest........................................... 3,201,987
----------
3,208,330
EXPENSES
Management fees.................................... $ 278,645
Trustees' fees and expenses........................ 7,101
Custodian.......................................... 32,986
Audit and tax services............................. 6,667
Legal.............................................. 2,136
Printing........................................... 7,072
Insurance.......................................... 1,498
Amortization of organization expenses.............. 996
Miscellaneous...................................... 2,262
-----------
Total expenses.................................... 339,363
----------
NET INVESTMENT INCOME............................... 2,868,967
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments--net................................... 572,888
Foreign currency transactions--net................. (38,656)
-----------
Total realized gain on investments and foreign
currency transactions............................ 534,232
-----------
Unrealized depreciation on:
Investments--net................................... (1,275,705)
Foreign currency transactions--net................. (28,094)
-----------
Total unrealized depreciation on investments and
foreign currency transactions.................... (1,303,799)
-----------
Net loss on investment transactions................. (769,567)
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS.......... $2,099,400
==========
</TABLE>
(a) Net of foreign taxes of: $688.
See accompanying notes to financial statements.
80
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1997 1998
------------ ----------------
<S> <C> <C>
FROM OPERATIONS
Net investment income.......................... $ 3,981,350 $ 2,868,967
Net realized gain on investments and foreign
currency transactions......................... 1,004,553 534,232
Unrealized appreciation (depreciation) on
investments, and foreign currency
transactions.................................. 774,518 (1,303,799)
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS......... 5,760,421 2,099,400
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income.......................... (4,170,493) 0
Net realized gain on investments............... (739,272) 0
------------ ------------
(4,909,765) 0
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares................... 45,476,971 26,096,171
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income....... 4,170,493 0
Distributions from net realized gain........... 739,272 0
------------ ------------
50,386,736 26,096,171
Cost of shares redeemed........................ (15,843,098) (10,285,913)
------------ ------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS............................ 34,543,638 15,810,258
------------ ------------
TOTAL INCREASE IN NET ASSETS................... 35,394,294 17,909,658
NET ASSETS
Beginning of the period........................ 35,807,651 71,201,945
------------ ------------
End of the period.............................. $ 71,201,945 $ 89,111,603
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT
INCOME
End of the period.............................. $ (14,223) $ 2,854,744
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares................. 3,727,495 2,125,124
Issued in connection with the reinvestment of:
Distributions from net investment income....... 347,510 0
Distributions from net realized gain........... 61,591 0
------------ ------------
4,136,596 2,125,124
Redeemed....................................... (1,291,407) (837,220)
------------ ------------
Net change..................................... 2,845,189 1,287,904
============ ============
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
OCTOBER 31, 1994(A)
THROUGH YEAR YEAR YEAR SIX MONTHS ENDED
DECEMBER 31, ENDED ENDED ENDED JUNE 30,
1994 1995 1996 1997 1998
------------------- ------ ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of period.... $10.00 $ 9.74 $ 10.85 $ 11.62 $ 12.01
------ ------ ------- ------- -------
Income From Investment
Operations
Net Investment Income.. 0.12 0.58 0.51 0.75 0.40
Net Realized and
Unrealized Gain (Loss)
on Investments........ (0.26) 1.30 1.05 0.54 (0.06)
------ ------ ------- ------- -------
Total From Investment
Operations............ (0.14) 1.88 1.56 1.29 0.34
------ ------ ------- ------- -------
Less Distributions
Distributions From Net
Investment Income..... (0.12) (0.55) (0.60) (0.76) 0.00
Distributions From Net
Realized Capital
Gains................. 0.00 (0.22) (0.19) (0.14) 0.00
------ ------ ------- ------- -------
Total Distributions.... (0.12) (0.77) (0.79) (0.90) 0.00
------ ------ ------- ------- -------
Net Asset Value, End of
period................. $ 9.74 $10.85 $ 11.62 $ 12.01 $ 12.35
====== ====== ======= ======= =======
TOTAL RETURN (%)........ (1.40)(b) 19.38 14.36 11.07 2.83(b)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.85 (c) 0.85 0.85 0.85 0.85(c)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 7.05 (c) 8.39 7.79 7.32 7.19(c)
Portfolio Turnover Rate
(%).................... 403 (c) 202 176 258 281(c)
Net Assets, End of
period (000)........... $3,450 $9,484 $35,808 $71,202 $89,112
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 (c) 2.44 1.19 0.87 --
</TABLE>
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
See accompanying notes to financial statements.
81
<PAGE>
BACK BAY ADVISORS BOND INCOME SERIES
PORTFOLIO MANAGER: CATHERINE BUNTING
BACK BAY ADVISORS, L.P.
[PHOTO OF CATHERIN BUNTING APPEARS HERE]
Q. HOW DID THE SERIES PERFORM DURING THE FIRST SIX MONTHS OF THE YEAR?
A. The Series continued its long record of rewarding investors with strong
performance with a total return of 4.3%, reflecting a $4.61 per share gain in
net asset value to $113.13 per share. Once again, the Series turned in results
that were better than the 4.0% return in the Lipper Variable Products A-Rated
Corporate Bond Funds Average.
Q. WHAT WAS THE INVESTMENT ENVIRONMENT LIKE FOR BONDS DURING THE REPORTING
PERIOD?
A. The environment for U.S. bonds was positive as prices generally rose and
yields declined. Economic growth in the United States was solid while infla-
tion remained low. Meanwhile, international demand for U.S. bonds strengthened
as investors turned to the bond markets both as a safe haven from Asia's eco-
nomic troubles and as a source of relatively high returns. The expectation
that Asia's problems would slow U.S. growth and limit inflationary pressures
fostered extraordinarily low domestic interest rates. Later in the period, the
supply of corporate bonds rose, translating into higher yields, but lower bond
prices. In addition, news that the Asian crisis was worsening renewed concerns
about its negative effect on corporate profits and, consequently, corporate
bond prices.
Q. WHAT STRATEGIES DID YOU USE IN MANAGING THE SERIES?
A. Given the uncertainties in Asia, we eliminated holdings altogether of bonds
from Asian countries. At the same time, we minimized investments in emerging
bond markets elsewhere in the world to protect the Series against the ripple
effects emanating from Asia's difficulties.
We took advantage of favorable investment conditions in the U.S. bond markets
to boost both the Series' yield and price performance. Because domestic eco-
nomic activity was solid, we could afford to relax our emphasis on quality by
reducing holdings in U.S. Government securities--the most creditworthy securi-
ties available. We turned up our focus on bonds at the lower cusp of what (in
the bond world) is considered investment-grade terrain, as well as on select
higher-yielding, lower-grade bonds. Even so, the average credit quality of the
portfolio remained relatively high, as of June 30, 1998.
Meanwhile, our investments in corporate bonds focused on capturing more gener-
ous yields as well as price gains. In general, the prevailing backdrop of sta-
ble-to-lower interest rates combined with healthy economic activity works to
the advantage of corporate bonds. In fact, the credit quality of two Series
holdings, Time Warner Inc. and Telecommunications, Inc. was upgraded by bond
ratings agencies, paving the way for appreciation in their prices.
We also focused on industries, such as utilities and telecommunications, whose
performance tends to move independently of ebbs and flows in economic growth.
While the U.S. economy was strong, troubling economic developments in Asia
raised concerns that cyclical businesses in the United States might experience
setbacks. These worries were enough to cause the steadier, non-cyclical indus-
tries to outperform bonds issued by companies whose business activities are
more closely tied to the ups and downs of the U.S. economy.
In anticipation of lower interest rates, investments in bonds at the longer
end of the maturity spectrum were a focal point. The reason: The longer a
bond's maturity, the greater its potential for price appreciation when inter-
est rates fall. Emphasizing longer-term bonds helped the Series to make the
most of declining interest rates. In particular, an emphasis on bonds with ma-
turities of at least 10 years and a shift away from shorter-term issues con-
tributed to the Series' solid results. Longer-term bonds outperformed their
shorter-term counterparts as interest rates fell toward the end of the period.
Q. WHAT IS YOUR OUTLOOK FOR BONDS OVER THE NEXT SIX MONTHS?
A. Favorable, in view of our expectations that economic growth in the United
States will remain healthy while inflation stays low and international demand
for U.S. bonds continues to be strong. While we anticipate long-term interest
rates to remain fairly steady, we would not be surprised to see ongoing diffi-
culties in Asia prompt weakness in the equity markets and a flight-to-quality
mentality favoring higher bond prices and lower long-term interest rates.
82
<PAGE>
A $10,000 Investment Compared to the Lehman Brothers
Intermediate Government/Corporate Bond Index/5/ and the Cost of Living/1/
[LINE GRAPH APPEARS HERE]
Average Annual Total Return
Bond Income Lipper Variable Products
Series A-Rated Corp. Bond
Fund Avg./6/
6 months* 4.3% 4.0%
1 year 11.3% 10.6%
3 years 9.0% 7.6%
5 years 8.0% 6.6%
10 years 9.8% 8.8%
Since Inception 10.4% n/a
*not annualized
Lehman Intermediate
Bond Income Series Government/Corporate COL
12/31/87 10,000 10,000 10,000
Dec-88 10,837 10,668 10,442
Dec-89 12,169 12,030 10,927
Dec-90 13,153 13,133 11,594
Dec-91 15,515 15,054 11,950
Dec-92 16,785 16,133 12,296
Dec-93 18,901 17,549 12,634
Dec-94 18,266 17,210 12,972
Dec-95 22,137 19,845 13,302
Dec-96 23,158 20,651 13,744
Dec-97 25,682 22,762 13,977
6/30/98 26,773 23,550 14,107
[X] 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: $226 million as of June 30, 1998
MANAGER: Catherine 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.
83
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
BONDS AND NOTES--95.5% OF TOTAL NET ASSETS
- --------------------------------------------------------------------------------
FACE
AMOUNT VALUE (A)
AEROSPACE--0.6%
$ 1,200,000 Lockheed Martin Corp.,
7.250%, 5/15/06..................................... $ 1,276,608
-----------
BUSINESS SERVICES--1.3%
3,000,000 Equifax, Inc., 6.900%, 7/01/28....................... 2,969,940
-----------
CONTAINERS--2.0%
1,000,000 Owens-Illinois, Inc., 8.100%, 5/15/07................ 1,061,460
3,500,000 Owens-Illinois, Inc., 7.150%, 5/15/05................ 3,539,165
-----------
4,600,625
-----------
ELECTRIC UTILITIES--4.1%
3,000,000 CalEnergy, Inc., 9.500%, 9/15/06..................... 3,251,250
1,000,000 CalEnergy, Inc., 7.630%, 10/15/07.................... 1,012,390
1,250,000 New York State Electric & Gas Co., 8.875%, 11/01/21.. 1,382,987
1,000,000 Texas Utilities Electric Co.,
7.875%, 3/01/23..................................... 1,074,070
2,400,000 Texas Utilities Electric Co.,
7.875%, 4/01/24..................................... 2,580,192
-----------
9,300,889
-----------
FEDERAL AGENCIES--6.2%
29,121 Federal Home Loan Bank, 9.000%, with various
maturities to 2001.................................. 29,499
6,591,201 Government National Mortgage Association, 7.000% with
various maturities to 2025.......................... 6,700,851
5,520,701 Government National Mortgage Association, 7.500% with
various maturities to 2025.......................... 5,677,901
1,374,907 Government National Mortgage Association, 8.5000%
with various maturities to 2022..................... 1,456,575
187,648 Government National Mortgage Association, 9.000%,
10/15/16............................................ 201,719
-----------
14,066,545
-----------
FINANCE & BANKING--16.2%
2,500,000 American General Financing,
8.450%, 10/15/09.................................... 2,913,375
2,500,000 Associates Corporation of North America, 7.950%,
2/15/10............................................. 2,813,775
5,660,000 Associates Corporation of North America, 8.550%,
7/15/09............................................. 6,641,331
2,000,000 BB & T Corp., 6.375%, 6/30/05........................ 1,997,440
1,000,000 BVPS II Funding Corp.,
8.680%, 6/01/17..................................... 1,129,220
2,000,000 BVPS II Funding Corp.,
8.890%, 6/01/17..................................... 2,327,120
2,911,000 EIP Funding Corp.,
10.250%, 10/01/12................................... 3,419,988
3,000,000 Nationsbank Corp., 6.600%, 5/15/10................... 3,074,070
2,800,000 NCNB Corp., 9.375%, 9/15/09.......................... 3,483,564
1,800,000 Pitney Bowes Credit Corp.,
8.550%, 9/15/09..................................... 2,147,166
5,800,000 PVNGS II Funding Corp.,
8.000%, 12/30/15.................................... 6,484,458
-----------
36,431,507
-----------
FOREIGN--5.2%
9,265,000 Government of Canada,
8.000%, 6/01/23(c).................................. 8,392,678
4,500,000 Province of British Columbia,
7.750%, 6/16/03..................................... 3,354,106
-----------
11,746,784
-----------
MEDIA & ENTERTAINMENT--9.4%
3,100,000 Continental Cablevision, Inc.,
9.500%, 8/01/13..................................... 3,641,942
1,000,000 CSC Holdings, Inc.,
7.875%, 12/15/07.................................... 1,052,420
1,500,000 News America Holdings, Inc.,
7.750%, 2/01/24..................................... 1,617,855
5,500,000 News America Holdings, Inc.,
8.250%, 8/10/18..................................... 6,222,260
3,600,000 Time Warner, Inc. 9.150%, 2/01/23.................... 4,572,360
500,000 Tele-Communications, Inc.,
9.800%, 2/01/12..................................... 641,985
2,935,000 Tele-Communications, Inc.,
9.250%, 1/15/23..................................... 3,407,711
-----------
21,156,533
-----------
PAPER--1.3%
1,500,000 Abitibi-Consolidated, Inc.,
6.950%, 4/01/08..................................... 1,506,075
484,537 Fort Howard Trust, 11.000%, 1/02/02.................. 495,638
1,000,000 Pope and Talbot, Inc.,
8.375%, 6/01/13..................................... 1,016,850
-----------
3,018,563
-----------
PUBLISHING--0.7%
2,150,000 Golden Books Publishing, Inc.,
7.650%, 9/15/02..................................... 1,682,375
-----------
SECURITIES--3.3%
4,000,000 Bear Stearns Cos., Inc.,
6.200%, 3/30/03..................................... 3,993,040
3,413,000 Fred Meyer, Inc., 7.450%, 3/01/08.................... 3,420,195
-----------
7,413,235
-----------
TELECOMMUNICATIONS--16.5%
3,000,000 AirTouch Communications, Inc.,
6.650%, 5/01/08..................................... 3,047,160
See accompanying notes to financial statements.
84
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
BONDS AND NOTES--(CONTINUED)
- --------------------------------------------------------------------------------
FACE
AMOUNT VALUE (A)
TELECOMMUNICATIONS--(CONTINUED)
$2,300,000 AT&T Corp., 8.350%, 1/15/25.......................... $ 2,560,889
5,000,000 AT&T Corp., 8.625%, 12/01/31......................... 5,571,500
2,000,000 Comcast Cable Communications 8.875%, 5/01/17......... 2,424,540
1,200,000 GTE Corp., 7.510%, 4/01/09........................... 1,305,096
4,800,000 GTE Corp., 7.900%, 2/01/27........................... 5,173,632
3,500,000 GTE South, Inc., 6.125%, 6/15/07..................... 3,456,075
1,500,000 LCI International, Inc., 7.250%, 6/15/07............. 1,525,095
5,000,000 MCI Communications 7.500%, 8/20/04................... 5,295,150
1,000,000 MCI Communications 7.750%, 3/15/24................... 1,061,370
1,500,000 Qwest Communications International, Inc., 10.875%,
4/01/07............................................. 1,740,000
3,761,000 WorldCom Inc., 8.875%, 1/15/06....................... 4,071,283
-----------
37,231,790
-----------
U.S. GOVERNMENT--13.9%
7,500,000 U.S. Treasury Notes, 5.750%, 4/30/03................. 7,571,550
10,000,000 U.S. Treasury Notes, 6.625%, 3/31/02................. 10,358,300
3,500,000 U.S. Treasury Notes, 8.000%, 5/15/01................. 3,728,235
9,000,000 U.S. Treasury Notes, 8.500%, 11/15/00................ 9,589,770
-----------
31,247,855
-----------
UTILITIES--(DIVERSIFIED)--1.0%
2,000,000 Tennessee Valley Authority, 6.750%, 11/01/25......... 2,208,680
-----------
YANKEE--13.8%
1,000,000 Bridas Co., 12.500%, 6/10/03......................... 1,120,000
2,100,000 Freeport Term Malta PLC, 144A, 7.250%, 5/15/28(d).... 2,151,765
7,500,000 Hydro Quebec, 8.050%, 7/07/24........................ 8,949,450
3,500,000 Merita Bank, Ltd., 7.500%, 12/29/49.................. 3,631,565
1,500,000 Multicanal S.A., 9.250%, 2/01/02..................... 1,494,045
500,000 Pemex Petroleos Mexicanos, 8.625%, 12/01/23.......... 449,675
2,900,000 Petroleos Mexicanos, 144A, 8.625%, 12/01/23(d)....... 2,608,115
5,100,000 Smurfit Capital, 6.750%, 11/20/05.................... 5,224,134
2,000,000 Republic of Colombia, 7.250%, 2/23/04................ 1,862,900
3,000,000 Republic of Colombia, 7.625%, 2/15/07................ 2,707,920
1,000,000 YPF Sociedad Anonima, 7.250%, 3/15/03................ 976,080
------------
31,175,649
------------
Total Bonds and Notes
(Identified Cost $210,740,920)...................... 215,527,578
------------
SHORT-TERM INVESTMENT--4.1%
9,206,000 Household Finance Corp.,
6.000%, 7/01/98..................................... 9,206,000
------------
Total Short-Term Investment
(Identified Cost $9,206,000)........................ 9,206,000
------------
Total Investments--99.6%
(Identified Cost $219,946,920)(b)................... 224,733,578
Other assets less liabilities........................ 797,707
------------
TOTAL NET ASSETS--100%............................... $225,531,285
============
(a) See Note 1A.
(b) Federal Tax Information:
At June 30, 1998 the net unrealized appreciation on investments based on
cost of $219,946,920 for federal income tax purposed was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost..................................... $ 6,175,280
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value................................... (1,388,622)
------------
Net unrealized appreciation........................ $ 4,786,658
============
(c) Denominated in Canadian Dollars.
(d) Security exempt from registration under rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $4,759,880 or 2.1% of net
assets.
See accompanying notes to financial statements.
85
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1998 (UNAUDITED)
ASSETS
Investments at value................................. $224,733,578
Cash................................................. 2,031
Foreign cash at value (cost $118,602)................ 118,498
Receivable for:
Fund shares sold................................... 311,747
Dividends and interest............................. 3,698,972
------------
228,864,826
LIABILITIES
Payable for:
Securities purchased............................... $2,970,000
Fund shares redeemed............................... 210,647
Withholding taxes.................................. 2,461
Miscellaneous...................................... 21,161
Accrued expenses:
Management fees.................................... 73,644
Deferred trustees' fees............................ 39,445
Other expenses..................................... 16,183
----------
3,333,541
------------
NET ASSETS $225,531,285
============
Net Assets consist of:
Capital paid in.................................... $210,584,289
Undistributed net investment income................ 7,134,301
Accumulated net realized gains..................... 3,026,324
Unrealized appreciation on investments and foreign
currency transactions............................. 4,786,371
------------
NET ASSETS............................................ $225,531,285
============
Computation of offering price:
Net asset value and redemption price per share
($225,531,285 divided by 1,993,602 shares of
beneficial interest)................................. $ 113.13
============
Identified cost of investments........................ $219,946,920
============
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
INVESTMENT INCOME
Interest............................................ $7,664,654(a)
EXPENSES
Management fees..................................... $ 425,060
Trustees' fees and expenses......................... 11,729
Custodian........................................... 45,622
Audit and tax services.............................. 5,390
Legal............................................... 3,748
Printing............................................ 31,721
Insurance........................................... 3,879
Miscellaneous....................................... 2,265
----------
Total expenses.................................. 529,414
----------
NET INVESTMENT INCOME................................ 7,135,240
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments--net................................... 2,876,383
Foreign currency transactions--net................. (170,222)
----------
Total realized gain on investments and foreign
currency transactions.......................... 2,706,161
----------
Unrealized depreciation on:
Investments--net................................... (937,376)
Foreign currency transactions--net................. (182)
----------
Total unrealized depreciation on investments and
foreign currency transactions.................. (937,558)
----------
Net gain on investment transactions.................. 1,768,603
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS........... $8,903,843
==========
(a) Net of foreign taxes of: $2,461.
See accompanying notes to financial statements.
86
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1997 1998
------------ ----------------
FROM OPERATIONS
Net investment income.......................... $ 13,029,862 $ 7,135,240
Net realized gain on investments and foreign
currency transactions......................... 1,604,656 2,706,161
Unrealized appreciation (depreciation) on
investments and foreign currency transactions. 4,839,580 (937,558)
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS......... 19,474,098 8,903,843
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income.......................... (13,039,485) 0
Net realized gain on investments............... (1,850,904) 0
------------ ------------
(14,890,389) 0
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares................... 54,067,705 42,602,085
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income..... 13,039,485 0
Distributions from net realized gain......... 1,850,904 0
------------ ------------
68,958,094 42,602,085
Cost of shares redeemed........................ (51,012,776) (28,862,626)
------------ ------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS............................ 17,945,318 13,739,459
------------ ------------
TOTAL INCREASE IN NET ASSETS................... 22,529,027 22,643,302
NET ASSETS
Beginning of the period........................ $180,358,956 $202,887,983
------------ ------------
End of the period.............................. $202,887,983 $225,531,285
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
End of the period.............................. $ (939) $ 7,134,301
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares................. 489,276 383,696
Issued in connection with the reinvestment of:
Distributions from net investment income..... 120,361 0
Distributions from net realized gain......... 16,902 0
------------ ------------
626,539 383,696
Redeemed....................................... (464,412) (259,744)
------------ ------------
Net change..................................... 162,127 123,952
============ ============
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
------------------------------------------------ JUNE 30,
1993 1994 1995 1996 1997 1998
-------- -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of period.... $ 103.47 $ 106.14 $ 95.53 $ 108.67 $ 105.63 $ 108.52
-------- -------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment Income.. 5.70 7.05 7.34 7.72 7.43 3.58
Net Realized and
Unrealized Gain (Loss)
on Investments........ 7.38 (10.61) 12.85 (2.70) 4.05 1.03
-------- -------- -------- -------- -------- --------
Total From Investment
Operations............ 13.08 (3.56) 20.19 5.02 11.48 4.61
-------- -------- -------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income..... (6.20) (7.05) (7.05) (7.74) (7.51) 0.00
Distributions in Excess
of Net Investment
Income................ (0.05) 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Capital
Gains................. (4.16) 0.00 0.00 (0.32) (1.08) 0.00
-------- -------- -------- -------- -------- --------
Total Distributions.... (10.41) (7.05) (7.05) (8.06) (8.59) 0.00
-------- -------- -------- -------- -------- --------
Net Asset Value, End of
period................. $ 106.14 $ 95.53 $ 108.67 $ 105.63 $ 108.52 $ 113.13
======== ======== ======== ======== ======== ========
TOTAL RETURN (%)........ 12.61 (3.36) 21.20 4.61 10.90 4.25(a)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.43 0.44 0.55 0.52 0.52 0.50(b)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 6.47 6.75 7.22 7.22 6.97 6.71(b)
Portfolio Turnover Rate
(%).................... 177 82 73 98 40 106(b)
Net Assets, End of
period (000)........... $131,242 $126,234 $162,712 $180,359 $202,888 $225,531
</TABLE>
(a) Not computed on an annualized basis.
(b) Computed on an annualized basis.
See accompanying notes to financial statements.
87
<PAGE>
SALOMON BROTHERS U.S. GOVERNMENT SERIES
PORTFOLIO MANAGER: ROGER LAVAN
SALOMON BROTHERS ASSET MANAGEMENT INC
[PHOTO OF ROGER LAVAN APPEARS HERE]
Q. HOW DID THE SERIES PERFORM DURING THE FIRST HALF OF THE YEAR?
A. During the first half of 1998, the Series posted a 3.32% return, just shy
of the 1-10 year Treasury index, which returned 3.4%. The Series also slightly
underperformed the Lipper Variable Products U.S. Mortgage and GNMA Fund
Average, which returned 3.36% over the same period.
Q. HOW DID YOU MANAGE THE SERIES DURING THIS PERIOD?
A. Due to the economic problems in Asia, we began the year with a fairly con-
structive view of the U.S. fixed income markets. We believed Asia would slow
U.S. economic growth and push inflation lower, which would enable interest
rates, in particular long term rates, to move modestly lower, pushing bond
prices higher during 1998. To take advantage of our expectations for lower in-
terest rates and a flatter yield curve, we strategically moved the Series' as-
sets into longer maturities with an overweight to discount mortgage pass-
throughs.
Q. WHAT IS YOUR INVESTMENT OUTLOOK FOR THE MONTHS AHEAD?
A. Looking ahead, Asian turmoil appears to have overshadowed faint warnings of
tightening from Federal Reserve Board Chairman Alan Greenspan. Near term, cur-
rent interest rate levels will be difficult to sustain without a significant
pull back in equities or a further sharp rise in the dollar. However, any
backups in yields will likely be met with substantial buying interest. Over-
all, we expect a relatively benign interest rate environment over the next 6-
12 month period. We feel the Series is well positioned to take advantage of
these opportunities if in fact they do occur.
A $10,000 Investment Compared to the Lehman Brothers Intermediate Government
Bond Index /4/
[LINE GRAPH APPEARS HERE]
Average Annual Total Return
U.S. Gov't Lipper Variable Products
Series US Mortgage and GNMA
Fund Average/17/
6 months* 3.3% 3.4%
1 year 8.9% 9.1%
3 years 6.8% 7.2%
Since Inception 8.3% n/a
*not annualized
Lehman Intermediate Govt
Salomon U.S. Govt Bond Index
10/31/94 10,000 10,000
Dec-94 10,060 9,989
Dec-95 11,571 11,430
Dec-96 11,955 11,894
Dec-97 12,979 12,832
6/30/98 13,410 13,271
[X] 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: $29 million as of June 30, 1998
MANAGERS: Roger Lavan has managed the Series since its inception in 1994. Mr.
Lavan also manages the Salomon Brothers Investment Series--U.S. Government
Income Fund and the North American U.S. Government Securities Fund since January
1992. He joined Salomon Brothers Asset Management Inc in 1990.
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.
88
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS U.S. GOVERNMENT SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
BONDS & NOTES--89.0% OF TOTAL NET ASSETS
- --------------------------------------------------------------------------------
FACE
AMOUNT VALUE (A)
FEDERAL AGENCY--74.0%
$ 300,000 Federal Home Loan Banks
5.940%, 6/13/00..................................... $ 301,572
239,343 Federal Home Loan Mortgage
7.500%, 5/01/07..................................... 244,503
18,220 Federal Home Loan Mortgage
6.000%, 10/01/10.................................... 18,061
338,272 Federal Home Loan Mortgage
7.000%, 7/01/11..................................... 344,827
51,353 Federal Home Loan Mortgage
11.750%, 1/01/12.................................... 58,222
500,000 Federal Home Loan Mortgage
6.500%, 7/01/15..................................... 503,435
340,121 Federal Home Loan Mortgage
8.250%, 4/01/17..................................... 356,103
185,063 Federal Home Loan Mortgage
9.000%, 10/01/17.................................... 195,156
347,477 Federal Home Loan Mortgage
8.000%, 12/01/19.................................... 359,531
432,562 Federal Home Loan Mortgage
10.500%, 6/01/20.................................... 483,522
908,695 Federal Home Loan Mortgage
8.000%, 7/01/20..................................... 952,231
900,000 Federal Home Loan Mortgage
6.247%, 3/17/21..................................... 887,058
237,001 Federal Home Loan Mortgage
7.000%, 4/15/21..................................... 239,963
58,330 Federal Home Loan Mortgage
6.500%, 5/01/26..................................... 58,166
55,531 Federal Home Loan Mortgage
6.500%, 6/01/26..................................... 55,375
852,021 Federal Home Loan Mortgage
6.500%, 7/01/26..................................... 849,626
1,830,000 Federal National Mortgage Association 6.500%,
1/01/99............................................. 1,840,285
6,450,000 Federal National Mortgage Association 7.000%,
1/01/99............................................. 6,540,687
23,720 Federal National Mortgage Association 14.500%,
11/15/14............................................ 29,169
14,352 Federal National Mortgage Association
12.500%, 8/01/15.................................... 16,949
63,897 Federal National Mortgage Association 12.500%,
9/20/15............................................. 75,458
569,083 Federal National Mortgage Association 12.000%,
10/01/15............................................ 659,180
65,654 Federal National Mortgage Association 13.000%,
11/15/15............................................ 78,928
285,285 Federal National Mortgage Association 12.500%,
1/01/16............................................. 335,834
36,339 Federal National Mortgage Association 12.000%,
1/15/16............................................. 42,869
20,443 Federal National Mortgage Association 11.500%,
9/01/19............................................. 23,708
386,411 Federal National Mortgage Association 6.500%,
3/01/26............................................. 385,684
800,000 Federal National Mortgage Association 7.000%,
5/25/30............................................. 816,000
3,000,000 Federal National Mortgage Association 6.500%,
7/01/30............................................. 2,987,790
127,210 Government National Mortgage Association 9.000%,
10/20/16............................................ 135,875
236,004 Government National Mortgage Association 9.000%,
12/15/16.......................................... 251,283
300,000 Student Loan Marketing Association 7.500%, 3/08/00. 308,769
667,443 U.S. Department of Veteran Affairs
7.250%, 10/15/10.................................. 669,319
-------------
21,105,138
-------------
U.S. TREASURY--15.0%
100,000 U.S. Treasury Bonds 6.375%, 8/15/27................ 109,812
200,000 U.S. Treasury Notes 6.500%, 5/31/01................ 205,146
1,400,000 U.S. Treasury Notes 6.625%, 5/15/07................ 1,503,194
850,000 U.S. Treasury Notes 6.125%, 8/15/07................ 884,544
250,000 U.S. Treasury Notes 5.625%, 12/31/02............... 251,033
600,000 U.S. Treasury Notes 5.750%, 4/30/03................ 605,724
700,000 U.S. Treasury Notes 5.625%, 5/15/08................ 709,737
-------------
4,269,190
-------------
Total Bonds & Notes
(Identified Cost $25,197,454)..................... 25,374,328
-------------
SHORT-TERM INVESTMENTS--51.8%
2,500,000 Federal Home Loan Bank
5.400%, 7/1/98.................................... 2,500,000
6,138,000 Repurchase agreement with J.P. Morgan dated 6/30/98
at 5.48% to be repurchased at $6,138,934 on
7/01/98 collateralized by $5,831,000 U.S. Treasury
Bond 8.50% due 11/15/00 with a value of
$6,261,036........................................ 6,138,000
6,139,000 Repurchase agreement with State Street Corp. dated
6/30/98 at 5.70% to be repurchased at $6,139,972
on 7/01/98 collateralized by $5,205,000 U.S.
Treasury Bond 7.50% due 11/15/16 with a value of
$6,263,895........................................ 6,139,000
-------------
Total Short-Term Investments
(Identified Cost $14,777,000)..................... 14,777,000
-------------
Total Investments--140.9%
(Identified Cost $39,974,454)(b).................. 40,151,328
Other assets less liabilities...................... (11,648,660)
-------------
TOTAL NET ASSETS--100%............................. $ 28,502,668
=============
(a) See Note 1A.
(b) Federal Tax Information:
At June 30, 1998 the net unrealized appreciation on investments based on
cost of $39,974,454 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost.............. $218,740
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value.............. (41,866)
--------
Net unrealized appreciation................................... $176,874
========
See accompanying notes to financial statements.
89
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS U.S. GOVERNMENT SERIES)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1998 (UNAUDITED)
ASSETS
Investments at value.................................. $40,151,328
Receivable for:
Fund shares sold..................................... 41,575
Dividends and interest............................... 216,493
Unamortized organization expense...................... 2,691
-----------
40,412,087
LIABILITIES
Payable for:
Securities purchased................................. $11,872,965
Fund shares redeemed................................. 2,397
Interest payable..................................... 1,573
Accrued expenses:
Management fees...................................... 17,368
Deferred trustees' fees.............................. 2,420
Other expenses....................................... 12,696
-----------
11,909,419
-----------
$28,502,668
===========
NET ASSETS
Net Assets consist of:
Capital paid in...................................... $27,477,126
Undistributed net investment income.................. 752,820
Accumulated net realized gains....................... 95,848
Unrealized appreciation on investments............... 176,874
-----------
NET ASSETS............................................. $28,502,668
===========
Computation of offering price:
Net asset value and redemption price per share
($28,502,668 divided by 2,477,074 shares of beneficial
interest)............................................. $ 11.51
===========
Identified cost of investments......................... $39,974,454
===========
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
INVESTMENT INCOME
Interest.................................................. $839,993
--------
EXPENSES
Management fees........................................... $ 68,494
Trustees' fees and expenses............................... 5,892
Custodian................................................. 10,822
Audit and tax services.................................... 6,322
Legal..................................................... 2,087
Printing.................................................. 1,993
Insurance................................................. 478
Amortization of organization expenses..................... 996
Miscellaneous............................................. 2,260
--------
Total expenses......................................... 99,344
Less expenses deferred by the investment adviser....... (12,171) 87,173
-------- --------
NET INVESTMENT INCOME...................................... 752,820
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain on:
Investments--net......................................... 98,867
Unrealized depreciation on:
Investments--net......................................... (29,706)
--------
Net gain on investment transactions........................ 69,161
--------
NET INCREASE IN NET ASSETS FROM OPERATIONS................. $821,981
========
See accompanying notes to financial statements.
90
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS U.S. GOVERNMENT SERIES)
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1997 1998
------------ ----------------
<S> <C> <C>
FROM OPERATIONS
Net investment income........................... $ 1,083,527 $ 752,820
Net realized gain on investments................ 78,575 98,867
Unrealized appreciation (depreciation) on
investments.................................... 227,116 (29,706)
----------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS.......... 1,389,218 821,981
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income........................... (1,038,280) 0
Net realized gain on investments................ (154,231) 0
----------- -----------
(1,192,511) 0
----------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares.................... 14,986,752 10,880,854
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income........ 1,038,280 0
Distributions from net realized gain............ 154,231 0
----------- -----------
16,179,263 10,880,854
Cost of shares redeemed......................... (7,443,287) (5,343,514)
----------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS............................. 8,735,976 5,537,340
----------- -----------
TOTAL INCREASE IN NET ASSETS.................... 8,932,683 6,359,321
NET ASSETS
Beginning of the period......................... 13,210,664 22,143,347
----------- -----------
End of the period............................... $22,143,347 $28,502,668
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
End of the period............................... $ 0 $ 752,820
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................. 1,328,315 960,682
Issued in connection with the reinvestment of:
Distributions from net investment income........ 93,361 0
Distributions from net realized gain............ 13,834 0
----------- -----------
1,435,510 960,682
Redeemed........................................ (666,852) (472,225)
----------- -----------
Net change...................................... 768,658 488,457
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 31, 1994(A)
THROUGH YEAR YEAR YEAR SIX MONTHS ENDED
DECEMBER 31, ENDED ENDED ENDED JUNE 30,
1994 1995 1996 1997 1998
------------------- ------ ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of period.... $10.00 $ 9.96 $ 11.04 $ 10.83 $ 11.14
------ ------ ------- ------- -------
Income From Investment
Operations
Net Investment Income.. 0.10 0.33 0.58 0.53 0.30
Net Realized and
Unrealized Gain (Loss)
on Investments........ (0.04) 1.16 (0.21) 0.40 0.07
------ ------ ------- ------- -------
Total From Investment
Operations............ 0.06 1.49 0.37 0.93 0.37
------ ------ ------- ------- -------
Less Distributions
Distributions From Net
Investment Income..... (0.10) (0.33) (0.56) (0.53) 0.00
Distributions From Net
Realized Capital
Gains................. 0.00 (0.08) (0.02) (0.05) 0.00
Distributions in Excess
of Net Realized
Capital Gains......... 0.00 0.00 0.00 (0.04) 0.00
------ ------ ------- ------- -------
Total Distributions.... (0.10) (0.41) (0.58) (0.62) 0.00
------ ------ ------- ------- -------
Net Asset Value, End of
period................. $ 9.96 $11.04 $ 10.83 $ 11.14 $ 11.51
====== ====== ======= ======= =======
TOTAL RETURN (%)........ 0.60(b) 15.02 3.31 8.57 3.32(b)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.70(c) 0.70 0.70 0.70 0.70(c)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 5.70(c) 5.62 6.13 6.42 6.05(c)
Portfolio Turnover Rate
(%).................... 1,409(c) 415 388 572 552(c)
Net Assets, End of
period (000)........... $2,012 $7,542 $13,211 $22,143 $28,503
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(c) 2.90 1.37 0.98 0.80(c)
</TABLE>
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
See accompanying notes to financial statements.
91
<PAGE>
BACK BAY ADVISORS MONEY MARKET SERIES
PORTFOLIO MANAGER: JOHN MALONEY
BACK BAY ADVISORS, L.P.
[PHOTO OF JOHN MALONEY APPEARS HERE]
Q. HOW DID THE SERIES PERFORM OVER THE PAST 6 MONTHS?
A. The Series provided a competitive total return, while maintaining a con-
stant $100.00 per-share price.* For the six months ended June 30, 1998, the
Series produced a total return of 2.55%, which included the reinvestment of
$2.55 per share in dividend distributions. The Series' 7-day yield as of that
date was 5.13%.
Q. WHAT WAS THE INTEREST RATE ENVIRONMENT LIKE DURING THE PERIOD?
A. The Federal Funds rate--the rate at which banks lend to each other over-
night and the benchmark for short-term interest rates--remained at 5 1/2%
throughout the period. Consequently, with the exception of some temporary
fluctuations, short-term interest rates were relatively stable. With the 1-
year U.S. Treasury bill providing 98% of the yield of the 10-year U.S. Trea-
sury note at the end of the fiscal period, money market investments became
more attractive; they provided the bulk of the income offered by longer-term
bonds with almost none of the risk.
Throughout the past 12 months, U.S. economic activity was strong while infla-
tion stayed low. While strong economic growth began to cause investor concern
about future inflation, the evolving economic crisis in Asia heightened expec-
tations that U.S. economic growth would slow, relieving inflationary pres-
sures. We believe that the Federal Reserve Board, by declining to raise short-
term rates during the last six months, recognized the weakening effect of
Asia's difficulties on the United States. Without the influence of Asia, I
think the Federal
Reserve might have raised short-term interest rates as a preemptive strike
against inflation.
Q. WHAT STRATEGIES DID YOU USE IN MANAGING THE SERIES?
A. I kept a longer average maturity and took advantage of temporary interest
rate fluctuations. When interest rates rose, I invested in securities with
longer maturities to secure higher yields for the Series for an extended pe-
riod of time. Conversely, I invested in securities with shorter maturities
when longer maturities provided little to no yield advantage over shorter ma-
turities. As of June 30, 1998, the Series' average maturity stood at 79 days,
compared to 42.4 days six months ago.
Most of the Series' assets were invested in commercial paper, which typically
offered higher yields than other types of money market instruments.
Q. WHAT IS YOUR OUTLOOK FOR SHORT-TERM RATES OVER THE NEXT SIX MONTHS?
A. I expect short-term interest rates to remain generally steady, with tempo-
rary bouts of fluctuations as periodic economic reports influence investors'
expectations of future monetary policy. I also believe the Federal Reserve
Board will continue to proceed cautiously with interest rate policy, waiting
to see if Asia's problems will sufficiently cool the U.S. economy. With that
outlook, I expect to follow strategies similar to those we used over the last
year, focusing on relative value, taking advantage of selective opportunities
triggered by shifting short-term interest rates and emphasizing high-quality
investments.
[X] FUND FACTS
GOAL: The highest possible level of current income consistent with the
preservation of capital.
START DATE: August 1, 1983
SIZE: $120 million as of June 30, 1998
MANAGER: John Maloney has served as portfolio manager since 1996. Mr. Maloney
also manages the New England Tax Exempt Money Market Trust.
* Money Market funds are neither insured nor guaranteed by the U.S.
Government. The Series seeks but cannot assure a stable share price of
$100.00.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts; if these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
92
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
INVESTMENTS--100.5% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
FACE INTEREST MATURITY
VALUE DESCRIPTION RATE DATE VALUE (A)
<C> <S> <C> <C> <C>
BANK NOTE--2.1%
$2,500,000 Morgan Stanley Group.............. 5.757% 12/28/98 $ 2,501,589
------------
Total Bank Note (Cost $2,501,589). 2,501,589
------------
CERTIFICATES OF DEPOSIT--34.2%
500,000 Morgan Guaranty Trust New York.... 5.800% 07/28/98 499,968
500,000 Deutsche Bank AG New York......... 5.800% 08/05/98 499,971
1,000,000 Canadian Imperial................. 5.870% 08/07/98 1,000,008
1,100,000 Canadian Imperial................. 5.880% 09/02/98 1,100,202
2,000,000 ABN Amro Bank..................... 5.600% 09/03/98 1,999,775
2,000,000 Banque National de Paris.......... 5.620% 09/09/98 1,999,877
2,000,000 Deutsche Bank AG New York......... 5.910% 09/14/98 2,000,347
3,000,000 Svenska Handelsbank AB Public..... 5.580% 09/14/98 2,999,579
2,000,000 Bank of Nova Scotia............... 5.830% 10/02/98 1,999,984
1,000,000 Rabobank Nederland NV............. 5.780% 10/05/98 999,932
2,000,000 Canadian Imperial................. 5.790% 10/06/98 1,999,485
1,000,000 Societe Generale New York......... 5.770% 10/07/98 1,000,005
2,000,000 Deutsche Bank AG New York......... 5.850% 10/20/98 2,000,162
1,500,000 Societe Generale New York......... 5.970% 10/26/98 1,500,732
2,500,000 Bank of Nova Scotia............... 5.630% 10/27/98 2,499,674
1,000,000 Societe Generale New York......... 5.970% 10/27/98 1,000,566
4,400,000 Bank of Montreal.................. 5.810% 11/09/98 4,399,627
1,000,000 Societe Generale New York......... 5.850% 12/17/98 1,000,050
2,000,000 Swiss Bank New York............... 5.850% 12/18/98 2,000,776
500,000 Svenska Handelsbank AB Public..... 5.580% 12/22/98 499,686
4,000,000 Credit Suisse..................... 5.740% 01/07/99 3,997,339
1,000,000 Societe Generale New York......... 5.730% 01/07/99 999,250
2,000,000 Rabobank Nederland NV............. 5.430% 01/12/99 1,996,308
1,000,000 Royal Bank of Canada.............. 5.645% 03/09/99 998,849
------------
Total Certificates of Deposit
(Cost $40,992,152)............... 40,992,152
------------
COMMERCIAL PAPER--64.2%
ASSET BACKED--2.5%
3,000,000 Clipper Receivables Corp.......... 5.530% 07/10/98 2,995,853
------------
AUTOMOTIVE--7.5%
985,000 PACCAR Financial Corp............. 5.520% 07/07/98 984,094
700,000 American Honda Finance............ 5.540% 07/13/98 698,707
785,000 Ford Motor Credit Corp............ 5.650% 07/16/98 783,152
1,365,000 American Honda Finance............ 5.530% 07/20/98 1,361,016
1,260,000 General Motors Acceptance Corp.... 5.480% 07/23/98 1,255,780
1,000,000 General Motors Acceptance Corp.... 5.480% 08/07/98 994,368
2,000,000 American Honda Finance............ 5.520% 08/31/98 1,981,293
955,000 General Motors Acceptance Corp.... 5.510% 09/18/98 943,453
------------
9,001,863
------------
BANKING--9.3%
1,100,000 Svenska Handelsbanken, Inc........ 5.500% 08/21/98 1,091,429
835,000 Banque National de Paris Canada... 5.460% 09/03/98 826,895
415,000 Banque National de Paris Canada... 5.500% 09/03/98 410,942
1,000,000 Banque National de Paris New York. 5.570% 09/30/98 985,920
1,000,000 Bankers Trust New York............ 5.430% 10/05/98 985,520
500,000 Bankers Trust New York............ 5.450% 10/14/98 492,052
</TABLE>
See accompanying notes to financial statements.
93
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
INVESTMENTS--(CONTINUED)
<TABLE>
<CAPTION>
FACE INTEREST MATURITY
VALUE DESCRIPTION RATE DATE VALUE (A)
<C> <S> <C> <C> <C>
BANKING--(CONTINUED)
$1,000,000 Svenska Handelsbanken, Inc........ 5.500% 11/12/98 $ 979,528
4,000,000 Bankers Trust New York............ 5.430% 11/23/98 3,912,517
1,500,000 Banque National de Paris New York. 5.480% 12/15/98 1,461,868
------------
11,146,671
------------
ELECTRONICS--0.5%
575,000 Motorola, Inc..................... 5.520% 07/14/98 573,854
------------
FINANCE--12.1%
600,000 Beneficial Corp................... 5.500% 07/14/98 598,808
1,500,000 General Electric Capital Corp..... 5.490% 07/17/98 1,496,340
1,415,000 Avco Financial Services, Inc...... 5.520% 07/20/98 1,410,878
2,000,000 General Electric Capital Corp..... 5.650% 07/24/98 1,992,781
1,000,000 Beneficial Corp................... 5.530% 08/31/98 990,630
500,000 General Electric Capital Corp..... 5.520% 09/02/98 495,170
2,000,000 Beneficial Corp................... 5.520% 09/04/98 1,980,067
2,340,000 Avco Financial Services, Inc...... 5.510% 09/25/98 2,309,199
1,200,000 Avco Financial Services, Inc...... 5.520% 10/05/98 1,182,336
725,000 Avco Financial Services, Inc...... 5.520% 10/19/98 712,771
1,400,000 General Electric Capital Corp..... 5.470% 11/16/98 1,370,644
------------
14,539,624
------------
INSURANCE--4.3%
2,300,000 Prudential Funding Corp........... 5.520% 07/09/98 2,297,179
1,870,000 Prudential Funding Corp........... 5.530% 07/10/98 1,867,415
1,000,000 Prudential Funding Corp........... 5.490% 11/16/98 978,955
------------
5,143,549
------------
LEASING--1.8%
2,205,000 PHH Corp.......................... 6.350% 07/01/98 2,205,000
------------
RETAIL--8.0%
500,000 Dillard Investment Co............. 5.670% 07/07/98 499,527
1,500,000 Dillard Investment Co............. 5.670% 07/13/98 1,497,165
1,350,000 Dillard Investment Co............. 5.700% 07/13/98 1,347,435
1,100,000 Sears Roebuck Acceptance Corp..... 5.530% 07/21/98 1,096,621
3,185,000 J.C. Penney Funding Corp.......... 5.540% 08/03/98 3,168,826
1,970,000 Sears Roebuck Acceptance Corp..... 5.520% 08/04/98 1,959,730
------------
9,569,304
------------
SECURITIES--15.7%
1,210,000 J.P. Morgan & Co.................. 5.520% 07/06/98 1,209,072
1,710,000 Lehman Brothers, Inc.............. 5.550% 07/08/98 1,708,155
165,000 Lehman Brothers, Inc.............. 5.650% 07/15/98 164,637
1,025,000 J.P. Morgan & Co.................. 5.550% 07/17/98 1,022,472
2,000,000 Lehman Brothers, Inc.............. 5.520% 07/22/98 1,993,560
2,000,000 Merrill Lynch..................... 5.520% 08/14/98 1,986,507
1,000,000 Lehman Brothers, Inc.............. 5.560% 08/25/98 991,505
500,000 Merrill Lynch..................... 5.520% 09/11/98 494,480
500,000 Lehman Brothers, Inc.............. 5.550% 09/11/98 494,450
705,000 Merrill Lynch..................... 5.480% 09/18/98 696,522
4,655,000 Goldman Sachs Group............... 5.500% 10/08/98 4,584,593
1,000,000 Merrill Lynch..................... 5.520% 10/09/98 984,666
</TABLE>
See accompanying notes to financial statements.
94
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
INVESTMENTS--(CONTINUED)
<TABLE>
<CAPTION>
FACE INTEREST MATURITY
VALUE DESCRIPTION RATE DATE VALUE (A)
<C> <S> <C> <C> <C>
SECURITIES--(CONTINUED)
$1,000,000 Goldman Sachs Group............... 5.500% 10/09/98 $ 984,722
800,000 Merrill Lynch..................... 5.520% 10/26/98 785,648
660,000 Merrill Lynch..................... 5.490% 11/16/98 646,110
------------
18,747,099
------------
TELECOMMUNICATION--2.5%
3,000,000 Bell Atlantic Financial Services.. 5.520% 07/06/98 2,997,700
------------
Total Commercial Paper (Cost
$76,920,517)..................... 76,920,517
------------
Total Investments--100.5% (Cost
$120,414,258)(b)................. 120,414,258
Other assets less liabilities..... (523,967)
------------
TOTAL NET ASSETS--100%............ $119,890,291
============
</TABLE>
See accompanying notes to financial statements.
(a) See Note 1A
(b) The aggregate cost for federal income tax purposes was $120,414,258
95
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................. $120,414,258
Cash................................................. 2,778
Receivable for:
Fund shares sold..................................... 928,782
Dividends and interest............................... 1,299,882
------------
122,645,700
LIABILITIES
Payable for:
Fund shares redeemed................................. $2,644,552
Withholding taxes.................................... 23,792
Accrued expenses:
Management fees...................................... 34,769
Deferred trustees' fees.............................. 30,934
Other expenses....................................... 21,362
----------
2,755,409
------------
$119,890,291
============
NET ASSETS
Net Assets consist of:
Capital paid in...................................... $119,890,291
------------
NET ASSETS............................................ $119,890,291
============
Computation of offering price:
Net asset value and redemption price per share
($119,890,291 divided by 1,198,903 shares of
beneficial interest)................................. $ 100.00
============
Cost of investments................................... $120,414,258
============
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
<S> <C> <C>
INVESTMENT INCOME
Interest.................................................. $3,219,849
EXPENSES
Management fees........................................... $199,540
Trustees' fees and expenses............................... 8,678
Custodian................................................. 37,019
Audit and tax services.................................... 8,502
Legal..................................................... 10,300
Printing.................................................. 15,230
Insurance................................................. 2,054
Miscellaneous............................................. 3,733
--------
Total expenses........................................... 285,056
----------
NET INVESTMENT INCOME...................................... 2,934,793
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS................. $2,934,793
==========
</TABLE>
See accompanying notes to financial statements.
96
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1997 1998
------------ ----------------
<S> <C> <C>
FROM OPERATIONS
Net investment income.......................... $ 6,038,343 $ 2,934,793
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS......... 6,038,343 2,934,793
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income.......................... (6,038,343) (2,934,793)
------------ ------------
(6,038,343) (2,934,793)
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares................... 314,876,956 177,081,139
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income....... 6,003,198 2,885,123
------------ ------------
320,880,154 179,966,262
Cost of shares redeemed........................ (326,870,348) (171,084,496)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS DERIVED FROM
CAPITAL SHARE TRANSACTIONS.................... (5,990,194) 8,881,766
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........ (5,990,194) 8,881,766
NET ASSETS
Beginning of the period........................ 116,998,719 111,008,525
------------ ------------
End of the period.............................. $111,008,525 $119,890,291
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares................. 3,148,769 1,770,811
Issued in connection with the reinvestment of:
Distributions from net investment income....... 60,032 28,852
------------ ------------
3,208,801 1,799,663
Redeemed....................................... (3,268,703) (1,710,845)
------------ ------------
Net change..................................... (59,902) 88,818
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
--------------------------------------------- JUNE 30,
1993 1994 1995 1996 1997 1998
------- ------- ------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of period.... $100.00 $100.00 $100.00 $ 100.00 $ 100.00 $ 100.00
------- ------- ------- -------- -------- --------
Income From Investment
Operations
Net Investment Income.. 2.93 3.89 5.50 4.99 5.08 2.55
------- ------- ------- -------- -------- --------
Total From Investment
Operations............ 2.93 3.89 5.50 4.99 5.08 2.55
Distributions From Net
Investment Income...... (2.93) (3.89) (5.50) (4.99) (5.08) (2.55)
------- ------- ------- -------- -------- --------
Total Distributions.... (2.93) (3.89) (5.50) (4.99) (5.08) (2.55)
------- ------- ------- -------- -------- --------
Net Asset Value, End of
period................. $100.00 $100.00 $100.00 $ 100.00 $ 100.00 $ 100.00
======= ======= ======= ======== ======== ========
TOTAL RETURN (%)........ 2.97 4.01 5.64 5.11 5.20 2.55(a)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.38 0.40 0.50 0.50 0.45 0.50(b)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 2.93 3.89 5.50 4.99 5.21 5.15(b)
Net Assets, End of
period (000)........... $59,044 $73,960 $90,148 $116,999 $111,009 $119,890
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.
(a) Not computed on an annualized basis.
(b) Computed on an annualized basis.
97
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1998 (UNAUDITED)
1. New England Zenith Fund (the "Fund") is organized as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts pursuant to
an Agreement and Declaration of Trust dated December 16, 1986. The Fund
succeeded to the operations of The New England Zenith Fund, Inc. on February
27, 1987. The Fund is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company.
Shares in the Fund are not offered directly to the general public and are
currently available only to certain separate accounts of Metropolitan Life
Insurance Company ("MetLife") and New England Life Insurance Company
("NELICO"), a subsidiary of MetLife, as an investment vehicle for variable
life insurance or variable annuity products, although not all Series are
available to all such separate accounts.
The Fund's Agreement and Declaration of Trust permits the issuance of an
unlimited number of shares of beneficial interest, no par value, in separate
Series, 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. Each Series (or its predecessor) commenced
operations on the date set forth below:
<TABLE>
<S> <C>
Back Bay Advisors Bond
Income Series............. August 26, 1983
Capital Growth Series...... August 26, 1983
Back Bay Advisors Money
Market Series............. August 26, 1983
Westpeak Stock Index
Series.................... March 30, 1987
Back Bay Advisors Managed
Series.................... May 1, 1987
Goldman Sachs Midcap Value
Series.................... April 30, 1993
Westpeak Growth and Income
Series.................... April 30, 1993
</TABLE>
<TABLE>
<S> <C>
Loomis Sayles Small Cap
Series................... May 2, 1994
Loomis Sayles Balanced
Series................... October 31, 1994
Morgan Stanley
International Magnum
Equity Series............ October 31, 1994
Salomon Brothers U.S.
Government Series........ October 31, 1994
Salomon Brothers Strategic
Bond Opportunities
Series................... October 31, 1994
Davis Venture Value
Series................... October 31, 1994
Alger Equity Growth
Series................... October 31, 1994
</TABLE>
The following is a summary of significant accounting policies followed by the
Fund in the preparation of the Financial Statements of the Series. The
policies are in conformity with generally accepted accounting principles for
investment companies. The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
A.SECURITY VALUATION
BACK BAY ADVISORS MONEY MARKET SERIES--The Back Bay Advisors Money Market
Series employs the amortized cost method of security valuation which, in
the opinion of the Board of Trustees, approximates 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.
OTHER SERIES--Debt securities (other than short term obligations with a
remaining maturity of less than sixty days) are valued on the basis of
valuations furnished by independent pricing services authorized by the
Board of Trustees. Short term obligations with a remaining maturity of less
than sixty days are stated at amortized cost, which approximates market
value. Equity securities are valued using the last reported sale price for
securities listed on a securities exchange or on the NASDAQ National Market
System, or, if no sale was reported and in the case of over-the-counter
securities not so listed, the last reported bid price. Securities and
assets for which market quotations are not available are valued at their
fair value as determined in good faith by the Fund's advisers and
subadvisers, under the supervision of the Board of Trustees.
B. FOREIGN CURRENCY TRANSLATION--The books and records of the Fund are
maintained in U.S. dollars. The values of securities, currencies and other
assets and liabilities denominated in currencies other than U.S. dollars
are translated into U.S. dollars based upon foreign exchange rates
prevailing at the end of the period. Purchases and sales of investment
securities, income and expenses are translated on the respective dates of
such transactions.
98
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1998 (UNAUDITED)--(CONTINUED)
Since the values of investment securities are presented at the foreign
exchange rates prevailing at the end of the period, it is not practical to
isolate that portion of the results of operations arising from changes in
exchange rates from that portion of the results of operations reflecting
fluctuations arising from changes in market prices of the investment
securities. Such fluctuations are included with the net realized and
unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign
currency, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts actually
received or paid. Net unrealized foreign exchange gains and losses arise
from changes in the value of assets and liabilities, other than investment
securities, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY CONTRACTS. 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 Contracts Outstanding."
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.
All contracts are "marked-to-market" daily at the applicable translation
rates, and any gains or losses are recorded for financial statement
purposes as unrealized until settlement date. Risks may arise upon entering
into these contracts from the potential inability of counterparties to meet
the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar.
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME--Security transactions
are accounted for on the trade date (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 Westpeak Growth and Income, Goldman Sachs Midcap
Value, Westpeak Stock Index, Back Bay Advisors Managed, Loomis Sayles
Balanced, Morgan Stanley International Magnum Equity, Salomon Brothers U.S.
Government, Salomon Brothers Strategic Bond Opportunities and Davis Venture
Value Series each may enter into futures contracts on the S&P 500 Index or
other indices of stocks or on interest-bearing securities or indices
thereof, to hedge against changes in the values of securities the Series
owns or expects to purchase or, in the case of Goldman Sachs Midcap Value
Series, to increase total return. 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 or index, 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 supervision 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
99
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1998 (UNAUDITED)--(CONTINUED)
to 100% of the repurchase price. Each Series' adviser or subadviser is
responsible for determining that the value of the collateral is at all
times at least equal to the repurchase price. In connection with
transactions in repurchase agreements, if the seller defaults and the value
of the collateral declines or if the seller enters an insolvency
proceeding, realization of the collateral by the Series may be delayed or
limited.
The Goldman Sachs Midcap Value Series, together with other registered
investment companies having advisory agreements with Goldman Sachs Asset
Management or its affiliates, transfer uninvested cash into joint accounts,
the daily aggregate balance of which is invested in one or more repurchase
agreements. The underlying securities for the repurchase agreements are
U.S. Treasury and agency obligations. At June 30, 1998, the Goldman Sachs
Midcap Value Series had undivided interests in the repurchase agreements in
the following joint account which equaled $9,900,000, in principal amount.
At June 30, 1998, the repurchase agreement in the joint account along with
the corresponding underlying securities (including the type of security,
market value, interest rate and maturity date) were as follows:
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY AMORTIZED
AMOUNT RATE DATE COST
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LEHMAN BROTHERS, INC., $300,000,000 6.00% 07/01/1998 $ 300,000,000
dated 06/30/98, repurchase
price $300,050,000 (total
collateral value
$305,999,913 consisting of
FHLMC: 6.00%-10.50%,
09/01/98-06/01/28; FNMA:
6.00%-12.00%, 12/01/00-
08/01/26)
- -----------------------------------------------------------------------------
LEHMAN BROTHERS, INC., $270,000,000 5.85% 07/01/1998 $ 270,000,000
dated 06/30/98, repurchase
price $270,043,875 (total
collateral value
$275,398,468 consisting of
FHLMC: 5.50%-12.00%,
10/01/98-11/01/27; FNMA:
6.29%-9.50%, 05/01/02-
07/01/25)
- -----------------------------------------------------------------------------
SALOMON-SMITH BARNEY, $264,400,000 5.75% 07/01/1998 $ 264,400,000
dated 06/30/98, repurchase
price $264,442,231 (total
collateral value
$269,848,754 consisting of
U.S. Treasury Stripped
Interest Only Security:
05/14/04; U.S. Treasury
Stripped Principal
Securities: 7.50%-8.75%,
08/15/00-11/15/01)
- -----------------------------------------------------------------------------
CIBC OPPENHEIMER, INC., $250,000,000 5.70% 07/01/1998 $ 250,000,000
dated 06/30/98, repurchase
price $250,039,589 (total
collateral value
$255,475,165 consisting of
FHLMC: 7.00%, 12/01/27)
- -----------------------------------------------------------------------------
TOTAL JOINT REPURCHASE
AGREEMENT ACCOUNT $1,084,400,000
- -----------------------------------------------------------------------------
</TABLE>
F. SHORT SALES AGAINST THE BOX--The Alger Equity Growth, Morgan Stanley
International Magnum Equity and Goldman Sachs Midcap Value 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 period ended June 30, 1998.
G. REVERSE REPURCHASE AGREEMENTS--The Salomon Brothers U.S. Government and
Salomon Brothers Strategic Bond Opportunities Series may enter into reverse
repurchase agreements with qualified, third party broker-dealers as
determined by and under the direction of the Fund's Board of Trustees.
Interest on the value of reverse repurchase agreements issued and
outstanding will be based upon competitive market rates at the time of
issuance. At the time a Series enters into a reverse repurchase agreement,
it will establish and maintain a segregated account with the buyer, the
value of which at least equals the principal amount of the reverse
repurchase transactions including accrued interest. At June 30, 1998, there
were no open reverse repurchase agreements.
100
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1998 (UNAUDITED)--(CONTINUED)
H. FEDERAL TAXES--Each Series, which is a separate taxable entity, intends to
meet the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute to its shareholders all of its
taxable income and any net realized capital gains at least annually.
Accordingly, no provision for federal income tax has been made.
I. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS--Back Bay Advisors Money Market
Series dividends are declared daily to shareholders of record at the time
and are paid monthly. Dividends and distributions are recorded by all other
Series on the ex-dividend date. Net realized gains from security
transactions are distributed at least annually to shareholders. The timing
and characterization of certain income and capital gains distributions are
determined in accordance with federal tax regulations which may differ from
generally accepted accounting principles. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassification to paid in capital. These differences primarily relate to
tax equalization, investments in mortgage backed securities and investments
in foreign securities.
J. OTHER--The Back Bay Advisors Money Market Series invests primarily in a
portfolio of money market instruments maturing in 397 days or less whose
ratings are within the two highest ratings categories by a nationally
recognized rating agency or, if not rated, are believed to be of comparable
quality. The weighted average maturity of the Series is less than ninety
days. The ability of the issuers of the securities held by the Series to
meet their obligations may be affected by foreign economic, political and
legal developments in the case of foreign banks or of foreign branches or
subsidiaries of U.S. banks or domestic economic developments in a specific
industry, state or region.
2. At June 30, 1998, MetLife held 29,334,625 shares in separate investment
accounts for annuity contracts issued by MetLife. NELICO held the remaining
38,457,191 shares then outstanding in separate investment accounts for
variable life insurance and variable annuity contracts issued by NELICO.
As long as MetLife owns (directly or through NELICO) more than 25% of the
Fund's outstanding shares, it will be presumed to be in control (as that term
is defined by the Investment Company Act of 1940, as amended) of the Fund.
3. For the six months ended June 30, 1998, purchases and sales of securities
(excluding short-term investments) for each of the Series were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------------------------ ------------------------------
SERIES U.S. GOVERNMENT OTHER U.S. GOVERNMENT OTHER
------ --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Loomis Sayles Small Cap. -- $ 134,146,659 -- $ 97,013,115
Morgan Stanley
International Magnum
Equity................. -- 17,133,496 -- 9,395,811
Alger Equity Growth..... -- 136,838,743 -- 102,133,577
Capital Growth.......... -- 1,689,447,429 -- 1,696,036,976
Goldman Sachs Midcap
Value.................. -- 142,136,503 -- 145,141,489
Davis Venture Value..... -- 85,642,133 -- 15,966,059
Westpeak Growth and
Income................. -- 118,486,649 -- 85,119,928
Westpeak Stock Index.... -- 12,625,219 -- 970,273
Loomis Sayles Balanced.. $27,356,822 50,879,657 $20,750,692 29,782,877
Back Bay Advisors
Managed................ -- 20,860,403 151,921 17,414,200
Salomon Brothers
Strategic Bond
Opportunities.......... 82,721,943 40,618,447 81,007,911 26,091,323
Back Bay Advisors Bond
Income................. 20,957,190 108,649,927 32,745,946 74,808,153
Salomon Brothers U.S.
Government............. 65,531,967 -- 58,948,975 --
</TABLE>
Purchases and sales of short-term obligations for the Back Bay Advisors Money
Market Series aggregated $61,887,294 and $59,224,439, respectively.
101
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1998 (UNAUDITED)--(CONTINUED)
4. MANAGEMENT FEES.
TNE Advisers, Inc. ("TNE Advisers") acts as adviser to all of the Series
except the Capital Growth Series, for which Capital Growth Management Limited
Partnership ("CGM") serves as adviser. Separate advisory agreements for each
Series provide for management fees payable by the Series as set forth below:
<TABLE>
<CAPTION>
MANAGEMENT
FEES EARNED ANNUAL
BY TNE ADVISERS FOR PERCENTAGE BASED ON
THE SIX MONTHS ENDED RATES PAID TO SERIES AVERAGE DAILY NET ASSET
SERIES JUNE 30, 1998 ADVISER VALUE LEVELS
------ -------------------- ------------- ------------------------------------
<S> <C> <C> <C>
Loomis Sayles Small Cap $1,111,006 1.00% of all assets
Series.................
Morgan Stanley 271,071 0.90% of all assets
International Magnum
Equity Series..........
Alger Equity Growth 907,513 0.75% of all assets
Series.................
Loomis Sayles Avanti 283,565 0.70% of the first $200 million
Growth Series(a)....... 0.65% of the next $300 million
(Period January 1, 1998 0.60% of amounts in excess of $500 million
through April 30, 1998)
Goldman Sachs Midcap 161,839 0.75% of all assets
Value Series(a)........
(Period May 1, 1998
through June 30, 1998)
Davis Venture Value 1,250,798 0.75% of all assets
Series.................
Westpeak Growth and 645,414 0.70% of the first $200 million
Income Series.......... 0.65% of the next $300 million
0.60% of amounts in excess of $500 million
Westpeak Stock Index 179,584 0.25% of all assets
Series.................
Loomis Sayles Balanced 538,139 0.70% of all assets
Series.................
Back Bay Managed Series. 499,478 0.50% of all assets
Salomon Brothers 259,514 0.65% of all assets
Strategic Bond
Opportunities Series...
Back Bay Advisors Bond 425,060 0.40% of the first $400 million
Income Series.......... 0.35% of the next $300 million
0.30% of the next $300 million
0.25% of amounts in excess of $1 billion
Salomon Brothers U.S. 68,494 0.55% of all assets
Government Series......
Back Bay Advisors Money 199,540 0.35% of the first $500 million
Market Series.......... 0.30% of the next $500 million
0.25% of amounts in excess of $1 billion
</TABLE>
- -------
(a) Effective May 1, 1998 the Loomis Sayles Avanti Growth Series was renamed
Goldman Sachs Midcap Value Series and a new advisory agreement between the
Fund and TNE Advisers went into effect. The fees paid to TNE Advisers
before and after this change, taken together, equal the total management
fees paid by the Series for the six months ended June 30, 1998.
102
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1998 (UNAUDITED)--(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, 0.60% of the next $1.5 billion of such
assets and 0.55% of such assets in excess of $2 billion. For advisory services
rendered during the six months ended June 30, 1998, CGM was paid at an average
annual rate of 0.62% of the Capital Growth Series' average net assets,
totaling $5,008,427.
SUB-ADVISORY FEES. TNE Advisers has sub-contracted day-to-day portfolio
management responsibilities for the Series to each of the following sub-
advisers: Loomis, Sayles & Company, L.P. ("Loomis Sayles") for the Loomis
Sayles Small Cap, Loomis Sayles Avanti Growth (for the period January 1, 1998
through April 30, 1998) and Loomis Sayles Balanced Series, Goldman Sachs Asset
Management ("GSAM") for the Goldman Sachs Midcap Value Series (effective
May 1, 1998); Morgan Stanley Asset Management Inc. ("MSAM") for the Morgan
Stanley International Magnum Equity Series; Fred Alger Management, Inc.
("Alger") for the Alger Equity Growth Series; Davis Selected Advisers, L.P.
("Davis") for the Davis Venture Value Series; Westpeak Investment Advisors,
L.P. ("Westpeak") for the Westpeak Growth and Income and Westpeak Stock Index
Series; Back Bay Advisors, L.P. ("Back Bay Advisors") for the Back Bay
Advisors Managed, Back Bay Advisors Bond Income and Back Bay Advisors Money
Market Series and Salomon Brothers Asset Management Inc for the Salomon
Brothers Strategic Bond Opportunities and Salomon Brothers U.S. Government
Series. TNE Advisers pays each sub-adviser at the following rates for
providing sub-advisory services to the Series:
<TABLE>
<CAPTION>
FEES EARNED ANNUAL
BY SUB-ADVISERS FOR PERCENTAGE BASED ON
THE SIX MONTHS ENDED RATES PAID TO SERIES AVERAGE DAILY NET ASSET
SERIES JUNE 30, 1998 SUB-ADVISER VALUE LEVELS
------ -------------------- ------------- ------------------------------------
<S> <C> <C> <C>
Loomis Sayles Small Cap $524,863 0.55% of the first $25 million
Series.................
0.50% of the next $75 million
0.45% of the next $100 million
0.40% of amounts in excess of $200 million
Morgan Stanley 203,030 0.75% of the first $30 million
International Magnum
Equity Series..........
0.60% of the next $40 million
0.45% of the next $30 million
0.40% of amounts in excess of $100 million
Alger Equity Growth 508,801 0.45% of the first $100 million
Series.................
0.40% of the next $400 million
0.35% of amounts in excess of $500 million
Loomis Sayles Avanti 166,438 0.50% of the first $25 million
Growth Series(a).......
(Period January 1, 1998
through April 30, 1998)
0.40% of the next $75 million
0.35% of the next $100 million
0.30% of amounts in excess of $200 million
Goldman Sachs Midcap 94,670 0.45% of the first $100 million
Value Series(a)........
(Period May 1, 1997
through June 30, 1998)
0.40% of the next $400 million
0.35% of amounts in excess of $500 million
Davis Venture Value 691,886 0.45% of the first $100 million
Series.................
0.40% of the next $400 million
0.35% of amounts in excess of $500 million
Westpeak Growth and
Income Series.......... 359,626 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................. 71,833 0.10% of all assets
Loomis Sayles Balanced
Series................. 292,617 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......... 212,190 0.25% of the first $50 million
0.20% of amounts in excess of $50 million
Salomon Brothers
Strategic Bond
Opportunities Series... 132,172 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
</TABLE>
103
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1998 (UNAUDITED)--(CONTINUED)
<TABLE>
<CAPTION>
FEES EARNED ANNUAL
BY SUB-ADVISER FOR PERCENTAGE BASED ON
THE SIX-MONTHS ENDED RATES PAID TO SERIES AVERAGE DAILY NET ASSET
SERIES JUNE 30, 1998 SUB-ADVISER VALUE LEVELS
------ -------------------- ------------- ------------------------------------
<S> <C> <C> <C>
Back Bay Advisors Bond
Income Series.......... $224,928 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...... 28,020 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.......... 81,806 0.15% of the first $100 million
0.10% of amounts in excess of $100 million
</TABLE>
- -------
(a) Effective May 1, 1998 a new Sub-advisory agreement between TNE Advisers
and GSAM went into effect, replacing the prior Sub-advisory agreement
between TNE Advisers and Loomis Sayles. The two Sub-advisory fee schedules
set forth above reflect all agreements which were in place during the
period ended June 30, 1998.
TNE Advisers, which acts as adviser to each Series except the Capital Growth
Series, is a direct wholly-owned subsidiary of New England Life Holdings, Inc.
which in turn 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 Nvest, L.P. and Nvest Companies, L.P.
("Nvest Companies"). Nvest Companies owns the entire limited partnership
interest in each of Loomis Sayles, Westpeak and Back Bay Advisors. The general
partners of each of Loomis Sayles, Westpeak and Back Bay Advisors are special
purpose corporations which are indirect wholly-owned subsidiaries of Nvest
Companies. Nvest Companies' managing general partner and Nvest, L.P.'s general
partner, Nvest Corporation, is an indirect wholly-owned subsidiary of MetLife
New England Holdings, Inc. which in turn is a wholly owned subsidiary of
MetLife, a mutual life insurance company. MetLife owns directly 46% (and in
the aggregate, directly and indirectly, 47%) of the limited partnership
interests in Nvest Companies. Nvest Companies' advising general partner,
Nvest, L.P., is a publicly traded company listed on the New York Stock
Exchange. Nvest Companies is the owner of a majority limited partnership
interest in the Capital Growth Series' investment adviser, CGM. Consequently,
the subadvisers (Loomis Sayles, Westpeak and Back Bay Advisors) of seven
Series of the Fund are currently wholly-owned subsidiaries of Nvest Companies
and an additional Series is advised by a majority-owned subsidiary (CGM) of
Nvest Companies. The sub-advisers of the remaining six Series are not
affiliated with MetLife, Nvest, L.P. or Nvest Companies.
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 Small Cap Series, Westpeak
Growth and Income Series, Westpeak Stock Index Series, Back Bay Advisors
Managed Series, Back Bay Advisors Bond Income Series and Back Bay Advisors
Money Market Series. A Voluntary Expense Limitation applicable to the Loomis
Sayles Avanti Growth Series terminated on April 30, 1998, the last day before
the Series was renamed the Goldman Sachs Midcap Value Series. Pursuant to this
arrangement TNE Advisers bears all expenses (other than advisory fees and any
brokerage costs, interest, taxes or extraordinary expenses) of each Series
(except the Loomis Sayles Small Cap Series) in excess of 0.15% of average
daily net assets. In the case of the Loomis Sayles Small Cap Series, TNE
Advisers bears all expenses (other than any brokerage costs, interest, taxes
or extraordinary expenses) in excess of 1.00% of the Series' average daily net
assets. A similar Voluntary Expense Limitation with New England Mutual Life
Insurance Company ("The New England") was in effect with respect to the
Capital Growth Series from November 1, 1994 to April 30, 1996.
The second form of expense limit is an Expense Deferral Agreement, which has
been in effect since November 1, 1994 for the Morgan Stanley International
Magnum Equity Series, Alger Equity Growth Series, Davis Venture Value Series,
Loomis Sayles Balanced Series, Salomon Brothers Strategic Bond Opportunities
Series and Salomon Brothers U.S. Government Series, and since May 1, 1998 for
the Goldman Sachs Midcap Value Series. Under this Agreement, TNE Advisers 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
104
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1998 (UNAUDITED)--(CONTINUED)
TNE Advisers 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 more than two years after the end of
the fiscal year in which such expenses were incurred. The percentage
applicable to each Series is shown below:
TNE Advisers may terminate these expense arrangements at any time. If these
expense arrangements were terminated, some of the Series would have higher
expense ratios. For the period January 1, 1998 to June 30, 1998, the effective
expense ratio for each Series after giving effect to the foregoing
arrangements and without giving effect to the foregoing arrangements, the
amounts of expenses assumed by TNE Advisers for those Series to which the
Voluntary Expense Limitation applies, and the amounts of expenses deferred for
those Series to which the Expense Deferral Agreement applies, are as follows:
<TABLE>
<CAPTION>
MAXIMUM EXPENSE EXPENSE RATIO
RATIO UNDER WITHOUT GIVING
CURRENT EFFECT TO EXPENSES ASSUMED
VOLUNTARY EXPENSE VOLUNTARY EXPENSE BY TNE ADVISERS AS A EXPENSES DEFERRED IN EXPENSES DEFERRED IN
LIMITATION OR LIMITATION OR RESULT OF THE SERIES 1996 (SUBJECT TO 1997 (SUBJECT TO
EXPENSE DEFERRAL EXPENSE DEFERRAL EXCEEDING THE REPAYMENT UNTIL REPAYMENT UNTIL
SERIES AGREEMENT AGREEMENT VOLUNTARY EXPENSE LIMIT DECEMBER 31, 1998) DECEMBER 31, 1999)
------ ----------------- ----------------- ----------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
Back Bay Advisors
Money Market Series. 0.50% 0.50% -- not applicable not applicable
Back Bay Advisors
Bond Income Series.. 0.55% 0.50% -- not applicable not applicable
Back Bay Advisors
Managed Series...... 0.65% 0.60% -- not applicable not applicable
Westpeak Growth &
Income Series....... 0.85% 0.79% -- not applicable not applicable
Westpeak Stock Index
Series.............. 0.40% 0.39% -- not applicable not applicable
Loomis Sayles Small
Cap Series.......... 1.00% 1.10% $116,577 not applicable not applicable
Goldman Sachs Midcap
Value Series........ 0.90% 0.84% -- not applicable not applicable
Morgan Stanley
International Magnum
Equity Series....... 1.30% 1.30% not applicable $102,652 $135,743
Alger Equity Growth
Series.............. 0.90% 0.84% not applicable -- --
Davis Venture Value
Series.............. 0.90% 0.85% not applicable 41,906 --
Loomis Sayles
Balanced Series..... 0.85% 0.82% not applicable 52,078 10,668
Salomon Brothers
Strategic Bond
Opportunities
Series.............. 0.85% 0.83% not applicable 68,374 12,296
Salomon Brothers U.S.
Government Series... 0.70% 0.80% not applicable 72,404 46,636
</TABLE>
For the six months ended June 30, 1998 the amount of deferred expense
recovered by TNE Advisers from each Series subject to the Expense Deferral
Agreement is set forth below:
<TABLE>
<CAPTION>
DEFERRED EXPENSES DEFERRED EXPENSES
RECOVERED BY RECOVERED BY
TNE ADVISERS TNE ADVISERS
SERIES FROM 1996 FROM 1997
------ ----------------- -----------------
<S> <C> <C>
Davis Venture Value Series........... $41,906 None
Goldman Sachs Midcap Value Series.... None None
Loomis Sayles Balanced Series........ 41,791 None
Morgan Stanley International Magnum
Equity Series....................... None None
Salomon Brothers Strategic Bond
Opportunities Series................ 19,131 None
Salomon Brothers U.S. Government
Series.............................. None None
</TABLE>
105
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1998 (UNAUDITED)--(CONTINUED)
5. The Fund does not pay any compensation to its officers or to any trustees
who are directors, officers or employees of MetLife, NELICO, Nvest, L.P. or
their affiliates, other than affiliated registered investment companies. Each
disinterested trustee (i.e. trustee not so affiliated) will receive for 1998
the following amounts of compensation from each Series:
<TABLE>
<CAPTION>
BOND CAPITAL MONEY STOCK MIDCAP GROWTH AND SMALL
INCOME GROWTH MARKET INDEX MANAGED VALUE INCOME CAP
------ ------- ------ ----- ------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Retainer......... $1,095 $8,529 $589 $769 $1,060 $666 $981 $1,207
Meeting Fee Per Meeting. $ 167 $ 167 $167 $167 $ 167 $167 $167 $ 167
Committee Chairman
Annual Retainer
(Contract Review)...... $ 328 $2,559 $177 $231 $ 318 $200 $294 $ 362
Committee Chairman
Annual Retainer
(Audit)................ $ 219 $1,706 $118 $154 $ 212 $133 $196 $ 241
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC
INTERNATIONAL U.S. BOND VENTURE EQUITY
BALANCED MAGNUM EQUITY GOVERNMENT OPPORTUNITIES VALUE GROWTH
-------- ------------- ---------- ------------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Annual Retainer......... $808 $312 $130 $413 $1,755 $1,279
Meeting Fee Per Meeting. $167 $167 $167 $167 $ 167 $ 167
Committee Chairman
Annual Retainer
(Contract Review)...... $242 $ 94 $ 39 $124 $ 527 $ 384
Committee Chairman
Annual Retainer
(Audit)................ $162 $ 62 $ 26 $ 83 $ 351 $ 256
</TABLE>
A deferred compensation plan is available to disinterested trustees on a
voluntary basis. Each participating trustee will receive deferred compensation
in an amount equal to the value that such compensation would have had if it had
been invested in the Series on the normal payment date.
6. SHAREHOLDER MEETING (UNAUDITED)
At a Special Meeting of shareholders of the Goldman Sachs Midcap Value Series
(then named the Loomis Sayles Avanti Growth Series) held on April 17, 1998,
such shareholders voted for the following proposals:
<TABLE>
<CAPTION>
VOTED VOTED TOTAL
FOR AGAINST ABSTAIN VOTES
------- ------- ------- -------
<S> <C> <C> <C> <C>
1. That the proposed new Advisory Agreement
relating to the Loomis Sayles Avanti Growth
Series (the "Series") between New England
Zenith Fund and TNE Advisers, Inc. be, and
it hereby is, approved...................... 482,000 153,109 37,672 672,781
2. That the proposed new Sub-Advisory Agreement
relating to the Series by and between TNE
Advisers, Inc. and Goldman Sachs Asset
Management, a separate operating division of
Goldman, Sachs & Co. be, and it hereby is,
approved.................................... 551,149 78,236 43,053 672,432
3. That the proposal to change the investment
objective of the Series from a fundamental
policy of capital growth to a non-
fundamental policy of long-term capital
appreciation be, and it hereby is, approved. 534,069 97,207 41,506 672,782
4. That the proposal with respect to the future
operation of the Series, whereby the Series
may from time to time, to the extent
permitted by any exemption or exemptions
granted by the Securities and Exchange
Commission, permit TNE Advisers, Inc. to
enter into new and amended agreements with
subadvisers with respect to the Series (the
"Series") without obtaining shareholder
approval of such agreements, and to permit
such sub-advisers to manage the assets of
the Series pursuant to such sub-advisory
agreements be, and it hereby is, approved... 513,551 121,290 38,008 672,849
</TABLE>
106
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1998 (UNAUDITED)--(CONTINUED)
At a Special Meeting of shareholders of the Salomon Brothers Strategic Bond
Opportunities Series and Salomon Brothers U.S. Government Series held on April
10, 1998, such shareholders voted for the following proposals:
<TABLE>
<CAPTION>
VOTED VOTED TOTAL
FOR AGAINST ABSTAIN VOTES
--------- ------- ------- ---------
<S> <C> <C> <C> <C>
1. That the proposed new Sub-Advisory
Agreement for the Salomon Brothers
Strategic Bond Opportunities Series by
and among TNE Advisers, Inc., Salomon
Brothers Asset Management Inc (SBAM) and
Salomon Brothers Asset Management
Limited be, and it hereby is, approved.. 5,849,499 113,296 297,952 6,260,747
2. That the proposed new Sub-Advisory
Agreement relating to the Salomon
Brothers U.S. Government Series by and
between TNE Advisers, Inc. and SBAM be,
and it hereby is, approved.............. 1,882,603 29,006 89,019 2,000,628
3. That the proposal with respect to the
future operation of the Salomon Brothers
Strategic Bond Opportunities Series (the
"Series"), whereby the Series may from
time to time, to the extent permitted by
any exemption or exemptions granted by
the Securities and Exchange Commission,
permit TNE Advisers, Inc. to enter into
new and amended agreements with
subadvisers with respect to the Series
without obtaining shareholder approval
of such agreements, and to permit such
sub-advisers to manage the assets of the
Series pursuant to such sub-advisory
agreements be, and it hereby is,
approved................................ 5,609,761 294,196 356,165 6,260,122
4. That the proposal with respect to the
future operation of the Salomon Brothers
U.S. Government Series (the "Series"),
whereby the Series may from time to
time, to the extent permitted by any
exemption or exemptions granted by the
Securities and Exchange Commission,
permit TNE Advisers, Inc. to enter into
new and amended agreements with
subadvisers with respect to the Series
without obtaining shareholder approval
of such agreements, and to permit such
sub-advisers to manage the assets of the
Series pursuant to such sub-advisory
agreements be, and it hereby is,
approved................................ 1,770,579 127,227 102,822 2,000,628
</TABLE>
(Proposal 1 and 3 were voted on only by shareholders of the Salomon Brothers
Strategic Bond Opportunities Series, whereas proposals 2 and 4 were voted on
by shareholders of the Salomon Brothers U.S. Government Series only.)
107
<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) Lehman Brothers Aggregate Bond Index includes most obligations of the
U.S. Treasury, agencies and quasi-federal corporations, most publicly
issued investment grade corporate bonds, and most bonds backed by
mortgage pools of GNMA, FNMA and FHLMC. The index has not been adjusted
for ongoing management, distribution and operating expenses and sales
charges applicable to mutual fund investments.
(3) Lehman Brothers Government/Corporate Bond Index is an unmanaged index of
the market value of approximately 5,300 bonds with a face value currently
in excess of $1.3 trillion. To be included in the Lehman Brothers
Government/Corporate Bond Index, an issue must have amounts outstanding
in excess of $25 million, have at least one year to maturity and be rated
"Baa" or higher ("investment grade") by a nationally recognized rating
agency. The index has not been adjusted for ongoing management,
distribution and operating expenses and sales charges applicable to
mutual fund investments.
(4) Lehman Brothers Intermediate Government Bond Index includes most
obligations of the U.S. Treasury, agencies and quasi-federal corporations
having maturities of 1 to 10 years. The index has not been adjusted for
ongoing management, distribution and operating expenses and sales charges
applicable to mutual fund investments.
(5) Lehman Brothers Intermediate Government/Corporate Bond Index is an
unmanaged index of investment grade bonds issued by the U.S. Government
and U.S. corporations having maturities between one and ten years. The
index has not been adjusted for ongoing management, distribution and
operating expenses and sales charges applicable to mutual fund
investments.
(6) Lipper Variable Products A-Rated Corporate Bond Fund Average is an
average of the total return performance (calculated on the basis of net
asset value) of funds with similar investment objectives as calculated by
Lipper Analytical Services, an independent mutual fund ranking service.
(7) Lipper Variable Products Balanced Fund Average is an average of the total
return performance (calculated on the basis of net asset level) of funds
with similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
(8) Lipper Variable Products Flexible Portfolio Fund Average is an average of
the total return performance (calculated on the basis of net asset value)
of funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(9) Lipper Variable Products General Bond Fund Average is an average of the
total return performance (calculated on the basis of net asset value) of
funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(10) Lipper Variable Products Growth Fund Average is an average of the total
return performance (calculated on the basis of net asset value) of funds
with similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
(11) Lipper Variable Products Growth and Income Fund Average is an average of
the total return performance (calculated on the basis of net asset value)
of funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(12) Lipper Variable Products International Fund Average is an average of the
total return performance (calculated on the basis of net asset value) of
funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(13) Lipper Variable Products Intermediate Investment Grade Debt Average is an
average of the total return performance (calculated on the basis of net
asset value) of funds with similar investment objectives as calculated by
Lipper Analytical Services, an independent mutual fund ranking service.
(14) Lipper Variable Products Midcap Fund Average is an average of the total
return performance (calculated on the basis of net asset value) of funds
with similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
108
<PAGE>
(15) Lipper Variable Products Small Company Fund Average is an average of the
total return performance (calculated on the basis of net asset value) of
funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(16) Lipper Variable Products S&P 500 Index Fund Average is an average of the
total return performance (calculated on the basis of net asset value) of
funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(17) Lipper Variable Products U.S. Mortgage and GNMA Fund Average is an
average of the total return performance (calculated on the basis of net
asset value) of funds with similar investment objectives as calculated by
Lipper Analytical Services, an independent mutual fund ranking service.
(18) Morgan Stanley Capital International Europe, Australasia, Far East (EAFE)
Index is an arithmetical average (weighted by market value) of the
performance (in U.S. dollars) of companies representing the stock markets
of Europe, Australia and the Far East. The index has not been adjusted
for ongoing management, distribution and operating expenses and sales
charges applicable to mutual funds.
(19) Morgan Stanley Capital International Europe Index is an arithmetical
average (weighted by market value) of the performance (in U.S. dollars)
of companies representing the stock markets of Austria, Belgium, Czech
Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland,
Italy, Netherlands, Norway, Poland, Portugal, Russia, Spain, Sweden,
Switzerland, Turkey and United Kingdom. The Index performance has not
been adjusted for ongoing management, distribution and operating expenses
and sales charges applicable to mutual funds.
(20) Morgan Stanley Capital International Japan Index is an arithmetical
average (weighted by market value) of the performance (in U.S. dollars)
of companies representing the stock markets of Japan. The Index
performance has not been adjusted for ongoing management, distribution
and operating expenses and sales charges applicable to mutual funds.
(21) Morgan Stanley Capital International Pacific Free ex-Japan Index is an
arithmetical average (weighted by market value) of the performance (in
U.S. dollars) of companies representing the stock markets of Australia,
China Free, Hong Kong, Indonesia, Korea, Malaysia, New Zealand,
Philippines, Singapore, Taiwan and Thailand. The Index performance has
not been adjusted for ongoing management, distribution and operating
expenses and sales charges applicable to mutual funds.
(22) Russell Midcap Index consists of 800 mid-capitalization stocks having an
average market capitalization of $3.7 billion as of June 30, 1998. The
index has not been adjusted for ongoing management, distribution and
operating expenses and sales charges applicable to mutual fund
investments.
(23) Russell 2000 Index consists of 2000 small market capitalization stocks
having an average market capitalization of $592 million as of June 30,
1998. The index performance has not been adjusted for ongoing management,
distribution and operating expenses and sales charges applicable to
mutual fund investments.
(24) Salomon Brothers High Yield Market Index measures the performance of cash
pay and deferred interest bonds.
(25) Standard & Poor's 500 Index(R) (S&P 500(R)) is an unmanaged index
representing the performance of 500 major companies, most of which are
listed on the New York Stock Exchange. The S&P 500 performance has not
been adjusted for ongoing management, distribution and operating expenses
and sales charges applicable to mutual fund investments.
109
<PAGE>
[LOGO OF NEW ENGLAND FINANCIAL APPEARS HERE] Bulk Rate
U.S.
Postage
PAID
Hudson, MA
Permit No.
19
NEW ENGLAND LIFE INSURANCE COMPANY
501 BOYLSTON STREET
BOSTON, MASSACHUSETTS 02116
EQUAL OPPORTUNITY EMPLOYER M/F
(C) 1998 NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
This booklet has been prepared for
variable contracts issued by New
England Life Insurance Company,
Boston, MA and variable contracts
issued by Metropolitan Life Insurance
Company, New York, NY.
VA-148-98 VAVIP1
(2_FIDELITY_LOGOS)
VARIABLE INSURANCE PRODUCTS
FUND: OVERSEAS PORTFOLIO
SEMIANNUAL REPORT
JUNE 30, 1998
CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
MARKET ENVIRONMENT 3 A REVIEW OF WHAT HAPPENED IN WORLD MARKETS DURING THE
PAST SIX MONTHS.
PERFORMANCE AND INVESTMENT SUMMARY 4 HOW THE FUND HAS DONE OVER TIME, AND AN OVERVIEW OF THE
FUND'S INVESTMENTS AT THE END OF THE PERIOD.
FUND TALK 5 THE MANAGER'S REVIEW OF FUND PERFORMANCE, STRATEGY
AND OUTLOOK.
INVESTMENTS 6 A COMPLETE LIST OF THE FUND'S INVESTMENTS WITH THEIR
MARKET VALUES.
FINANCIAL STATEMENTS 11 STATEMENTS OF ASSETS AND LIABILITIES, OPERATIONS, AND
CHANGES IN NET ASSETS, AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 14 NOTES TO THE FINANCIAL STATEMENTS.
</TABLE>
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND.
THIS REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR
ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT
INSURED BY THE FDIC, FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND
ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
MARKET ENVIRONMENT
With the exception of Asia and a number of emerging market economies,
most stock and bond markets around the world performed well during the
past six months. Despite an environment of ongoing financial and
political difficulties in Asian and emerging markets, the largest
blue-chip companies of Europe and the U.S. continued to post strong
performance. Throughout the period, investors sought the relative
stability and liquidity of more defensive large-cap stocks and highly
rated bond investments of developed countries, hoping these
investments would maintain steady earnings and be easier to sell in a
possible economic slowdown.
U.S. STOCK MARKETS
The U.S. stock market continued to perform well during the first six
months of 1998. The strong showing by the Standard & Poor's 500 Index,
however, was produced by a narrow contingent of large companies. In
fact, most of the Standard & Poor's 17.71% return for the six-month
period that ended June 30, 1998, came from these large-capitalization
stocks. The "narrow" market - one where a small number of stocks
perform well, and others are flat or produce losses - was further
demonstrated by the fact that 60% of all the companies on the New York
Stock Exchange declined during this period. During the first quarter
of 1998, a stable U.S. economy and a belief that the worst in Asia
might be over helped the stock market post strong gains. The S&P 500
index turned in a solid return of 13.95% through the end of March. The
S&P 500 and other market indexes continued to rally through May,
before falling sharply in mid-June amid renewed fears that Asia's
economic crisis would inhibit the growth in earnings of American
companies. In subsequent trading days, however, investors continued to
favor large-cap stocks, boosting the returns of the S&P 500 index
higher. During the second quarter of 1998, the S&P 500 index returned
3.30%, compared with a decline of 2.14% for the Standard & Poor's
MidCap 400 Index. Investors in small-cap stocks experienced a weak
second quarter as the Russell 2000 - a measure of small company stock
performance - lost 4.66%.
The pattern of a narrow market also was displayed in certain industry
groups. Pharmaceutical stocks performed well, helped by healthy
pipelines of new products, the ability to bring products to market
more rapidly and relaxed regulations that permitted more aggressive
advertising. Stable economic growth, coupled with nonexistent
inflation, buoyed the financial sector. Banks and brokerage houses
sustained impressive earnings growth; other financial services firms
benefited from merger and acquisition activity, exemplified by the
recently announced "megamerger" of Travelers and Citicorp.
While many technology stocks turned in very strong results, the sector
also experienced some mixed results over the past six months, due
primarily to the negative impact of the Asian crisis and the effect of
a strong dollar on foreign sales. Energy stocks also experienced weak
results, with the price of crude oil dipping below $12 dollars a
barrel near the end of June.
FOREIGN STOCK MARKETS
Overseas, blue-chip investments also performed well. While the Morgan
Stanley Capital International (MSCI) EAFE Index, which measures the
performance of Europe, Australasia, and the Far East, posted a solid
return of 16.05% for the six-month period, investors in developed
markets fared much better than those investing in troubled emerging
markets. The performance of the MSCI Pacific Index, however, lost
5.87% during the same period, emphasizing the negative impact Japan
and Hong Kong had on the MSCI EAFE index. Most economies in Europe
continued to thrive amidst an environment of relatively benign
inflation and reduced interest rates as many countries prepared for
the advent of the European Monetary Union in January 1999. Many
European companies embraced U.S.-style efficiencies through
restructuring and robust merger and acquisition activity. Over the
past six months, the MSCI Europe Index returned an impressive 26.66%.
Among the strongest European economies were Portugal, Spain, Italy and
the United Kingdom.
While the Japanese market showed signs of strength toward the end of
the period, Japanese stocks continued to suffer from eroding
confidence in the economy, bankruptcies and a depreciating currency.
The TOPIX Index - a measure of the Japanese market - was down 1.46%
over the six-month period. As economic and currency turmoil continued
in Asia, emerging markets also suffered during the period. The MSCI
Far East ex-Japan Free Index dropped 25.79% and the MSCI Emerging
Markets Free Index - a market capitalization weighted index of over
850 stocks traded in 22 world markets - was down 18.87% for the first
six months of 1998.
U.S. BOND MARKETS
Bond prices continued to move higher thanks to low interest rates and
a continued lack of inflationary pressure. The Lehman Brothers
Aggregate Bond Index - a broad gauge of the U.S. taxable bond market -
returned 3.93% during this six-month period. Against a backdrop of
continued economic woes in Asia and fears that U.S. corporate profits
would slow, investors from around the globe moved assets from stocks
and riskier bonds into highly rated corporate bonds and U.S.
Treasuries. As a result, bond yields, which move in the opposite
direction of bond prices, fell to their lowest levels in decades. The
yield on the benchmark 30-year bond fell to 5.62% from 5.93% during
the period. Mortgage-backed bonds experienced some weakness toward the
end of the period amid record mortgage refinancings.
FOREIGN BOND MARKETS
While U.S. based bonds topped most foreign bonds on the continued
strength of the U.S. dollar and benign inflation, the Salomon Brothers
World Government Bond Index - a measure of government bond market
performance in developed nations - returned 2.79% during the period.
Similar to foreign equities, however, it paid to be in the safer bond
sectors of developed countries and highly rated bonds. In comparison
to the World Government Bond Index, the J.P. Morgan Emerging Markets
Bond Index lost 0.25% during the first six months of 1998. Continued
turbulence in Japan as it struggled to initiate economic reforms
trickled into emerging markets and resulted in mixed results during
the period.
VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED PAST 1 PAST 5 PAST 10
JUNE 30, 1998 YEAR YEARS YEARS
VIP: OVERSEAS - "INITIAL CLASS" 11.10% 13.50% 11.08%
MSCI EAFE 6.33% 10.11% 6.82%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's returns to the performance of the Morgan
Stanley Capital International Europe, Australasia, Far East (EAFE)
Index - a market capitalization weighted, unmanaged index of over
1,000 foreign stocks.
UNDERSTANDING PERFORMANCE
Many markets around the globe offer the potential
for significant growth over time; however,
investing in foreign markets means assuming
greater risks than investing in the United States.
Factors like changes in a country's financial
markets, its local political and economic climate,
and the fluctuating value of its currency create
these risks. For these reasons an international
fund's performance may be more volatile than
a fund that invests exclusively in the United
States.
(checkmark)
Figures for more than one year assume a steady compounded rate of
return and are not the fund's year-by-year results, which fluctuated
over the periods shown.
If Fidelity had not reimbursed certain fund expenses, the fund's past
10 year total return would have been lower.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S
SEPARATE ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF
THESE ADDITIONAL CHARGES, THE TOTAL RETURNS WOULD HAVE BEEN LOWER.
Past performance is no guarantee of future results. Principal and
investment return will vary and you may have a gain or loss when you
withdraw your money. Foreign investments involve greater risks and
potential rewards than U.S. investments. These risks include political
and economic uncertainties of foreign countries, as well as the risk
of currency fluctuations.
$10,000 OVER THE PAST 10 YEARS
VIP OVERSEAS MS EAFE INDEX (NET)
00154 MS001
1988/06/30 10000.00 10000.00
1988/07/31 9926.32 10313.74
1988/08/31 9578.95 9643.15
1988/09/30 9989.47 10064.51
1988/10/31 10431.58 10925.65
1988/11/30 10621.05 11576.45
1988/12/31 10642.11 11641.00
1989/01/31 10957.89 11845.81
1989/02/28 11147.37 11906.70
1989/03/31 11137.33 11673.02
1989/04/30 11466.14 11781.28
1989/05/31 11041.86 11140.34
1989/06/30 10999.44 10952.81
1989/07/31 12028.31 12328.18
1989/08/31 11943.46 11773.74
1989/09/30 12685.94 12310.05
1989/10/31 11996.49 11815.47
1989/11/30 12643.52 12409.43
1989/12/31 13439.04 12867.30
1990/01/31 13258.72 12388.53
1990/02/28 12949.25 11523.87
1990/03/31 13438.71 10323.36
1990/04/30 13513.19 10241.44
1990/05/31 14396.33 11410.00
1990/06/30 14715.54 11309.50
1990/07/31 15460.37 11468.80
1990/08/31 13885.60 10355.09
1990/09/30 12566.20 8911.95
1990/10/31 13736.64 10300.61
1990/11/30 13311.02 9692.99
1990/12/31 13215.26 9850.02
1991/01/31 13342.94 10168.61
1991/02/28 13792.47 11258.68
1991/03/31 13389.05 10582.79
1991/04/30 13683.43 10686.72
1991/05/31 13716.14 10798.23
1991/06/30 12963.83 10004.76
1991/07/31 13607.11 10496.32
1991/08/31 13650.72 10283.16
1991/09/30 14206.78 10862.71
1991/10/31 14304.91 11016.69
1991/11/30 13792.47 10502.38
1991/12/31 14272.20 11044.76
1992/01/31 14446.65 10808.85
1992/02/29 14145.60 10421.98
1992/03/31 13858.27 9733.95
1992/04/30 14720.27 9780.23
1992/05/31 15361.24 10434.87
1992/06/30 15073.91 9939.92
1992/07/31 14112.45 9685.53
1992/08/31 13990.89 10293.01
1992/09/30 13427.27 10089.75
1992/10/31 12510.02 9560.50
1992/11/30 12443.71 9650.47
1992/12/31 12742.09 9700.38
1993/01/31 13106.79 9699.19
1993/02/28 13363.51 9992.17
1993/03/31 14290.59 10863.15
1993/04/30 15240.28 11894.09
1993/05/31 15568.15 12145.29
1993/06/30 15183.75 11955.80
1993/07/31 15782.96 12374.31
1993/08/31 16630.90 13042.31
1993/09/30 16540.45 12748.73
1993/10/31 17139.66 13141.62
1993/11/30 16416.09 11992.90
1993/12/31 17501.45 12858.88
1994/01/31 18643.34 13946.04
1994/02/28 18314.53 13907.41
1994/03/31 17860.07 13308.40
1994/04/30 18450.86 13873.06
1994/05/31 18223.64 13793.41
1994/06/30 18030.49 13988.34
1994/07/31 18507.67 14122.87
1994/08/31 18723.54 14457.23
1994/09/30 18235.00 14001.89
1994/10/31 18609.92 14468.15
1994/11/30 17905.52 13772.81
1994/12/31 17803.27 13859.05
1995/01/31 17064.78 13326.65
1995/02/28 17109.68 13288.40
1995/03/31 17636.48 14117.22
1995/04/30 18140.38 14648.15
1995/05/31 18392.33 14473.53
1995/06/30 18564.11 14219.71
1995/07/31 19388.68 15104.98
1995/08/31 18850.42 14528.78
1995/09/30 19125.27 14812.53
1995/10/31 18747.35 14414.36
1995/11/30 18964.94 14815.43
1995/12/31 19537.56 15412.34
1996/01/31 19904.03 15475.62
1996/02/29 19947.86 15527.93
1996/03/31 20252.95 15857.68
1996/04/30 20816.18 16318.72
1996/05/31 20827.92 16018.42
1996/06/30 20980.46 16108.58
1996/07/31 20358.56 15637.77
1996/08/31 20511.10 15672.03
1996/09/30 21109.53 16088.37
1996/10/31 20898.32 15923.74
1996/11/30 21989.59 16557.32
1996/12/31 22106.93 16344.33
1997/01/31 22106.93 15775.55
1997/02/28 22619.12 16037.42
1997/03/31 22824.63 16098.36
1997/04/30 23017.29 16186.90
1997/05/31 24455.87 17243.42
1997/06/30 25740.32 18196.98
1997/07/31 26613.75 18493.96
1997/08/31 24610.01 17115.24
1997/09/30 26421.08 18076.60
1997/10/31 24571.48 16691.75
1997/11/30 24455.87 16524.84
1997/12/31 24661.39 16672.08
1998/01/31 25470.59 17437.65
1998/02/28 26904.32 18559.77
1998/03/31 28124.73 19134.75
1998/04/30 28915.21 19289.36
1998/05/31 28873.61 19199.28
1998/06/30 28596.24 19348.07
IMATRL PRASUN SHR__CHT 19980630 19980709 104655 R00000000000123
Let's say hypothetically that $10,000 was invested in Variable
Insurance Products Fund: Overseas Portfolio on June 30, 1988. As the
chart shows, by June 30, 1998, the value of the investment would have
grown to $28,596 - a 185.96% increase on the initial investment. For
comparison, look at how the Morgan Stanley EAFE Index did over the
same period. With dividends and capital gains, if any, reinvested, the
same $10,000 investment would have grown to $19,348 over the same
period - a 93.48% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE 30, 1998
% OF FUND'S
INVESTMENTS
TOTAL SA CLASS B 2.1
ALCATEL ALSTHOM COMPAGNIE GENERALE D'ELECRICITE SA 1.9
NOVARTIS AG (REG.) 1.8
PHILIPS ELECTRONICS NV (BEARER) 1.6
CREDIT SUISSE GROUP (REG.) 1.4
TOP FIVE MARKET SECTORS AS OF JUNE 30, 1998
% OF FUND'S
INVESTMENTS
FINANCE 20.3
UTILITIES 8.7
HEALTH 8.6
ENERGY 7.4
BASIC INDUSTRIES 7.0
TOP FIVE COUNTRIES AS OF JUNE 30, 1998
(EXCLUDING CASH EQUIVALENTS) % OF FUND'S
INVESTMENTS
JAPAN 15.8
UNITED KINGDOM 13.8
FRANCE 12.9
NETHERLANDS 8.3
SWITZERLAND 6.5
TOP COUNTRIES ARE BASED ON THE LOCATION OF THE ISSUER OF EACH
SECURITY, INDICATING WHERE THE FUND IS EXPOSED TO POLITICAL AND CREDIT
RISKS. PERCENTAGES ARE ADJUSTED FOR THE EFFECT OF OPEN FUTURES
CONTRACTS, IF APPLICABLE.
VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Richard Mace, Portfolio Manager of Overseas
Portfolio
Q. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK, RICK?
A. For the six months that ended June 30, 1998, the fund performed in
line with the 16.05% return of the Morgan Stanley Capital
International EAFE Index, which tracks the performance of stocks in
Europe, Australasia and the Far East. For the 12 months that ended
June 30, 1998, the fund's performance topped that of the EAFE index,
which returned 6.33%.
Q. WHAT FACTORS HELPED THE FUND'S PERFORMANCE?
A. For the most part, stock selection was the key. European financial
positions made particularly strong contributions to performance, as
low interest rates, benign inflation, improving economies and surging
securities markets provided a favorable environment for banks and
insurers. In addition, merger and acquisition activity within this
sector continued to boost valuations. Particular standouts included
companies that were among the fund's 25 largest holdings, including
Swiss banking companies Credit Suisse and Julius Baer, as well as
French bank Societe Generale. Insurers also aided performance and
included Dutch company ING Groep. Telecommunications stocks were also
among the fund's more solid performers. In addition to recent merger
and consolidation activity, the cellular market in the United Kingdom
was particularly strong, and Vodafone Group was among the fund's best
performers.
Q. WHICH STOCKS PROVIDED THE BEST PERFORMANCE FOR THE FUND DURING THE
PAST SIX MONTHS?
A. Alcatel Alsthom was one of the top contributors to performance.
This is a French electronics equipment company with a superb
management team. The team has been concentrating on the divestiture of
peripheral businesses and non-core assets, aiming its focus instead on
its core, high-return businesses. An enormous increase in free cash
flow has resulted from this program, enabling the company to reduce
debt and thus improve its balance sheet. One of its main businesses is
in the manufacture of telecommunications equipment, a very fast
growing sector of late. As I mentioned, British cellular company
Vodafone was another major holding in the telecommunications sector
that boosted performance. Vodafone has been growing its business at a
pace that has exceeded expectations in both magnitude and
sustainability. Also among the fund's top performers for the period
was the British-based business services company Rentokil, which
provides a wide range of services to businesses worldwide, such as
cleaning, maintenance and landscaping. I owned it because it was cheap
and its businesses were growing at a very rapid rate.
Q. WHICH INVESTMENTS DIDN'T TURN OUT AS WELL AS YOU WOULD HAVE LIKED?
A. Japanese financial holdings hurt performance the most. Because the
Japanese economy remained stagnant and there were continued concerns
about asset quality, banks were especially hard hit. Securities
brokers were hurt by the equity market's poor performance, because
their fortunes are highly correlated with the level of market
activity. Similarly, real estate company holdings also suffered from
the general decline in the domestic economy, despite some signs that
real estate prices might be bottoming. Among the fund's financial
holdings most hurt by these events were Long-Term Credit Bank, Nomura
Securities and Sumitomo Realty & Development Company.
Q. WHAT'S YOUR OUTLOOK?
A. I think the European economies will continue to improve. However,
stock selection will be especially critical. Company earnings must
come through as expected in order to justify the lofty stock
valuations that the markets have placed on them. If earnings
disappoint, we run the risk of a stock correction. In Japan, I am
continuing to look for signs of an improvement in the economy and have
pinpointed a number of companies that could be early beneficiaries of
a turnaround as candidates for purchase. I will also be keeping a
close watch on the emerging markets, where we are beginning to see
some significant improvement in valuations. However, unlike my
approach to investing in the developed markets, country and regional
factors play as much of a role in my decision making as stock
selection. In general, emerging markets are more volatile than
developed markets. Accordingly, when I make an investment in a stock
in an emerging market, I expect a higher level of return to compensate
shareholders for the higher level of risk there. Up to this point,I
have not found many stocks outside of Latin America and South Africa
that meet these criteria.
FUND FACTS
GOAL: to increase the value of the fund's shares by
investing mainly in stocks in Europe, the Far East
and the Pacific Basin
START DATE: January 28, 1987
SIZE: as of June 30, 1998, more than $2.2 billion
MANAGER: Richard Mace, since 1996; joined
Fidelity in 1987
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
INVESTMENTS JUNE 30, 1998 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 86.3%
SHARES VALUE (NOTE 1)
ARGENTINA - 0.3%
Bansud SA Class B (a) 184,000 $ 1,444,602
Telecom Argentina Class B
sponsored ADR 102,500 3,055,781
YPF Sociedad Anonima sponsored ADR
representing Class D shares 95,700 2,876,981
7,377,364
AUSTRALIA - 2.2%
AMP Ltd. 93,900 1,098,989
Australia & New Zealand Banking
Group Ltd. 1,425,000 9,830,284
Brambles Industries Ltd. 100,100 1,964,366
Broken Hill Proprietary Co. Ltd. (The) 416,044 3,516,721
CSR Ltd. 248,800 717,963
Coles Myer Ltd. 700,400 2,732,453
Commonwealth Bank of Australia (c) 201,300 2,348,501
David Jones Ltd. 695,700 797,003
Fosters Brewing Group Ltd. 891,900 2,098,774
Howard Smith 44,100 259,435
National Australia Bank Ltd. 294,300 3,881,824
News Corp. Ltd. 473,470 3,864,327
News Corp. Ltd. ADR 29,200 938,050
News Corp. Ltd. sponsored ADR
(ltd. vtg.) 44,200 1,248,650
QNI Ltd. 1,054,780 427,828
Rio Tinto Ltd. 131,200 1,559,916
Western Mining Holdings Ltd. 2,076,296 6,248,727
Westpac Banking Corp. 302,500 1,845,133
Woodside Petroleum Ltd. 375,600 1,874,678
Woolworths Ltd. 1,057,800 3,438,974
50,692,596
AUSTRIA - 0.1%
OMV AG 20,500 2,741,715
BRAZIL - 1.8%
Compania Energertica Minas Gerais 185,466,014 5,853,192
Centrais Electricas Brasileiras SA 27,560,000 829,267
Petrobras PN (Pfd. Reg.) 30,358,000 5,643,482
Telecomunicacoes Brasileiras SA
sponsored ADR 227,300 24,818,319
Telesp PN (Pfd. Reg.) 6,704,000 1,576,661
Telecom de Sao Paulo rights 7/8/98 (a) 315,073 5,040
Telesp Celular SA Class B 20,793,000 1,725,933
40,451,894
CANADA - 2.3%
Abitibi-Consolidated, Inc. 88,300 1,140,034
Alcan Aluminium Ltd. 269,700 7,441,901
Alliance Forest Products, Inc. (a) 78,800 1,194,549
Alliance Forest Products, Inc. (a)(c) 83,700 1,268,830
BCE, Inc. 258,200 10,968,332
Canadian Pacific Ltd. 28,100 792,601
Canadian National Railway Co. 15,500 825,822
Canadian Natural Resources Ltd. (a) 159,900 2,745,345
Domtar, Inc. 518,800 3,481,642
Greenstone Resources Ltd. (a) 141,300 534,297
Inco Ltd. 155,000 2,117,356
National Bank of Canada 376,000 7,365,014
Noranda, Inc. 374,800 6,486,064
Rio Alto Exploration Ltd. (a) 337,400 3,735,479
St. Laurent Paperboard, Inc. (a)(c) 155,900 1,800,378
51,897,644
SHARES VALUE (NOTE 1)
DENMARK - 0.7%
Den Danske Bank Group AS 28,300 $ 3,389,787
International Service Systems AS Class B 68,300 3,966,549
Jyske Bank AS (Reg.) 6,800 800,893
Novo-Nordisk AS Class B 25,400 3,496,022
Unidanmark AS Class A 43,700 3,921,047
15,574,298
FINLAND - 2.0%
Enso OY Class R 640,600 6,912,614
Merita Ltd., Series A 137,500 905,758
Metsa-Serla Ltd. Class B 964,400 9,301,088
Nokia Corp. AB:
sponsored ADR 1,000 72,563
Series A 156,000 11,454,307
Outokumpu OY Class A 107,300 1,366,779
Pohjola Class B 78,700 3,909,652
Raisio Group PLC 92,000 1,657,386
Sampo Insurance Co. Ltd. 22,400 1,059,795
UPM-Kymmene Corp. 292,200 8,028,933
Valmet OY 95,500 1,643,975
46,312,850
FRANCE - 12.9%
Accor SA 35,300 9,851,975
Alcatel Alsthom Compagnie Generale
d'Electricite:
SA 214,150 43,483,489
SA sponsored ADR 1,500 61,031
Axa SA 103,526 11,611,988
Atos SA (a) 22,500 5,381,443
BQE National Paris Ord. 23,300 1,898,590
Cap Gemini Sogeti SA 32,500 5,092,784
Coflexip sponsored ADR 78,000 4,767,750
Compagnie de Saint Gobain 15,900 2,940,025
Compagnie Generale
de Geophysique SA 6,900 1,009,534
Credit Commercial de France Ord. 92,800 7,791,373
Elf Aquitaine SA sponsored ADR 1,000 71,000
Elf Sanofi SA 82,000 9,616,825
Eramet SA 29,862 1,180,196
Groupe Danone 32,100 8,826,507
LVMH (Moet-Hennessy Louis Vuitton)
sponsored ADR 21,000 4,191,340
Lafarge SA 46,021 4,744,433
Lagardere S.C.A. (Reg.) 146,400 6,078,166
Michelin SA (Compagnie Generale
des Etablissements) Class B 143,119 8,238,933
Nationale Elf Aquitaine 149,400 20,946,804
Pechiney SA Class A 188,584 7,574,467
Peugeot SA Ord. 18,700 4,009,897
Renault SA Ord. (a) 106,800 6,058,313
Rhone Poulenc:
SA Class A 151,572 8,525,534
Sponsored ADR representing
1/4 share 1,000 56,188
Royal Canin SA 13,500 770,474
Royal Canin SA (c) 45,000 2,568,247
Scor SA 72,200 4,567,208
Societe Generale Class A 109,200 22,641,551
Suez Lyonnaise des Eaux 18,800 3,085,526
Total SA:
Class B 376,554 48,820,032
sponsored ADR 1,000 65,375
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FRANCE - CONTINUED
Unibail 14,000 $ 1,805,856
Usinor Sacilor 350,200 5,395,246
Union Assurances Federales SA 50,399 7,922,515
Valeo SA 39,100 3,985,781
Vivendi SA 36,200 7,708,734
293,345,130
GERMANY - 4.9%
Allianz Aktiengesellschaft Holdings (Reg.) 44,800 14,681,416
BHF Bank AG 413,100 15,971,067
BASF AG 234,200 11,024,758
Bayer AG 168,100 8,656,034
(BMW) Muenchen Bayerische
Motorenwerke AG 1,700 1,709,403
Continental Gummi-Werke AG 97,000 2,982,965
Deutsche Bank AG 36,600 3,081,040
Deutsche Lufthansa AG 142,300 3,541,759
Dresdner Bank AG Ord. 120,900 6,452,235
Hoechst AG Ord. 185,600 9,172,212
Mannesmann AG Ord. 219,000 22,154,369
Philipp Holzmann AG (a) 9,500 2,309,320
Siemens AG 13,200 800,542
Veba AG Ord. 124,900 8,217,287
Wella AG 900 891,040
111,645,447
GREECE - 0.1%
STET Hellas Telecommunications
SA ADR 37,400 1,552,100
HONG KONG - 0.8%
China Telecom (Hong Kong) Ltd. 2,126,000 3,673,992
CLP Holdings Ltd. 374,000 1,704,169
Dairy Farm International Holdings Ltd. 1,376,000 1,472,320
Hong Kong & China Gas Co. Ltd. 555,000 630,438
Hutchison Whampoa Ltd. Ord. 240,000 1,267,071
JCG Holdings Ltd. 166,000 46,069
Johnson Electric Holdings Ltd. 1,167,000 4,323,338
Li & Fung Ltd. 162,000 261,392
National Mutual Asia Ltd. 1,040,000 664,515
Sun Hung Kai Properties Ltd. 272,000 1,155,131
Vtech Holdings Ltd. 563,000 2,096,624
17,295,059
IRELAND - 1.2%
Bank of Ireland, Inc. 615,219 12,599,289
Elan Corp. PLC ADR (a) 49,100 3,157,744
Independent Newspapers PLC 667,349 3,505,754
Smurfit (Jefferson) Group PLC 2,287,900 6,782,271
26,045,058
ITALY - 1.8%
Alitalia Linee Aeree Italiane Class A (a) 1,254,000 4,012,517
Assicurazioni Generali Spa 446,000 14,398,386
Cartiere (Burgo) Ord. 93,300 740,640
Credito Italiano Ord. 1,467,600 7,608,951
Eni Spa 738,900 4,801,604
Finmeccanica Spa (a) 1,781,800 1,394,843
Istituto Nazionale Delle
Assicurazioni Spa 577,600 1,641,070
Telecom Italia Spa 211,110 1,538,543
Telecom Italia Mobile Spa 867,300 5,278,750
41,415,304
SHARES VALUE (NOTE 1)
JAPAN - 15.0%
Acom Co. Ltd. 106,900 $ 5,070,690
Aiful Corp. (c) 64,200 3,128,439
Aiwa Co. Ltd. 71,700 2,244,979
Aoyama Trading Co. Ord. 3,300 81,235
Asahi Breweries Ltd. 158,000 1,990,211
Bank of Tokyo-Mitsubishi Ltd. 110,000 1,163,104
Banyu Pharmaceutical Co. Ltd. 245,000 2,645,217
Bridgestone Corp. 208,000 4,910,674
Canon, Inc. 405,000 9,182,681
Circle K Japan Co. Ltd. 14,300 497,150
Citizen Watch Co. Ltd. Ord. 472,000 3,890,016
DDI Corp. Ord. 198 688,361
Daiwa House Industry Co. Ltd. 113,000 996,365
Daiwa Securities Co. Ltd. 390,000 1,675,880
Dainippon Ink & Chemicals, Inc. 393,000 1,202,224
Denny's Japan Co. Ltd. 79,000 1,961,779
Fuji Bank Ltd. 1,096,000 4,883,207
Fuji Heavy Industries Ltd. 259,000 1,280,738
Fuji International Trust unit sponsored
ADR (c) 100 971,285
Fuji Photo Film Co. Ltd. 478,000 16,618,008
Fujitsu Ltd. 122,000 1,282,084
Fujitec Co. Ltd. 63,000 380,911
Hitachi Ltd. 488,000 3,178,867
Hitachi Maxell Ltd. 511,000 9,673,432
Honda Motor Co. Ltd. 495,000 17,600,949
Ito-Yokado Co. Ltd. 149,000 7,003,311
Jafco Co. Ltd. 46,000 1,225,077
Kao Corp. 301,000 4,636,435
Mabuchi Motor Co. 52,200 3,306,413
Matsushita Electric Industrial Co. Ltd. 785,000 12,600,230
Matsushita Communication Industrial
Co. Ltd. 122,000 3,213,992
Matsushita Electric Works Co. Ltd. 728,000 5,868,854
Matsumotokiyoshi Co. Ltd. 4,300 151,040
Meitec Corp. 55,000 1,900,237
Minebea Co. Ltd. 823,000 8,180,832
Minolta Camera Co. Ltd. 1,289,000 8,721,370
Mitsubishi Electric Co. Ord. 1,533,000 3,519,952
Mitsubishi Estate Co. Ltd. 678,000 5,953,789
Mitsubishi Trust & Banking Corp. 350,000 2,970,201
Mitsui Fudosan Co. Ltd. 303,000 2,390,326
NGK Insulators Ltd. 165,000 1,431,116
Nintendo Co. Ltd. Ord. 53,000 4,902,109
Nippon Telegraph & Telephone
Corp. Ord. 539 4,461,599
Nomura Securities Co. Ltd. 920,000 10,694,594
Nichiei Co. Ltd. 34,500 2,344,202
Nichicon Corp. 184,000 2,052,832
Omron Corp. 539,000 8,224,861
Orix Corp. 143,900 9,705,196
Osaka Gas Co. Ltd. 370,000 948,103
Paris Miki, Inc. 9,700 127,141
Rohm Co. Ltd. 99,000 10,154,394
Sakura Bank Ltd. 1,020,000 2,643,057
Sankyo Co. Ltd. 1,197,000 27,226,083
Secom Co. Ltd. 18,000 1,037,789
Sekisui House Ltd. 224,000 1,733,247
Sekisui Chemical Co. Ltd. 6,000 30,663
Sharp Corp. 477,000 3,859,123
Shin-Etsu Chemical Co. Ltd. 186,000 3,213,129
Sony Corp. 139,300 11,981,825
Shohkoh Fund & Co. Ltd. 7,000 1,718,131
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
JAPAN - CONTINUED
Sumitomo Realty & Development Co. Ltd. 959,000 $ 4,224,487
Sumitomo Special Metals Co. 51,000 1,082,919
TDK Corp. 88,000 6,492,478
Takeda Chemical Industries Ltd. 768,000 20,398,185
Takefuji Corp. 79,500 3,662,276
Takefuji Corp. (c) 57,000 2,625,783
Terumo Corp. 143,000 2,264,450
THK Co. Ltd. 548,400 6,078,860
Tokio Marine & Fire Insurance Co.
Ltd. (The) 312,000 3,202,418
Tokyo Gas Co. Ltd. 391,000 869,639
Toyota Motor Corp. 96,000 2,480,674
Tokyo Electron Ltd. 82,000 2,508,457
Tokyo Seimitsu Co. Ltd. 57,000 1,435,975
Uni Charm Corp. Ord. 80,000 2,959,764
Yamanouchi Pharmaceutical Co. Ltd. 195,000 4,056,359
341,672,463
LUXEMBOURG - 0.1%
Stolt Comex Seaway SA Class A
sponsored ADR 48,500 848,750
Stolt Comex Seaway SA (a) 97,000 1,879,375
2,728,125
MALAYSIA - 0.1%
Malayan Banking BHD 28,000 28,288
Malayan Banking BHD Class A 28,000 27,611
Oriental Holdings BHD 1,027,000 1,712,701
1,768,600
MEXICO - 0.7%
Grupo Financiero Banamex-Accival
Class B (a) 1,678,000 3,273,690
Grupo Carso SA de CV Class A-1 153,000 644,749
Grupo Financiero Bancomer Class B 19,401,000 7,245,635
Grupo Elektra SA 554,300 580,872
Grupo Financiero Inbursa SA Class B 495,000 1,269,231
Telefonos de Mexico SA sponsored
ADR representing Ord. Class L shares 66,100 3,176,931
16,191,108
NETHERLANDS - 8.3%
Ahold NV 178,891 5,731,182
AKZO Nobel NV 520,000 28,841,408
AKZO NV sponsored ADR 1,000 55,438
Beter Bed Holding NV 44,117 1,601,697
Benckiser NV Class B 91,800 5,634,333
Hagemeyer NV 127,000 5,483,135
ING Groep NV 413,756 27,039,028
Koninklijke Hoogovens NV 143,600 6,199,828
Koninklijke KPN N.V 76,700 2,946,454
Nutreco Holding NV 98,400 3,437,302
Philips Electronics NV 500 42,500
Philips Electronics NV (Bearer) 444,500 37,291,549
Royal Dutch Petroleum Co. Ord. 421,960 23,351,938
Royal Dutch Petroleum Co. 1,000 54,813
TNT Post Group N.V 76,700 1,956,777
Unilever NV:
Ord. 366,200 28,997,758
ADR 1,000 78,938
Vedior NV 117,500 3,314,731
Vendex CVA (part-exchangeable) 45,400 1,703,962
VNU Ord. 152,600 5,532,756
189,295,527
SHARES VALUE (NOTE 1)
NETHERLANDS ANTILLES - 0.1%
Schlumberger Ltd. 32,700 $ 2,233,819
NEW ZEALAND - 0.0%
Air New Zealand Ltd. Class B 552,200 592,273
NORWAY - 0.4%
NCL Holdings AS (a) 1,350,888 6,680,322
Schibsted AS, Series B 190,900 3,213,176
9,893,498
PERU - 0.1%
Compania de Minas Buenaventura SA
Class B sponsored ADR 80,200 1,052,625
PORTUGAL - 0.7%
BPI-SGPS SA (Reg.) 216,400 6,969,368
Banco Pinto & Sotto Mayor SA (Reg.) 136,300 3,376,387
Electricidade de Portugal SA 117,300 2,721,304
Portugal Telecom SA 17,000 899,184
Telecel Comunicacoes Pessoais SA 6,700 1,187,314
15,153,557
RUSSIA - 0.2%
Vimpel Communications
sponsored ADR (a) 79,900 3,575,525
SINGAPORE - 0.1%
DBS Land Ltd. 1,801,000 1,495,049
SOUTH AFRICA - 0.1%
Amalgamated Banks of South Africa Ltd. 98,200 609,120
Gencor Ltd. (Reg.) 164,160 251,813
Sasol, Ltd. 278,900 1,606,071
2,467,004
SPAIN - 2.3%
Banco Bilbao Vizcaya SA Ord. (Reg.) 230,700 11,829,613
Banco de Santander SA Ord. (Reg.) 31,800 813,233
Corporacion Mapfre Compania
Internacional de Reaseguros SA (Reg.) 44,700 1,566,888
Iberdrola SA 156,000 2,530,884
Mapfre Vida SA 39,800 1,898,202
Repsol SA Ord. 95,900 5,267,377
Telefonica de Espana SA:
Ord. 639,200 29,527,809
sponsored ADR 500 69,531
53,503,537
SWEDEN - 4.8%
ABB AB:
Series A 148,900 2,104,002
Series B 153,000 2,123,671
Assa Abloy AB Class B 7,100 278,336
Astra AB Class A Free shares 1,165,800 23,762,086
Electrolux AB 436,000 7,469,301
Ericsson (L.M.) Telephone Co.:
Class B 298,900 8,708,728
Class B ADR 2,500 71,563
ForeningsSparbanken AB, Series A 148,100 4,444,667
Granges AB (Reg.) 17,800 324,972
IBS (International Business Systems) AB
Class B Free shares (a) 128,400 2,215,731
Incentive AB Class B 48,700 889,108
Investor AB Class B Free shares 82,000 4,773,165
Nordbanken Holding AB 652,500 4,773,196
SKF AB Ord. 117,100 2,123,234
Skandia Foersaekrings AB 500,000 7,127,673
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
SWEDEN - CONTINUED
Svenska Handelsbanken 244,200 $ 11,298,487
Swedish Match Co. 4,321,100 14,319,014
Volvo AB:
Class B 399,700 11,870,545
ADR Class B 2,000 59,125
108,736,604
SWITZERLAND - 6.5%
Adecco SA (Bearer) 9,300 4,184,312
Compagnie Financiere Richemont
AG Class A Unit (Bearer) 600 783,424
Credit Suisse Group (Reg.) 143,200 31,790,824
Holderbank Financiere Glarus
AG (Bearer) 1,500 1,904,292
Julius Baer Holding AG 5,903 18,424,427
Nestle SA (Reg.) 12,630 26,967,262
Novartis AG (Reg.) 25,271 41,956,260
Roche Holding AG 464 4,546,147
Union Bank of Switzerland (UBS)
AG (Reg.) 47,861 17,756,030
148,312,978
TURKEY - 0.0%
Turkiye is Bankasi AS Class C 21,438,700 865,169
UNITED KINGDOM - 13.8%
Allied Domecq PLC 6,200 58,213
Amec PLC Ord. 300 858
BAT Industries PLC Ord. 1,020,900 10,215,330
BBA Group PLC 282,372 2,128,521
Britax International PLC 270,200 732,245
Barclays PLC Ord. 390,000 11,238,964
Barratt Developments PLC 847,125 3,729,661
Bass PLC Ord. 144,300 2,702,490
Bank of Scotland 371,900 4,161,660
Billiton PLC 820,800 1,663,151
Boots Co. PLC Class L (The) 161,900 2,681,106
British Aerospace PLC 1,824,900 13,969,141
British Petroleum PLC:
Ord. 1,215,721 17,719,982
ADR 500 44,125
British Energy PLC 254,900 2,227,507
British Telecommunications PLCOrd. 761,400 9,396,422
Cable & Wireless PLC Ord. 348,900 4,235,945
CGU PLC 378,500 7,057,089
Caradon PLC 3,539,180 10,860,214
Cookson Group PLC 4,105,800 14,105,320
Courtaulds Textiles PLC 547,300 2,646,923
Devro PLC 166,100 1,394,720
Dorling Kindersley Holdings PLC,
Class L 175,400 614,281
Gallaher Group PLC 1,326,100 7,325,716
Glaxo PLC sponsored ADR 1,000 59,813
Glaxo Wellcome PLC 537,300 16,120,033
HSBC Holdings PLC 345,100 8,356,598
HSBC Holdings PLC Ord. 456,000 11,566,767
Hazlewood Foods PLC Ord. 256,200 1,021,163
Inchcape PLC Ord. 952,800 3,003,181
Johnson Matthey PLC 167,700 1,504,642
Lloyds TSB Group PLC 923,195 12,909,649
Man (E D & F) Group PLC 33,000 170,606
Mayflower Corp. 216,700 715,553
National Grid Co. PLC 529,890 3,570,138
SHARES VALUE (NOTE 1)
Nycomed Amersham PLC 309,720 $ 2,304,971
Pearson PLC 198,600 3,636,633
Peninsular & Oriental Steam
Navigation Co. 82,500 1,187,361
Pilkington PLC Ord. 1,352,200 2,491,846
Rentokil Initial PLC 1,927,700 13,855,897
Rio Tinto PLC (Reg.) 469,800 5,288,527
Royal & Sun Alliance Insurance
Group PLC 232,408 2,401,100
Saatchi & Saatchi PLC 848,200 2,348,142
Scottish & Newcastle Brewers PLC 202,900 2,869,431
Shell Transport & Trading Co.
PLC (Reg.) 2,497,800 17,578,752
Shell Transport & Trading Co. PLC
ADR (New) 1,500 63,563
Siebe PLC 312,800 6,244,229
SmithKline Beecham PLC:
ADR 1,000 60,500
Ord. 2,020,642 24,650,267
Somerfield PLC 638,400 4,077,647
Standard Chartered Bank PLC 80,000 908,563
Tarmac PLC 522,400 932,191
Thistle Hotels PLC 255,400 924,269
Tomkins PLC Ord. 179,800 975,270
Unilever PLC:
Ord. 621,100 6,608,458
ADR 1,500 64,969
Vodafone Group PLC 1,665,144 21,118,786
WPP Group PLC 420,900 2,756,849
Wimpey George PLC 524,700 1,010,674
314,266,622
UNITED STATES OF AMERICA - 1.9%
Aluminum Co. of America 95,400 6,290,438
Chrysler Corp. 382,000 21,535,250
DSC Communications Corp. 363,900 10,917,000
Kaiser Aluminum Corp. (a) 8,200 78,413
Newmont Mining Corp. 46,000 1,086,750
Transocean Offshore, Inc. 52,400 2,331,800
42,239,651
TOTAL COMMON STOCKS
(Cost $1,517,922,752) 1,962,390,193
PREFERRED STOCKS - 2.3%
CONVERTIBLE PREFERRED STOCKS - 0.1%
AUSTRALIA - 0.1%
WBK Trust $3.135 STRYPES 86,400 2,608,200
NONCONVERTIBLE PREFERRED STOCKS - 2.2%
AUSTRALIA - 0.1%
Star City Holdings Ltd. (a) 1,517,100 883,096
GERMANY - 1.0%
Boss (Hugo) AG 650 1,430,863
Dyckerhoff AG (non-vtg.) 4,800 1,871,681
Porsche AG 100 292,588
SAP AG (Systeme Anwendungen
Produkte) 24,600 16,599,558
Wella AG 2,635 2,943,971
23,138,661
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
ITALY - 1.1%
Telecom Italia Mobile Spa de Risp 3,129,800 $ 10,422,159
Telecom Italia Spa 2,933,325 14,236,991
24,659,150
TOTAL NONCONVERTIBLE PREFERRED STOCKS 48,680,907
TOTAL PREFERRED STOCKS
(Cost $23,403,092) 51,289,107
CLOSED-END INVESTMENT COMPANIES - 0.4%
GERMANY - 0.3%
Emerging Germany Fund, Inc. 70,600 1,081,063
New Germany Fund, Inc. (The) 338,800 6,310,150
7,391,213
UNITED STATES OF AMERICA - 0.1%
Morgan Stanley Asia-Pacific Fund, Inc. 181,300 1,167,119
Templeton Dragon Fund, Inc. 183,500 1,536,813
2,703,932
TOTAL CLOSED-END INVESTMENT COMPANIES
(Cost $10,268,518) 10,095,145
GOVERNMENT OBLIGATIONS - 0.2%
MOODY'S PRINCIPAL
RATINGS AMOUNT
ITALY - 0.1%
Italian Republic 5%,
6/28/01 CV Aaa $ 1,940,000 3,181,600
UNITED STATES OF AMERICA - 0.1%
U.S. Treasury Bills yield at date of
purchase 4.91% 7/23/98 (d) - 1,100,000 1,096,699
TOTAL GOVERNMENT OBLIGATIONS
(Cost $4,287,729) 4,278,299
CASH EQUIVALENTS - 10.8%
SHARES
Taxable Central Cash Fund (b)
(Cost $244,944,845) 244,944,845 244,944,845
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $1,800,826,936) $ 2,272,997,589
FUTURES CONTRACTS
EXPIRATION UNDERLYING FACE UNREALIZED
DATE AMOUNT AT VALUE GAIN/(LOSS)
PURCHASED
230 Nikkei 225 Stock
Index Contracts Sep. 1998 $ 18,043,500 $ 323,499
THE FACE VALUE OF FUTURES PURCHASED AS A PERCENTAGE OF TOTAL
INVESTMENT
IN SECURITIES - 0.8%
SECURITY TYPE ABBREVIATIONS
STRYPES - Structured Yield Product Exchangeable for Common Stock
LEGEND
(a) Non-income producing
(b) At period end, the seven-day yield of the Taxable Central Cash
Fund was 5.61%. The yield refers to the income earned by investing in
the fund over the seven-day period, expressed as an annual percentage.
(c) Security exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers.
At the period end, the value of these securities amounted to
$14,711,463 or .7% of net assets.
(d) Security or a portion of the security was pledged to cover margin
requirements for futures contracts. At the period end, the value of
securities pledged amounted to $1,085,000.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $645,350,636 and $680,521,628, respectively.
The market value of futures contracts opened and closed during the
period amounted to $44,734,374 and $35,675,669, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company.
The commissions paid to these affiliated firms were $9,984 for the
period (see Note 4 of Notes to Financial Statements).
MARKET SECTOR DIVERSIFICATION
As a Percentage of Total Value of Investment in Securities
Aerospace & Defense 0.6%
Basic Industries 7.0
Cash Equivalents 10.8
Construction & Real Estate 2.6
Durables 6.6
Energy 7.4
Finance 20.3
Government Obligations 0.2
Health 8.6
Holding Companies 1.2
Industrial Machinery & Equipment 7.0
Media & Leisure 2.1
Nondurables 5.8
Precious Metals 0.4
Retail & Wholesale 1.8
Services 2.1
Technology 6.1
Transportation 0.7
Utilities 8.7
100.0%
INCOME TAX INFORMATION
At June 30, 1998, the aggregate cost of investment securities for
income tax purposes was $1,801,715,640. Net unrealized appreciation
aggregated $471,281,949, of which $588,862,117 related to appreciated
investment securities and $117,580,168 related to depreciated
investment securities.
VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
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STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (COST $1,800,826,936) - $ 2,272,997,589
SEE ACCOMPANYING SCHEDULE
RECEIVABLE FOR INVESTMENTS SOLD 9,552,793
RECEIVABLE FOR FUND SHARES SOLD 4,006,522
DIVIDENDS RECEIVABLE 5,735,398
INTEREST RECEIVABLE 788,993
RECEIVABLE FOR DAILY VARIATION 269,020
ON FUTURES CONTRACTS
OTHER RECEIVABLES 64,441
TOTAL ASSETS 2,293,414,756
LIABILITIES
PAYABLE TO CUSTODIAN BANK $ 25,238
PAYABLE FOR INVESTMENTS PURCHASED 18,454,716
PAYABLE FOR FUND SHARES REDEEMED 9,028,150
ACCRUED MANAGEMENT FEE 1,367,497
DISTRIBUTION FEES PAYABLE 1,142
OTHER PAYABLES AND 474,539
ACCRUED EXPENSES
TOTAL LIABILITIES 29,351,282
NET ASSETS $ 2,264,063,474
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 1,704,514,880
UNDISTRIBUTED NET INVESTMENT INCOME 10,033,841
ACCUMULATED UNDISTRIBUTED 77,075,678
NET REALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 472,439,075
AND ASSETS AND LIABILITIES IN FOREIGN CURRENCIES
NET ASSETS $ 2,264,063,474
INITIAL CLASS: $20.62
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
PER SHARE ($2,248,026,185
(DIVIDED BY) 109,008,819 SHARES)
SERVICE CLASS: $20.61
NET ASSET VALUE AND OFFERING
PRICE PER SHARE ($16,037,289
(DIVIDED BY) 777,945 SHARES)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
INVESTMENT INCOME $ 28,746,889
DIVIDENDS
INTEREST 3,917,149
32,664,038
LESS FOREIGN TAXES WITHHELD (3,409,759)
TOTAL INCOME 29,254,279
EXPENSES
MANAGEMENT FEE $ 7,929,475
TRANSFER AGENT FEES 745,042
DISTRIBUTION FEES - SERVICE CLASS 3,294
ACCOUNTING FEES AND EXPENSES 402,810
NON-INTERESTED TRUSTEES' COMPENSATION 2,315
CUSTODIAN FEES AND EXPENSES 529,361
REGISTRATION FEES 8,630
AUDIT 29,297
LEGAL 11,974
MISCELLANEOUS 93,144
TOTAL EXPENSES BEFORE REDUCTIONS 9,755,342
EXPENSE REDUCTIONS (139,173) 9,616,169
NET INVESTMENT INCOME 19,638,110
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
INVESTMENT SECURITIES 80,123,034
FOREIGN CURRENCY TRANSACTIONS (276,520)
FUTURES CONTRACTS (1,632,066) 78,214,448
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
INVESTMENT SECURITIES 207,520,512
ASSETS AND LIABILITIES IN 14,205
FOREIGN CURRENCIES
FUTURES CONTRACTS 1,252,257 208,786,974
NET GAIN (LOSS) 287,001,422
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 306,639,532
OTHER INFORMATION $ 139,173
EXPENSE REDUCTIONS
DIRECTED BROKERAGE ARRANGEMENTS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
OPERATIONS $ 19,638,110 $ 29,647,363
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 78,214,448 117,046,383
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 208,786,974 58,363,873
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 306,639,532 205,057,619
DISTRIBUTIONS TO SHAREHOLDERS (37,913,891) (29,012,812)
FROM NET INVESTMENT INCOME
FROM NET REALIZED GAIN (111,746,114) (115,172,073)
TOTAL DISTRIBUTIONS (149,660,005) (144,184,885)
SHARE TRANSACTIONS - NET INCREASE (DECREASE) 179,830,598 198,779,377
TOTAL INCREASE (DECREASE) IN NET ASSETS 336,810,125 259,652,111
NET ASSETS
BEGINNING OF PERIOD 1,927,253,349 1,667,601,238
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $10,033,841 AND $ 2,264,063,474 $ 1,927,253,349
$16,641,512, RESPECTIVELY)
</TABLE>
OTHER INFORMATION:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1998
SHARES DOLLARS YEAR ENDED DECEMBER 31, 1997
(UNAUDITED) SHARES DOLLARS
SHARE TRANSACTIONS 39,640,183 $ 799,732,732 51,240,982 $ 973,125,045
INITIAL CLASS
SOLD
REINVESTED 7,943,863 149,503,507 8,319,959 144,184,885
REDEEMED (38,895,920) (784,247,705) (47,764,686) (919,455,709)
NET INCREASE (DECREASE) 8,688,126 $ 164,988,534 11,796,255 $ 197,854,221
SERVICE CLASS A 724,376 $ 14,751,265 48,794 $ 931,087
SOLD
REINVESTED 8,320 156,588 - -
REDEEMED (3,237) (65,789) (308) (5,931)
NET INCREASE (DECREASE) 729,459 $ 14,842,064 48,486 $ 925,156
DISTRIBUTIONS $ 37,874,222 $ 29,012,812
INITIAL CLASS - NET INVESTMENT INCOME
INITIAL CLASS - NET REALIZED GAIN 111,629,195 115,172,073
TOTAL $ 149,503,417 $ 144,184,885
SERVICE CLASS - NET INVESTMENT INCOME $ 39,669 $ -
SERVICE CLASS - NET REALIZED GAIN 116,919 -
TOTAL $ 156,588 $ -
$ 149,660,005 $ 144,184,885
A SERVICE CLASS COMMENCED SALE OF SHARES NOVEMBER 3, 1997.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
SIX MONTHS ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 1998
SELECTED PER-SHARE DATA (UNAUDITED) 1997 1996 1995 1994 1993
NET ASSET VALUE, BEGINNING OF PERIOD $ 19.20 $ 18.84 $ 17.06 $ 15.67 $ 15.48 $ 11.53
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME .18 E .30 E .32 D, E .17 .19 .06
NET REALIZED AND UNREALIZED GAIN (LOSS) 2.74 1.70 1.88 1.34 .08 4.16
TOTAL FROM INVESTMENT OPERATIONS 2.92 2.00 2.20 1.51 .27 4.22
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.38) (.33) (.20) (.06) (.08) (.18)
IN EXCESS OF NET INVESTMENT INCOME - - - - - (.04)
FROM NET REALIZED GAIN (1.12) (1.31) (.22) (.02) - -
IN EXCESS OF NET REALIZED GAIN - - - (.04) - (.05)
TOTAL DISTRIBUTIONS (1.50) (1.64) (.42) (.12) (.08) (.27)
NET ASSET VALUE, END OF PERIOD $ 20.62 $ 19.20 $ 18.84 $ 17.06 $ 15.67 $ 15.48
TOTAL RETURN B, C 15.96% 11.56% 13.15% 9.74% 1.72% 37.35%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $2,248,026 $1,926,322 $1,667,601 $1,343,134 $1,297,701 $777,961
RATIO OF EXPENSES TO AVERAGE NET ASSETS .92% A .92% .93% .91% .92% 1.03%
RATIO OF EXPENSES TO AVERAGE NET ASSETS
AFTER EXPENSE REDUCTIONS .91% A, G .90% G .92% G .91% .92% 1.03%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 1.86% A 1.55% 1.84% 1.88% 1.28% 1.21%
PORTFOLIO TURNOVER 66% A 67% 92% 50% 42% 42%
AVERAGE COMMISSION RATE H $ .0077 $ .0092 $ .0137
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
FINANCIAL HIGHLIGHTS - SERVICE CLASS
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1997 F
NET ASSET VALUE, BEGINNING OF PERIOD $ 19.20 $ 19.36
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME .22 E .01 E
NET REALIZED AND UNREALIZED GAIN (LOSS) 2.69 (.17)
TOTAL FROM INVESTMENT OPERATIONS 2.91 (.16)
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.38) -
FROM NET REALIZED GAIN (1.12) -
TOTAL DISTRIBUTIONS (1.50) -
NET ASSET VALUE, END OF PERIOD $ 20.61 $ 19.20
TOTAL RETURN B, C 15.90% (.83)%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 16,037 $ 931
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.02% A 1.02% A
RATIO OF EXPENSES TO AVERAGE NET ASSETS AFTER EXPENSE REDUCTIONS 1.01% A, G 1.01% A, G
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 2.25% A .31% A
PORTFOLIO TURNOVER 66% A 67%
AVERAGE COMMISSION RATE H $ .0077 $ .0092
A ANNUALIZED
B TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO
YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION
OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS SHOWN.
TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE
NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN
(SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
D INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL DIVIDEND
WHICH AMOUNTED TO $.05 PER SHARE.
E NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED
BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
F FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF SALE
OF SERVICE CLASS SHARES) TO DECEMBER 31, 1997.
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS
WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION
OF THE CLASS' EXPENSES (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
H FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995,
A FUND IS REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE
PER SHARE FOR SECURITY TRADES ON WHICH COMMISSIONS ARE
CHARGED. THIS AMOUNT MAY VARY FROM PERIOD TO PERIOD AND FUND
TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN VARIOUS
MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE
STRUCTURES MAY DIFFER.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 1998 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES.
Overseas Portfolio (the fund) is a fund of Variable Insurance Products
Fund (the trust) and is authorized to issue an unlimited number of
shares. The trust is registered under the Investment Company Act of
1940, as amended (the 1940 Act), as an open-end management investment
company organized as a Massachusetts business trust. Shares of the
fund may only be purchased by insurance companies for the purpose of
funding variable annuity or variable life insurance contracts. The
fund offers two classes of shares: the fund's original class of shares
(Initial Class shares) and Service Class shares. Both classes have
equal rights and voting privileges, except for matters affecting a
single class. Investment income, realized and unrealized capital gains
and losses, the common expenses of the fund, and certain fund-level
expense reductions, if any, are allocated on a pro rata basis to each
class based on the relative net assets of each class to the total net
assets of the fund. Each class of shares differs in its respective
distribution plan.
The financial statements have been prepared in conformity with
generally accepted accounting principles which require management to
make certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. Securities for which quotations are readily
available are valued at the last sale price, or if no sale price, at
the closing bid price in the principal market in which such securities
are normally traded. If trading or events occurring in other markets
after the close of the principal market in which securities are traded
is expected to materially affect the value of those securities, then
they are valued at their fair value taking this trading or these
events into account. Fair value is determined in good faith under
consistently applied procedures under the general supervision of the
Board of Trustees. Securities (including restricted securities) for
which quotations are not readily available are valued primarily using
dealer-supplied valuations or at their fair value. Short-term
securities with remaining maturities of sixty days or less for which
quotations are not readily available are valued at amortized cost or
original cost plus accrued interest, both of which approximate current
value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
date and settlement on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or
loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
U.S. federal income taxes to the extent that it distributes
substantially all of its taxable income for its fiscal year. The fund
may be subject to foreign taxes on income and gains on investments
which are accrued based upon the fund's understanding of the tax rules
and regulations that exist in the markets in which it invests. The
fund accrues such taxes as applicable. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend
date, except certain dividends from foreign securities where the
ex-dividend date may have passed, are recorded as soon as the fund is
informed of the ex-dividend date. Non-cash dividends included in
dividend income, if any, are recorded at the fair market value of the
securities received. Interest income, which includes accretion of
original issue discount, is accrued as earned. Investment income is
recorded net of foreign taxes withheld where recovery of such taxes is
uncertain.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
DEFERRED TRUSTEE COMPENSATION. Under a Deferred Compensation Plan (the
Plan) non-interested Trustees must defer receipt of a portion of, and
may elect to defer receipt of an additional portion of, their annual
compensation. Under the Plan, deferred amounts are treated as though
equivalent dollar amounts had been invested in shares of a
cross-section of Fidelity funds, including shares of the fund.
Deferred amounts remain in the fund until distributed in accordance
with the Plan.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date. Income dividends and capital gain distributions are
declared separately for each class.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for futures and options transactions, foreign currency
transactions, passive foreign investment companies and losses deferred
due to wash sales.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions
may include temporary book and tax basis differences which will
reverse in a subsequent period. Any taxable income or gain remaining
at fiscal year end is distributed in the following year.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with
other affiliated entities of Fidelity Management & Research Company
(FMR), may transfer uninvested cash balances into one or more joint
trading accounts. These balances are invested in one or more
repurchase agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
TAXABLE CENTRAL CASH FUND. Pursuant to an Exemptive Order issued by
the SEC, the fund may invest in the Taxable Central Cash Fund (the
Cash Fund) managed by Fidelity Investments Money Management, Inc.,
(formerly FMR Texas, Inc.) an affiliate of FMR. The Cash Fund is an
open-end money market fund available only to investment companies and
other accounts managed by FMR and its affiliates. The Cash Fund seeks
preservation of capital, liquidity, and current income by investing in
U.S. Treasury securities and repurchase agreements for these
securities. Income distributions from the Cash Fund are declared daily
and paid monthly from net interest income. Income distributions earned
by the fund are recorded as interest income in the accompanying
financial statements.
FUTURES CONTRACTS. The fund may use futures contracts to manage its
exposure to the stock market and to fluctuations in currency values.
Buying futures tends to increase the fund's exposure to the underlying
instrument, while selling futures tends to decrease the fund's
exposure to the underlying instrument or hedge other fund investments.
Futures contracts involve, to varying degrees, risk of loss in excess
of the futures variation margin reflected in the Statement of Assets
and Liabilities. The underlying face amount at value of any open
futures contracts at period end is shown in the schedule of
investments under the caption "Futures Contracts." This amount
reflects each contract's exposure to the underlying instrument at
period end. Losses may arise from changes in the value of the
underlying instruments or if the counterparties do not perform under
the contracts' terms. Gains (losses) are realized upon the expiration
or closing of the futures contracts. Futures contracts are valued at
the settlement price established each day by the board of trade or
exchange on which they are traded.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the fund had no investments in restricted
securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Information regarding purchases and sales of securities (other than
short-term securities), the market value of future contracts opened
and closed, is included under the caption "Other Information" at the
end of the fund's schedule of investments.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .2500% to .5200% for the
period. The annual individual fund fee rate is .45%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annualized rate of .75% of average net
assets.
SUB-ADVISER FEE. FMR, on behalf of the fund, entered into sub-advisory
agreements with Fidelity Management & Research (U.K.) Inc., Fidelity
Management & Research (Far East) Inc., and Fidelity International
Investment Advisors (FIIA). In addition, FIIA entered into a
sub-advisory agreement with its subsidiary, Fidelity International
Investment Advisors (U.K.) Limited (FIIA(U.K.)L). Under the
sub-advisory arrangements, FMR may receive investment advice and
research services and may grant the sub-advisers investment management
authority to buy and sell securities. FMR pays its sub-advisers either
a portion of its management fee or a fee based on costs incurred for
these services. FIIA pays (FIIA(U.K.)L) a fee based on costs incurred
for either service.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the
1940 Act, the Trustees have adopted separate distribution plans with
respect to each class of shares (collectively referred to as "the
Plans"). Under the Service Class Plan, the class pays Fidelity
4. FEES AND OTHER TRANSACTIONS WITH
AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN - CONTINUED
Distributors Corporation (FDC), an affiliate of FMR, a distribution
and service fee (12b-1 fee). This fee is based on an annual rate of
.10% of Service Class average net assets. Initial Class shares are not
subject to a 12b-1 fee.
For the period, Service Class paid FDC $3,294, all of which was
reallowed to insurance companies, for the distribution of shares and
providing shareholder support services.
Under the Plans, FMR may use its resources to pay administrative and
promotional expenses related to the sale of each class of shares.
Subject to the approval of the Board of Trustees, the Plans also
authorize payments to third parties that assist in the sale of each
class of shares or render shareholder support services. For the
period, payments made to third parties under the Plans amounted to
$499,362 and $3,444 for the Initial Class and Service Class,
respectively.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc. (FIIOC), an affiliate of FMR, is the fund's transfer,
dividend disbursing and shareholder servicing agent. FIIOC receives
account fees and asset-based fees that vary according to account size
and type of account. FIIOC pays a portion of the expenses related to
the typesetting, printing and mailing of all shareholder reports,
except for proxy statements. For the period, the transfer agent fees
were equivalent to an annualized rate of .07% of average net assets.
ACCOUNTING FEES. Fidelity Service Company, Inc. (FSC), an affiliate of
FMR, maintains the fund's accounting records. The fee is based on the
level of average net assets for the month plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms are shown under the caption
"Other Information" at the end of the fund's schedule of investments
5. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a
portion of the fund's expenses.
For the period, the reduction under this arrangement is shown under
the caption "Other Information" on the fund's Statement of Operations.
6. BENEFICIAL INTEREST.
At the end of the period, Fidelity Investments Life Insurance Company
(FILI) and its subsidiaries, affiliates of FMR, were the record owners
of approximately 14% of the outstanding shares of the fund. In
addition, one unaffiliated insurance company was record owner of 36%
of the total outstanding shares of the fund.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (U.K.) Inc.,
London, England
Fidelity Management & Research (Far East) Inc.,
Tokyo, Japan
Fidelity International Investment Advisors
Pembroke, Bermuda
Fidelity International Investment Advisors (U.K.) Limited
Kent, England
OFFICERS
Edward C. Johnson 3d, PRESIDENT
Robert C. Pozen, SENIOR VICE PRESIDENT
Richard A. Spillane Jr., VICE PRESIDENT
Richard R. Mace Jr., VICE PRESIDENT
Eric D. Roiter, SECRETARY
Richard A. Silver, TREASURER
John H. Costello, ASSISTANT TREASURER
Leonard M. Rush, ASSISTANT TREASURER
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Thomas R. Williams *
* INDEPENDENT TRUSTEES
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER SERVICING AGENT
Fidelity Investments Institutional Operations Co., Inc.
Boston, MA
CUSTODIAN
The Chase Manhattan Bank
New York, NY
(2_FIDELITY_LOGOS)
VARIABLE INSURANCE PRODUCTS
FUND: EQUITY-INCOME PORTFOLIO
SEMIANNUAL REPORT
JUNE 30, 1998
CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
MARKET ENVIRONMENT 3 A REVIEW OF WHAT HAPPENED IN WORLD MARKETS DURING THE
PAST SIX MONTHS.
PERFORMANCE AND INVESTMENT SUMMARY 4 HOW THE FUND HAS DONE OVER TIME, AND AN OVERVIEW OF THE
FUND'S INVESTMENTS AT THE END OF THE PERIOD.
FUND TALK 5 THE MANAGER'S REVIEW OF FUND PERFORMANCE, STRATEGY
AND OUTLOOK.
INVESTMENTS 6 A COMPLETE LIST OF THE FUND'S INVESTMENTS WITH THEIR
MARKET VALUES.
FINANCIAL STATEMENTS 12 STATEMENTS OF ASSETS AND LIABILITIES, OPERATIONS, AND
CHANGES IN NET ASSETS, AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 15 NOTES TO THE FINANCIAL STATEMENTS.
</TABLE>
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND.
THIS REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR
ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT
INSURED BY THE FDIC, FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND
ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
MARKET ENVIRONMENT
With the exception of Asia and a number of emerging market economies,
most stock and bond markets around the world performed well during the
past six months. Despite an environment of ongoing financial and
political difficulties in Asian and emerging markets, the largest
blue-chip companies of Europe and the U.S. continued to post strong
performance. Throughout the period, investors sought the relative
stability and liquidity of more defensive large-cap stocks and highly
rated bond investments of developed countries, hoping these
investments would maintain steady earnings and be easier to sell in a
possible economic slowdown.
U.S. STOCK MARKETS
The U.S. stock market continued to perform well during the first six
months of 1998. The strong showing by the Standard & Poor's 500 Index,
however, was produced by a narrow contingent of large companies. In
fact, most of the Standard & Poor's 17.71% return for the six-month
period that ended June 30, 1998, came from these large-capitalization
stocks. The "narrow" market - one where a small number of stocks
perform well, and others are flat or produce losses - was further
demonstrated by the fact that 60% of all the companies on the New York
Stock Exchange declined during this period. During the first quarter
of 1998, a stable U.S. economy and a belief that the worst in Asia
might be over helped the stock market post strong gains. The S&P 500
index turned in a solid return of 13.95% through the end of March. The
S&P 500 and other market indexes continued to rally through May,
before falling sharply in mid-June amid renewed fears that Asia's
economic crisis would inhibit the growth in earnings of American
companies. In subsequent trading days, however, investors continued to
favor large-cap stocks, boosting the returns of the S&P 500 index
higher. During the second quarter of 1998, the S&P 500 index returned
3.30%, compared with a decline of 2.14% for the Standard & Poor's
MidCap 400 Index. Investors in small-cap stocks experienced a weak
second quarter as the Russell 2000 - a measure of small company stock
performance - lost 4.66%.
The pattern of a narrow market also was displayed in certain industry
groups. Pharmaceutical stocks performed well, helped by healthy
pipelines of new products, the ability to bring products to market
more rapidly and relaxed regulations that permitted more aggressive
advertising. Stable economic growth, coupled with nonexistent
inflation, buoyed the financial sector. Banks and brokerage houses
sustained impressive earnings growth; other financial services firms
benefited from merger and acquisition activity, exemplified by the
recently announced "megamerger" of Travelers and Citicorp.
While many technology stocks turned in very strong results, the sector
also experienced some mixed results over the past six months, due
primarily to the negative impact of the Asian crisis and the effect of
a strong dollar on foreign sales. Energy stocks also experienced weak
results, with the price of crude oil dipping below $12 dollars a
barrel near the end of June.
FOREIGN STOCK MARKETS
Overseas, blue-chip investments also performed well. While the Morgan
Stanley Capital International (MSCI) EAFE Index, which measures the
performance of Europe, Australasia, and the Far East, posted a solid
return of 16.05% for the six-month period, investors in developed
markets fared much better than those investing in troubled emerging
markets. The performance of the MSCI Pacific Index, however, lost
5.87% during the same period, emphasizing the negative impact Japan
and Hong Kong had on the MSCI EAFE index. Most economies in Europe
continued to thrive amidst an environment of relatively benign
inflation and reduced interest rates as many countries prepared for
the advent of the European Monetary Union in January 1999. Many
European companies embraced U.S.-style efficiencies through
restructuring and robust merger and acquisition activity. Over the
past six months, the MSCI Europe Index returned an impressive 26.66%.
Among the strongest European economies were Portugal, Spain, Italy and
the United Kingdom.
While the Japanese market showed signs of strength toward the end of
the period, Japanese stocks continued to suffer from eroding
confidence in the economy, bankruptcies and a depreciating currency.
The TOPIX Index - a measure of the Japanese market - was down 1.46%
over the six-month period. As economic and currency turmoil continued
in Asia, emerging markets also suffered during the period. The MSCI
Far East ex-Japan Free Index dropped 25.79% and the MSCI Emerging
Markets Free Index - a market capitalization weighted index of over
850 stocks traded in 22 world markets - was down 18.87% for the first
six months of 1998.
U.S. BOND MARKETS
Bond prices continued to move higher thanks to low interest rates and
a continued lack of inflationary pressure. The Lehman Brothers
Aggregate Bond Index - a broad gauge of the U.S. taxable bond market -
returned 3.93% during this six-month period. Against a backdrop of
continued economic woes in Asia and fears that U.S. corporate profits
would slow, investors from around the globe moved assets from stocks
and riskier bonds into highly rated corporate bonds and U.S.
Treasuries. As a result, bond yields, which move in the opposite
direction of bond prices, fell to their lowest levels in decades. The
yield on the benchmark 30-year bond fell to 5.62% from 5.93% during
the period. Mortgage-backed bonds experienced some weakness toward the
end of the period amid record mortgage refinancings.
FOREIGN BOND MARKETS
While U.S. based bonds topped most foreign bonds on the continued
strength of the U.S. dollar and benign inflation, the Salomon Brothers
World Government Bond Index - a measure of government bond market
performance in developed nations - returned 2.79% during the period.
Similar to foreign equities, however, it paid to be in the safer bond
sectors of developed countries and highly rated bonds. In comparison
to the World Government Bond Index, the J.P. Morgan Emerging Markets
Bond Index lost 0.25% during the first six months of 1998. Continued
turbulence in Japan as it struggled to initiate economic reforms
trickled into emerging markets and resulted in mixed results during
the period.
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED PAST 1 PAST 5 PAST 10
JUNE 30, 1998 YEAR YEARS YEARS
VIP: EQUITY-INCOME - "INITIAL CLASS" 21.65% 20.01% 15.74%
S&P 500 (REGISTERED TRADEMARK) 30.16% 23.08% 18.56%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare these figures to the performance of the Standard &
Poor's 500 Index - a widely recognized, unmanaged index of common
stocks. This benchmark reflects the reinvestment of dividends and
capital gains, if any.
UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for example,
has a history of long-term growth and short-term
volatility. In turn, the share price and return of a
fund that invests in stocks will vary. That means if
you sell your shares during a market downturn,
you might lose money. But if you can ride out the
market's ups and downs, you may have a gain.
(checkmark)
Figures for more than one year assume a steady compounded rate of
return and are not the fund's year-by-year results, which fluctuated
over the periods shown.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S
SEPARATE ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF
THESE ADDITIONAL CHARGES, THE TOTAL RETURNS WOULD HAVE BEEN LOWER.
Past performance is no guarantee of future results. Principal and
investment return will vary and you may have a gain or loss when you
withdraw your money.
$10,000 OVER THE PAST 10 YEARS
VIP EQUITY-INCOME S&P 500
00150 SP001
1988/06/30 10000.00 10000.00
1988/07/31 9981.88 9962.00
1988/08/31 9809.78 9623.29
1988/09/30 10101.27 10033.24
1988/10/31 10275.59 10312.17
1988/11/30 10110.45 10164.70
1988/12/31 10202.74 10342.59
1989/01/31 10832.89 11099.66
1989/02/28 10777.29 10823.28
1989/03/31 11010.72 11075.46
1989/04/30 11435.66 11650.28
1989/05/31 11775.62 12122.12
1989/06/30 11783.68 12053.02
1989/07/31 12470.67 13141.41
1989/08/31 12671.04 13398.98
1989/09/30 12528.59 13344.05
1989/10/31 11805.78 13034.46
1989/11/30 11873.25 13300.37
1989/12/31 11972.33 13619.58
1990/01/31 11163.78 12705.70
1990/02/28 11229.94 12869.61
1990/03/31 11248.46 13210.65
1990/04/30 10858.45 12880.38
1990/05/31 11576.88 14136.22
1990/06/30 11461.61 14040.10
1990/07/31 11181.30 13995.17
1990/08/31 10288.45 12730.00
1990/09/30 9490.36 12110.05
1990/10/31 9248.37 12057.98
1990/11/30 9911.22 12836.92
1990/12/31 10141.83 13195.07
1991/01/31 10685.72 13770.38
1991/02/28 11421.56 14754.96
1991/03/31 11658.49 15112.03
1991/04/30 11712.97 15148.30
1991/05/31 12355.82 15802.71
1991/06/30 11850.61 15078.94
1991/07/31 12522.44 15781.62
1991/08/31 12786.76 16155.65
1991/09/30 12699.00 15885.85
1991/10/31 12910.47 16098.72
1991/11/30 12353.98 15449.94
1991/12/31 13330.27 17217.41
1992/01/31 13510.26 16897.17
1992/02/29 13948.97 17116.83
1992/03/31 13778.05 16783.05
1992/04/30 14209.68 17276.48
1992/05/31 14323.26 17361.13
1992/06/30 14197.86 17102.45
1992/07/31 14632.96 17801.94
1992/08/31 14312.36 17437.00
1992/09/30 14460.93 17642.76
1992/10/31 14634.05 17704.51
1992/11/30 15164.94 18308.23
1992/12/31 15581.37 18533.42
1993/01/31 16046.49 18689.10
1993/02/28 16406.95 18943.27
1993/03/31 16895.89 19342.98
1993/04/30 16825.64 18874.88
1993/05/31 17130.07 19380.72
1993/06/30 17331.56 19436.93
1993/07/31 17567.36 19359.18
1993/08/31 18239.40 20092.89
1993/09/30 18169.67 19938.18
1993/10/31 18335.82 20350.90
1993/11/30 18015.39 20157.56
1993/12/31 18431.81 20401.47
1994/01/31 19243.57 21095.12
1994/02/28 18748.02 20523.44
1994/03/31 17963.70 19628.62
1994/04/30 18582.70 19879.87
1994/05/31 18759.56 20205.90
1994/06/30 18643.66 19710.85
1994/07/31 19266.39 20357.37
1994/08/31 20257.67 21192.02
1994/09/30 19925.79 20672.82
1994/10/31 20334.79 21137.95
1994/11/30 19670.17 20368.11
1994/12/31 19734.15 20670.17
1995/01/31 20042.70 21206.15
1995/02/28 20806.93 22032.55
1995/03/31 21525.39 22682.73
1995/04/30 22124.07 23350.74
1995/05/31 22790.79 24284.07
1995/06/30 23118.23 24848.19
1995/07/31 24007.92 25672.15
1995/08/31 24309.05 25736.59
1995/09/30 25116.09 26822.67
1995/10/31 24827.08 26726.92
1995/11/30 25900.54 27900.23
1995/12/31 26659.34 28437.59
1996/01/31 27434.08 29405.60
1996/02/29 27526.23 29678.19
1996/03/31 27815.98 29963.99
1996/04/30 28178.17 30405.66
1996/05/31 28482.40 31189.82
1996/06/30 28221.63 31308.66
1996/07/31 26845.32 29925.44
1996/08/31 27395.84 30556.57
1996/09/30 28569.33 32276.29
1996/10/31 29032.93 33166.47
1996/11/30 30974.25 35673.52
1996/12/31 30467.19 34966.83
1997/01/31 31655.16 37151.56
1997/02/28 32005.84 37442.83
1997/03/31 30816.27 35904.30
1997/04/30 31909.39 38047.79
1997/05/31 33886.65 40364.14
1997/06/30 35462.02 42172.45
1997/07/31 38050.14 45528.11
1997/08/31 36265.79 42977.63
1997/09/30 38259.12 45331.51
1997/10/31 36860.57 43817.44
1997/11/30 38210.89 45845.75
1997/12/31 39030.73 46632.92
1998/01/31 38934.28 47148.68
1998/02/28 41443.60 50549.04
1998/03/31 43363.24 53137.66
1998/04/30 43363.24 53672.23
1998/05/31 42660.51 52749.60
1998/06/30 43140.42 54892.29
IMATRL PRASUN SHR__CHT 19980630 19980709 112644 R00000000000123
Let's say hypothetically $10,000 was invested in Variable Insurance
Products Fund: Equity-Income Portfolio on June 30, 1988. As the chart
shows, by June 30, 1998, the value of the investment would have grown
to $43,140 - a 331.40% increase on the initial investment. For
comparison, look at how the Standard & Poor's 500 Index did over the
same period. With dividends and capital gains, if any, reinvested, the
same $10,000 investment would have grown to $54,892 - a 448.92%
increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE 30, 1998
% OF FUND'S
INVESTMENTS
GENERAL ELECTRIC CO. 3.3
CITICORP 1.9
FANNIE MAE 1.8
BRITISH PETROLEUM PLC ADR 1.6
PHILIP MORRIS COMPANIES, INC. 1.6
TOP FIVE MARKET SECTORS AS OF JUNE 30, 1998
% OF FUND'S
INVESTMENTS
FINANCE 25.6
ENERGY 11.1
UTILITIES 8.6
HEALTH 6.9
INDUSTRIAL MACHINERY & EQUIPMENT 6.8
ASSET ALLOCATION AS OF JUNE 30, 1998*
ROW: 1, COL: 1, VALUE: 96.09999999999999
ROW: 1, COL: 2, VALUE: 1.7
ROW: 1, COL: 3, VALUE: 2.2
STOCKS 96.1%
BONDS 1.7%
SHORT-TERM INVESTMENTS 2.2%
FOREIGN INVESTMENTS 10.3%
*
(% OF FUND'S INVESTMENTS)
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
An interview with
Steve Petersen, Portfolio Manager of Equity-Income Portfolio
Q. STEVE, HOW DID THE FUND PERFORM OVER THE PAST YEAR?
A. It performed well compared to similar funds. However, for the six-
and 12-month periods that ended June 30, 1998, the fund underperformed
the Standard & Poor's 500 Index, which returned 17.71% for the
six-month period and 30.16% for the 12-month period.
Q. AS WE'VE DISCUSSED IN THE PAST FEW REPORTS, THE S&P 500 HAS TENDED
TO OUTPERFORM THE FUND RECENTLY BECAUSE THE INDEX IS MUCH MORE HEAVILY
WEIGHTED IN LARGE-CAPITALIZATION STOCKS THAN THE FUND. DOES THIS
CONTINUE TO EXPLAIN THE FUND'S PERFORMANCE COMPARED TO THE S&P OVER
THIS PERIOD?
A. In part, yes. Over the period, large-capitalization stocks
continued to notably outperform the rest of the market. So, given the
fund's investment style of looking for value stocks and
income-producing stocks - which can range from large- to small-cap
stocks - the fund was at a disadvantage compared to the S&P over the
past 12 months. However, as I mentioned, the fund performed well
against its peer group over the same period. This was mostly due to
strong individual stock selection and the fund's focus on earning
income from common stocks rather than bonds, which underperformed
stocks over the period.
Q. SO, IF LARGE-CAP STOCKS HAVE DONE SO WELL RECENTLY, WHY DOESN'T THE
FUND HOLD ONLY THEM?
A. If I did hold just large-cap stocks, the fund's performance
probably would have been stronger over the short run. However, as I
just mentioned, that would be inconsistent with the fund's long-term
strategy, which encourages me to own stocks of several different
capitalization sizes. In general, I feel that if I continue with the
fund's investment style, the fund will catch any short-term market
trends over the long run.
Q. GOING BACK TO THE FUND'S PERFORMANCE COMPARED TO THE S&P, YOU
IMPLIED THAT THERE WERE OTHER REASONS THE FUND UNDERPERFORMED . . .
A. That's right. What probably hurt the fund the most was that the
energy sector - the fund's second-largest sector - was negatively
affected by declining oil prices. This was largely due to reduced
demand in the worldwide oil market, mostly from Asian countries still
stinging from last fall's correction. On top of that, weather
patterns, including a relatively mild U.S. winter, had a negative
impact on oil demand. The fund's top sector, finance, also had a
fairly rough period. Banks somewhat underperformed the market as a
result of a flurry of merger and acquisition activity in the early
part of the year. Investors were concerned that their ability to earn
an adequate return on the acquisitions was lessening as bank prices
kept getting bid up. In addition, larger money-center banks like
BankAmerica were somewhat hurt by their exposure to Asia. Economically
sensitive stocks, from basic industries to manufacturing businesses,
also suffered because of reduced demand from Asia.
Q. WHAT SPECIFIC HOLDINGS HELPED THE FUND?
A. General Electric - the fund's number one holding - showed solid
earnings growth, and I consider it one of the better-managed companies
around. Another strong performer was Citicorp. After a big price
run-up when Citicorp announced its upcoming merger with Travelers, its
stock price fell to pre-merger levels as the market was unwilling to
pay for the potential of the merger. Financially, we thought it made
sense to buy the stock at this lower price because of the planned
merger and because of cost-cutting steps Citicorp had recently taken.
Fannie Mae, which buys loans from mortgage originators, packages them
and sells them to investors, benefited from strong refinancing
activity at the beginning of the year.
Q. DID YOU HAVE ANY REGRETS OVER THE PERIOD?
A. Sure. I failed to recognize how low energy prices could go. I
thought it was a temporary issue, but I should have taken much more
aggressive action.
Q. STEVE, WHAT'S YOUR OUTLOOK GOING FORWARD?
A. In general, the underlying economic conditions in the U.S. remain
good. We have low inflation, low interest rates, low unemployment and
good consumer demand. In addition, the political environment is still
relatively benign, and the lack of major activity in Congress is good
for stock prices, since change often creates uncertainty. Despite good
news at home, I need to pay close attention to what's happening in
Asia - especially Japan and China - since events in this region could
negatively affect the U.S. economy going forward.
FUND FACTS
GOAL: to provide current income and increase the
value of the fund's shares over the long term
START DATE: October 9, 1986
SIZE: as of June 30, 1998, more than $11.7 billion
MANAGER: Stephen Petersen, since 1997, joined
Fidelity in 1980
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
INVESTMENTS JUNE 30, 1998 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 93.2%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 5.1%
AEROSPACE & DEFENSE - 3.0%
AlliedSignal, Inc. 1,867,500 $ 82,870,313
Gulfstream Aerospace Corp. (a) 127,400 5,924,100
Harsco Corp. 827,700 37,919,006
Lockheed Martin Corp. 673,103 71,264,780
Textron, Inc. 1,037,900 74,404,456
United Technologies Corp. 858,800 79,439,000
351,821,655
DEFENSE ELECTRONICS - 1.8%
Litton Industries, Inc. (a) 842,500 49,707,500
Northrop Grumman Corp. 725,500 74,817,188
Raytheon Co.:
Class A 19,131 1,102,424
Class B 1,551,800 91,750,175
217,377,287
SHIP BUILDING & REPAIR - 0.3%
General Dynamics Corp. 633,000 29,434,500
TOTAL AEROSPACE & DEFENSE 598,633,442
BASIC INDUSTRIES - 6.6%
CHEMICALS & PLASTICS - 3.4%
Air Products & Chemicals, Inc. 564,000 22,560,000
du Pont (E.I.) de Nemours & Co. 330,000 24,626,250
Great Lakes Chemical Corp. 766,800 30,240,675
Hanna (M.A.) Co. 684,200 12,529,413
Hercules, Inc. 772,400 31,764,950
Hoechst AG Ord. 491,100 24,269,793
IMC Global, Inc. 402,100 12,113,263
ICI (Imperial Chemical Industries)
PLC ADR Class L 261,800 16,886,100
Lawter International, Inc. 231,000 2,512,125
Millennium Chemicals, Inc. 401,400 13,597,425
Monsanto Co. 1,644,000 91,858,500
Octel Corp. 121,950 2,423,756
Olin Corp. 585,200 24,395,525
Solutia, Inc. 639,800 18,354,263
Union Carbide Corp. 856,400 45,710,350
Witco Corp. 973,400 28,471,950
402,314,338
IRON & STEEL - 0.4%
Dofasco Inc. 749,800 12,234,856
Inland Steel Industries, Inc. 862,900 24,322,994
USX-U.S. Steel Group 391,000 12,903,000
49,460,850
METALS & MINING - 1.1%
Alcan Aluminium Ltd. 1,400,000 38,630,557
Alumax, Inc. 363,125 16,839,922
Aluminum Co. of America 740,900 48,853,094
Kaiser Aluminum Corp. (a) 250,000 2,390,625
Noranda, Inc. 200,000 3,461,080
Phelps Dodge Corp. 339,200 19,398,000
129,573,278
PACKAGING & CONTAINERS - 0.1%
Corning, Inc. 98,900 3,436,775
Tupperware Corp. 89,100 2,505,938
5,942,713
PAPER & FOREST PRODUCTS - 1.6%
Boise Cascade Corp. 464,200 15,202,550
Champion International Corp. 640,500 31,504,594
SHARES VALUE (NOTE 1)
Domtar, Inc. 1,072,400 $ 7,196,825
Georgia-Pacific Corp. 556,600 32,804,613
Kimberly-Clark Corp. 1,318,200 60,472,425
Weyerhaeuser Co. 861,900 39,809,006
186,990,013
TOTAL BASIC INDUSTRIES 774,281,192
CONSTRUCTION & REAL ESTATE - 2.3%
BUILDING MATERIALS - 1.0%
American Standard Companies, Inc. (a) 579,300 25,887,469
Coltec Industries, Inc. (a) 1,371,600 27,260,550
Masco Corp. 1,045,400 63,246,700
116,394,719
ENGINEERING - 0.2%
EG & G, Inc. 389,900 11,697,000
Fluor Corp. 222,100 11,327,100
Foster Wheeler Corp. 301,800 6,469,838
29,493,938
REAL ESTATE INVESTMENT TRUSTS - 1.1%
Alexandria Real Estate Equities, Inc. 109,600 3,281,150
Crescent Real Estate Equities, Inc. 358,200 12,044,475
Duke Realty Investors, Inc. 100,200 2,373,488
Equity Office Properties Trust 416,800 11,826,700
Equity Residential Properties Trust (SBI) 300,000 14,231,250
Public Storage, Inc. 256,800 7,190,400
Starwood Hotels & Resorts Trust 1,502,681 72,598,276
Weeks Corp. 170,500 5,392,063
128,937,802
TOTAL CONSTRUCTION & REAL ESTATE 274,826,459
DURABLES - 2.9%
AUTOS, TIRES, & ACCESSORIES - 1.3%
Chrysler Corp. 142,000 8,005,250
Eaton Corp. 347,400 27,010,350
Ford Motor Co. 248,500 14,661,500
General Motors Corp. 300,000 20,043,750
Johnson Controls, Inc. 399,500 22,846,406
Meritor Automotive, Inc. 629,900 15,117,600
Navistar International Corp. 281,300 8,122,538
Snap-On Tools Corp. 32,000 1,157,517
TRW, Inc. 719,200 39,286,300
156,251,211
CONSUMER DURABLES - 0.6%
Minnesota Mining & Manufacturing Co. 821,900 67,549,906
CONSUMER ELECTRONICS - 0.4%
General Motors Corp. Class H 226,400 10,669,100
Maytag Co. 718,600 35,480,875
Sunbeam-Oster, Inc. 661,000 6,857,875
53,007,850
TEXTILES & APPAREL - 0.6%
Dexter Corp. 353,700 11,252,081
Intimate Brands, Inc. Class A 171,900 4,737,994
NIKE, Inc. Class B 484,200 23,574,488
Reebok International Ltd. (a) 687,700 19,040,694
Stride Rite Corp. 148,300 2,233,769
Unifi, Inc. 192,600 6,596,550
67,435,576
TOTAL DURABLES 344,244,543
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
ENERGY - 11.1%
ENERGY SERVICES - 0.8%
Dresser Industries, Inc. 271,700 $ 11,971,781
Halliburton Co. 650,000 28,965,625
Schlumberger Ltd. 812,000 55,469,750
96,407,156
OIL & GAS - 10.3%
Amerada Hess Corp. 709,400 38,529,288
Amoco Corp. 730,000 30,386,250
Anadarko Petroleum Corp. 195,100 13,108,281
Atlantic Richfield Co. 780,000 60,937,500
British Petroleum PLC:
Ord. 806,508 11,755,417
ADR 2,193,611 193,586,171
Burlington Resources, Inc. 795,000 34,234,688
Chevron Corp. 1,013,700 84,200,456
Coastal Corp. (The) 266,600 18,612,013
Elf Aquitaine SA sponsored ADR 319,400 22,677,400
Exxon Corp. 1,500,000 106,968,750
Kerr-McGee Corp. 164,500 9,520,438
Mobil Corp. 502,600 38,511,725
Occidental Petroleum Corp. 2,333,400 63,001,800
Pennzoil Co. 400,400 20,270,250
Phillips Petroleum Co. 645,500 31,105,031
Royal Dutch Petroleum Co. 2,267,500 124,287,344
Texaco, Inc. 1,160,000 69,237,500
Tosco Corp. 449,800 13,212,875
Total SA:
Class B 831,600 107,816,512
sponsored ADR 576,600 37,695,225
USX-Marathon Group 1,178,600 40,440,713
Ultramar Diamond Shamrock Corp. 358,800 11,324,625
Unocal Corp. 455,418 16,281,194
Valero Energy Corp. 246,700 8,202,775
1,205,904,221
TOTAL ENERGY 1,302,311,377
FINANCE - 24.0%
BANKS - 11.8%
Banc One Corp. 2,162,680 120,704,578
Bank of New York Co., Inc. 2,165,700 131,430,919
Bank of Nova Scotia 726,600 18,019,581
BankBoston Corp. 640,500 35,627,813
BankAmerica Corp. 1,733,400 149,830,763
Chase Manhattan Corp. 674,600 50,932,300
Citicorp 1,532,800 228,770,400
Comerica, Inc. 877,500 58,134,375
Credit Suisse Group (Reg.) 213,900 47,486,433
National Bank of Canada 2,211,200 43,312,553
National City Corp. 1,005,343 71,379,353
NationsBank Corp. 1,826,100 139,696,650
Norwest Corp. 1,457,800 54,485,275
Royal Bank of Canada 400,000 24,118,549
Societe Generale Class A 56,600 11,735,456
U.S. Bancorp 3,428,094 147,408,042
Wells Fargo & Co. 167,500 61,807,500
1,394,880,540
CREDIT & OTHER FINANCE - 4.3%
American Express Co. 1,255,172 143,089,608
AMP Ltd. 918,700 10,752,304
Associates First Capital Corp. Class A 769,828 59,180,532
SHARES VALUE (NOTE 1)
Beneficial Corp. 295,000 $ 45,190,313
First Chicago NBD Corp. 1,180,900 104,657,263
Fleet Financial Group, Inc. 686,800 57,347,800
Household International, Inc. 1,245,000 61,938,750
Transamerica Corp. 223,000 25,672,875
507,829,445
FEDERAL SPONSORED CREDIT - 2.0%
Freddie Mac 403,600 18,994,425
Fannie Mae 3,477,300 211,245,975
230,240,400
INSURANCE - 4.3%
Aetna, Inc. 227,800 17,341,275
Allstate Corp. 1,429,499 130,888,502
CIGNA Corp. 491,100 33,885,900
Edperbrascan Corp. Ltd., Class A (vtg.) 2,699,800 45,433,528
Fremont General Corp. 423,924 22,971,382
General Re Corp. 170,000 43,095,000
Hartford Financial Services Group, Inc. 663,300 75,864,938
Highlands Insurance Group, Inc. (a) 371,100 6,865,350
Marsh & McLennan Companies, Inc. 225,900 13,652,831
PMI Group, Inc. 198,200 14,542,925
Reliastar Financial Corp. 1,114,525 53,497,200
Torchmark Corp. 743,700 34,024,275
Travelers Property Casualty Corp. Class A 209,800 8,995,175
501,058,281
SAVINGS & LOANS - 0.8%
Washington Mutual, Inc. 2,186,985 94,997,161
SECURITIES INDUSTRY - 0.8%
First Marathon Inc. Class A (non-vtg.) 299,400 4,936,454
Lehman Brothers Holdings, Inc. 413,200 32,048,825
Travelers Group, Inc. (The) 961,749 58,306,033
95,291,312
TOTAL FINANCE 2,824,297,139
HEALTH - 6.9%
DRUGS & PHARMACEUTICALS - 4.7%
American Home Products Corp. 2,946,000 152,455,500
Barr Laboratories, Inc. (a)(d) 1,391,650 55,318,088
Bristol-Myers Squibb Co. 1,070,700 123,063,581
Merck & Co., Inc. 335,900 44,926,625
Novartis AG (Reg.) 25,200 41,838,382
Sankyo Co. Ltd. 917,000 20,857,409
Schering-Plough Corp. 1,288,200 118,031,325
556,490,910
MEDICAL EQUIPMENT & SUPPLIES - 1.0%
Allegiance Corp. 95,800 4,909,750
Bausch & Lomb, Inc. 250,000 12,531,250
Baxter International, Inc. 684,300 36,823,894
Johnson & Johnson 340,000 25,075,000
Pall Corp. 345,200 7,076,600
U.S. Surgical Corp. 740,907 33,803,882
120,220,376
MEDICAL FACILITIES MANAGEMENT - 1.2%
Beverly Enterprises, Inc. (a) 2,222,000 30,691,375
Columbia/HCA Healthcare Corp. 2,259,150 65,797,744
Humana, Inc. (a) 508,400 15,855,725
United HealthCare Corp. 476,600 30,264,100
142,608,944
TOTAL HEALTH 819,320,230
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
HOLDING COMPANIES - 0.2%
CINergy Corp. 415,000 $ 14,525,000
Cookson Group PLC 2,293,600 7,879,576
22,404,576
INDUSTRIAL MACHINERY & EQUIPMENT - 6.5%
ELECTRICAL EQUIPMENT - 3.8%
Alcatel Alsthom Compagnie Generale
d'Electricite SA 263,200 53,443,167
General Electric Co. 4,291,100 390,490,100
Loral Space & Communications Ltd. (a) 298,700 8,438,275
452,371,542
INDUSTRIAL MACHINERY & EQUIPMENT - 1.8%
Alstom SA 460,500 15,115,794
Cooper Industries, Inc. 194,300 10,674,356
Harnischfeger Industries, Inc. 397,100 11,242,894
Ingersoll-Rand Co. 665,400 29,319,188
Parker-Hannifin Corp. 375,000 14,296,875
Stewart & Stevenson Services, Inc. 514,400 9,259,200
Tyco International Ltd. 1,925,484 121,305,492
211,213,799
POLLUTION CONTROL - 0.9%
Browning-Ferris Industries, Inc. 1,037,298 36,046,106
Ogden Corp. 508,300 14,073,556
Waste Management, Inc. 1,491,100 52,188,500
102,308,162
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 765,893,503
MEDIA & LEISURE - 3.5%
BROADCASTING - 1.1%
Ascent Entertainment Group, Inc. (a) 22,964 255,475
CBS Corp. 1,421,600 45,135,800
Time Warner, Inc. 971,009 82,960,581
128,351,856
ENTERTAINMENT - 1.0%
King World Productions, Inc. (a) 409,400 10,439,700
MGM Grand, Inc. (a) 677,300 21,377,281
Viacom, Inc. Class B (non-vtg.) (a) 1,408,200 82,027,650
113,844,631
LEISURE DURABLES & TOYS - 0.1%
Brunswick Corp. 431,200 10,672,200
LODGING & GAMING - 0.1%
Circus Circus Enterprises, Inc. (a) 227,600 3,854,975
Mirage Resorts, Inc. (a) 518,400 11,048,400
14,903,375
PUBLISHING - 0.8%
ACNielsen Corp. 636,000 16,059,000
Cognizant Corp. 353,700 22,283,100
Dun & Bradstreet Corp. 368,800 13,322,900
Harcourt General, Inc. 561,700 33,421,150
Reader's Digest Association, Inc.
(The) Class A (non-vtg.) 426,700 11,574,238
96,660,388
RESTAURANTS - 0.4%
McDonald's Corp. 677,100 46,719,900
TOTAL MEDIA & LEISURE 411,152,350
SHARES VALUE (NOTE 1)
NONDURABLES - 5.9%
BEVERAGES - 0.3%
Anheuser-Busch Companies, Inc. 487,500 $ 23,003,906
Seagram Co. Ltd. 281,300 11,489,651
34,493,557
FOODS - 1.0%
Bestfoods 639,800 37,148,388
Corn Products International, Inc. (a) 401,625 13,605,047
General Mills, Inc. 384,450 26,286,769
Heinz (H.J.) Co. 393,500 22,085,188
Ralston Purina Co. 110,000 12,849,375
111,974,767
HOUSEHOLD PRODUCTS - 2.4%
Avon Products, Inc. 171,100 13,260,250
Clorox Co. 254,600 24,282,475
Dial Corp. 494,400 12,823,500
Gillette Co. 201,400 11,416,863
Premark International, Inc. 25,000 806,250
Procter & Gamble Co. 621,600 56,604,450
Rubbermaid, Inc. 941,900 31,259,306
Unilever PLC 6,821,600 72,581,319
Unilever NV:
Ord. 12,400 981,901
ADR 800,000 63,150,000
287,166,314
TOBACCO - 2.2%
Dimon, Inc. 358,200 4,029,750
Gallaher Group PLC sponsored ADR 922,600 20,181,875
Philip Morris Companies, Inc. 4,735,300 186,452,438
RJR Nabisco Holdings Corp. 1,873,700 44,500,375
UST, Inc. 211,000 5,697,000
260,861,438
TOTAL NONDURABLES 694,496,076
PRECIOUS METALS - 0.1%
Newmont Mining Corp. 685,400 16,192,575
RETAIL & WHOLESALE - 3.9%
APPAREL STORES - 0.8%
Charming Shoppes, Inc. (a) 612,800 2,910,800
Footstar, Inc. (a) 362,600 17,404,800
Limited, Inc. (The) 967,100 32,035,188
TJX Companies, Inc. 350,200 8,448,575
Venator Group, Inc. 2,061,200 39,420,450
100,219,813
GENERAL MERCHANDISE STORES - 2.8%
Consolidated Stores Corp. (a) 2,020,156 73,230,664
Dayton Hudson Corp. 280,000 13,580,000
Federated Department Stores, Inc. (a) 656,400 35,322,525
Hudson's Bay Co. Ord. 605,600 13,904,766
Hudson's Bay Co. (c) 302,500 6,945,495
Penney (J.C.) Co., Inc. 180,900 13,081,331
Wal-Mart Stores, Inc. 2,836,000 172,287,000
328,351,781
RETAIL & WHOLESALE, MISCELLANEOUS - 0.3%
School Specialty, Inc. 65,670 1,075,346
Tandy Corp. 443,200 23,517,300
Toys "R" Us, Inc. (a) 302,000 7,115,875
U.S. Office Products Co. (a) 147,759 2,881,301
34,589,822
TOTAL RETAIL & WHOLESALE 463,161,416
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
SERVICES - 1.0%
LEASING & RENTAL - 0.2%
Ryder Systems, Inc. 817,200 $ 25,792,875
PRINTING - 0.5%
Donnelley (R.R.) & Sons Co. 568,400 26,004,300
Harland (John H.) Co. 1,051,300 17,806,394
Wallace Computer Services, Inc. 483,700 11,487,875
Workflow Management, Inc. 78,804 635,357
55,933,926
SERVICES - 0.3%
Block (H & R), Inc. 499,600 21,045,650
Manpower, Inc. 397,300 11,397,544
Navigant International, Inc. 59,103 502,376
32,945,570
TOTAL SERVICES 114,672,371
TECHNOLOGY - 3.6%
COMPUTER SERVICES & SOFTWARE - 0.7%
Aztec Technology Partners, Inc. 118,207 901,328
Electronic Data Systems Corp. 1,326,800 53,072,000
First Data Corp. 550,200 18,328,538
NCR Corp. (a) 391,200 12,714,000
85,015,866
COMPUTERS & OFFICE EQUIPMENT - 2.1%
International Business Machines Corp. 532,300 61,117,152
Compaq Computer Corp. 124,173 3,523,409
Diebold, Inc. 267,600 7,726,950
Pitney Bowes, Inc. 1,582,000 76,133,750
Unisys Corp. (a) 3,018,317 85,267,455
Xerox Corp. 86,800 8,821,050
242,589,766
ELECTRONICS - 0.6%
AMP, Inc. 499,400 17,166,875
Motorola, Inc. 1,011,600 53,172,225
70,339,100
PHOTOGRAPHIC EQUIPMENT - 0.2%
Eastman Kodak Co. 226,400 16,541,350
Polaroid Corp. 339,300 12,066,356
28,607,706
TOTAL TECHNOLOGY 426,552,438
TRANSPORTATION - 1.3%
AIR TRANSPORTATION - 0.1%
Viad Corp. 275,800 7,653,450
RAILROADS - 1.2%
Burlington Northern Santa Fe Corp. 342,100 33,589,944
CSX Corp. 1,633,100 74,306,050
Norfolk Southern Corp. 1,158,000 34,522,875
142,418,869
TOTAL TRANSPORTATION 150,072,319
UTILITIES - 8.3%
ELECTRIC UTILITY - 2.7%
Allegheny Energy, Inc. 1,052,200 31,697,525
American Electric Power Co., Inc. 1,138,600 51,663,975
Central & South West Corp. 278,200 7,476,625
Central Maine Power Co. 602,500 11,748,750
CILCORP, Inc. 152,300 7,310,400
Consolidated Edison, Inc. 473,450 21,808,291
DPL, Inc. 955,950 17,326,594
SHARES VALUE (NOTE 1)
Duke Energy Corp. 297,200 $ 17,609,100
Entergy Corp. 1,573,800 45,246,750
FPL Group, Inc. 227,800 14,351,400
Illinova Corp. 227,100 6,813,000
Niagara Mohawk Power Corp. (a) 1,434,200 21,423,363
PG&E Corp. 1,072,878 33,862,712
PacifiCorp. 200,000 4,525,000
Pinnacle West Capital Corp. 472,600 21,267,000
314,130,485
GAS - 0.6%
MCN Energy Group, Inc. 877,800 21,835,275
Questar Corp. 1,584,300 31,091,888
Sempra Energy 429,184 11,909,856
Sonat, Inc. 345,300 13,337,213
78,174,232
TELEPHONE SERVICES - 5.0%
AT&T Corp. 2,136,000 122,019,000
ALLTEL Corp. 508,900 23,663,850
Ameritech Corp. 1,607,400 72,132,075
Bell Atlantic Corp. 2,266,640 103,415,450
BellSouth Corp. 1,136,400 76,280,850
GTE Corp. 783,000 43,554,375
MCI Communications Corp. 270,100 15,699,563
SBC Communications, Inc. 1,492,000 59,680,000
Sprint Corp. 312,500 22,031,250
WorldCom, Inc. (a) 953,800 46,199,688
584,676,101
TOTAL UTILITIES 976,980,818
TOTAL COMMON STOCKS
(Cost $8,045,181,255) 10,979,492,824
CONVERTIBLE PREFERRED STOCKS - 2.9%
CONSTRUCTION & REAL ESTATE - 0.0%
REAL ESTATE INVESTMENT TRUSTS - 0.0%
Vornado Realty Trust, Series A, $3.25 62,600 3,591,675
DURABLES - 0.0%
AUTOS, TIRES, & ACCESSORIES - 0.0%
Republic Industries, Inc. $1.55 219,200 5,260,800
FINANCE - 1.4%
CLOSED END INVESTMENT COMPANY - 0.1%
Readers Digest Association $1.93 TRACES 464,700 11,849,850
CREDIT & OTHER FINANCE - 0.3%
DECS Trust $2.01 DECS 93,000 1,278,750
Life Re Corp./ Life Re Capital Trust II $3.96 39,400 3,235,725
Union Pacific Capital Trust $3.13 TIDE (c) 384,500 17,975,375
WBK Trust $3.135 STRYPES 285,400 8,615,513
31,105,363
INSURANCE - 0.5%
Aetna, Inc. Class C 6.25%, PRIDES 760,000 57,095,000
Conseco, Inc. $3.50 PRIDES 171,800 9,105,400
66,200,400
SAVINGS & LOANS - 0.1%
Ahmanson (H.F.) & Co., Series D, $3.00 70,600 10,307,600
SECURITIES INDUSTRY - 0.4%
Salomon, Inc. $2.03 DECS 840,700 40,773,950
Salomon, Inc. $3.484 DECS 93,900 5,252,531
46,026,481
TOTAL FINANCE 165,489,694
CONVERTIBLE PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
INDUSTRIAL MACHINERY & EQUIPMENT - 0.3%
ELECTRICAL EQUIPMENT - 0.2%
Loral Space & Communications Ltd.,
Series C, $3.00 (c) 183,200 $ 13,877,400
Loral Space & Communications Ltd.,
Series C, $3.00 141,700 10,733,775
24,611,175
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
Ingersoll Rand Co./Ingersoll Rand Finance Co.
$0.19 Growth PRIDES 530,100 10,535,738
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 35,146,913
MEDIA & LEISURE - 0.6%
BROADCASTING - 0.5%
Evergreen Media Corp. $3.00 (c) 187,200 19,071,000
MediaOne Group, Inc. Class D $2.25 381,900 34,347,131
53,418,131
ENTERTAINMENT - 0.1%
Premier Parks, Inc. $4.05 PIES 273,300 17,354,550
TOTAL MEDIA & LEISURE 70,772,681
RETAIL & WHOLESALE - 0.1%
GENERAL MERCHANDISE STORES - 0.1%
K mart Financing I $3.875 100,000 7,000,000
SERVICES - 0.1%
Cendant Corp. $2.91 Growth PRIDES 288,100 8,336,894
TECHNOLOGY - 0.1%
COMPUTERS & OFFICE EQUIPMENT - 0.1%
Wang Laboratories, Inc. $3.25 (c) 80,000 4,425,000
Wang Laboratories, Inc. $3.25 157,600 8,402,050
12,827,050
UTILITIES - 0.3%
ELECTRIC UTILITY - 0.2%
Houston Industries, Inc. $3.215 ACES 285,500 21,269,750
GAS - 0.0%
MCN Energy Group, Inc. $4.00 PRIDES 25,100 1,151,463
TELEPHONE SERVICES - 0.1%
Enhance Financial Services Group, Inc.
$7.625 DECS 184,800 10,695,300
TOTAL UTILITIES 33,116,513
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $272,958,629) 341,542,220
CONVERTIBLE BONDS - 1.7%
CONSTRUCTION & REAL ESTATE - 0.3%
REAL ESTATE INVESTMENT TRUSTS - 0.3%
Liberty Property exchangeable
8%, 7/1/01 Ba2 27,985,000 35,768,328
DURABLES - 0.2%
AUTOS, TIRES, & ACCESSORIES - 0.1%
Magna International, Inc.
4 7/8%, 2/15/05 (c) Baa 5,900,000 6,526,875
CONSUMER ELECTRONICS - 0.1%
Matsushita Electric Industrial Co.
Ltd. 1.3%, 3/29/02 Aa2 JPY 452,000,000 4,457,209
MOODY'S PRINCIPAL VALUE
RATINGS AMOUNT (NOTE 1)
Matsushita Electric Industrial Co.
Ltd. 1.4%, 3/31/04 Aa2 JPY 209,000,000 $ 2,076,009
Sunbeam Corp. 0%,
3/25/18 (c) Caa2 60,290,000 13,640,613
20,173,831
TOTAL DURABLES 26,700,706
ENERGY - 0.1%
OIL & GAS - 0.1%
Pennzoil Co. 4 3/4%,10/1/03 Baa3 9,820,000 13,880,570
FINANCE - 0.2%
CREDIT & OTHER FINANCE - 0.1%
Bell Atlantic Financial Services, Inc.
5 3/4%, 4/1/03 (c) A1 14,140,000 14,475,825
INSURANCE - 0.1%
Loews Corp. 3 1/8%, 9/15/07 A2 4,320,000 3,931,200
TOTAL FINANCE 18,407,025
MEDIA & LEISURE - 0.3%
BROADCASTING - 0.0%
Jacor Communications, Inc.
0%, 2/9/18 B3 3,370,000 1,470,163
LODGING & GAMING - 0.0%
Hilton Hotels Corp.
5%, 5/15/06 Baa2 1,820,000 1,892,800
PUBLISHING - 0.3%
News America Holdings, Inc.
liquid yield option notes
0%, 3/11/13 Baa3 54,900,000 36,508,500
TOTAL MEDIA & LEISURE 39,871,463
RETAIL & WHOLESALE - 0.2%
DRUG STORES - 0.1%
Rite Aid Corp. 5 1/4%,
9/15/05 (c) Baa2 11,620,000 14,292,600
RETAIL & WHOLESALE, MISCELLANEOUS - 0.1%
Home Depot, Inc.
3 1/4%, 10/1/01 A1 5,000,000 9,162,500
TOTAL RETAIL & WHOLESALE 23,455,100
TECHNOLOGY - 0.4%
COMPUTERS & OFFICE EQUIPMENT - 0.2%
Apple Computer, Inc.
6%, 6/1/01 Caa1 11,150,000 12,871,281
Quantum Corp. 7%, 8/1/04 B2 7,730,000 7,353,163
20,224,444
ELECTRONICS - 0.2%
Micron Technology, Inc.
7%, 7/1/04 B1 13,983,000 13,065,366
Motorola, Inc. liquid yield
option notes 9/27/13 A1 16,420,000 11,842,925
24,908,291
TOTAL TECHNOLOGY 45,132,735
TOTAL CONVERTIBLE BONDS
(Cost $187,458,523) 203,215,927
CASH EQUIVALENTS - 2.2%
SHARES VALUE (NOTE 1)
Taxable Central Cash Fund (b)
(Cost $252,828,605) 252,828,605 $ 252,828,605
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $8,758,427,012) $ 11,777,079,576
SECURITY TYPE ABBREVIATIONS
ACES - Automatic Common Exchange Securities
DECS - Dividend Enhanced Convertible
Stock/Debt Exchangeable for Common Stock
PIES - Premium Income Equity
Securities
PRIDES - Preferred Redeemable Increased Dividend Equity Securities
STRYPES - Structured Yield Product Exchangeable for Common Stock
TIDES - Term Income Deferred Equity Securities
TRACES - Trust Automatic Common
Exchange Securities
CURRENCY ABBREVIATIONS
JPY - Japanese yen
LEGEND
(a) Non-income producing
(b) At period end, the seven-day yield of the Taxable Central Cash
Fund was 5.61%. The yield refers to the income earned by investing in
the fund over the seven-day period, expressed as an annual percentage.
(c) Security exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers.
At the period end, the value of these securities amounted to
$111,230,183 or .9% of net assets.
(d) Transactions during the period with companies which are or were
affiliates are as follows (See Note 7 of Notes to Financial
Statements):
PURCHASE SALES DIVIDEND VALUE
AFFILIATE COST COST INCOME
Barr Laboratories Inc.. $ - $ - $ - $ 55,318,088
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $2,022,543,641 and $1,137,035,606, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of FMR. The commissions paid to these
affiliated firms were $316,780 for the period (see Note 4 of Notes to
Financial Statements).
The composition of long-term debt holdings as a percentage of total
value of investment in securities, is as follows:
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 0.4% AAA, AA, A 0.4%
Baa 0.6% BBB 0.6%
Ba 0.3% BB 0.3%
B 0.2% B 0.2%
Caa 0.2% CCC 0.1%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by Moody's or S&P amounted to 0.0%.
Distribution of investments by country of issue, as a percentage of
total value of investment in securities, is as follows:
United States 89.7%
United Kingdom 2.7
France 2.1
Canada 2.0
Netherlands 1.6
Others (individually less than 1%) 1.9
TOTAL 100.0%
INCOME TAX INFORMATION
At June 30, 1998, the aggregate cost of investment securities for
income tax purposes was $8,765,724,302. Net unrealized appreciation
aggregated $3,011,355,274, of which $3,290,287,130 related to
appreciated investment securities and $278,931,856 related to
depreciated investment securities.
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
FINANCIAL STATEMENTS
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STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (COST $8,758,427,012) - $ 11,777,079,576
SEE ACCOMPANYING SCHEDULE
CASH 51,187
RECEIVABLE FOR INVESTMENTS SOLD 22,103,261
RECEIVABLE FOR FUND SHARES SOLD 10,322,876
DIVIDENDS RECEIVABLE 18,763,721
INTEREST RECEIVABLE 3,863,584
OTHER RECEIVABLES 537,415
TOTAL ASSETS 11,832,721,620
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 30,915,607
PAYABLE FOR FUND SHARES REDEEMED 7,119,587
ACCRUED MANAGEMENT FEE 4,719,356
DISTRIBUTION FEES PAYABLE 8,991
OTHER PAYABLES AND 840,375
ACCRUED EXPENSES
TOTAL LIABILITIES 43,603,916
NET ASSETS $ 11,789,117,704
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 8,453,792,741
UNDISTRIBUTED NET INVESTMENT INCOME 86,904,929
ACCUMULATED UNDISTRIBUTED 229,824,649
NET REALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 3,018,595,385
AND ASSETS AND LIABILITIES IN FOREIGN CURRENCIES
NET ASSETS $ 11,789,117,704
INITIAL CLASS: $25.17
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER
SHARE ($11,665,025,976 (DIVIDED BY)
463,367,268 SHARES)
SERVICE CLASS: $25.16
NET ASSET VALUE AND OFFERING PRICE
PER SHARE ($124,091,728 (DIVIDED BY)
4,931,725 SHARES)
</TABLE>
<TABLE>
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STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
INVESTMENT INCOME $ 105,364,076
DIVIDENDS
INTEREST 15,727,694
TOTAL INCOME 121,091,770
EXPENSES
MANAGEMENT FEE $ 27,321,754
TRANSFER AGENT FEES 3,810,938
DISTRIBUTION FEES - SERVICE CLASS 26,530
ACCOUNTING FEES AND EXPENSES 424,175
NON-INTERESTED TRUSTEES' COMPENSATION 32,573
CUSTODIAN FEES AND EXPENSES 153,260
REGISTRATION FEES 98,096
AUDIT 79,793
LEGAL 62,982
MISCELLANEOUS 262,324
TOTAL EXPENSES BEFORE REDUCTIONS 32,272,425
EXPENSE REDUCTIONS (361,660) 31,910,765
NET INVESTMENT INCOME 89,181,005
REALIZED AND UNREALIZED
GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
INVESTMENT SECURITIES 240,690,852
FOREIGN CURRENCY TRANSACTIONS (480,201) 240,210,651
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
INVESTMENT SECURITIES 756,221,732
ASSETS AND LIABILITIES IN (40,910) 756,180,822
FOREIGN CURRENCIES
NET GAIN (LOSS) 996,391,473
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 1,085,572,478
OTHER INFORMATION $ 358,010
EXPENSE REDUCTIONS
DIRECTED BROKERAGE ARRANGEMENTS
CUSTODIAN CREDITS 3,650
$ 361,660
</TABLE>
<TABLE>
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STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
OPERATIONS $ 89,181,005 $ 140,172,499
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 240,210,651 516,594,647
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 756,180,822 1,401,296,210
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 1,085,572,478 2,058,063,356
DISTRIBUTIONS TO SHAREHOLDERS (143,408,215) (119,523,328)
FROM NET INVESTMENT INCOME
FROM NET REALIZED GAIN (510,364,528) (602,923,285)
TOTAL DISTRIBUTIONS (653,772,743) (722,446,613)
SHARE TRANSACTIONS - NET INCREASE (DECREASE) 1,245,248,072 1,815,363,131
TOTAL INCREASE (DECREASE) IN NET ASSETS 1,677,047,807 3,150,979,874
NET ASSETS
BEGINNING OF PERIOD 10,112,069,897 6,961,090,023
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME
OF $86,904,929 AND $140,172,474, RESPECTIVELY) $ 11,789,117,704 $ 10,112,069,897
</TABLE>
<TABLE>
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OTHER INFORMATION:
SIX MONTHS ENDED JUNE 30, 1998
SHARES DOLLARS YEAR ENDED DECEMBER 31, 1997
(UNAUDITED) SHARES DOLLARS
SHARE TRANSACTIONS 40,552,249 $ 1,004,072,133 81,081,134 $ 1,787,907,743
INITIAL CLASS
SOLD
REINVESTED 27,884,675 652,780,247 36,487,203 722,446,589
REDEEMED (21,327,703) (528,825,194) (32,291,523) (700,239,679)
NET INCREASE (DECREASE) 47,109,221 $ 1,128,027,186 85,276,814 $ 1,810,114,653
SERVICE CLASS A 4,676,336 116,393,684 222,682 5,321,346
SOLD
REINVESTED 42,396 992,496 - -
REDEEMED (6,500) (165,294) (3,189) (72,868)
NET INCREASE (DECREASE) 4,712,232 $ 117,220,886 219,493 $ 5,248,478
DISTRIBUTIONS $ 143,190,506 $ 119,523,328
INITIAL CLASS - NET INVESTMENT INCOME
INITIAL CLASS - NET REALIZED GAIN 509,589,741 602,923,285
TOTAL $ 652,780,247 $ 722,446,613
SERVICE CLASS - NET INVESTMENT INCOME $ 217,709 -
SERVICE CLASS - NET REALIZED GAIN 774,787 -
TOTAL $ 992,496 $ -
$ 653,772,743 $ 722,446,613
1. SERVICE CLASS COMMENCED SALE OF SHARES NOVEMBER 3, 1997.
</TABLE>
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FINANCIAL HIGHLIGHTS - INITIAL CLASS
SIX MONTHS ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 1998
SELECTED PER-SHARE DATA (UNAUDITED) 1997 1996 1995 1994 1993
NET ASSET VALUE, BEGINNING OF PERIOD $24.28 $21.03 $19.27 $15.35 $15.44 $13.40
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME .20 D .36 D .35 .41 .41 .37
NET REALIZED AND UNREALIZED GAIN (LOSS) 2.24 5.06 2.30 4.69 .64 2.06
TOTAL FROM INVESTMENT OPERATIONS 2.44 5.42 2.65 5.10 1.05 2.43
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.34) (.36) (.03) (.40) (.37) (.35)
IN EXCESS OF NET INVESTMENT INCOME - - - - - (.04)
FROM NET REALIZED GAIN (1.21) (1.81) (.86) (.78) (.77) -
TOTAL DISTRIBUTIONS (1.55) (2.17) (.89) (1.18) (1.14) (.39)
NET ASSET VALUE, END OF PERIOD $25.17 $24.28 $21.03 $19.27 $15.35 $15.44
TOTAL RETURN B, C 10.53% 28.11% 14.28% 35.09% 7.07% 18.29%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $11,665,026 $10,106,742 $6,961,090 $4,879,435 $2,284,412 $1,318,500
RATIO OF EXPENSES TO AVERAGE NET ASSETS .59% A .58% .58% .61% .60% .62%
RATIO OF EXPENSES TO AVERAGE NET ASSETS
AFTER EXPENSE REDUCTIONS .58% A, F .57% F .56% F .61% .58% F .62%
RATIO OF NET INVESTMENT INCOME TO AVERAGE
NET ASSETS 1.62% A 1.65% 1.97% 2.56% 2.83% 2.87%
PORTFOLIO TURNOVER 22% A 44% 186% 87% 134% 120%
AVERAGE COMMISSION RATE G $ .0419 $ .0440 $ .0426
</TABLE>
<TABLE>
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FINANCIAL HIGHLIGHTS - SERVICE CLASS
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1997 E
NET ASSET VALUE, BEGINNING OF PERIOD $ 24.27 $ 23.44
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME .19 D .05 D
NET REALIZED AND UNREALIZED GAIN (LOSS) 2.25 .78
TOTAL FROM INVESTMENT OPERATIONS 2.44 .83
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.34) -
FROM NET REALIZED GAIN (1.21) -
TOTAL DISTRIBUTIONS (1.55) -
NET ASSET VALUE, END OF PERIOD $ 25.16 $ 24.27
TOTAL RETURN B, C 10.53% 3.54%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 124,092 $ 5,328
RATIO OF EXPENSES TO AVERAGE NET ASSETS .69% A .68% A
RATIO OF EXPENSES TO AVERAGE NET ASSETS AFTER EXPENSE REDUCTIONS .68% A, F .65% A, F
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 1.60% A 1.63% A
PORTFOLIO TURNOVER 22% A 44%
AVERAGE COMMISSION RATE G $ .0419 $ .0440
A ANNUALIZED
B TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR
INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE
CHARGES WOULD REDUCE THE TOTAL RETURNS SHOWN. TOTAL RETURNS
FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES
NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES
TO FINANCIAL STATEMENTS).
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON
AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF SALE OF SERVICE
CLASS SHARES) TO DECEMBER 31, 1997.
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES
(SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
G A FUND IS REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER
SHARE FOR SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS
AMOUNT MAY VARY FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING
ON THE MIX OF TRADES EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES
AND COMMISSION RATE STRUCTURES MAY DIFFER.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 1998 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES.
Equity-Income Portfolio (the fund) is a fund of Variable Insurance
Products Fund (the trust) and is authorized to issue an unlimited
number of shares. The trust is registered under the Investment Company
Act of 1940, as amended (the 1940 Act), as an open-end management
investment company organized as a Massachusetts business trust. Shares
of the fund may only be purchased by insurance companies for the
purpose of funding variable annuity or variable life insurance
contracts. The fund offers two classes of shares: the funds' original
class of shares (Initial Class shares) and Service Class shares. Both
classes have equal rights and voting privileges, except for matters
affecting a single class. Investment income, realized and unrealized
capital gains and losses, the common expenses of the fund, and certain
fund-level expense reductions, if any, are allocated on a pro rata
basis to each class based on the relative net assets of each class to
the total net assets of the fund. Each class of shares differs in its
respective distribution plan.
The financial statements have been prepared in conformity with
generally accepted accounting principles which require management to
make certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. Securities for which exchange quotations are
readily available are valued at the last sale price, or if no sale
price, at the closing bid price. Securities (including restricted
securities) for which exchange quotations are not readily available
(and in certain cases debt securities which trade on an exchange) are
valued primarily using dealer-supplied valuations or at their fair
value as determined in good faith under consistently applied
procedures under the general supervision of the Board of Trustees.
Short-term securities with remaining maturities of sixty days or less
for which quotations are not readily available are valued at amortized
cost or original cost plus accrued interest, both of which approximate
current value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts , disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
date and settlement on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or
loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend
date, except certain dividends from foreign securities where the
ex-dividend date may have passed, are recorded as soon as the fund is
informed of the ex-dividend date. Non-cash dividends included in
dividend income, if any, are recorded at the fair market value of the
securities received. Interest income is accrued as earned. Investment
income is recorded net of foreign taxes withheld where recovery of
such taxes is uncertain.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
DEFERRED TRUSTEE COMPENSATION. Under a Deferred Compensation Plan (the
Plan) non-interested Trustees must defer receipt of a portion of, and
may elect to defer receipt of an additional portion of, their annual
compensation. Under the Plan, deferred amounts are treated as though
equivalent dollar amounts had been invested in shares of a
cross-section of Fidelity funds, including shares of the fund.
Deferred amounts remain in the fund until distributed in accordance
with the Plan.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date. Income dividends and capital gain distributions are
declared separately for each class.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for foreign currency transactions, market discount and
losses deferred due to wash sales.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions
may include temporary book and tax basis differences which will
reverse in a subsequent period. Any taxable income or gain remaining
at fiscal year end is distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
2. OPERATING POLICIES - CONTINUED
FOREIGN CURRENCY CONTRACTS - CONTINUED
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with
other affiliated entities of Fidelity Management & Research Company
(FMR), may transfer uninvested cash balances into one or more joint
trading accounts. These balances are invested in one or more
repurchase agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
TAXABLE CENTRAL CASH FUND. Pursuant to an Exemptive Order issued by
the SEC, the fund may invest in the Taxable Central Cash Fund (the
Cash Fund) managed by Fidelity Investments Money Management, Inc.,
(formerly FMR Texas, Inc.) an affiliate of FMR. The Cash Fund is an
open-end money market fund available only to investment companies and
other accounts managed by FMR and its affiliates. The Cash Fund seeks
preservation of capital, liquidity, and current income by investing in
U.S. Treasury securities and repurchase agreements for these
securities. Income distributions from the Cash Fund are declared daily
and paid monthly from net interest income. Income distributions earned
by the fund are recorded as interest income in the accompanying
financial statements.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the fund had no investments in restricted
securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Information regarding purchases and sales of securities (other than
short-term securities), is included under the caption "Other
Information" at the end of the fund's schedule of investments.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .2500% to .5200% for the
period. The annual individual fund fee rate is .20%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annualized rate of .50% of average net
assets.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the
1940 Act, the Trustees have adopted separate distribution plans with
respect to each class of shares (collectively referred to as "the
Plans"). Under the Service Class Plan, the class pays Fidelity
Distributors Corporation (FDC), an affiliate of FMR, a distribution
and service fee (12b-1 fee). This fee is based on an annual rate of
.10% of Service Class average net assets. Initial Class shares are not
subject to a 12b-1 fee.
For the period, Service Class paid FDC $26,530, all of which was
reallowed to insurance companies, for the distribution of shares and
providing shareholder support services.
Under the Plans, FMR may use its resources to pay administrative and
promotional expenses related to the sale of each class of shares.
Subject to the approval of the Board of Trustees, the Plans also
authorize payments to third parties that assist in the sale of each
class of shares or render shareholder support services. For the
period, payments made to third parties under the Plans amounted to
$2,494,831 and $29,836 for the Initial Class and Service Class,
respectively.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc. (FIIOC), an affiliate of FMR, is the fund's transfer,
dividend disbursing and shareholder servicing agent. FIIOC receives
account fees and asset-based fees that vary according to account size
and type of account. FIIOC pays a portion of the expenses related to
the typesetting, printing and mailing of all shareholder reports,
except for proxy statements. For the period, the transfer agent fees
were equivalent to an annualized rate of .07% of average net assets.
ACCOUNTING FEES. Fidelity Service Company, Inc. (FSC), an affiliate of
FMR, maintains the fund's accounting records. The fee is based on the
level of average net assets for the month plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms are shown under the caption
"Other Information" at the end of the fund's schedule of investments
5. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a
portion of the fund's expenses.
In addition, the fund has entered into an arrangement with its
custodian whereby credits realized on uninvested cash balances were
used to offset a portion of certain funds' expenses.
For the period, the reductions under these arrangements are shown
under the caption "Other Information" on the fund's Statement of
Operations.
6. BENEFICIAL INTEREST.
At the end of the period, Fidelity Investments Life Insurance Company
(FILI) and its subsidiaries, affiliates of FMR, were the record owners
of approximately 17% of the outstanding shares of the fund. In
addition, one unaffiliated insurance company was record owner of 30%
of the total outstanding shares of the fund.
7. TRANSACTIONS WITH AFFILIATED COMPANIES.
An affiliated company is a company which the fund has ownership of at
least 5% of the voting securities. Information regarding transactions
with affiliated companies is under the caption "Legend" at the end of
the fund's schedule of investments.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, PRESIDENT
Robert C. Pozen, SENIOR VICE PRESIDENT
Richard A. Spillane, Jr., VICE PRESIDENT
Stephen R. Petersen, VICE PRESIDENT
Eric D. Roiter, SECRETARY
Richard A. Silver, TREASURER
John H. Costello, ASSISTANT TREASURER
Leonard M. Rush, ASSISTANT TREASURER
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Thomas R. Williams *
* INDEPENDENT TRUSTEES
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER SERVICING AGENT
Fidelity Investments Institutional Operations Company, Inc.
Boston, MA
CUSTODIAN
The Chase Manhattan Bank
New York, NY
